Is on-board duty free shopping really that profitable??

I’m sitting on the plane now about a third of the way across the Atlantic and the flight attendants are stowing the gear from the duty free sales efforts.  They made it through the cabin pretty quickly, so I’m guessing that there weren’t a ton of sales.  But even if there were, I’m having trouble believing that the whole thing makes sense for the airline.

The cart, along with its contents weighs about 200 pounds.  That’s a rough guess, but in the galley the slot for the duty free is labeled with that as a max weight, so I think that it is a fair guess.  In addition to the cart there is also a duty free catalog at each seat.  It is a pretty nice glossy, so that can’t be all that light, especially when there are 175 copies on the plane (for this 757; bigger planes will have more, and possibly a second cart, too, further adding to the weight).  So we’re looking at something around the same weight as a (larger than not) passenger in order to have the whole kit on board.  The cost to fly a passenger from Bristol to Newark is, based on a very rough calculation using average costs, about $300.  It is probably a bit less considering that planes operate better at cruise than for takeoff/landing and the 757-200 is actually a pretty efficient plane, but the flight is over 3300 miles, so there is a pretty decent cost component there.  And fuel is about 30-40% of the total cost of operating the flight these days, so that means that the hard cost for the duty free kit is probably somewhere in the $100-$150 range.  Again, just an estimate, but I also picked a shorter flight than not and I think that the number is reasonable enough.

So in order for the in-flight duty free to make sense the margins on the sales have to be sufficient to justify carrying the whole kit, or more than $100-150.  I’m sure that the margins are pretty ridiculous, but I have a hard time believing that they are much more than 25% on average.  And that puts the target at a minimum of ~$400 of gross sales to cover the costs for carrying the kit on board the flight.  I don’t pay a ton of attention to the sales on board, but it seems like that’s more than actually gets sold.  And there are additional costs beyond the fuel that the program has to incur.  There are accountants to track the money, folks stocking the carts and doing inventory in the warehouses, etc.  So maybe the break-even number is higher.  Of course, it could also be lower, but I’d be pretty surprised if it were.  Duty free does help to cover its costs through revenue generation, but in this age of a surcharge for just about everything, I can’t believe that the revenue generated on board is sufficient to keep it around for long. 

Airlines are doing everything they can to cut costs, including US Air removing their entertainment systems from a bunch of their planes, airlines removing (or not having) magazines, switching to plastic service ware from glass/metal, removing pillows & blankets, etc.  Is the duty free shopping the next to go?  Clearly I don’t actually have the real numbers to justify any of this analysis, just some rough estimates that are just as likely wrong as they are correct, but I have to think that the duty free is under the microscope right now, and possibly on the chopping block before too long. 

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.