In-flight catering is dominated by two giants: LSG Sky Chefs, which provides 578 million meals a year for 300 airlines and Gate Gourmet, which supplies 250 million meals a year at around 120 airports. Can smaller operators get a slice of the pie? David Smith looks into the kitchen.
A number of smaller companies are managing to compete with the majors and carve out niches in the in-flight catering market. These competitors use a variety of strategies to achieve their aims as there is no single solution.
One of the most successful of the smaller in-flight caterers is Toulouse, France-based Newrest, which has expanded at a frantic pace since it started operations as a global catering company in 2005. The Newrest in-flight network has 75 production units and 23 logistics centres in 30 countries, mainly in Africa, Europe, Latin America and Canada. It caters daily to 1,550 flights, delivering about 430,000 meals. Finding a way to compete with LSG Sky Chefs and Gate Gourmet has driven Newrest’s swift growth.
Pierre Brugère, vice president commercial and marketing, said: “To compete in the global market, we tend to target airports where at least one of the two major players is not present. Africa, one of our core markets, is a good example. Gate Gourmet is almost nowhere in Africa which means that in the English-speaking African nations, LSG is the only strong competitor. When there’s such a monopoly it provides opportunities for Newrest. It’s a similar scenario in the French-speaking African countries where Servair is pretty much the only competitor.
“Africa is also a relatively difficult market for political reasons and the supply of raw materials can be an issue. So many caterers are put off. But we’ve seized the opportunities and moved into Ghana, Nigeria, Uganda and other African countries. It’s a similar story in Latin America, another of our core markets, where we have been opening kitchens in Chile, Peru and Bolivia. What we offer is a more tailor-made relationship than the one the airlines might have with the larger in-flight caterers.”
A similar strategy was behind the decision to open a Newrest kitchen in Canada five years ago. Newrest received a request from two airlines it worked with elsewhere in the world to open a kitchen in Montreal. At the time there was a solitary catering competitor at the airport and so market conditions were favourable. Having established itself in Montreal, Newrest has a full kitchen, catering to all its major customers, including Qatar Airways, Air Algérie, Royal Air Maroc and the Canadian low-budget airline, Jazz.
“We were testing the Canadian market in Montreal and six months after we moved there we opened in Calgary,” said Brugère. “We recently opened a kitchen in Toronto and we’re applying for a licence to operate in Vancouver. If we are at the four major Canadian airports, it will give us ‘network advantages’. This means that if an airline launches a tender for multi-stations in Canada we can compete at the same level as any other caterer. If you are not at all stations it can put you in a weak position. This is a trend in airline catering and you even get tenders for multiple countries now, which can be a mixed blessing if one station performs so poorly that it places you in a lot of trouble.”
In Europe, an opportunity for Newrest arose when LSG Sky Chefs bought out the Gate Gourmet flight catering operations at Brussels Airport in Belgium in 2013. “The removal of one of the two majors meant there was a monopoly at quite a large airport so there was space for competition,” said Brugère. “We moved in to Brussels nine months ago. We’ve already got a couple of customers and in early November we signed a major account with the Belgian airline Jetairfly, which has one of the largest leisure fleets in Europe.”
Newrest has operations in Spain, France, the UK and the Benelux, but not in Germany – nor at London Heathrow. “The markets in those locations are split between two, three, or even four competitors. It’s difficult to enter and the margins are low,” Brugère pointed out.
In the UK, business has developed organically at smaller airports. Newrest began with a niche opportunity at London City Airport with the low-cost operators Flybe and BMI. “Then they said, ‘maybe you can help us out in Manchester, Glasgow and Birmingham’. We helped find solutions at these airports and the business grew,” he said.
Brugère says that despite the expansions in the company’s profile, it is run in the same spirit as when it began in 2005. “We started as a small company with 90% of the shares belonging to the managers and that’s a big difference with companies like Gate Gourmet. We don’t belong to anyone and certainly not an airline. We are a neutral player. That has allowed us to keep our original DNA as a small catering company growing fast, but in a very entrepreneurial spirit.”
While Newrest has avoided opening kitchens in the US, British in-flight catering company Air Fayre has taken an entirely different approach. Chairman Stephen Yapp sees great potential for growth in the $2 billion US market and has plans to build a much larger business. To date, Air Fayre has concentrated on building up its core business in Los Angeles using its unique patented model, which is totally different to the way Gate Gourmet and LSG Sky Chefs run their operations.
“In 2008, we were the first entrant into the US catering market in 30 years and we put into place our patented product placement process, which has become known as the ‘Air Fayre’ model,” said Yapp. “We put the food on the airplanes but we don’t cook it. When we started out in the US, many people predicted failure especially since the world had just had an economic heart attack and we initially limped on for 12 months as finance was pulled. But since then we have done well. We started with 60 flights a day and we now have more than 140, making us one of the premier caterers in the LA area.”
Air Fayre is one branch of the Journey Group. The company sold off most of its in-flight catering operations in the UK, although it retains the Watermark business, which supplies in-flight products such as the goody bags handed out by Virgin.
Air Fayre owns the patent on its process in the US until 2022, giving it time to steal a march on its competitors. The Air Fayre method has several advantages over the usual business models, Yapp argues. Traditional in-flight caterers have to cook thousands of starters, main meals and desserts in large expensive kitchens on airport property. Their margins are low and their businesses are asset-heavy. They require a lot of ongoing investment. In contrast, Air Fayre’s model is asset-light, although the company has invested in refrigerated trucks and chilled warehouses. It can also ‘shop around’ for the best deals at food suppliers, high-end restaurants and hotels. Logistical operations take place around 10 miles away from the airport, which means the premises are cheaper.
“We’ve found over the years that small, quite classy restaurants have seen the business opportunities in using the latent capacity of their kitchens during the day. It’s a financially efficient model that has reduced the food costs of our main customer, United Airlines, and other airlines, by 5-6%,” said Yapp.
In addition to United, Air Fayre provides catering in LA for United Airlines, JetBlue, FedEx and North American. Yapp believes these airlines will supply opportunities for expansion elsewhere in the US. But he maintains a cautious approach to acquisitions and intends to grow organically first.
Meanwhile, Dubai-based dnata Catering offers yet another business model. The company’s catering division serves customers at 63 airports in 14 countries and has mainly grown by acquisitions. One of the keys to dnata’s success is its devolved model. The company maintains a small team of 10 people at headquarters in Dubai, responsible for the overall strategy globally, but gives the local teams at its bases in Singapore, South Africa, Europe, the Middle East and Australia a lot of freedom to run operations as they see fit.
“Because we are not overbearing our local units can be much more locally orientated with customers,” said David Loft, chief commercial officer. “For example, we pride ourselves on employing local chefs with regional culinary expertise, including Halal, Indian, Japanese and Chinese cuisines. For Asian airlines, in particular, the authenticity of the food makes a big difference.
“In Australia, for instance, we’ve done a lot of work with our Chinese customers as we’ve really invested a lot of money in that market. We have customer service teams that are fluent in Chinese and several chefs specialising in Chinese cuisine. The strategy has worked well for us.”
The flexibility in dnata’s model extends to its relationships with individual airlines. The company builds bespoke arrangements with each one. Loft says dnata often has greater room for manoeuvre than the largest in-flight catering companies. “There are similarities in our approach to different airlines, but there’s no set pattern. In some cases, we receive goods, process them, pack them and load them onto airplanes. Other times we buy products, transfer them onto trolleys and load them. Then, on other occasions, we buy fresh fruit and vegetables and have to peel, cook, process, pack, chill and load. All airlines have specific requirements for what they want to spend and load and even how they want the meals packed into the galleys,” said Loft.
dnata also operates joint ventures with a number of competitors, including LSG Sky Chefs, Gate Gourmet, and Newrest. In the UK, for example, the joint venture Alpha LSG is run by a separate management company reporting to a joint board. Although based in the Middle East, dnata’s food services division has only two units in the region -–one in Sharjah and the other in Jordan. Loft says being headquartered in Dubai does not provide much of a local advantage. “The devolved model means we effectively have a ‘local’ presence in many countries around the world. We have to tender for work in the Middle East like any other company,” he said.
Italy has become one of dnata’s strongest bases in Europe. The purchase of Alpha in 2010 brought with it joint ventures with a company called Air Chef which was present all over Italy. As a result, dnata provides catering at 22 Italian locations, many of them on a small scale with low costs. By contrast, the much larger US market has remained mostly out of bounds despite dnata’s wish to expand its catering operations. “So far we only have one base at the small Orlando Sanford airport. If the right opportunity arose we’d consider it, but the US is not somewhere we’d like to speculate by building new units because it’s already quite a saturated market,” said Loft.
Chelsea Food Services is the in-flight catering wing of United Airlines, which was inherited from the 2010 merger with Continental Airlines. It is the only airline-owned catering company in the US. Chelsea operates six flight kitchens in five cities – Cleveland, Denver, Honolulu, Houston and Newark, where it has two kitchens. Although United forms the core of its business, Chelsea provides catering services for more than 20 airlines, including Air France, American Airlines, KLM, China Airlines and Singapore Airlines, and employs around 2,500 workers.
Jimmy Samartzis, vice president food services and United Clubs, said: “Operating our own catering company enables United Airlines to be more flexible when it comes to changing our products and services. We can also more easily control costs and hire the best employees. In addition, we have greater influence on the products we offer, in part because we have the ability to test menu concepts and new equipment in our kitchens prior to on-board implementation.”
There are occasions, however, when United employs other caterers rather than Chelsea. “Opening a Chelsea kitchen is a strategic decision based on whether United will have the advantage over an outside catering service when it comes to cost, performance expectations, outside business opportunities and supply chain challenges,” he said.