Higher spend per passenger is bright light in troubled Americas travel retail landscape
Managing Through Covid: From Crisis to Recovery, was the theme of an IAADFS-organised webinar last week that touched on the impact of the pandemic in North American travel retail, and how recovery might shape up. By Mark Lane.
A trend of significantly higher spend per passenger across airports in several countries within the Americas was the major positive factor to emerge from a compelling webinar staged by the International Association of Airport & Duty Free Shops (IAADFS) in early December. The news comes as senior industry sources tell The Moodie Davitt Report of increasingly positive results in selected parts of South America, in particular. “The South America region is really bouncing back,” one leading distributor tells The Moodie Davitt Report. “It’s really exceeding everyone’s expectations. Every time a country opens without quarantine, you see immediately passengers going in and out. “The good news is that it is summer down there. And theoretically that should help control the situation, with the vaccines being deployed before next winter.”
But recovery is unlikely to be either linear nor consistent across the vast Americas region. The IAADFS event – titled Managing Through Covid: From Crisis to Recovery – took place against a background of extremely tough trading conditions across the region’s geographies. Different approaches to containing the COVID-19 pandemic and travel restrictions in different countries are variously encouraging or hampering (mostly) meaningful recovery for airports and travel retail, in what remains a highly-troubled and complex overall regional picture.
The webinar featured presentations and insights from Dufry Group Division Central and South America CEO René Riedi, IAADFS President and CEO Michael Payne, Aer Rianta International (ARI) North America General Manager Jackie McDonagh, International Shoppes Vice President-Business Development Matt Greenbaum and Motta Internacional CEO Erasmo Orillac.
Riedi highlighted three promising COVID-19 vaccines that are in the phase three trials for possible imminent deployment across the Americas, and their likely effect on triggering some level of travel retail recovery. But, he warned: “It may take us deep into 2021 before we can think of moving back to our pre-COVID routines. In the meantime, we will continue to have ups and downs as we move forward from one infection wave to another.”
He bemoaned the fact that “there is no unified COVID-19 recovery framework protocol at an international level” but pointed to the positive ramifications of new recommendations published by EASA and the European Centre for Disease Prevention & Control which reject the use of quarantines in relation to travel where transmission of the virus is already widespread.
René Riedi: “Restoring confidence in international travel is crucial to the survival of the tourism and the aviation ecosystem”
Riedi said that “restoring confidence in international travel is crucial to the survival of the tourism and the aviation ecosystem” and laid down his strong belief that quarantines must be replaced with testing and contact tracing.
Mixed picture: Dufry points to strong spend per head in some markets but traffic and footfall remains low in many
IAADFS President and CEO Michael Payne, meanwhile, gave an update on the advocacy efforts of his organisation and other aviation and non-aeronautical revenue pressure groups. He said the members of this coalition have set out to educate decision-makers and lawmakers throughout the Americas region, “providing as much data and information as we can about the value of the duty free/travel retail industry”.
He noted that many airports and airport stakeholders across the US are in “really dire financial straits”. Payne stressed that it is vital that the coalition’s voice is heard given that business in many cases is down by over -90%, and the wider implications for employment.
“In the US, this coalition has been advocating for as much as US$13.5 billion in help for airports and concessionaires – whether or not we’re successful in getting that remains to be seen.”
Describing this situation as an “evolving story”, he continued: “When you think you’ve got it sorted, then the next day someone changes the rules. The political situation in the States, as you can imagine, is a little tricky. There is a new administration coming and lots of transitions are going on; lots of staff changes on the [Capitol] Hill. So it’s hard sometimes to get a straight answer.”
He added that the coalition is spending some time and effort working with Customs authorities “to see if we can’t get some financial relief from some of the regulatory requirements”.
Payne – who highlighted the importance of the upcoming IAADFS/ASUTIL Summit of the Americas virtual event (for more information, see below) – concluded: “So I think we’ve done a good job of telling the story but the real proof will be when we get some real relief designated. And that’s happening in many places, but it’s not enough [so far].”
Michael Payne: IAADFS is playing a big role in enhancing industry advocacy efforts in the region
Jackie McDonagh offered keen insights into the current travel situation across Canada – where ARI runs stores at four airports.
Travel restrictions are in place across Canada’s 11 provinces which means that even travelling domestically is a challenge.
Jackie McDonagh: A seven-point plan to buoy sales even in a tough environment
Turning her attention to the current trading situation for travel retail in Canada, she gave the example of Montréal Pierre Elliott Trudeau International Airport, where business at ARI’s duty free stores is currently at about 13-14% of 2019 levels. However, she said: “When a passenger does make an effort to come into the store, they do spend more, so that’s reassuring.”
With an eye towards recovery, McDonagh – who stated that passengers have to be “treated like gold” – said that ARI has identified seven key components of focus for the future. These are improved and wider-ranging customer service; convenience (for example virtual sales systems and cashless transactions); adding value (promotions and competitive pricing); quality products; relevant ranges (including seasonal offers); safety (social distancing and cleanliness in-store); and sustainability (health and wellbeing products, eco-friendly packing etc.).
ARI-North America is enticing the limited number of travellers back into the stores with promotions and strong online engagement
Matt Greenbaum: Providing for acts of God in contracts
Matt Greenbaum asserted that “the damage to our industry can’t be overstated – we’ve had a shocking blow to revenue”. His company – which is headquartered close to John F. Kennedy International Airport – operates duty free and high-end branded stores at airports predominantly in the Mid-Atlantic and north-east areas of the US. The travel retailer also services the diplomatic communities in New York and Washington.
Describing the recovery in each of International Shoppes’ locations as “very different” – even across different terminals in the same airport – Greenbaum said “we’ve been really hustling to just keep costs down and make sure we serviced every opportunity”.
He lauded the support of airports in waiving rents and flexibility on operating hours since the start of the pandemic. Advocating changes to future airport-retailer contracts in the face of COVID-19, he said: “We would like to have language included in our leases that speaks to how we would address these ‘act of God’ events in the future.”
Greenbaum added: “There really has been an environment of understanding, where people seem to understand what each party is going through, and everybody realises we have to all get through this together.”
In this context, he also offered high praise to International Shoppes’ suppliers for their flexibility in the current difficult trading circumstances. He said: “I want to acknowledge that many of our suppliers have been very creative and flexible in terms of how we’re partnering together. They’ve been very patient with new orders; they’ve been receptive to taking back merchandise that’s not sellable.”
Looking ahead, Greenbaum – who also noted a significant increase in spend per passenger – said that he anticipated a long-term change in purchasing patterns. He explained: “We need to make sure that we’re turning over our goods a little bit more frequently. So with that, we’re going to need a more efficient supply chain, including speedier and more frequent deliveries.
“So I expect there to be some pressure on suppliers to find ways to process orders more quickly, and get the goods to us more quickly so that we’re not sitting on inventory, in the same way that we were before.”
International Shoppes has expanded its ecommerce platform, but Greenbaum stressed that standards of in-store experience must be upheld and continually improved. Emphasising this, he added: “We’re really seeing the value of having more sophisticated salespeople to generate incremental business.”
He added: “I’m really excited to see some of the efficiencies that we’ve developed these past few months. I think as business comes back online, we can look forward to becoming much more profitable.”
Aiming for a measure of recovery in 2021: International Shoppes at New York JFK T1
Erasmo Orillac, representing Panama-based Motta Internacional, noted that Latin American flight numbers were -83% lower in September compared to the same month last year.
Orillac noted that the general economic conditions currently being experienced by all countries in Latin America “does not look good due to the effects of COVID-19”.
He called for airport concession contracts to be extended to compensate for losses, or “until we get to the levels of 2019”. He added: “We need wording in these contracts [for events like COVID-19] because this could happen again.”
Echoing Greenbaum, Orillac praised Motta’s suppliers for giving “extraordinary support” in areas such as payment terms, returned merchandise and discounted products, adding that support needs to continue “for many months to come”.
On spend per passenger, Orillac revealed some encouraging recent results from various countries including a +30% rise in Guatemala and +8% in Motta’s home country. Adding a dose of reality, however, he noted that Panama suffered a -89% fall in passengers during September 2020.
Erasmo Orillac: Strong support from brand partners
Motta notes some encouraging rises in average spend though passenger volumes remain depressed across its Americas operations
Completing the Americas travel retail picture, René Riedi reflected on the tribulations being experienced across South America. The lack of international travel into the continent’s major countries due to travel restrictions and lockdowns in place across key markets such as Europe, Asia Pacific and the US, he noted, has brought forward a reliance on domestic travel to stimulate travel retail business.
He observed that Brazil’s lack of a national pandemic strategy led to a complete collapse of international traffic and its citizens being banned from entering neighbouring and overseas countries. “So what is working in Brazil is basically domestic traffic,” Riedi said. “And we also see a growing importance of bank holidays in the country and the simple fact is that Brazilians have changed the travel pattern, they book more domestic holidays, instead of going abroad.”
By contrast, South America’s second-largest country, Argentina, Riedi observed, has adopted a very strict regime towards containing the virus over the last five months or so. He said the country is now opening up its borders, primarily to other South American countries such as Chile and Peru.
He said that Argentinians being allowed to travel to the US for the holiday season represents a very positive new development. Encouragingly, data from major US airlines shows that about 95% of available advance seating capacity has already been sold.
Of the other South American countries, Riedi said Uruguay “is basically closed” into next year but countries such as Peru, Chile and Colombia are relaxing restrictions and aviation business is picking up gradually. On the international travel front, Ecuador, Riedi said, is currently the best-performing with levels currently at about -30% to -35% of 2019 passenger numbers.
Looking beyond South America, Riedi noted encouraging signs for travel activity in Mexico and, in the Caribbean, Puerto Rico. Elsewhere in the Caribbean, however, he noted that islands such as Barbados, Grenada, St Lucia, Antigua and the Bahamas continue to suffer from strict travel restrictions and the lack of activity from the stricken cruise industry.
Ending with a more positive outlook for Latin America as a whole, Riedi predicts an eventual “hockey stick-shaped recovery” for tourism. He said: ”Traffic volume will pick up as soon as travel restrictions are lifted, and, because of a catch up effect, we will see business travel, leisure and family travel picking up quite sharply.”
Overall air traffic levels will not recover to 2019 numbers before 2023, he predicted, and possibly not before 2024-2025 according to some measures, he noted. Riedi said: “The first half of 2021 will still look very much the same as the second half of 2020, we can’t expect to see a much different picture.”
He did, however, add a very positive note for the travel retail industry as a whole: “We will probably come out stronger than we have been before or where we were when we went into this pandemic. And the reason why is that we are becoming more efficient, trying to control the cash as much as possible. I think that [eventually] we will all be able to outperform whole fields in attendance, revenue, but definitely in terms of profit. That’s simply because we will be leaner and stronger.”
The Moodie Davitt eZine Issue 288 | 8 December 2020
The Moodie Davitt eZine is published 15 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail email@example.com