We’ve seen this movie before – it’s Groundhog Day for travel retailers down under

Notwithstanding growing optimism – excitement even – in the general community about the arrival of the Pfizer COVID-19 vaccine and the start of the roll-out across Australia and New Zealand, the number of travel retail outlets open across the two countries fell in February 2021 for the second consecutive month – belying the broader optimism. February 2021 represents the eleventh month of The Mercurius Group’s monthly reports on travel retail’s recovery (or otherwise) from the COVID-19 crisis in Australia and New Zealand. The analysis records the re-opening of 822 travel retail stores across the 27 airports with more than 0.5 million passengers across both countries. As of February 2021, just 50% of the 2019 number of travel retail outlets are open. The peak point in the travel retail recovery was in December 2020 when 56% of outlets were open. At that point, optimism abounded that COVID-19 had been contained with the end of Melbourne’s 111-day lockdown.

“Okay campers, rise and shine, and don’t forget your booties cause it’s cold out there… it’s cold out there every day”

– Phil Connors (Bill Murray), Groundhog Day

Since then, however, a series of lightning shutdowns in response to relatively small COVID-19 spikes across multiple states in Australia and Auckland in New Zealand has once again eroded public confidence in travel and hence more outlets have closed. Moreover, we are now starting to see closed outlets converting into vacant sites.

The off-again, on-again closure of borders is starting to have a familiar feel – much like Phil Connors, the weatherman in the 1993 movie classic Groundhog Day, who was forever stuck in a time loop and kept experiencing the same day over and over. As the anniversary of COVID-19’s impact on travel and travel retail approaches, impatience for getting ‘back-to-normal’ has been eroded into a more pragmatic acceptance that the free return of travel will be a slow and bumpy road taking most of 2021 (at least). That realisation is driven by the ultra-conservatism of both the Australian and New Zealand governments in managing their exposure to COVID19. The continuing rolling snap lockdowns – with three unrelated regional lockdowns during the month – have dampened travellers’ enthusiasm to book trips and brave the possibility of being placed into 14 days of unplanned and self-funded quarantine. Qantas – Australia’s largest airline – has subsequently reduced its capacity for first three months of 2021 to around 60% of capacity (seats not travellers), down from around 80% planned in December 2020 prior to the flurry of border closures.

Permanent store closures are now starting to mount up as some retailers see the sector as too risky, preferring to sit out the wait for a recovery or, where they can, simply retreat until there is more certainty

International borders in both countries remain resolutely closed until at least June 2021 and there really is not any publicly released road map that sees them re-opened, even with the vaccine rollout now underway. Filling the void, the travel industry is trying to take the lead with Sydney Airport, Auckland Airport, airlines and the various airport and airline and travel associations all trying to sell their own versions of a road map. Most proposals attempt to align easing international border restrictions to both local and overseas vaccination programmes, typically commencing from October 2021. There may also be specific travel bubbles established, but even the travel bubble between the relatively COVID-19 free nations of Australia and New Zealand has been on-again, off-again. It may be quite some time before any material increase in international passenger numbers occurs. On a positive note, the travel retail industry is broadly citing passenger spend rates (PSRs) are up on pre-COVID levels – an example being Auckland Airport’s recent results announcement where they reported that domestic PSR was +8.5% above that of before the pandemic. While any good news is welcome, it is still nowhere near enough for either airports or retailers to compensate for the drop in passenger numbers. As is to be expected, permanent store closures are now starting to mount up as some retailers see the sector as too risky, preferring to sit out the wait for a recovery or, where they can, simply retreat until there is more certainty. Given the length of the crisis, some concessions have also expired with operators taking the opportunity to exit or renew on significantly different terms. In the medium term, as travel resumes, this could see airports being challenged to find interested and capable retailers (especially in the more discretionary specialty retail areas) to fill vacancies and meet latent customer demand. Prior to COVID-19, there was a torrent of high street retailers moving into the airport space, tempted by potential rich pickings for time-poor, discretionary-spend-rich travellers. Now that a different level of risk of operating in airports has been exposed, it may take some convincing to lure them back – especially in the smaller airports.

As at the end of February 2021, 413 outlets remain closed across Australia and New Zealand. While the upcoming Easter holiday period may trigger some extra travel activity, most travel retail operators are now playing it cautiously and waiting for more certainty around government policy on border openings before committing more sites to reopening. As international travel is more or less off the cards for the moment, most changes to outlet openings are occurring in the domestic airport terminals. Passenger statistics released for Australian airports for December 2020 allow us to calculate the number of outlets open per million passengers, which provides a reliable indicator of the sustainability of outlets currently open. Noting that passenger statistics (published monthly for all Australian airports) lag at least two months behind, in December 2020 Australian domestic passenger movement numbers were just over 3.84 million – around 40% of December 2019 levels. With 63% of domestic outlets open and competing for business from just 40% of December 2019 passenger levels, this means that stores are trading with 3.2 outlets per million passengers for F&B and 2.7 outlets per million passengers for specialty. This is getting closer to pre-COVID levels, meaning that most of the stores currently open should be close to trading sustainably (but probably not to pre-crisis levels).

Australian domestic terminals

Outlets per million pax (annualised)

Australian airports 0.5m pax

Source: The Mercurius Group travel retail database and analysis.

With an eye on the future recovery, Autogrill (owner of HMSHost) issued share capital of up to €600 million (US$712 million) in a move aimed at “financing future investments, to continue the group’s innovation and growth path and to be ready to take advantage of potential market opportunities”. Autogrill is not alone in recapitalising and seeking financing to ride out the storm and be ready to pounce on any acquisition opportunities that may come along. Until governments feel brave enough to move from the present zero-risk mentality to a more risk minimisation acceptance provided by vaccine rollouts, there is little hope of any significant near-term acceleration of any recovery. As Phil Connors might say (again and again), “It’s cold out there every day.”