Will travel retail’s annus horribilis roll into a biennium horribilis?

Notwithstanding my support for Australia becoming a republic (or maybe because of it), the United Kingdom Queen Elizabeth II’s 1992 annus horribilis speech is burnt into my memory. Of course, 1992 was the year that Her Majesty said was, with classic British understatement, “not a year on which I shall look back with undiluted pleasure”. But it was the revival of a delightful Latin turn of phrase – annus horribilis – which has stuck with us all. And of course 1992 was indeed a tough year for Her Majesty. First Prince Andrew’s divorce from Sarah Ferguson, then Princess Anne’s divorce from Mark Phillips, then Andrew Morton’s tell-all book on Princess Diana’s book on the state of her marriage to Prince Charles, then pictures of Sarah Ferguson’s risqué escapades with a Texas billionaire, then Princess Diana’s explosive “squidgygate” recordings and finally a devastating fire at Windsor Castle. I nearly felt sympathy for the British royal family that year! Annus horribilis indeed. Well of course, the 12 months from March 2020 will go down as travel retail’s own annus horribilis. As we all know, March 2020 marked the start of travel retail’s worst ever year as a global pandemic closed international borders and shut down all manner of travel, with many restrictions still in place 12 months on. There has never been such a material impact on global travel and therefore travel retail since the beginning of commercial aviation after World War II. And so, in The Mercurius Group’s 13th monthly report on travel retail’s recovery from COVID-19 in Australia and New Zealand, we highlight the sobering reality that travel retail’s annus horribilis is at risk of rolling into a biennium horribilis – at least for operators in Australia and New Zealand. Just to recap, our monthly COVID-19 recovery reports track the reopening of 822 travel retail stores (F&B, specialty and duty free) across 27 airports with more than 0.5 million passengers across both countries. April 2021 saw the total number of sites open since the start of the pandemic rise to a new peak of 61% of travel retail outlets reopened on the back of all domestic borders being reopened in Australia (with just a couple of minor blips), no domestic travel restrictions in New Zealand and the start of the two-way, quarantine free travel bubble between Australia and New Zealand which saw some limited duty free store reopenings.

The opening of the two-way quarantine free Trans-Tasman travel bubble saw an initial surge in demand fuelled by family and friends desperate to see each other after 12 months of travel restrictions. However, ongoing demand remains uncertain, given the New Zealand Prime Minister’s warning that travel is at the traveller’s risk – in other words, the New Zealand government retains the right to close borders and/or demand 14 days of hotel quarantine, at a cost of around NZ$3,000 (US$2,184) to be paid by the traveller. To highlight the risk, within a week of the bubble opening, it was closed again for five days between Western Australia (WA) and New Zealand due to a small local outbreak in WA stemming from a security guard working at a quarantine hotel. Similarly, it was also closed between New South Wales and New Zealand later in the month as a result of just two COVID-19 positive cases being identified in New South Wales. Moreover, in early May 2021, the Australian government formally announced (as part of its national budget calculations) that its international borders would remain by-and-large closed until 2022, notwithstanding some small travel bubbles with other COVID-19 free jurisdictions and the possible (only possible, mind you) acceptance of a vaccine passport travel. April 2021 also saw the end of the Australian government’s COVID-19 wage support scheme (JobKeeper) – New Zealand wage support ended back in September 2020 – with policy shifting to travel demand stimulation policies such as subsidised airfares and tourist experiences. For travel retailers, the removal of direct support means a more cautious approach to reopening stores until passenger numbers prove their sustainability.

Although 61% of outlets have reopened, this means that there are still a staggering 324 outlets closed across Australia and New Zealand. There are more F&B sites (63%) than specialty sites (60%) open, although the rate of reopening in specialty stores has accelerated faster in April, up from just 51% in March. The specialty store category is made up of three large groupings – travel essentials, duty free and other stores (mainly fashion, accessories, pharmacy, technology etc). The growth in specialty stores reopening in April 2021 was boosted by the restart of the Trans-Tasman bubble, which resulted in the reopening of a number of previously mothballed duty free and currency exchange outlets across both sides of the Tasman Sea. While the average of specialty stores reopened was 60%, this is made up of duty free (70%), travel essentials (59%) and other (58%). The rate of store reopening is higher in New Zealand (75%) than in Australia (58%) and of course higher in domestic terminals (69%) than international terminals (36%). In terms of our store sustainability indicator – outlets open per million passengers – our analysis shows that there are still more than twice as many stores open per million passengers than there was pre COVID-19 – for both F&B and specialty. In February 2021 (the latest month for which official passenger figures are available in Australia), domestic passenger numbers steadied at 30% of their pre-COVID-19 level. With travel retail sites which had reopened for the December and January holiday period remaining open, together with a smattering of sites reopening during February as travel restrictions eased, outlets open per million passengers increased from January 2021. They remain resolutely more than twice as high as pre-COVID-19 levels.

Outlets Open Per Million Pax

Domestic Terminals Only, AU Airports Only

Source: The Mercurius Group travel retail database and analysis.

In other words, in February 2021, 65% of the 2019 number of domestic outlets were open and competing for business from just 30% of the passengers recorded in the same month of 2019. So while 65% of outlets in domestic terminals may be reopened, trading conditions are far from reaching their pre COVID-19 levels for many operators. With the removal of direct government financial support, operators are likely to be reluctant to pick up the pace in reopening sites until they can be confident that passenger growth can continue without interruptions from lockdowns.

That said, it’s not all gloom and doom. Domestic traffic in Australia and New Zealand is rebounding nicely. In both countries, some holiday destinations are reporting traffic levels above 2019 levels. This is explained by Australians and New Zealanders who would otherwise holiday overseas holidaying domestically. So for now, the numbers are up (I suppose until the international borders fully reopen). The travel retail sector in Australia and New Zealand had been hoping for an annus mirabilis – even an annus normalis would do – and for some concentrated in domestic terminals, this may come to fruition. But for others, especially those in concentrated in international terminals, a biennium horribilis is looming.