The retail licences and advertising revenue segment at Hong Kong International Airport (HKIA) rose by a respectable +10.8% to HK$6,820m/$880m in 2014/15, with an upswing that was lower than the year before when it shot up by +23%, largely reflecting a full year of contributions from DFS Group as its anchor tenant.

The segment now represents 41.7% of turnover – a marginal share increase on the previous year. Retail was a key component that allowed operator Airport Authority Hong Kong (AAHK) to generate record revenue of HK$16,367m/$2,111m (+10.5%) and rocketing profit of HK$7,254/$936m – a rise of +12.4% (see chart below and click to enlarge).

Retail licences and advertising contributed nearly half of the rise in AAHK’s turnover for the year and the authority specifically highlights higher retail concession revenue as a major contributor to the above figures.

AAHK does not split out its retail and advertising income, but from its comments it seems that the shopping units – in particular its well-trodden high-end boutiques – have delivered good gains. They have also been more of a focus in FY2014/15.

STILL SEEING GOOD LUXURY DEMAND

AAHK says: “This increase (of +10.8%) was a result of the commencement of new luxury retail licences; better sales performance for luxury brands, liquor and tobacco, perfumes and cosmetics, commercial catering and financial services categories; higher advertising revenue from new clients and categories; and joint promotional initiatives with major brands and China UnionPay.”

Other terminal commercial revenue grew +5.2%, to HK$1,160m/$150m and mainly represents income from leasing offices and airport lounges to airlines and other tenants.

HKIA enhanced its shopping experience in 2014/15 with the opening of 33 new luxury boutiques, with 10 new brands making an entry at T1.This latest luxury cluster includes the first Harrods store in Hong Kong, plus Balenciaga, Blancpain, Bulgari, Christian Dior, Givenchy, Jaeger Le Coultre, Miu Miu, Moncler and Tory Burch.

With a strong Chinese PRC mix at the airport and numbers in the last fiscal year up +22% (bettered only by passengers from southeast Asia) HKIA has, so far, managed to leverage high-end sales to this group. Whether the authority can maintain that successfully this year, in the light of the luxury downturn being seen in the local Hong Kong market, remains to be seen.

Looking ahead, AAHK believes that traffic demand will continue to grow, but at a slower pace. “As a result, some of HKIA’s facilities, such as aircraft parking stands and other terminal facilities will soon reach capacity in the existing two-runway system,” it warns.

MIDFIELD TO THE RESCUE

To meet immediate needs, the expanded west apron is now fully operational with 28 aircraft parking stands. The Midfield development, which includes a five-level concourse and 20 aircraft parking stands, will provide added capacity when it enters service later this year for up to 10m passengers.

AAHK expect profits to grow at a slower pace this year largely due to its current capacity constraints. Nevertheless, it has its eye firmly fixed on increasing non-aeronautical revenue “by optimising HKIA’s retail space, revamping the overall retail experience for our passengers, introducing innovative marketing, and supporting our business partners while they expand their operations”.

HKIA is the world’s third busiest international hub after Dubai International and London Heathrow – and in FY 2014/15 it handled 64.7m passengers, up +6.6%.