New duty free contracts offering 44% average commission will allow Beijing Capital International Airport Company Limited to reap higher rewards from over 20% growth in retail spending, according to Bloomberg research arm Bloomberg Intelligence (BI).

As reported, China Duty Free Group (CDFG) won the eight-year terminal two and terminal three duty concessions at Beijing Capital International Airport in 2017, the same year it acquired 51% of Sunrise Duty Free.

Speaking to TRBusiness in the August issue of the magazine, Bloomberg Intelligence (BI) Asia Infrastructure Analyst Denise Wong said the new Beijing Airport duty free contracts could offer minimum guaranteed revenue of RMB3.03bn ($440.6m), triple the amount received in 2016..

This could generate RMB1-1.5bn in additional operating profit in 2018 at BCIA. She told TRBusiness: “Duty free may drive over 25% of revenue from 2018, yet sales will have to be 56% higher than 2016 levels for revenue to go above the minimum guarantee.”

ROBUST DUTY FREE GROWTH

According to further BI analysis seen by TRBusiness, BCIA’s profit growth could beat projections as it expands non-aeronautical revenue. Wong, who believes the airport likely registered ‘robust duty free revenue’ growth in the first half of 2018 — revenues amounted to RMB.2,158,677,000 ($330.5m) in H1 2017 — said: “This could trump concerns over the discontinuation of airport-fee revenue from 2019.

“The Chinese government recently said it would stop sharing airport fees with the company from next year, the impact of which is already reflected in the 2019 consensus earnings forecast following a 24% downward revision.”

Duty Free concession revenue could be higher than expected in H1, driven by strong outbound tourism growth, easing import rules and continued product line assortments. Wong said: “A rising mix of international traffic likely also propelled duty-free sales. Beijing Airport’s international flights and passenger growth have picked up from 2017’s lull, as the impact of regulatory flight curbs faded.”

Beijing Capital Airport’s profit is likely to benefit from growing international passenger volume over the last six months, offsetting slower domestic traffic, according to Wong. “The airport seeks to drive revenue by increasing its commercial space, expanding facilities and enhancing services. The new duty free contracts should fuel higher profit gains.

REGULATORY CHANGES

“Regulatory changes could herald higher airport tariffs, ground service pricing and commercial service charges, all of which should boost revenue.”

Moving forward, the company will continue to ‘reshuffle’ flight slots to service more international flights and passengers and expand commercial space, facilities and services to capitalise on strong passenger spending growth. Wong said: “Non-aeronautical businesses will remain a key earnings driver for Beijing Capital Airport in the short term.

“Recent deregulation of ground service pricing and commercial service charges has made it possible for airports to offer more high-value added facilities and services.”

TRBusiness estimates that DF&TR sales at the airport amounted to $924m in 2017. Annual aircraft movements reached 597,259, a -1.5% drop over the previous year. Non-aeronautical revenue rose +14% to RMB4,473,830,000m, while pax throughput increased +1.5% over the previous year to 95,786,442 pax.

See the Top 10 Airports issue of TRBusiness in August for a detailed overview of how the airport performed in 2017.

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