Delhi International Airport Limited (DIAL) yesterday issued a 'Letter of Award' for its 10-year duty free contract to a consortium comprising Aer Rianta International (ARI) and Indian Duty Free Services (IDFS) to participate with
DIAL in the previously reported joint venture to develop, operate, maintain and manage duty free outlets at Indira Gandhi International Airport?s Terminal 3 – scheduled to open in 2010.
In a statement, DIAL said that Aer Rianta – together with its partner IDFS – submitted the best bid for the 4,000sq m of duty free space and the airports' company added that it believes that the new relationship will allow for a greater synergy between DIAL and ARI/IDFS as both airport operators have in-depth understanding of passengers? needs, as well as the airport environment.
DIAL said: ‘Moreover, ARI has a proven track record of operating JV duty free concessions in European and emerging markets which have yielded good results for all stakeholders. For example, it has been successfully operating the joint venture models at Moscow Airport Duty Free on a 21-year contract and at Bahrain Airport on a 16-year contract.’
[ARI also has many other very successful joint ventures, including Beirut Duty free and others-Ed].
Meanwhile, DIAL adds that IDFS has established itself as a leading travel retail operator in South Asia. Since its establishment, IDFS has diversified into numerous travel retail-oriented businesses which include duty free sales, inflight retail, airline amenities and warehousing.
In a refreshingly open statement, DIAL's Chief Commercial Officer Gavin Mckechnie revealed the final list of bidders and stated his belief that the response to the RFP had been good considering the tough economic outlook.
?We have received proposals from five bidders, namely Aldeasa, Aer Rianta-IDFS consortium, Dufry-Interglobe Consortium, Flemingo International and Setur. It is worth noting that, despite the economic downturn, the response to the RFP truly reflects the growth potential of the Indian economy and airport sector in particular.?
DIAL adds that construction work is well underway for IGI Airport?s Terminal 3 which is scheduled to be operational before the October 2010 Commonwealth Games in Delhi and it points out that T3 – an integrated terminal handling both domestic and international departure and arrivals – will be 'among the largest passenger terminals in the world' covering more than 5m square feet in total.
Next year's opening will also only represent phase 1 of IGI Airport?s Master Plan development, which foresees a total project outlay exceeding $2bn which will eventually increase the airport's passenger handling capacity to more than 60m a year.
As is well known, the project being developed by DIAL under the Public Private Partnership has the mandate to finance, design, build, operate and maintain the airport for 30 years with an option to extend it by another 30.
COMMENT: DIAL's appointment of Aer Rianta International (ARI) and Indian Duty Free Services (IDFS) as its new partner for the next decade seems to have been an efficient process which appears to have gone relatively smoothly. But it is interesting to note that there were some notable absentees from the final list of bidders, including top ten duty free and travel retail players such as Gebr. Heinemann, The Nuance Group, DFS Group and Aelia.
While DIAL's proposal to create a joint venture company between the successful bidder and the airport company appears to be a positive one in terms of general shared risks, there can be little doubt that some of the aforementioned companies – and others who did not bid – had given due consideration to the not inconsiderable $50m guarantee – even though this risk will be shared by the wining bidder and DIAL within the new JV. Others may simply have viewed the opportunity as 'a risk too far' in the current economic environment.
But for the winner(s) there are some lessons that can be learned from Alpha's (and subsequently Aldeasa/Autogrill's) duty free presence at the existing Delhi Airport, where it is hardly a secret that the operator was a victim of a masterclass in bureaucracy and delays related to retail space allocations, movement of stock from bonds and other matters. Not surprisingly, a renegotiation of the terms and conditions of Alpha's contract inevitably followed some time ago.
Now while T3 is an entirely different facility, some of the influences that made life difficult for Alpha in the early years of its duty free contract still potentially remain. Hopefully, DIAL's influence – and its relationship with Indian Customs in particular – will help to prevent some of the aforementioned 'misunderstandings' that occurred in the early days and beyond at the old facility.