Hong Kong International Airport (HKIA) has reported very impressive double-digit sales increases of around 12% in all of its core duty free categories of liquor and tobacco (Sky Connection), perfume and cosmetics and general merchandise

(Nuance-Watson HK) in 2008, despite the year-end fall in passengers and a slowdown in luxury goods sales.

‘In 2008, we recorded an increase of around 12% in the sales of the core duty free categories – liquor and tobacco, perfume and cosmetics and general merchandise, and around an 11% increase in the luxury fashion categories compared with the 1.7% increase in passenger traffic,’ said Airport Authority General Manager, Retail and Advertising, Eva Tsang.

Impressively, she told TREND/The Travel Retail Business that these results had been achieved despite the year end fall in passenger numbers and a slowdown in luxury goods sales.

Although a detailed breakdown of total duty free sales was not available, Tsang demonstrated the healthy state of HKIA's retail business, pointing to a retail licence revenue increase of more than 10% to HK$1.3bn ($167.7m) in the first six months of AA's financial year 2008/2009.

Meanwhile, she added that while a decrease in passenger numbers is expected in 2009, Airport Authority remains optimistic that duty free revenue will continue to grow as more luxury brands open outlets in the airport this year and the overall area of duty free shopping space is expanded.

Work is ongoing in several parts of the arrival and departure areas as AA reconfigures the duty free retail layout and increases its overall shopping space.

‘We are doing a Terminal 1 (T1) enhancement. We are extending the arrival transfer area. We are reconfiguring the arrival area layout now,’ Tsang noted. ‘There has been a growth in transfer passenger numbers and we need to expand the area. Also, currently immigration counters are located on two sides of the hall with a duty free shop in the middle and passengers do not know which way to go.’

‘In doing this reconfiguration we are moving duty free arrival shops to a new area and two immigration halls will be consolidated into one. We are doing this over a three-year period as it is a busy area and we cannot shut down the area to do it. New arrival shops will be available at the end of 2009 and the beginning of 2010.

‘Now we have 500 square metres of arrival shopping area. At the end of the transfer reconfiguration we will double the arrival shopping area to about 1,100 square metres. This arrival area also is used by transfer passengers who need their transfer validated.’

Currently, six arrival outlets are in operation, four of which sell duty free goods. Nuance Watson operates two perfume, cosmetics and general merchandise shops, while Sky Connection has two liquor and tobacco shops. The two other arrival outlets are taken up by service facilities which include a foreign exchange counter and Starbucks.

Meanwhile, AA's duty free shopping expansion plans will result in a sizeable increase in duty free shopping area this year once all of the various initiatives are added up.

Tsang said: ‘We have another 3,000 square metres of new retail space in total to be made available in the East Hall, the expanded arrival transfer area, the new satellite concourse and the new cross boundary ferry pier,’ she said. ‘We are finalizing the timetable and expect the tenders for the core airport categories – General Merchandise, Perfumes and Cosmetics, and Liquor and Tobacco, to start around the last quarter of this year.’

Turning to the recent traffic situation, Tsang said: ‘We experienced a drop of 5% in passenger numbers for December, but January was flat,’ said Tsang. ‘Since last Chinese New Year 2008 occurred in February – and not January like this year – we need to look at the combined figures for both months for comparison purposes. As for the whole financial year 2008/2009 we expect a low single-digit drop in passenger numbers compared with last year.

‘The drop started in September after we had a good first half last year. We expect a drop in passenger numbers with some reduction in personal and business travel, but hopefully people will still travel as people are trading down. It will be challenging for everyone this year.’

Mainland Chinese travellers currently account for 22% of passengers using HKIA, while Taiwanese passengers represent a further 17% of airport users. Other important passenger groups include Southeast Asians and Japanese who account for 24% and 7% respectively.

‘There is a reduction of Taiwanese passengers but we have a balanced passenger mix,’ said Tsang. ‘It's a good balance. If one sector is down it does not affect everything.’

HKIA handled 3.4m passengers in February, a decrease of 13.7%, although on a rolling basis passenger volume dropped only slightly by 1.0% to 48m and air traffic movements rose marginally by 0.1%, to 298,190. Considering the tougher environment over the last five months, this passenger traffic figure compares favourably with the 48.9m passengers reported by Airport Authority in its financial year ending March 31, 2008.

COMMENT: Retail sales results at Airport Authority in Hong Kong International Airport are a shining example of how penetration and conversion levels can be maintained over and above the level of passenger numbers. Those who hand out the various awards for great airport retail performance could do a lot worse than look at this operation for solid inspiration.