Melbourne Airport (MEL) has launched a new click and collect duty free shopping marketplace dubbed ‘Laneway’ for passengers at its international terminal, TRBusiness can report.

Departing and arriving travellers can shop online from a range of best-selling fragrances, wines, liquor, confectionery, technology, seasonal beauty items and exclusive Australian and Melbourne brands.

Orders can be placed between 60 days up to 24 hours before flights.

After payment is made, items can be picked up from assigned collection points, including from Melbourne Duty Free by Dufry shops at Terminal 2 International Departures (post security) and T2 International Arrivals (before immigration).

Commenting on the new e-commerce marketplace, Aaron Gupta, Head of Retail and Asset Management, MEL, told TRBusiness: “Dufry have had their own e-commerce platform for some time, but this is a Melbourne Airport-based one and it’s a really exciting change.”

Building for the long term

MEL spoke to TRBusiness recently as part of a wide-ranging interview on the climb back of passenger numbers and how that is influencing commercial dynamics across the terminals.

As reported, Australia ended its near two-year border ban in February this year when it admitted fully vaccinated international arrivals and visa holders to the country and dispensed with remaining travel curbs (proof of vaccination) in July [quarantine-free travel to Western Australia lifted in early March – Ed].

Encouragingly, the airport has recouped 95% of its domestic passenger volumes against 2019 levels, with international numbers at around 65% of 2019 – a position that MEL says has bettered expectations.

Like many airports, MEL took the decision not to charge commercial tenants rental payments in the wake of the Covid-19 pandemic.

“If we talk about international [T2 tenants], the partnership approach is so fundamental with what we do,” continued Gupta. “We gave proportionate rents through Covid and we’ve extended that through the life of the contracts.”

Currently, an income per passenger arrangement exists in place of traditional minimum annual guarantees rents and this will continue until passengers numbers close to 2019 thresholds have been satisfied, learns TRBusiness.

“With 65% of [international] passenger numbers, that’s the proportion of per passenger rent that that’s being charged, so it’s extremely fair,” commented Gupta.

Having been closed for around 272 days, when the airport did reopen the decision to support its tenants through rent relief was vindicated, according to Andrew Gardiner, Chief of Commercial – Property & Retail.

“It has certainty enhanced our reputation in the eyes of the retail community. When we took the decision not to charge any rent, it was based on a long-term view. We hope partners will be with us on the journey and will continue to support us as we have supported them through the tough times.

Gardiner continued: “Retailers that choose to ply their trade at airports– having been a retailer myself – is you are guaranteed customers and you pay for that privilege.

“But if the customers are not there, I don’t think the airport has a right to charge the full rent. That’s our point of difference to a downtown shopping centre. We [the airport] have customers that we bring to you, so therefore we can certainly negotiate a rent appropriate to the number of customers served.

“I guess had we in Melbourne charged a full rental for the 272 days of lockdown, some of our retailer partners would have gone broke, particularly those that are independent and don’t have the financial backing of some of the multinationals and we would have ruined the relationships we have with them.”

However, Gardiner was quick to point out that there is no one-size-fits all approach to the often complex conundrum of commercial fees, with airports subject to different operating conditions and commercial pressures.

“It depends on a number of factors, I guess, in terms of relationships, lease length, the time left on those leases… each airport will make the right commercial decision for them at that time. We did what was right for us.”

Gardiner was quick to praise the assiduous efforts of MEL’s business development team, which continues to work hard to attract new flights and maintain existing carriers.

A new leadership dawn

That sturdy performance has been pivotal for Melbourne, a city that has been subject to some of the strictest lockdown rules in the world. 

“The plan was always to come out of it better than we went into it,” maintained Gardiner. “I don’t know if we’re there yet, but certainly plans for growth will absolutely make us better.”

Change at the top has played its part. In July, Lorie Argus assumed the post of Chief Executive Officer of Australia Pacific Airports Corporation, which manages and operates Melbourne and Launceston Airports.

She stepped into the shoes of Lyell Strambi, who departed the role on 30 June after successfully guiding MEL through the most difficult period in its history.

Gardiner commented: “Our new CEO Lorie Argus came out of the aviation side of the business, an internal appointment, a very dynamic woman bringing a different thinking process to the business and a slight change in culture, but really democratic and exciting, so a great future ahead.”

After weathering what has been a hugely tumultuous few years, MEL is scaling up its recruitment efforts, including within retail. But the airport’s closure compounded by personnel seeking jobs elsewhere in Melbourne’s downtown market and the relative distance of travel to the airport (circa 22km) has posed a challenge, hears TRBusiness.

Renovations at Terminal 1

Nonetheless, there remains a healthy buzz across the terminals and plenty of ongoing activity with major upgrades in full swing.

Terminal 1, which serves domestic travellers and is home to flag carrier Qantas, is in the midst of a major renovation. This concerns roughly 3,500 – 4,000sq m of retail space as part of a wider terminal footprint around triple that size.

“The refurbishment will take the best part of 18-24 months,” clarified Gupta. “So, very much a staged redevelopment because it is a live terminal with flights coming in and out, so maintaining safety, security and operations is critical.”

Gardiner elaborated: “It was a very old terminal with very old retail concepts, between ourselves envisioning a very different look and feel for our premium customers that we’ll bring with our architectural partners is going to be significantly different to what was there [before].”

Previously housing a food court, Terminal 1 is set to introduce an elevated offer with restaurants and coffee shops in a nod to Melbourne’s famed culinary traditions. A number of renowned Chefs are due to open outlets at T1 and also in T3, for example.

“It’s really exciting; some of the architecture, the drawings, the ceilings and the finishings… it’s going to be like walking into a five star hotel rather than being in an airport,” enthused Gardiner.

“Eventually when we open up in a couple of years’ time, you will be blown away. If you knew the old and then see the new and the difference… it’s just unbelievable.”

While the shell of T1 will be marked out by construction and hoardings over the holiday season, passengers will have a plenty to look forward to in the early part of next year as more shop units open up.

“At Terminal 2, the majority of stores will be reopened for business as they were pre- Covid,” continued Gardiner.

Earlier this year, new passenger amenities (male, female, all gender, and accessible bathrooms, an assistance animal relief area and parents’ room) opened in Terminal 4 and there is more to follow.

“New stores are starting to open in a very structured, programmed way over the next few months,” added Gupta.

Flurry of commercial tenders

The recovery curve is being carefully echoed by new opportunities in the commercial areas of the airport.

“We’ve done two F&B RFPs in the last 12 months, one of them was in Terminal 4 and part of Terminal 3,” said Gupta. “Terminal 1 was the other one from an F&B perspective.”

As revealed by TRBusiness earlier this month, the race to snare Melbourne Airport’s coveted duty free contract is down to a shortlist of three bidders [TRBusiness aims to bring you news of the winner in due course – Ed].

Having received 12 bids, these were narrowed to six, before the final shortlist of three ‘highly respected’ operators was decided.

“I was fortunate enough to be involved in the Sydney [tenders] some years back when Heinemann took over from Nuance and then again on this one, so it’s been really exciting,” noted Gardiner.

Conversation turned to the changing dynamics of traveller spending at MEL, as passenger numbers recover, and the associated knock-on effect to passenger average spend, average transaction values and dwell time.

Gupta commented: “The thing that first comes to mind is the excitement about travel and people’s enthusiasm to want to get out of their homes and are excited to re-engage with other people.

“I’m sure every single person bought their fair share of beer, wine & spirits and cosmetics at home through Covid, so we all know the downtown prices. The value proposition for duty free certainly drives a lot of spend.”

Building that value proposition though remains tough for a travel retail industry largely devoid of international Chinese passengers.

MEL counted nine different Chinese carriers pre-Covid and that number is down to one, TRBusiness is told.

“Our business in Melbourne was very much dictated by Chinese students at universities,” explained Gardiner. “Melbourne was a go-to for Chinese students. Covid hit and, effectively, they went back home, but now they’re coming back again.”

That is important, as historically a large slice of the business is linked to Melbourne-bound travel by those from China visiting friends and relatives purchasing gifts on departure, and vice-versa for students making trips to China.

Gardiner added: “I think we will get back to pre-Covid numbers again in terms of Chinese passengers. I’m confident there will be a quicker turnaround.”

Elswhere, MEL’s business development team is working hard to attract new carriers out of Vietnam, while North America – including Canada – and the Middle East are source markets yielding strong potential.

Looking across the broader business, MEL is also making concerted efforts to improve its environmental credentials.

At the start of this year, the operator committed to an accelerated target of net zero Scope 1 and 2 emissions by 2025. It has also started onboarding an organic waste recycling stream within its terminals.

“In Terminal 1, this is fundamentally part of the design and decision process with retailers, including the criteria within RFPs,” explained Gupta.

One of the largest solar and wind farms in the state of Victoria is also powering MEL’s energy requirements across the terminals.