Optimistic indicators are emerging that point towards a ‘renaissance’ in Asia Pacific duty free and travel retail revenues, but persistent economic and geopolitical headwinds demand resilience from the industry, says Tax Free World Association (TFWA). 

Addressing delegates at the TFWA Asia Pacific Conference in Singapore on Monday 8 May, TFWA President Erik Juul-Mortensen said: “DF&TR is recovering, but we still face significant economic and geopolitical headwinds. For a number of reasons, we shall need to be patient until passenger traffic returns in force.”

In his opening comments made to a packed Grand Ballroom on level 5 of the Sands Expo & Convention Centre, the TFWA President noted that “absence makes the heart grow fonder”, referencing the joy of reconnecting with colleagues for the DF&TR industry’s first full-scale Asia Pacific Exhibition & Conference since 2019.

He reminded delegates of the busy week’s schedule, which includes an authoritative conference lineup, exhibition programme, TFWA i.lab Asia, and the popular One2One meeting service.

As reported, TFWA will stay at the Marina Bay Sands Expo & Convention Centre until at least 2026 after striking a new deal last year.

China: Direct flights rise in appeal

Drawing on research from ForwardKeys, Juul-Mortensen pointed out that international seat capacity from China stood at 45% of 2019 levels in the second quarter of 2022.

While the result was an improvement on the 21% recorded in Q1, a full recovery remains a way off.

The relaxation of travel and border restrictions in China in January offers an undoubted boost to the DF&TR industry, though it is widely accepted that it won’t be until 2024 at the earliest until a full restoration of pre-pandemic travel volumes occurs.

“Early indications show that Asian destinations, such as Thailand, Japan and Korea, are benefitting first, with long-haul travel at scale likely to follow later,” continued Juul-Mortensen.

“For many Asian-based retailers, the immediate priority will be winning business that’s close to their bases, but their arrival in Europe and the Americas is likely before long.

“As early adopters of digital technology to enhance the traveller experience, Asian retailers have helped our industry respond to the expectations of younger travellers. This expertise will enrich the retail offer in other regions.”

Juul-Mortensen acknowledged that while Asia Pacific’s travel volumes lag behind other regions, the welcome move by China provides a strong platform for a strong recovery.

As such, flexibility and the ability to react to the evolving nature of consumer and traveller behaviours will be essential in the years to come, continued the TFWA President.

“The duty free and travel retail marketplace has changed since 2019, and so has traveller behaviour,” reasserted Juul-Mortensen. “Among Chinese outbound passengers, there is now a clear move towards direct flights versus gateways or hub airports.

“Forwardkeys data from this year’s first quarter shows 74% of bookings for international departures from China being direct flights, and only 26% destined for gateways. Travel is also moving upmarket, with international business class arrivals recovering faster than those from the leisure-oriented, economy cabin.

“And anecdotal evidence from retailers in the Middle East suggests spend per head among some nationalities has risen to the point where it outweighs lower passenger numbers, pushing turnover back above pre-Covid levels. It seems that many of today’s travellers have an appetite for luxury.”

The merits of a combined physical and digital (hybrid) retail experience plays out in the shopping journey, continued TFWA’s President. However, while immersive digital strategies remain important, face-to-face contact is restoring and retailers are adding impetus to their own physical retail endeavours instore.

Examples of this include Lotte Duty Free’s tie-up with beauty brands to host physical, offline events for its VIP customers, and the hiring of Maîtres de Maisons at Groupe ADP’s retail and hospitality concept Extime.

Beyond Hainan

Turning to Hainan, which plans to zero-rate tariffs in 2025 in line with the development of its Free Trade Port, Tuli continued: “In the dark days of Covid, one beacon of hope burned brightly in this region: Hainan island, the centrepiece of China’s ambitious offshore duty free sector, drew domestic travellers in their millions to shop at a glittering array of airport and downtown outlets. Brands thronged to organise innovative, striking pop-ups in one of the few parts of the world still open for duty free shopping.”

He praised the investment from China’s authorities, retailers and brands present on the island, evidenced by new flagship stores and regional office openings.

“The island’s next big challenge lies in reaching out beyond its base of loyal domestic consumers, to attract travellers from outside China,” observed Juul-Mortensen.

Aside Hainan, Juul-Mortensen reminded delegates to look beyond major markets – such as China, Korea and Japan – to consider the likes of India.

Last month, India overtook China as the most populous country in the world confirmed Juul-Mortensen, drawing on data from The Economist.

Underpinning India’s potential is 144 airports, 29 of which are international, backed by growing retailers like Delhi Duty Free Services and Mumbai Duty Free.

“A rising middle class, combined with a strong duty free purchasing reflex, bode well for the future,” continued Juul-Mortensen.

“Large infrastructure developments are underway at Bengaluru and Hyderabad International Airports too; India is evidently a major duty free and travel retail market in the making.”

The TFWA President then offered his heartfelt tributes to Yngve Bia, Founder of Gen research (1951-2022), who sadly passed away recently. Juul-Mortensen paid tribute to Bia’s thoughtfulness and pioneering qualities.

He concluded: “We have every reason to be optimistic about the current state and outlook for our industry in Asia Pacific. Traveller numbers are rising, the region’s retailers are ambitious to expand, Hainan will continue to prosper, and potential powerhouses like India are coming to the fore.

“It may take a year or two, but I’m sure the region will regain its position as the global leader in sales to travellers, and we at TFWA are determined to play our part in the renaissance of Asia Pacific duty free and travel retail.”

[For more from TFWA’s President, access the TRBusiness May Asia Pacific special edition e-zine by clicking here and also ensure you pick up your print copy from the press racks on the exhibition floor].

Revving up Asia Pacific’s engine

Asia Pacific Travel Retail Association (APTRA) President Sunil Tuli then took to the stage to address delegates on behalf of the not-for-profit organisation, which advocates – and delivers other services – on behalf of its members and the industry to more than 45 governments throughout the region.

The return of Chinese outbound traffic coupled with returning group tours to key destinations such as New Zealand and Thailand offer strong prospects for 2023 and beyond, said Tuli.

He pointed to the regional engine of DF&TR accelerating, with a full return to 2019 traffic levels forecast for next year.

“The priority is how we optimise that recovery,” he said. “It’s crucial we strive to make this recovery phase in 2023 as strong as possible; the better we do this the more robust our position will be to fully exploit the growing opportunities that 2024 will bring.”

Drawing on ACI data, he said that 13 months on from Singapore Changi Airport reopening to international traffic, the hub has returned to the list of the world’s top 10 busiest airports.

The latest forecast from APTRA research partner ForwardKeys points to an overall recovery in international departures from Asia Pacific to 53% of 2019 volumes in Q2 2023, delegates heard.

He pointed to steady progression across the region, with climbing spending acting as a stable base for the recovery.

While airlines have been affected by capacity constraints, that situation is improving – as is the mix of those passengers.

More than one billion Asians are set to join the middle classes by 2030; 75% in India and China, said the APTRA President, reminding conference guests about accelerating growth in nations including Vietnam, Thailand and Bangladesh.

“These eager consumers are our key targets and they love to travel; and when they do, they also love to shop. While some nationalities may have reverted to more typical purchasing behaviours, with more people generally back to travelling in 2023, the prospects for travel retail in the region are highly positive. At least two markets (Singapore and Australia) have actually exceeded their 2019 duty free revenues for the same period.”

Advocacy updates

He then moved to address more immediate regulatory and advocacy issues, with 13 campaigns undertaken over the past 15 months.

“The intensity of the pandemic inevitably dominated the agendas of the region’s governments, but as Covid moves into the rear mirror, there are increasing regulatory obstacles on the road ahead,” explained Tuli.

He cited APTRA’s involvement in cross-association activities with Airports Council International, Association of Asia pacific Airlines, International Air Transport Association and Pacific Asia Travel Association.

These have been designed to press governments to consider open border solutions; from travel corridors and bilateral agreements to facilitate international travel to aid returning businesses, including those in travel retail.

APTRA was involved in a recent meeting with ASEAN officials sympathetic to the former’s representations, with letters of support obtained from organisations such as the Hong Kong Tourism Board.

Tuli cited New Zealand’s ‘generational end game’ on tobacco (no one born after January 2009 will be able to legally purchase cigarettes in New Zealand under proposed plans) with APTRA making representations to government to ensure travel retail’s unique mechanics are respected, including retail licence allocations that are set to be slashed by up to 90% across the country.

This remains an ongoing situation, delegates heard, with an outcome expected later this year.

“Other countries in the region, including Malaysia and Hong Kong, look set to be considering similar strategies and we are currently working with operators in Malaysia to co-ordinate the most effective approach to the government’s recently renewed focus on the issue,” added Tuli.

Elsewhere, APTRA’s Alcohol Working Group has liaised with government authorities in South Korea over an increase in alcohol value allowances.

Pernod Ricard represented APTRA in a face-to-face meeting with Korean customs in March, making the case for increasing value allowances that are sensitive to inflationary changes as Korean consumers tilt towards more ultra-premium spirits.

“This is now being considered, although we don’t expect it to be reviewed in the short term,” said Tuli.

After mentioning APTRA’s sustainability efforts, Tuli concluded: “We are always looking at industry growth opportunities and this includes currently advocating for increased alcohol and tax free allowances in key markets such as India and Thailand.”