Larnaca Airport to scale up duty free in big project

By Luke Barras-hill |

Passengerflows_Larnaca

Larnaca International Airport in Cyprus handled 8,067,037 passengers in 2018.

Hermes Airports is undertaking a substantial redesign of the shopping and food & beverage footprint at Cyprus’s Larnaca (Larnaka) and Paphos (Pafos) International Airports as part of an investment totalling more than €15m/$17m.

In March, the airport operator announced construction works had begun on the retail and restaurant areas at Larnaca Airport, which are run by Aer Rianta International company CTC-ARI (trading as Cyprus Airports Duty Free) and Cyprus Airports F&B Ltd, respectively.

It is expected to last 18 months and will be executed in phases, with the end result being a modern, refreshed commercial zone at the single terminal that optimises passenger flows while enticing travellers to shop and dine, Elias Liolios, Senior Manager Commercial and Business Development at Hermes Airports told TRBusiness in an exclusive interview.

Phase one, which is expected to run until October, has already resulted in the re-location and upgrade of Burger King and Costa Coffee outlets, with attention now turning to the duty free zone with an initial focus on perfumes & cosmetics.

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Elias Liolios, Senior Manager Commercial and Business Development, Hermes Airports and Chair of the ACI Europe Commercial Forum.

P&C SPACE TO INCREASE

Currently, the CTC-ARI-operated P&C zone measures 850sq m but this is expected to lift to 956sq m when the refurbishment completes.

The existing total commercial footprint spans 6,754sq m and covers duty free, retail and F&B. Souvenirs, fashion, jewellery, watches, accessories, children’s toys and electronics take the lion’s share of the retail space (1,315sq m), followed by P&C (850sq m), liquor (600sq m), confectionery (220sq m) and tobacco (140sq m).

While stopping short of revealing new brands set to arrive in the retail areas, Liolios pointed out how the new environment would offer a stronger mix and a more experiential offering.

This will include Cypriot-inspired cues with merchandise that blend elements of tradition and modernity.

The design backdrop is being supported by the expertise of The Design Solution (TDS) and Pragma Consulting, who became involved in discussions to re-shape the commercial space around three years ago.

“We have documented that we want to be best-in-class,” Liolios made clear to TRBusiness. “We want people to walk through this and be wowed. We want that Cypriot element in there and with TDS we have in our plans ways to get adjacent product offerings between retail and F&B that are going to create a market atmosphere.

“One of the dreams and visions we have is not just a retail offering, but F&B also has to come to life as part of this re-design,” he continued, hinting that passengers will experience a new duty free walkthrough experience when the works complete.

“F&B is the new retail, but it will never be the new retail,” Liolios pointed out. “The best of both worlds is to have a proper offering between the two businesses and the right integration between them.”

However, realising this journey towards a new commercial vision has not been without its challenges.

This is in part due to the fact that commercial design and wayfinding were secondary to operational priorities when Larnaca’s then-new terminal opened its doors in 2009.

“The re-design did not happen automatically,” Liolios explained. “We had on paper a great offering, both from a retail and F&B point of view – the problem was we had too many passenger routes (flows). They could follow a route and miss 50% of the (commercial) offering.”

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A more expansive and seamless walkthrough experience will greet passengers entering the uprated perfumes & cosmetics area when the phase one refurbishment completes.

The airport is undertaking the improvements in a live environment, which brings its own challenges, with temporary units and hoardings shielding  passengers from the construction works in order to mitigate against any disruption to flows during the first phase.

This is perhaps better illustrated by the fact that the existing departures corridor is flanked by  perfumes & cosmetics on the one side and liquor and tobacco and confectionery on the other.

“While this looked great, from an operational point of view we definitely had challenges,” admitted Liolios. “With the redesign and change of space and a lot of temporary pop-up shops, it is a great opportunity; let’s test the environment with offerings or a slight changing offer to see the reaction of passengers coming through our airports.”

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A conceptual view of the new P&C area at Larnaca International Airport. The size of the category will increase from 850sq m to 956sq m.

While Hermes Airports is pushing full speed ahead with a complete refurbishment at Larnaca, the operator also plans to undergo a similar process at Paphos Airport at the end of this year with its partners TDS and Pragma Consulting.

As the smaller of the two, Paphos handles approximately 2.8m passengers per year and is a predominantly seasonal destination for holidaymakers, with Ryanair having a base there.

Paphos Airport’s commercial zone in the departure area measures 2,073sq m, with the split of F&B and duty free/retail at 60:40.

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Currently, the perfumes & cosmetics zone sits opposite liquor, tobacco and confectionery in the international departures corridor at Larnaca Airport. This is set to change with the creation of a new duty free walkthrough experience and marketplace environment.

“All parties are ready to try things and adapt and we do this constantly,” said Liolios. “We are not afraid to try something and if it doesn’t work, we move on. If we get two or three good ideas all of a sudden, we can adjust our whole offering to ensure that is permanent.

“As a priority, the job has to be done in a very safe manner, not just for our passengers coming through, but it is just as important for anyone working at the airport to be following very strict health, safety and environment rules we have in place.

“This will hopefully minimise passenger disturbance and keep the flows going. We are achieving this by consistently communicating with all stakeholders.

“We want to change perceptions – airports are not meant to be malls, they are the means to get from point A to point B in travel but we have an opportunity that no one else has; the opportunity to touch all of those 8m passengers (at Larnaca) with the right offering and experience.”

BREXIT: SPENDING ‘STABLE’

Reflecting on the past 12 months, Liolios admits the performance of travel retail and duty free across its airport portfolio has been steady, but revenue has not increased in line with passenger growth.

Both airports handled close to 11m passengers in 2018, with Larnaca posting growth of +4.3% (8.1m) and Paphos at +14.1%  (2.9m). January year-to-date, Larnaca has returned almost flat growth (+0.3%) with Paphos more healthy (+13.4%).

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Transactions at tillpoint are ‘stable’ despite enduring Brexit uncertainty, although spend-per-pax growth lags behind passenger volumes at both airports.

“From a revenue point of view we have been stable in travel retail and duty free, but if we look at spend-per-head we’ve been declining,” said Liolios.

Currently, non-aeronautical revenue’s share of total income at the airports is around the 22%-23% mark, the majority of which is contributed by retail and F&B.

In August, Victoria’s Secret and Accessorize bolstered the line-up at Larnaca, with Liolios pointing to ‘phenomenal’ results and increased penetration since the two arrived.

Turning to macroeconomic and geopolitical pressures, Brexit has cast a cloud of perpetual uncertainty across Europe, with many airport operators vocal about a situation that severely threatened route connectivity and the very principles of open skies up until the EU announced plans to protect existing – and consequently new – air traffic routes between the UK and EU27 in the event of a no-deal scenario.FashionLarnacaAirport

At the time of writing, the excruciatingly long affair of negotiating a withdrawal agreement satisfactory to all political sides continues, with October the deadline to see any deal over the line.

However, for Hermes Airports – which holds a *25-year BOT (build-operate-transfer) contract for its airports – any loss of confidence in travel and spending in Cyprus as a result of the Brexit scenario appears to have levelled off.

“We have a lot of KPIs we are reviewing on an almost daily basis and we have a very strong cooperation with our retail and F&B partners in that we get access to data,” explained Liolios. “This is critical and from what we see we can get pretty close to understanding why the spending behaviour of a specific flight is changing, whether it is a one-off or a trend.

“Critical for any airport is the buying power of the passengers and our number one destination is inbound (traffic) from the UK, meaning that when the exchange rate of the sterling shifts we see that (impact on spending) within a couple of weeks.

Confectionery_LarnacaAirport

“From a Brexit point of view, spending has stabilised – the market reacted very quickly to the situation. I am seeing stability in 2019 meaning the market has adjusted. What is going to happen downstream – when and if [UK-EU] duty free kicks in –  there are advantages for our airports.”

Liolios stressed that as tourist destinations, the majority of passenger traffic at Larnaca and Paphos Airports is comprised of holidaymakers venturing on those one or two guaranteed planned trips a year, which is of clear benefit.

Notwithstanding this, concerns remain over those extra flights that may have been booked by passengers to the destinations throughout the year. This is particularly important given 70% of the traffic at Cyprus’ Airports is inbound.

“The extension of Brexit until October is a benefit to all,” stated Liolios. “If it (brexit) was kept to the Summer , not only Cyprus but other airports would be affected.”

AGILITY AND RESPONSIVENESS

TRBusiness then asked Liolios to outline his philosophy on how he wishes to improve the travel retail and duty free experience and evolve the mix for passengers at the airports in collaboration with partner CTC-ARI.

He explained that all three parties (Hermes Airports, CTC-ARI and Cyprus Airports F&B Ltd) previously sat down to discuss new approaches to development at the time of planning for the re-design.

“What we saw was we were very slow to react to industry trends – but that’s only one thing, it’s about what passengers actually need,” he said. “In any airport that you see double-digit growth, 90% of that comes from low-cost carriers.

“Low-cost offers passengers the ability to travel to destinations that they may never have thought about before at a fraction of the cost. The passengers are a lot more experienced, taking two to three trips a year, so their propensity to spend on that special product that they would spend once a year will continue and the other two times they travel it will just be getting the essentials.”

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CTC-ARI provides shop-and-collect and home delivery services for local outbound traffic, which accounts for 30% of the total mix, with the vast majority of the airports’ traffic being inbound.

Touching on the rise of disruptive technologies – click and collect, reserve and collect and home delivery being a handful of examples – Liolios said CTC-ARI has implemented shop-and-collect for outbound travellers, who can pick up their goods on return, and home delivery. Again, this only applies to local outbound traffic, which accounts for a mere 30% of the travel mix.

The airport is also working harder to strengthen its online presence. It already invests in social media and by the time the project concludes, it is confident of optimising its existing set-up.

“I feel the minimum is to make sure the passenger is informed of what offerings are available at the airports,” said Liolios. “What we all tend to forget is they are very informed, whether that is through social media, press, web… we need to do a much better job of showing the passenger what is available and I don’t think a lot of airports think about that.

“Critical is prior to their travels, what is available to eat? What is open? What is the product offering in retail? The choices and availability? All airports need to work with retail partners to ensure they have an online offering.”

Hermes Airports is hosting the 29th ACI Europe Annual Congress in Limassol, 25-27 June.

All images of Larnaca Airport courtesy of Hermes Airports.

*BOT concession agreement runs from May 2006 to May 2031.

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