New impetus for EU arrivals duty and tax free shops

By Luke Barras-hill |

Arrivals duty and tax free shops are a common staple at non-EU and EEA airports, including in Norway where Gebr. Heinemann joint venture partner Travel Retail Norway operates a 4,000sq m store at Oslo Gardermoen Airport.

A campaign to persuade EU lawmakers to permit duty and tax free sales on arrival at airports is gathering momentum following the publication of research that outlines the economic merits.

The European Travel Retail Confederation (ETRC) and Airports Council International (ACI) Europe have renewed calls for the EU to change legislation and authorise the shop sales in a bid to deliver essential support for beleaguered airports and their commercial revenue partners.

During a virtual briefing held today (28 October), York Aviation Partner James Brass presented findings from an independent report commissioned by the ETRC.

The report models a series of potential economic scenarios that the DF&TR lobby believe will add weight to a campaign launched in the summer.

GRASPING A NEW INCOME SOURCE

The report (available to view via a link below) focused on three important EU markets: Germany, Italy and Spain and drew input from major retailers, among other sources.

It is well established that irreparable damage is being caused to Europe’s aviation ecosystem due to the coronavirus (Covid-19), with ACI Europe revealing that close to 200 airports are facing liquidation unless the traffic situation improves in the coming months.

“It has become clear that the pockets of the government across the EU are not bottomless and we need cost-effective ways to maintain the aviation ecosystem,” commented Nigel Keal, President at ETRC. “This is not a new concept; it is a proven business model and can deliver consistent and reliable revenue streams.”

In a presentation, Brass reminded viewers that commercial revenues are core enablers of airports’ viability and duty and tax free sales on arrival presents a new stream of non-aviation revenue for the EU.

However, the concept of duty and tax free arrivals shops is not new and already well-established in European Economic Area (EEA) and non-EU countries, with many jurisdictions such as Turkey, Norway, Switzerland, Australasia and the Middle East reaping the sales rewards.

Currently, EU legislation means only passengers leaving the EU can shop duty free and tax free.

The ETRC is pushing for amendments to current EU legislation to allow airports to operate duty and tax free arrivals shops in a bid to level the playing field with non-EU airports, who can sell to passengers on arrival and departure.

ETRC and York Aviation both point to ‘levelling up’ competition between EU and non-EU airports, while supporting a recovery that enables stakeholders to rebuild their balance sheets in a manner that incentivises growth in aviation demand.

As reported earlier today, duty and tax free arrivals sales could make up approximately +20 to +30% of total travel retail sales at EU airports.

Although only three markets were assessed in the report, each provided some interesting yardsticks on the direct, indirect, induced and wider impacts of introducing arrivals duty and tax free sales in the EU.

All three countries accounted for around 35% of seat capacity from EU airports to non-EU destinations in 2019.

The modelling made a comparison with 2019 traffic levels, but the industry has already acknowledged ACI Europe’s forecasts that 2019 levels are unlikely to restore until 2024/2025 at the earliest.

As such, it would take time for the economic benefits of duty and tax free arrivals sales to reach their full potential.

York Aviation Partner James Brass illustrated several key points during the report presentation: duty and tax free arrivals shops would shift sales from outside the EU to inside the bloc, rather than significantly increasing overall DF&TR sales; allowances would remain intact, mitigating against impacts to domestic markets with governments unlikely to bear costs to public finances for lost excise or sales taxes; the change could boost government revenues and economies; and evidence suggests the new shops could account for 20-30% of travel retail sales at EU airports.

The analysis suggests that for every million one-way seats to non-EU destinations in 2019, arrivals tax and duty free shops would have offered €16 million in gross value added (GVA) – a measurement used to calculate economic productivity – supported 155 jobs and generated €6 million in tax revenues.

Across the EU as a whole, arrivals duty free and tax free shops would have supported around €4.3bn in GVA, 41,500 jobs and raised €1.6bn in tax revenues, continues the report.

Tracking forward through 2024 – assuming the recovery is broadly in line with ACI Europe’s aforementioned traffic forecasts – the assessment puts the impact at around €3.5bn in GVA, 33,700 jobs and €1.3bn in tax revenues.

Accordingly, an analysis in Spain revealed that implementing duty and tax free arrivals shops in 2021 would contribute around €300m in GVA, support 3,000 jobs and generate around €100m in tax revenues.

In Italy, introducing the system in 2021 would support around €190m in GVA, 1,900 jobs and around €80m in tax revenues.

Meanwhile in Germany, the effect would be in the region of €620m in added GVA, 5,900 jobs and around €240m in tax revenues.

ALLOWANCES UNCHANGED

Importantly, the report notes that it is unlikely that duty and tax free arrivals shops will result in a significant increase in overall travel retail sales globally but will instead shift sales from outside the EU to within it.

Allowances will stay as they are, meaning domestic markets are unlikely be affected nor will EU governments incur costs to public finances due to lost excise duty or sales taxes.

TRBusiness questioned the campaign’s timeline, specifically whether big strides to convince EU officials of the plausibility of duty and tax free sales on arrival would have to be made by the end of this year for the campaign to be effective.

ACI Europe is backing calls to open duty and tax free sales on arrival at EU airports.

In response, Julie Lassaigne, ETRC Secretary General said: “In terms of legislative change, we are hopeful we can trigger and leverage the support in the coming year if the commission can come up with a proposal to change the legislation and we are confident of getting the necessary support in the coming months.”

As reported, ACI, ETRC and a cross-section of aviation stakeholders have been lobbying hard since the summer to generate awareness of the economic benefits associated with the introduction of EU arrivals duty and tax free sales, with a number of letters sent to policy makers.

In addition, the ETRC has written to every government and EU member state on the issue.

During the virtual briefing, ACI Europe Deputy Director General Morgan Foulkes provided a timely snapshot of  the present market conditions facing air transport in the region.

For full-year 2020, European airport revenues are expected to sink to a level between -60% and -70% as operators work tirelessly to stem cash burn.

“We are not expecting a recovery in traffic before 2024 or 2025,” Foulkes reiterated. “The 2020 forecast is now airports will lose -69% (1.69bn pax).”

The enduring shockwaves felt by the European air transport industry necessitate collective action by governments across the EU to both support DF&TR and establish a regulatory framework that allows the sector to recover, added the ETRC.

Keal concluded by reiterating the importance of figures that back up the campaign and stressed that the focus is now on speaking to EU member states, with meetings lined up to canvass support.

Click here to download the ETRC/York Aviation report, ‘The Economic Impact of Arrivals Duty and Tax Free Shopping in the EU’.

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