The Middle East Duty Free Association (MEDFA) 8th annual conference themed 'New Horizons: Seeking opportunities out of crisis' attracted nearly 380 delegates this week at the Al Bustan Rotana Hotel in Dubai, with most delegates

TREND spoke to expressing satisfaction with the quality and content of the event.

In its preamble material, MEDFA promised to 'tackle issues of strategic importance to suppliers, retailers and landlords in the region' and the first session (mostly) did not disappoint.Moderator Dermot Davitt opened proceedings, explaining that official engagements had prevented His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman Dubai Airports & Chairman Emirates Airlines from addressing the Conference. Dubai Duty Free Managing Director Colm McLoughlin stepped in to deliver his short address instead

McLoughlin formally welcomed all the speakers and the audience and talked about airport infrastructure improvements, including those at Dubai and Abu Dhabi and he said there would be 40.5m passengers at Dubai this year – an impressive 8% increase on last year.

He said that Dubai International Airport is now the world's biggest single duty free airport with $1.1bn in sales through Dubai Duty Free last year. This year that total is expected to be up by 4% and Dubai has done very well at the same time that airports in the rest of world have mostly struggled.

McLoughlin said that the first phase of the new Al Maktoum Airport will be open in June 2010 and that Dubai and the UAE is now well placed for expansion, with a resilient economy and a world-class infrastructure. On behalf of Sheikh Ahmed, McLoughlin then welcomed everyone to Dubai before handing over to Chief Moderator of the day, Dermot Davitt of The Moodie Report.

Moderator Davitt began by paying due homage to the brave charity runners for The Smile Train last Saturday where $50,000 was raised and he also acknowledged Dubai Duty Free's very generous subsequent donation of $1.5m to The Smile Train over the next three years.

HUGE INFRASTRUCTURE DEVELOPMENT
Davitt then handed over to MEDFA President Anthony Chalhoub who pointed to the huge infrastructure developments that are happening in the region. He said that the well-publicised traffic increases at airports across the region were encouraging. Having said that he pointed to a $500m loss for the region's airlines versus the significantly higher original forecast of $1.5bn – a considerable improvement. He said there are currently $178bn-worth of aircraft on order, representing some 1,000 aircraft and he also tabled the airport developments taking place in the region by location.

Chalhoub said this was time for a call to action in terms of investments, vision and partnerships and he urged the audience to get involved in the upcoming conference sessions and 'not just listen and nod heads'.

Next up was Stephen Cole, News Broadcaster, Al Jazeera who was supposed to provide an economic and industry perspective on how the MENA region has performed during the economic downturn. However, this was to prove to be a disappointment.

Cole described himself as a newsman and then proceeded to talk solidly about himself and his achievements for just over five minutes before finally touching on the Middle East region – sporadically.

In general terms, Cole said: ‘I think that the economic situation is clearing and it is getting better,’ and he quoted industry sales numbers obviously gleaned from trade publications, alongside more recently reported sales figures from the region's operators.

He then talked about new horizons, noting that global retail sales have fallen by 10% and then quoted industry numbers from Generation Publications (unattributed), along with comment on recent sales achievements by operators.

Cole talked a lot about economic observations in other regions and he said the relevance of this was that confidence amongst consumers generally was low, but he did meander too much and it was not the most dynamic conference opening.

In the Middle East he noted that Israel was under pressure and The Lebanon is an economic success and he added that the Middle East is becoming a much more sophisticated retail environment.

He said some premium products have done well despite the recession and he pointed to perfume brands priced at over $100 per unit as good performers in the first eight months of this year.

Cole said that the more he travels the more he hears about green shoots and he believes there may be even be some new buds. He said that the Middle East economies will be some of the first to emerge from recession and traffic continues to defy international trends. The Middle East was the only region to show any growth this year. Middle East carriers have boosted seat capacity by 10% this year, but can this be sustained?

During the boom years Cole said shopping was about fun, but now he believes it is about quality, design and value and he predicted that customers will become more discriminating in future. At the same time, he added that price will continue to be a driver for air travel and more brands will embrace the internet.

He said that this is a new kind of recession and the measures necessary to survive it are different. At the same time he said that high-end goods are not necessarily all suffering, although this would appear to directly contradict some of the reports from the region's operators at the coal face to TREND.

In conclusion, this was a scattergun presentation and a masterclass in delivery without content where Cole didn't really tell the audience anything they didn't know already.

He said that the international recession was easing, but it was too early to predict when total recovery would come. Whether consumers will emerge with different attitudes remains to be seen he said, adding that 2010 is going to be another interesting year and he believes consumers will become more sophisticated.

Davitt then joined Cole on stage and appeared to try and bring him back to issues of relevance both to the brief and the Middle East when he asked him about oil prices. Cole's response was that the Middle East is almost a separate region from the rest of the world and he believes it needs to get closer to the rest of the world. He said tourism is coming back and people are looking for more long-haul experiences in tourism. He said Syria, Jordan Morocco and Beirut are all destinations he believes will benefit from this trend.

But then he added that the real emerging nations are the BRIC countries and he said that the Middle East needs to engage more with the BRIC countries. Cole duly signed off to collect his cheque. [With no apologies from me for my forthright comments-Ed].

INTERESTING FILM
Thankfully, with this 'presentation' over the Marshall Arts company showed a film featuring airport and airline development. This looked at some of the landmark airport developments in the region and was of the usual good professional standard produced by this company. Abu Dhabi Airports Company's T3 was featured, along with sound bites from Dan Cappell, VP Non-Aeronautical Revenues, Abu Dhabi Airports Company and others.

Centrally, Cappell said the new ADAC operation was not complicated since it was based on benefiting all parties, including – most importantly – the customer. The retail offer was a step up, he said, with premium offers, but not at the expense of the core affordable offer.

The film then jumped to Qatar and the new airport and Akbar Al Baker, Ceo of Qatar Airways and Qatar Duty Free who said that Doha's new airport will be a state of the art' facility that will also be sustainable. He said it will also be a surprise to many in terms of how state of the art it actually is when it opens and he added that a lot of focus has been given in the design stages to non-aeronautical revenues and that the airport plans to generate revenue from many sources.

Moving onto Dubai Duty Free, Colm McLoughlin spoke on film about the new Al Maktoum Airport which opens its first phase next year. He also pointed to the strong sales performance since April at Dubai Duty Free and the fact that last year's record sales total of $1.1bn is now likely to be surpassed this year.

Interestingly he noted that Concourse 3 is on target, but while the present airport is still being expanded, he said it might still be some 10-12 years before Emirates moves over to the Al Maktoum Airport from its present facility.

The film then moved on to Larnaka Airport where Aer Rianta International Middle East has an 11% share in the consortium that now holds a 25-year contract to develop and operate both Larnaka and Paphos airports in Cyprus. ARIME Managing Director John Sutcliffe talked about the operator's performance this year and the huge significance of the Cyprus airports' projects. [All of this information can be found in the November issue of The Business-Ed].

The film then posed the question whether the region isn't heading for an overcapacity crunch – a view held by some, while others believe that the industry 'will grow into this new capacity'.

With seven low-cost carriers emerging in the region in recent years, the competition for passengers has become fierce and ARI Director General Eamon Foley told Marshall Arts that overcapacity in the market place could become an issue. He also questioned whether the current passenger growth rates are sustainable – a view he expressed in a lot more detail in The Business' Top 10 Global Operators Report back in October.

ANTICIPATING THE FUTURE
After the film the morning moved on to the next session which was entitled 'Anticipating the future' and this featured Dan Cappell, VP Non-Aeronautical Revenues, Abu Dhabi Airports Company, Paul Griffiths, Ceo, Dubai Airports Company and John Sutcliffe, Managing Director, Aer Rianta International Middle East.

Moderated well by The Moodie Report's Dermot Davitt, this session was interesting, with its focus on the ongoing investments in airport development throughout the region, despite the economic slowdown.

Davitt asked Griffiths whether there is a danger of overcapacity and Griffiths said he doubted it considering this is a global business. He said the proximity of different airports in the region was not the issue, but the future will see the focus of passenger traffic shift considering there is $39bn-worth of airport development going on in the region.

Griffiths then talked about the investment in Terminal 3 which he said was just one part of the expansion, with Concourse 3 coming up. He said the importance on non-aeronautical revenues will be a focus because the basic model of trying to make money from aeronautical revenues alone is simply not an option.

Dubai Duty Free's Colm McLoughlin said that the opening of T3 had been fantastic, having brought many advantages and addressed congestion issues around the airport while also delivering better returns to DDF. More than 55% of total business is now accounted for Terminal 3, he said and while the operation may not be perfect, he said improvements were ongoing, such as signage as one example. He said the performance of Terminal 2 – which is often forgotten – has also been good, while emphasising the very good relationship that exists between DDF and the airport.

Moving on to ARIME's John Sutcliffe, he said the greater Middle East is quite an extensive region and sometimes the industry tends to concentrate solely on the Gulf when there are other locations of great interest. He said Larnaka in Cyprus is such an example.

He said that ARI joined with the consortium and which has now delivered two new terminal facilities in as many years and he said it is also a great example of how all the different components such as airports, airlines and retail and F&B have worked together.

Having said this added that the Cypriot airports have suffered from the weak pound, since British visitors are traditionally high volume customers at both Larnaka and Paphos.

ABU DHABI TERMINAL 3
Moving on to Dan Cappell, ADAC's VP Non-Aeronautical Revenues, Cappell said that the new Terminal 3 facility at Abu Dhabi International Airport has made a significant difference to the business, having chosen to rake the route of premiumisation and he added that DFS as a retailer right up there with the best in the world.

Cappell explained that Abu Dhabi's traffic projection for the full calendar year is now running at plus-9%, although the first quarter was very difficult because of limited access to shops during store construction. But this all picked up in April and ADAC is now on target. He also repeated his satisfaction with DFS, Sharaf and Pure Gold [as he did in a major interview with The Travel Retail Business in our November issue-Ed].

Looking at his airport's performance, Paul Griffiths, Ceo, Dubai Airports Company said that Dubai had just completed its fourth month of consecutive growth and has already passed the 40 million passenger level mark. He said Dubai is the only airport in the top 10 that has maintained its growth levels. He said the transfer passenger market has also grown and suggested that that was definitely a market share gain.

Griffiths said that Dubai International Airport is now expecting an 8.5% compound annual growth rate over the next couple of years.

Looking back at the year, DDF's Colm McLoughlin said he was also very happy with the performance and particularly considering that DDF had been worried that luxury goods sales would go down. But he added that initiatives such as discount days and staff incentives, plus other actions had all helped to bolster sales [again, this subject was covered in more detail in the November edition of The Travel Retail Business-Ed].

While ARIME's John Sutcliffe painted a pretty positive picture of growth at several of the company's operations in the region, he said that he was probably not so optimistic as others due to ARIME's wide portfolio of operations.

He said the big question now is what is going to happen to the dollar. While prices are attractive to customers at present, he said areas that are dependent on UK customers might have to wait until 2011 for a full recovery.

He also added that while ARIME has addressed cost savings like everyone else, it was not just about cost savings, but equally about creating a more friendly environment for passengers to shop. This was where he felt that ARIME had done a particularly good job.

He said the big challenge is to maintain high levels of service and it is all too easy to simply cut back and particularly considering that there is a huge amount of infrastructure coming on line with the challenge for retailers to maintain quality service as this all starts to open up.

DDF's Colm McLoughlin said that in his view the biggest initiative any airport operator can take is to try and increase the penetration. He said 42% is very good in terms of airports, but why can't it be raised to 50%? He mentioned a myriad of measures that can be taken to achieve this goal.

For his part, Dubai Airport's Griffiths said that many of the mechanisms of going through security and immigration have got to be made more efficient and passengers almost need to hardly notice these procedures if airports are to create a lot more dwell time in the terminal to help increase sales.

He said more efficient security and immigration facilities, rather than the legacy model the industry has been used to would also create more precious space.

Meanwhile, ADAC's Dan Cappell said that this is an aspect of design that the company is looking at right now for the new airport at Abu Dhabi which is in the planning.

Moving on, Moderator Davitt asked Cappell how the decision to outsource its retailing had worked out. Cappell responded that a major step change was demanded at Abu Dhabi and the decision to outsource its retailing has delivered much of this.

He also said that it was no contest when ADAC asked itself whether it could have developed the retail itself. Cappell said it was decided that there was clearly only one retailer operator who had the ability to bring in the brands that Abu Dhabi wanted and that was DFS.

Interestingly, Cappell also made the point a little later that while ARIME now works with virtually every conceivable style of contract, he said the big three all different in terms of their operational structure.

For ADAC, he said the principles of the Trinity were key and he added honestly that ADAC doesn't really know its customers as well as the airlines. Griffiths added here that perhaps it would be a good thing if airports could sometimes be the marriage broker that brings both of these parts of the business together. Quite sensibly he added that the more insights available on the customer can only help to be a real driver of sales.

John Sutcliffe echoed this view. He said the region is changing and there will be very significant demands for funding. He called on the audience to appreciate that where there are very high quality retail operations and high quality airlines there will be growth if everyone works together.

RIDICULOUS BIDDING…
But he also warned that some operations have been subject to ridiculous bidding which has then translated into poor operations and he referred to this [quite rightly-Ed] as a throw back to the eighties.

But just as he was critical, Sutcliffe also said that while he was very critical of suppliers around two years ago for not engaging with retailers more closely, he said it was only fair to acknowledge the changes and the sheer amount of investment that suppliers have made since. However, he repeated his warning that high bids for short term contracts should be avoided at all costs.

Summing up, Moderator Davitt asked each member of the panel for their individual commercial priorities over the coming year.

Colm McLoughlin said very sensibly that it was important not to lose sight of the fact that duty free must reflect value – even if exchange rates and currencies make this difficult. He said that the industry needs to be better at marketing, as well as maintaining leadership in sustainability and being environmentally friendly.

John Sutcliffe said ARIME would be looking for continued efficiencies and to work closely with its partners to maker sure the solidity of its relationships is maintained. He said the industry as a whole also need to engage very actively with its airport stakeholders to improve the treatment of passengers and make it easier for them to transit through. He said this is how to obtain the best spends in the shops.

For his part, Paul Griffiths said that growth and service quality were priorities, along with an increasing reliance on the strength and depth of relationships. At the same he said it was important to maintain a focus on taking costs out of the business, while remaining innovative and gathering expertise and not being too proud of where that comes from.

Dan Cappell said that from the non-aeronautical side it was important not to be complacent and keep pushing the envelope. He said the industry has been guilty of sitting back and just watching the passenger growth and now it is time to really push the envelope to try and ensure that real growth is actually being achieved.

[The full MEDFA Conference report will be published in the next edition of The Travel Retail Business' December issue, although we will be publishing extracts and some more highlights on TREND over the next few days-Ed].