European Travel Retail Council (ETRC) President Frank O?Connell told Doug Newhouse today that the time for the duty free and travel retail industry to stand up and fight to ensure its future is now. This

major interview covers the current complex state of play in the heightened security scenario and what the ETRC and others are doing to try and improve the disrupted airport retail trading environment. (With contributions from John Hume, Partner, Hume Brophy Communications).

SO HOW DO YOU SEE THE IMPACT ON THE BUSINESS TODAY FRANK?

The reality of the new regime is now really penetrating at all levels, indeed both within Europe and obviously outside and it is certainly hitting people.

I am beginning to get feedback now from various sources and particularly from some of my colleagues in ARI who have suddenly woken up to this, although I have been saying this for weeks.

So maybe the first thing to say is that I think there is still a lack of understanding of what the problem is. First of all there is a growing view and feeling that I pick up on that the EU security regulations that are currently in place for airports and some of the proposed security regulations going back a couple of years somehow make all of these airports OK.

What I have been trying to explain to people is that this is not an airport operational aviation problem. It is a problem built around supply chains and a retail problem.

The core problem is that the EU doesn't know that any liquid or gels purchased in airports overseas and brought back into the EU – to be flown on to another destination which is the key point – are safe. So it is about supply chain and the security and reliability of supply chain outside of Europe and that is the essence of this problem.

Take sealed bags. Many people have said to me 'we've got a supply of sealed bags so we are OK…' but then I say no, no, hold on a second. The sealed bag is the easy bit at the end of the chain. The issue is what goes into the sealed bag and how can the authorities know that what has gone into that sealed bag is OK… that's the problem.

NOW WE UNDERSTAND THAT, BUT CAN YOU GIVE AN EXAMPLE OF WHERE GOODS WILL BE CONFISCATED, BECAUSE I THINK THAT WILL ACTUALLY MAKE IT MUCH CLEARER FOR SOME READERS?

Well in other words if you buy something in any of the overseas airports, in Moscow or any airport overseas and you arrive at an EU airport and you are transiting on to another airport within the EU or outside of the EU – it doesn't matter – you now have to go through security in transit.

It is at that point that any products you have such as bottles of liquor, or premium products… it doesn't matter what they are if they are liquids or gels… if they are larger than 100ml they will be confiscated and there are no exceptions that have been granted to that.

In fairness I know that in airports like Moscow they have put up fairly clear signage – and certainly in ARI's shops – that does make it clear to people that there is this problem. So I think that hopefully people everywhere else are doing the same and that they are telling the passengers look, I'm very sorry but there is this problem and if you take these products and you are transiting they'll be taken off you, so you shouldn't buy them.

Now I know that it is very difficult for retailers everywhere to tell somebody please don't buy this, but in the long run for the future of airport retailing I think it is crucial that we do this and we don't have customers who have expensive products taken off them. Otherwise they'll just say ?to hell with this.. I ain't buying at any shops anymore?.

In that sense it is really important that we do play by the rules as it were and be very upfront with people to protect our own business in the long run.

DON'T THESE PASSENGERS NEED TO BE TOLD THAT THEY NEED TO BUY THEIR GOODS AT POINT B WHEN THEY ARE TRANSITING?

That is not quite so simple. You can say yes, you can buy duty free at your point of entry, but only if you are leaving the EU again. If you are actually going on to another EU airport you can't buy duty free. So we need to be careful with that message because that only applies to people who are transiting the EU to non-EU destinations, going say from the Middle East to Europe to America.

They can buy duty free in Europe, yes. But if you are going on to somewhere else in Europe you can't. I still think that people don't understand quite what the problem is and I think there is almost a suggestion that why did we agree to this regime that is causing everybody all of these problems?

WELL IF YOU HADN'T THEN IT WOULD HAVE BEEN GAME OVER FOR TRAVEL RETAIL?

Absolutely. If we hadn't agreed then we would have said, well we won't have airport shopping anymore. So this is very much the best of a bad lot if you like.

THAT IS OBVIOUSLY A VERY SERIOUS PICTURE THAT YOU HAVE PAINTED, BUT ARE THERE ANY REASONS TO BE CHEERFUL AT THE MOMENT?

I think so. I think that first of all there is a strong realisation within the people at the official level of the Commission that there is a problem. I also have to say that we've had a tremendous amount of cooperation from the Commission from day one of this. They were anxious to help us find a way of dealing with the immediate problems that we had with the bags and the system and so on leading to the regime that we now have in place.

I would have to say that the Commission played a very big role in getting that through. So there is an openness and a willingness to help us at the Commission level and that is enormously helpful, very encouraging and something to be cheerful about. That's because at the end of the day this problem will be solved by the Commission because it is going to come back to them.

This is a matter of persuading Europe that what's coming in is OK and the Commission are going to be a key player in any resolution of this.

So I think that is very positive. So what are we doing with the Commission and what's the political situation right now?Well the regime that we have is in place and it is working relatively smoothly. We have to do a number of things there that I am hoping to do probably next week. We have to go back to SAGAS [Stakeholders? Advisory Group on Aviation Security-Ed] on November 29 to give an update on what has been happening and how we are getting on. The ETRC has formally applied for a permanent seat on that committee which I am hopeful will be granted, which is very important.

Next week we are hoping to have some other informal meetings with the Commission generally to discuss the general situation going forward and how we might work at it. We've also got to go back to the Commission with our proposed final specification for bags and what we propose to recommend in relation to receipts. That is almost finished and we had a meeting with the plastic bag experts last Thursday and I expect that by the end of this week I will have the final specifications and samples of the bags. So we need to get that back to the Commission and get it approved.

So that is on a practical level with the officials. However, moving down beyond that to the issue of the outside airports and the transit problem – that's a bit more complicated. In fact it is a lot more complicated and it is very much at the end of the day a political problem as much as a practical one.

There is a political dimension to this that has now arisen which is very real and that is that in order to resolve this problem going forward, the Commission will require a political mandate to negotiate a solution to this problem with all of the countries outside of the EU.

THAT WILL BE A NIGHTMARE WON'T IT?

Well I wouldn't describe it as a nightmare, no, but it is a challenge. The first challenge is to get an actual mandate to negotiate and that needs formal requests and it needs to go through the College of Commissioners to get their approval and it needs to be approved by Council – probably the Transport Council.

Then – and only then – can they start negotiations with other non-EU countries about the whole issue of supply chains, scrutiny and then mutual recognition. But it does require a political mandate given to the Commission by the Council and that is the first hurdle that we must get over.

HOW DO YOU GAUGE THE TEMPERATURE OF THE COMMISSION AT THE MOMENT WITH REGARD TO OBTAINING THAT?

Well first of all they are very aware of it and have become very aware of it in the last week. They are anxious to solve this problem as much as we are at the official level.

That is because they understand that at the end of the day this is the EU exporting its premium internationally branded products to non-EU countries where people buy them – and in many cases our own EU citizens buy them. Then on their legitimate journey coming back through the EU the EU then takes those products back off them. It is bizarre and I think the Commission is aware of that and the long-term damage this is going to do to everybody – not only to the airports and the retailers, but also to the EU itself and its own products.

So we – along with the Commission – have to do our bit to get the member states onside to give the Commission that mandate and all 25 members have to agree to do that. So we need to start working and since our ETRC board meeting last week we have begun working on raising the temperature and pressure to get the various transport ministries and so on incentivised and worked up over this and then go back to the Commission.

THAT'S A HELL OF A JOB THOUGH ISN'T IT?

Well that is the first thing that we need to do. We then need the Commission to see this as a priority to solve and it needs to be high on their radar screens. That requires political pressures from both sides. It requires us to put political pressure through member states of the EU to say look, we are willing to give you a mandate but you need to sort this problem.

But they also need serious pressure coming at them from governments outside of the EU formally requesting negotiations to solve the problem. So the Commission and in particular the Transport Commissioner Jacques Barrot, need to be feeling pressure that says this is a priority problem and it has just got to be solved.

So that means that we need to get governments overseas to act and I have spoken to some of the overseas retailers in the last few days. I have also written to a range of retailers on this over the last week saying that they now need to be pushing buttons with their airport authorities and through whatever contacts or lines they have to their governments.

Those governments must formally request of the European Commission to open negotiations to reach a bi-lateral agreement which will allow your products to be brought through the EU. That's a really important piece now and a message that needs to get out there.

In the next few days we will produce the core of a letter that retailers and others need to send to their governments. In other words, it is really important that all of these requests to government are all asking for essentially the same thing and making the same basic arguments.

There needs to be a groundswell and a momentum building up pressure on the Commission to do something about this. This is really important and it is one of the messages that needs to go out in Dubai [at the MEDFA Conference-Ed] this week.

Retailers really need now to be using their contacts and using their airport authorities' contacts to get people worked up. Right now the Commission has had contacts from only two countries in Singapore and Japan and as I understand it these contacts are informal.

But these need to be formal requests through diplomatic channels and governments and most governments have representation in Brussels of some form or another.They need to be using those in a formal way to make these requests.

That is one part of the equation, but the other player in this is ICAO [International Civil Aviation Organisation-Ed]. So you have the EU Commission on the one side, you have governments from around the world on the other and then you have ICAO.

I've written to the President of ICAO in the last week few days as the Duty Free World Council and that letter was considered at their Council meeting last Friday. The letter has been circulated to all of the ICAO Council members and we are working very closely with ACI's representative to ICAO Anne McGinley [Director of the ACI liaison office-Ed] who is proving very helpful to us.

But I understand that today ICAO has formally set up a very time specific working group which is to report back by February with solutions to this problem from an ICAO perspective. That's important as well. We are proposing to meet them and the letter I wrote obviously detailed the situation, the core problem about the transit traffic and it also requested a meeting between us to debate and discuss this. So we are hoping to meet the ICAO people in the next few weeks and I'm sure that it can be arranged.

Now we are obviously talking to IATA and ACI and any other organisations. IATA are obviously beginning to get concerned about this as well and they can bring their own pressure through their channels. At a purely airline level there is a discriminatory aspect to this where EU airlines can sell people things onboard and seal them in bags and they are fine. But non-EU airlines cannot. So IATA can help because they do carry a lot of weight.

So that then brings us back to the overall thing. We are talking to the Commission at all levels and we are bringing pressure to bear on the Commissioner through France and also through other countries. But our first objective is to get approval of the mandate for the Commission to negotiate with these non-EU countries. The key to that will be the UK and France, so that's where some of our attention has to be.

ICAO ARE JUST ABOUT READY TO SEND OUT A LETTER TO ALL OF THESE NON-EU AIRPORTS NOW SPELLING OUT WHAT THESE NEW SECURITY REGULATIONS MEAN?

John Hume: It is being discussed at a Council meeting today Doug and there is clearly going to be a large majority in favour of sending out this letter. There may be a slight delay on it, but it is coming.

I think it is important to point out that ICAO can't tell its members what to do. It can only give recommendations and the strongest instrument that ICAO has is an actual recommendation and in order to get that it would take forever. So the second easiest thing they can do is to issue what is called a state letter.

Because the EU and the US want this there is an inbuilt majority at Council. It will be discussed today, but it is pretty much a given that the majority of people at the table will want it. ICAO doesn't do anything very quickly, but the letter is coming and it is just a matter of when.

Frank O'Connell: Once that letter goes out it will triggers the process of implementing this regime – the same regime that is in the EU now. The transit problem will obviously then spread because the same problem will then apply at all of these other airports as well. People transiting from other airports through non-EU airports will begin to face the same problems.

So unless we solve this problem we do have the potential that it will actually stop transiting passengers shopping anywhere.

OF COURSE, THIS PROBLEM ISN'T JUST RESTRICTED TO BUYING PRODUCTS AT AIRPORTS IS IT…

Oh no. It's downtown products as well. As a tiny, tiny example I've just heard this morning that there is a small shop here in town in Dublin called Celtic Spirits which specialises in high, premium whiskies and Cognacs. An awful lot of their customers are tourists and they are already starting to feel the affects of this.

So I think that what is important to point out now is that this new regime is here to stay until somebody comes up with a mechanical method of identifying liquid explosives. So we need to accept that this is the way that we are going to have to do business going forward and make the best of it.

People need to understand why there is a problem with transit and secondly and really importantly, retailers have to start using their contacts between their airport authorities and whatever other contacts they have to get to government to make formal representations to the EU. The EU has to feel the pressure.

THE KEY HERE IS THAT THE EU DO HAVE OTHER THINGS TO DO, SO THAT PRESSURE NEEDS TO BE SO GREAT THAT THE ISSUE GOES TO THE TOP OF THEIR AGENDA?

Absolutely and that's the problem, because they have a million other problems and this is only one and we have got to make this their main problem. That's where I think your magazine and other media comes into play. We've got to get people to take onboard that they have to work now. They have to do something.

We can do all sorts of things, but we can't solve this on our own. This requires a massive cooperative effort between the EU itself and us in the EU; the Commission; us and others working with ICAO; and all of the retailers around the world working with their governments.

Of course, the final piece to talk about is how do we fund all of this and this is the usual problem. As you know I was very upfront in Cannes about funding and that has brought results and there is money coming in and we have a significant number of companies contributing and probably much higher than we have ever had in the past.

However, the reality is that this type of a campaign involving ICAO, the Commission and activities overseas is going to be very demanding and it is going to take a lot of funding over the next six months to a year.

The figures we talked about in Cannes were fine as a first stage and as a way of getting the maximum number of companies involved in the funding. But the reality is that we need much bigger sums of money and therefore I think the way to go forward – and we've discussed this with a couple of possible funders – is to set up a fund which we are in the course of doing within the ETRC.

We would be looking for a figure of E.50,000 from each contributor from 20 or 30 big companies, be they suppliers, airports, retailers or whoever. Heinemann have already started the ball rolling committing E.50,000 and we need others to join that.

What I am proposing is we set up a fund like we did for the duty free campaign where it is clearly separated out of the other money that we have collected and clearly ring fenced from the other ETRC accounts and it is a pure campaign account.

We will also give a full account of this at the year's end, or every six months or so. What I am proposing is that companies contribute E.50,000 to this campaign on the understanding that we give a full account of what we are spending it on and if we are successful and some of the money is still there, then that money goes straight back to them.

I think it is really crucial to do this to be successful because we can't be hanging around looking for money to do the next bit.

BECAUSE ONE EVENT OR ACTION NEEDS TO BE FOLLOWED QUICKLY BY ANOTHER?

Absolutely and the last thing you need to be worrying about is whether you can do something now because you don't know whether you can afford to pay for it. We've got to be able to say that there is a fund there to do whatever we have to do to make this successful.

As I said, the Heinemanns have already very generously committed E.50,000 and I know that there are others who will probably do the same and we have been talking to some people already, although I don't want to say who they are yet.

But I do think that we need 20 to 30 companies to get committed to this and say right, this is the future of our industry that is at stake and say it in the most real way.

(ENDS)