Much work remains in re-setting an airport commercial model whose fissures were exposed in the wake of the pandemic to move towards more progressive and sustainable concession frameworks.
A consensus emerged among panellists discussing the perennial issue during a dynamic exchange on day one of the MEADFA Conference in Accra, Ghana.
They agreed that a shared approach towards risk and reward and flexibility within contractual arrangements are required to respond to changing consumer demands.
Abdeslam Azgoul, CEO Middle East & Africa, Avolta; Keith Hunter, Partner, Hunter Palmer Global Retail Solutions; and Nico Reifkogel, Director Business Development, Gebr. Heinemann, debated how the industry is attempting to redress the challenges associated with traditional minimum annual guarantee contracts that were exposed during the pandemic.
Asked by moderator Dermot Davitt of The Moodie Davitt Report about the so-called ‘fault lines’ existing in the business model, Avolta’s Azgoul admitted that the model had started to show ‘fatigue’ prior to the pandemic.
In the decade through 2019, impressive increases in passenger volumes and tourism capacity led to what he described as some ‘illogical’ rent payments to the airports, confounded by a lack of alignment between governments, airports and airlines.
This situation was exacerbated when the epidemiological situation arrived in 2020, he continued, revealing the fragility and imbalance of the business model.
There was a lot of support to airlines and airports from the government, but certain ‘other players’ were left behind, continued Azgoul. Reflecting on the post-Covid response to the situation, he said: “We are pushing all players for more solidarity, sharing opportunities and risk and thinking about the industry not tomorrow or next year, but in 10 years. This is one of our main focuses. This is the DNA of Destination 2027.”
Asked about Heinemann’s approach to the airport business model and whether he has witnessed any change, Reifkogel said the Hamburg-headquartered travel retailer’s approach has been one of trust, flexibility and working hard and respectfully with its partners to understand and interpret conditions in the market.
“We were able, with the commitment of the Heinemann family, to work on long-term solutions not driven by external shareholders. It was important that we worked at a high level and shared the risks and opportunities and that’s what we did in the crisis.
“It’s a process. We learn and see. We see great examples of new business models coming up – some others are not. But it’s our job to find the right partnerships.”
Industry ‘still picking up the pieces’ on MAG
Keith Hunter observed that when the Covid crisis hit, there was feeling of excitement at the prospect of a ‘reset’ in the commercial model – one that had been “fading” in the years leading up to the pandemic and the need to address this due to shifts in passengers’ behaviours.
“The idea post-Covid was there would be this big reset where we could finally put the consumer first; sadly, that hasn’t necessarily happened. We continue to debate the model of the MAG but nothing has really changed.
“There are definite examples where [change] is in play; certainly all the big retail operators are of the mind that there needs to be a lot more flexibility in the contracts and airports are the same. But it is not everywhere and we are still picking up the pieces.”
Asked by Davitt whether consumers’ shifting demands will necessitate change, Hunter responded: “I think that [the consumer] is what is driving change. Airports and operators are almost reacting rather than being proactive. It’s not fair to say that’s the case everywhere, but consumers have such different demands and we’ve seen so much change over the last few years.
“If we don’t have a flexible model in place that allows us to evolve the offer and meet those needs, we aren’t going to capitalise on all the opportunities that technology has now given us.”
While acknowledging every scenario is different, Hunter emphasised the need for ‘shared pain and gain’ between stakeholders entering a contract.
He said: “Once that has been negotiated, understood and bought into by parties, then whether it’s a global or local operator, you will get a viable offer for your customer.”
Addressing the role of brands in the equation, Hunter acknowledged they were integral to the debate, while holding a unique position in working with the airlines.
“They could be a good brokerage of certain opportunities between the airport, the airline and the retailer,” he said.
With many years’ experience working with the MEA markets, Azgoul observed there is a greater focus today on sense of place and sustainability among airports within the region.
Reifkogel added: “Africa is far beyond being one continent; it is so many different countries and opportunities but also different circumstances. We are flexible enough to find a solution but need to just understand what is needed from us to make a difference.”
The panel was asked to think about what a commercial re-set would look like in practice.
“A huge emphasis on collaboration and shared risk; that is the only way to move it forward. The more inflexible we make the arrangement between the airport and the retailer, the less the customer will win,” said Hunter.
However, he said it wasn’t just about airlines, airports, retailers and brands. Rather, it links to assessing and defining the most optimal model to exploit the consumer opportunity.
Reifkogel agreed: “The optimal model is being customer-centric on both sides, it needs flexibility in the contract that ends up with the MAG connected to passenger [numbers] and giving flexibility on new solutions. We need to see this in the contracts and work on data exchange.”
Azgoul concurred, stressing that innovation is key, including digital, while sharing perspectives and learning to create conditions to better serve consumers.
Number of delegates exceed 300
On a busy first day of the MEADFA Conference – making its maiden voyage to West Africa – north of 300 delegates poured into the main auditorium at the Kempinski Hotel Gold Coast City Accra to hear several intriguing sessions centred on topics including Africa’s aviation landscape, regulatory and advocacy activity, consumer insights, African shoppers, sustainability and innovation.
In welcoming delegates to Accra, MEADFA President Sherif Toulan made clear that staging the annual event in Ghana this year represented a “small but significant step” for the DF&TR industry.
“If you and your company are here this week, it is because you share a determination in ensuring that our industry fulfils its potential here in Africa. But MEADFA’s commitment to Africa travel retail goes far beyond this event. It is a central part of our mission to bring together industry stakeholders from retailers, brands, airports and airlines that are working to enhance travellers’ experience.
“It’s only just over a month since many of us met at the TFWA Exhibition in Cannes. Yet, the context in which our industry operates has significantly changed during that time,” continued Toulan.
“The atrocities of war in our region have had an immediate, negative impact on the travel patterns of the Middle East and beyond and created considerable unease about the short-term future of the region. It might seem heartless to focus on business at such a time, and yet we must.”
Toulan reminded that it’s far from the first time that the DF&TR industry has faced crises to the detriment of the health of the regional business, with the tourism sector having become used to operating against such backdrops.
“The [Israel-Hamas] conflict has serious repercussions; of that there is no doubt, but in such circumstances it is up to us to redouble our efforts and secure our businesses by serving our customers even better.”
Toulan referenced Dubai Duty Free’s longevity as it nears its four-decade anniversary as displaying grounds for optimism.
He also referenced the opening of Abu Dhabi Airport’s new Terminal A this month as a cause for celebration, underpinning the “transformative impact” that airport infrastructure can have on commercial revenues.
Meanwhile, large scale projects in West African markets such as Ghana, Senegal and Gambia illustrate how countries are reaping the rewards of investment in transport infrastructure and tourism.
“New airport developments in Benin, Sierra Leone and Niger are testament to the belief of the potential of tourism in this part of the region.
“Our advocacy work is designed to create suitable conditions for our industry to flourish here. We encourage the brands to join our efforts to ensure that the development of African travel retail brings benefits for all stakeholders.”
Africa: Building non-aviation revenues
Offering an opening address to MEADFA Conference delegates, Ghana’s Minister of Information Kojo Oppong Nkrumah of the Ofoase-Ayirebi Constituency said the event serves as a meaningful platform for information exchange in the industry.
“Beyond the linkages it creates, this will guarantee increased passenger throughput, airport revenues and job creation,” he explained.
“We express our commitment to position Ghana as an epicentre where the retail dimension of travel flourishes through strategic partnership and sustainable development initiatives, we aspire to create a business environment that not only captivates travellers but also nurtures a thriving retail sector.”
Quoting data for the Middle East and Africa travel retail market, the minister put its value at approximately $16 billion dollars in 2020, with the expectation of growth at an average rate of 3.7% between 2023-2029.
Aside the transition from Terminal 2 to the new Terminal 3 at Ghana’s Kotoka International Airport, the country is looking to turn operations at Tamale and Kumasi Airports into fully functioning international passenger traffic locations.
In the first panel session, Dina El Sherif, Commercial Development Director, Egyptian Airports Company joined Kwame Awuah, Group Executive Commercial Services at Ghana Airports, and Luis Marin, President and CEO, EMEA, Avolta.
Ghana Airports, operator of Kotoka, Kumasi, Sunyani, Tamale, Wa and Ho Airports, has steadily been increasing its passenger traffic since the Covid pandemic to handle approximately 2 million passengers.
Egyptian Airports Company handles 23 airports in Egypt, including Hurghada, Sharm El Sheikh and Luxor International Airports – but not Cairo International Airport, which is operated separately by Cairo Airport Authority.
Principal international airport Cairo International expects to reach more than 30m passengers annually following the completion of its expansion projects.
Luis Marin at Avolta confirmed the company’s presence in seven countries in Africa, which collectively command around one third of international traffic on the continent.
“We have seen recovery in many countries; Morocco is back on track, Abidjan and Cairo are doing well; Kenya is slightly behind,” he mentioned. “All in all, African airports are doing well post-Covid.
“Our ambition is to continue to keep investing properly in Jordan, Kuwait and Qatar with existing partnerships, but also to grow the business in Africa.”
Aligned with the business combination between Dufry-Autogrill/HMS Host, Avolta is investing in countries such as Morocco, Lagos and Ghana, with many projects ongoing.”
“This is linked with our Destination 2027 strategy with customer centricity and sustainability as two of the main pillars. We haven’t done this merger with Autogrill and HMS Host as a one-plus-one; Africa is clearly part of the strategy of growth, along with the Middle East.”
Discussion then turned to non-aeronautical revenues. Typically, the percentage share of revenue derived from such activities in Africa as a proportion of airports’ overall income is not comparable to global levels, with Ghana tracking at around 25-30% (only Morocco and Egypt are close to the 40% global average).
“Going forward, we are aggressively trying to invest in non-aeronautical revenues,” said Awuah.
“If you look at Terminal 3, we are looking to build a multi-storey car park and we are building a second phase of our airport city, close to Kotoka Airport, to expand the retail space and also hotels and conference centres.”
He explained that landside commercial development is a way of significantly improving non-aeronautical revenue streams.
Asked about the infrastructure deficit across Africa and whether Ghana Airports is attracting suitable investment into its airport infrastructure, Awuah said discussions have taken place with investors as a means of addressing such deficits.
“We plan to work with the government and private sector to ensure we attract the necessary businesses,” he confirmed.
At Egyptian Airport Companies, non-aeronautical income represents around 73% of the firm’s total revenue and that is set to increase by 1-2%, confirmed El Sherif.
On the challenge of growing the aviation sector in Africa, Avolta’s Marin referenced airline connectivity, among other issues such as pan-regional and bilateral agreements and origin and destination allowances.
On the topic of consumer engagement, Awuah observed that alongside leading international labels, there exists a craving for local, authentic products, with more of those options becoming available to purchase in duty free shops.
Discussing the business model, Awuah acknowledged that increased retail space results in heightened rents, but with the 25-30% percentage share of non-aeronautical revenues as a proportion of total revenues, there therefore needs to be an increased focus on the raw numbers.
To better engage with African travelling consumers, Marin concluded by repeating an Avolta mantra: ‘Let the journey be as rewarding as the destination’.
In the ‘Stronger Together’ session, Advocacy Working Group Chair Rob Marriott spoke about the importance of the industry’s lobbying efforts, with MEADFA continuing to proactively engage with governments and authorities across the region.
The session featured contributions from Roger Jackson, Managing Director of Organico Solutions; Milika Kalyati, Corporate Affairs and Communications Manager – Global Travel Retail, Japan Tobacco International (JTI), while Duty Free World Council President Sarah Branquinho offered important global context on the Council’s advocacy campaigning. The session was moderated by Antoine Clement, the Association’s adviser on its advocacy work.
In the coming weeks, MEADFA is increasing its participation in the Duty Free: Transparent, Trusted, Secure campaign, with ACI Africa represented also making important representations on behalf of duty free in the fight against illicit trade in tobacco.
That commitment has gained ground this year following the launch of the anti-illicit trade declaration. Launched in July 2023, it is an extension of the UN Global Compact.
“We are delighted that so many retailers have made a commitment,” said Branquinho, in doing so encouraging more stakeholders to come forward and express their backing for the campaign.
She referenced how the industry is often caught up in the “crossfire” over global illicit trading and counterfeiting.
“I’m confident we are making a strong case, but there is plenty of work to do,” commented Branquinho, in turning to the scourge of illicit trading and the accusations made against the DF&TR industry.
Updating on the recently delayed Third Session of the Meeting of the Parties (MOP3) on the tobacco illicit trade protocol, Branquinho clarified that the delay does not mean the study won’t happen.
“We haven’t got out of the study. What we’ve been doing over 2023 is as regional and national associations and brands, engaging with finance and customs ministries.
“Overall, our engagement has been met with an encouraging response. If we are conducting illicit trade; customs aren’t doing their job. We have a common cause.”
In a powerful address, Chichi Maponya of Africa Travel Retail addressed the landscape of conducting business in Africa.
She spoke candidly about the importance of ensuring trust and collaborating, citing current challenges such as deficiencies in regulatory frameworks that exist across Africa’s 54 countries and inconsistencies in the way that various economic communities engage on issues.
“The bureaucratic processes in many countries is a challenge and the ease of business is frustrated,” she stated. “Lack of trust leads to over regulation.”
She concluded by stating: “Africa’s open for business, but it’s business as usual, with authenticity and sincerity. In the words of Nelson Mandela, ‘it’s in our hands’.
Differentiation, Reassurance, Value
In the final afternoon session entitled ‘Consumer insight: tracking the post-Covid MEA traveller’, Stephen Hillam, Managing Director at PI Insight outlined evolving shopper behaviours and demand across the Middle East & Africa region.
Eighty-three percent would be more likely to purchase an item in duty free if it was an exclusive (versus the domestic market), delegates heard.
Among a tranche of insightful data, 63% of shoppers interact with staff when in the duty store in MEA; 33% want advice on specific items; 31% on new items; and 15% on allowances.
Interestingly, 67% of those shoppers that interact with staff are positively influenced – 43% had assistance choosing between items and 24% would not have a made purchase without the input of staff.
Turning to the topic of value, 21% purchase due to items being cheaper than elsewhere, while 18% spend on account of attractive promotional activity.
Shoppers have an expectation for value and when that isn’t met, there are negative consequences as a result, stated Hillam.
If a MEA shopper enters the store and leaves the category without purchasing, this is often due to negative perceptions around value, he continued, in doing so urging the industry to highlight value and promote this in an effective way.
In conclusion, he highlighted the increasing sense of purpose that today’s MEA shopper possesses: they are open to influence and interested in experimentation and differentiation. Overall, reassurance and value are key levers to driving conversion and shaping decision making.
Christy Tawii, Research Manager for Sub-Saharan Africa, Euromonitor International also shared data that suggests that overall duty free (domestic and international) spending is set to hit US$168 billion by 2027.
This year, the forecast is just shy of $120bn – a surge on the approximate $45bn registered at the height of the pandemic in 2020.
Outlining the latest research on consumer trends across Africa, Tawii highlighted an increased propensity towards frequent travel and aspirational consumption being exhibited by the nouveau riche and those relying on so-called ‘old money’.
While there remains an appetite among African travelling shoppers for top international labels, the retail trend towards ‘Africanism’ is gaining momentum.
Stay close to TRBusiness for further coverage of the MEADFA Conference on Day 2….