Anouska Forte reports on the highlights from day two of yesterday?s ACI Airport Business and Trinity Forum 2007 featuring Doug Benham, Michel Perol, Pascal Bourgue, Ron Anderson, Martha Rosas, Catherine Saurais, Jaehee Lee, Craig

Bradbrook, plus various panels comprising leading executives.

SESSION 5 ? INVESTMENT AND PARTNERSHIP:

The day began under the theme of ?Investment and Partnership? with part 2 of a film made by Marshall Arts providing an insight into Dubai International Airport, Ankara and Izmir in Turkey, Ezeiza in Argentina, and London Heathrow Terminal 5.

INVESTING IN AND UNDERSTANDING AIRPORT COMMERCIAL REVENUE STREAMS:

Doug Benham, Associate Director, Macquarie Airports kicked off the day?s presentations speaking about the benefits of investment.
He began by explaining the importance of investment for Macquarie Airports where he said that the specific division of Macquarie Airports has developed from being largely a fund manager to an airport operator.
He said that today Macquarie believes that the investment strategy – together with its airport operator knowledge – gives it a good model.
Refining what he meant by ?investment? he said ?Trinity? had a role to play in this – since investing in infrastructure, shop layouts and product innovation leads to increased profitability.

The customer experience would be enhanced also, he noted. Investment should be regarded as a key strategy to grow the retail business by all parties, he said.

?Trinity? benefits of investment include such things as sustainable revenue growth, together with an improved retail environment, which is also good for brands.

New and different challenges include the new security arrangements for passenger processing and this obviously has implications for the business, said Benham.

He said the pressure on airside dwell times and customer confusion is an issue for the business, but the trinity approach could assist in tackling the current problems. The industry was forced to communicate, he said and this is a positive thing that must be continued going forward.

The maximisation of the retail business is closely related to an efficient airport operation and investment must be made in both customer processing and retail space and environments, he said.

He stated that Macquarie seeks to grow the retail business by implementing retail management strategies such as communication, signage and awareness and creating a commercial culture within the business.

Its investment strategy centres on improving and creating exciting and vibrant retail environments and ensuring efficient customer flows to maximise dwell time. All these issues need specialist attention, said Benham.

He summarised by saying that dwell times must be maximised together with active investment in retail development.

He concluded his presentation by running through the current projects being undertaken at the airports run by Macquarie, including Sydney, Brussels and Bristol and by reiterating the need for all to work together to optimise retail revenues.

WORKING TOGETHER FOR GROWTH:

A joint presentation by Michel Perol, Ceo Aelia and Pascal Bourgue, Marketing Retail and Communications Director, A?roports de Paris (ADP) followed, entitled Working together for growth.

Bourgue began by saying that the model they would describe works in Paris, but he did not presume that it was the only way, but rather more that the partnership model was one option to be considered.

He explained why ADP decided to adopt a new business model for its commercial activity and described Paris as a unique airport environment.

He outlined the fragmented nature of the commercial offer at CDG and Orly airports, with 11 terminals processing 82m passengers. The high proportion of international traffic was a blessing, he said, as many sales are duty free.

Bourgue said that in 2002, ADP decided that retail would be fundamental to its future growth and accepted that it needed to change its approach to optimise sales. The ambitious target required an innovative concession model.

Only by sharing its operational and marketing expertise with a retail partner could this be achieved, he explained. More ambitious long term goals could be set as a result and it was in both parties? interests to innovate, invest and improve customer service, he said.

Societe de Distribution Aeroportuaire (SDA) is a 50:50 joint venture between AdP and Aelia, he said, and is a retail concessionaire that pays fees to AdP as a retail tenant. It operates liquor, tobacco, fine food, perfumes and cosmetics.

Michel Perol then outlined the store statistics for SDA and noted the pleasing growth achieved. He expects a figure in the region of E.300m ($395.7m) for SDA this year, he said.

SDA has invested heavily in the development of commercial areas in Paris, said Perol, allowing the creation of new retail concepts, innovation and the ability to take a more opportunistic approach to retail.

It also has an early input into airport planning, something which is beneficial, he said. As a result of the joint venture SDA has bigger stores, said Perol, and will shortly open two stores of 600sq m each.

The cooperation has permitted new concepts such as the Men?s Lounge to be created as the partnership encourages creativity – they may not have wanted to take the risk of a new concept ten years ago, he said.

Perol said that closer co-operation was beneficial for providing coordinated information during the recent security problems. AdP was open to Aelia?s suggestion for mobile stores and promotions are also much more creative.

Perol added that they know the model is well suited to Paris and their ambitious commercial objectives are best served by working together. They now receive the backing of the entire company, which is a real revolution, he said.

The future for SDA will be seen in the opening of the S3 terminal, with bigger stores and improved merchandising and retail concepts, said Perol.

Bourgue followed with a brief overview of the new S3 terminal and Perol outlined the new stores that will be created in 2007 and 2008 – along with future planning, such as terminal S4, due in 2012.

The better you understand each other?s challenges, the more effective the retail offer is and a common approach is needed now more than ever, said Perol.

Too much time was spent in the past arguing over contract terms and being restrained by those same contract terms, he concluded.

SESSION 6 ? THE BIG BRAND PERSPECTIVE:

Session 6 continued with presentations from three brands, beginning with Ron Anderson, Managing Director, Global Travel and Middle East – Worldwide, Diageo.

He agreed with Mark Riches? comments yesterday and kicked off by saying ?Please don?t sell my products? to those transiting when it will be confiscated later. There will be a nasty sting in the tail to this sale, he said.

Anderson stated that he thought not much had changed since the last Trinity Forum and we are still speaking about the same things, but there are some new dynamics at work that will change the way the business will operate in the future.

After outlining the status of Diageo, he accepted the role it must play in the trinity and said that due to the size of their brand, they were one of the elements that can help take the business to the next retail level.

He didn?t think the contract model would change in the near future, so improvements would have to be made within that model and he touched on the fact that the way business is done has not changed either, i.e. customer data and sales data is not shared in the same way as it is in the domestic environment.

He noted that too much emphasis still rests on price and marketing initiatives are restricted to in-store only, rather than recognising the full travel retail chain.

If retailers win business sometimes by guarantee and it is then a profitless business from then on, is it any wonder you end up with uninspired, under funded retail environments dominated with price messages to drive volume, he said?

Price is important, but so is the store environment. The current security situation is a nightmare and a solution must be found quickly, he stressed. Solutions up until now have been narrow and self-interested, he said, and too slow in coming.

He recognised that there had been improvement though across the board. Penetration in liquor is improving through such things as product innovation, and consumer demand for premiumisation.

Retailers are making a genuine effort to enhance the experience they offer their customers by dramatically upgrading their quality of build and fitting, and their willingness to invest in well-trained staff, he noted.

Arrivals shopping has arrived he said, but do we really understand the art of the thirty second sale, he asked? It is also competing (and well, in many locations) directly head to head with the domestic market. He pointed to the success of arrivals in the Nordic region and challenged the audience to ?get after it? in relation to arrivals shopping.

Airports are beginning to embrace the internet, as airlines have long recognised, he said. Passengers do use it – they do their homework before they get to the airport.

Green issues will become more important in the future, and it may lead to a fundamental re-evaluation of how duty free shopping occurs.

There is a ?Perfect Storm? brewing as he coined it, which is being triggered by the security restrictions currently imposed and we may find how much customers want duty free, said Anderson. It must be made so irresistible that they do not want to lose it, he stressed.

We are going to have to start thinking radically, if the vision given by Mark Riches yesterday is to be achieved, he said. Pointless secrecy is how he described the current practice of not sharing information between the retail partners.

With ambitious airport acquisitions, someone will get big enough to attract the attentions of someone like WalMart he said, and then watch the sparks fly. They are 30 times bigger than Diageo and their annual growth rate is the equivalent of three times Diageo?s turnover. And we thought we were big, he said.

Marketing to the customer has to be joined up and happen a lot earlier – before passengers get to the airport, he said. The current situation is not very smart. Long-term future growth will not occur without joining up the travel chain, said Anderson.

What can I do to show how serious I am, he said? Give access to global data, regularly, and for free, was his answer.

To address the opportunities, the approach has to be radically different, he said.

Ending a forceful presentation, he said that achievement is 10% inspiration and 90% perspiration, and you don?t raise a sweat by talking.

Anderson was followed by Martha Rosas, Duty Free Manager Worldwide, Luxottica Group for a view from the luxurygoods side of the market, in a good presentation that refreshingly avoided the use of self-promotional slides.

Luxury is a difficult word to define, said Rosas. But luxury brands need to be more than expensive airport decoration and enhancement.

Why do I suggest travel retail is the black hole of the luxury retail market, she asked? We need to be careful that luxury is not a group of disparate brands with only a high price in common, she said.

Luxury covers a huge range of products and as a category is bigger than both liquor and cosmetics, for example and grows quicker than mass market products. The store environment is crucial in getting consumers to spend big money. Value does not necessarily mean the cheapest, she said.

Sometimes we maximise the opportunity – look at DFS Galleria, or Lotte in downtown Seoul. But the industry is missing something – more discussion needs to take place with retailers in relation to better space, better market research and more openness in relation to information is needed, she said.

Rosas outlined some challenges facing the luxury market, such as range and stock range, threats from the High Street and the internet and the need for rapid credit card authorisation.

Luxury is not an impulse buy, she said and travellers demand excellence in customer service. Do we do enough to reassure customers about after sales service?

Rosas gave the example of Asian women who will copy an entire outfit from a magazine, and therefore we need to understand the consumer more than we have ever done before, she said. Japanese are increasingly buying luxury items at home, due to exceptional service and larger selection. Saving is not a key driver in travel retail.

For this reason, training is vital in travel retail to encourage customers to ?enjoy? spending their money through a great experience, she said.

Rosas said that exclusive items, gifting and self reward are some of the motivations for buying and more needs to be done to understand and monitor trend and attitudes. The luxury stores are more accessible in an airport, than say on Bond Street or the Champs Elysees, she said.

She posed questions to suppliers, airport authorities and retailers about whether they are providing the products, space and environment to encourage people to buy.

Allow luxury to express itself in travel retail ? you will enjoy the results, she said.

Rosas was followed by Catherine Saurais, General Manager, Nestl? International Travel Retail for another big brand perspective.
Referring to her Ceo, Peter Brabeck-Letmathe?s, comments at the first Trinity Forum in London, she asked whether the industry had achieved what he had envisioned then. The answer, she said, was partly.

She outlined the Nestl? big brand view of addressing the challenge of travel retail. Big brands in confectionery are not really being capitalised upon, she said and big brands are the sign posts for a category.

More understanding is needed about the shopper, and the opportunities a captivated, rather than captive audience, can provide she said.

How do we drive collaboration, she asked? Organic growth will come from economy change and increased passenger numbers, but this is not enough for sustainable growth, said Saurais. What if the shoppers become bored with our stores?

Collectively challenging the financial model of the channel will enable the creation of a new retail landscape, not the one we find easiest to manage, she said, and the shopper must be at the centre of our thinking.

The industry needs to regain focus on retail fundamentals (range, space, merchandising management), value driving activity (too many promotions at the same time), and store execution (ignoring shopper behaviour) she said.

The primary function of the key categories is gifting or self-treat. This activity should not be stifled by the retail environment, said Saurais. The needs of our shoppers are the most basic consideration in the retail mix. Go back to the basics and get excited about them all over again, she said. Make it easy to shop.

Stop over-ranging and be more disciplined and innovative about the type of promotional mechanics used. The motivation behind gifting goes way beyond value, which is why it is important to understand the customer, she stressed.

Saurais believes retailing will evolve to the creation of solutions. She expressed disappointment that confectionery is not used more widely as a sales driver in other categories as well.
She concluded with a call to all the retail partners to get the basics right, think beyond our own square footage and development with insight, not hindsight.

A question and answer session with the audience followed.

In a change to the programme, an upbeat and enjoyable presentation followed by Seoul Incheon President and Ceo, Jaehee Lee covering the progress made by the airport. The previous evening, Seoul Incheon Airport was the proud recipient of the Airport Service Quality (ASQ) Best Airport of the Year award.

Lee set out some financial statistics relating to the airport and said a little tongue in cheek that $150m profit is not bad.

His ambition is that by 2010 the airport will become number one in the world. Don?t come to his office unless you are talking about becoming number one, he said.

He is undertaking a project entitled Management dream 2030, said Lee and they are spending $6m in market research to try to analyse the market up to 2030.

He briefly outlined some future projects. The Dream project is a six cluster development with an investment of $1.2bn to become a fashion capital like New York and Paris. An entertainment concept will also be part of the cluster development.

Some of the current projects being undertaken include an aggressive incentive program to induce airlines to use the airport, along with an upgrade in passenger areas at the airport. Consumers will become stars when travelling in my airport, he said.

By 2012 they want to double the business and hope to overtake airports such as Dubai and those of BAA. The dream is not to charge airline charges and fund it with the growth in duty free and travel retail.

We are seldom talking about our consumer he said, so Incheon is spending a lot of money to understand its consumers? shopping behaviour which is useful when deciding what projects to spend money on.

They are the third biggest airport in the world and are aiming for number one, he said. A tender will be needed within 6 years when all contracts end and he outlined the retail requirement for the new T4: those who provide the best service to his consumer; those who share his vision; and (tongue in cheek) those who give him the most money.

He said Korea is the leading IT country in the world and as such his airport has the most advanced IT facilities and services within it. In this regard, one stop service is going to non-stop service, he said.

In conclusion, he reiterated his single-mindedness in his approach to be the biggest and the best.

TOWARDS A GLOBAL SOLUTION FOR TRANSFER PASSENGERS WITH TRAVEL RETAIL ITEMS:

Craig Bradbrook, ACI Director Security & Facilitation gave an update on the meeting of the ICAO Secretariat Study Group and the status of global implementation of restrictions on liquids, gels and aerosols.

Bradbrook outlined the steps that have occurred to date from the ICAO perspective.
[This will not be reiterated in great detail here, as constant and in-depth commentary is provided on both TREND and in the Travel Retail Business Magazine.]

He said the Air Transport Retail Interest Group was formed of various stakeholders who worked together to find a solution to the problem of transfer passengers. [Only brief mention was made of the huge amount of work ETRC has done in this regard]. A proposal was agreed to put forward to ICAO and was presented on 26-27 February.

He said they came close to agreement on the specification of the tamper-evident bag and ICAO agreed to develop additional addition guidance material and to facilitate countries to come to the table and talk about mutual recognition. [If anyone would like to access any information now, please look at the ETRC website www.etrc.org]

Bradbrook outlined the state of implementation of restrictions. We are a long way from harmonisation internationally, he said.

He analysed the position prior to and after the implementation of restrictions and this is fundamentally based on the acceptance by a state of tamper evident bags, or the existence of mutual agreement between states.

He expected a tamper-evident bag to be in industry use by mid-2007 and noted as a key issue the need to pressure governments to expedite bilateral mutual recognition agreements; monitoring and mitigation of the impacts – both facilitation and economic; and informing the industry and the travelling public.

He said ACI will continue to consult and coordinate with industry partners, explore alternative recognition processes and he outlined some of the measures they have put into place to assist those seeking information.

THE AIRPORT LEADERS FORUM:

Moderated by John Sutcliffe, Managing Director, Aer Rianta International Middle East, the Airport Leaders Forum brought together a panel from different continents to discuss trinity issues.
The panel comprised Geoff Muirhead, Ceo Manchester Airports Group (Europe); Mohammed Mounib, Commercial Director, Abu Dhabi Airports Company (Middle East); Larry Berg, President and Ceo, Vancouver International Airport Authority (North America); Dato? Bashir Ahmad Bin Abdul Majid, Managing Director, Malaysia Airports (Asia); and George Muhoho, Managing Director, Kenya Airports Authority (Africa).

Sutcliffe began by saying it was too easy to criticise airport operators. He asked the panel what each are doing in their regions to implement the concept of the trinity.

Mounib outlined the importance of the retail offer to the commercial side of the business (Mounib has recently been appointed Commercial Director) and said that nothing had changed because he had crossed over the line.
It was an important part of the airport and would remain so. Franchising is an option, but one which would be looked at on an individual basis as the retail offer was core to the business.

Muirhead stated the importance of quick customer processing and ensuring customer comfort is key and is partnership, involving all of the people in that chain. They have shortened gate arrival time by ten minutes, to increase spend – those sort of things are beneficial, said Muirhead.
Also a culture change is necessary – stop referring to them as authority and start talking about partnership. Forty million dollars will be spent improving security and moving more retailing airside, but this won?t be in time for this summer season, he said.

Muhoho was asked by Sutcliffe to give an insight into airport development in Africa. Muhoho said most airports are very small and that makes it difficult to attract quality retail. This will remain a problem for African airports until they can increase traffic and attract travellers that will spend enough to make retailing viable.

This is increasing, he said and gave an overview of what was happening at Nairobi airport. Muhoho made reference to the legal wrangle between the Kenyan Government and Nasir Ibrahim Ali and said that they are renting the space, rather than operating a concession and are therefore losing money on the operation. The brands cannot be attracted to the region on this basis.

Berg was asked about their business-based, customer-focused operation. He said they were trying to compete for gateway business, so needed to have a different approach to the business. He would like the Canadian government to move quicker to agree bilateral agreements with states as it makes it difficult to compete. They have very few open skies agreements, he commented.

Majid said Malaysia had not been doing the right things in the past, although it is now and stressed the importance of raising commercial revenue and said the airlines could assist in doing this.

In dealing with a question on the plastic bag issue, Mounib said that the plastic bag solution should not just be accepted. He made the point that if they are permitted to place foods and liquor for catering purposes on airplanes, then their supply chain should be seen as secure. [Refer to later comments on this issue.]

The panel discussion ended with a look at ?a sense of place? which each panellist explaining their approach to this.

CONTINUING SECURITY UPDATE.

Following lunch, Ramesh Cidambi from Dubai Duty Free gave his view on what is happening on the security guidelines, having attended the recent meeting in Montreal.
He said that disappointingly, ICAO refused to be a validation body for airports, so it is now left for states to agree third party agreements directly.

He was joined on stage by Rakhita Jayawardena of APTRA and Sarah Branquinho from BAA.

Branquinho said she had just spoken to European Travel Retail Council President Frank O'Connell, who had met with European Commission President Jose Manuel Barroso and Barroso had added the issue to the EU/US summit agenda in April and promised to involve the external affairs commissioner as well as the transport commissioner and to follow up on the bilateral agreements.

However, the problem was that only nine countries have asked for bilateral agreements, including Australia, Singapore, Japan, The Maldives, Armenia, Turkey, Uruguay and Argentina. She explained there was a process to go through of diplomatic channels and the concern was that if other countries do not ask, there will be some question as to whether the industry is really serious about all of this.

It is up to the industry to explain to the governments in their own countries why it is serious for the industry, she said.

Rakhita Jayawardena gave the view from APTRA members, and expressed his personal concern over the whole bag process, asking the audience if it would not be possible to go back to the EU and persuade them to drop these regulations. His rationale was that liquids are loaded for catering and they are not checked.

Branquinho urged the focus to remain on the job at hand and not to stir up a hornets nest involving irrelevant issues. The security guidelines were not up for debate at all as far as the EU and US were concerned, she said.

Whilst expensive and inconvenient the tamper-evident bag was a better solution than suspending purchasing totally to transfer passengers. The bag is the only way to continue selling to transfer passengers, she stressed.

She also clarified that it is not the EU or ETRC that have asked for enhanced security measures from other countries, it is ICAO.

She pointed out that a major problem at many airports was the lack of staff screening, which negated a secure supply chain if staff can enter the airport and particularly airside, without being screened, which does happen in a number of locations.

She made the very valid point that these were measures that could allow the industry to continue trading until technology is developed to screen liquids.

[This issue will continue to be covered extensively on both TREND and in The Travel Retail Business – please see relevant stories also posted here.]

THE ACI BUSINESS & TRINITY FORUM CONSUMER FOCUS WORKSHOP:

Anne Kavanagh, Ceo Kavanagh Communications gave an insightful presentation outlining the effect the consumer media can have on the industry as a whole, something which seems to be little realised in the travel retail channel.
Consumer media is having a disproportionate effect on the industry and will give no regard to the way in which it makes the industry look when reporting on stories, she said.
Bad experiences for travel journalists will invariably lead to bad column inches and more effort must be made to engage these opinion formers to create good PR for the industry as a whole.
Kavanagh outlined a number of ways in which this could be done which she said is much more cost-effective than trying to balance out or cancel out bad press once it is out there in the hands of consumers.

The two final presentations of the day looked at the consumer reaction to the airport environment.

Dr Miri Hardy, Vice President & Head of Horizon Research Corporation explained the role social psychology plays in showing the psychological effects things such as bad experiences (i.e. long security queues) can have on behaviour.

Bad moods can lead to negative information being noticed, remembered and attached to brands. This is not good to make people want to spend money when they finally get airside. She offered some thoughts on what can be done to negate the negative effects of bad experiences.

The conference came to a close with a presentation by Farrol Kahn, showing some of the medical dangers of flying such as deep vein thrombosis, cosmic radiation, air quality and water quality. But the news was not all bad and many remedies to these problems can be obtained at the airport – good news for retailers. Kahn works in conjunction with a number of companies in the airport environment, promoting good health while travelling.

COMMENT: Again, many good presentations were featured during the day, particularly those of Benham, Anderson and Rosas, although the schedule was too busy and left one feeling somewhat fatigued by the end of the day.
The security issue is of such importance that the discussion on this would have been better placed on day one, and preferably at the beginning of the day.
The fact that on day two the afternoon session coincided with an ACI meeting left the room a little sparse and this was more than a little unfortunate for those presenting after three o?clock. All would have benefited from hearing the presentation by Kavanagh, given the plethora of bad press the industry is currently receiving.

END.