Tax Free World Association (TFWA) President Jaya Singh painted an encouraging picture of industry strength, resilience and hope amid the slower-than-expected recovery in his opening address to conference attendees at the TFWA Asia Pacific Hainan Special Edition (21-24 June).

Earlier this month, the International Air Transport Association (IATA) revealed that domestic travel demand improved in April month-on-month (-65.4% versus -66.9% in March).

However, international pax demand remains stagnant (87.3% down on April 2019 with little change from the 87.8% decline recorded in March 2021), linked to continued government restrictions on air travel.

In Asia Pacific, estimates have pointed towards a drop to 54 million international departures in 2021 – a decline of -89% on 2019.

THE REBOUND ‘COULD SURPRISE’

“That assumes the slow rollout of vaccines and continuing constraints on movement that stifles any substantial recovery in cross-border travel this year,” observed TFWA President Jaya Singh, who set the scene on a busy first day of the conference and workshop programme.

“The deficit in departures will reduce to -59% in 2022 before climbing slightly above pre-pandemic levels in 2023. By 2024, Asia Pacific is predicted to resume its position as the fastest-growing region for international passengers with over 525 million.

“This year and last has clearly been the most challenging we have ever faced but without understating the difficulties, we must not lose sight of the longer-term picture; over the last 20 years we have been confronted with several major reverses only for traffic to regain its usual 5% growth per annum within around 12 months.

“It’s true that we’ve never had to deal with a global pandemic before, yet fast-rising domestic passenger numbers in China, Russia, the US point to substantial pent-up demand for travel. Once borders start to re-open we may be surprised at the strength of their rebound.”

While acknowledging that the recovery has been slower than the industry would like, vaccinations are accelerating, holidays are being booked, and DF&TR orders are being registered.

Bright spots can be seen in Hainan’s offshore duty free market in addition to South Korea’s flourishing tourist hub on Jeju Island, spurred by enlarged shopper allowances as airport duty free sales continue to rise.

Online income from un-depleted stock on South Korea’s mainland – Lotte Duty Free and The Shilla Duty Free have been among the beneficiaries of a flexible mechanism unlocked by the government permitting sales of duty free goods via domestic market channels – and the explosion in non-landing tourist flights are also helping to buoy global DF&TR revenues.

Indeed, successful vaccination campaigns in the UAE and elsewhere are stimulating the prospect of further international passenger traffic gains.

The contraction of such volumes last year has placed immeasurable pressures on DF&TR companies, prompting cost-cutting measures including job losses, in a bid to protect revenues.

MERCHANDISE VARIETY ‘CRUCIAL TO SUCCESS’

In response, retailers have moved to rationalise product ranges and portfolios, in many cases focusing on big brands.

Such sentiments have been relayed to TRBusiness by both retailers and suppliers in the many conversations that have taken place in recent months.

“I believe variety and choice are crucial to our common future success,” said Singh. “New and up-and-coming brands and products do appeal to travellers and provide a welcome point of difference, especially when they convey a sense of place.”

Citing credit rating agency Moody’s, Singh pointed to the $5.4 trillion in cash savings generated by consumers since the pandemic began, illustrating the pent-up demand for travel and spending that spells good news for economies.

This is helping to drive up average spend-per-head, at least in the short term [although whether this artificial inflation in spending continues remains to be seen – Ed].

In a familiar narrative, Singh referenced pressures on the concession model and the proverbial calls for agreements between retailers and airports to move away from fixed fees towards more flexible, variable rental set-ups based on actual traffic volumes or sales.

“The impact of Covid-19 has intensified those calls, so that many now belief the previous system is no longer workable,” noted Singh. “But how do we replace it with one that balances risk and reward while recognising the need to invest in airport infrastructure, retail space and brands?”

Turning to Hainan island, the subject of this week’s conference, enhanced purchasing allowances and a wider spread of available goods has morphed the offshore duty free landscape into a $5 billion business with turnover continuing to soar.

Drawing on figures from Hainan local authorities, TFWA reminded viewers that duty free sales on Hainan island exploded by 356% in the first quarter of 2021 year-on-year to reach $2.1bn.

The full-year forecast puts Hainan revenues at just shy of $10bn ($9.3bn), a leap of +184% compared with full-year 2020. By 2022, Hainan’s offshore duty free market is estimated to reach $15.5bn.

CANNES: CLEAR PREFERENCE FOR A PHYSICAL MEET 

As reported in detail in the TRBusiness June e-zine – also available via the TFWA 365 platform during this week’s Hainan Special Edition – a number of DF&TR actors such as Dufry, Lagardère Travel Retail and DFS Group have penetrated the lucrative shopping haven of late via joint-venture set-ups with local market players, joining China Duty Free Group and China National Service Corporation for Chinese personnel working abroad (​CNSC).

“If current trends continue, Hainan could overtake Korea as the world’s single largest DF&TR market by sales by 2022, testament to Chinese government determination to harness the channel’s economic potential,” said Singh.

The TFWA President, who was elected in December 2020, issued a call to action to the industry to persist with advocating the merits of the DF&TR business to airports and their wider economies.

Such a message takes on added importance when domestic retail, tourism and hospitality businesses are struggling to restart, he added.

“The success of China’s offshore duty free business shows what’s possible when government and industry stakeholders work together. I strongly believe that we must bring the same shared sense of purpose to other parts of the world if our industry is to prosper in the post-Covid era.”

Turning to the TFWA World Exhibition & Conference scheduled to take place in Cannes on 24-28 October, TFWA maintained the association’s commitment to hosting a ‘world-class’ physical event along the Côte d’Azur.

“Integral to the Cannes week is the idea of partnership, something we need now more than ever to accelerate our post-pandemic recovery,” he commented.

“If conditions prevent a physical event, we can still meet via the TFWA 365 virtual platform but our clear preference is for a gathering in person.”

The TFWA President mentioned the ‘enthusiastic response’ received to date to the association’s Hosted Buyer programme, with big name exhibitors already committing to the event.

Stay close to TRBusiness for more from the TFWA Asia Pacific Hainan Special Edition.