Duty free and travel retail should be included in pragmatic discussions on infrastructure investment at African airports to ensure commercial agreements can play an important role in their future growth, according to ACI Africa Secretary General Ali Tounsi.
Speaking exclusively to TRBusiness on day one of the MEADFA Conference being held at the Phoenicia Intercontinental Hotel in Beirut, Lebanon, Tounsi said communicating the benefits of retail remains a challenge in a climate where duty free accounts for a mere 33% share of non-aeronautical revenue.
“Apart from the north and south side of Africa, most of the other [airports] are very small and managed by government and not private companies and most of the investment is made by the government, not the airports,” he said. “The main gap is in design and business.
“This is [about] education and the value of business for Africa. Now, there are a lot of projects, but airports don’t know and recognise the value. We should build for the next generation. If we – as MEADFA, ACI and the business – don’t act, we will lose everything.”
Asked by TRBusiness if the challenge lies in the resourcing and recruitment of staff into specific roles, Tounsi said: “Most airports look at business and duty free shops as a co-operative, but never work with them – this is a problem in a lot of countries.
“Most of the management comes from the air navigation sector and not from business, therefore their focus is on operations, safety, security and regulation.”
Addressing directly the idea that lower pax bases at many African airports represent a pronounced challenged to commercial growth, Tounsi continued: “For me, it’s not about pax – you can create more business independently from traffic to airport cities and exploit the environment around them.
“Now, we are pushing to spread the catch of business. Duty free is part of it, but it’s about the value of the land and real estate and creating manufacturing around the airports. This will be independent from that traffic.”
A boom in younger populations is fuelling increased demand for air travel, however, Tounsi was more cautious of their immediate impact.
“There is huge potential for younger generations, but [air] tickets are expensive. Airports cannot act on this, the only thing we can act on to reduce the cost of this is taxes.
“It’s about GDP and the middle class; the population is changing in a lot of countries like in Nigeria so people can travel more. We need these markets to develop traffic.
“The other problem is connectivity; you have to have money to travel as tickets are expensive. To travel from two countries you can spend $500 as opposed to spending $500 in Europe on a six hour flight.”
In turn, he says African airlines – with the exception of one or two – are loss making and inefficient.
As a response, ACI will host a Business Forum next year in Luxor, Egypt to bring together duty free retailers and airport authorities to discuss the benefits of increasing non-aeronautical revenue streams, including duty free.
Taking part in an informative panel session entitled ‘Re-assessing Africa’s airports’ held on the first day of the MEADFA Conference, Tounsi says commercial revenues can be a stable source of income that can help offset operation costs and reduce aviation taxes for future airport development.
Opportunities exist to explore and exploit the potential of duty free and travel retail at African airports, he added.
Delegates heard that after having suffered a decline of 0.6% in its air passenger traffic in 2016, the continent frequently described as a ‘sleeping giant’ in DF&TR posted growth of +6.3% in 2017.
RETAIL SHARE OF NON-AERO AT 33%
In the seven years to 2017, Africa experienced a CAGR of 4.1% in its air traffic against a volatile backdrop.
Looking ahead, this is forecast to rise to 3.7% to 2040 to reach 450m.
“In order to cope with this growth, airports should be allowed to generate enough revenue to finance their activities, infrastructure and remain competitive,” he said.
“Non-aeronautical revenue has the potential to be the major source for operators.”
However, the $10.15 per head accrued from this source was insufficient to offset the $13.55 cost per passenger last year, which is used to cover operational and capital finances.
Although the continent’s airport revenues grew by 12.6% in 2015/2016, non-aeronautical revenue’s share amounted to $900m from the $3.5bn total, which Tounsi flags as ‘significantly lower’ than other regions.
“Airports must develop relationships with brands and retailers in order to increase this number and respond to the growing demand of travellers. Income such as retail concessions will significantly contribute to airports’ income portfolio.”
Revenue from retail and duty free in Africa represents a 32.8% share of non-aeronautical revenue – an imperative in the future growth trajectory for retail and duty free, delegates heard.
Isabel Zarza, Managing Director at Dufry Africa then took to stage.
The travel retail giant at present operates in nine countries in Africa, with all either boasting new airports or terminals.
She began by highlighting that there are fewer attendees from Africa attending the conference compared to those from regions such as Asia, the US and Europe.
This equates to approximately 10 from the 400 attendees, she pointed out, noting that the market currently equates to a mere 1% of the global travel retail business.
Passenger capacity, processing and regulation poses a challenge to operators in the region, but it undoubtedly represents huge growth potential.
As mentioned above, Africa’s burgeoning population is youthful; many citizens are in their 20s and 30s and ready to embrace travel.
Passenger traffic is expected to triple in the next 15 years, she continued, maintaining that the industry needs to be ready to react accordingly.
Echoing sentiments from Tounsi, she made clear that African airports are still not realising the potential of retail at the airport as one of the main sources of revenue.
LTR ADDS IN DAKAR
Frédéric Chevalier, Chief Operating Officer at Lagardère Travel Retail reinforced the travel retailer’s strong belief in the strength of the African duty free market.
He touched on dynamic passenger traffic and population increases that will drive economies in the next four decades.
The travel retailer secured a 10-year contract covering duty free and news and convenience at Senegal’s new Dakar Airport last year.
“We treat Africa with strictly the same standards that we apply to our business in more developed countries; the same level of expectations in instore design and execution, which is a fundamental testimony to the brands, airport and passengers,” he commented.
“The quality of retail at the airport contributes to the belief that the product is genuine and justifies the purchase.”
Conversely, he acknowledges the challenging environment, particularly during the construction and operational stages.
Regulation – at best unclear – is coupled with heavy bureaucracy, unreliable partners and unstable political regimes at airports where the volumes are already limited.
During the address, Chevalier revealed that Lagardère Travel Retail is currently opening a standalone unit at Dakar Airport dedicated to Senegalese handcrafts designed to showcase the country’s culture while adding purchasing value.
Blacky Komani, Deputy Chief Executive Officer at Tourvest Ground Duty Free concluded the panel by reminding delegates of the importance in understanding Africa to a greater degree.
“It is not a global market, there are segments in Africa you need to understand. Some South African companies have operated in other African countries and have failed as they’ve taken a South African solution to somewhere like Nigeria and it’s two different markets.
“Outside of finding a local partner when you go to Africa, do your homework,” he told onlookers. “Don’t treat Africa as one continent.”
ME DF&TR ‘BUOYANT’
Held under the patronage of the Lebanese President of the Council of Ministers H.E. Saad Hariri, managed by TFWA and hosted by Beirut Duty Free, the two-day conference was originally rescheduled following its postponement owing to safety and security issues in the region last year.
Opening the event, MEADFA President and Jordanian Duty Free Shops CEO Haitham Al Majali paid tribute to the country’s vibrant culture, heritage and rich history in a region at the heart of developmental change.
“The travel retail market is becoming stronger – in 2017 it reached significant heights,” said Majali.
Setting the scene for an eclectic series of sessions on the opening day, Majali reminded delegates that the Middle East recorded growth of +7.3% to $6bn in DF&TR sales in 2017.
Drawing on United Nations World Tourism Organization (UNWTO) data, he said international tourist arrivals grew to 58m (+5%) as a number of destinations welcomed a strong revival in their travel and tourism fortunes, with Africa continuing to come to the fore.
“These figures, actions and feedback from our members give us great hope in the years to come,” he commented. “In Africa, MEADFA plans to grow further and has a strategic vision for the region.”
He also referenced the association’s continued partnership with the Duty Free World Council and European Travel Retail Confederation in addressing the threat posed by the WHO Illicit Trade Protocol on Tobacco.
In a touching gesture, MEADFA then presented soon-to-be departing TFWA President Erik Juul-Mortensen with a trophy to commemorate his many years of service to the industry.
More to follow….