Senior management at the Israel Airport Authority (IAA) confirmed today that it will be tendering a new seven-year duty free contract at Tel Aviv Ben Gurion International Airport, with a closing date of 9 August 2017 and an award expected within the following month.

 

The incumbent concessionaire James Richardson’s lease term for its duty free departures and arrivals business ends on 31 December 2017, with the winning bidder required to take over the shops on 1 January, 2018.

 

The new contract covers the sale of alcohol, tobacco, perfume, cosmetics, chocolate and pharmaceuticals and also includes an optional three-year extension, conditional on the incumbent retailer and IAA agreeing mutually acceptable terms. The winning company – or companies – also has the obligation to set up an online pre-order purchasing service for passengers before they travel abroad.

 

HUGE MONETARY GUARANTEES

James Richardson trading as JR/Duty Free is the duty free concessionaire – and has been since 1988 having successfully defended its business in more than four concurrent tenders thereafter. The last time it won the Tel Aviv Airport duty free contract guaranteeing $169m a year, or +$1.1bn over seven years.

 

This was equivalent to approximately 47.5% of total revenues expected over the seven-year contract, based roughly on the IAA’s estimate that the duty free concession was generating around $1m a day at that time in the location.

 

LARGE NEW STORE OPENING

Seven years on and JR/Duty Free is currently busy preparing to open its new 500sq m T1 duty free store on June 19 as part of its existing contractual obligation to the IAA and also as an important feature within this international and domestic passenger terminal. This is reopening in two weeks with a special opening ceremony.

 

This shop will then be included alongside all the other duty free outlets as part of the new duty free contract package now out to tender for commencement next January.

 

It covers both T1 and T3, with the senior IAA spokesperson confirming that bidders can tender for one, or both of these locations – depending on their preference.

 

 

IAA says that the world’s leading retailers are already showing interest – including those with annual sales turnovers in excess of €2bn ($2.25bn).

 

 

STRONG INTEREST IN CONCESSION, SAY IAA…

The spokesperson said: “Retailers can bid for [Terminals] one or three, or both concessions together if they wish. Also, James Richardson will open their new store according to the contract with IAA this month, as they are obligated.”

 

According to the IAA spokesperson, Terminal 1 is expected to handle around 1.5m international departing passengers next year, while T3 ‘will be around 8.2m’ or slightly more, with all of the initial signs pointing to ‘very good interest’ from international retailers who have been waiting for this tender to go live.

 

One of the leading contenders, will, of course, include the incumbent, although it is now well known that JR/Duty Free has formed a joint venture with Gebr. Heinemann to rebid for this business this time around.

 

CHANGING AIRLINE MIX…

One big difference between this new upcoming tender and previous bids is the changing mix of airlines flying into Tel Aviv, with the IAA spokesperson telling TRBusiness today that there are many more low-cost airlines than before – as the number of destinations has also expanded.

 

An interesting dynamic for prospective bidders is that when Terminal 1 has its full opening for Tel Aviv’s low-cost operators, the passenger mix will obviously change.

 

In addition, there are now routes to Singapore and the wider Far East and the airport is shortly expecting Cathay Pacific Airways to commence operations at Tel Aviv.

However, the key spending levels are still good: “Spending levels are still very high, although they may be down by a few dollars because of the economic situation,” said the spokesperson.

 

“In the past we have been generating around $1m a day, although in 2016 it was actually more.”

 

This is entirely consistent with previous spend-per-head levels at Tel Aviv Ben Gurion with JR/Duty Free.

 

For example, the last time the IAA looked at tendering the business in 2013, a senior IAA director told TRBusiness that the concession was generating $364m in sales.

 

TO SPLIT OR NOT TO SPLIT…?

He also said then that management was not keen on the idea of splitting the business between two concessionaires, as it was of the opinion that with an average airside dwell time of just 45 to 60 minutes, this might dilute rather than expand sales.

 

The fact that the big T3 operation features a Rotunda shop design also helps to keep customers in that retail zone for longer, although that could now change with the IAA offering retailers the chance for retailers to bid for one or both T1 and T3 retail opportunities.

 

It should also be noted in this tender that the Israeli Airports Authority has lowered the linkage rate for the increase in passenger traffic from 70% linkage to 40%, due to the increase in passenger traffic at Ben Gurion Airport.

 

In addition, as a part of this tender, the IAA has also expanded the duty free commercial areas in the boarding arms and doubled it, in order to provide passengers with an enjoyable shopping experience while waiting at the gates.