US expansion beckons for Fraport after Airmall acquisition

By Kevin Rozario |

Following the deal to acquire the airport concession developer, Airmall, announced yesterday, Fraport has confirmed that it will be looking to expand the business beyond the current four airports where Airmall runs a retail offer.

 

In an exclusive interview, Fraport’s Christian Sültemeyer (below), Senior Executive Category Manager Duty Free + Commercial Development International, tells TRBusiness that the move would be beneficial from a revenue perspective as well as a strategic toe into US airport retail waters.

 

Sültemeyer says: “It is both. It is a very reliable investment with straight, plannable income and, of course, at the moment Airmall operates at four airports but there’s more in the pipeline so we feel it is a growth business. From a strategic view this (acquisition) gives Fraport an edge in expanding the business in the future. Airmall was owned by BAA and then sold, and now it is shifting back to an airport company running it and understanding the business much better.”

 

Over recent years, Airmall has remained entrenched at its four locations of Baltimore (BWI), Boston (BOS), Cleveland (CLE) and Pittsburgh (PIT) without making headway against competitors such as MarketPlace and Westfield. This is despite its claim of having “one of the highest per-passenger spends on the continent”.

 

SUPPORT FOR AIRMALL

Fraport believes that with its reputation and retail skill-set behind the concession developer, it will be able to make gains in the market that Airmall was not able to achieve on its own, and also because, as an airport operator itself, it understands the needs and requirement of other landlords.

 

Sültemeyer comments: “The US is a difficult market to enter because it is mostly not privatised and very airline controlled and, from our point of view, it is also underdeveloped in retail at many airports.

 

“We definitely want to expand the business and move towards more airport services that the Fraport Group can develop. Right now with Airmall it has assets in its knowledge of the American travel retail market and it has a well organised team. The offer at its four locations is over-averagely developed in terms of retail (sales). We will look at further opportunities with the combined power of Fraport and Airmall – and strategically we will see what’s on the horizon.”

 

KNOWLEDGE TRANSFER

He continues: “The business model of Fraport is to gain the knowledge at the home port of Frankfurt (below) and then transfer this knowledge to other parts of the world – and adapt it of course. We have done it in all the other airports where we operate – so, for example, at St Petersburg where we opened a terminal recently, Lima and Antalya, and even smaller airports for example in Bulgaria.

 

“We have a strong belief that, in the future, Airmall will not be limited to four airports but to further airports that are looking at the developer model approach to grow their retail in the US. We feel it’s a good company with good people and good knowledge – the four concessions they have are a good start, but just the start.”

 

TRBusiness comments: Fraport has made a bold move into the US market given that this is the first time it is taking on a retail role without the comfort factor of also being the airport manager or operator as it is at other international gateways where it has stakes.

 

Entering the giant US aviation market – the biggest in the world – effectively as a concession developer will mean a sharp learning curve. As Sültemeyer rightly says, the US market is almost entirely non-privatised and airline dominated. In this scenario, where local government is involved, political arguments are often as pressing, or more so, than the economic or commercial ones.

 

Fraport has moved to the other side of the fence with this deal, and will have to work with authorities such as Massport and other city landlords that control the concessions. While that is a whole new approach for Fraport, the lure of a sizable and still largely under-developed retail market in the US has clearly proved too great to ignore.

 

The German company strongly believes that its credentials – not just at Frankfurt, but at airports like Antalya and St Petersburg – will be a boost to Airmall’s business and that this will drive value for the Fraport Group if it manages to succeed with its US expansion strategy.

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