Ray Heath Design - The Moodie Davitt Report · HONG KONG.Hong Kong International Airport handled...

WELCOME to The Moodie Report.

This week’s edition comes to you from 11,300 metres up in the sky, onboard a Qantas747 flight to Bangkok – the location of the opening on Friday of King Power Interna-tional’s enormously ambitious downtown duty free complex.

The flight left from a London Heathrow Airport slowly getting back to normal after thechaos, crowding and confusion arising out of last Thursday’s UK terror alert. For reasonsunknown to either World Duty Free staff (or Qantas cabin crew) I, along with all Qantaspassengers travelling out of T4, was prohibited from taking duty free liquid (fragrance orliquor) onboard – the same restriction applied to US-bound passengers. And yet as I writethe airline is offering its own duty free selection, including fragrances and spirits, for sale.

Was Qantas or Bangkok (or the onward destination, Sydney) caught up in the terroralert? Not at all – the situation is just one of many anomalies to arise as travel retail hasgrappled with a global crisis ranking alongside 9/11 and SARS in gravity. Several airlineshave introduced their own (i.e. not imposed) bans on duty free being taken onboard,while continuing to do very good business themselves. Yet all those duty free items,inflight and on the ground, come from the same carefully-regulated supply chain.

Such inconsistency can only hurt. By implication one sector of the business is sayingthat another is not safe. Duty free’s single strongest defence in the current environmentis the channel’s strict and across-the-board levels of compliance and security. Frombonded warehouse to airport shelf, a bottle of duty free liquor or fragrance is one of themost scrutinised items in any retail channel – and certainly much ‘safer’ than itemsbrought in from outside the airport by travellers.

That’s an argument that tends to go down better with the regulators than the equallyvalid economic one, i.e. the vital importance of duty free revenues to the airportinfrastructure development. Both matter deeply.

So how does the industry stand precisely a week since the crisis began? Well let’s beginwith the most important perspective. No planes have come down and no atrocity hasbeen committed. The commercial impact of the crisis though has been serious, not justin short-term losses but also in ramifications for the business. The situation with US-bound flights worldwide remains unresolved and, until it is, losses will mount.

World Duty Free’s Mark Riches has rightly stated that the channel must move quicklyto ensure it evolves along with an ever-changing security agenda. In the longer term agreater role for the established but under-developed concept of Arrivals shopping looms.The spectre of a US-style gate delivery system has not only been touted but implementedin at least two major locations – Singapore Changi and Buenos Aires Ezeiza airports.Hong Kong International Airport and Nuance-Watson (HK) have cleverly introduced alandside service that allows purchases to be added to checked baggage.

The industry is again proving it is quick to react. But it’s not so smart at anticipating. Wherewas the ready-made marshalling of arguments, the public espousal of the strict securitycompliance of the channel? The Duty Free World Council website, set up in July 2004 toensure effective communication with ‘non-industry opinion formers’, remained unchangedthrough the first week of the crisis and is at least a year out of date, despite a media clamourfor information. Let’s ensure we’re better prepared next time. Because there will be one.See our Special Report, starting on page 10.

The Moodie Report© is published by Moodie International. All rights reserved.Please send any comments or stories to [email protected]

THURSDAY 17 AUGUST 2006

FAST, FACTUAL, FREE

COLM MCLOUGHLIN: THE DUBAIDUTY FREE MANAGING DIRECTORTHIS WEEKANNOUNCED ANEW DAILYSALES RECORD OFUS$4.9 MILLION,POSTED ON THERETAILER’S 22NDANNIVERSARY.WHAT A PERFORMANCE – SOME+57% AHEAD OF THE PREVIOUS24-HOUR RECORD.

“Let us be very clear on this –the duty free industry, bothinflight and at theairports, is one ofthe most regulat-ed and compliantin the world.”Asia Pacific TravelRetail AssociationPresident RakhitaJayawardena hits precisely theright note in pointing out whyduty free should not be singledout for any prolonged restric-tions arising out of the UK terror crisis.

Gunnar Heinemann: Hot onthe heels of extending the keyFrankfurt dutyfree contract until2015, the Germantravel retailer thisweek snapped upthe Nuance-heldCopenhagen con-cession. “It’salmost too much good news toswallow in one year,” said co-owner Gunnar Heinemann.

Peter Allard: The head of DFSGroup’s impressiveNew Zealand oper-ation departs thescene following amajor Australasiashake-up in thewake of the retail-er’s narrow failureto secure the Sydney Airportduty free contract.

QUOTE OF THE WEEK

PERSONALITIES OF THE WEEK

HONG KONG. Hong KongInternational Airport handled 4.1million passengers in July, up +8.6%over the same month last year, and anew record for the month.

Airport Authority Hong Kong AirportManagement Director Howard Engsaid: “The +8.6% growth in passengervolume was attributed to an increase intravellers to and from the ChineseMainland and Southeast Asia. Weexpect the growth momentum tocontinue for the remainder of the year.”In the past 12 months, passengerthroughput rose +9.0% to 43 million.

HONG KONG. Cathay PacificAirways passenger numbers increased by+11.1% in the first half of 2006compared with the same period in 2005.

The figure was revealed last week in the group’s interim results for the six months to June 30. Passenger yield declined-3.0% despite strong demand from first and business class passengers. Competition on long-haul routes led to a fall inyield among economy passengers.

North America was the group’s highest sales region outside Hong Kong while the markets of India, Philippines andThailand showed encouraging performances. Taiwan remained strong, said the company, despite pricing pressures,while Australia performed satisfactorily despite competition from connecting services to Europe. European load factorswere high but yields came under pressure.

Group turnover increased +13.4% to HK$27 billion (US$3.5 billion). Fuel expenditure for the period increased+30.4%, while passenger and cargo fuel surcharges only partially offsetthis additional cost. Net profit for the six months was HK$1.67 billion(US$210 million), unchanged from the same period last year.

SWITZERLAND. Zürich Airport handled 1,898,774 passengersin July, a rise of +5.7% over July 2005. Year-to-date (YTD) passengergrowth is +6.0%.

Transfer passenger numbers rose by +14.9% to 574,150 in July (YTD+10.6%). O/D or local passengers (originating or departing fromZurich) were up by +1.9% to 1,310,458 compared to last July (YTD+3.5%). The market share of low-cost airlines YTD is 8.4%, above lastyear’s figure of 7.9%.

US. US airlines carried 34.9 million scheduled international passen-gers during the first five months of 2006, up +4.2% on the same periodin 2005, according to the latest statistics from the US Department ofTransportation.

The passengers were carried on 348,200 flights, up +2.3% from the340,500 flights operated in the first five months of 2005. In May, themost recent month for which data is available, the airlines carried 7.3million international passengers, up from the 6.9 million carried duringMay 2005.

Thursday 17 August 2006The Moodie Report


THE MOODIE REPORT DATA ROOM – TRAFFIC RESULTS

Selected traffic numbers reported in the past week

Country/Region Airline/Airport/Association July ’06 vs July ’05 (%)

Note: ‘total pax’ may include domestic trafficSource: ©The Moodie Report

Austria Vienna International Airport +2..9 (total pax)Canada Ottawa International Airport -0.1 (international)Chile LAN Airlines +5. (international)Finland Helsinki Vantaa Airport +11.2 (international)Germany Cologne Bonn Airport +5.1 (total pax)Germany Frankfurt Airport +1.7 (total pax)Germany Hannover Airport -3.5 (total pax)Germany Lufthansa Group +4.6 (total pax)Hong Kong Hong Kong International Airport +8.6 (total pax)Peru Lima Jorge Chávez Airport +0.6 (total pax)Spain Iberia -0.8 (international)US Delta Air Lines -10.6 (total pax)US Hawaiian Airlines +4.4 (total pax)US Southwest Airlines +2.0 (total pax)US Spirit Airlines -0.9 (total pax)US United Airlines +4.9 (total pax)

International revenue passenger miles(RPMs), a measure of the number ofpassengers and the distance flown, wereup +5.3% in the first five months; theinternational passenger load factor wasup +0.5%. International RPMs were up+5.5% in May, and the internationalload factor was up +0.8%.

American Airlines carried 8.7 millioninternational passengers from January toMay, the highest figure of any USairline.

Miami International was the busiest USairport for international travel on US carriers from January to May, with 1.82 million international passenger board-ings. In May Miami International was the busiest international airport with 375,100 international passenger boardings.

In total US airlines carried 301.9 million scheduled domestic and international passengers during the first five monthsof 2006, +0.9% more than during the same period in 2005.



Selected traffic numbers reported in the past week (continued)

Country/Region Airline/Airport/Association June ’06 vs June ’05 (%)

Note: ‘total pax’ may include domestic trafficSource: ©The Moodie Report

Germany Cologne Bonn Airport +11.3 (total pax)Japan JAL Group -7.0 (international)Malaysia Malaysia Airlines -10.2 (international)UAE Dubai InternationalAirport +16.4 (total pax)UK Manchester International Airport -0.2 (international)US Dallas Fort Worth Airport +2.0 (total pax)US Houston Bush Intercont. Airport +13.6 (international)US jetBlue Airways +25.2 (total pax)

THE MOODIE REPORT DATA ROOM – TRAVEL & TOURISM NEWS

ASIA PACIFIC. Leading travel group Abacus’s mid-year snapshot of the Asian travel industry shows sustaineddemand across the region even as rising fuel bills increased costs for travellers.

IATA (International Air Transport Association) figures for the six months to June 2006 show an overall +6.2% increasein revenue passenger kilometres (RPKs) for Asia Pacific over the corresponding six months in 2005. This made theregion the third fastest growing after the Middle East (+17.3%) and Africa (+7.6%).

“The first half of 2006 has been a real test for the travel market, and the continuing growth shows we have come throughwith flying colours. We’re seeing an active and vibrant market with relatively inflexible demand even though airlineshave been forced to pass on rising fuel costs to the traveller,” said Abacus International President and CEO Don Birch.

“The rise of India and China, supported by a build up of latent demandin hotspots such as Vietnam and Indonesia and the impact of low costcarriers are all making their impact felt in the emerging picture,” he said.

India was a prime mover during the period (with a marked increase indomestic travel), while other growth markets China, Vietnam andIndonesia provided underlying confidence to the market, althoughThailand and Malaysia experienced some turbulence.

IndiaWhile India’s total market for domestic travel grew by +24% in theyear to June 2006, Abacus reported domestic booking numbers up bymore than three times that rate over the period.

Domestic traffic is poised to keep growing at +25% per annum from2005 to 2010. India will also add 5 million additional passengers everyyear and the market size will grow to 50 million by 2010 according tothe Centre for Asia Pacific Aviation.

With 14 bilateral agreements signed by India during 2005 under itsOpen Skies policy, more foreign airlines are routing into India andpreviously purely domestic carriers are being permitted to fly abroad –generating more seats and driving competitive fares despite increasedfuel charges.

“On paper India has some very promising developments in airport infrastructure, with Bangalore and Hyderabad in linefor new international airports. As many as 30 smaller airports (e.g. Nagpur, Gaya) will be re-positioned as internationalairports, eventually creating more exit and entry points for travellers,” Birch said.

The industry serving this market is getting more sophisticated with travel portals such as MakeMyTrip.com andIndiaTimes.com starting to have an impact on the traditional travel agents. Portals such as these now make up morethan 5% of Abacus’ business in this market, up from practically nil just a year ago.

“We expect rapid growth in India’s online travel market, with more than 100 million Internet users expected by2007/08. IAMA (Internet and Mobile Association of India) projects travel and related services to account for more than55% of all online purchases,” Birch said.

ChinaLatest Abacus figures show a compound average growth rate of +37% in bookings from 2003 to 2006, including +12%

YTD growth in May 2006.

There has been a marked increase inthe proportion of private outboundtravellers, from just 39% in 1993 to80% in 2004, and a correspondingdecline in the proportion of businesstravellers, as the Chinese Governmenthas greatly widened the number ofcountries with Approved DestinationStatus (ADS) for organised Chinesetourist groups. As part of this relaxationof the rules, travellers can now sponsorthemselves.

The impact of these moves is demon-strated by the performance of the China

to Philippines market, which increased by +245% in Q4 2005 (PATA), a nearly +25% increase in the number of travel-lers through Beijing Airport in the year to April 2006 (Beijing Capital International Airport Company) and projected+14% annual growth for China’s aviation market over the next five years (Globalysis Ltd).

The full Abacus report, including in-depth country-by-country analysis,can be found at www.TheMoodieReport.com



Chinese outbound travel 1999–2004

Source: 1999-2003 from National Tourism Association, WTO, 2004 from Euromonitor; The Moodie Report

20,000

15,000

10,000

5,000

0

9,232.010,472.7

12,986.0

16,602.3 16,034.4

18,768.1

Tota

ldep

artu

res

(tho

usan

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1999 2000 2001 2002 2003 2004

THE MOODIE REPORT

DATA ROOM – RETAIL & COMMERCIAL SALES RESULTS

SWITZERLAND. Turnover (net sales to passengers) incommercial activities at Zürich Airport rose +11.8% to CHF221.6million (US$178.6 million) in H1 2006 compared to H1 2005, airportauthority Unique Zürich has reported. Turnover in July rose +8.3% toCHF35.1 million (US$28.3 million).

The figures cover retail, duty free and food & beverage outlets.Zürich’s airside locations performed especially well in the period.Airside turnover in the half rose +13.5% (+11.1% in July), whilelandside turnover rose +9.8% (+4.9% in July).

The airport also provided net sales figures per departing passenger. Inthe first half turnover per passenger hit CHF40.76 (US$32.84), up+5.6% on H1 2005. The July figure was CHF36.98 (US$29.80), up+2.4% on July last year. In the half, airside turnover per departingpassenger rose by +7.1%, while landside the figure was up +3.6%.

HONG KONG. King Power Group (Hong Kong) has created an owned brand, which it has named after thegroup’s founder, Antares Cheng.

The Antares lifestyle brand, to be launched in November 2006, will embrace a wide range of lifestyle products. Thenew range will include watches, golf accessories, consumer technology, business tools and personal and home acces-sories, and fashion.

An initial bid has been submitted for a 55sq m brand name store at Singapore Changi Airport Terminal Two. This willbe followed by two downtown stores in Singapore. At the same time, the brand will be introduced in Macau, Shanghaiand Hong Kong, with exclusive launches in King Power stores. The second stage of the business will take this brandinto the domestic market in India at the beginning of 2007.

INDONESIA. PT Fortune Star Airport Duty Free – one of Asia’s longest-established duty free retailers – hasformed a joint venture with Philippine Regent Asia Group, to which it is handing over full operational control.

Philippine Regent Asia Group will take over the operations of the Indonesian travel retailer, which has stores atJakarta’s Sukarno-Hatta International Airport Terminal and elsewhere, from 1 October.

Philippine Regent Asia Group is headed by Managing Director Jose (‘Chim’) Esteban, a former General Manager ofDuty Free Philippines and one of Asia’s most respected duty free executives.

PT Fortune Star President and Director John Halim and his daughter Joanna Halim will remain in the company aspartners.

Esteban was General Manager of Duty Free Philippines when the company was founded in 1987 (he started in the rolea year earlier) and drove its business successfully until 1992. Later he set up duty free operations in the free ports ofSubic and Clark before selling up to move into the agency business, an area in which he remains successful today.

In 2004 state-run Duty Free Philippines contracted out its fragrances & cosmetics business to Esteban’s LandmarkManagement.

The company was already active as a concessionaire for Duty Free Philippines, having run the fashion business since1999.

ITALY. Alpha Retail has opened an expanded Zinq outlet – con-taining its boutique accessories offer – at Rome Fiumicino Terminal B.

The store has gained an additional 30sq m of floor space, enablingAlpha to introduce new fixture concepts and to expand its ranges ofbags, sunglasses and jewellery. The handbag area has been enlarged,with wall displays dedicated to higher price point brands AlvieraMartini, Coccinelle, Guess, and Nannini. Floor fixture displays includean affordable range from FFI.

Zinq’s watches and jewellery offer is designed to appeal to a broadaudience, including younger brands such as Seksy and a large Swatchunit, alongside premium watch ranges. New inclusions are Tissot,Hamilton & CK.

Swarovski hosts a wide selection of products in a dedicated brandedarea. Alpha has also introduced Hot Diamonds and Thomas Sabo,already successes in its UK stores.

Alpha Retail operates two Zinq stores, two Alpha Accessories stores, asunglasses store and a Guess store at Rome Fiumicino Airport, as wellas an Alpha Accessories store at Rome Ciampino Airport.



THE MOODIE REPORT LANDLORD & CONCESSIONAIRE NEWS



AUSTRALIA. Darwin International Airport has called for Expressions of Interest in a ten-year duty free con-tract. The contract, which begins on 1 February 2007, covers International Departures after Customs; InternationalArrivals prior to Customs and Landside within Domestic Departures.

The airport has undertaken substantial redevelopment in the retail and Departure lounge areas of the two-storeyTerminal. A new, versatile space – called the ‘Swing Lounge’ – has been created as a result.

“This new area adds flexibility in the Departure Lounge allowing the expansion of the domestic lounge, internationallounge and can be used as a VIP lounge for both international and domestic passengers. It also allows for the entireDeparture Lounge areas to be operated as domestic when there is no international traffic, allowing an opportunity fordomestic landside sales,” said the airport.

Darwin International Airport describes the Darwin market as a “valuable opportunity for retailers”. The continuedmilitary build-up in the region and oil and gas development in the Timor Sea are set to underpin traffic growth, as wellas contribute to incomes in Darwin and the region. Passenger numbers for 2005 were 1.43 million, including 334,000international passengers.

International airlines frequenting Darwin International Airport include Royal Brunei, Garuda Indonesia, Tiger Airways,Qantas, Airnorth/Regional Link and Merpati.

Expressions of Interest“The purpose of this document is to seek Expressions of Interest from applicants to manage and operate a duty freebusiness at Darwin International Airport,” said the airport. “During this stage Darwin International Airport’s objectiveis to identify potential duty free operators who have the airport experience, financial and management capacity toundertake this retail opportunity. Following this stage Darwin International Airport will select a shortlist of companysubmissions that will qualify for the Tender process.”

Information requiredExpressions of Interest should include the following information:n Application lettern Details of airport experience including current and past duty free retail operations with an indication of the size of

retail operationn Ability to commence duty free operations 1 February 2007n Corporate structure including the business and trading name under

which the company will operaten Annual reports for past three years including previously audited

company accounts for past three years.

Submissions can be forwarded to:Rebecca CookCommercial ManagerDarwin International AirportTelephone +61 8 8920 1811E-mail: [email protected]

The submission deadline is 4pm (local time) Monday 4 September 2006.

DENMARK. Gebr Heinemann has won the hotly contestedCopenhagen Airport duty free tender. It will replace incumbent retailerThe Nuance Group on 1 March 2007. The retailer has agreed a six-year contract for the business, which includes the airport’s large centraltax free store plus four satellite outlets and an arrivals shop.

The contract strengthens the company’s hand in the Scandinavian region,where it is the duty free retailer at Norway’s international airports –Oslo Gardermoen, Stavanger, Bergen, Trondheim and Kristiansand.

THE MOODIE REPORT TENDER & CONTRACT NEWS


Gebr Heinemann co-owner Gunnar Heinemann said in a statement: “We are very pleased with Copenhagen Airports’decision. Copenhagen is a challenging airport close to our headquarters. We look forward to working with a professionalteam at Copenhagen Airport.”

Later he told The Moodie Report: “It was a hard and good struggle, and we’re dealing with straightforward and good peo-ple. Geographically we had some advantage – it is closer to us [in Hamburg] than Frankfurt is. With the recent renewalof our Frankfurt business [extended recently until 2015 –Ed], it’s almost too much good news to swallow in one year.”

Asked whether the company could succeed in turning a profit where Nuance had failed, Heinemann replied: “Wewould never go into anything solely for strategic reasons. We won’t get rich but it’s a business that should provide uswith a good result and, more importantly, provide Copenhagen Airports with a good result.”

Copenhagen Airports Vice President Commercial Affairs Henrik Busch commented: “The tax free stores are a verysubstantial part of our passengers’ experience. We look forward to working with Gebr Heinemann, the right operatorto carry through the comprehensive refurbishment and expansion we are looking for.”

The airport’s large duty free store will be converted into a walk-through store next year after a new central securitycheckpoint is created. After security passengers will therefore walk straight into the new store.

The new 2,900sq m central store will be ready by summer 2007. The four satellite stores and the Arrivals store will alsobe modernised.

The Nuance Group has been duty free retailer at the airport since 1995. The Nuance Group Europe CEO Jean-PaulBonnel commented: “This decision by Copenhagen Airport does not come as a surprise given the history of our pastco-operation. We are convinced that we presented a very strong financial and commercial offer. In line with our pastexperiences in Copenhagen we built in some protection measures against risks.

“We wish our successor luck in operating this new concession. Not having Copenhagen in our portfolio shouldmaterialise in improved profits for the coming year.”

DUTY FREE BUSINESS

Expression of Interest

DARWIN NORTHERN TERRITORY AUSTRALIA

We invite you to become a part of the action atDarwin International Airport

Darwin International Airport Pty Ltd invites Expressions of interest for the Duty Free retail business.

Contract commencement 1 February 2007

Available outlets:Landside within Domestic DeparturesInternational Departures after CustomsInternational Arrivals prior to Customs

Contact Rebecca Cook for further details at [email protected]


INDIA. Flemingo India and India Tourism Development Corporation (ITDC) are the big winners in India’s latestduty free tender.

Flemingo has won the contract to operate duty free stores at Amritsar, Ahmedabad, Hyderabad, Chennai and Trivan-drum airports, while ITDC has been successful in retaining its business at Goa and Bangalore. The royalties [persquare metre per month] in addition to the licence fees and minimum guarantees to be paid by the winning bidders are:Amritsar US$4,500; Ahmedabad US$270; Hyderabad US$2,700; Chennai US$999; Trivandrum US$2,700; GoaUS$3,840 and Bangalore US$5,460.

Flemingo, currently operating at Goa and Bangalore alongside ITDC, will continue in its existing spaces at bothairports. It also gains additional space in the five airports that it has won in this bid.

Five retailers – ITDC, Flemingo India, Alpha, King Power (HK) and Sharjah-based Truebell Marketing – contested thevarious contracts. On offer were shop concessions at Kolkata, Chennai, Trivandrum, Goa, Ahmedabad, Bangalore,Hyderabad, Calicut, Amritsar and Gaya.

Calicut, Kolkata and Gaya attracted no bids. State-run ITDC operates the existing businesses at Calicut and Kolkataand is therefore likely to continue on existing terms. It is understood that a recalculation of the minimum guarantees atthese three airports will be conducted before a re-bid is called.

Flemingo India Director Atul Ahuja told The Moodie Report that he was “happy with the results” and that the contractwill take effect about a month from today.

SINGAPORE. There was strong interest in the latest retail tenders to be issued at Singapore Changi Airport. Amid-price fashionwear concession in the Departures area of Terminal Two attracted 18 bidders, and a brand name shopconcession, also in T2, attracted nine bidders. The fashion contract runs for three years from 7 November. There aretwo premises available, and bidders could make offers for either, or for both.

Based on the minimum monthly guarantees offered, Esprit and Timberland made highly competitive offers for PremiseA. Esprit Retail offered 25% of the total monthly gross sales or a minimum monthly guaranteed payment of S$40,000(US$25,300), whichever is higher. Timberland offered 20% of the total monthly gross sales or a minimum monthlyguaranteed payment of S$38,300 (US$24,300), whichever is higher.

DFS and Giordano Originals appear to be strong contenders for Premise B. DFS, bidding with the Le Sportsac brand,offered 28% of the total monthly gross sales or a minimum monthly guarantee of S$35,000 (US$22,200), whichever ishigher. Giordano offered 15% of the total monthly gross sales or a minimum monthly guarantee of S$40,000, which-ever is higher.

Among companies that submitted a combined offer for both locations (Premises A and B) Esprit and Giordano placedaggressive bids. Esprit Retail offered 25% of monthly gross sales or a minimum monthly guarantee of S$52,000(US$33,000), whichever is higher. Giordano offered 15% of monthly gross sales or a minimum monthly guarantee ofS$55,000 (US$34,900), whichever is higher.

Meanwhile nine bidders have lined up to contest a brand-name shop concession at Changi Airport T2 Departure/TransitLounge North. Bids closed on 8 August and the contract runs from 7 November 2006 until 6 November 2009.

Bidders included luggage brand Samsonsite through retailer DFS, King Power (Hong Kong) house brand Antares, andiconic Thai brand Jim Thompson. Full details of the financial bids can be read at www.TheMoodieReport.com


PEOPLE NEWS, JOBS & EVENTSTHE MOODIE REPORT

ASIA PACIFIC. Pacific Asia Travel Association (PATA) President and CEO Peter de Jong will continue tolead the Association for another three years after the Executive Committee asked him to renew his contract.

PATA Chairman Richard Beere said: “We agreed unanimously to ask Peter to renew his contract through to 2009and we are delighted that he has accepted the challenge. The committee fully supports the vision and direction thatPeter has brought to PATA over the past five years and applauds the outstanding results that he and his team have



achieved, especially during some difficult times for our industry."

AUSTRALASIA. DFS Group, the world’s largest travel retailer, has re-structured its Australasian operation,consolidating the separate Australia and New Zealand divisions back into a single Oceania structure after five years ofbeing run as separate businesses.

The Managing Director positions of the Australia and New Zealand Divisions will be combined to form the newposition of Managing Director, Oceania.

New Zealand Division Managing Director Peter Allard leaves DFS effective 15 August. He was previously with theDFS Merchandising team in Singapore, leaving in 1998 to pursue other opportunities. He rejoined DFS in July 2003when he relocated from the UK to New Zealand to take on his current position.

Allard is understood to be keen to explore other travel retail opportunities in Asia and Oceania, on a full-time or consul-tancy basis. A British passport holder, he can be contacted at [email protected] or by mobile phone on +64 21 567924.

Australia Division Managing Director Charn Cheng (CC) Lee will also be leaving DFS, after more than 26 years ofdedicated service. Lee was part of the Singapore team for more than 20 years and transferred to Australia two years agoin his current position.

Mid Pacific Managing Director Steve Timms will assume the newly created role of Managing Director Oceania, effec-tive September. Global VP Marketing & Business Development Jim Beighley will assume the role of Managing DirectorMid Pacific, also effective in September. The Consumer Marketing role will be addressed separately, DFS said.

The company is also consolidating the two Merchant teams currently managing the Hong Kong/Taiwan and Okinawa/



South Korea businesses. These will be combined into a single Merchant structure based out of Hong Kong andOkinawa. This Asia North structure will fully align with the current structure in Asia South based out of Singapore andwill be effective 1 October.

In another change DFS has announced a review of the PRC Merchandising function, now considered an integral partof the retailer’s business. This function will be fully integrated into the relevant merchandising categories. Rita Yeo,Division Merchandise Manager for PRC Market, leaves DFS after 14 years with the company.

SOUTH AMERICA. The annual conference of the South American Duty Free Association (ASUTIL) will beheld in Santiago, Chile, on 7–9 September. For details visit www.ASUTIL.org

SWITZERLAND. Dufry has named Luis M. Zamora as Human Resources Director. Zamora (37), of Swiss andSpanish nationality, has over 17 years experience in Human Resources, said the group. He is based at the Dufry HeadOffice in Basel (Switzerland) and reports directly to Chief Financial Officer Xavier Rossinyol.

US. The Estée Lauder Companies has named Thia Breen as President, Estée Lauder Americas and Global BusinessDevelopment – a new position. The role gives Breen responsibility for the international business, financial control andoversight of the new launch management function of the Estée Lauder brand, in addition to her current oversight ofthe Americas business.

UAE. ACI World is partnering The Moodie Report in the most ambitious airport commercial revenues conferencefor 2007, the ACI Business & Trinity Forum. It will be held in Dubai, UAE, on 11–13 March. The Gala Dinner willfeature the annual presentation of the prestigious Airport Service Quality (formerly AETRA) Awards. For details e-mailMartin Moodie at [email protected] or Andreas Schimm at [email protected]

I have just read your morning’s update [about the crisis improving]. Do you ever sleep? Looks like good news, but I like MarkRiches’ comment about needing to learn the lessons. I get mad when I read about airport duty free being blamed or caught up in allthis while water and wine are being served and sold inflight. The airport duty free system is just as secure – probably more – anddid you ever look at shrinkage in the inflight business? Who is defending us? TFWA? The Duty Free World Council? I readvarious industry experts quoted over the weekend, or overnight experts. How about a concerted, consistent position? We havenothing to hide and plenty to offer in the way we self regulate. –Name withheld

At Puerto Plata Airport [in the Dominican Republic] the spirits and perfume sales ban has now been lifted, except for flights leavingfor the US. We lost two days of sale, however, and the real problem is just beginning. The terrorist plot has affected the consumerbehaviour of the tourists as they aren’t buying, although they are now allowed to. We hope that this tendency doesn’t last too long.Duty free retailers will have to work to bring confidence back to our clients, as our products are safe. –Luis Sansón, Spirits Purchasing Manager, Tienda Ritana Duty Free

FEEDBACK FROM THE MOODIE REPORT FORUM (OPEN TO ALL READERS)THE MOODIE REPORT

SPECIAL REPORT – AIRPORT RETAIL CRISISTHE MOODIE REPORT

INTERNATIONAL. It has been a long and difficult week for the global travel industry since the UK terror alertof August 10. That morning Scotland Yard said it had discovered and disrupted a terror plot to blow up aeroplanesmid-flight using explosive devices hidden in hand luggage. As MI5 raised the UK threat level to critical, stringent andunprecedented security measures caused turmoil, first at UK airports, then around the world. Hand baggage restric-tions banned the carrying of liquids – and in some locations all items – onboard on Thursday and Friday, with devastat-ing consequences for duty free retailers at airports.

Although the situation has improved – with the exception of US-bound flights most airports are operating close tonormal services with few restrictions – the picture is changing fast and the long-term future remains uncertain.

In this special section we present a round-up of the latest international regional developments, and assess the possibleimplications for the trade of last week’s crisis.

Regional roundupEurope: Congestion and delays were still affecting UK airports as this issue went to press, but they had greatly eased



since last Thursday. Following the Government’s move to downgrade the terror alert from ‘critical’ to ‘severe’, theDepartment of Transport eased hand luggage restrictions at the UK’s airports on Monday, measures that took effect onTuesday for all flights – except those bound for the US.

World Duty Free Managing Director Mark Riches said: “Unless you’re travelling to the US it’s business as normal.”For those passengers boarding flights to the US, no liquid or gel items are allowed into the aircraft cabin, includingliquor or perfumes bought airside.

Alpha Airports Group Executive Director David King said the biggest problem facing his business was that manyairlines were “doing their own thing” in terms of applying varying onboard restrictions. “The big issue is consistencyand simplicity – they are the two big things that make the difference,” he told The Moodie Report.

Around the rest of Europe restrictions remain in place on US-bound flights and, in some locations, on flights boundfor the UK.

In France travel retailer Aelia, which operates duty free stores at Paris Charles de Gaulle and Orly airports, said flightsto the US, UK and Israel were all affected. Aelia Vice-President Organisation and Development Ambroise Fondeursaid: “The French authorities have banned sales of liquor and perfumes on all flights going to the US, UK and Israel.We are obviously monitoring the situation very closely.” Flights from Italy to the UK were still subject to the samerestrictions (no liquids) at press-time, while flights from Poland to the UK banned all hand luggage except traveldocuments and other essentials.

In Germany Fraport, operator of Frankfurt Airport, confirmed to The Moodie Report that liquor and fragrances couldnot be sold to passengers travelling to the US or to British Airways passengers travelling to the UK. Spain’s airportauthority AENA was telling passengers that liquor and fragrances would not be permitted on US flights.

Some retailers have held talks with national civil aviation authorities and with airlines, in a bid to overcome the newregulations. At Dublin Airport in Ireland Aer Rianta Retail was examining how it might package duty free purchasesand deliver them to aircraft for transport in the hold, to be collected by passengers on arrival at their destination.

Asia Pacific: The Civil Aviation Authority of Singapore (CAAS) has introduced a form of duty free gate delivery forthe flights most affected by the crisis. Sales of perfume and cosmetics for UK and US flights fell by -50% over theweekend, compared to an average of the two previous weekends, Nuance-Watson (Singapore) Executive GeneralManager Ken Tse told The Moodie Report.

CAAS said that special arrangements had been made for liquor and perfume purchases to be brought directly to thegatehold rooms for passengers travelling on Singapore Airlines flights to the US, United Airlines flights to Hong Kongand Narita and Northwest Airlines flights to Narita (from 18 August). Passengers on these flights have been asked topurchase at least one hour before departure time before collecting their purchases immediately after clearing thesecurity screening checks at the gatehold rooms. The new rules also affect passengers travelling to the UK or India toconnect with another flight and passengers travelling to the US or Canada via a stopover point.

In Japan restrictions apply to US airlines only. At Tokyo Narita Airport passengers flying to the US (including Guamand Saipan) and flying on any US carrier (regardless of destination) can’t take any liquids on board, except baby formulaand medication such as insulin. Unlike some other countries Japan has no restrictions covering UK-bound flights.Some duty free shop operators have put up signs to notify passengers of the security measures while others are tellingpassengers before they buy.

NAA Retailing – which is the main operator at the airport, including at the newly opened Narita Nakamise mall – isalready feeling the effects. Senior Vice President Takaaki Iwamatsu told the Wall Street Journal Asia: “We’re expectingsales to drop by about -10% to -20% but we just can’t be sure at this point.” He said that to boost sales the storeswould have to market non-liquid cosmetics and increase sales to passengers going to non-US destinations.

China has also tightened airport security since Friday. China’s General Administration of Civil Aviation has bannedliquids or gels from being taken onto planes bound for the US, affecting Beijing, Shanghai and Guangzhou internation-al airports. Liquids bought in duty free shops are also subject to the ban on US flights. This has affected sales of liquor,fragrances and cosmetics.

Operators in Australia and New Zealand are also subject to the strict rules on US- and UK-bound flights. Passengers



cannot carry liquids and gels on to aircraft destined for either country. This embraces beverages (including duty freepurchases), shampoos, suntan lotions, creams, toothpastes, hair gels and other items with similar characteristics.

On Wednesday this week Airport Authority Hong Kong and Nuance-Watson Hong Kong opened a new TemptationDuty Free Perfumes & Cosmetics counter landside at Hong Kong International Airport.

The move allows travellers to buy duty free perfumes and cosmetics and pack them into luggage before checking in.The new counter is located on Level Seven, within the non-restricted area of the terminal building.

It means passengers can comply more easily with travel security measures instituted by the Hong Kong Civil AviationDepartment, which prohibit passengers flying to US destinations from taking any form of liquid on board aircraft,including fragrances, cosmetic creams and suntan lotion.

Americas: Argentina’s dominant travel retailer InterBaires has been cleared to sell all duty free goods to US-boundpassengers – following a brief ban – but the goods must be delivered to the gate. CEO Enrique Urioste told TheMoodie Report this week: “We are now authorised to sell liquors, gels and aerosols once more for American-destina-tion flights but only if we implement the US system of delivering goods to the gate.

“The TSA [US Transportation Security Administration] representative here agreed that we are a safe supply chain. Buthe said there is no guarantee that that we remain safe within the sterile [post security] zone. So we have to deliver thegoods – including wines and spirits and treatments (not colour cosmetics) – to the gate. It’s a breakthrough but it’s alsoa nightmare in terms of logistics, personnel and costs. It’s inefficient and cost incremental. But it’s better than not beingable to sell goods at all.”

In the US the Transportation Security Administration (TSA) issued this clarification for travellers with duty freepurchases: “Duty free items are permitted if delivered directly onto the aircraft. However, passengers making connec-tions from international to domestic flights must transfer the items to their checked bag before boarding their flight. Atpre-clearance airports passengers must put duty free items into their checked luggage since the aircraft deplanes behindpassenger security checkpoints.”

The International Association of Airport Duty Free Stores (IAADFS) has been working hard to clarify the rules onaircraft delivery, and Executive Director Michael Payne confirmed the mixed picture from airport to airport. “Thesituation is very fluid and there is no consistent practice or enforcement of particular measures. It really depends onhow the local authorities, operators and TSA people on the ground are working together.”

Miami International Airport Commercial Operations Manager, Miami-Dade Aviation Department, Patricia Ryan, toldTravel Markets Insider: “Duty free products may be purchased if taken directly to the gate and the passenger has nofurther interaction with the package, other than picking it up at the gate as they board the aircraft.” She confirmed thatthis directive includes all duty free products, including liquor and perfume, even on flights to the UK.

Alliance Duty Free stores in San Juan International Airport in Puerto Rico have been hit by last week’s events, reportsTravel Markets Insider. Until now the retailer has always operated a cash-and-carry system for duty free purchases.

Now, said Vice President Jorge Bared, liquor, fragrances and cosmetics must be delivered straight to the gate, althoughpassengers can take other items with them. “Delivering the liquid goods to the gate has certainly added to our cost ofdoing business,” Bared told Insider. “To our way of thinking it is redundant security.”

Retailers in Canada have seen sales plummet by between -70% and -75% in recent days as the security measuresenforced by Transport Canada take their toll.

The Nuance Group North America CEO Richard Rendek told the Financial Post that sales at some of the group’s 40duty-free stores in Toronto, Vancouver and Calgary have fallen as much as -75%.

The restrictions were initially set to last 72 hours. But while US airports have since allowed the sale and direct deliveryof duty-free items from airports onto planes, Transport Canada continues to halt the sale of any liquids to travellersonce they pass through security. “They are on an island with their policy and it’s killing Canadian business,” Rendeksaid. He said The Nuance Group will start seeking other solutions if the ban is not resolved by the end of the week.

“The reality is compensation won’t help if we are not able to carry on business in a sustainable way,” he said, adding



that the company may even have to release hundreds of employees, scale down operations and shut stores.

Aer Rianta International North America Operations Director Philip Eckles said: “As an operator, we find it veryfrustrating that restrictions that have been relaxed in other countries are not relaxed here.

HDS Retail, which operates more than 100 Relay airport shops in Canada and the US, said it was being hit hard by therestrictions. President and CEO Jean-Baptiste Morin estimated losses of around US$30,000 a day in beverage sales inthe days after the crisis broke. Two of the group’s Fruits and Passions airport stores (one in Toronto, one in Montreal),which carry beauty items, were forced had to shut down, as most products sold contain liquid. Morin said each storesold approximately US$5,000 a day in sales.

The implications for the trade: As the global travel industry begins to get back to normality following Thursday’sterror alert and its continuing fallout, the travel retail industry is assessing its response.

While the prospect of a US-style ‘gate delivery’ system becoming an element of airport retailing around the world isbeing raised in some quarters, most industry opinion believes the status quo can prevail, at least in most countries.Industry leaders have been quick to underline the trade’s credentials as a safe, secure channel of trading, an image thatit will need to maintain as critical decisions loom about the future security of air transport.

Asia Pacific Travel Retail Association President Rakhita Jayawardena summed up the opinion of many when he said:“Let us be very clear on this – the duty free industry, both inflight and at the airports, is one of the most regulated andcompliant in the world. Its products are subject to the most stringent of security checks at all points of the supply chain.And once again the industry’s stature and legitimacy has enabled it to bounce back from an external crisis affecting thetravel industry.”

World Duty Free Managing Director Mark Riches said the travel retail sector needed to reflect on what had happenedand ensure it is able to take a “pro-active” stance and “be ahead of the agenda” in the event of future crises.

APTRA, although still a fledgling organisation, is taking steps to meet this need for action. The association is to createa position paper assessing the impact of the crisis on the regional industry. APTRA board member Sunil Tuli will leadthe initiative, which will gather information from members – including landlords, retailers and suppliers. It also aims toformulate a strategic direction that the trade can present to stakeholders and authorities.

And the future may look clearer even as early as this week, once a specially convened meeting of the International CivilAviation Organization (ICAO) takes place later today (Thursday). Anything decided by ICAO – the ultimate regulatorof world airport-related travel – is binding on airports and airlines.The meeting will receive specially invited presentations by ACI andIATA. ACI has already recognised the meeting as pivotal for the futureof the airports industry.

ACI Director General Robert J Aaronson recognised the need foradditional security measures and backed “effective, enforceable,practical and sustainable” solutions to security issues. “But,” he added,“the economic consequences of measures proposed must be under-stood by those making decisions.

“Airports derive a significant portion of the revenues needed for opera-tions and development from retail concessions, many of which are locatedafter security checkpoints and already are operated under tight controls.

“It should not be necessary to maintain the temporary ban imposed bysome states on carrying these duty free spirits and cosmetic items onboard aircraft; ICAO, the governments and industry can find ways toensure that such items do not represent any danger.”

Thank you for your readership and support of The Moodie Report.

Martin Moodie, Editor.

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