Breathtaking changes in airport rankings and what they mean for duty-free retailers
Six of the 10 busiest airports in Europe are now Russian or Turkish, a year ago the number was only three. And familiar gateways such as London Heathrow, Madrid, Barcelona and London Gatwick have all been excluded from the June top 10 thanks to the Covid-19 pandemic and strict closures.
Replacing them were bridges you might not even have heard of, including the Moscow trio of Domodedovo, Sheremetyevo and Vnukovo; Pulkovo in St. Petersburg; and Sabiha Gökçen in Istanbul (see tables below).
The implications for duty-free sales could be significant if June data becomes a trend for the rest of the year. The traditional focus of retailers has rightly been on large international hubs with the best spending models. Now that smaller airports have suddenly risen in rankings, a redesign is in the pipeline, at least temporarily.
What exactly is going on?
As indicated at the start of the pandemic by the BVG and others, large geographic markets with large populations and strong existing national networks have shown more resistance than international routes to declining traffic. These markets include the United States for example, where traffic has recovered to almost 70% down some days (against the same day in 2019). This compares to the 96% collapse in Europe in the second quarter.
However, that did not stop Hudson News owner Hudson Group from implement 40% job cuts citing the uncertain market.
In Europe, national air networks are helping counter the impacts of Covid-19 in countries like Russia, Turkey and Norway. According to June data from the European branch of the airport trade body Airports Council International, Moscow’s Domodedovo gateway became the busiest European airport with 716,800 passengers, down 73.3%.
Major Russian airports saw their traffic drop by 73 to 87% in June, while hubs like Amsterdam Schiphol, Paris Charles de Gaulle and Frankfurt all fell by more than 90%. Meanwhile, Turkey’s Sabiha Gökçen has become the sixth busiest airport in Europe, aided by its traffic profile which traditionally was about two-thirds domestic.
Large European tour operators such as Dufry Group, Lagardère Travel Retail of the Lagardère group and Gebr. Heinemann may need to put more emphasis on some of its smaller or regional airports that have grown in importance.
Revealing passenger changes
For example, in June, the airports of Athens and Izmir in Turkey handled more passengers than the German international hub in Munich; The host city of the 2014 Winter Olympics in Russia, Sochi, welcomed more travelers than the airports of Madrid and Zurich in Switzerland; Bergen in Norway overtook Lisbon and Copenhagen; and Catania in Sicily received more traffic than Brussels or Helsinki.
Last November, Dufry, acquired a 60% stake in airport retailer RegStaer Vnukovo through a Russian joint venture. In June, Vnukovo became the eighth busiest airport in Europe, offering Dufry perhaps more value than he imagined when he struck the deal.
Lagardère Travel Retail is opening or reopening regional gateways, particularly in Italy. Last month, the inauguration of a 2,150 square foot store at Cagliari Elmas Airport in Sardinia marked the company’s twentieth airport unit in the country. Such measures send a much needed signal of optimism to the duty free shop industry, even as the sales figures tell a very different story.
The regional point-to-point rather than hub model is likely to drive short-term growth, but even that is problematic. Talk to Forbes.com, Olivier Jankovec, Managing Director of ACI Europe, said: “Most of the recovery is driven by intra-European routes and given the continued restrictions on intercontinental air travel, point-to-point traffic is doing better than connecting traffic.
“However, demand for intra-European routes remains weak, which means that airlines – with a few exceptions – are very cautious in their catering. They tend to focus on bigger markets where they can better fill the planes. There is simply no silver lining for airports in this crisis. “
While regional airports are experiencing a resurgence in some respects – which may be transient – they will not be able to make up for the loss of retail revenue in larger hubs where spending per passenger is higher.
“Regional airports don’t see many of those who spend a lot: intercontinental passengers and especially travelers from China,” Jankovec explains. “In addition, commercial revenues per passenger at airports were already under pressure before this crisis, due to a series of structural factors, including digital competition. It’s all about volumes (and) many airlines have announced that they will become structurally smaller, which means fewer routes and fewer passengers at airports.
Downstairs, but not outside
It is a grim picture for airport retailers whose fate rests, to a large extent, in the hands of the airlines and the prevention of second wave of Covid-19 infections.
But the retail segment will retain its importance in the growth of airport revenues and profits. Jankovec tells Forbes.com: “For now, the focus is on restoring consumer confidence and restoring airline connectivity to airlines.
“Going forward, as the recovery will take years and airlines will remain cautious about network and route development, downward competitive pressures on airport charges are expected to increase dramatically. This means that the aeronautical revenues of airports will come under new pressure. In this context, maintaining the focus on income diversification and, in particular, on retail / commercial income will be, more than ever, a must. “