The Airports Council International (ACI) advances the collective interests and acts as the voice of the world’s airports and the communities they serve; and promotes professional excellence in airport management and operations. In its white paper titled, “Path to Recovery: The Airport Retail Perspective”, it stated: “As a result of severe air travel restrictions implemented by practically all countries around the world, the industry lost over 6.1 billion passengers for the whole year 2020 compared to the projected baseline (pre-COVID-19 forecast for 2020), representing a decline of 64.6% of global passenger traffic. Compared to the 2019 level, the decline was recorded at 63.3%.”
The decline in passenger traffic and the subsequent losses was one of the outcomes of the pandemic. With recovery in sight, a new hurdle emerged with the Russian invasion of Ukraine. Now retailers have come face to face with the possibility of persistent inflation as central banks across the world try to contain the same. The effect of these challenges is that retail concessionaires will realise that “their contract obligations would become extremely difficult, if not impossible, which would have resulted in premature termination of concession agreements and further loss in airport non-aeronautical revenues,” says the ACI whitepaper.
The whitepaper lists actions taken by airports and retail concessionaires to deal with the challenges to liquidity and future business such as prolongation of contract terms to deal with the loss, linking other key conditions of the contracts such as working hours and available offer to the actual passenger numbers and flight schedule, as well as introducing other forms of support relevant to the situation on hand. Some African airport operators offered generous discounts on rent and fixed charges to retail concessionaires.
Another issue raised in the whitepaper is the changing passenger profiles due to the pandemic. An imperative for airports and retailers as a result is to continuously review the value proposition, communication and marketing strategies, airport retail mix and assortment, commercial layout, wayfinding, and signage based on the actual passenger profile. Also, airports and retailers are enjoined to inform the passengers well before their flights that airport commercial services are fully operational and that they fully comply with the epidemiological safety measures. Using digitised, automated, and innovative solutions not only improve the safety of commercial operations but also passenger experience, says ACI.
The challenge posed by e-commerce to airport retail is also addressed. Rather than fight it, airports are advised to embrace the opportunities that e-commerce offers. The airlines will need to be brought on board to achieve the same.
Further, the whitepaper reported: key findings state that as a result of the stringency of travel restrictions, three main thresholds could be set for the measures to be taken: (1) lockdown period; (2) recovery period; and (3) post recovery period. Key financial measures agreed between airport operators and concessionaires: (1) adjusting the MAG (Minimum Annual Guarantee); (2) deferring overdue rent payments; (3) waivers of interest charges and penalties; and (4) shifting emphasis towards variable rent and fees (including introduction of MAG per passenger). The key trends affecting the current passenger profile include: (1) leisure being the main purpose for passenger travel; (2) decrease in long-haul passenger share; (3) increase in the overall dwell time of passengers due to passenger expectations for additional time needed for airport safety measures; and (4) increase in average sales per passenger in airport retail as many travellers are keen to spend more on airport retail. Yours truly was a member of the committee which produced this white paper that can be found on ACI store.
The paper states that its suggestions only apply during conditions that could be considered exceptional. Exceptional circumstances, it says, should be defined nationally or by an airport during the tendering process.
“Some aspects of that definition should be that exceptional circumstances are unable to be forecast, they are beyond the control or ability to influence by the business parties, are long-lasting, and have a material impact on the airport and concessionaire,” it says.
Retailers can face the challenges they face by streamlining operations, emphasising customer retention through positive experiences that can drive profitable growth. The future of airport retail will be effectively managed by close collaboration by all stakeholders with the airport operator.
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