Luxottica, an Italian maker of sunglasses, reportedly referred to airport sales as “the Formula 1 of retail”. Airports have seen their income from landing fees and passenger charges, which was previously squeezed by regulators and budget airlines, now recovering from the impact of the pandemic. They have responded by boosting “non-aeronautical income”, a big part of which is their cut of sales in shops. Recent reports from major airports like Heathrow not only reveal an optimistic future for non-aeronautical revenue, but also have innovative appeal for the aviation sector in Africa.
Non-aeronautical revenues encompass a wide range of commercial activities within airport premises, including retail concessions, food and beverage outlets, car rentals, advertising, parking, and property development. The financing of airports relies upon two broad streams: aeronautical revenues from airlines and passenger charges; and commercial revenues from other activities at the airport. According to the ACI economics report, an average of 40.4 percent of global airport revenues derive from such commercial revenues. Of these commercial revenues, duty free and travel retail are usually the most important source of income.
Airports increasingly rely on their commercial revenue stream to generate a profit much more now that they are getting over the after effects of the pandemic. It was in 1947, according to reports, when the first duty free shops opened at Shannon Airport in Ireland. Since then duty free and travel retail has become a hugely successful worldwide industry and a key component of airport financing. London Heathrow Airport recently revealed its first-half results with retail income up by nearly +12 percent year-on-year to £360 million ($463.8 million), outstripping the +7.3% passenger growth. The positive retail results, from reports, were attributed to the increase in departing passengers and a strong car parking performance.
The airport, it was reported, saw a surge in demand from key markets including Asia Pacific (+15.6%), mainly driven by China and Japan, which saw double-digit growth. The number of passengers from Africa was not too encouraging (-11%) as it meanwhile dropped mainly because of fewer movements.
Knowing the characteristics of travellers passing through an airport is important for planning and strategy and it also provides an opportunity to, as it were, have a “data paradise” useful for retail strategy in an airport. A one time retail director at Heathrow, Muriel Zingraff-Shariff was once reported to have said, “unlike high-street shops, airport outlets know when their customers will show up.” They can plan for an influx of brandy-sipping Nigerians or of Chinese women in search of moisturisers, the report further states and so, that makes airports “a data paradise”.
The revenues that duty free and travel retail generates also play a part in facilitating airport competition for airlines. One challenge airlines deal with especially in Africa is on minimising their own costs, such as airport charges.They may not be paying attention to the input costs of airports. Also, the greater the retail revenue an airport can expect, the greater the cover it can potentially provide from retail revenues to aeronautical charges, and the more price competitive such an airport will be. So this calls for collaboration between airports and airlines to secure a Win-Win in the travel retail business.
New technology and advanced customer intelligence enable new opportunities for expanding and improving retail business in air travel. Airlines have extensive customer knowledge and a captive audience that, enabled by digital applications, can be stimulated with smart and entertaining in-flight retail opportunities and so, they will derive value by anchoring on the opportunities created by such. Presently, there are reports that the majority of ancillary revenues are generated by flight-related products and frequent flyer programmes, but there has been more focus on digital multi-channel retailing of goods and services, and bundled price products, say some experts.
In the airline industry, ancillary revenue is revenue from non-ticket sources, such as baggage fees and on-board food and services. Airlines generate ancillary revenue through multiple streams of travel-related products (like baggage, pre-reserved seats and upgrades), third-party products and services (commission-based sales of hotels, car rentals and insurance), frequent flyer commercial partnerships (mainly credit card co-operations), travel retail sales, travel products (like stopovers and holiday packages), and booking-related services.
Modern air travellers have a characteristic of being time-constrained and in search of a more personalised experience. Another characteristic is that they look for more individual choices and tailored experiences. In seeking to meet their needs, the digital analytics required must be proactive and predictive.
On the other hand, airlines know a lot about their customers and this is an opportunity for improving their customer insights for future retailing. Also, on a customer’s journey, there are stakeholders who can provide better service and retail opportunities utilising this knowledge about the customer. However there are both privacy and commercial issues, which could cause some hesitation surrounding the use of this data, and this will be a challenge to be resolved as airports look forward to harnessing the opportunities in travel retail, not only with airlines, but also with other airport stakeholders.
Airports, which will take the lead in stakeholder collaboration in travel retail, are built like shopping malls with great logistics. But at the same time, most passengers feel that airports are major causes of stress and inconvenience. Customers are in a hurry, or they are feeling stressed and under time pressure. So, airlines and airports could form a comprehensive, and effective, jointly managed retail process with clear economies of scale and retail efficiencies. For instance, products can be ordered on board and delivered at the airport. Imagine the revolution in air travel that will result for cargo airports when travellers can order foodstuff on board and receive the same at the airport on their way home.
One reason why travellers in Africa prefer the road to air travel is the opportunity to buy agricultural produce at cheap prices along the way. Africa is still largely agrarian and with a strategy built around the same, travel numbers are likely to experience an upward trend within the continent.
- business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com
