Airport Retail: A critical revenue stream
21 July 2016 • Author(s): Keith Spinks, Secretary General of the European Travel Retail Confederation
Airports increasingly rely on their commercial revenue stream to generate a profit. Keith Spinks, Secretary General of the European Travel Retail Confederation, discusses how stakeholders should work together to ensure that the duty free and travel retail industry, worth €15.4 billion, continues to develop.
The origins of the duty free industry lie in the creation of an alternative source of income for airports. That need is as great now as it was in 1947 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. This has been highlighted thanks to the recently published economic study by the Duty Free World Council – the first in a series of reports exploring the economic impact of the duty free industry.
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% of global airport revenues derive from such commercial revenues. Of these, duty free and travel retail are usually the most important source of income.
Larger airports are able to leverage these revenues to generate the highest levels of retail revenues per passenger, which effectively cover up to 80% of their profit margins. Even smaller regional airports have a strong reliance on their retail revenues, with airports handling between five and 25 million passengers per year generating some 40% of their profits per passenger from duty free and travel retail activities.
These revenues make a structurally important contribution to the financing of airports and their infrastructure in Europe. One example of this is illustrated by developments at London Stansted Airport in the UK, where new terminal infrastructure, to the benefit of passengers and airlines, was financed from retail revenues rather than additional charges. Stansted’s overall competitive positioning has been improved through increased attractiveness to passengers, at no additional cost to airlines.