Worldwide non-aeronautical revenues account for 46.5% of total, says new report

WAM DUBAI: Non-aeronautical revenues are helping the airports across the world to fund their infrastructure expansion programmes. Dubai Duty Free (DDF) – the world’s biggest airport retail operations -is a classic example. It raised US$1.7 billion from a consortium of lenders to support Dubai airport’s AED28 billion, fourth phase expansion.

In 2012, the world’s largest airport retailer tilled US$1.6 billion in sales generated from 57 million passengers who passed through the world’s second busiest airport. While passenger traffic at the Dubai airport increased by 1300 per cent, retail business at DDF rose by 7200 per cent during the three decade period.

“By 2018, when Dubai airport will be handling over 90 million passengers, our retail business will touch AED10 billion and will employ a total of 8000 employees”, says Colm McLoughlin, Executive Vice Chairman of Dubai Duty Free. “In 2013, we expect our sales to be around US$1.81 billion. In 29 years we’ve never had a year where sales haven’t increased. Even in 2009 during the global recession sales increased by three per cent.” His optimism is shared by Paul Griffiths, CEO of Dubai Airports, who had said during the 2012 Trinity Forum: “Commercial revenue is incredibly important to Dubai airport. If you take duty-free revenue and overall non-aeronautical revenue, it is actually over US$2 billion a year. Aeronautical revenue is about US$600 million so you can see the skew in favour of commercial revenue and imagine it gets a lot of our attention.” According to Generation Research, an independent industry specialist, the DDF accounts for five per cent of global airport shop sales and over 40 per cent of the entire regional business. The success of DDF demonstrates the power and potential of non-aeronautical revenues in making an airport successful and profitable, especially in the Middle East region, which is projected to handle 400 million passengers by 2020.

As Daniyal Qureshi, Event Director of the Airport Show 2013, pointed out, “airports have undergone through massive transformation from being just a basic part of aviation infrastructure to outward-facing, business-oriented service providers. The global airport sector has since become more commercialised.” Non-aeronautical revenues can significantly reduce airport operating costs. Profits from non-aeronautical revenues are reinvested in airport infrastructure, reducing capital needs and overall costs. “Exploration of non-aeronautical development at airports is only beginning”, Qureshi explained. “If we build airports models that incorporate multimodal platforms and airport cities, the potential is enormous -and not just for the largest airports”.

At the Abu Dhabi Airports Company (ADAC), operator of Abu Dhabi’s five airports, duty free retail revenue reached AED809.5 million in 2012, a 24 per cent increase over 2011. This translates into over 60 per cent increase in the past three years, as Mohammad Al Bulooki, ADAC Chief Commercial Officer (CCO), remarked during the Trinity Forum 2013. Moreover, the retail business is expected to grow over AED1.5 billion by 2017.

Al Bulooki said: “On average at most airports, the non-aeronautical revenues make up for around 20 to 25 per cent. At Abu Dhabi International Airport, more than 50 per cent of revenue comes from duty free and the commercial side -retail sales, the airport hotel, food ‘&’ beverage.” Abu Dhabi Duty Free revenue is outgrowing passenger growth. ADAC is building a new iconic 700,000 square metre terminal that will cater to more than 30 million passengers per year. This facility aims to offer a unique experience for customers and the thousands of personnel who work at the airport. If we add to the mix the growth of Etihad Airways and the increase in passenger volumes, the ongoing growth in revenues from Abu Dhabi Duty Free is set to continue.

Oman Airports Management Company (OAMC), which manages and operates airports in Muscat, Salalah and Duqm, has recently signed with Geasar SpA, which manages the Olbia Costa Smeralda Airport in Italy, to cooperate on and improve areas such as non-aeronautical revenues and airport marketing.

Bahrain Duty Free is also expanding to scoop up more non-aeronautical revenues. Projects to enlarge the scope of non-aeronautical revenues are also underway at airports in Kuwait and Saudi Arabia. Qatar Duty Free is maintaining its powerhouse performance and the opening of the new Doha international airport is expected to balloon its non-aeronautical revenue stream.

Taking into account the massive growth, the Middle East Duty Free Association (MEDFA) President John Sime described Middle East as “a dynamic region, one that is punching above its weight” with sales surging by over 14 per cent in 2011. He said: “The global duty free dynamic is changing, with the Middle East squarely at the centre of this growth.” The Airports Council International (ACI) says non-aeronautical revenues worldwide account for over 47 percent of industry revenue. It suggests that airport managements should set a 50 per cent of total revenue target as the ‘minimum level’ of revenue generation from such activities.

ACI Director General, Angela Gittens, commented: “During the (economic) downturn the diversification of airport revenues cushioned the impact of lower passenger and freight volumes and safeguarded operating profits. Non-aeronautical revenues critically determine the financial viability of an airport as they tend to generate higher profit margins than aeronautical activities, the latter frequently representing a zero sum game or producing a deficit. Retail remains the largest contributor to non-aeronautical revenue despite some regional variations.” It is not only by offering shopping that an airport operator can increase revenues; many innovative measures have been introduced, including hotels and convention facilities, advertising, consumer services, food courts, car parking and rental services, foreign exchange outlets, lounges and naming rights among others.

In a survey that was conducted for next month’s inaugural Global Airport Leaders’ Forum (GALF), duty free topped the preference list, with 53.4 per cent of respondents considering this non-aeronautical revenue stream having the highest growth potential, followed by advertising with 33.3 per cent and food ‘&’ beverage with 32.8 per cent. Spa services got the lowest response rate from the respondents, followed by Beauty concessions at 28.7 per cent. Other high potential revenues streams included Short Stay Terminal Hotel (21.3 percent), VIP Lounges (21.8 percent) and Fashion Stores (24.7 per cent).

A study by Alpen Capital in December 2012 predicts that duty free and travel related retail sales in the Middle East will increase to US$5.6 billion in 2016, outperforming the broader retail industry in terms of growth.

According to ACI Europe, 48 per cent of European airports’ revenues come from non-aeronautical sources, such as retail, food ‘&’ beverages, car parking, real estate and advertising.

Dag Falk-Petersen, CEO of Norwegian airport operator, Avinor, said traffic revenues for Avinor last year amounted to ?636 million, while commercial revenues were ?585 million. He said: “We can see that commercial revenues are becoming almost as high as traffic revenues.” Sydney Airport earned 71 per cent of its revenue from non-aeronautical sources, Singapore Changi 58 per cent and Kuala Lumpur 54 per cent, while for the US Houston airport the number reached 81 per cent.

For the South Africa Airports Company, non-aeronautical revenue continues to play a vital role, contributing over 48 per cent of the overall annual turnover. Shopping was the biggest source of non-aeronautical revenues at northern European hub of Copenhagen. At Seoul Incheon, around 35 percent of its total revenues come from non-aeronautical streams.

The ACI is actively working to send the right message to ICAO and the national airport economic regulators: the regulation of non-aeronautical revenues goes against the long-term interest of the air transport industry.

The way forward to the future of airport economics will be up for discussions during the Global Airport Leaders’ Forum, which will take place alongside the 13th Airport Show in Dubai, from May 6 to 8, and is expected to attract more than 6000 aviation industry professionals from over 100 countries.

WAM/MMYS

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