Recovery of Airport Retail Business – Not Too Soon

By Ajay Prakash | August 7, 2020

Airport Retail @ Ввласенкоvia via Wiki Commons

Airport retail, often called travel retail, is a significant source of revenue for airports. This segment contributes about 40 to 50 per cent of the airport’s revenue.

Airport revenue can be classified int two main streams

  • Aeronautical – This revenue is paid by airlines for the use of airport facilities such as landing, parking, passenger fee on tickets etc. In 2017 this accounted for almost 56% of the total revenue of an airport.
  • Non-aeronautical – Income earned from retail businesses within airport premises. This income could be in the form of rental of space or through revenue share agreements with retailers. The share of retail business in airport revenue was about 40% in 2017.

Airport Retail Revenues

Airport retail is an essential strategy for companies who, very commonly, use the space for creating brand awareness. Premium brands, sometimes, have outlets only in airports. The other significant contributors to the airport revenue are the food outlets and duty-free shops.

Airport Retail Market @ Travel Radar 2020

The airport retail business was $31.79 billion in 2016. This sector has shown a robust growth (CAGR of 8.5%) till 2019. The pre-COVID estimates had predicted revenue of US $44.06 Billion in 2020. However, due to the pandemic, this business was drastically affected. The actual revenues are down 50% to $22.03 billion from the estimated value.

Retail business revenue is solely dependent on the volume of passenger traffic passing through the airport.

Passenger Traffic Recovery

Let us review the projections made by IATA for recovery of passenger traffic. IATA predicts a slow recovery of passenger traffic which is expected to reach back to 2019 level only by 2023 or even later.

Passenger Traffic – Data Source Statista

Growth of scheduled passenger traffic has been exhibiting a CAGR 5.5% over the past many years; from 3.8 billion passengers in 2016 to 4.5 billion 2019. Should this growth rate have continued, we would have had seen passenger traffic of 4.7 billion in 2020. However, due to the pandemic, the year 2020 will only clock about 2.2 billion passengers By the end of 2020, the CAGR for the same period will drop to -12%. The years 2020 to 2023 will have to exhibit an average growth of  26.5% to reach back to 2019 levels by 2023.

What does this mean for Airport Retailers?

The airport retail business will remain subdued until 2023 before they bounce back. COVID-19 related directives issued by airports could also slow down recovery. People will no more crowd around in stores or restaurants due to social distancing norms. There could be a behavioural change in the travelling public.

Changing Consumer Behavior @AlixPartners via ACI

According to AlixPartner report on airport retail consumers, the average spend per passenger is also likely to be reduced. The survey indicated that ‘less shopping time’ due to health concerns and the ‘fear of getting infected’ will drive down sales.

It appears that the hard times for airport retailers are not going to end too soon.

What is your opinion about the recovery of airport retail business? We would appreciate your views in the comment section below.

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