August 18, 2008

Airport Retailing Shrugs Off Global Economic Downturn

Although many global retailers are suffering from deteriorating consumer confidence, a new report from Verdict Research predicts that retail sales at airports will grow by 11% in 2008 to $30 billion, making it the fastest growing channel of retail after the internet. Furthermore, airport retail sales are set to continue to grow strongly over the next five years, particularly in emerging markets.

Although retail sales at airports will remain resilient in developed markets, it is the emerging markets of Asia Pacific and the Middle East that offer the most exciting opportunities for retailers. The clean slates of emerging market airport development provide huge scope for growth that is less feasible - physically or financially - in regulated and restricted mature markets, and airport operators are now taking advantage of these opportunities.

Increasing passenger numbers are a key driver, with the strong growth witnessed over the last five years set to continue, particularly in emerging markets. The key factors stimulating this growth are increased affluence, growing tourism, rapidly expanding airline networks and new routes (especially those of low cost carriers). The increase in business travel as a result of globalization is providing a further boost to airport retailers.

The Middle East has seen the fastest growth in passenger airport traffic over the last five years and will remain the fastest growing region over the forecast period. Between 2002 and 2007, retail sales in the four key Middle East markets of the United Arab Emirates (UAE), Qatar, Bahrain and Oman more than doubled, from $461 million to $1.2 billion, and Verdict expects sales to double again to reach $2.5 billion by 2012.

At the forefront of this growth is Dubai International Airport in the UAE, which alone will be used by 50 million passengers in 2008. Already regarded as a regional hub, Dubai is set for dramatic expansion. In 2008, retail space will more than double due to the addition of a new concourse and terminal, enabling the airport to accommodate broader ranges of jewelry, luxury and fashion items. Looking further ahead, Dubai has the potential to be the world's largest international airport, as the new Maktoum International Airport, which is currently under construction adjacent to the existing airport, will lift capacity to 100 million passengers per year.

Dubai's huge success in promoting itself as an alternative transfer destination for long haul flights between Europe and the eastern seaboard of North America to the Far East and Australasia has encouraged other Middle East airport authorities to upgrade their infrastructure. A new terminal is under construction at Abu Dhabi, which is intended to enable the airport to compete more effectively against Dubai when it opens in 2010, while a third UAE airport at Ajman is due to open a year later. Meanwhile, other Gulf States - most notably Qatar and Bahrain - also plan terminal extensions that will include substantial retail facilities.

The Chinese market also offers enormous potential to airport retailers. Despite the rampant economic growth in the country during the last five years and investment in preparation for the Beijing Olympics, airport retailing is still a nascent market and offers great scope for development. China is expected to become the world's most popular tourist destination, creating a vast increase in domestic and international air travel.

Nonetheless, aside from new airport openings in Beijing and Shanghai, many of China's airports fall short of international standards and inward investment has been limited by the state ownership of the nation's airports. That said, restrictions on foreign investment are due to be relaxed and opportunities are being assessed by western airport operators keen to capitalize on the increasing affluence of Chinese consumers. The result, Verdict expects, will be an increase in retail spending at Chinese airports from $300 million in 2007 to $612 million in 2012.

India, meanwhile, offers tantalizing possibilities to airport retailers. As a country that already has a strong trading culture and an international mindset, India is fast becoming a key market in global airport retailing, with investment from international airport operators including the Swiss-based Nuance Group and Britain's Alpha Airports Group, now owned by Italy's Autogrill.

India's emerging middle class, as well as its strong consumer culture and the rising number of people flying - both domestically and internationally - will drive growth. The air travel market is being buoyed by the development of low cost airline carriers, as well as the reconstruction or extension of antiquated airports. Indeed, around 100 airport schemes are planned, following on from new airports in the key cities of Bangalore and Hyderabad which have opened this year. Low cost carriers are still in their early stages of development in India and have huge potential to make air travel more affordable and increase footfall at airports. The thriving Indian economy will also boost demand for business travel, both within the country and internationally, from western companies that outsource operations. Verdict believes that these factors will lift retail spending at Indian airports from $127 million in 2007 to $318 million in 2012.

According to Verdict Research, the rapid increase in air travel and major investment in new airports and retail facilities will ensure that airport retail sales continue to grow strongly over the next five years, particularly in emerging markets.

Source: Verdict Research