Retail revenues drive airport success

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As airports diversify revenue sources, non-aeronautical operations are becoming key for infrastructure expansion programs and viability of airports.
As airports diversify revenue sources, retail operations enhance the economic viability of airports. Photo-Brian

The global aviation industry is undergoing a major transformation as revenue from non-aeronautical operations are becoming key for infrastructure expansion programs and the overall viability of airports.

Dubai Duty Free (DDF), the world’s largest airport retailer, recently raised USD 1.7 billion from a consortium of lenders to support the fourth phase expansion of Dubai airport. In 2012, the DDF recorded USD 1.6 billion in sales from 57 million passengers. In comparison, the aeronautical revenue is about USD 600 million.

During the past three decades, passenger traffic at the Dubai airport has soared by 1300 percent, but DDF’s retail business has increased by 7200 percent.

A study by Generation Research suggests that the DDF makes up for around five percent of global airport shop sales and more than 40 percent of the entire regional business. The success of retail operators, like DDF, is seen as key to make an airport successful and profitable. These operators can help to reduce airport operating costs and their profits can also be ploughed back to improve airport infrastructure and reduce capital needs. The diversified revenue stream allows airports to mitigate the risks of lower passenger and freight volumes, and also protect operating profits from steep declines during the business cycle.

Abu Dhabi Duty Free is also playing an important role in catering to passenger needs. On average, non-aeronautical revenues account for an estimated 25 percent of total revenues, more than 50 percent of revenue at Abu Dhabi International Airport is earned from duty-free retail sales and airport hotel. The Oman Airports Management Company (OAMC) which manages and operates airports in Muscat, Salalah and Duqm, has also entered into a contract for improvement in non-aeronautical revenues and airport marketing at the Olbia Costa Smeralda Airport in Italy.

Other major projects to boost non-aeronautical revenues are also underway at airports in Kuwait and Saudi Arabia. Meanwhile, the opening of new Doha international Airport is also expected to benefit Qatar Duty Free and increase its non-aeronautical revenue sources. According to the Airports Council International (ACI), non-aeronautical revenues account for over 47 percent of industry revenues globally.

Research by Alpen Capital forecasts that duty free and travel related retail sales in the Middle East will grow to USD 5.6 billion in 2016. European airports earn about 48 percent of their revenues from from non-aeronautical sources, such as retail, food and beverages, car parking, real estate and advertising.

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