But what proportion of total duty free revenues do airlines receive? The answer is an astounding 8 percent in 2007, according to statistics supplied by Generation Publications, “Global Duty Free and Travel Retail data 2008”.
In other words, 92% of duty free revenues go to the duty free companies and the airports, not the airlines, while the airlines' passengers are the central customers to the duty free and travel retail business. Does this huge unbalanced revenue stream now make sense in today's economic environment with IATA predicting that the airline industry will lose $11 Billion this year? At the same time, airports and duty free companies will largely be profitable in 2009!
From the mere 7% of duty free revenue that airlines receive, they assume the fuel costs to transport duty free goods around the globe. Not only is this a cost to the airlines, but it's also estimated that carrying duty-free goods in the air adds 2 million tons of C02 to the environment, according to UNEP’s “Kick the C02 Habit” climate-change campaign.
Whilst airlines are being forced to join Emissions Trading Schemes to reduce their environmental impact, they emit needless emissions through transporting tonnes of duty free goods for relatively little economic return to them! The ACI North America has grasped this trend and openly support Canada’s lobby for the change to arrivals duty free and Atlanta airport is inviting parties to join a group to research and advocate the same policy. Meanwhile the other regional divisions of ACI, especially in Europe where intra-EU duty free sales no longer exist, seem slow to embrace the idea.
Is the solution to have duty-free shopping in the air for pick-up at the destination airport? Could duty-free shopping even be done in advance via the airline website or onboard using seat back internet for pick-up at the arrival airport?
In-flight internet could change the whole market and increase revenue for airlines, as through the “walled gardens” now being installed on aircraft, airlines can now run onboard shopping channels and direct their customers to affiliate retailers on the ground so to achieve “virtual ancillary sales revenues”. Soon travellers will be able to sit on board and order, for immediate delivery at their destination, from the online shops of retailers like Bloomingdales, Marks & Spencer or El Corte Ingles.
How will the airports and their concessions react to this change? Since the Irish opened their shop in Shannon, the airports and their retailers on the ground have competed with their counterparts in the air, rather than working with them to achieve a greater penetration and spend from passengers.
Airports have become glamorous outbound shopping malls, whilst the airline business has fragmented into low-cost carriers and “legacy” airlines who want the fast, cheap transit of their passengers. With baggage becoming a major revenue source, outbound purchases will be driven into the hold to generate increased profits.
This is not good news for airport retail operations, as carriers will embrace revenues from the internet and cellfone use, so it won’t be long before Amazon, QVC or Ebay spot the opportunity to generate huge revenues from travellers fixed to a seat-back screen or laptop, for hours on end.
Suppliers at the Airline Information ARAC Conference confirmed that passengers were “much more tranquil” when in-flight internet was available. A SITA survey named onboard wifi as a major requirement from passengers and stated that online ancillary purchases such as hotels, insurance and retail sales will double in the next few years. 13% of those surveyed asked for a pre-departure duty free portal to speed their transit through an airport. All passengers wanted reduced airport “dwell times”.
Perhaps the airports should now work together with the airlines, so to increase sales in this new travel retail world in the sky, whilst giving the consumer what they really want.
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