Riding the retail revolution

As airport modernisation across India's key metros takes off, a new wave of airport retail has taken root, stirring the market for non-aeronautical revenues and enhancing passenger experience like never before. By Andrea Lopez

The greenfield airports have brought with them the space and opportunity for an airport to generate non-aeronautical sources of revenue, retail being one of the largest and more profitable avenues. Public-private partnerships have ensured that airports transform from dingy, architecturally drab places to more spacious, aesthetically stimulating areas, creating the right ambience for passengers to indulge themselves. What's more, since most private airports have been developed on city outskirts, it is imperative that they are developed as commercial hubs so that passengers can integrate their travel plans with retail therapy.

Airports are therefore doing more than they ever did to position themselves as hubs for commercial activity. Studies conducted have also hinted on the strong possibility of new-age airports that are major economic hubs. Overseas, the model is more evolved, with better investments from private parties. Major international airports like Changi Airport, have been developed on the lines of an aerotropolis or an airport village, where commercial establishments extend even beyond the periphery of the airport. The idea, say spokespersons, is for passengers to conscientiously choose to stopover at Changi Airport or arrive earlier just to indulge in retail and dining offerings. Today, Changi derives 60 per cent of its revenues from non-aeronautical streams.

According to a report released by ICAO (International Civil Aviation Organisation), the Airports Authority of India (AAI) has undertaken the development and modernisation of metro and non-metro airports with the prime objective of development of modern infrastructure and upgradation of handling capacity and enhancement of non-aeronautical revenue. The primary mode of churning out non-aeronautical revenues will be through PPP. Tenders and contracts have already been awarded and signed. The Mumbai International Airport (MIAL) for instance has 2,700 sq ft of airport space allotted for retail, primarily in the departure lounges and a few in the arrival section. A three-year contract to develop space has been awarded to DFS, one of the world's leading luxury retailers. Says Donald De Souza, business development manager, Sharjah International Airport, "Retail confidence changes dramatically when volumes change. An increase in passenger volumes leads to dynamic changes, and any airport needs to grow itself to cope with demands (in terms of gates and lounge areas)."

Developing business

According to the book 'Managing Airports: An International Perspective', authored by Anne Graham aeronautical revenues are derived directly from operating an aircraft and processing passenger and freight. These could include landing/ passenger/ parking/ handling fees. Non-aeronautical revenues are primarily derived from commercial operations at an airport and rents for terminal space and airport land. Says Sendil Kumaran, senior marketing traffic analyst, Abu Dhabi Airports Company, "The potential of deriving profits from non-aeronautical sources for an airport is huge. This can be through car rental and hotel bookings and of course, retail. Looking at it from India's perspective, the potential to cash in on these sources of revenue is tremendous, primarily because of the volume of travellers." He adds that the format needs to be developed in India, particularly since the investment in Greenfield airports is growing. Looking at international trends, airports have been allotting more space for commercial purposes. India seems to be following the same trend, and contracts have been signed with international players to develop retail space. Says a spokesperson from MIAL, "The key opportunities for non-aeronautical sources of revenue for an airport are from duty-free operations and we have seen that tobacco and liquor are the key drivers in this area." The revenue split of aeronautical to non-aeronautical revenue at MIAL is 65 per cent to 35 per cent. However, the airport is aiming to take non-aeronautical contribution to 50 per cent. DFS has been analysing the Indian market to customise product offerings. According to Craig McKenna, managing director, DFS Singapore Division (which has oversight for the Mumbai concession),"We started by researching local preferences and working with leading vendors to create assortments specifically targeted towards the Indian consumer. For example, Scotch whiskey is very popular in the liquor category and we are developing that. We also plan on rolling out a full cosmetics offering in the months to come." He adds, "We see an encouraging rise in spending as products and services added by us are closer to international standards than has been experienced at some airports in India in the past."

Unveiling consumers' paradise

The curtain was raised at the terminal building of the Bengaluru International Airport (BIAL) recently, which has 18 shopping outlets common to both, domestic and international passengers, with duty-free outlets both in the international arrival and departure areas. The Nuance Group, in a joint venture with retail leader Shoppers' Stop, is operating the retail and duty-free space. "Consumer space comes second only after passenger space. At the Airport, BIAL has tried to allocate as much of convenience as possible to passengers. Retail/F&B areas have been integrated with waiting areas, such that the passengers have an enjoyable experience," said BIAL'S spokesperson. Nuance India has developed retail and duty-free space in the domestic as well as international terminals at the airport, while Shoppers' Stop has developed the retail space in the domestic departure. The consortium will operate various formats at the airport. At the Domestic Departures, the formats are Shoppers' Stop (apparel and accessories), La Moda (fashion), Mithaas (confectionery), Life'Spirit (books and jewellery). At international departures, the formats are duty-free, Cocoon (fashion and accessories), Sound and Vision (electronics), Spirit of India (Indian souvenirs and collectibles from the local market).

In addition to this retail space, BIAL now operates an F&B spread. HMS Host operates a Kingfisher Sports Bar and restaurant, delicacies from ITC's Kitchens of India range, Illy café from Paris in the international departure section. It has also imbued a concept of authentic Indian food. The F&B business will be managed by HMS Host at the domestic and international departures.

The GMR Hyderabad International Airport (GHIAL) is being designed to handle 12 million passengers per annum at a total project cost of Rs 2478 crore in the first phase. Like its other counterparts, GHIAL too has chosen to develop an airport village. Shopper's Stop consortium has been awarded the contract for the development and maintenance of duty-free and retail facilities for domestic and international passengers, while the bookstore concessions have been awarded to Landmark and Odyssey. Landmark will set up and operate a bookstore in the passenger terminal building - domestic departure and arrivals area, in the airport village, covering approximately an area of 80 sq metres, whereas Odyssey will set up and operate its bookstore at the international departures spread over an area of 42 sq metres. For F&B operations, the airport has tied up with HMSHost with an allotted space of 670 sq metres at the airside of the departure terminal and at the bus gates.

At the Delhi International Airport too, investing in more retail space is part of the bigger picture of enhancing non-aeronautical revenue. Alpha and Pantaloons are together managing the duty-free shop at DIAL. The main challenge however at DIAL is the creation of space. According to a survey done by Alpha, over 30 per cent of Indians consume duty-free products or buy them outside India. This could be attributed to the type of infrastructure, which lends to the shopping experience.

"India presents a fantastic opportunity for retail at airports now as it is opening up to the concept of non-aeronautical revenue. It would be fair to say that the airport owners are also now generating avenues for the same and trying to cash in on the opportunity. We must not forget that at some places in the world about 50 per cent and even more shop at the airports," says Paul Topping, managing director - Asia, Alpha. He adds, "The opportunity is based on space allocation, and the airports of Hyderabad and Bangalore provide the retailers with such opportunities. It gives people the ability to spend, which generates revenue for the airport."

There is also a certain amount of confidence building up in airports to allot more space for non-aeronautical revenue, and the same confidence is being mirrored in consumers, through their spending patterns. Says Topping, "If we compare it to other retailing segments, airport retailing lags far behind. It is rather slow in comparison to the normal shopping percentage; however, with many new terminals coming up in the country at various locations it will only provide more opportunities for additional revenue generation." The company plans to make duty-free an experience in itself by its unique product offering, competitive pricing, knowledgeable staff and by running special offers, in addition to placing the quickest selling brands on the top.

The area of the space at DIAL is currently about 2000 square feet which is expected to expand upto 5000 to 7000 square feet in the coming years. On the anvil are immediate plans of setting up a books section. "It would always be good to bid for more airports in India, though as of now there are no such immediate plans. With all the re-development happening, expertise has to be brought in. And being the largest standing duty-free operator in India for about five years, it has been quite an experience," says Topping. "With all the building-up and establishing of duty-free shops the Indian product has emerged as having great potential in airport retailing," he adds.

Since the model is only taking root in India, it is difficult to predict the nature of its success. According to a report published by Cushman and Wakefield, airports globally earn nearly 50 per cent of their revenues from non-aeronautical sources, of which retail is the largest. In India, with 47 airport projects on the anvil, the report predicts that almost 78 million square feet of real estate space (retail and hospitality) will be created across the country. It also predicts that if the current pace at which airport privatisation is moving remains unchanged, non-aeronautical revenues may in fact shoot up from the current 35 per cent to 54 per cent by 2015. In the coming years, rentals for office space at airports too are expected to bring in more revenues and the contribution from the hospitality sector in this regard is expected to be huge.

Case study: Changi Airport

When Changi Airport began operations in 1981, its non-aeronautical revenue was about 40 per cent of the total revenue. In recent years, this has grown to about 60 per cent. The key objective of commercial management at Civil Aviation Authority of Singapore (CAAS) is to maximise returns from commercial facilities, such as concessions and commercial space. The airport aims to grow non-aeronautical revenue and reduce reliance on aeronautical revenue wherever possible in order to help keep costs to airlines low. Retail and F&B are the biggest non-aeronautical revenue streams at Changi Airport. Concession revenue from these two sources is likely to remain the key driver for revenue growth.

Dedicated floor space for commercial activity in Changi Airport

Changi Airport's total retail and food and beverage (F&B) floor space stands at 48,000sqm. The combined commercial floor space for Terminals 1 and 2 (T1 and T2) is 28,000sqm. Terminal 3 (T3), which opened for flight operations on January 9, 2008, saw the addition of another 20,000 sqm of commercial floor space, with about 100 retail and over 40 F&B outlets. This represents an increase of over 70 per cent of commercial space at Changi Airport.