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London Heathrow Airport’s main retail concessionaire is set to get a strong sales boost over the summer thanks to high consumer demand for travel getaways, despite looming inflation and living costs.
Better than expected traffic in April of five million passengers has allowed the British hub to increase significantly its 2022 forecast from 45.5 million passengers to nearly 53 million—a 16% hike on previous assumptions. While this is promising, the airport served just under 81 million passengers in 2019.
Dufry—which has just negotiated an extension to its retail contract for an extra three years until November 2029—will benefit nonetheless by the faster pace of growth. It is not just the extra numbers that are important; the reopening of Heathrow’s Terminal 4 by July marks the moment when all check-in locations are up and running again after the pandemic—and when all Dufry’s stores will be accessible.
The Swiss travel retailer needs a sales boost in Europe this summer from local and regional passengers as the Chinese continue to be absent. Brits are an important nationality for travel shopping in Europe and their numbers are looking strong despite the cost-of-living crisis that’s been unfolding this year.
Dufry’s largest shopping mecca
London Heathrow is Dufry’s biggest retail location globally where it operates through the subsidiary World Duty Free, a concession partner there since the late 1990s. The company runs a total of 24 shops with a retail space of almost 140,000 square feet selling everything from perfumes and cosmetics, and wine and spirits, to luxury goods. Dufry’s three-year extension reinforces its powerful position in the U.K. airport market where it runs duty-free shops at 25 airports in total.
In a statement, CEO of Dufry Group, Julián Díaz, commented: “Over the years, the close collaboration between the Heathrow commercial department and our local team has created a high-performance business. Dufry will continue to further evolve this landmark operation.” Heathrow’s retail and property director, Fraser Brown, added that in extending the partnership, he was keen to grow “joint online and digital offerings.”
Heathrow has been working with all its retailers to mitigate the impact of the highly-contested decision to remove tax-free shopping in the U.K. As well as bringing new retailers into the three-terminal estate the airport has improved its digital experience with Heathrow’s Click & Collect service extended to over 5,000 product lines from the duty-free range.
A “realistic assessment” from Heathrow
According to Heathrow, April’s stronger than expected numbers were helped by outbound leisure travelers and Brits cashing in airline travel vouchers. The airport believes the demand will last throughout the summer.
However Heathrow warned that there is some turbulence ahead that is hard to accurately assess. In a statement the airport said: “The ongoing war in Ukraine, higher fuel costs, continuing travel restrictions for key markets like the United States and the potential for a further variant of concern create uncertainty going forward.”
The airport also noted the recent warning from the Bank of England that inflation is set to pass 10% and that the U.K. economy will likely “slide into recession”. But it added: “We are taking a realistic assessment that travel demand will reach 65% of pre-pandemic levels overall for the year.”
Another useful gauge for Dufry’s sales progress is British Airways. Heathrow’s largest carrier has announced that it is expecting a return to 74% of pre-pandemic travel this year—just 9% more than Heathrow’s forecast—leaving a big void.
According to seat analyst OAG, London Heathrow was the world’s busiest international airport for the week commencing May 16. Versus the same week in 2019, the London hub was down on traffic capacity by 16.5%.
Looking around the world, things could be a lot worse. Hong Kong—the world’s second-busiest international airport in the same week in 2019—has dropped to 84th place, while the then fifth placed Seoul Incheon Airport, another duty-free hotspot, now sits in 50th place with a near 80% decline in international airline capacity.