“We remain confident in the resiliency of the travel retail industry and are pleased to see an increase in the TSA numbers in recent weeks. We have also been piloting store re-opening tests before deciding to fully re-open and will continue to work with each of our airports as we expect the traveling trends to be different at every location,” says Hudson Group CEO Roger Fordyce.
As domestic travel volume rapidly decelerated in March 2020, the ripple effect hit airport businesses like a tsunami. Most restaurants, retail shops, duty-free shops, airline clubs, and “relaxation stations,” such as massage and nap-pods, shut down.
Airports Council International estimates a reduction of more than 4.6 billion passengers and a decline in total airport business revenues of more than $97 billion for 2020.
The slide towards service reductions varies by airport, with regional airports hit the hardest due to flight reductions and lower traffic. Major airports continue to offer basic service, such as takeaway food in each terminal, but businesses not deemed “essential” such as specialty retailers have remained dark.
Denver International Airport (DEN) optimistically announced on March 22nd that “because of the unique need to provide food, products and services” to passengers and employees they would be exempt from Colorado’s 30-day closure. DEN promised to “keep airport bars and restaurants open” with the website still stating that “in order to provide necessary goods to our passengers, shops will continue to remain open.”
However, the reality is that virtually all DEN retail shops remain closed with roughly a third of packaged food and newsstand options remaining open with “reduced hours.”
Over the last few weeks, a glimmer of hope emerged as some of the restaurants began offering “social distancing” based table service. This scenario has played out across most major U.S. airports, with pure-play retail merchandising and specialty stores continuing to be the last businesses to come on-line.
Eating on the Go. Providing food to travelers is considered an “essential activity” by airport authorities as well as airlines, since on-board food has been severely restricted. The goal at most airports beyond the smallest regional locations is to have at least one restaurant and shop open per concourse, and allow passengers to obtain pre-packaged or to-go items. The challenge for airport management is that merchants are looking for an upswing in volume to justify re-opening, as well as clear directives on safety of employees often constrained to small spaces. Both conditions will need to be satisfied.
Retail on Hold. Many retailers continue to “wait and see” on re-opening based on passenger traffic. Almost 100 percent of “pure play retail” stores that offer upscale or specialty goods remain closed as they are deemed “non-essential” by states and airport authorities. Last month, New York City’s three major airports were operating at about 5 percent of normal traffic, and the trend is similar across the U.S., making it almost impossible to justify re-opening even if it was allowed.
Hudson Group, one of the largest travel retailers in North America and the ubiquitous provider of books, magazines, gifts and snacks, temporarily closed more than 700 of its stores in airports, commuter hubs, and tourist locations as of late April. Hudson reduced the majority of its workforce through furloughs and lay-offs, and offered health benefits for at least 60 days, with Hudson funding 100 percent of employees’ health premiums. In addition, like other airport tenants, they made agreements with landlords to abate or defer rents and other payments.
Duty-Free Free Fall. One of biggest losers of the travel downturn has been the duty-free business. Since the U.S. travel ban on most international flights in mid-March, duty-free shops in the U.S. are largely shuttered, with industry-wide revenue declining over 90 percent, matching a similar drop in airline passenger flow and revenue. The largest duty-free company in the world, Swiss-based Dufry AG, recently announced initiatives to shore up its capital structure and maintain liquidity.
In the U.S., Duty Free Americas (DFA), the largest duty/tax-free retailer in the western hemisphere, has seen the majority of its more than 150 duty free stores at airports and border crossings in the United States closed. As a DFA store manager told me, larger ports of entry with commercial traffic are still open as they can still sell to truckers and others authorized to cross the border between the U.S. and Canada or Mexico, but airports shops are largely shut down.
Each Hub with a Club. Although not a source of significant revenue, airline clubs are considered to be a key value for high-revenue, loyalty program memberships and project the “image” of their parent airline. Each of the major U.S. airlines with clubs—United, Delta, and American—have chosen to open only at their major hubs, and even then, with just a single club serving multiple concourses. Roughly 25 percent of airport locations served by clubs are open, and those that are no longer providing buffet food options and have restricted hours.
Light at the end of the Airport Tunnel Walkway? In countries outside the U.S. that are “ahead of the curve” on COVID-19 recovery, there is a trend towards normalcy. Some countries are reopening to business as infection rates stabilize, including Vietnam and South Korea. In Germany, a relaxation of the rules has enabled shops to reopen at Hamburg Airport.
Another positive note is a recent SwissM1nd-set survey of 1,500 consumers in the first half of April showing that over 60 percent of international travelers will fly again within the first three months of travel restrictions being lifted. However, the same research showed that only 40 percent would visit airport shops once they are open.
Roger Fordyce, Hudson CEO, sees a positive trend for retail stores. He told Kambr Media that “We remain confident in the resiliency of the travel retail industry and are pleased to see an increase in the TSA numbers in recent weeks. We have also been piloting store re-opening tests before deciding to fully re-open and will continue to work with each of our airports as we expect the traveling trends to be different at every location.”
With regards to duty-free, Dr. Peter Mohn, M1nd-set CEO, noted that a key to successful re-opening is “to reassure travelers that there is a safe environment within the shop or that they can learn how they are able to shop remotely and pick up either at the gate, or on their return trip in the arrival hall.”
In the U.S. market, continued state-wide phased openings of businesses will flow-through to retail shops—many of which are locally owned and operated—as well as restaurants and other amenities. TravelPulse reported that pent-up demand was building as more and more Americans were ordered to stay home.
As TravelPulse reported, an early April Harris Poll found that demand is continuing to build. The survey found that 31 percent are planning to “go on vacation/travel when things return to normal." This was up 7 percent from the previous week.
As importantly, businesses are ensuring the safety of customers and workers before openings can occur. Hudson CEO Fordyce added that “the health, safety and well-being of our team members, customers and communities is our top priority. We have provided our frontline team members with personal protective equipment, developed enhanced store cleaning protocols, installed sneeze guards, expanded ‘Tap to Pay’ capabilities to limit the use of pin pads and the handling of cash, and implemented standardized social distancing guidelines, all to ensure in-store health and hygiene and maintain crowd control. “
Overall, Americans are still concerned about air travel and survey results show air travel will take longer to bounce back, with estimates of a 4-6 month ramp period for a majority of Americans to feel comfortable flying again.
About Our Guest Author, Cimarron Buser:
Cimarron Buser is a Boston-based strategy and business development executive, and frequent flyer (at least until recently). He likes to travel, walk around airports, check out the airport restaurants, unique retail shops, nap pods, play areas, and airport museums and exhibits (which are woefully ignored).