UK. Retail turned in a solid performance within BAA’s annual results for the year ended 31 March.
Group revenue increased by +4.7% to £1,970 million (2003: £1,882 million restated1) on passenger traffic growth of +4.4%. Group operating profit2 was up +4.9% to £616 million (2003: £587 million), reflecting the growth in revenue partially offset by a +4.6% rise in group operating expenditure to £1,354 million (2003: £1,295 million restated1).
Operating expenditure was, as anticipated, raised by a combination of security-related pressures and planned investment in higher levels of service. Profit before tax and exceptional items increased by +2.3% to £536 million (2003: £524 million).
Retail results by sector
UK airport retailing, including the operations of World Duty Free, performed strongly during the year, despite the significant early challenges presented by the Iraq war, the SARS crisis and the UK tobacco advertising ban (introduced in February 2003).
Net retail income grew by +7.5% (£38 million) to £548 million (2003: £510 million) and net retail income per passenger increased +2.7% (£0.11) to £4.12. The combination of passenger growth (especially to non-EU destinations) and the benefit of new space was fully exploited to drive a full year income of £60 million from airside specialist shops, an increase of +9.1% (£5 million).
BAA group retail director Brian Collie said: “This is an impressive and consistent performance that highlights our core strengths in understanding our customers and delivering the experience they demand. Whatever the impact of external pressures at each and every stage of the past year, we have focussed on providing the best possible experience for our customers and have seized the opportunities available to us.
“That is proven by these results and, in the broader picture, by the fact that our share of total European airport retail sales is estimated at 28.2% (source: Mintel), almost three times those of our closest rivals. Heathrow continues to lead as the best selling duty free site on the planet. (source: Mintel).”
He continued: “These are strong results achieved in a challenging and volatile year in which we’ve experienced both major upheaval in the air travel sector and record passenger figures – but the one consistent factor has been that we have responded to both those situations and our retail strategies have proven effective throughout.”
BAA said the financial year was one of four distinct quarters with results in the first three months, to 30 June 2003, heavily influenced by the Iraq War and the SARS epidemic. However, the resilience of short-haul traffic actually outweighed the inevitable drop in long-haul, fuelling an increase in overall passenger numbers. “BAA Retail exploited this market with a sharply focused offer and a maintained commitment to delighting the customer,” said the company.
These retail strategies gathered further momentum throughout the second quarter (to 30 September 2003), BAA said. Combined with a strong marketing campaign, this ensured the retail offer was best placed to reach the crucial peak summer crowds.
The benefit of the maturing new space at London Heathrow terminal three, London Stansted and London Gatwick North, as well as strong passenger growth of +5.6%, aided a solid retail performance in the third quarter. This improving trend continued into the last quarter, to 31 March 2004, despite the resurgence of terrorism threatening further instability. Net retail income grew almost +12%.
WDF – adaptability drives growth
Key numbers: Revenue £372m (2003: £352m restated); operating profit £24m (2003: £22m)
World Duty Free delivered an overall increase in operating profit of +9.1%. BAA said the duty free division had “consolidated its performance with further evidence of the effectiveness of its category approach in helping drive retail income to £145 million for the year, a rise of +9.0%.”
It added: “In particular, the tailoring of products, prices and promotions to the changing passenger profiles and fluctuating currencies combined with the core product strategy of substituting peripheral products with fragrance and cosmetics ranges has proved highly successful. This has been further supported by the main shop refurbishments in terminals one and four at Heathrow, along with the introduction of specialist beauty boutiques including Molton Brown and Dior. Other factors include the highly effective summer fragrance initiative, innovative category management and tight cost control.”
Catering serves up stunning performance
BAA said that the continuing redevelopment of catering areas, including the landside balcony at Heathrow T1 and the landside and airside offers at Stansted, have delivered improved choice and facilities for passengers. New outlets were opened during the year at all seven of the company’s UK airports, contributing to a robust +13.2% increase in catering income to £43 million.
e-expansion
Telecoms income increased dramatically in the year, principally through the introduction of public wireless LAN services in selected terminals, generating significant extra revenue. Further expansion is anticipated with a number of significant new agreements underway. Income from E Trade (including the Customer Contact Centre) has also increased this year. Sales through the BAA.com website have more than doubled in the year to £17.7m – of which 70% relates to car park pre-booking.
Online boosts car park sales
Pre-booked sales of car parking on the web and through the Customer Contact Centre have almost doubled in the past three years and now represent 11% of total car parking sales at BAA airports. Net car park income rose by 6.8% to £142 million, including the first full year’s contribution from Glasgow Airport’s new multi-storey car park.
International airports (including joint ventures and associates)
Revenue £63m (2003: £58m restated); operating profit £19m (2003: £9m)
BAA has interests in 13 international airports. From each of these, the company either earns a profit share or a management fee (or in certain instances, both types of profit contribution). In December 2003, BAA increased its interest in Australia Pacific Airports Corporation (APAC – the owner of Melbourne and Launceston Airports) from 15.1% to 19.8% for a consideration of £29 million. Following the additional investment, APAC is being accounted for as an associate, having previously been treated as a trade investment, and BAA is recognising its share of equity and results.
The £10 million increase in operating profit largely resulted from strong operational performance by Naples and Melbourne and a change in accounting recognition of £3 million of fees received from APAC.
In March 2004, BAA USA was officially awarded a 10-year management contract to run retailing at Baltimore Washington International Airport. The airport is one of the fastest-growing airports in the US with around 20 million passengers in 2003, up from 19 million in 2002.
