November 6 shapes up as a landmark date for the duty free industry – 30/10/06

FRANCE. It was the most sombre gathering the duty free industry has seen in years – rivalling the thoughtful mood after the mid-1999 abolition of intra-European Union duty became reality.

As delegates left the Aviation Security Workshop convened by the European Travel Retail Council (ETRC) in Cannes last Wednesday, reaction ranged from bewilderment to deep concern. But one thing they agreed on – the industry was facing a situation of utmost gravitas.

The meeting had been called to assess the impact of the new hand baggage security regime set to come into effect across European Union countries on 6 November.

We’re looking at a very significant and complicated change that will fundamentally alter the way we do business
Frank O’Connell, President,
European Trave Retail Council

That regime is, in turn, a response to the 10 August terrorist alert in the UK and the subsequent global crackdown on items that can be carried onboard aircraft, particularly liquids, gels and pastes.

“We’re looking at a very significant and complicated change that will fundamentally alter the way we do business,” said ETRC President Frank O’Connell, who has led the post-10 August industry lobbying effort with much tenacity in recent weeks.

O’Connell’s role last Wednesday was to explain the new rules and their impact on the business – not just within the EU countries but on airports and airlines around the world. And while it is shaping up as a near return to business as usual for intra-EU flights and for passengers on international flights emanating from EU countries, the shopping implications for those beginning their flights from outside the EU but transiting through any EU country are disturbing.

Frank O’Connell: “The legislation specifically states that passengers transferring from non-EU (or EEA) airports willhave their liquids, pastes and gels confiscated.”
Photo by Hui Min Neo

Noted O’Connell: “Out of this new process will come a regulated retail business – regulated by an aviation security group. Within the EU by the beginning of next year we could even be subject to [security-related] audits.”

This article seeks to take the key points from O’Connell’s presentation and outline both the repercussions and likely next steps around the world.

EU, EEA AND SWITZERLAND

From 6 November it will be back to normality for the vast majority of passengers flying from or within the EU/EEA countries (Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, United Kingdom; Iceland, Liechtenstein, Norway and Switzerland).

“For those shopping after security checks it’s effectively business as usual,” said O’Connell, including purchases of liquor, pastes and gels for US/Canada-bound flights.

Where airside retail is pre-security checkpoints but deemed secure, purchased items must be placed in approved sealed bags along with proof of purchase. Some examples would be:

– Amsterdam Airport Schiphol (where gate security applies)
– Brussels Airports non-Schengen (where central security is after the stores).

Two differing situations with liquids apply:

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ETRC Security Workshop

Click here for Frank O’Connell’s slide presentation from Cannes

1) Airside purchases
2) What a passenger can bring through from landside to airside: at that point all liquids, gels and pastes must be taken out and put in a sealed bag.

Critically the “˜Personal Liquids Allowance’ that can be brought from landside to airside carries a maximum single unit volume limit of 100ml – and the overall volume must not exceed 500ml. This has important repercussions for the liquor category as we will see later.

The sealed bag must be a transparent one-litre bag. Importantly, any EU/EEA member state can apply more stringent rules if so desired. The UK, for example, currently bans liquids, pastes or gels being taken from landside to airside and any such items are confiscated by security.

TRANSFER PASSENGERS AND SAME-DAY PASSENGERS (WITHIN THE EU/EEA COUNTRIES

Sealed bags must be used for liquids, pastes and gels bought in airside retail stores by transfer passengers or by passengers returning on the same day within EU/EEA airports. There is no volume limit.

– There must be proof of airside purchase
– This is in addition to the personal 500ml liquid allowance (landside to airside)

WHY IS 100ML SO IMPORTANT?

The initial European Commission proposal was for a limit of less than 90ml, O’Connell explained. “Some 40% of [duty free] turnover in the perfume industry is in 100ml sizes,” he explained. A raising of the limit was therefore critical – and achieved by the ETRC.

That is good news for the beauty sector. But because of the non-EU/EEA transit passengers issue it carries serious repercussions for wines and spirits.

WHAT DO YOU THINK ABOUT THE IMPLICATIONS OF THE NEW REGIME?
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A passenger returning later than same day must put liquids/pastes/gels in excess of 100ml in his/her hold baggage (e.g. liquor/200ml shower gel). Items 100ml and under can be brought back on a later return journey as part of the “˜personal’ 500ml (landside to airside) liquid allowance without being checked into hold baggage.

TRANSIT PASSENGERS FROM OUTSIDE THE EU/EEA COUNTRIES

As mentioned, this is where things start to look trickier – and when the audience in Cannes went very quiet. Frank O’Connell takes up the story: “The legislation specifically states that passengers transferring from non-EU (or EEA) airports will have their liquids, pastes and gels confiscated.”

The same fate applies if the items have been bought inflight onboard a non-EU carrier, even if in a sealed bag. They are acceptable if purchased on an EU carrier and carried in a sealed bag.

Why the distinction? In the eyes of the European Commission “there is no guarantee that liquids have been controlled and they are therefore not secure”, O’Connell explained.

He quoted from an EU press release which said: “If the first flight originates in a third country that does not follow EU security rules, there is no guarantee that liquids have been controlled and are secure. So passengers transferring from such a flight at an EU airport would not be allowed to take them on their second flight.”

It is likely, O’Connell added, that EU regulations will be the recommendation from ICAO to all airports. The objective must be to work towards gaining an EU/US approved sealed bag system applied for other countries – with mutual recognition. The subject was “top of the agenda” for the Duty Free World Council meeting due to be held later that day. [See ‘Comment’ below for analysis of the repercussions for airports around the world].

The consumer reaction to the post-6 November regime is a paramount issue for the industry to address on a global scale
The Moodie Report

The situation for non point-to-point passengers (see IAADFS comments below) is a little different to Europe in that those entering the US must generally go through Customs at their first point of entrance, whether or not that is their final destination. That theoretically allows the passenger the opportunity to repack their duty free purchases in their checked-in baggage. Whether they will want to is another question.

For example, Travel Markets Insider Editor and Publisher Lois Pasternak flew home from the Cannes show at the weekend on the following non-direct route: Nice-New York JFK-Fort Lauderdale. She takes up the story: “We had to retrieve our luggage in NY at JFK, go through Customs and then place our luggage on another belt that brought it to our connecting flight. During that time between Customs and putting the bags on the second belt, we did have a chance to add items to the packed bags. In fact, there was a nice Transportation Security Association lady telling people that if they bought anything on the plane, they should make sure it goes into the luggage.”

While an improvement on the European situation, this still renders duty free shopping more complicated and potentially a hassle when the traveller least needs it. The consumer reaction to the post-6 November regime is a paramount issue for the industry to address on a global scale (see ‘Global Communication’ below).

PASSENGERS ENTERING EU/EEA AIRPORTS FROM THE US AND TRANSITING ONWARDS

ETRC Secretary-General Keith Spinks told The Moodie Report that passengers departing US airports and then transiting through European airports will be equally affected. “Passengers entering the EU/EEA and Switzerland after 6 November and transferring to another flight, will have any liquids, gels, etc over the 100ml limit confiscated. This is because the US is using gate delivery and not sealed bags. It will also be necessary that liquids in containers of 100 ml and smaller are placed in transparent re-sealable plastic bags before progressing through security checks.

“It is understood that airports will have a supply of such bags at security checks and passengers will be told to place any liquids, gels, etc. in these bags. The EU and US authorities will be meeting later this month and we are working with the European Commission in an attempt to find a mutually acceptable solution to the current situation.”

SWITZERLAND

Switzerland will be implementing identical rules to the EU and EEA countries on 6 November.

IMPLEMENTATION DAY – POSSIBLE “˜CHAOS’

Implementation will take place on 6 November and “chaos will ensue, no doubt” mused O’Connell. The legislation will be reviewed by the European Commission every six months and could remain the same, be eased or be tightened, according to prevailing circumstances. “That’s an opportunity,” he said.

SUMMARY OF SITUATION

– ‘Business as usual’ for the vast majority of passengers
– Exceptions only for:
 Transfer passengers (not originating in EU/US)
 Passengers on a same-day trip must have sealed bag to bring goods back
 Passengers who are not on a same-day trip and want to bring purchases back larger than 100ml can only do so in checked-in baggage.

THE SEALED BAG ISSUE

There will have to be a common specification for sealed bags. Interim sealed bags must be introduced from 6 November. O’Connell suggested the industry hire a “plastic bag expert”, someone well versed in sealed bags who can seek out the best options for the trade, attaining a common specification and allowing the benefits of buying in bulk.

We have to show the authorities we are deadly serious about this
Frank O’Connell, President,
European Trave Retail Council

Approved suppliers will need to be drawn up and the specification may need to change over time. Each retailer/airport will be able to have their own branding on one side of the bag.

“The bags will need to be controlled and treated as any other sku – and ultimately will need to have bar coding and scanning details. They will also need to be incorporated into the staff disciplinary code,” he said. “If someone lets the bag out of the system it should be a dismissable offence.”

O’Connell continued: “We have to show the authorities we are deadly serious about this.”

The bags must meet the following requirements:

– Transparent and quickly sealable by sales staff. The receipt must be sealed inside the bag on the bottom, facing out
– After opening the bag/seal must be immediately visible as broken
– It should be printed with branding on one side and warning messages for customers on both sides in English and one other language.

PROPOSED MESSAGES ON BAG AND FORMAT

Side one: “Not to be opened until final destination reached”

Side two: “Passengers transferring to another flight or returning*** same day – opening or tampering with this sealed bag will result in confiscation at security check.

***Passengers not returning on the same day need to check liquid/gel items over 100ml into hold baggage.

TRANSACTION RECEIPT

This is set to become another key area, O’Connell pointed out. Till receipts will need in many cases to become much clearer, he said, with an emphasis on legibility and uniformity.

A potentially thorny issue lies with any liquid, gel or paste gwp or related promotion which might go into a sealed bag but by definition currently does not have a proof of purchase.

“That’s a problem,” said O’Connell. Similarly multiple purchases are often shown only on one receipt. That will need clarification on receipts in the future, he said.

GOOD COMMUNICATION OF THE ESSENCE

In a situation that has wavered between an Orwellian bureaucratic nightmare and Kafka-esque degrees of absurdity, it is obvious that clarity and consistency of information are critical.

“Communication to our passengers, customers and staff will be essential,” said O’Connell. “Our prime message [within Europe] is that passengers can shop as normal.”

The ETRC suggests leaving issues about personal liquids, quantities in hand baggage and so on to airports security management, in an effort to deliver a “shopping message as simple and uncomplicated as possible”.

A broad message saying something like “All passengers can shop as normal” should be conveyed strongly once the passenger is past the boarding card/immigration checkpoint.

The ETRC suggested that for simplicity all goods be placed in sealed bags. And it urged the need for detailed information and training for shop management/staff/security personnel.

SHOW ME THE MONEY

O’Connell then turned to the key issue of campaign funding. He said that the combined efforts of retailers, suppliers, airports and landlords to date had resulted in a highly effective lobbying effort. But it had come at great cost.

It’s essential that everyone supports this as everyone benefits. Can we depend on your support?
Frank O’Connell, President,
European Trave Retail Council

“Costs to date are €150,000 for lobbying activities and will be €250,000 by year-end,” he said. “We are seeing a large amount of work by a small group on a voluntary basis plus the work of a paid professional lobbyist [John Hume of Hume Brophy Communications, which has been retained by the European Travel Retail Council to work on the issue -Ed].

“Our success to date has saved hundreds of millions in sales and everyone at Cannes has benefited,” he said. O’Connell called for a donation of €3,000 from each company involved in the business – “It’s essential that everyone supports this as everyone benefits,” he said, before asking “Can we depend on your support?

“There are 4,000 companies at Cannes and I propose that everyone in this room donate €3,000. I want you to pick up the tab.” [The Moodie Report has pledged its financial support.]

KEY ETRC CONCLUSIONS

• The lobby has been a major success to date and the great majority of duty free sales are now “not affected” by the new legislation

• The sealed bag issue and details must be finalised soon and put into production

• Company financing of the lobbying effort must be resolved quickly “or there will be no campaign and no ETRC before long” warned O’Connell

• Activity must be co-ordinated at regional level

• Suppliers must work quickly on size and labelling issues

AN AMERICAS PERSPECTIVE AND THE GLOBAL DIMENSION

International Association of Airport Duty Free Stories (IAADFS) Executive Director Michael Payne joined O’Connell on stage for the final segment of the workshop.

I worry most about the consumer – they are very confused and they are now going to be even more confused
Michael Payne, Executive Director,
IAADFS

He noted that the US Transportation Security Administration, which has been flexible and progressive in discussions to date, had some concerns about the integrity of the sealed bag system and supply chain. These would need to be addressed, he said. Most importantly he noted: “The transient passenger problem is huge.”

He expressed another widely-felt concern: “I worry most about the consumer – they are very confused and they are now going to be even more confused. We have a real educational job on our hands.”

From the audience, Aer Rianta International-Middle East executive Gerry Crawford echoed that fear, calling for bags and communications with the “same wording and the same look so that people see the same message across Europe”.

Looking forward it is likely that the EU regulations will be recommendation of ICAO to all airports. With regard to the critical question of transfer passengers from non-EU airports and non-EU airlines through European airports the objective is to get EU/US approved airport status.

The same approval would also be sought for a “sealable bag regime” with mutual recognition. To achieve all those ends, industry representation will be necessary to ICAO, the European Commission and the relevant US authorities, O’Connell said. National governments, airport authorities and retailers must all make representations, he added.

The “global goal” he said was the speedy adoption of EU/US standards by other countries so that it is “business as usual wherever you are flying to and from”.

THE MOODIE REPORT COMMENT

With hindsight the earlier full-length TFWA conference could have been replaced with this workshop, which badly needed more time. Frank O’Connell not (the dismal) Gerhard Schroeder was the man the industry needed to hear from last week and it was a huge pity that time was so short for the crucial security debate.

The last thing this industry needs is more tales of goods being seized in transit from passengers who purchased them in good faith
The Moodie Report

But congratulations to TFWA and the ETRC in convening the event at short notice – the decent attendance and jaw-dropping expressions of many delegates bore witness to the importance of the information being conveyed.

Three key strands of thought have emerged as delegates have had time to digest the workshop’s compelling messages:

1) GOOD PROGRESS: For the business at large the post-6 November regime presents a pretty satisfying end result given the various alternatives that could have ensued in the wake of the terror alert.

2) TRANSIT ISSUES: The implications for transit passengers emanating from non EU/EEA countries are deeply significant for the liquor category specifically because of the size of bottles involved. Several beauty houses spoken to by The Moodie Report felt they could adapt swiftly to and live with the new regime. But for many airports around the world the number of transit (in Europe) rather than point-to-point passengers is worryingly high.

How will those airports handle their transit passengers’ requests to purchase? “We will have to decline to sell [liquor] to them on ethical grounds,” one leading travel retailer told The Moodie Report. But will all follow suit? The last thing this industry needs is more tales of goods being seized in transit from passengers who purchased them in good faith.

Clearly airports elsewhere in the world will be in a competitively disadvantageous position from 6 November
The Moodie Report

Clearly airports elsewhere in the world will be in a competitively disadvantageous position from 6 November. Today some airports in Asia only have to tell passengers transiting through the UK not to buy. In a week’s time that will need to be widened to all passengers transiting any EU airport. Unless and until the European Commission accepts any sealed bag solution from overseas airports, airports, retailers and airlines will have llittle choice but not to sell to such passengers.

3) CUSTOMER CONFUSION: History tells us that interpretations will vary, by airport, airline, retailer, local authorities and government. If uncertainty sets in among consumers about what they can and cannot buy (and retain) the effect could be deadly. The business has a huge and demanding job on its hands to convey a simple, positive message against a backdrop that is complex and ever-changing.

AT A GLANCE: THE NEW EU RULES – QUESTIONS & ANSWERS

When will the rules take effect?

Following the events in the UK on 10 August, the EU Commission has agreed new security rules to be introduced on 6 November at all EU airports.

To which flights do the new rules apply?

All flights departing the EU (and EEA states such as Norway which have also signed up to the rules) and Switzerland. It covers passengers transferring from one flight to another at an EU airport, but makes certain exemptions for any passenger whose first flight begins within the EU.

Landside to airside: Quantities

The Commission has advised limits of 100ml per container. The maximum total volume allowance per passenger passing through security screening – landside to airside – is 500ml. But airports are at liberty to impose more stringent measures. The UK, for instance, does not allow any liquids to pass airside from landside. All liquids and gels must be in transparent re-sealable bags not exceeding one litre capacity. No precise model for the bag has been laid down.

Why re-sealable bags?

Passengers must be able to close their bags firmly so things don’t fall out. But screeners must be able to open bags to check contents. Bags will be made available at airports in the short term until passengers get used to the rules.

Purchases at airport shops

The Commission’s new regulations exempt liquids bought from EU/EEA airport shops from the restrictions. It means passengers can buy quantities of liquids in addition to the contents of the 100ml containers (and 500ml total allowance) they bring through from landside and take them on board.

Could someone not tamper with liquids after purchase?

The risk is considered serious in the case of shops located beyond the point where boarding passes are required but before security screening, where neither passengers nor staff are screened before they enter these areas.

For that reason, liquids bought in these shops must be packed in special tamper-proof bags. Shops in these areas will pack liquids in these special bags for customers. Passengers will be obliged to leave their purchases in these bags until they have completed their journey.

These bags are different from those of one-litre capacity, which are used to limit the quantity of liquids carried in from landside.

How will the bags work?

They must be transparent and quickly sealable. It must be apparent if the seal is broken. The bags can have branded messages on one side.

Warning messages will be printed in English and one other language. Messages will include the warning that bags should not be opened until the passenger’s final destination, and another message will state that tampering will result in confiscation for transfer passengers.

What about shops after screening?

Passengers can buy liquids freely after security, without any precautions. This is because passengers and staff have been security-screened. But these shops are likely to sell their goods in the same tamper-proof bags to make things easier for transfer passengers.

What about transfer passengers?

What happens when passengers buy liquids at an airport, carry them on their first flight, then they transfer to a second flight at an EU airport? This depends on whether the first flight originates at an EU airport or in a third country.

If the first flight begins in the EU, passengers will only be carrying liquids in conformity with the regulations. So they are allowed to take the liquids on board their second flight, as long as they are packed in tamper-proof bags.

But if the first flight originates elsewhere, and that country does not conform to EU security rules, there is no guarantee the liquids have been controlled and are secure. Passengers would then not be allowed take these on board.

What about onboard sales?

If the first flight is operated by an EU airline, passengers can take their goods on their second flight, packed in tamper-proof bags. This is because the carrier is subject to EU rules and is controlled by the authorities of a member state.

But if the first flight is operated by an airline of a third country, passengers are not permitted to take liquids bought on that flight on board their second flight.

What rules apply to flights to the US?

The new EU rules are very close to those in the US. The US Transport Security Administration (TSA) will consider the new rules equivalent to US rules, so one set of rules will apply on flights to the US.

What about flights from third countries to the EU?

Some third countries, such as the US and Canada, have similar restrictions on liquids already. Other European states (members of the EEA and European Civil Aviation Conference) will align their rules to those in the EU.

It is hoped that other countries will follow as they become aware of the risks, although this will take time. It is hoped that the International Civil Aviation Organisation will also take steps to harmonise rules across its 180 member states worldwide.

[*This Q&A section is an extract from an original memo published by the European Commission. For full text see the ETRC website].

MORE ON THE AVIATION SECURITY ISSUE

Frank O’Connell calls for trade to mobilise as security deadline looms – 25/10/06

Buoyant ETRC welcomes European Commission ruling on airport security issues – 05/10/06

Relief in France as restrictions on duty free sales to US passengers finally ease – 03/10/06

Good news for duty free as Transportation Security Administration eases baggage restrictions – 26/09/06

ETRC Cannes Workshop to focus on aviation security in wake of terror crisis – 21/09/06

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