INTERNATIONAL. Changing consumer behaviour, new shopping environments and the industry commercial model post-COVID-19 were central themes of two webinars hosted by The Moodie Davitt Report on Friday. [A full report will feature in The Moodie Davitt eZine, out later this week.]
As reported, the webinars took place across two different time zones and were dedicated to The Trinity Initiative, which aims to identify a range of solutions to key industry questions during and after the crisis. The Trinity Initiative has been introduced by The Moodie Davitt Report with the cooperation of a range of senior industry stakeholders and in association with Bain & Company.
Both webinars were strongly attended by an audience of airports, retailers and brands, with high levels of engagement and interaction among participants about the industry’s direction and its future.
Alongside The Moodie Davitt Report Chairman & Founder Martin Moodie, and President Dermot Davitt, speakers included Mauro Anastasi, a Partner with management consultancy Bain & Company Italy and Jack MacGowan, Director at Castlepole Consulting in Ireland and former CEO of Irish state-owned Aer Rianta International.
To set the scene for the conversations, they had worked on an important paper headed ‘COVID-19: A New World for Airports’, highlights of which they introduced during the webinars, available below as a link.
They were joined by Eric Trichot, owner of PT&M, who offered a fascinating insight into how several of his client airports are running tender processes amid the crisis (more in this week’s eZine).
Beginning with the webinars, the industry conversation that follows will take the form of public articles and debates (both via our media and at our virtual and, in time, physical events such as The Trinity Forum) and – more importantly – critical behind-the-scenes conversations. These will include a range of industry leaders representing all stakeholder elements, and other parties with the appropriate vision and complementary knowledge and skillsets.
Starting the conversation, Martin Moodie asked: “How can airports best ensure the funding they require from non-aeronautical revenue sources, which we know are so essential to funding crucial infrastructure development and to minimising passenger costs? What is the best way to ensure a ‘win’ for the airports, while ensuring that they still attract the necessary investment and expertise of quality commercial operators and their world-class brand partners?”
Anastasi said: “We [Bain & Company] believe the fundamentals of travelling and travel retail are still valid and will continue in the long-term to be a healthy industry.”
But, he warned: “The issue we are all facing is what happens between now and the long-term; what’s happening is not only a health crisis but a dramatic economic crisis with very deep temporary and permanent effects. Even when the effects of lockdowns are eliminated, there will be a significant GDP reduction and lack of ability for consumers to spend at the same levels for a long period.”
On how shopper missions might change, Anastasi said: “After the lockdowns, as we have already seen in China, I think that there will be less time looking at brands in-store; the shopping mission is becoming kind of an omnichannel mission meaning you go to a luxury store having viewed online with a clear idea of buying ABC or of looking at ABC but with a very much pointed shopping mission prepared in another environment, which is online.”
Of the potential for air travel recovery, Bain & Company is forecasting that passenger numbers will not return to 2019 levels until 2023. Anastasi said: “2021 will see something like 75-85% of traffic and 2022 about 85-90% of 2019 numbers. Obviously nobody has the right numbers, as many scenarios can play out, but we are looking at less passengers for at least three years. Domestic and short haul will recover first, with long haul the last to recover.”
He said new regulations in airports – virus checking, extra security, social distancing etc, and the time they will add, particularly airside – will have a serious impact on travel retail in the short term, but also in the long term. This in turn will see a reversal of travel retail investment from airside to landside, against the trends of the last ten years.
In this context, said Anastasi, the majority of contracts that are in force today between brands, travel retailers and airports “simply don’t make sense anymore in the new scenario”.
He added: “They were viable before this, but if we look at the scenario where the airport infrastructure will be different, the layout and the zoning will be different, and the numbers will be different. And the profitability of the industry will be different.”
He continued: “With the present MAG situation, what we have in place is not much of a contract. They don’t make sense anymore. The process to changing that needs to start now because as we all know adapting the retail infrastructure of an airport is a long process.
“At the moment the industry has to try to find a way to survive this period. For 12 to 24 months, we don’t know what will happen. So, we will need a great degree of flexibility on what we do in the airport and also the nature of contracts. So, what physically the retail will be in the airport and how these relate to profitability and contractual structures.
“The key phrase here is ‘planning through scenarios’ but be flexible and be ready to adapt to how the consumer behaviour will evolve. The standard contract has to be different from today and needs this flexibility.”
Jack MacGowan added: “What we are experiencing now is not a blip. This is not a problem we believe will be fixed in three months. It’s more like a three-year problem.”
He asked the audience to think about what the new passenger is going to look like. “Many of the same people will be going through your airport, but they will act and think differently. They are very likely to be younger, very likely to be paying a lot more for their tickets and probably going through an airport and sitting on an airplane with some degree of risk, but with some social distancing in place so that it’s a very different experience.”
He said that this environment isn’t one where they may “naturally revert back to buying exactly the same things they used to”. He continued: “And I think if you put it in that context, an airport has to manage through the next three years. Its first job is to work with governments and public health officials to make air travel safe. And I think if you can make it safe and reassure people that they will start to fly again, I think you have started the process.
“And for that to happen, the emphasis is not now on incremental profit and margin. It’s now about having a partnership which is flexible and agile, one which can open three shops and open four more when the traffic comes – it can change the mix so that it is maximising the offer for the number passengers that are actually going through the airport.”
He added: “Almost definitely the current concession model is not fit for purpose. And for at least the next six to 12 months, not only is MAG not relevant, it might be that a retailer will lose money on a cash basis for the next 12 months because of so few passengers coming through. So I think the contract has to be fundamentally relooked at for the next two or three years; I don’t think it is about short-term profit.”
*We will bring you more on this important story in coming days and full details in this week’s edition of The Moodie Davitt eZine.
BACKGROUND
The New Deal was a series of initiatives during the Great Depression launched by President Franklin D. Roosevelt which aimed to restore prosperity to an American society ravaged by the worst economic downturn in US history. Roosevelt took office in 1933 as the Great Depression, which began in 1929 and would not abate until the end of the 1930s, raged.
While the New Deal’s array of experimental projects and programmes, met with mixed success, the concept fundamentally changed the US Federal Government’s role within the US economy.
With the global aviation sector stricken by the impact of the COVID-19 crisis, is the airport ‘travel retail’ sector (including food & beverage and other services) in need of its own New Deal, and what might that look like? What are the contractual models that will lend the best chance of success for all stakeholders in the future – and help deliver the best possible consumer propositions?
The Trinity Initiative, launched last week by The Moodie Davitt Report with the cooperation of a range of senior industry stakeholders and in association with leading international management consultancy Bain & Company, aims to identify a range of solutions. Bain & Company has provided its capabilities and resources as an industry service to ensure rapid progress can be made on a critical issue facing the aviation and travel retail sectors.
It will take the form of public articles and debates (both via our media and at our virtual and, in time, physical events such as The Trinity Forum) and – more importantly – critical behind-the-scenes conversations with a range of industry leaders representing all stakeholder elements and other parties with the appropriate vision and complementary knowledge and skillsets.
“The Trinity Initiative comes at a time when our channel is starved of the very oxygen that it has always been able to count on and always been underpinned by – passengers,” said The Moodie Davitt Report Founder & Chairman Martin Moodie.
“That traveller base, which has risen exponentially over recent decades and was projected to continue doing so for many years to come, was the safety net that allowed the travel retail industry to flourish. That was despite a prevalent concession model that many have long felt provided an inequitable share of risk and reward.
“The devastation wreaked by COVID-19 means that in many countries at least the travel retail industry cannot return to such a model. Even if still able to, retailers in many countries will no longer be prepared to table high minimum guarantees, and brands will not be prepared to underwrite any that do. If that is the case, how can airports best ensure the funding they require from non-aeronautical revenue sources? What is the best way to ensure a ‘win’ for the airports, while ensuring that they attract the necessary investment and expertise of quality commercial operators and their brand partners? Those are the key questions that The Trinity Initiative seeks to answer.”
Airports simply cannot fund their operations through reliance on aeronautical revenues alone; commercial revenues have been pivotal to their ability to fund infrastructure and will be increasingly so in the future, especially with so many of the global airlines in distress.
The Trinity Initiative kicked off with an extensive discussion paper produced (as noted above) by Mauro Anastasi and Jack MacGowan. Anastasi is an expert in Bain & Company’s Retail, Airlines & Transportation and Advanced Manufacturing & Services practices, with over 15 years of consulting experience across retail and aviation sectors within both Europe and the Middle East.
Over recent weeks, Anastasi and MacGowan have been working on a paper headed ‘COVID-19: A New World for Airports’ (made available to The Moodie Davitt Report readers on a complimentary basis; link above]. It starts with these words, “Control what you can. Quickly. Start preparing for the ‘New World’.” In other words, fight the fires and then plan.
Much of this paper mirrors the aims of The Trinity Initiative. It seeks to scope what the ‘New Deal’ of airport retail will look like. And without question, there will need to be one. In that regard, we perhaps need to suspend references to travel retail’s historic resilience – not because that traditional wisdom is no longer true but because we are talking about an external crisis of a magnitude that the modern aviation era has never experienced.
The Trinity Initiative will be conducted in several phases.
- The Moodie Davitt Report webinar featuring Anastasi and MacGowan (see above).
- A consultation phase, which has already begun with key stakeholders across multiple sectors on an anonymous basis, will continue post the webinar for approximately two weeks. Specific questions and issues will be identified for deeper discussion with representatives from the industry Trinity. Finally – and no later than four to five weeks after the webinar, a White Paper will be produced.
- Afterwards, a periodic review will be established, involving players that wish to join. Thus The Trinity Initiative becomes not a one-off solution but an ongoing review mechanism that can be drawn on by industry stakeholders if necessary.
- Findings and recommendations will be discussed during the Virtual Symposium at The Moodie Davitt Virtual Travel Retail Expo in September.
For more, click here.
