Dubai Duty Free revenues funding airport expansions
By: Ruchi Shroff
Non-aeronautical revenues are helping airports across the world fund their infrastructure expansion programmes. Dubai Duty Free (DDF) raised $1.7 billion from a consortium of lenders to support Dubai airport’s AED28 billion, fourth phase expansion.
In 2012, DDF tilled $1.6 billion in sales generated from 57 million passengers who passed through the airport. While passenger traffic at the Dubai airport increased by 1300%, retail business at DDF rose by 7200% during the three decade period.
“By 2018, when Dubai airport will be handling over 90 million passengers, our retail business will touch AED10 billion and will employ a total of 8000 employees”, says Colm McLoughlin, Executive Vice Chairman of Dubai Duty Free. “In 2013, we expect our sales to be around US$1.81 billion. In 29 years we’ve never had a year where sales haven’t increased. Even in 2009 — during the global recession — sales increased by 3%.”
His optimism is shared by Paul Griffiths, CEO of Dubai Airports, who had said during the 2012 Trinity Forum: “Commercial revenue is incredibly important to Dubai airport. Duty-free revenue is actually over US$2 billion a year. Aeronautical revenue is about US$600 million so you can see the skew in favour of commercial revenue and imagine it gets a lot of our attention."
At the Abu Dhabi Airports Company (ADAC), operator of Abu Dhabi’s five airports, duty free retail revenue reached AED809.5 million in 2012, a 24% increase over 2011. This translates into over 60% increase in the past three years, as Mohammad Al Bulooki, ADAC Chief Commercial Officer (CCO), remarked during the Trinity Forum 2013. Moreover, the retail business is expected to grow over AED1.5 billion by 2017.
Al Bulooki said: “On average at most airports, the non-aeronautical revenues make up for around 20 to 25 per cent. At Abu Dhabi International Airport, more than 50 per cent of revenue comes from duty free and the commercial side –retail sales, the airport hotel, food & beverage.”
The Airports Council International (ACI) says non-aeronautical revenues worldwide account for over 47% of industry revenue. It suggests that airport managements should set a 50 per cent of total revenue target as the 'minimum level' of revenue generation from such activities.
ACI Director General, Angela Gittens, commented: "During the (economic) downturn the diversification of airport revenues cushioned the impact of lower passenger and freight volumes and safeguarded operating profits. Non-aeronautical revenues critically determine the financial viability of an airport as they tend to generate higher profit margins than aeronautical activities, the latter frequently representing a zero sum game or producing a deficit. Retail remains the largest contributor to non-aeronautical revenue despite some regional variations.”
It is not only by offering shopping that an airport operator can increase revenues; many innovative measures have been introduced, including hotels and convention facilities, advertising, consumer services, food courts, car parking and rental services, foreign exchange outlets, lounges and naming rights among others.