Jaw-Dropping Shifts In Airport Rankings And What They Mean For Duty-Free Retailers

Six out of the 10 busiest airports in Europe are now either Russian or Turkish—a year ago that number was just three. And familiar gateways such as London Heathrow, Madrid, Barcelona, and London Gatwick have all been bumped out of the June top 10 thanks to the Covid-19 pandemic and stringent lockdowns.

Replacing them have been gateways you may not even have heard of including the Moscow trio of Domodedovo, Sheremetyevo and Vnukovo; Pulkovo in St Petersburg; and Sabiha Gökçen in Istanbul (see charts below).

The implications for duty-free sales could be significant if the June data become a trend across the rest of the year. The traditional focus from retailers has rightly been on large international hubs with the best spending patterns. Now that smaller airports have suddenly risen in the rankings a rethink is on the cards, at least temporarily.

What exactly is happening?

As indicated early on in the pandemic by OAG and others, large geographical markets with big populations and strong existing domestic networks have shown more resilience than international routes to the traffic downturn. These markets include the U.S. for example, where traffic has recovered to almost 70% down on some days (versus the same day in 2019). This compares with Europe’s second quarter collapse of 96%.

However this has not stopped Hudson News owner, Hudson Group, from implementing 40% job cuts citing the uncertain market.

In Europe, domestic air networks are helping to counter Covid-19 impacts in countries like Russia, Turkey and Norway. According to June data from the European arm of airports trade body Airports Council International, Moscow’s Domodedovo gateway became the busiest European airport with 716,800 passengers, down by 73.3%.

None of the major Russian airports saw traffic fall by more than 87% in June, whereas hubs like Amsterdam Schiphol, Paris Charles de Gaulle and Frankfurt were all down by over 90%. Meanwhile, Turkey’s Sabiha Gökçen has become the sixth busiest airport in Europe, helped by its traffic profile which traditionally has been about two-thirds domestic.

Europe’s big travel retailers such as Dufry Group, Lagardère Group’s Lagardère Travel Retail, and Gebr. Heinemann may need to put more emphasis on some of their smaller or regional airports that have gained prominence.

Eye-opening passenger shifts

For example in June, Athens and Turkey’s Izmir airports welcomed more passengers than the German international hub of Munich; Russia’s 2014 Winter Olympic host city of Sochi processed more travelers than Madrid and Switzerland’s Zurich airports; Bergen in Norway leapfrogged Lisbon and Copenhagen; and Catania in Sicily welcomed more traffic than either Brussels or Helsinki.

Last November, Dufry, acquired a 60% stake in airport retailer RegStaer Vnukovo through a Russian joint venture. In June, Vnukovo became Europe’s eighth busiest airport thus offering Dufry perhaps more value than it had imagined when it struck the deal.

Lagardère Travel Retail has been opening or reopening regional gateways, particularly in Italy. Last month the inauguration of a 2,150 square foot store at Cagliari Elmas Airport in Sardinia marked the company’s twentieth airport unit in the country. Such moves send a much-needed signal of optimism for the duty-free sector even though the sales numbers tell a very different story.

The regional point-to-point rather than hub model is likely to drive growth in the near term—but even that is problematic. Speaking to Forbes.com, ACI Europe Director General Olivier Jankovec says: “Most of the recovery is driven by intra-European routes and given the continued restrictions to intercontinental air travel, point-to-point traffic is faring better than connecting traffic.

“However, demand for intra-European routes remains weak, which means airlines—with a very few exceptions—are very cautious in restoring them. They tend to focus on larger markets where they can better fill the planes. There is simply no silver lining for airports in this crisis.”

While regional airports are having a resurgence in some respects—which may be transient—they will not be able to make up for lost retail revenue at bigger hubs where spends per passenger are greater.

“Regional airports do not get to see many of the high spenders: intercontinental passengers and especially travelers from China,” says Jankovec. “Also commercial revenues per passenger at airports were already under pressure before this crisis—due to a range of structural factors including digital competition. It is all about volumes (and) many airlines have announced they will become smaller structurally, which means fewer routes and fewer passengers at airports.”

Down, but not out

It’s a gloomy picture for airport retailers whose fate, to a large degree, rests in the hands of the airlines—and on the prevention of second wave Covid-19 infections.

But the retail segment will retain its importance in driving airport revenue and profits. Jankovec tells Forbes.com: “For now the focus is on getting consumer confidence back and airlines restoring air connectivity.

“Looking ahead—as the recovery will take years and airlines will remain risk averse when it comes to network and route development—downward competitive pressures on airport charges are set to increase significantly. This means airports’ aeronautical income will be under renewed pressure. In that context, keeping the focus on revenue diversification and, in particular, on retail/commercial revenues will, more than ever, be a must.”