Unlocking the potential of on-arrival duty free at airports

Patrick Lucas by Patrick Lucas | Mar 26, 2021

Contributing author Sarah Branquinho, President, Duty Free World Council (DFWC)

While the financial sustainability of airport operators and airport retailers is threatened by the COVID-19 pandemic, enabling on-arrival duty free could bring much needed-financial oxygen to the airport ecosystem in support of a recovery.

Last year was the darkest year in airports’ history: ACI World estimates that the global airport industry experienced a reduction of more than 6 billion passengers by the end of 2020, representing a decline of 65% of global passenger traffic, with a reduction in revenue of $125 billion as compared to the projected baseline.

As the COVID-19 pandemic continues to unfold in 2021 and further threatens the financial viability of airport operators, airport retailers, and the overall airport ecosystem, airport operators and retailers have the duty to unlock any prospective revenue they can generate to protect jobs, maintain operations, and prepare for recovery.

Within the aviation ecosystem, jobs at airports make-up the largest share. Historically speaking, this has always been in the realm of 55%-60%. Beyond employees for airport operators and airlines many of these jobs are in duty free, retail, car rental, and government related services.

Of all the sectors within this ecosystem, the largest decline is being felt by those working on the airport site because of the crisis. According to the Air Transport Action Group (ATAG), this represents a potential 55% decline in jobs if certain government programs or wage subsidies were to be removed.

On-arrival duty free: An untapped source of revenues

Non-aeronautical revenue represents a large portion of airport revenues – about 40% of global airport revenues in pre-COVID years.

The retail segment, and duty free in particular, represents a window of opportunity where sales could be stimulated to help airports and their retail partners to generate much needed revenues. In pre-COVID years, retail concessions used to generate more than a third of airports’ commercial activities revenues.

Fostering the development of on-arrival duty free sales at airports is an opportunity to continue to solidify retail concession revenues, to diversify activities, and to broaden the scope of activities that duty free operators can undertake at airports.

Airport duty free shopping on arrival is now an established practice on most continents across the globe and is especially prevalent in the Asia-Pacific, Latin America-Caribbean, and the Middle East. More than 45 countries already have instituted the concept of on-arrival duty free including some of the largest aviation markets in the world—Australia, Brazil, India, Indonesia, Russian Federation, Thailand, Turkey, and the United Arab Emirates.

It is a very popular service with travellers who prefer to delay shopping until they arrive, especially given strict hand luggage policies and, more recently, environmental concerns on carrying weight onboard aircraft.

On the other hand, the European Union and North America have been relatively slow to embrace the concept of duty free shops on arrival to passengers ‘leaving’ these markets.

Duty free shopping on arrival will require legislative elements to be amended to bring airports in these regions in line with global industry practice. For instance, in the context of the EU, changes to EU legislation should be considered to facilitate this form of commerce— namely, the Excise Duty and VAT Directives.

Purchases at arrivals duty free have no impact on domestic sales of products—there is no impact on government tax revenue, and no increase in the number of products entering the market as travellers’ duty free allowances remain the same for on-arrival duty free at airports in a given jurisdiction.

ICAO: Recognizing the benefits from on-arrival duty free

The International Civil Aviation Organization (ICAO)’s economic regulatory framework addresses airport commercial activities. ICAO’s policies on charges in Doc 9082 does recommend that:

“non-aeronautical revenues be fully developed, while keeping in mind the interests and needs of passengers and the public, and ensuring terminal efficiency” (section II, para 10 refers).

In its guidance material to Member States, ICAO further acknowledges the trend of successful operation of on-arrival duty free. ICAO’s Airport Economics Manual (Doc 9562) states:  

“While access to duty free shops was traditionally limited to departing traffic, in recent years a growing number of airports have also successfully operated duty free shops for arrivals. It is recognized, of course, that establishing duty free shops for arrivals may in most States require amendments to be made to customs laws and associated regulations.” (para 5.7 refers).

As such, ICAO clearly recognizes the needs for airport to fully develop their non-aeronautical revenue and that on-arrival duty free shops are one of the successful methods to achieve such objective.

ACI World and the Duty Free World Council (DFWC) call for on-arrival duty free shopping

ACI World and DFWC are committed to advocating for robust policy measures that can support the recovery of the international airport industry.

Consequently, both ACI World and DFWC vigorously advocate that duty free shopping on arrival should be enabled with appropriate tax legislation and reform wherever it is not currently the case.

It represents a cost-neutral measure solution for governments to create a substantial new revenue stream for airport operators and their retail partners.

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Sarah Branquinho is an active advocate for the US$70 billion duty-free and travel retail industry and the key role it plays in enhancing transport infrastructure and the passenger experience. 

Alongside her commercial roles, she has served as Chair of the UK Travel Retail Forum (2009  – 2018), as President of the European Travel Retail Forum (2012 – 2018), and as a Board member, currently President, of the Duty Free World Council.  She also serves as External Affairs Advisor to Dufry.

Sarah is the World Business Partner observer on the ACI Europe Board and a founder member and Chair of Women in Travel Retail, which offers networking opportunities to women in the travel retail industry.

Patrick Lucas

Patrick Lucas

Vice President Economics, ACI World
An economist by profession, Patrick has over 20 years of international experience in analytical posts. In his role as Vice President, Economics, he leads ACI’s policy positions related to economic regulation and charges, privatization, taxation, commercial activities, infrastructure management, and airport slots. He is responsible for ACI’s major flagship publications – The World Airport Traffic Report and the Airport Economics Report. He also oversees the production of ACI’s World Airport Traffic Forecasts and Airport Economics Key Performance Indicators. Lastly, Patrick delivers courses in Airport Economics as a member of ACI’s Global Training Faculty. Prior to joining ACI, Patrick worked for a United Nations statistical office where he contributed to major global reports aimed at monitoring economic and social progress.
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