MEDFA Conference addresses regional challenges

John Rimmer

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RavenFox.com reports on the highlights of this week's Middle East Duty Free Association Conference in Dubai

The 3rd annual Middle East Duty Free Association (MEDFA) conference began in Dubai on Saturday before an audience of about 300 travel-retail executives. The event, managed by Tax Free World Association (TFWA) in partnership with Moodie International, will be followed by the second Middle East Exclusive exhibition at the Dubai World Trade Centre.

HH Sheikh Ahmed bin Saeed al Maktoum, department of Dubai Department of Civil Aviation and president of airline Emirates, welcomed delegates to the first morning of the conference. He was followed by MEDFA president and Abu Dhabi Duty Free managing director Mohamed Mounib, who explained how Middle Eastern operators were coping with the ?extraordinary growth? registered by the region's airports and airlines this year. ?If the growth in global duty-free sales had matched that of the Middle East over the past years, worldwide sales would now have reached $50bn,? he claimed. ?Last year I said there was a great opportunity ahead of us. Now I am convinced that the Middle East presents an unlimited opportunity in the future. If you want to do good business, you've got to come to the Middle East.?

TFWA president Erik Juul-Mortensen offered delegates his view of the Middle East from a global perspective,  hailing its ?spectacular? success. He urged the regional industry to back the efforts of MEDFA and of the Duty Free World Council, in which MEDFA is playing a key role. Improving the industry's understanding of the consumer, the dialogue between different stakeholders in the business and taking a more active role in trade associations were crucial to future growth, Juul-Mortensen argued.

A detailed presentation by Centre for Asia Pacific Aviation director Peter Harbison focused on the growth of the airline industry in the Middle East and Asia/Pacific, citing ambitious developments undertaken by Emirates and Qatar Airways, among others. He pointed to the Middle East's favourable geographical position?from where the new generation of super-carriers will be able to reach almost any destination worldwide without refuelling?as a guarantee of continued growth, along with the spread of liberalisation.

Harbison's address was followed by a panel discussion featuring Arab Air Carriers Organisation secretary general Abdul Wahab Teffaha; Air Arabia CEO Adel Ali; British Airways regional manager Africa, Middle East, Central and South Asia Alan Burnett; and ADDF's Mounib. Teffaha paid tribute to the resilience of the region's aviation business, noting that despite political upheaval in some areas, the industry had not suffered a year of negative growth since 2000. He cited intra-regional travel as a key driver of growth, with the emergence of resorts such as Beirut, Dubai and Sharm-el-Sheikh as favourite destinations for Arab tourists. He also played down the effect of rising oil prices on Middle Eastern airlines, insisting that they were not increasing faster than other costs and noting that price rises were generally beneficial to many Arab economies, helping build a vibrant business environment for airlines.

Air Arabia CEO Ali explained the thinking behind the Middle East's first low-cost carrier, which has enabled many Middle Eastern residents to travel to locations that had been difficult to reach. Mounib, meanwhile, spoke of the positive impact of new UAE flag carrier Etihad, which is expected to drive considerable tourist traffic to Abu Dhabi.

BA's Burnett agreed that the development of the UAE as a tourist market was driving traffic to the country, and said that Kuwait was proving a promising destination for BA thanks to traffic to Iraq. He also pointed to the Indian market as a source of some promise now that the country's government is beginning to open the market to non-Indian carriers.

The final session of the morning addressed the advantages and disadvantages of sub-letting specialist stores. Hugo Boss travel-retail director Nadine Heubel argued that speciality retailing enhanced the quality of airport retail in general, provided that brand-owner and retailer enter into ?a living partnership?, sharing information to better understand consumer needs. She insisted that concession contracts must allow for the effective deployment of specialist boutiques and should be adapted to suit.

Aer Rianta International-Middle East (ARI-ME) regional procurement and logistics manager Gerry Crawford offered a retailer's view, arguing that sub-letting allowed for greater diversity in the retail offer. But he warned that specialist concepts must blend into the total retail offer, providing ?a seamless extension of overall retail activity?. A thorough analysis of the potential concepts and of passenger profiles, plus a selection of strong, tested brands, were needed for success, he concluded.

Talbot Consultants International president and managing director Richard Talbot gave a glimpse of some of his company's work in designing retail areas in airports, insisting that clarity and visibility are key to encouraging spend. He suggested that airports should consider sub-letting if net profits in certain categories were not up to scratch, and pointed to his company's work in Istanbul airport as an example of blending generalist and specialist stores.

Speaking from the floor ARI-ME managing director John Sutcliffe said that the imminent growth in retail space across the region's airports made it inevitable that more operators would sub-let some areas. ?We should look at sub-letting as adding value to the business,? he argued. ?You are not taking away from your business as long as you are sure that [a concessionaire] can do the business better than you.?

Although Dubai Duty Free will have an extra 15,000sq m of retail space once Dubai airport's concourses two and three are complete, managing director Colm McLoughlin insisted DDF would not resort to sub-letting. ?Even if we had a million square metres we would have no problem filling it,? he told the conference. ?The reason we don't sub-let is selfish; Dubai Duty Free is our most important brand...and we have found that specialists are often not as good as we are.?

Day two of the event also provided some strong talking points, beginning with a panel of suppliers speaking on the subject of partnership. Unfortunately this session was declared to be off the record, so we cannot publish details of the exchanges. The off-the-record move was one with which several of the key retailers publicly disagreed.

Egypt, one of the markets with the greatest untapped potential in the region, was the subject of a revealing presentation by Habchi & Chalhoub managing director Anthony Chalhoub. He said the government had been slow to encourage private investment in tourism infrastructure in the past, but this was now changing, as Egypt tried to diversify its economic activities. Tourist arrivals had grown from 1m in 1983 to over 6m last year, said Chalhoub, and he forecast 7m in 2004. Plans to double hotel room capacity in the next five years would underpin this growth, he added.

For duty-free, the government's stated aim to increase non-aeronautical revenues at airports from today's figure of 35% was a central factor in allowing companies such as the Chalhoub Group and Aer Rianta International-Middle East to enter the market. At Cairo, plans to double capacity from 9m today to 21m by 2007 would also help, as would the $371m investment by the IMF in Cairo and Sharm el Sheikh airports.

But Chalhoub warned that government still under-estimated the role that duty-free could offer, and said operators still had to battle against local bureaucracy and "varying interpretations" of local laws by the authorities. He said the threat of terror was a concern for duty-free, but on the positive side, said the recent attacks in the resort of Taba had not affected arrivals into the rest of the country.

In conclusion, Chalhoub said there was room to double or even treble spend per head at Cairo terminal one, with investment in the duty-free facilities.

Duncan Alexander, business development director with airline schedules publisher OAG, revealed how airports and retailers could use airline schedules to better plan their retail space. He said that planners needed to understand the distribution of flight times throughout the day and week, and that retailers could plan their staffing around these schedules. At Dubai airport, for instance, Thursday is the busiest day, with twice the number of flights as on Saturdays, while 52% of flights leave between midnight and 2am, presenting big opportunity in these hours to the retailer.

He said understanding the proportion of long-haul versus short-haul flights, the frequency and type of passenger and which are the busiest airports would add opportunities for retailers and suppliers alike. For instance, in the Middle East the busiest airports apart from Dubai are Tehran plus those in Saudi Arabia, untapped markets for duty-free.

The future of currency rates is a key issue for duty-free retailers in the Middle East, whose currencies are pegged to the dollar, and was discussed by America Express executive Arjun Mittal. In his company's view, the dollar will stay at around Eu1.30 for the next year, rather than strengthening much or weakening further. He said the European Central Bank was unlikely to let the euro strengthen much more, as this would endanger exports from the eurozone. Most countries still hold reserves in US dollars so the currency is unlikely to collapse. The US government is relaxed about a weak dollar so it is also unlikely to strengthen, although it has meant the US current account deficit is growing rapidly. The big winners now and in the near future would be the Yen and the Swiss Franc, he added.

In the final presentation, consultant Mark Venables discussed where travel retailers could become more scientific to improve their performance. He said it was important to understand the link between customer behaviour and each category's performance in detail. Retailers were willing to experiment more today, he said, but needed to be more specialised to take advantage of a more sophisticated consumer in the future. He said understanding shopper psychology would also help. Passengers fit into three groups: those who know what they want and buy only that item, those who target a particular category only and those who browse with no particular intention to buy, he said, and each present an opportunity. Other opportunities lay in retailers developing their own brands and in including more local and regional merchandise in the mix, he added.