New WDF venture aims to replace "outmoded" model

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Global Airport Services, the new joint venture between World Duty Free and Crossbar Associates, aims to encourage airports to take greater control of their duty-free operations

BAA's retail division World Duty Free has formed a new joint venture with Crossbar Associates, led by experienced former DFS Group executives Steve Franklin, Randy Emch and Adrian Murray. The venture, Global Airport Services, aims to provide an alternative to the tender model in airport retail by offering airport owners the opportunity to take greater control of their duty-free operations.

Global Airport Services plans to create jointly-owned retail companies with airport owners. Under the proposed model, the relevant airport will take a majority stake in the retailer created, with Global Airport Services providing purchasing, logistical and operational support. Global Airport Services will not join the bidding for retail contracts but will enter discussions with interested airports and look to take on contracts as existing concessions expire.

BAA managing director of global airport retail Mark Riches becomes chairman of the new venture, with Franklin named CEO. Former InterBaires CEO Emch becomes a director alongside BAA retail strategy director Nick Ziebland. The Global Airport Services team is completed by Crossbar Associates director and former executive at Allders, DFS and The Nuance Group Adrian Murray.

Franklin told RavenFox.com that the time was right to launch a new model for airport retail. "If you look back at duty-free in the 1980s and 90s, it was characterised by low concession fees, big savings and a lack of competition for contracts. Profits could be as high as 35% of sales. Since the early 90s that's all changed. Concessionaires don't have the capacity to take on loss-making contracts any more and there are a lot of renegotiations going on. The concession model is outmoded.

"One of the strengths of the old model was that revenue was guaranteed. But look at the number of airports that had to renegotiate after SARS. The guarantee is no longer guaranteed."

Added Riches: "There's an awareness now that there are other options available to airports. They need the very best commercial support both to generate revenue and to ensure the best customer service. We're offering a solution in which airports don't have to go the whole way. We bring them the expertise and invest jointly."

Franklin argued that the unpredictability of the business climate had reduced the value of fixed guarantees, underlining the need for a more flexible model. "Under our model there is an alignment of interest. And it has been proven to work. Look at World Duty Free. It has grown its profits year after year despite abolition and volatility in exchange rates. You have to have stability and the airport-owned model encourages that; Dubai and Abu Dhabi are further examples."

Riches argued that the model proposed by Global Airport Services would be welcomed by suppliers, many of whom are making clear their disillusionment with the highest-bid structure employed by some airports. "You can't expect vendors to support you if you make unsustainable bids," he told RavenFox.com. "In the liquor category, for example, travel-retail represents about 2% of total sales. How can you expect liquor suppliers to support us unless we change? The industry needs something like [the Global Airport Services initiative] to happen. As a big player BAA has a responsibility to move things on, although we are not doing it for the good of our health. I'm encouraged that people are starting to think differently, and although our model is not a panacea and won't work for all airports, the current system is breaking under the strain."

Riches said that prospective airport partners for the new business must have "the commercial acumen to exploit the opportunity that is there". "We also want to work with people with whom we have an affinity. This isn't about a number; it is about growing the business over the long term. Our investment in retail goes hand-in-hand with the airports' investment in infrastructure. There is an alignment of agendas that we will promote."

Global Airport Services has already held preliminary discussions with a number of airports but is not yet in a position to announce its first contract. The company's registered business office is at BAA headquarters at London Heathrow airport.

Further details plus comment and analysis will appear in the next issue of DFNI.