How will the Long-Haul, Low-Cost Revolution Impact Duty Free?

How will the Long-Haul, Low-Cost Revolution Impact Duty Free?

By: Trevor Smart   •   email: info@trunblocked.com

For years, the mantra at duty free shows, workshops and conferences has been one of almost relentless premiumisation. The idea is simple enough – the industry should focus its efforts on targeting the growing number of high net worth individuals flying abroad, while persuading less well-heeled travellers to trade up to higher-priced goods. Follow this strategy, so the theory goes, and the value pool of this high-cost trade will grow for all stakeholders.

At the recent TFWA World Exhibition, a very different idea was doing the rounds. Some commentators are referring to it as ‘mainstreamisation’. In a fascinating press briefing during the show, Vincent Boinay, Managing Director of L’Oreal Travel Retail, a company synonymous with high-end beauty brands such as Lancome, Yves St Laurent and Giorgio Armani, summed up this new thinking well.

He highlighted the growth of low-cost travel in Europe and the region’s flat-lining travel retail performance He stressed the growing need for L’Oreal to balance its offer of luxury brands with accessible products for a growing band of ”low-cost, democratised passengers”.

Boinay´s comments were timely. They come at a time when the wider industry is grappling with the conundrum of rising passenger numbers and falling spends per head. This issue is a complex one, of course. But one of the key reasons for declining basket sizes is the growth of low-cost travel, which is now entering a new era as the long-haul, low-cost (LHLC) business sector rapidly expands.

The low-cost airline model, pioneered by Southwest over 40 years ago, based on principles such as efficient working practices, the unbundling of air fares, point-to-point services and quick turnaround times, has grown to take a substantial 30% share of the global aviation industry. And it continues to grow in every region. Now the saturation of short-haul LCC markets, untapped demand for cheaper, long-haul travel and the development of fuel-efficient planes such as the Boeing 787 and Airbus 350, have seen carriers such as Norwegian, French Bee, Eurowings, Jetstar and Air Asia X all begin popular long-haul services.

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Of course, not every aviation industry observer is convinced of the viability of the LHLC business model. Yet Willie Walsh, IAG’s CEO – a man whose opinion should count for something – has gone on record to say that he believes it is ”profitable” and ”not yet fully exploited”.
The growth of the LHLC sector; LCC carriers’ increasing willingness to operate from larger hubs; and legacy carriers aping the low-cost business model by focusing on ancillary services and even launching airlines such as Air France-KLM’s Joon – all have huge implications for travel retail, which are only just beginning to be thought through.

An increasing number of low-cost travellers will only intensify the ongoing debate in the industry about the right ratio of food and beverage to retail in international airports (no-frill flyers prefer the former). Research also shows that budget travellers tend to purchase items for themselves rather than as gifts for friends and family – an important trend major suppliers to travel retail have already picked up on.

There is also an underlying conflict of interest between low-cost carriers on the one hand and airports and retailers on the other. For cost-conscious, no-frills airlines, every minute on the tarmac is wasted time. This key fact is why low-cost carriers are so keen to get passengers to boarding gates as early as possible and have recently been cracking down on tardy travellers. In sharp contrast, for airport authorities and their retail tenants, every minute of extra dwell time in departures translates to potential extra revenue.

These are just some of the many issues the travel retail industry needs to find solutions for – as the second low-cost travel retail revolution gathers pace.

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