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2 THE TRINITY FORUM Atea City International October/November 2005 Atea City International challenges industry creativity September s Trinity Forum, organised by The Moodie Report and TFWA, included an intriguing and compelling exercise designed to encourage fresh thinking in airport commercial activities. Come with us on a journey to the Pacific and hear how a team of female high flyers tried to breathe life back into the tender process. It wasn t your typical conference subject nor your typical presentation. At September s Trinity Forum a team of eight women executives from various sectors of industry gathered on stage to deliver their response to a Request for Proposals (RFP) at a hypothetical airport in Asia Pacific. The airport was Atea City International Airport, the gateway to the beautiful island nation of Atea. The RFP challenged the team to answer the following brief: How would you structure this airport s retail services? What would be your chosen model and how precisely would it be tailored? We invite you to think innovatively and without constraints. But your model should seek to optimize the interests of the consumer, enhance the image of the airport and achieve a sustainable long-term revenue stream for all the participating parties. The project was set by Alan Bork (right), the newly-appointed Director Commercial Development at Macquarie Airports-led Brussels International Airport Company. Bork was the perfect man for the job. He joined the airport commercial environment in 1994 in connection with one of the first privatisations in the industry, at Copenhagen Airport. As Retail Development Director there he masterminded and choreographed the facility s retail development, making the airport one of the world s leading airports in retailing. After leaving Copenhagen Airport in 2002 he managed his own consultancy, advising airports throughout the world on commercial planning and management. Until recently he was Chairman of one of the industry s most pro-active associations, the Nordic Travel Retail Group. At The Trinity Forum though he underwent a transformation, turning into commercial and retail development director for Atea City International Airport (right). Together with the conference delegates he had the pleasure of hearing the RFP presentation from the High Flyers, an all-woman team representing a range of companies and business skills. The following report profiles the Atea opportunity and is followed by the presentation itself (which was recorded and set to music in a highly innovative approach at The Trinity Forum). We conclude with Alan Bork s response. 34 The Moodie Report

3 THE TRINITY FORUM Atea City International October/November 2005 Request For Proposals Atea City International Airport is seeking the optimal model for exploiting the retail opportunity at the airport, considering the interests of all stakeholders involved, the airport, the retail operator, the supplier/brand owner, and not least the passenger. The airport had last year 13.9 million passengers. Atea City International Airport does not have any domestic passengers. Atea Airways is the biggest airline serving 42 destinations in Asia, Europe and the Americas. 58% were scheduled passengers 42% were charter passengers Peak structure An average of 19,300 passengers use the airport every day. Around 60% of traffic over a normal day is concentrated around the morning peak and the late afternoon peak. Over the year the peak holiday season is concentrated around the months of January, February and March. The Asian Traffic is expected to grow more rapidly than overseas traffic from Europe and the Americas. The graph below shows the expected growth rates over the ten-year period: Atea City Airways is by far the biggest airline at the airport. It is a Star Alliance member. Bus gates are used only for charter flights. Low-cost travel is expected to be an element in the future, but is not expected to play any significant role at the airport. Regarding passenger profile, the following information is given 53% of passengers are male and 47% are female The majority of passengers [56%] use the airport one to three times a year The leisure passenger segment is expected to grow further, and the business/leisure split in three years is expected to be 94% leisure and 6% business. The following information is given regarding passenger spending behaviour Historically spend per passenger on the duty free categories of liquor, tobacco, confectionery and perfume & cosmetics were driven by high duties in the domestic market. The sales split last year was as follows: Liquor/wines/beer 32% Tobacco 18% Confectionery 2% Perfume & cosmetics 48% Gate allocation follows a certain pattern: The majority of Star Alliance flights depart from the West Pier, conveniently close to the business lounge. Non-Star Alliance airlines depart mainly from the East Pier. International arriving and departing passengers 2004 Type Arriving Departing Total Share Scheduled 4,050,000 4,050,000 8,100,000 58% Charter 2,900,000 2,900,000 5,800,000 42% Total 6,950,000 6,950,000 13,900, % Source: The Moodie Report Atea City International Airport peak structure departing passengers 14% 12% 10% 8% 6% 4% 2% 1% 4% 8% 14% 9% 4% 3% 3% 2% 0% Hour Source: The Moodie Report 4% 6% 10% 12% 7% 5% 2% 1% 5% 36 The Moodie Report

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5 THE TRINITY FORUM Atea City International October/November 2005 In the accompanying tables the historic spend levels of the old duty free shop is specified. The management of Atea City International Airport expects that spend levels can be improved considerably in the new store set-up. Inflation in Atea is predicted to run at between +2% and +3% per year. Specific market conditions The all-dominating attraction of Atea is the white beaches, considered some of the best in the world. In addition Atea has some of the best coral reefs in the world, making diving an important element of attracting tourists to Atea. Atea also has a thriving casino business. This creates a significant market for short-stay holiday packages attracting wealthy people living in the region to spend from three to five days relaxing in an exclusive holiday atmosphere. Historic sites dating back more than 2,000 years reflect an exciting Atean culture, which attracts overseas holiday travellers from Europe and the USA. Challenges ahead of the airport retail operations Avian Flu in nearby Vietnam threatens to create potential damage to the tourism industry of Atea. A special luxury goods tax of 18% is to be phased out over a two-year period starting next year. This tax also covers premium perfume & cosmetics brands. To compensate the duty free trade, the value allowance on luxury goods is doubled from US$200 to US$400. Growth rates by nationality 12% 10% Atea was the 40th country to ratify the Framework Convention on Tobacco Control, effectively making it international law. The health lobby is putting pressure on Atea to introduce the mandatory legal measures required by the treaty, thus encouraging Atea to prohibit tobacco sales in duty free. No decisions have been made yet. The Atean currency (the Koha) is linked to the US Dollar, which has softened considerably over the past three years. The future direction of the currency is difficult to read. Terminal infrastructure The airport has 32 stands, of which 20 are equipped with air-bridges accessed directly from the terminal. The airport has two piers. The West pier is located at the end of the terminal while the East pier is located towards the middle of the terminal. This pier is also accessible from the central retail area. All arriving passengers arrive at the lower level where the baggage area is located. For security reasons arriving and departing passengers are not mixed at any time. Six bus-gates handle nearly 20% of all passengers departing the airport. Upcoming terminal projects A terminal project improving commercial activities is being considered. The preliminary terminal plan is presented to potential retail partners for comments and further input. The preliminary plan contains: 3,400m 2 of retail space 1,150m 2 of food & beverage space Atean national North/South American Asia Pacific European African/Middle Eastern 8% 6% 4% 2% 0% Year2 Year3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Source: The Moodie Report 38 The Moodie Report

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7 THE TRINITY FORUM Atea City International October/November 2005 Airline split Atea City Airways 26% Thai Airways 18% Cathay Pacific 11% Japan Airlines 10% British Airways 6% Lufthansa 4% American Airlines 3% United Airlines 2% Travel frequency More than 12 times per year 2% Between 6 and 12 times per year 3% Between 3 and 6 times per year 7% Between 1 and 3 times per year 56% Less than once per year 32% To accommodate the need for expanded terminal capacity after 2010 a mezzanine floor is planned in the central retail area. A third pier is also planned, with opening scheduled for The Airport s strategic objectives The airport s short-term objective is to create a better and more coherent retail environment, which integrates well with other commercial activities, primarily food & beverage activities, as well as various passenger service facilities. The airport intends to prioritise retail activities, which is strongly signalled by the appointment of a Retail Director with direct reference to the CEO. The Retail Director aims to create a close relationship with retail partners, with a high degree of airport involvement. He will be open for any suggested partnership-model that will support this objective. The airport is strongly committed to finding a retail model which will create a win-win-win situation, satisfying all stakeholders involved. The stakeholders are: the passenger the airport and landlord the retailer the supplier or brand owner The Airport s commercial vision The airport wants to identify an innovative and new trend-setting retail formula which will create a more exciting and broader proposition for its passengers and customers. To achieve this requires a retail concept providing a unique experience to the visitor, choreographed with world-class merchandising and retail fundamentals that will challenge the senses of the customer. The management is eager to engage with a retail operator able to create a retail environment that will adopt a distinct Atean approach capturing the history and culture of Atea, thus creating a unique Sense of Place. Appropriate product lines should be tailored to the various passenger segments. No compromises can be made to uniqueness, in either product or pricing proposition. Excellence in customer service combined with a strong marketing and promotion programme must contribute significantly to create a retail proposition that is second to none overall. The Airport s financial objectives The airport is privately owned and is faced over the next years with substantial investments in airport infrastructure. Consequently the airport must focus on robust earnings growth, and it believes this is done best by developing strong partnerships aimed at exploiting commercial opportunities. The airport recently brought in a new shareholder and is now positioned for long-term sustainable growth, delivering increased commercial choice and service quality for passengers. Optional frame for the teams The two teams were asked to consider and choose from any one of the existing business models. Any new model or hybrid model would also be looked upon with great interest. Considering today s industry the vast majority of airport retail operations are based on the following business models: Traditional concession model Management agreement Joint venture Airport-owned retail 40 The Moodie Report

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