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“We want to get the message across that this is a partnership. That’s not just a statement… we want to grow the business with our business partners“ |
Gavin Mckechnie Chief Commercial Officer Delhi International Airport Limited |
INDIA. Earlier this month Delhi International Airport Limited (DIAL) unveiled its commercial ambitions for the long-awaited new Terminal 3 at Indira Gandhi International Airport.
Set to open in 2010, in time for the Commonwealth Games, T3 will represent a new qualitative benchmark in the history of Indian aviation. This month’s Retail Marketing Launch , attended by The Moodie Report, saw DIAL outline its vision to create an integrated, world-class airport, including over 20,000sq m of retail space.
The GMR Group-led company also unveiled a bold new airport retail branding called Skyline Avenue (“˜Destination You’).
The launch, which attracted a “˜who’s who’ list of the airport world’s leading commercial concessionaires as well as many local Indian companies, was arguably the most ambitious – and candid – presentation by an airport company to its potential commercial partners.
In an impressive articulation of many of the key principles that have been central to the “˜Trinity’ (airports, concessionaires and brands) debate of recent years, DIAL executives spoke passionately about the spirit of partnership that would allow all stakeholders to prosper at T3 to the ultimate benefit of the travelling consumer.
In coming months, The Moodie Report will continue to track what we consider to be one of the most important case studies in airport commercial revenues history. The next issue of our Digital Print Edition, out next month, will include a dedicated section on the Delhi T3 proposition.
Just before this month’s presentation at the Taj Palace Hotel in New Delhi, The Moodie Report Publisher Martin Moodie spoke with DIAL Chief Commercial Officer Gavin Mckechnie and Head – Commercial Retail Minakshi Sondhi about their aspirations and guiding principles for the complex tendering process.
Martin Moodie: By any standards, Gavin, what you’re planning tonight is a very ambitious approach in terms of an airport company unveiling a set of commercial tenders. What was your thinking behind doing it in such a way?
Gavin Mckechnie: Some of it was influenced by the way we saw T5 launched at Heathrow. We also thought that we needed to give the industry some confidence in the fact that we have a professional outlook and that we’ve planned it carefully and thought things through.
Click on the arrow in the video screen to view a detailed walkthrough of Delhi T3 |
The economic situation around the world meant that we also needed to give everybody a bit of a lift. That wasn’t the original plan but it’s worked out that way.
But really it was more about us saying: “We want to be a big player in the world; we want to be in the top ten airports in the ASQ ratings by 2011”. To do that we need to take a quantum leap from where we are now. So this is step one in that quantum leap.
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Gavin Mckechnie: “The first thing is that we want to be synonymous with quality and service” |
But we’re also saying we can’t do this on our own. Yes we can build a building; we can make the greatest infrastructure in the world. But [we can’t achieve our goals] if we don’t get the right business partners, if we don’t get the right offer, and if we don’t have the right people working with those business partners.
We’ve got to have our own operations people working to the best level they can ever achieve to make this the best, most world-class airport possible.
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“We want to take away the barriers that stop people being able to trade in an airport environment. Having worked in other airports, we know how people can put bureaucracy in the way – the anti-sales department, as we call them“ |
Gavin Mckechnie Chief Commercial Officer Delhi International Airport Limited |
So it’s a combination of all those factors. It’s really a clarion call for everybody – it’s saying “˜this is what we want to do, this is our mission, this is our goal’. And it’s a huge goal.
Tonight you’re setting out your stall in terms of your commercial ambitions for Terminal 3 and the philosophy behind it. Can you give us a preview?
Sure. The first thing is that we want to be synonymous with quality and service.
We then want to get the message across that this is a partnership. That’s not just a statement, it’s a real partnership. We want to grow the business with our business partners.
It’s really important for us to choose the right people. It’s not just about money; it’s about the whole package. So we’ve spent a lot of time travelling around talking to people; we’ve gone to see them in their own backyards; we’ve seen many of the duty free operators, and seen the F&B guys. We’ve done our homework, to see who can we work with, and who has common goals and values with us.
In terms of “˜the Trinity principles’ of greater understanding and co-operation between industry stakeholders, you just expressed some really important thoughts. It seems clear you’re not going to be a passive landlord…
… No, we want an interventionist model. We want to work with people; we want to take away the barriers that stop people being able to trade in an airport environment, bearing in mind that a number of these operators will be new to the airport. So we need to guide them and help them.
But having worked in other airports, we know how people can put bureaucracy in the way – the anti-sales department, as we call them – so we need to make sure that our retail-ops team works very closely with the airport operations team to stop anything like that happening. That’s the first rule we’ve used.
We then wanted to look at how we help our partners to make their business even better. How do we grow the business? What other opportunities are there where we can work together – rather than just saying “There’s the contract, see you in three years time”?
Getting that balance right, though, is historically quite difficult. Airport companies tend to see themselves first and foremost, and quite rightly, in the operational business of getting people on to planes and off planes quickly, functionally and safely. But of course commercial revenues are so key to being able to do that in the first place.
Yes, you have to do all of that. So our strategy is one of working very closely on the planning with the ops guys. You have the front-end process part, which is getting from the kerb-side through check-in, through immigration, through security, and into the departure lounge. We want to get that as tight and efficient as possible.
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So we’ve worked with the control authorities, asking what kind of desk you want. How many desks do you need? Can we process this number of people? And so on.
We’ve worked all these things into our calculations. We’ve worked with the airlines, and we’ve said this is our service standard… for example, we must get a Business Class passenger through within five minutes; while an economy class passenger mustn’t queue at check-in for more than 20 minutes.
We’ve applied some high standards which means the airlines also have to rethink. And if they say “Well we need more desks as part of the check-in process” we could do what everybody else does and just charge them for an extra desk. But instead we’ll have a model that says if they take more desks at the beginning and they get the whole process through quickly it will cost them less money… it’s all about being creative and listening to your business partners.
That obviously assists greatly in terms of your commercial revenue generation, because you’re going to get people through quicker and dwell time will be maximised?
Absolutely. If we’re going to be top ten by 2011 with ASQ we’re going to have to make sure that everything works very, very well. That might mean you lose a rupee here [at check-in] this year, but you won’t lose it next year. You’ll get it next year because things will grow and develop.
I’m delighted to hear you say that because so often, especially if you travel as much as I do, you see the loss of revenue from passengers being stuck either at check-in or security. Then you get through and there are these beautiful shops and…
… You haven’t got time to shop.
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DIAL Chief Executive Officer BS Shantharaju spells out the company’s vision for the new terminal |
Exactly. So clearly you’ve got very joined-up thinking from the start in terms of aeronautical and non-aeronautical activities?
Yes. We’re providing minimal retail and F&B in the check-in area, because you know in India once you come in you can’t go out, and the only people that are allowed in are the people that are flying.
So we’ve got some “˜distress’ stuff – some retail, maybe a luggage shop, some F&B, but really not much else. We don’t want people hanging around there, because it’s no good for them and it is no good for us. So it is all about encouraging people – we don’t want to herd them – to flow.
The other thing about this airport [T3] is that it is very intuitive. You go in one direction almost all the time. When you get to an area and then you’ve got to go somewhere, you can see a portal.
I take it that T3 will be a walkthrough retail offer?
We’ve got two walkthroughs. One for the whole terminal and then one for the retail.
Minakshi Sondhi: One of the unique things that we’ve done is to design the retail in exactly the right areas, which is sometimes not possible. So, for example, we have ensured that there’s not a lot of retail in the check-in areas because commercially that’s not where the money is. So why sell lots of space there? It’s not sustainable.
Instead we’re trying to create pockets – lots of stuff in the right places. So you’ll see a huge concentration mass of retail in the Departures Lounge. It follows a philosophy of making sure you have the right retail in the right place.
Gavin Mckechnie: And we’ve zoned that retail so you’ve got a luxury area, a High Street area, a gifts and souvenirs area, a needs area, and F&B dotted around as well. It means people migrate to their area depending on their passenger mission.
We’ve picked up on all the experience we have internally, looked around the world and asked “What works for Delhi?” Now with, say, check-in, we could have had lots of retail as they have in Hong Kong, where it works perfectly well. But it wouldn’t work in India, in Delhi particularly as nobody is allowed in the building except the people who are checking in.
We’re not going to build an airport that just replicates somebody else’s airport – we’re building an airport that is specific to Delhi. And that’s a key message.
You’ve certainly got a lot of interest here today. But were you worried about a dampening of interest in light of the global financial crisis as well as the general Indian economic climate and the Mumbai atrocities?
We’d be foolish if we didn’t worry about all that. The whole world is having an economic downturn but to put it in perspective there’s a link between GDP and passenger numbers. And we think [in India] we’re going to have a “˜bad year’ this year with GDP at around +6.5%. Next year we think it will be about +8%. The Indian Business Development Minister actually said that at Davos last week.
So we’ve got enough evidence that says India on its own can generate GDP of about +6.5%. If the Americans and the Europeans start to develop and China starts to recover a bit faster, then we can go up to +8-9-10% no problem. We still think we’ll have GDP growth of around +9% for the next three or four years, after this year of +6.5%.
In terms of passenger numbers, if you look historically at China and other developing nations, they get around +1.8% pax growth to GDP. So we should be in double-digit growth in the next three to four years.
This year will be a tough one. At the moment our international passengers are growing at about +8.4% year-to-date. Even in December, which is a poor month for us anyway, we had +4.6% growth.
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DIAL is determined that the aeronautical and non-aeronautical sides of its business work closely together – for the benefit of the travelling consumer and for the maximisation of commercial revenues. Underlining that integrated approach, Minakshi Sondhi and Gavin Mckechnie were joined on stage by Chief Executive Officer BS Shantharaju (centre); Chief Development Officer – Airport Development Prabhakara Rao and Chief Operating Officer Andrew Harrison |
Minakshi Sondhi: In recognising that there will be concerns [about the business climate] among concessionaires, you will notice how the agreements are being structured. They’re long-term agreements – we’re not striking short-term deals with people asking for lots and lots of capex and heavy quality offers when they don’t have the time to recover it.
They’re very substantial agreements and beyond industry benchmarks. They’re not traditional three-to-five year agreements – they’re even longer than that – the length depending on whether it’s an F&B or retail contract.
You’ll also find the remuneration mechanism is a very fair one. It’s not the traditional case of “Quote me a MAG and we’ll see if it works or not and it’s on your head if it doesn’t”. It involves a mechanism that they come up with, directly related to their sales forecasts.
That’s an important point. I alluded to trade concerns about the business climate in India and globally, but another concern is the nature of short-term, one-sided traditional concession structures – not only in India but worldwide. How much can you tell me about the structures?
Gavin Mckechnie: We’re looking at six plus one for most of the retail and all the F&B. And duty free and advertising is nine plus one. So we’re basically saying “You’ve got six years to spread your amortisation”.
We looked at four plus three, and at five plus two. But we said “Let’s give the comfort up front, because we wanted to give seven-year deals [for general retail and F&B]”.
So we opted for six plus one – that way there’s only one year where there’s any doubt. And basically if it’s a business partnership by the time they get to the end of the sixth year they’ll know they’ve got the business again – there would have to be something major for that not to be the case.
We want to give everybody confidence that we’re putting our money where our mouth is.
The other thing with the MAG is that in year one there isn’t one! So whatever they agree with us, in terms of sales forecast times revenue share times the MAG… well that MAG simply doesn’t exist for year one.
We don’t know exactly how the passengers are going to come over to T3, the period in which concessionaires are getting bedded in. So we’re basically saying “Year one – forget about it. It’s just a revenue share”.
That’s a big call, an unusual call.
We’re in India. We’re dealing with people who are either sceptical about the market because there’s been some fingers burnt very badly or they don’t know how to operate in an airport as they’ve never done it before.
So we have to guide and educate them. For us it’s about saying if this is a partnership we have to put our money where our mouth is. And this is us doing exactly that.
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Minakshi Sondhi: “It’s not the traditional case of “Quote me a MAG and we’ll see if it works or not” |
Minakshi Sondhi: It gives them time to find their feet and establish a stable trading pattern… now they will have a risk-shared period at the beginning to really try to iron out the whole thing and make it work for them.
You benefit if they benefit. The better they do, in theory, the better you do…
Gavin Mckechnie: … Exactly. We should be the catalyst for their sales, which then generates their growth. And I think that could be a new model. I remember Mark Riches [CEO of World Duty Free, then owned by BAA -Ed] saying three to four years ago that he wanted to change the model. He wanted to get rid of the MAG structure, but he might as well have spoken to the wall. Nobody was listening.
That’s why it’s so great that this initiative is being driven by an airport group which isn’t also the retailer. Naturally some were sceptical about what Mark was saying because WDF was owned by BAA. Whereas this is the first time I can think of an airport company sending out a partnership message so strongly.
Absolutely.
Focusing on the duty free contract, will it be a classic concession model with a renewal option?
We haven’t totally decided on the duty free model yet. We’ve had some long discussions with all the operators, and because of that we’re still undecided.
Because of the market being in a trough there’s one school of thought that maybe we’d lose out by taking out a concession at this time.
But with our partnership approach I don’t think there’s any risk of that. So we’ve still got a bit of work to do.
There’s basically only three things you can do. There’s a management contract, a concession deal and a JV (which would end up being a concession deal anyway) so really there’s only two.
It’s just a case of figuring out which is best for Delhi because we have this huge concession deal with the government, whereby 46% of our top line revenue goes straight away to them. That’s a big issue for us so we have to get this one right. This is the big one.
Actually, duty free will be put out to the market around the beginning of April. The plan was to put it out pretty much right away, but because every operator has given us so many options we have waited. I think it is a good position to be in and it shows that we are listening rather than just saying “Well we know everything and let’s get on with it”.
[EDITOR’S NOTE: The Moodie Report spoke to Gavin Mckechnie again today, immediately before publishing this article, for the latest update on the duty free tender and the other major contracts. He told us that following an impressive level of feedback from the market, DIAL has revised some of its thinking and will inform potential partners soon as to the proposed framework of the bids. We’ll bring you that news as soon as the decisions are finalised.]
Is there any possibility you could be so enamoured by one retailer that you could say we’re not going to market?
No. It [duty free] has to be a competitive tender. We have no choice – that’s the rules from OMDA [the operation, management and development agreement]… because it is above a certain value.
With most of the other retail bids we could do that, but we’ve decided to be clean and transparent to make it easy. Also let’s see what the market is saying rather than simply doing a deal with somebody that you think may be quite good.
How do you see the balance between getting the best valuation for this business over the contract tenure and getting the best quality retailer? The two might not always go hand-in-hand.
They don’t always go hand-in-hand, although depending on which category you’re talking about, it is easier for some than it is for others.
In terms of quality, in terms of the duty free operators, there is a level of quality that you can sustain with any of them. There is nobody out there that we couldn’t do business with.
For the other ones, our view is that we should look at the technical bid first, and then work out who is out at that point. The technical bid will pick up on the range; the values of the company; how they are going to go about customer service; as well as the design and so on. So the technical bit may exclude some people straight away, and then we get to the financial bit.
And even with the financial offer, we’ve said that we want to see their business case. We want to be able to look at it and gauge whether this make sense. You know, if you’re giving me a spend per pax that is +10-15% above the industry norm, then it is obviously not sustainable.
Absolutely. The industry’s history is littered with cases of aggressive bids that ultimately could not be sustained and then the concessionaire has sought to renegotiate or walk away.
If we have somebody here who is not succeeding, you can guarantee that they’ll cut their staff and cut their merchandise. So the customer service will go down the pan, and the chances of us making the top ten in the ASQ ratings by 2011…. well it’s not going to happen,
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(Left to right) Robbie Gill, Director, The Design Solution; BS Shantharaju, Chief Executive Officer, Delhi International Airport Limited; Gavin Mckechnie, Chief Commercial Officer, Delhi International Airport Limited |
So we need to make sure that the people who are in here are doing well. If we make a mistake, or they make a mistake, or collectively between us we make a mistake, then we need to sit down and be honest about that. And that’s the partnership element. We’ve got to be big enough to say this isn’t working, so let’s cut our losses and go, rather than like some other airports, simply saying “That’s the contract you’ve signed, I don’t care, just keep paying me the money”.
What are you going to be saying to the market tonight – and beyond tonight – about what is on offer? A few months ago it was beckoning as the great commercial prize in Indian aviation. It still is, I think, but clearly all the factors we’ve talked about, have dampened things a little.
We’ll be saying it, collectively. You’ll hear [DIAL Chief Executive Officer] Mr Shantharaju talk in great depth about GDP and about the growth of India, the economy and basically how India is the place where it is all going to happen.
We’re more protected because we are ten years behind China, in terms of our development. They have kind of hit that wall on the tail-end of what the west has hit. India is a lot less exposed; there is a lot less debt so India is still vibrant. The economy is still growing – +6.5% GDP in a bad year. That would be a fantastic year in any European country.
The other thing to get in to peoples’ heads is the sheer scale of the numbers. There are 25 million people in the Delhi NCR region. At the moment we’ve only got 24 million pax. Scotland has got five million people and 22 million pax, so you can see that there is potential there. And that eligibility to fly is the bit that is going to change over the next three or four years,
More and more people will become eligible to fly, and more and more people will come to the airport. By 2026, we’ll have capacity for 100 million passengers [across all terminals]; by 2010 we’ll have capacity for 60 million.
And T3?
34 million.
But you’re confident that despite some of the recent negatives, you’re going to get the financial offers that, let’s say, you were hoping for six months ago?
I would think so. Because we’ve gone in to the markets and spoken to people, and put some of our own personality in to this, I believe that people are now thinking, “Okay, maybe we could do business with these guys”.
There have been several false dawns in Indian travel retail. How can you convince people this isn’t another one?
There have been some key learnings from both sides. I think most of the international partners that have come in to India and maybe got their fingers burnt – some of them just a tinge, some of them third-degree burns – have learned, everybody has learned.
People are learning and understanding how the market works. And so are we. We made some huge mistakes, every airport has made some big mistakes
And the final timeline of RFPs?
We will release the speciality retail soon; everything else will start by the end of March and April. It will all be phased, because you can’t do everything at once. Awards will all be made by May and June, and people will be on-site in November. We need to be operational – with or without passengers -by the end of March the following year.
And your driver of that is the 2010 Commonwealth Games?
Yes. We want to have the terminal ready by the end of March, but we want to be operationally sound. We don’t want to do what other airports have done where they opened in a hurry and not quite got it right. We want to be ready for the customer from day one. But we will be ready for the Commonwealth Games without any doubt. That’s not even an option for us to fail on that one.
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Tell us about your new branding.
Minakshi Sondhi:: What we tried to do is create a retail experience. It’s not a case of “˜here is an airport, here’s a lot of great shops, go shopping’. It’s really about creating a seamless journey which ties together in the form of the retail brand – Skyline Avenue – which excites and creates adventure. It also helps build penetration into the stores. So it helps retailers get conversion out of people. It’s the DIAL retail brand
Gavin Mckechnie: We want people to be walking through another airport once they have arrived carrying a bag that says Skyline Avenue, or a tag on their bag that says Skyline Avenue – and for someone to say “ah, they have been to Delhi” and for it to stand out.
Minakshi Sondhi: And it’s not just a carrier bag, we’ve taken it to different levels. You’ll see informational signage; it’s navigational and it assists passengers. We haven’t tried to swamp the retailers… they’ll still have their own identify… but as part of Skyline Avenue.
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DIAL Chief Commercial Officer Gavin Mckechnie unveils the new Skyline Avenue branding | |
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DIAL CEO BS Shantharaju: “Our dream is to create a world-class facility in Delhi… the pride of the nation” |
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(Left to right) Delhi International Airport Limited Chief Commercial Officer Gavin Mckechnie; Head – Commercial Retail Minakshi Sondhi, Associate Vice President – Corporate Communications Arun Arora |
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Quality, transparency, ethics, customer focus and sustainable relationships were some of the core values outlined by DIAL Chief Commercial Officer Gavin Mckechnie during his well-received presentation |
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DIAL has brought in a powerful team of Indian and international consultants on the T3 project |
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DIAL’s Retail Operations team gathered on stage at the end of the presentation in an impressive statement of commitment |
In terms of the quality of execution that you’re seeking, what in your view is going to mark out the new terminal in terms of its commercial proposition? What is going to be so special about it?
Gavin Mckechnie: The design and the layout will make a big impact. I think we’ve designed a flow that zones and is custom built. It’s all about the lessons we have learned from our designers, from ourselves, and from our own experience in other airports. It’s been about putting all these things together and coming up with a design that really works.
We have also got some iconic pieces. We have the Skyline bar – it’s a rooftop bar that is going to look out over the tarmac and look back over the departure lounge. You’ll see it as soon as you come through the duty free shop and it is right there, an absolutely iconic work.
We have the Dilli Bazaar [Dilli is the old name for Delhi -Ed], a unique marketplace that will replicate some of the spirit of old Delhi and pick up on its rich culture and heritage.
We’ve then got the normal high street shops that you’d expect to see in any airport and we’ve got some unique food & beverage. We’re looking at a high-end luxury bar – in Heathrow it would be a Caviar House; what it will be in Delhi, I don’t know yet. It might be a Caviar House but it might be something completely different.
The message we’re going to be saying tonight to all these potential concessionaires is “Go away, think what’s the best you can ever do; give us the best representation of your plan and your product; take the shackles off, inspire, enthuse, excite, innovate. Come up with some things that nobody has seen before and which are the best in the world”.
*ABOUT DIAL: DIAL is a Public Private Partnership Initiative for the modernization and restructuring of Indira Gandhi International Airport in New Delhi, India. The DIAL consortium comprises GMR Group, Airports Authority of India, Fraport, Eraman Malaysia and India Development Fund.
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An artist’s impression of how the new Terminal 3 will look in 2010 |
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Delhi’s bright new international gateway: Sleek lines and gleaming whiteness abound |
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The sign says it all: Terminal 3 will take the Delhi gateway into a new, contemporary era |
NOTE: The Moodie Report India, part of our dedicated regional news section on this website, contains all stories on India’s travel retail industry dating back to early 2003. You can access it via the dropdown menu on our home page under Regional News or by simply clicking here.
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