AUSTRALIA/NEW ZEALAND. Ivo Favotto, a Sydney-based executive and company owner who has worked for all three stakeholders in the Trinity chain, presents his latest commentary and figures on the gradual re-emergence of airport commercial activities in Australia and New Zealand. Favotto owns and runs The Mercurius Group, a consultancy focused on industry research, consultancy and benchmarking studies, as well as operating his own destination merchandise supply business.
Here, he provides an update on Australasian government approaches to the reopening of borders and travel, airing his frustration at the lack of progress. Giving the example of Daniel Andrews, Premier of Victoria in Australia, requiring less than ten new COVID-19 infections per day in the State for 14 days straight before restrictions can be lifted, Favotto says the general outlook for increased traffic to give lifeblood to travel retail stores remains a gloomy one.
Despite their ideological differences, the right-leaning Australian Government and the left-leaning New Zealand Government have one big thing in common – an abundance of caution when it comes to COVID-19 management.
Both countries’ international borders remained resolutely shut during September – making it the seventh consecutive month of closure – an unprecedented timeline for two countries where international air travel has become so embedded in the national psyche to overcome the so-called “tyranny of distance”.
There has been a recent glimmer of hope with the recent announcement of a travel bubble (quarantine obligation free travel) between the two nations to commence on 16 October 2020. But don’t get too excited. First, it’s only one-way (New Zealand to Australia) with no set date for it to become two-way. And second, it’s between New Zealand and New South Wales (NSW) and Northern Territory only (i.e. it only covers around one-third of Australia’s population).
Draconian controls
And don’t get me started on Australia’s state governments where some of the world’s most draconian controls on the movement of people continue.
The people of the State of Victoria for example (6.5 million population) have been in Stage 4 lockdowns (with curfews, travel restrictions and the shutdown of non-essential industries) since July – the longest highly restrictive shutdown anywhere in the world.
The Victorian Premier – Daniel Andrews – has set a requirement that the State records less than ten infections per day for 14 days straight before restrictions will be lifted. It is a hurdle that is proving to be almost impossible to achieve.
And the impacts on Melbourne Airport are devastating. In August, the airport recorded its lowest monthly passenger volume in over 50 years – a -98.8% decrease on August 2019 – and with no easing of restrictions during September, the outcome can be expected to be similarly glum.
At the same time, it is still not possible to travel from Australia’s most populous states – NSW and Victoria – into most of the rest of the country. In Queensland – Australia’s holiday and playground state – the travel and tourism sectors are on their knees financially. With an election looming at the end of October, there appears some hope of Queensland finally opening its borders but no-one is getting too excited at the prospect just yet.
From a travel retail perspective, in August, the COVID-19 outbreaks experienced in both Auckland and Melbourne saw the Australian and New Zealand travel retail industry witnessing the emergence of the dreaded sawtooth recovery with renewed store closures.
The key question for September was whether the pattern of closures would continue or whether when, and by how much, the reopening of travel retail outlets would occur.
September marks the sixth month of The Mercurius Group’s monthly reports on travel retail’s recovery from COVID-19 in Australia and New Zealand for The Moodie Davitt Report. The analysis records the reopening of travel retail stores across 27 airports with more than 0.5 million passengers.
Pre-pandemic, these airports had a collective total of 781 duty free, specialty and F&B stores. And for each of the first four months of our analysis, a steady recovery was evident. In April, a paltry 8.5% of pre-COVID-19 travel retail outlets were open, and following this low point there was steady month on month growth to July when a more promising 41% had reopened. This recovery was then cut short by the August COVID outbreaks, and associated restrictions, with outlets open dropping back to 35%.
The net outcome on the travel retail recovery saw total travel retail outlets open in September increase slightly to 38% of pre-COVID-19 levels – largely (although not exclusively) driven by the return of activity at Auckland Airport where airline seat capacity in early September returned to close to 50% of the previous year, with 85% planned for October.
The underlying story
With Australian passenger data now available to July we can look back on the trend of store openings relative to passenger numbers.
In July 2020 Australian airports in the study saw aggregate passenger numbers at 9% of July 2019 figures, a steady climb from the low point of 2% in April, with total store openings in July at 41% of the pre-COVID-19 number.
Measuring outlets per million pax across the Australian airports in the study, in July 2020 there were nine F&B outlets per million pax and six specialty sites per million pax compared to the benchmark of two outlets per million respectively for F&B and specialty prior to COVID-19.
While this suggests that there are now more stores per passenger, this metric hides that many of the stores are not trading for all flights, as airports relax their previously strict condition that all stores had to be open from first flight to last flight.
Anecdotally we are hearing of operators tailoring specific store openings to the time of day. For example, an operator will open their coffee outlet for morning trade and then move into their facilities serviced by kitchens for the more meal-orientated day parts – effectively recording two outlets being open but only one of the two being open at one point in time.
Nevertheless, competition for dwindling passenger spend is fiercer than ever.
An abundance of caution
Notwithstanding that both Australia and New Zealand appear to be back on track in successfully suppressing their latest COVID-19 outbreaks, the conditions surrounding the trans-Tasman bubble indicate that there is no immediate prospect of the abundance of caution lifting on either side.
Travel retail operators continue to grapple with planning which stores to reopen and when. While the closing of stores was relatively simple, albeit with costly stock losses, reopening brings many challenges, not the least of which is staff.
While operators have worked to retain as many staff as possible through government wage subsidies, there has still been the inevitable loss of staff as they find work, or other activity, elsewhere. Some operators are estimating that as many as half of their pre-COVID-19 staff won’t be coming back to work for them.
It’s not just staff that are exiting the market, the industry is also starting to see a consolidation of operators. In early October Travelpharm, a New Zealand airport health and beauty retailer with a turnover of NZ$37 million (US$24.7 million) in 2017, announced the appointment of a liquidator. There will be others to follow.
There is also much industry speculation of future consolidation across operators, which has started on a small scale with F&B operator Catercare taking over operations at regional Rockhampton Airport as the previous operator was unable to re-establish operations.
With a COVID-19 vaccine proving to be elusive (at least so far), industry hopes are turning towards the concept of ‘Safe Travel’, where we find a way to normalise travelling in a COVID-19 safe way, utilising rapid turnaround testing at airports on both departure and arrival to negate the need for quarantining. Governments in the Pacific region however seem to prefer the cautious approach for now.
Ivo Favotto contact: Tel: +61 423 564 057; E-mail: ifavotto@themercuriusgroup.com; Website: www.themercuriusgroup.com
