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.

The eighth month of The Mercurius Group’s reports on the travel retail industry’s recovery from COVID19 across Australia and New Zealand finds the industry caught somewhere betwixt hope and optimism.

Without wishing to stray too deeply into the territory of social psychologists, hope is the emotion you feel when you wish for an outcome that you seemingly have limited control over.  Optimism is the emotion you feel when you have a higher (but not necessarily high) degree of control and hence a higher degree of confidence in an outcome.

While hope and optimism may be closely related (and hence I may be splitting hairs by distinguishing them from each other), it is precisely where the travel retail industry finds itself in this journey of recovery from COVID19.

Of course, everyone hopes travel retail (and the world) will recover from the ravages of COVID-19 as soon as possible.  But that hope has not always been realistic. In the depth of lockdown and the height of daily deaths, one may have had hope, but optimism took serious courage.  Very few invest on the back of hope alone – that takes optimism.

But with New Zealand and Australia recording an increasing number of days (and increasingly, months) without community transmission of COVID-19, the words “cautious optimism” have crept increasingly into the lexicon of the travel retail community – usually in whispered tones.

Across both countries, domestic travel is returning closer to normality with almost all internal border restrictions lifted. Of course, demand for domestic travel is not yet what it was – some business travel may have been displaced by Zoom, some leisure travel may have been deferred till better times and we are still missing international visitors who normally account for a reasonable proportion of domestic travel – but there are positive signs.

Qantas CEO Alan Joyce anticipates that by the end of 2020, Qantas will be flying 70% of its pre-COVID-19 capacity. While this refers to seat capacity rather than paying customers, it’s a step in the right direction and cause for cautious optimism.

Qantas: No vaccine, no international flight

The industry’s optimism remains cautious because stakeholders remain cognisant of how fickle the return of normality to domestic travel could be. Politicians in both countries remain skittish – with the possible exception of NSW’s courageous Premier Gladys Berejiklian. At the slightest sign of risk of community transmission, restrictions and border closures could be re-imposed – as witnessed during a recent outbreak of COVID-19 in Adelaide when just 34 cases caused a state-wide shutdown and a number of other states to slam their borders shut to everyone from South Australia.

So cautious optimism it is.

The biggest COVID-19 risk faced in both Australia and New Zealand remains importation from overseas. All entrants (including locals and visitors) to both countries need to quarantine for 14 days – a measure unlikely to be repealed anytime soon (unless there is a quick vaccine roll-out). This quarantining requirement also limits the number of people that can enter either country. Most people entering Australia and New Zealand remain repatriating locals.

And of course the travel retail industry and the rest of Australia and New Zealand remains acutely aware that COVID-19 continues to rage in other parts of the world, meaning that international borders will remain resolutely shut (a few potential travel bubbles notwithstanding).

For many operators, there is also the need to avoid over-ordering perishable goods in case of sudden shutdowns – the November closedown of South Australia being a sharp reminder of this scenario

The Mercurius Group’s monthly reports on travel retail’s recovery from COVID-19 in Australia and New Zealand records the reopening of travel retail stores across the 27 airports, each with more than 0.5 million passengers across both countries.

November saw the continuation of the slow increase in the number of travel retail outlets open since the Melbourne shut-down dip in August. There are now 48% of travel retail outlets open – up from 41% in October and a post-COVID outbreak peak with more sites in the pipeline for opening in December.

While this is undoubtedly good news, keep in mind that pre-pandemic, these airports had a collective total of 781 duty free, specialty and F&B stores – meaning that a whopping 406 outlets still remain closed.

Given that international borders remain closed but domestic borders are now open, domestic terminals are faring better than international terminals with 58% of all travel retail outlets now open.

Source: The Mercurius Group (Click to enlarge)

The re-opening rate is not yet matched by the recovery in passengers. Noting that passenger number statistics lag a few months behind, we point out that in September total Australian passenger numbers were just over 1.1 million, down from around 11 million per month in 2019.

In other words, in September 48% of 2019 outlets open were competing for business from just 10% of the 2019 passengers. Even with moderation of trading hours, competition for passenger spend is more intense than ever before.

Source: The Mercurius Group (Click to enlarge)

Before COVID-19, on average airports in Australia and New Zealand had two F&B and two specialty sites per million pax. As at the end of September, this was eight per million pax for F&B (four times more than usual) and six per million pax for specialty (three times more than usual).

These reopenings are not without their challenges. Operators are struggling with staff shortages (many previous staff have moved into more secure industries or are being supported by increased government wage subsidies and welfare). Some are struggling to ramp up supply due to issues of their own. In many cases, unit costs have gone up as well due to cleaning and other requirements.

For travel retail operators in domestic terminals, the big issue remains the skittishness of local politicians to outbreaks of community transmission

For many operators, there is also the need to avoid over-ordering perishable goods in case of sudden shutdowns – the November closedown of South Australia being a sharp reminder of this scenario. Topping off the usual opening processes, there are also the many layers of ‘COVID-19 bureaucracy’ with each jurisdiction having varying compliance requirements – seating densities, customer contract tracing records, staff health & safety training, protective equipment etc.

So, while there may be cautious optimism in the industry’s recovery, scepticism remains about a return to profitably sustainable operations. After lengthy shutdowns, any operations are better than no operations, but fiscal reality and responsibility remain at the forefront of industry consciousness.

For travel retail operators in domestic terminals, the big issue remains the skittishness of local politicians to outbreaks of community transmission. Confidence can only return to travel retail markets if borders remain open. Politicians need to find the ways and means to deal with localised outbreaks without slamming borders shut. This typically means mask wearing, contract tracing, limits on gatherings and continued restrictions on retail and hospitality capacity.

It remains to be seen whether discipline can be maintained over the summer months. Nevertheless, for these operators, there is some optimism – even if cautious.

For travel retail operators in international terminals, the next big question is when will international borders reopen – without quarantine restrictions? Reflecting the region’s cautiousness, Qantas boss Alan Joyce announced a ‘no vaccine-no travel’ policy for all international flights, which it anticipates will recommence around July 2021.

That time frame, however, is looking increasingly shaky, despite some positive vaccine announcements. And there remain vague hints of air travel bubbles to the less COVID-19 ridden Asian neighbours, including South Korea, Taiwan, Japan, Singapore and New Zealand.

However, the recent (albeit hopefully temporary) closure of the proposed air travel bubble between Hong Kong and Singapore has shown how uncertain and risky these corridors can be until the vaccines are fully rolled out across the world. Operators in such locations are still in the realm of hope. There would appear to be a long way, though, between the supply of proven vaccines and global roll-out – let alone success.

And so, for now at least, travel retail in Australia and New Zealand remains caught betwixt hope and optimism.

Ivo Favotto contact: Tel: +61 423 564 057; E-mail: ifavotto@themercuriusgroup.com; Websitewww.themercuriusgroup.com