Abu Dhabi targets best in class philosophy
SSP in the News 25-November-2008
Sales topped $100m for the first time last year and if traffic grows as forecast to 12m in 2010, the Abu Dhabi Airports Company believes sales will reach $225m – or even $230m – by that date.
[TREND is republishing a series of full-length articles on Middle East duty free operations previously printed in the MEDFA edition of The Travel Retail Business, Nov/Dec 2008-Ed.]
When the public joint-stock Abu Dhabi Airports Company (ADAC) was created in March 2006, it was empowered to spearhead the development of the Emirate’s aviation industry, and many believed this move might open up the opportunity to bid for a duty free business that has always looked as though it had more potential.
But it was not to be. ADAC chose not to hold a tender, preferring instead to make a straightforward award of a five-year contract to DFS Group, marking the retailer’s first contract in the Middle East region.
The initial focus of the agreement was to devise and implement the duty free offer for the new T3, followed by the redevelopment of T1, but there is more – much, much more – potential in this combination. Imagine the synergies between an airport company with ambitious plans for growth – in concert with its rapidly expanding anchor airline, Etihad – and a company that has some of the most outstanding retail offers in the world, including its off-airport Galleria concepts.
ADAC Vice President of Non-aeronautical Revenues & Business Development Dan Cappell, said it was not a difficult decision to evolve Abu Dhabi International Airport from its previous strategy of almost total in-house operations to one of total outsourcing.
“ADAC’s goal is to maximise revenue and profit, so we asked ourselves three key questions: Could this be done better by bringing in outside expertise? Will this represent a step-change? And can we make more money by doing this? The commercial – and strategic – decision was ‘yes’ to all three. “Our goal is to deliver the best-in-class offer in the Middle East, and ultimately the best-in-class offers worldwide. So we are bringing in the best.”
Among the concessions outsourced are the gold and jewellery operations across all terminals – including T3 which is opening in phases throughout this autumn. Here, the airport signed a three-year agreement in January 2008 (effective April 1) with Pure Gold Jewellers – an award-winning and leading regional jeweller.
Electronics sales have also gone out to a specialist retailer – UAE-based Sharaf DG, and Cappell said this decision is already vindicated: “Revenues from sales of electronics are up 40% year-on-year. They have the latest products, knowledgeable and well-trained staff, and great economies of scale on the buying side. They are happy – and we are happy.”
ADAC has also granted an exclusive three-year concession to SSP to operate all the F&B outlets in Terminal 3. This agreement was reached in March 2008, and signed in July, and SSP’s Johann Weinzettl – CEO, Central & Eastern Europe, Middle East and India – is already promising that its debut offer in the Middle East “will provide customers with a food and beverage offer of a breadth and quality that we believe will be unparalleled within the region.”
Just as importantly from SSP’s perspective, he added: “Supporting ADAC in its mission to establish Abu Dhabi’s much-anticipated Terminal 3 as a benchmark for the region is an important part of SSP’s strategy to become recognised as the leading operator of food and beverage brands in the Middle East.”
In Abu Dhabi, the brands SSP will feature include Burger King, Sahten (Lebanese food), Gino’s pizza, Yum Cha (Chinese concept), Upper Crust, Segafredo, Caffè Ritazza, Hippopotamus, Bill Bentley, Flavours and SSP’s new bakery brand Panopolis.
But without deriding any others, the key relationship struck by ADAC is its new partnership with DFS Group – the world’s leading duty free and travel retailer.
ADAC has made no secret that it believes DFS Group is the best retailer to take its offer forward to a new level of luxury, and while it is early days and there is no talk of this just yet, the opportunities for both parties to extend this partnership in future are blindingly obvious.
No wonder ADAC Chairman, His Excellency Khalifa Al Mazrouei was happy when the new arrangement was first announced earlier this year: “Our ambition is to offer our customers a range of choices and DFS represents a best-in-class solution for our duty free offer. Once concluded, this agreement will bring higher levels of luxury retail expertise to Abu Dhabi and together we can set a new benchmark for duty free retailing in the Middle East region.”
Ed Brennan, Chairman and CEO of DFS, added: “At DFS we are delighted to have taken this first step in building a great new partnership with ADAC. We look forward to working with ADAC to develop Abu Dhabi into the luxury travel retail destination of the Middle East.”
Specifically, DFS is charged with running all the retail operations, except electronics, gold and jewellery, cigars, books and magazines and the pharmacy. Cappell added: “One of the reasons we approached DFS was because of its excellent relationship with the leading brands, and we are confident that this will lead to a much stronger brand presence in the airport in the future. For example, there will be 19 stand-alone brand boutiques in T3.”
Cappell also acknowledged that the five-year term of the DFS deal means that the first phase of ADAC’s 220,000sq m, 8m-capacity Midfield Terminal Complex (MTC) “will be coming on line around the time that this agreement – in its present form – draws to a close”. Perhaps this is coincidental, but note the precision of the wording.
The MTC is no small project. Consisting initially of 30 gates, it will also have the built-in capacity to be expanded to 550,000sq m. This would provide a passenger handling capacity for 40m passengers a year through a staggering 80 gates.
ADAC Head of Communications Andrew Jones said that the official target for the end of the construction phase for the MTC is end-2011, followed by a period of operational testing, but he added: “We’ll open when we’re ready.”
But there is still a huge opportunity to grow retail sales at Abu Dhabi International Airport before the MTC opens its doors. For example, last year’s duty free sales at Abu Dhabi topped $100m for the first time – on passenger throughput of 6.92m – and Cappell stands by his prediction that if traffic grows at the forecast rate to 12m in 2010, sales will reach $225m, or even $230m by that date.
“I would say that is definite – as long as the global economic environment is resolved in due course.” Average per passenger spend remains over $50, Cappell said, but he warned that the impact of the credit crunch is not yet clear.
“Looking forwards, we will have to wait and see what impact the global financial crisis might have – it could be that some people choose to holiday in their home countries rather than travel, or they may look to cut the cost of their trip and become more conservative in their buying behaviour.
“When we have the September and October data we will be better placed to evaluate developments, however, I can say that sales on a daily basis are still performing really well.”
He also noted that the effects of the religious Ramadan and Eid periods will also have to assessed – the former tends to reduce passenger numbers, while the latter usually brings a welcome boost. But while the global financial system has taken a hammering over the last month, Abu Dhabi and some of the other Emirates and Gulf States have been insulated to some degree.
That many are dollar denominated and this has not helped is another matter however, although the scenario today should be seen in the context that Abu Dhabi still sits on the world’s fifth largest proven natural gas reserves and fifth largest proven oil field and has astonishing development plans.
Consider Abu Dhabi’s 2030 Vision – the total population is forecast to triple to 3m, and it has immense infrastructure development scheme investments, including $163bn on social, cultural and real estate projects alone over the next decade.
The total number of projects currently underway could end up costing a staggering $400bn according to local media and the radical changes being made at Abu Dhabi International Airport and the incredible growth of national carrier Etihad Airways are all very much a part of this.
For its part, the Abu Dhabi Airports Company has also invested strongly in its own infrastructure over the last year, bringing in some very senior and well-known executives to run the business.
Dan Cappell was the first recruit, returning from Aer Rianta International Middle East to become VP Non-aeronautical Revenues & Business Development. He was then joined by Rudy Vercelli – previously the COO at Mumbai International Airport – who joined ADAC as its first CEO. Subsequently, the final major move was the recruitment of Hans Bakker, who was previously Commercial Director at Hong Kong Airport Authority. Bakker is now ADAC’s Commercial Director.
This team is packed with retail experience, a sign that ADAC is obviously prioritising this business with hard investment and not just words. This total restructure of the management and commercial side of the business has also been made at what is the height of growth being seen at the airport.
ADAC Head of Communications Andrew Jones points to the ferocious pace of passenger growth – up 34% year-on-year in August – and notes that this is closely correlated to the huge progress of national carrier Etihad Airways. The 2008 calendar year passenger forecast is for 9m passengers, equating to annual growth of around 30%.
Only last month ADAC opened its new $272m, 4,100m parallel, independent runway and taxiway system on as part of the phased opening of Terminal 3, which will increase capacity to 12m. ADAC Chairman H.E. Khalifa Al Mazrouei said: “ADAC has achieved significant progress in the journey to transform Abu Dhabi International into a world class gateway airport. The new runway will form a key part of our plan to increase total capacity at the airport that will culminate with the construction and completion of the midfield terminal facility.
“We have adopted a phased approach to the opening of the new terminal. Earlier last month we started departures using the bus gates and lounges at Terminal 3 for certain services. Working closely with Etihad Airways our aim is to increase the number of departures from Terminal 3, before moving on to accepting arriving planes.
“The next phase will see passengers checking in through Terminal 3 with a final phase expected to encompass the opening of a full duty free retail and food and beverage village early in the New Year.
“In taking this approach we can protect customer service levels and iron-out any potential glitches that are associated with the opening of any new building, but in particular the challenges faced with a new airport terminal opening.”
Jones said ADAC is already looking at ways to manage 12m-plus passengers and said that spreading the peaks was one possibility. “Our peaks now are between 22:00 and about 02:30 and again from 06:30 to 09:30. If we can spread these out, we will effectively create more terminal capacity.”
He noted also that Etihad earlier this year ordered 100 further aircraft [comprising 25 A350s, 10 A380s, 20 A320s, 35 Boeing 787 Dreamliners and 10 Boeing 777s-Ed] at a cost of just over $20bn, and has options on 100 more.
Extending the traffic forecast further, he said the airport expects to handle 19m to 20m passengers by 2012, based on new routes and greater flight frequencies by Etihad and by other airlines.
In August, Air Blue (from Pakistan) became the 40th airline to fly into Abu Dhabi International Airport. Jet Airways (from India), nasair (a low-cost carrier from Saudi Arabia) and FlyYeti.com (a Nepalese low-cost carrier) have also started Abu Dhabi services in 2008.
Nevertheless, Etihad still represents about 70% of total traffic at Abu Dhabi, serving 45 of the airport’s 66 international destinations, said Jones. New routes to come from Etihad include Almaty and Moscow this year, and Melbourne, Lagos and Abuja next year. Of total passengers, 65% are in transit, but the share of origin and destination passengers is growing.
“Etihad has focused on increasing frequencies this year,” he added, “and this obviously increases footfall through the terminals, so the airport is keen to see this expansion continue.”
Against this background, it is also worth mentioning that this year the Abu Dhabi Tourism Authority (ADTA) has also launched a five-year strategic plan (2008-2012) which aims to attract 2.7m tourists to the Emirate by 2012.
With the full backing of the government, it is aiming to increase the number of hotel rooms in the country to 25,000 by 2012 (4,000 more than today) and to promote the country as a culture and heritage tourist destination.
Most importantly of all, the ADTA is also actively promoting many public-private partnerships to attract investors to help build the tourism sector and it has already attracted a number of internationally well known hotel groups to the country.