Travel Retail Evolution: A look into the next decade Malta November 2012

1. Travel Retail Evolution: A look into the next decade Malta November 2012

2. m1nd-set • # 1 in Travel Retail Research & Consulting • Based in Vevey, Switzerland • Tailor Made Research for Brands, Operators & Airports • Research Partner of TFWA, APTRA, MEDFA • 1st in Travel Retail Research (2001) • 1 Mio Interviews with travellers at 80 Airports Worldwide

3. Exclusive Research conducted for DFNI Conference: • 1’045 interviews with international travelers (about future needs & expectations) • 16 in-depth interviews with Travel Retail experts (about market development & trends) • Desk Research

4. Key projections of air traffic • in the next 10 years

5. Projections of Air Traffic • Air travel has proved to be resilient to external shocks the last 40 years: • 2 Oil Crisis • Gulf Crisis • Asian Crisis • 9 / 11 • SARS • Financial Crisis • World air traffic has doubled every 15 years (1980-95 /1995-2010) • World Annual traffic has grown almost 50% between 2000-10 (despite 3 crisis) 2000-10

6. Projections of Air Traffic • Expected average world annual traffic growth: 4.8% • Global Air Travel will probably nearly double again in 15 years (despite potential crises)

7. Projections of Air Traffic Main drivers for future air traffic growth: • Increasing urbanization driving wealth and traffic growth • Continued growth of LCCs, especially in S. America, M.E., Africa, Asia • Tourism development (1 Bio tourist today, 1.6 Bio tourists in 2020)

8. Projections of Air Traffic • People around the world expect to fly much more in 2020 (infrequent flyers nearly the double amount per year, or for the first time), because of the following reasons: • economic growth - flying becomes affordable • a desire to see more of the world (in 2020, 750 Mio people will be 65+, and 2/3 want to travel) • the need to see friends and family spread across the globe (250 Mio people will live abroad in 2020) • greater flexibility between home and the workplace • globalisation of business

9. Projections of Air Traffic Main regions impacting future air traffic growth: • Dynamic growth in emerging markets – population and economics • Strong continued growth in N. American and European markets • Expanding global middle class, especially in Asia

10. Projections of Air Traffic • The emerging economies drive strong travel growth Growth in prospensity to travel China: 2 x in 10 years India: 2.5 x in 10 years

11. Projections of Air Traffic Shift of Proportions • Traffic within or between emerging markets will grow much faster

12. Projections of Air Traffic in the next 10 years Current share of global air traffic Annual future average growth per region

13. Projections of Air Traffic • Global “Middle Class” expected to grow most

14. Projections of Air Traffic • World Network evolution

15. Projections of Air Traffic • Traffic is broken down from macro flows to city pairs and routings Lyon

16. Projections of Air Traffic • The share of long-haul flights will increase most over next 10 years • Long-haul traffic will remain highly concentrated on the Mega-hubs • Future top 20 hubs

17. Projections of Air Traffic • The 19th Century was dominated by Europe • The 20th Century was dominated by North America • The 21st Century will be dominated by Asia • 10 years from now, half of the market will be new markets, and primarily in Asia

18. LCC – a threat or an opportunity for TR?

19. LCC – a threat or an opportunity • LCC concept started 40 years ago and is growing and growing… • LCC carrier shares will continuously increase, not only intra-regional, but also inter-regional. • Most likely, there will be several acquisitions and mergers and only a small number of very extensive low cost airlines will be left

20. LCC – a threat or an opportunity • But, there will be a limit to growth due to LCC concept because of the following impacting factors: • Environmental (Rules, Limitations) • Economical (Oil prices, CO2-regulations) • Political (Regulations) • Social (Customers expectations)

21. LCC – a threat or an opportunity • Worldwide LCCs currently have a 24% market share. • The biggest impact has been on the European market, where market share has grown from 9% to 39% in the last decade • Globally, the LCC share is expected to be around 45% in 10 years • Currently 25% LCC share in Asia, probably around 40% in 2022 • Currently 40% LCC share in Europe, expected around 50% in 10 years

22. LCC in figures • Total passengers numbers across low-cost carriers in 2010 jumped 15.7% to 640 Mio, while passenger load factor grew nearly three points to 80%. • OVER THE LAST FEW YEARS, LOW-COST CARRIERS IN ASIA HAVE BEEN RAPIDLY EXPANDING and steadily eating into the market share of full service carriers. • Low-cost operations still account for only a small proportion of the region’s aviation activity relative to other regions. However, the overall market in Asia is also growing much faster than other regions. • The total Asian passenger market is expected to reach about 900 million passengers (excluding China) by 2020.

23. LCC in figures Source: Airline Business

24. LCC – a threat or an opportunity • LCC travelers are coming from all social backgrounds and increasingly from a wider range of geographical destinations • Threat: Continue positioning Duty Free shopping only as luxury goods shopping • Threat: Offer little products for immediate consumption • Threat: Keep Duty Free shops far away from departure gates • Threat: Do not link products to usage at destinations • Opportunity: adapt Duty Free concept to secondary airports • Opportunity: attract not committed duty-free shoppers, by offering fascinating convenience or impulse products • Opportunity: offer continually refreshed product lines that helps to attract even the most jaded consumers

25. LCC – a threat or an opportunity when shopping TR LCC Regular • More positive emotions: • Excitement • Sense of change • Liberation • Positive anticipation • Proudness (exclusivity of flying) • More neutral & negative emotions: • Purpose of trip is dominant • Often stress due to work obligations • Away from family • Delays can cause serious problems • Arrive at airport just before departure • Open to exploration • Willing to spend more time airside • Behaviour dominated by routine • Airport shopping as part of trip

26. General Travel Trends

27. Travel Trends • Future Travel & Travel Retail shopping is increasingly about depth rather than breadth of experience. Technologies such as increased reality and smart mobile devices will transform the travel experience: • Automatic transit: Checking-in could become the exception rather than the norm, with the rise of faster and more efficient identity management systems. Chips, biometrics, long range fingerprinting and near field communications can be deployed in a more integrated way to fast-forward how people move around • Payment with memory: All data on payments made before and during a trip will be integrated, acting as a digital memory of expenditure and activity for individuals, groups and travel industry operators. • Intelligent recommendation: As technologies make it easier for people to tag and review all aspects of travel experiences, travelers & Duty Free shoppers will be more influenced by peer groups and expert curators.

28. Travel Trends THE WELLBEING AGENDA • Taking the stress out of travel: The wellbeing agenda and changing demographics will place greater emphasis on removing travel stress. • Intelligent luggage tags and tickets will give greater reassurance whilst mobile-Health applications will allow travelers to manage and monitor their health and wellbeing as if they were at home. • The business tourist: Continued emphasis on work-life balance and wellbeing at work may see the rise of the business tourist which will demand speed and efficiency as well as a home-away-from-home.

29. Expected future role of Duty Free shopping for airport operations

30. Expected future role of Travel Retail for airports • The non-aviation business will become increasingly important for airports, because the profit margins are (and will be even) higher. • Airports aim to achieve 50% of revenue from non-aeronautical sources, with retail representing the main source. • However, Travel Retail will become more complex and diverse to offer a new value proposition. • Overall, the complexity of non-aviation opportunities as well as the uniqueness of airports will lead to a large variety of which non-aviation areas will grow.

31. Expected future role of Travel Retail for airports Airports Airtowns Past: Transport Infrastructure Future: Place for shopping, meeting, socializing, entertaining etc Adapted products & services according passenger mix Standard Offer

32. Expected future role of Travel Retail for airports • Airports will need to become more creative to differentiate themselves from increasing competition (domestic, other airports, internet etc). • The are basically five key non-aviation sources: • Travel Retail • Services • Food and beverages • Parking • Passenger access • Travel Retail is e.g. 25% of non-aviation net income at 6 BAA airports • Travel Retail and Services will gain importance over the next 10 years, since the other sources have mostly reached their limits

33. Expected future role of Travel Retail for airports Key Regions • Current positive spending mainly from Chinese, Russian and Brazilian travelers. • It is predicted that Chinese spending will explode even further in the mid-Pacific and on the US West Coast if the US decides to adopt a no-visa policy for this travelling group in future.

34. Expected future role of Travel Retail for airports Source: Generation Research

35. General TR consumer trends

36. General consumer trends • Travel Retail will need to offer more products adapted to the more complex and sophisticated individual needs of passengers. • Travelers will expect products tailored to their ethnic and cultural backgrounds. • Brands will need to make people feel good about what they buy, offering products that not only look and feel good, but also do good and contribute to the society and the environment. Source: m1nd-set

37. General consumer trends • People will be looking more for unique and special (travel related) products when travelling compared to downtown shopping. • Travelers will expect more innovations of products in the airport environment • Airport shops should be able to transfer dreams into reality due to unique mind-set of human being when travelling

38. General consumer trends Future: Duty Free = Opportunity to meet & get to know innovative & value added products & services Past: Duty Free = Price Savings

39. Trends in airportretailing • Airport shops will receive more space at airports • More arrivals shops • Shops will be closer to passengers (walk-through + gate shops)

40. Trends in airportretailing Retail Surface Development • Currently, in major European hubs the average density (m2 per million departing passengers) is 600m2. • Maturity target will be 1.000 – 1.2000 m2, which promises sales of 18-20 € per departing passenger (on average).

41. Trends in airportretailing Expected future trends in airport retail offer: • Technology will play key role: • Practically all travelers will have internet access through mobile phones 10 years from now • Contact through Smartphones (Pre-order, Sales, Promotions) • Stronger interacting with customers (QR codes, games etc) • Feasibility of daily social media offers

42. Trends in airportretailing Expected future trends in airport retail offer: • More exciting customer experience (focusing on added value and less on savings) • Tailored offers to customers depending on where they are travelling • Diversified offers due to diversified regional needs (local footprints!) • Wide range regarding price level of products: Source: Arthur D. Little, m1nd-set

43. Thank you! m1nd-set # 1 in Travel Retail Research & Consulting