NEWS/ANALYSIS: ISRAEL AIRPORTS AUTHORITY
Adapting to market change remains key challenge for Israel Airports Authority
Last year, Israel Airports Authority issued a new duty free tender covering T1 and T3 at Tel Aviv Ben Gurion International Airport. The latest version of the contract reflects changing market conditions and ensures the risk factor is shared, as Andrew Pentol discovers.
the T1 and T3 duty free tender, IAA Deputy Director General Commerce and Business Yoram Shapira tells TRBusiness: “There have been major changes in the DF&TR market over the past few years. “The first was the signing of
the Open Skies agreement with the European Union and then the increasing share of Israeli passengers. This rose more than the share of international travellers.” He adds: “Israelis are flying more.
If they are flying, two, three, four or even five times a year, this obviously impacts their buying habits.” Higher frequency of travel,
Tel Aviv Ben Gurion handled 10.2m departing passenger in 2017. (Image: Jorge Lascar) I
Israel Airports Authority (IAA) has faced many challenges over the years, but none bigger than the
continued rise in passenger numbers following the signing of the Open Skies agreement in 2012. Last year, the airport passed the
20m passenger mark. Over the past five years, inbound and outbound passengers have increased by more than 50%. Total departing passengers amounted to 10.2m in 2017, of which 1.4 million flew out of the re-opened T1. This means 8.7 million, departed from Terminal 3.
“We have always told consumers they would get a good deal. Now we must prove they will get a good deal because they can now sit at the shop and compare prices.”
Yoram Shapira,
Deputy Director General Commerce and Business, IAA
26 TRBUSINESS In the year to date, traffic in
Terminal 1 has increased by more than 25% and +14% to +15% in T3. More passengers mean more pressure to maintain strong in-store penetration and keep average spend per basket as high as possible, but one thing is certain. IAA is relishing the challenge and would not have it any other way. In 2017, IAA had the small matter
of issuing and awarding the new Terminal 1 and Terminal 3 duty free tenders. This was in part due to the re-opening of T1 for departing passengers on 19 June following refurbishment work. Both were eventually won by the
JR/Duty Free and Gebr. Heinemann joint-venture. This was created once JR/Duty Free realised it could exit the previous contract, which it described to TRBusiness as onerous and that a new two-terminal tender would be issued (see page 22).
Contractual changes Reflecting on the decision to make key contractual changes as part of
therefore, is one reason IAA lowered the contractual linkage rate (the link between the number of flights, passenger growth and turnover growth) from 70% to 40% under the terms of the new agreement. Shapira explains: “The difference
between them is now different. It is not 70% anymore. It is somewhere around 40%.” Another reason for the change in
contractual terms is the passenger mix. More leisure travellers than business travellers are flying so the average basket size is lower than it used to be. “Businessmen buy more luxury
products, while leisure travellers purchase more discounted products,” Shapira emphasises. The share of children taking flights
has also increased – children are obviously not allowed to purchase duty free liquor and tobacco products – which is having an adverse impact on average basket size, according to Shapira. “Three or four years ago, the share of children in terms of the proportion of the passenger mix was 12%,” he says. “Now it is 20%.” More products are perhaps being
MAY 2018
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