Aviation: Inflight ‘must address astronomical fees and model’
Qatar Duty Free (QDF) Vice President Operations Thabet Musleh has challenged inflight DF&TR stakeholders to unite and enact fundamental change or risk losing the business within the next five to 10 years.
In a frank appraisal of the current state of the sector in a session entitled ‘inflight impetus’ held during this week’s MEADFA Conference in Beirut Lebanon, Musleh deflected away arguments that pricing issues between suppliers and retailers remain the biggest hurdle to sustained growth.
“Price doesn’t come into it when you deliver an experience and a product that the customer wants,” Musleh told the audience.
“We always blame the supplier, but as a retailer, we charge astronomical fees and we don’t give anything – it’s a difficult model. We’ve changed ours this year.”
A ‘FIVE-STAR SERVICE’
Musleh said QDF is on a journey with inflight since taking over the Qatar Airways’ business two years ago.
“Our inflight model is huge – we have 55,000 products onboard, 300 carts travelling a day to over 150 destinations,” he commented, adding that the business is currently experiencing high double-digit growth this year. “Inflight duty free is not an extra – it’s part of our five-star service.
“I want to create give the customer something special, be innovative and more importantly work with our partners. We have hundreds of suppliers. If we work with 10% of them, we’ll be in a different place.”
Turning to future potential in the market, Musleh said door-to-door connectivity remains vitally important to the fortunes of the airline.
“For me, there is two sleeping giants: Africa and India. It is around what you are offering them.”
The penultimate session of the first day of the MEADFA Conference also featured Mounir Seifeddine, Director of Purchasing, Middle East Airlines (MEA), who joined Musleh for a lively debate on the Middle East inflight sector.
Setting the scene, Co-moderator and TFWA Managing Director John Rimmer reminded delegates that following four years of consecutive decline beginning in 2013, inflight DF&TR turned a corner in 2017 with growth of +4.2%.
At present, inflight accounts for an approximate $2.6bn share of the industry’s $69bn global revenue.
The Middle East alone takes more than a 10% share of global inflight sales, with the regional market growing by 11.5% last year.
“Motivated staff, brand engagement and a product mix with enough variety and innovation to keep travellers interested is certainly the case for the two airlines that we are delighted to welcome to this session,” opened Rimmer.
GROUND PROMOTIONS ‘A CHALLENGE’
Seifeddine began by sharing some points on inflight duty free.
He said that while alcohol and tobacco sales – particularly in the higher priced segment – are flourishing, some perfume brands have withdrawn items and sales per pax has been declining.
Price increases are challenging airlines’ ability to be competitive. He commented: “We don’t have space and we don’t have time – the local market makes aggressive promotions and we can’t follow.”
These difficulties are crystallised through increased pax awareness of prices.
This relates chiefly to consumers becoming more prudent and cautious when it comes to pricing, delegates heard, checking these at multiple stages of the travel journey.
That poses a challenge to MEA, who aren’t able to add margin to sales as effectively as in the past as consumers’ spending ceilings have become more entrenched.
Aggressive price promotions at hubs such as London Heathrow are also putting pressure on MEA.
Speaking on behalf of the brands, Rimmer pointed out that retailers are quick to put pressure on them during times of exchange rate volatility, but when those rates are healthy, brands do not receive the associated recompense.
SPRINGBOARD TO TOURISM GROWTH
Addressing the audience in the morning, Lebanon’s Minister of Tourism Avedis Guidanian hailed MEADFA as ‘one of the most important conferences held in Lebanon for a long time’ and one that chimes with future investments being made in its economy.
The fact the conference was being broadcast in Arabic through Lebanon’s national media was perhaps a sign of this importance.
“MEADFA is today held in Beirut and gives us the starting point so once again we can become a major touristic destination in the Middle East,” said Guidanian. “Lebanon is huge in terms of its capacity and human creativeness.”
He then moved to dispel the sometimes negative media connotations associated with Lebanon due to its historical tensions and conflict, branding as ‘inaccurate’ reports that seek to ‘tarnish the reputation of our country’.
Concluding, he wished delegates success in their business endeavours and declared them the country’s ‘ambassadors’.
“Today we have started a new page in the tourism and investment community,” he ended.
In a highlight for many delegates attending proceedings on the opening day, renowned Lebanese fashion designer and entrepreneur Elie Saab made a brief appearance.
Saab’s meteoric rise to universal acclaim on the haute couture fashion circuit was inspired by humbler beginnings in his native country, where he began selling designs in his local neighbourhood before opening his first couture atelier in Beirut as the civil war raged around him.
Today, he actively supports a range of projects to nurture young, entrepreneurial talent in Lebanon and that dedication was recognised via an eye-catching montage before he took to stage.
Holding the conference in Beirut was a testament to the economic integrity of Lebanon, he opened, in doing so, raising hopes for further tourism growth.
“My responsibility as a Lebanese is to play a pioneering role in all ways of life and create jobs in all domains – our success is due to Lebanon and the vital role it plays in the region.”
CIGAR BOOM IN BEIRUT
Phoenicia – Aer Rianta Co. S.A.L (PAC) Trading Company Chairman Mohamed Zeidan was next to make an address, tackling the challenges facing duty free in Lebanon and how the country is facing these.
“Lebanon, despite all the difficulties, remains on the world map and Phoenicia Trading Group is proud of that,” he said.
He pondered on the feasibility of the partnership with ARI when the two parties originally began their joint venture contract to operate the duty free shops at Beirut Rafic Hariri International Airport, before stressing that the thirst for success and investment in the business remains strong today.
“Many people ask me about the success at Beirut Hariri. My answer always is, undoubtedly all who contribute to duty free have played a role, but the driving force is the Lebanese traveller. They are known worldwide for their love of quality.”
Hosting MEADFA in Beirut is a testament to the longevity and successful partnerships with its duty free suppliers and partners, he continued.
Aside running the duty free shops at Beirut airport, Zeidan has established a sizeable reputation as an importer of Cuban cigars over many decades.
In 2005, he signed an agreement with Habanos S.A. trading as Phoenicia T.A.A (Cyprus) Ltd., acting as the sole distributor of Cuban cigars in the Middle East, Africa and parts of Europe.
In a Q&A session with Co-moderator Dermott Davitt, Zeidan was asked about the significance of the cigar retailing business and the key to its success.
“It seems that Cuban cigars in Lebanon have attracted attention,” he replied. “Our Cuban partners are surprised at the activities and Beirut as one of the biggest locations for cigar sales.”
Such attention means visitors from all over Europe come to Lebanon to see its ‘museum of cigars’, commented Zeidan.
Due to cigar production limitations, he says he encourages suppliers to commit to at least two years of stock.
After briefly addressing Phoenicia – Aer Rianta’s new contract win at Beirut Airport last year in a bid secured in the context of tough international competition, Zeidan discussed Phoenicia Trading Company’s strategy and approach to pricing.
He says the firm remains competitive in Beirut by virtue of the contracts held by the Lebanese state; with VAT at a minimum of 11% in the local market, the company has the ability to adapt accordingly if prices change.
“Any success in duty free requires collaboration between operators and suppliers,” commented Zeidan. “Everyone still sees Beirut as a window for new trademarks, brands and quality products.”
DEPRESSED AIR FARES
In perhaps one of the more standout presentations of the day, Mohamad Abdul Rahman El-Hout, Chairman and Director General, Middle East Airlines (MEA), discussed the rise of the carrier and the roadmap of future aviation alliances and travel and tourism in the region.
The well-documented civil war in Lebanon resulted in approximately $750m in losses to the carrier and hit its aviation sector hard, began El-Hout.
This triggered a period of restructuring for MEA to stiffen its competitiveness, with the closure of long-haul itineraries to the likes of Sydney and Brazil.
El-Hout described air fares in the Middle East as decreasing by 40% over the past five years due to escalating international competition among carriers.
Today, MEA competes in a highly dynamic and evolving air transport market that includes juggernauts’ Etihad and Emirates, which serve major airport hubs including Doha’s Hamad International and Dubai.
Describing the evolution of the market, El-Hout says many European companies have challenged the growth and development of these airports over the years by attempting to impose sanctions and restrictions on their competitive powers.
Turning to Africa, he uses the example of Turkish Airlines and its huge route network as the model to follow.
Despite infrastructure, including roads and electricity, and licence permissions challenging Africa’s aviation landscape, he suggested the Turkish model remains successful in its ability to encourage private sector investment in the market.
Moving forward, El-Hout said MEA has invested in a new training centre that doubles as a conference venue and plans to add nine additional aircraft to its stock in 2021.
Network expansion covers Turkey and African countries such as Sudan, but MEA revealed it has asked third parties to undertake research on the feasibility of establishing a low-cost carrier.
However, he clarified: “If we see more political stability in Lebanon and growth in infrastructure and tourist numbers [the establishment of a low-cost carrer] will require us to have a totally separate company from MEA […] but this is not the right time.”
Asked about the importance of ancillary revenue generation in the context of pressures on the commercial model, El-Hout alluded to Ryanair’s recent tightening of hand luggage rules.
He admitted that Lebanese travellers would not greet favourably any notion to apply additional charges to carry luggage onboard.
The inflight duty free is a developing business, but El-Hout says it is not seen as a direct competitor to Beirut Duty Free.
“We consider ourselves complementary to Beirut Duty Free; cigars taken from Mohamed Zeidan are sold on a consignment basis and we do not compete with them,” he clarified.
He then made an observation on currency affects, with the devaluation of the Euro resulting in cheaper DF&TR prices for perfumes & cosmetics and other merchandise in Europe compared to Lebanon and other Middle East countries [although TRBusiness notes this is a cyclical and perpetual reality affecting all duty free operators].
In a final word, El-Hout called on suppliers to allow the airline to provide more competitive pricing to reflect purchasing trends worldwide.