NEWS ANALYSIS: Critical Decisions

It’s a tough balancing act to counter security threats while maintaining vital travel-retail revenue. The sealed-bag solution has found favour on this side of the Atlantic, but the Americans are not convinced.

As the nation tuned in to rolling news coverage on 10 August, they were faced with the story the travel-retail industry hoped would never materialise. Intelligence services had uncovered a conspiracy to explode 10 aeroplanes in the mid-Atlantic, and the word “liquid” was central to the plot. For the first time since 9/11 security was immediately upgraded to critical level and airports, airlines and passengers were beset by confusion as conflicting messages reigned supreme. Two months on and business is returning to normal, but – not for the first time – the industry must seriously consider the way it communicates, to ensure it presents a unified and clear message to consumers.

Duty-free liquor generated sales of £122.1 million last year, and it is also a valuable forum for building brand presence. As we discuss in the travel-retail feature on page 28, non-aeronautical revenue – especially retailing – is a crucial element in the financial viability of the entire aeronautical industry. However, in an era of global terror, security issues will always take precedence, and the Department of Homeland Security and the US Transport Security Administration (TSA) will not let a minor factor such as global commerce – or, indeed, common sense – interfere with their decision making.

Colin Hargrave, retail director of airports manager BAA, says, “We were dealing with an unprecedented level of security risk – critical. This had been anticipated but we’d never had to deal with such a situation. It was incredibly difficult to deal with the scale of change to our regular procedures.” The immediate reaction was an all-hands-on-deck mentality, with all parties working together to attempt to process passengers as smoothly as possible. But, in the days that followed, this united approach fragmented with the many organisations involved in the air-travel industry failing to cooperate.

“After the initial impact we went through a number of days when the situation was changing hour by hour,” says Hargrave. “Different news was coming from different organisations; some airlines and airports made changes that they thought were right for their customer service, but made the situation even more confusing.” The travel-retail trade is particularly sensitive to consumer confusion – how many travellers are still unsure of their rights as they travel through Europe?

Mark Riches is managing director of World Duty Free (WDF), the BAA-owned retail operator. “We were only really challenged on North American routes,” he says. “But there is a halo effect of uncertainty with this type of situation.” As soon as cabin baggage was permitted again, BAA’s and WDF’s priority was to implement a procedure that would enable them to sell to passengers within the framework of TSA regulations.

In the circumstances it was decided that the most effective measure would be “delivery to gate”, whereby customers purchase and pay for the goods in-store, then these are delivered for collection at the aeroplane. “This is common practice in the US and it’s an approved TSA protocol,” says Riches. However, in practice it has been a logistical nightmare.
The procedure requires substantial manpower and is a considerable financial burden on WDF. Even more damaging, in order to ensure the goods reach the gate on time there must be a shopping cut-off point one hour prior to departure, substantially cutting all-important dwell time.

“It was better than nothing but was never a long-term solution,” says Riches. “It’s not something we’d wish to do again.” He also reports that, while Virgin Atlantic was very compliant, British Airways and the American carriers were unwilling to cooperate on the delivery-to-gate scheme.

As a semblance of normality resumed, Hargrave explains, communication became key. The BAA PR machine swung into action, with highly visible signage placed throughout the airports, a campaign of full-page adverts in the national press and extensive coverage on local radio. However, the delivery-to-gate stop-gap solution was proving a massive imposition.

Two weeks after the scare, the European Travel Retail Council met in Amsterdam to discuss possible solutions. The clear favourite was the “sealed bag initiative” whereby products are placed in a clear, tamper-proof bag once they have been purchased. Riches is a strong advocate of the scheme: it adds an additional layer of security but is relatively simple and inexpensive to implement. “The protocol doesn’t exist in the US so we must make sure the TSA is comfortable with it, but we believe it passes the common-sense test. Our primary ambition is to return to a pre-August 10 situation, but if we can’t get that we believe the sealed bag is the best mitigating strategy.”

Throughout the “situation” (Riches refuses to pander to journalistic sensationalism and utter the word “crisis”), some elements of the industry were less helpful than others. “I think that certain parts [of the aviation industry] have followed their own agenda, which has been very unhelpful in getting the whole industry back to where we all want it to be.” British Airways, which estimates direct losses of £40m, pursued its own interests, while Riches believes a more unified approach could have produced more favourable results for the entire industry, and the consumer.

It’s too early for WDF to put a precise figure on losses, but Riches estimates that the worst-hit stores in Heathrow T3 and T4, and Gatwick South were down by 50% in the first week, and were just returning to single-digit decreases a month later. These numbers are particularly alarming as these are WDF’s most lucrative terminals. “We’re still feeling the pinch, but I’m pleased with the recovery at this stage,” says Riches.

The industry will be hoping for a rapid return to normality, with implementation of the sealed-bag initiative if necessary. The “crisis”, on this occasion at least, appears to have subsided, but in such a volatile sector the next problem is not a case of if, but when. “Situations occur in this industry on a regular basis, and from each one we must learn,” says Hargrave. Hopefully the events of this summer will underline the importance of working in unison, and ensuring coherence and clarity when communicating with consumers.    Ben Grant

INSIDER OPINION

Colin Hargrave, retail director, BAA
“Confusion is the most serious issue. If we learned anything from the chaos that followed the abolition of intra-EU duty free in 1999, it’s that customers don’t always understand changes, and it takes a long time to explain if they become confused. If one day they can buy something and the next day they can’t, it takes years to get their confidence back so that they know they have the right to shop.

“After the initial impact we went through a number of days when the situation was changing by the hour. Different news was coming from different organisations, and a number of airlines and airports implemented changes that they thought were right for their own customer service, but made the situation even more confusing.”

Mark Riches, managing director, World Duty Free
“In order to come out of challenges like this, it is crucial to forget what part of the business you work in. When you look at the kind of figures myself and my colleagues are looking at at the moment, you’d have every excuse to be emotional and take a short-term point of view. But I’m proud to tell you that retail has conducted itself admirably.

“I don’t think that every part of the [aviation] industry displayed those characteristics. I think certain parts have followed their own agenda, which has been very unhelpful in getting the whole industry back to where we all want it to be. It would have been nice to have more alignment and proactiveness from some airlines to try to allow passengers to get as close as possible to normality.”

European Travel Retail Council statement
“The industry remains committed to working with the governments and all other stakeholders to address security threats and ensure the safety of air travel in Europe and beyond, while continuing to trade legitimately and provide an enjoyable retail experience for all passengers.

“We believe that our recommendations [sealed bag] can provide the most practical and effective solution to the need for more security in airports at this time. With the sealed-bag measure, the industry can extend its secure supply chain from the point of sale to the final destination. Security is everybody’s top priority. The current restrictions on hand baggage and airport shopping are not sustainable. We have a solution that delivers security without restricting passengers’ ability to enjoy airport shopping or damaging a sector vital to European aviation.”

© db October 2006