Travel Markets Insider / March 2006
By Larry Luxner
LIMA — Peru’s evolution into one of South America’s most popular tourist destinations is providing excellent prospects for travel retail.
In 2005, the country attracted more than a million visitors — mostly Americans and Europeans — lured by the Inca ruins of Machu Picchu, the world-famous Nazca Lines and the ecologically diverse Amazon River basin.
The flow of tourists has helped finance a massive overhaul and expansion of Lima’s Jorge Chávez International Airport (LIM), the country’s major port of entry. Lima Airport Partners, the venture responsible for LIM’s rebirth, has invested $172.6 million since 2001, when its 30-year operating concession took effect.
Jorge Chávez International — whose brand-new facilities opened one year ago in February — gleams with efficiency. It features wide open spaces, a clean modern design and amenities such as wireless Internet, nearly 3,000 sq meters of retail space and a food court with more than a dozen restaurants. It’s no surprise that last year, LIM was named the best airport in South America by Skytrax, based on a survey of nearly six million airline passengers.
“It’s a world class airport,” says Jan Laufs, new commercial manager at LAP. “We’ve transformed it from the 1960s to a state-of-the-art airport.”
Laufs, who’s been with LAP since April 2004, replaced Marcel Rodríguez as commercial manager last month. He said LAP — with 279 full-time employees and another 366 contract workers — is a venture between Alterra (54%) and Germany’s Fraport (46%), which operates Frankfurt Airport. Alterra is itself a 50-50 venture between Bechtel International and Singapore’s Changi Airport Authority.
“In comparison with other ventures of the shareholders, Lima is a small project,” he said, noting that Changi has over 30 million passengers a year and Frankfurt over 50 million, while Lima gets only 5.5 million annually. Fraport also manages airports in Egypt, Turkey and India.
It’s hard, however, to overestimate LIM’s importance to Peru. The airport handles 97% of the country’s international air passenger traffic and 99% of its international cargo business.
The airport, which employs 7,500 people, serves 21 overseas direct destinations including Atlanta, Miami, São Paulo and Madrid; its dominant airline is LanPeru, a subsidiary of Chile’s LAN, with about one-third of total traffic. Other strong airlines at LIM are American Airlines, TACA and Iberia. Domestic flights are handled mainly by LAN, Aerocondor and Star Peru.
As of Dec. 31, 2005, said Laufs, Lima Airport Partners had registered $341.1 million in cumulative gross revenues and has transferred $224.9 million of that amount to the Peruvian government in the form of taxes, fees and other payments. Government agency Corpac (Corporación Peruana de Aeropuertos y Aviación Comercial), has used 46.5% of that $224.9 million to subsidize the operation of regional airports in Arequipa, Chiclayo, Trujillo and other Peruvian cities.
The venture is now in its fifth year of operations, and is already making a profit, said Laufs, thanks to strong tourism growth.
In 2005, the airport handled 3.25 million international passengers, a 14.1% increase from the 2.85 million in 2004. Domestic volume came to 2.41 million, up 8.3% from the 2.22 million a year earlier. That translates into total passenger volume of 5.66 million, up 11.6% from the 5.07 million reported in 2004.
“Tourism is very important, not only to the Peruvian economy but also to us in terms of sales at the airport. We get a lot of ethnic traffic, but Peruvians don’t spend a lot,” Laufs told Travel Markets Insider. Tourists, however, do purchase souvenirs, such as silver, leather, alpaca wool and other Peruvian goods.
Landside retail operations cover 1,000 sq meters of space. This doesn’t include another 800 sq meters in food and beverage outlets, which range from Papa John’s and McDonald’s to Dunkin’ Donuts and local Peruvian fast-food eateries.
Airside retail operations cover 1,900 sq meters, plus 550 sq meters in food and beverage operations and a 1,110-sq-meter VIP lounge.
By far, the dominant player at LIM is Spanish retailer Aldeasa S.A. Aldeasa has been present in Peru since 1994, when it operated shops in Lima, Cuzco and Iquitos under concession from Corpac. Under LAP’s current management, Aldeasa has a six-year contract renewable in 2011 for another six years.
Edgar Farfan Trelles, general manager of Aldeasa’s Peru operations, is a mechanical engineer from Peru who has been with the company for seven years.
Aldeasa has five outlets at Jorge Chávez International. Farfan says that the largest is a 650-sq-meter duty free store in the departure lounge. There’s also a 118-sq-meter duty free shop for arriving passengers. Landside, there’s a 130-sq-meter duty-paid shop for departing passengers and their families before going through customs and immigration. For domestic passengers, there are two duty-paid stores: one covering 180 sq meters, and a smaller 22-sq-meter shop.
In addition to Lima, Aldeasa runs a 120-sq-meter duty-paid shop at Cuzco Airport, the gateway to the Inca ruins of Machu Picchu — Peru’s single most important tourist attraction.
Farfan said these stores employ 110 people and generated combined revenues of $13.5 million last year, which represents an 18% jump over 2004 figures. Aldeasa also has operations in Chile, Colombia, Curaçao and Mexico. (Total sales for Aldeasa, which was jointly acquired by Spanish-French tobacco company Altadis and Italy’s Autogrill in May 2005, were up 6.1% over 2004.)
Perfumes is Aldeasa’s leading category of sales, followed by liquor and tobacco products, cosmetics, packaged foods and electronics.
Coming next from Aldeasa at Lima Airport is a 27-sq-meter liquor shop specializing in pisco, the national drink of Peru.
The store will offer 14 brands of pisco at prices ranging from $10 to $22.50 a bottle; it should open sometime in late March.
“We’re working with small farmers to produce a very high-quality pisco and offer it in an attractive presentation, so that passengers will be able to buy brands they can’t find on the local market,” said Farfan, explaining that pisco is an aguardiente made from fermented grapes grown only in Peru.
“Our law says pisco is a registered trademark whose grapes have some special characteristics. Our government has done a lot to preserve both the quality and the denomination of origin,” he said. “Pisco is to Peru what scotch is to Scotland and tequila is to Mexico.”
This is only an issue because neighboring Chile also claims pisco as its national drink, and even bottles the spirit for export. As a result, passengers flying into Lima are handed customs forms clearly warning — in English and Spanish — that any bottles of pisco originating outside Peru will immediately be confiscated upon arrival.
Farfan estimates that Peruvians comprise 40% of Aldeasa’s customers at LIM, followed by Americans (20%), non-Peruvian Latin Americans (20%) and Europeans (20%).
LAP is working with Aldeasa and LIM’s other retailers to boost sales through airport-wide promotions, such as the current raffle of a VW Super Beetle worth $18,000, which Aldeasa helped to organize, said Farfan.
In addition to Aldeasa, Café Britt S.A. has opened two large souvenir shops at LIM, offering everything from chocolate-covered coffee beans and T-shirts to burlap bags, coffee mugs, hats, books, macadamia nuts, coffee jewelry and, of course, shelf after shelf stocked with Peruvian gourmet coffee. The operation is patterned after Café Britt’s flagship store in San José, Costa Rica.
Other operators at LIM include Rio de Janeiro-based luxury jewelry retailer H. Stern (jewelry); Ilaria (silver); Incalpaca (goods made from Peruvian alpaca wool); Renzo Costa (leather) and the usual assortment of cafeterias, currency exchanges and mobile-phone rental kiosks.
According to Laufs, the average passenger spent $20.42 while at the airport ($17.98 on retail, $2.44 on food and beverages). International passengers represent half of the total, and of international passengers, about 40% spend money in duty free.
In general, said Laufs, the average tourist visits Peru for eight days and spends $824 while in the country (excluding international airfare).
“Tourism is doing very well, but Peru has a lot of catching up to do. Compared to Mexico, we’re very small. The good thing is, PromPeru is making a lot of efforts to promote the country, which helps. We have more flights coming now, but we still lack good air connections to Europe. And if there were more flights to and from the States, it would make it easier for Americans to come here.”
He added: “We’re not completely done yet. There are still more plans for 2008. We will expand both the domestic and international concourses, providing more jet bridges and more space to process more passengers. We will start working on the detailed design next month.”
Future plans call for a large airside walk-through shopping mall of undetermined size.
“As we’re currently designing it, we really can’t say how much it will cost,” said Laufs, adding without elaboration that “there are certain issues which we still have to improve.”