Impact International / October 15, 1998
By Larry Luxner
The rash of airport privatizations sweeping Latin America -- and the possibilities for boosting duty-free arrivals and intra-Mercosur trade -- were high on the agenda at a recent gathering in Buenos Aires of South America's leading duty-free executives.
More than 250 retailers, distributors, suppliers, airport directors and government officials gathered Sep. 2-4 for the second annual conference of the Association of South American Duty Free Stores (known by its Spanish acronym ASUTIL).
The airport privatization trend is big news for Asutil's 23 corporate members, which include giants such as Brasif, Interbaires, H. Stern, Weitnauer, Aldeasa, United Distillers and Allied-Domecq.
In January, the Argentine government awarded the AA2000 consortium the right to develop and operate 33 airports throughout the country, including Ezeiza International Airport in Buenos Aires. The consortium plans to invest $230 million at Ezeiza alone between now and 2000, and as much as $7.33 billion in Argentine airports over the life of its 30-year concession.
"We have presented our renovation and modernization plan for the terminals to [Argentine airport authority] ORSNA. Once the plan is approved, we will be able to start the infrastructure projects as well," said AA2000's commercial director, Marcelo Korzin, one of several dozen speakers at the conference.
In the past two years, Bolivia, Chile and Uruguay have all moved to put the operation of airports in private hands. Thanks to this trend, says Asutil, "airport consultants and construction companies will enjoy a lucrative future, while passengers and retailers can expect better standards."
Separately, the Peruvian government plans to begin transferring the operation of the country's main airports to the private sector by year's end. At present, Corporacion Peruana de Aeropuertos y Aviacion Comerical (Corpac) oversees 33 airports and 28 aerodromes. Corpac's main airports are Aeropuerto Internacional Jorge Chavez in Lima, adn international airports in Arequipa, Cuzco and Iquitos; Corpac's total capacity is 7.5 million passengers, 200,000 flights and 120,000 metric tons of cargo per year. In 1997, the agency had income of $90 million, and handled 5.68 million passengers.
Planned investment at Lima airport alone is $150 million to $200 million. Projects to be developed include main building improvement, aircraft fueling systems, freight warehouses and runways. Jorge Chavez International Airport accounts for 97% of Peru's total international passenger traffic, and 99% of its air-cargo business.
Even Brazil -- Latin America's dominant economy -- is taking a hard look at selling off operation of its airports. "Currently, there is no plan to privatize the airports, but there is a study being conducted," said Tercio Ivan de Barros, special deputy to the presidency of Brazilian airport authority Infraero. Over the next three years, he said, Infraero is investing more than $3.2 billion to modernize and expand the huge country's airports -- though it may be a long time before mid-sized Brazilian cities like Porto Alegre and Fortaleza see enough international traffic to justify duty-free shops.
According to a Coopers & Lybrand study commissioned by Asutil, South America accounts for $700 million of the $20.5 billion in annual global duty-free sales. The conti-nent's top market is Brazil ($330 million), followed by Argentina ($136 million); Uruguay ($62 million); Colombia ($48 million); Venezuela ($43 million); Chile ($26 million); Peru ($20 million); Bolivia ($13 million); Ecuador ($11 million) and Paraguay ($7 million).
Suppliers had their chance to discuss the impact commercial efforts are having on airport duty-free sales. During a panel discussion entitled "Merchandising: Balancing Assortment, Efficiency and Store Appeal," UDV's Armando Gonzalez-Rua and Seagram's Mike Ford praised retailers' efforts to raise the standard of retailing in the region. Paco Heredia of London Supply discussed the merchandising philosophy used in building and designing the duty free complex at Uruguay's recently inaugurated $40 million Punta del Este International Airport, while the new CEO of Interbaires, Randy Emch, argued for a "back to basics" approach to improving passenger capture rates.
According to the Coopers & Lybrand study, miscellaneous goods such as electronics, cameras, pens, leather goods and watches make up 36% of all Latin duty-free sales, followed by wines and spirits (26.5%) and tobacco (12.5%).
During a separate panel discussion, "Luxury vs. Mass," suppliers and retailers debated whether middle-market products can or should be sold in stores carrying luxury brands. Stefan Dembinski of L'Oreal and Fabiano Vivacqua of Brasif talked about how retailers and suppliers need to respond to the new generation of passengers using Latin American airports. One participant said that at an airport such as Montevideo's Carrasco International -- where passengers travel as much as six times a year -- the duty-free store is obliged to carry a wide range of price points and products.
As South America's markets continue to develop, reduced taxes and tariffs have narrowed the differential in domestic and duty-free prices. Not unfamiliar with the pressures that now face retailers worldwide, Charles Richardson of Allied-Domecq discussed how premium spirits can continue to "stay alive" in duty free amid changing market conditions.
Next year's Asutil gathering will be held in Punta del Este, Uruguay -- about a two-hour drive east of Montevideo, where the organization has its headquarters.