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RETAIL/F&B Last modified on December 10, 2009

Going up in smoke?

John Blake considers the impact a ban on duty free tobacco sales would have on airport revenues and jobs worldwide.

As reported in the last issue of Airport World, a possible ban on duty free tobacco sales would have a devastating impact on the travel retail industry.

The possible abolition – driven by the desire to eliminate illicit trading – would cost the industry $3 billion per annum in lost tobacco sales and possibly thousands of airport jobs globally.

Indeed, such is the aviation industry’s concern at the implementation of a ban on duty free tobacco sales at airports and on aircraft that ACI issued a resolution at the recent World Assembly in Kuala Lumpur urging governments to act to safeguard duty free operations.

The resolution reads that the 19th World Annual General Assembly: Supports the World Health Organization’s (WHO) Framework Convention on Tobacco Control and the need for a protocol on the illicit trade in tobacco products.

Refutes allegations that duty free products intended for sale at airport duty free shops are diverted into illicit trade.

Strongly asserts the integrity of the security of the supply chain for duty free products intended for sale at airport duty free shops.

Notes that the supply chain for duty free products intended for sale at airport duty free shops is also subject to regulatory control by customs authorities and aviation security regulators.

Notes that duty free purchases are an important aspect of the passenger’s travel experience and contribute important non-aeronautical revenues to airports.

Considers that any ban on duty free sales would be unjustifiable, unfair to the travelling public and would have a very detrimental effect on airports.

The resolution resolves that:
1. All governments must safeguard the interests of passengers and the rights of airports and retailers – by opposing any ban on the lawful business of duty free sales at airports.

2. All governments should affirm the integrity of the supply chain for duty free products intended for sale at airport shops, since this is under their jurisdiction and that allegations of diversion of such products into illicit trade are false and injure their reputations.

3. All airports should raise the awareness of the implications of any ban on duty free sales to their governments (including the finance, transportation, customs and aviation security authorities) and seek assurances that this lawful business will be allowed to continue.

4. The ACI director general should continue her efforts to refute allegations that duty free products intended for sale at airport duty free shops are diverted into illicit trade and to safeguard duty free operations at airports.

So if there is little or no evidence to link duty free tobacco products to the illicit sale of cigarettes, how come we are only months away from a possible worldwide ban?

The reason is a clause in the World Health Organization’s Framework Convention on Tobacco Control (FCTC) treaty, which states that its 168 signatory countries must negotiate a supplementary protocol that focuses on the necessary action to eliminate illicit trade.

The initial debate about duty free sales split the WHO assembly. Those calling for an outright ban of duty free tobacco sales were led by countries from South East Asia, principally Thailand and the Philippines. Against such a move were the EU, Russia, Turkey, Cuba and the United Arab Emirates.

However, the majority of countries did not speak publicly on the duty free issue and it is therefore difficult to gauge positions for the next round of negotiations in March 2010.

It is also clear that there is considerable confusion over the term duty free, free-trade zones and free-trade areas and that many delegations had not determined a clear policy on duty free sales.

At global level there is a strong advocacy campaign aiming to raise awareness amongst affected stakeholders of the threat to ban tobacco duty free sales to international travellers and to persuade governments in all WHO regions to oppose this proposal.

The campaign is being led by the European Travel Retail Council (ETRC), whose secretary general, Keith Spinks, is urging governments to fight the ban and give the duty free and travel retail industry “a future”.

“ETRC remains confident that governments in different parts of the world will oppose an outright ban as they consider that it is inappropriate for such a proposal to be included in a protocol on smuggling. This is testament to the outstanding political engagement being undertaken by some industry stakeholders,” says Spinks.

“Trade associations have committed to step up their lobbying activities with key influential governments in their regions. ACI has given its support and commitment to the duty-free industry’s campaign, recognising the impact that a loss of revenue from duty-free tobacco sales will have on their members and the implications for other product categories.”

However, more needs to be done to influence a sufficient number of the 135 plus countries that will be in Geneva next March to ensure that an agreement cannot be reached on a ban.

It’s true that in 2008 tobacco accounted for only 8.3% of all travel retail sales, but this small percentage amounted to $3 billion in business, almost $2 billion of which comes from airport shops.

And what is often forgotten is the fact that tobacco is a footfall penetration driver. On average smokers spend about 50% more on duty free shopping than non-smokers; one out of every four travellers shopping in an airport duty free shop buys cigarettes.

The damage to travel retail business if tobacco duty free sales were banned would include loss of revenue, reduced footfall and passenger penetration into duty free shops, narrower range of products and, therefore, a scaled-down service and a decline in profits.

Moreover, we have to consider whether or not this is the slippery slope; the thin end of the wedge. If tobacco duty free sales go, and for such dubious reasons, what chance is there that other products sold in duty free stores may be the subject of unreasonable restrictions?

Airport World 2009 - Issue 6

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