2011 Heathrow investor visits Review of Heathrow’s retail activities John Holland-Kaye, Commercial Director
Agenda • Heathrow retail business overview • Retail financial performance • Recent and future retail developments • Future strategy 2
Heathrow retail business overview
Heathrow retail context • 3 rd busiest airport globally Heathrow total income – 2010 • Unique retail environment 5.9% 5.6% 5.4% 8.1% • Retail - 2 nd biggest income stream 53.7% 21.3% • Part of regulatory single till with opportunities for outperformance Aeronautical Retail Operational facilities/utilities Property rental Rail Other • Long term retail success lowers tariffs, enhancing Heathrow’s competitive position 4
Introduction to Heathrow’s passengers • 67.5m passengers in year to April • 38% of passengers are British • 35% of passengers are transfers • 34% are travelling on business • 57% are men • 53% are flying long haul 5 See page 29 for notes and defined terms
Retail business model • Concession fees generally % of Heathrow retail income – 2010 sales based on product category 19.8% • Car parks managed by specialist 25.7% operator on behalf of airport 7.9% • Most concessions for 3-5 years – duty and tax-free concession (World 9.3% 19.5% Duty Free) runs to 2020 17.8% – car park contract runs to 2014 Duty and tax-free Airside specialist shops • Concessions include minimum Car parking Bureaux de change Catering Other guarantees but generally operating well above these levels 6
Some basic metrics of Heathrow’s retail business • >50,000m 2 in-terminal retail space AESTHETIC NEEDS : Physically & psychologically nurtured, a desire to return • >120 concessionaires with 500 retail outlets ENJOYMENT NEEDS : Pleasure, reward, self-esteem, the holiday starts here • Excluding World Duty Free, COMFORT NEEDS : Valued as a diverse customer base customer, the lounge is organised with your needs first BASIC NEEDS : Stress & hassle free, on top • >5,000 retailer employees of the process, in control of time, secure • >20,000 parking spaces HIERARCHY OF NEEDS 7
The passenger journey – where Heathrow earns its retail income 60% Check-In Plan & Book Central Departure Travel to Departure Travel Security Gate & Exit Airport Lounge Landside Retail Connections Car 20% 10% Parks Leave Baggage Border Customs Arrivals Pier Entrance Arrivals Arrivals Airport Reclaim Control Hall Concourse Concourse Approximately 5% of income generated in other 5% areas from those highlighted above 8
Many performance drivers independent of UK economic environment • Passenger profile – passenger numbers/mix – passenger access to retail facilities • Retail business management – overall passenger experience – amount and quality of retail space – duty and tax-free environment – mix of concessionaires – evolution of concession margins • Competition – retail price positioning and awareness – surface access transport competition and other car parks (for car parking) 9
Influence of passenger mix on retail spend • Long haul passengers significantly higher spenders than short haul • Origin and destination passengers higher spenders than transfer passengers – in terminal and they use car parks! • Intra-terminal transfer passengers higher spenders than inter-terminal passengers • Women higher spenders than men • Frequent fliers spend more than infrequent fliers 10
Terminals 3 and 5 are most important for retail income Passengers by terminal - 2010 (million) Passenger origin/destination - 2010 25 100% 90% 20 80% 70% 15 60% 50% 10 40% 30% 5 20% 10% 0 0% Terminal 3 Terminal 4 Terminal 5 Terminal 1 Terminal 3 Terminal 4 Terminal 5 Terminal 1 Domestic Other long haul North Atlantic European Retail space by terminal (‘000 m 2 ) Airside spend per buyer by terminal - 2010 20 100% 90% 15 80% 10 70% 5 60% 0 50% Terminal 3 Terminal 4 Terminal 5 Terminal 1 Terminal 3 Terminal 4 Terminal 5 Terminal 1 11
Retail financial performance
Retail key performance indicators • Airside participation – proportion of departing passengers making airside retail purchase • Airside dwelling time – proportion of departing passengers spending at least 1 hour in departures • Gross spend per buyer – average spend by each passenger making an airside retail purchase • Concession margins 13
Consistent growth in passenger yield other than when major external retail related events have occurred Development of Heathrow’s net retail income per passenger (1988 - 2010) £5.75 £5.50 New security regime £5.25 EU enlargement £5.00 Abolition of intra- £4.75 EU duty free £4.50 £4.25 £4.00 £3.75 £3.50 £3.25 £3.00 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2007 2008 2009 2010 (Mar) (Dec) 14 See page 29 for notes and defined terms
Significant recent growth led by airside specialist shops and duty and tax-free Development of Heathrow’s retail income (2007 - 2010) 400.0 77.7 350.0 78.6 30.9 300.0 72.3 74.2 36.7 25.9 250.0 26.1 26.0 34.2 28.4 70.1 29.2 £m 200.0 65.2 66.8 67.8 150.0 76.7 60.5 56.5 53.2 100.0 101.1 50.0 87.1 78.4 74.5 0.0 2007 2008 2009 2010 Duty and tax-free Airside specialist shops Car parking Bureaux de change Catering Other 15 See page 29 for notes and defined terms
Recent retail performance drivers 2009 2010 2011 Terminal 5 Terminal 4 refurbished, Managing retail mix Terminal 2 closed Increased intra-terminal Focused marketing transfers and mix of Increased higher campaigns transfers spending origin and destination traffic Terminal 3 refurbished Improved operational performance Managing retail mix Growth in luxury brands Terminal 1 common Focused marketing Increased business user lounge campaigns confidence Exchange rates Economic recovery Recession 16
Strong income per passenger has driven performance ahead of regulatory settlement despite fewer passengers Heathrow’s passenger numbers Heathrow’s net retail income per passenger (actual versus regulatory settlement) (2008/09 – 2010/11) (actual versus regulatory settlement) (2008/09 – 2010/11) 74.5 75.0 £6.00 72.5 £5.73 70.4 70.0 £5.50 66.1 66.1 65.9 65.0 £5.01 £4.93 (m) £5.00 £4.75 60.0 £4.58 £4.44 £4.50 55.0 50.0 £4.00 Year to 31 March 2009 Year to 31 March 2010 Year to 31 March 2011 Year to 31 March 2009 Year to 31 March 2010 Year to 31 March 2011 Settlement Actual Settlement (nominal) Actual Heathrow’s total net retail income (actual versus regulatory settlement) (2008/09 – 2010/11) 400.0 379.1 380.0 367.3 360.0 (£m) 340.0 331.8 331.5 320.0 313.1 312.4 300.0 Year to 31 March 2009 Year to 31 March 2010 Year to 31 March 2011 Settlement (nominal) Actual 17 See page 29 for notes and defined terms
World class airport retail performance Retail income per passenger of selected European airports (2010) £6.00 £5.00 £4.00 £3.00 • Heathrow has some of most £2.00 productive retail space globally £1.00 – gross retail revenue per passenger highest £0.00 VIE FRA ADP CPH ZRH AMS LGW LHR of major European airports Other retail Car parking • Regular winner of major global airport Change in retail income per passenger in years 14.4% ended 31 December 2009 and 2010 retail awards 15.0% 9.1% – Business Traveller (2010) 6.9% 6.7% 10.0% – Skytrax (2010 & 2011) 4.2% 2.4% 2.5% 1.7% 5.0% 0.0% ZRH AMS LGW FRA ADP LHR -0.2% -5.0% -5.3% -6.2% -10.0% 2009 (shaded) 2010 (solid) 18 See page 29 for notes and defined terms
Recent & future retail developments
Consolidation of car parking management suppliers • Previously three companies managed BAA car parks at Heathrow • In 2009 launched tender to consolidate car park management • Tender objectives – service optimisation and consistency – improved customer experience – flow and CO 2 reduction – simplification of accountabilities • Outcome was award of 5 year contract to APCOA which delivered planned £4 million annual improvement in Adjusted EBITDA 20
Product development and marketing initiatives Product development ‘West End for less’ campaign Marketing initiatives 21
The Heathrow App 22
Portfolio management and innovation Chanel pop-up store – Terminal 5 New 2012 Olympics store – Terminal 5 Burberry store – Terminal 5 Vertu pop-up store – Terminal 5 23
2011 refurbishment of Terminal 3’s retail facilities New Terminal 3 departure lounge scheme design • Refit of approximately 70% of airside retail units • New retailers and stores – 10 new retailers to Terminal 3 – 5 new retailers to Heathrow (including Miu Miu and Zara) Terminal 3 new store opening – Paul Smith • Programme running from October 2010 to December 2011 • Intended to deliver growth in retail income from 2012 24
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