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Dufry backs Brazil’s recovery for 2017 growth in South America

This year could see some flex in the airport duty free and travel retail channel in South America as international traffic numbers at some of the region’s capital city airports continue on good growth trajectories, and contribute to healthy sales growth. With growth currently coming from non-Brazilian airports, what can the region's leading retailer Dufry expect?

Analysis by travel retail analyst, research and category expert, Counter Intelligence Retail, shows that the airports of Bogota (BOG) in Colombia, Santiago (SCL) in Chile, and Lima (LIM) in Peru all processed international PAX numbers above 9 million in the 12 months to February 2017, catching up to the 13.5m seen at São Paulo Guarulhos Airport (GRU).

Growth rates at BOG, SCL and LIM were relatively strong at +6.3%, +11.7% and +9.7% respectively whereas GRU slipped by -0.9% (see table 1). Meanwhile, Brazilian airports in general underperformed when it came to international growth with declines as low as -29.9% at Campinas (VCP) where Dufry has retail operations.

The travel retailer has also just announced a 10-year contract extension at Brasilia Airport, which saw international traffic decline in the same period analysed. In 2016, Dufry says it has a “distinct improvement of business in Brazil in H2” where it is the dominant player in DF&TR. Nevertheless, its Latin America division lost significant share, dropping from 23% of global revenue in 2015 to 19% in 2016.

Speaking at the recent ASUTIL Conference 2017, Dufry Brazil & Bolivia COO Gustavo Fagundes, reiterated the opening speaker's comments by agreeing that South America's duty free and travel retail sector was "trading the path to recovery". He noted that Brazil remains challenging, with the country needing to bring tourists to Brazil, and encourage them to spend when travelling, whilst also acknowledging that the stronger US dollar to Brazilian Real had potentially turned shoppers away. Fagundes explained that Dufry's "main objective is to generate more spend per PAX in local currency", whilst also highlighting that with an average contract length of over 12 years, Dufry's commitment to Brazil is a full one.

Brazil still under pressure

In the chart – as the dip below the dotted line (0%) shows – 13 Brazilian airports saw passenger declines. The exception has been Rio de Janeiro (GIG) which saw international PAX rise by +5.3%, and Florianopolis at +10%, the latter of which benefitted from the Olympics in August 2016.

“The data extracted from our CiR Business Lounge indicate that Brazil, as a whole,currently remains under pressure,” says Garry Stasiulevicuis, President of Counter Intelligence Retail. “Even when taking into account domestic traffic – which is a big driver in the Brazilian market – the trend has been downwards until the early part of 2017. Dufry's appraoch to generate best value on spend per pax is an excellent approach to ride out this PAX trough until the numbers rise.

Economic uplift on the horizon

Opportunities at growth airport outside Brazil, however, are very much entwined with economic development in the region. A consensus forecast from FocusEconomics – a leading provider of country market analysis – points to Latin American GDP growth this year of +1.8%, a much-needed improvement on last year’s contraction of -0.7%.

Among the countries whose airports CiR suggests will lead growth – namely Bogota (BOG), Santiago (SCL), and Lima (LIM) – GDP forecasts are a good deal stronger than the regional average: +2.6% for Colombia, +2.1% for Chile, and +4.2% for Peru.

Peru has the best GDP forecast in South America for this year, contrasting against Brazil’s +0.8%, with only the unsteady economy of Venezuela faring worse at -3.7%. Brazil, however, is still the powerhouse economy of South America (four times bigger than Argentina for example) – and its emergence from its worst recession will be another note for optimism in the wider DF&TR channel.

NB. PAX Source: CiR Business Lounge | Advanced Analytics Tool - Data based on Scheduled departing international passengers only.