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(formerly Counter Intelligence Retail)

We specialize in global traveler statistics, data driven insight, and activating against trends for all major categories sold in duty free and travel retail.

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Hard BREXIT and what it means for European Travel Retail

It is unlikely that Brexit will hugely affect departing British passenger numbers, CiR insight has revealed. 

Past instances of a weak Sterling have done little to deter British holiday makers, and, historically, the market has been resilient to such macroeconomic factors. Currency fluctuations don’t appear to spark a change in peoples’ lifestyles or travel behaviour – at least not immediately. The number of Brits departing the UK on scheduled international flights were up each month in 2016 (Jan-Oct only) at a strong average rate of +7%.

In fact, in the months since the June 2016 referendum, the number of UK residents departing the UK to Europe recorded the second highest growth rate (+8.2%) after only APAC, with the majority travelling within the Eurozone, and growing +10.2%, despite the pound falling against the euro (by -15% between 23 June and end of October). However, this could be because many people had already booked their Summer holidays prior to the referendum result. Seat capacities on flights leaving the UK to the EU for the first half of 2017 increased at a faster rate than any other region, and CIR will compare H2 results when the data come in to fully determine the Brexit effect.

According to Sainsbury’s Travel Insurance and Travel Money, nearly 34 million people in Britain are planning an overseas holiday in 2017, a -1% decrease on last year. This demonstrates the resilience in the UK holiday market (steered skillfully by the holiday industry) despite the substantial devaluation of the pound against several popular currencies,[1] but it is not necessarily a sign that Brits abroad will spend  as much as they used to.

A major positive of a weaker pound is that conditions are more favourable for inbound travel to the UK as bargain-hunting tourists seek to take advantage of the potential savings.

Reinstatement of Duty Free

“Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave.” Theresa May, January 2017.

May’s speech last week indicates she is clearly amenable to a so-called “Hard Brexit,” by leaving the Single Market. Therefore, in theory, we could observe the first duty free sales to passengers travelling between the UK and EU countries as early as April 2019 (they were abolished in 1999). This is a great market opportunity for British and European duty free retailers, as British airports may be able to once again sell duty free to departing British/EU tourists, and European airports to sell to Brits heading home.

The UK-EU market is huge. Over 130 million passengers travelled between the two on scheduled flights in the past 12 months. Include in that figure the maritime and non-scheduled charter flight markets and it represents a potential goldmine for British and European duty free retailers. 

Dufry could be set to profit tremendously from increased duty free sales, with 87% of all passengers departing the UK to the EU on scheduled flights exposed to a Dufry-operated store, and 45% of passengers making the return journey.

For Europe in general, it has been a particularly tumultuous 18 months. Terrorist attacks across several traditionally popular Western European cities, the Russian market still looking weak, although the ruble has been rising again, as well as problems in Turkey. Terrorism has led to a perceived level of insecurity, especially among safety-conscious tourists, and the cost to European travel retail of the lost potential footfall is filtering through in some financial results of retailers. Coupled with the industry-wide issue of price savings erosion versus the domestic market, it is certainly a challenging time for European retailers.

Global travel retail sales shrank by an estimated -2.7% in 2015, and Europe recorded the largest decrease across all four regions (-8.4%)[2]. The reintroduction of duty free sales to passengers travelling between the UK and EU member states, although not possible until March 2019 at the earliest, could be a welcome respite for a struggling market.

Potentially Huge Customer Savings: LHR-DUB Case Study[3]

However, it is not only the duty free retailers set to profit, but the duty free shoppers themselves. For a Brit departing Heathrow to Dublin, a bottle of Absolut vodka currently costs £25.99 duty paid while the duty free price is £14.99 representing a hefty saving of 42%. It also represents a saving of 52% against the high street once they touch down in Dublin. On average over the seven SKUs shown above, there is a saving of 41% versus the duty paid price, and 46% against the Irish domestic market, with similar savings to be made on the return leg.

For travellers departing from, and arriving into, the UK post-Brexit, it potentially means almost half-price[4] liquor in some cases. More importantly, it also represents huge savings against respective domestic markets, a comparison that retailers, particularly in the UK, are currently struggling with.

Arrivals Duty Free

Arrivals duty free is currently not a huge market for UK airports, however Brexit presents an enormous opportunity to capitalise on inbound traffic from the EU. In the past 12 months, UK airports have welcomed over 64 million passengers from the EU (+12.5% YoY), almost exactly half of these British.

New Holiday Destinations for Brits?

One trend that is beginning to emerge is a potential shift in travel patterns for British tourists. The weaker pound isn’t discouraging holidaymakers to fly abroad, and seat capacity indicators suggest high levels of interest developing in Eastern European and Non-EU countries. Uncertainty surrounding the medium-term value of the pound is driving people to explore new, cheaper holiday destinations: of the top 10 European destination countries by YoY growth in seats, four are Eastern European, and six are not EU member states.   

Despite the heightened interest in non-EU countries however, retailers in Spanish airports will take comfort from the fact that seats departing the UK to Spain and the Canaries remain in strong growth (+15.1%) for the first half of 2017.

In Summary

“When future generations look back at this time, they will judge us not only by the decision we made but what we made of that decision. They will see we shaped them a brighter future. They will know we built them a better Britain." Theresa May, January 2017

The impact on Travel Retail sales could be significant as passengers travelling to the EU from the UK, and vice versa will likely be able to buy Duty Free goods again. Duty Free status would not benefit British airports alone, as travel retailers in the EU would also be able to profit from selling Duty Free to UK-bound passengers. Duty Free represents a huge potential growth market for both the UK and EU Travel Retail sectors post-Brexit.

Currently the world’s fourth largest Duty Free market with annual sales of approximately £2.6bn, the UK could be set to rise even higher in the coming years.[5]


[2] Generation Research

[3] All prices have been converted to GBP using on 17/01/2016 at the rate of £0.87741/€. In some instances (where the domestic bottle size was less than 1L) the price has been converted to an equivalent volume price

[4] Subject to future fluctuations in exchange rates – if the pound falls dramatically against the euro post-Brexit then these savings will soon be eroded.


PAX Source: CiR Business Lounge | Advanced Analytics Tool - Data based on Scheduled departing international passengers only. Data displayed for nationalities is based on residency through place of ticket purchase