DFS wins contract for sole duty-free outlet

A report in NZ’s The Dominion Post says that Auckland International Airport has selected DFS New Zealand as the sole duty-free operator at the airport from 2009.

New Zealand’s busiest airport called for tenders from the two existing operators – DFS and The Nuance Group – in May, with DFS granted a seven-year contract from next April, which has been brought forward to coincide with the completion of the airport’s expanded arrivals duty-free retail space.

The Nuance Group – trading as Regency Duty Free – would leave in August 2009 when the existing licences expire, with the duty-free area to be doubled in size to 1600 square metres by April, as part of the $85 million international terminal arrivals expansion project.

Auckland International Airport chief executive Don Huse said the extra space and less product duplication meant DFS would stock a much wider range of goods than was currently being offered by both duty-free retailers.

A strong price comparison procedure at the core of the new license would ensure duty-free prices would be competitive.

DFS chairman and chief executive Ed Brennan said the company would invest $18 million to redevelop and expand its shopping facilities and several new retail concepts would be introduced and line-up of New Zealand and international brands expanded.

Hong Kong-based DFS has operated at the airport for 20 years.

Auckland International Airport expected the new duty-free concession, along with the new banks and car rental concession, would add about $7 million in minimum guaranteed retail revenue next year, and $10 million in 2009.

Sharebroking firm UBS says the increase for 2009 was between $4 million and $5 million higher than its forecast and would add between 5 cents and 7c to its valuation, assuming the contract had the same structure and the same level of exposure to passenger and spend growth.

About 6 million international passengers a year passed through the airport.

“We do wonder whether the new contract incorporates less passenger-spend exposure in favour of a greater upfront minimum rent,” UBS said.

Such a change, which the airport would not confirm, could be negative for long-term revenue growth and valuation.

UBS has maintained its target price for the Auckland International Shares at $3.10.

The shares closed at $3.29 yesterday.

Report by The Mole