Can Mexico Lead A Revival Of Dufry’s Travel Retail Business?

Global travel retailer Dufry has a long road ahead to get back to pre-pandemic trading levels. Last year the company was down by about 56% on its 2019 sales, but new business in Mexico, and the market’s relative resilience during the pandemic could give the Switzerland-based retailer a helping hand in the coming year.

Mexico has been a strong market for Dufry over most of the past 25 years. In an investor call in early March to discuss the retailer’s 2021 results, soon-to-depart CEO Julián Díaz confirmed that the country was among the best performing last year. He added: “In December, Central America and Caribbean reached levels of around 92% of 2019.” That was even better than the 83% seen in North America, where the travel recovery has been one of the best in the world.

In 2021, Dufry operated shops at 12 airports in Mexico including the capital Mexico City; the tourist hub of Cancún—popular with Americans through the pandemic and more so in 2022; Gaudalajara; Monterrey; and Los Cabos. These make up five of the top six gateways and all of them have seen 2021 year-over-year traffic rebounds of over 50%: in the case of Cancún it has been 82%, and 87% for Los Cabos.

Retail space to increase with traffic

Dufry recently added another airport to its Mexican tally by winning two five-year retail concessions at the all-new Felipe Ángeles Mexico International Airport, the capital’s second gateway which opened on March 21 in Santa Lucia on a military air base about 30 miles north of the city center.

Initially Dufry will operate a commercial space of 7,000 square feet with a mix of both duty-free and duty-paid shops. The offer will include the standard core product categories such as fragrance and beauty, wine, spirits, tobacco and food from both international and local brands. A bigger retail footprint will be “considered” by the airport in line with the growth of international and domestic passengers.

That growth may take some time. The current city hub of Benito Juarez International Airport processed 36 million passengers in 2021. This is not yet back to its record 2019 traffic of over 50 million, but the speedy rebound last year means that Felipe Ángeles could also see some big increases as demand returns.

This, however, is very much dependent on how quickly the airport can add to the very limited domestic destinations it currently has. Promises that the airport will operate 30 routes to various Mexican states by the second half of the year have been made, but it is a case of wait and see.

Mexican traffic on an upward turn

The new airport is a long way north from Benito Juarez and has its own catchment which normally would ensure incremental traffic gains, but only if a good route network is in place. Felipe Ángeles has been built to serve 100 million passengers per year at peak capacity, and it is also meant to help ease the volume of air traffic at the over-capacity Benito Juarez. It should therefore be a solid addition to Dufry’s Mexican portfolio over time.

Juan-Antonio Nieto, chief operating officer for Dufry in Central America, the Caribbean and Mexico, said: “We will use our extensive knowledge and expertise of the Mexican market to take the shopping experience to an entirely different level.”

Even if Felipe Ángeles takes time to take off—and it seems it will—Dufry can take comfort from the latest data on the Mexican market as a whole. Seat analyst ForwardKeys suggests that Mexico and the wider Latin American market are on the turn.

Olivier Ponti, vice president of insights at the company said: “The hottest destinations at the moment in Latin America and the Caribbean are El Salvador and Turks & Caicos, both registering more international bookings than in 2019. They are followed in short order by the Dominican Republic, Mexico and Costa Rica, which all have almost fully recovered.”

In the first quarter of 2022, while international air arrivals worldwide were still 59% behind 2019 levels, Latin America and the Caribbean were only 26% behind. But some destinations did better than others with Mexico just 6% down on 2019 while South America was still 50% off its pre-pandemic peak.