London’s Heathrow Airport Blames The Removal Of Tax-Free Shopping For Impacting Retail In 2023

23.02.2024 - 04:43 / forbes.com / London Heathrow

Britain’s only hub airport, London Heathrow, carried 79.2 million passengers last year, an increase of 29% on the previous year and the third highest in its history, but retail revenue did not keep up. It rose by 24% and the airport blamed the lackluster commercial performance on the removal of VAT-free shopping.

Transatlantic routes did particularly well with New York’s JFK Airport maintaining its position as the most popular destination. The route served over three million passengers for the first time since 2019.

Europe’s busiest gateway managed to turn a small profit of £38 million ($48 million), also for the first time since 2019 thanks to a strong final quarter. But while total revenue easily outstripped pre-pandemic levels by 20%, the retail component was still marginally below 2019 (see chart), reaching £698 million ($884 million) last year. Avolta (formerly Dufry) is the main retail partner at the airport.

Retail covers a host of different elements at airports. In Heathrow’s case, this includes retail concessions, catering, ‘other retail’, car parking, and ‘other services’. Of these, concessions had the lion’s share at £257 million ($325 million) in 2023, though the best gains came from catering, up by 41%.

Total retail growth of 24% was driven mainly by the extra departing passengers last year but they were spending less as income per passenger decreased by 3.8% to £8.81 from £9.16 in 2022. However, the decline could just be a normalization of spending patterns after post-Covid revenge spending died down as the 2023 spending per passenger is in line with pre-pandemic 2019 and 2018 figures of £8.93 and £8.94 respectively.

Nevertheless, the airport believes that the return of tax-free shopping might change these spending levels and it called on the U.K. government to “stand up for Britain” in the Spring Budget, due to be delivered in a fortnight on March 6. Heathrow has called for the chancellor, Jeremy Hunt, to make Britain “a magnet for international tourism spend by leveling the playing field with European rivals” and bring back tax-free shopping.

Despite, reports indicating that rich shoppers were fleeing London for Paris and Milan to shop, Hunt was not swayed in 2022. But further evidence since then may win him round to the idea of bringing back the perk for tourists which exists in many other jurisdictions across the European Union—and globally. Britain’s Office for Budget Responsibility has also promised to undertake an analysis of the pros and cons of axing tax-free shopping in time for the budget; its findings will be crucial to the chancellor’s final decision.

While Heathrow waits, it is also digesting what was a hectic year. A new CEO landed last October from Copenhagen Airport and