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The Aug. 10 arrests in Britain of 24 men suspected of plotting to use liquid explosives to blow up jetliners have set off a global panic about what should and shouldn't be allowed on planes. In this climate, the duty-free industry finds itself in an unenviable position: It sells flammable fluids in airports.
The $26 billion duty-free industry has branched out beyond alcohol, tobacco, and fragrances to sell international travelers everything from clothing to electronics. Still, alcohol and perfume remain mainstays, accounting for more than half of sales in some areas, according to Michael Payne, executive director of the International Association of Airport Duty Free Stores (IAADFS).
Already, Payne says, a few international outlets have adjusted their policies, and it has hit them in the pocketbook. Argentina and Brazil have suspended sales of spirits and scents to U.S.-bound passengers and to those flying on U.S.-flagged planes.
MUTED RESPONSE. A spokesman for BAA, the British airports operator that owns London's Heathrow, says that passengers en route to the U.S. will also be restricted in their purchases. According to The Moodie Report, a Web site that tracks the duty-free industry, at least one airport in the Dominican Republic has temporarily stopped all sales of duty-free perfume and alcohol.
In an even more extreme move, British Airways (BAB) has suspended all in-flight shopping worldwide, including sales of products like sunglasses that have not been limited elsewhere. John Lampl, a U.S. spokesman for the carrier, says that after one day, it was too soon to measure what the financial impact will be.
By comparison, the response in the U.S. seems muted. Even before the recent alert, shoppers at American airports made their purchases, then received the goods when boarding, a process designed to block tampering. Ann Davis, a spokesperson for the Homeland Security Dept.'s Transportation Security Administration, says now passengers should receive the goods on the plane.
However, travelers could take duty-free liquors into the passenger cabin when almost all other gels and liquids were banned. In addition, airlines continued to serve beverages in flight, Davis says.
TIGHT RULES. Sharon Weiner, director of corporate communications for duty-free retailer DFS, says that the company's U.S. duty-free business "is almost 100% back to normal." The company has stores around the Pacific Rim, and she says the recovery rate has varied in other locations. The retailer is majority owned by French luxury group LVMH (LVMUY).
The on-plane delivery system is a satisfactory response for Payne of the IAADFS. The restrained shift in procedure, he says, probably owes a debt to already tight rules that surrounded duty-free sales.
For the moment, the TSA directive must be welcome news for shops operating in the U.S. But in the current state of high alert, regulations can change quickly, and retailers are exploring other options.
One possibility is expanding the use of arrivals area stores, where the passengers can purchase goods once they are safely off the plane. Payne says other options to explore might include keeping duty-free purchases in a storage area on the plane or having customers pick them up from store branches on arrival. Such operations would require very smooth coordination to ensure that cranky long-haul travelers don't get annoyed while trying to find their cologne or cognac.
DFS's Weiner declines to speculate on which, if any, avenues the company might pursue in the more stringent security climate. "I don't think we anticipated this problem. I don't think anybody did," she says.
Halperin is a reporter for BusinessWeek.com in New York
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