Travel consolidating at cost

The variable nature of concession economics further mitigates the impact of economic / geopolitical issues that impede passenger flows and passenger spending.Further, Dufry to be one of only a few travel retail providers who have the ability to pay for a concession, for the lower margin players have a much more limited ability to meet airport operator rent requirements.It is not uncommon to see a horizontal trend dominate the price action of a specific asset for a prolonged period before starting a move higher or lower.Brief consolidation is often needed during large price runs, as it is nearly impossible for such large price moves to sustain themselves over the longer term.Dufry sells duty free items (64% of revenue) and duty paid items (36% of revenue) under several different retail flags.

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But there is more turbulence ahead: Brexit, increasing industry capacity, and competition for long-haul traffic from low-cost and high-­service Middle Eastern and Asian carriers are likely to undercut the profitability of European full-service carriers (FSCs).

COMPANY SUMMARY Dufry AG is the world’s largest travel retail operator, with 24% market share (3x the size of its nearest competitor) in the airport channel following its recent acquisition of competitor World Duty Free (WDF).

Together with WDF, Dufry operates 2,197 retail shops in 400 locations in 63 countries.

For example, airport operators will work with retailers to design airport floorpans so that passengers quite literally have to walk through shops in order to get to their gates.

Importantly, Dufry has numerous exclusive arrangements with key brands, preventing smaller peers from presenting a competitive retail offering.

WHY DUFRY IS WINNING Dufry’s stated goal is to generate 12-15% IRRs on concessions and acquisitions.

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