91 Our Performance S0 S1 S2 S3 S4 S5 ANNUAL REPORT 2021 MANAGEMENT DISCUSSION AND ANALYSIS NON-AERONAUTICAL BUSINESS Reimagining Airport Retail Reimagining our non-aeronautical business has refreshed our approach to enhance our propensity to generate revenue and growth. This includes expanding retail space, new retail brands, exciting campaigns, omnichannels and even extending our reach beyond the airport retail space. The New Rental Model also helps sustain and retain existing partners to ensure the prime readiness of our airport retail spaces as passenger traffic expands. The two main components of the Group’s non-aeronautical business are first, rental and royalties derived from leasing out airport space and secondly, retail sales of duty free and non-dutiable goods by our subsidiary, Malaysia Airports (Niaga) which is better known by its brand name, Eraman. This year, in line with passenger numbers, non-aeronautical revenues declined by 16.0% YoY to RM668.5 million. Revenues from rental and royalties stood at RM629.2 million, a YoY decline of 2.2%. Retail sales of duty free and non-dutiable goods by Eraman contributed revenues of RM39.9 million, a YoY decline of 74.3%. Notably, rental and royalties at SAW grew 104.3% YoY with a total revenue contribution of RM343.8 million. A key driving factor was the entry of Dufry, the world’s largest duty free airport operator, which had taken over as the travel retail operator at SAW from November 2020 onwards. In 2021, Dufry had upgraded the eight existing shops at SAW and introduced an uplift in the retail offerings and product diversity featuring renowned international and local brands as well as a state-of-the-art shopping experience incorporating digital technology at the outlets. Eraman’s revenues of RM39.9 million were also remarkable given the long periods during which domestic and international travel restrictions remained in place. The revenues were the result of continued and focused efforts to sell products through diverse online and offline channels, which were novel given Eraman’s traditional profile as an airport-based travel retailer. Rentals and Royalties Accelerate and expand the Commercial Reset for future growth The Commercial Reset initiative had begun in 2018 to refresh the commercial spaces at the airports and future-proof our airports by combining infrastructure improvement with a new retail layout and retail mix to maximise footfall and revenues. This includes everything within the commercial spaces from full digital adoption, rethinking the end-to-end customer journey and offering seamless online-offline experiences. Through the Commercial Reset, our airports, particularly international airports, will enjoy an enhanced profile and position themselves as premier travel retail and lifestyle destinations in their own right as opposed to being merely a conduit for air travel. A pilot commercial reset programme was implemented in LGK and its new and exciting lifestyle offerings are a showcase of a successful commercial reset, earning enthusiastic feedback from travellers and other airport users. The airport also enjoys the distinction of housing the island’s first Burger King, Ya Kun Kaya Toast and Costa Coffee outlets. The Group has optimised the current floor space and expanded the commercial areas to unlock a further 14,355 square metres (sqm) of new commercial spaces on top of the existing 67,252 sqm, with more potential commercial spaces to be identified as the Group rolls out the airport expansion projects in its pipeline. The retail spaces will also be optimised to increase their value for example through better passenger footprint and rejuvenating cold zones with essential offerings. With the optimisation, the increase in retail and KEY PRIORITIES FOR NON-AERONAUTICAL BUSINESS 01 02 Accelerate and expand the Commercial Reset for future growth Sustain and retain existing partners 03 Expand omni-channel capabilities 04 Increase retail spend per pax via Eraman realignment and new channels
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