Contract Management in Airport Duty Free

PhD proposal on:
Contract Management in Airport Duty Free
By: Asrar Al Hinai
1
Introduction
With the aggressive competition among airports and the sky rocking aeronautical
expenses, airports are trying to maximize their sources of revenues to keep up with this
challenging business. Since aeronautical revenues are based on pre-established
agreement and regulations, there is limited space for airports to expand in this area.
This is why most international airports are exploiting non-aeronautical operations and
their ability to support aeronautical core aviation functions. Studies show that
commercial revenues contribute more than half the total revenues in some airport, in
which, airport duty free retail (especially airside retailing), is the biggest revenue
contributor (IATA ; Fasone, Kofler et al. 2016). However, it is important to note that
recent records show a decline in non-aeronautical revenues due to several changes in
the industry such as, the introduction of low cost carriers, new regulations and
restrictions on
liquors, and the huge expansion of amazon and other websites that offer
a wide range of products with affordable prices (Graham 2009).
In addition to the fact that duty free shopping has become a vital part of the travelling
experience since its first introduction in Shannon Airport in 1974 (Huang & Cocks;
2016), duty free contribution to non-aeronautical revenues takes a relatively large
proposition of the equation. Although spaces allocated for airport retailing increased in
the previous period, so did the complexity of managing airport concessions as new
opportunities and limitations are constantly introduced. This forces managers to
optimize their practices to achieve the highest possible benefit of every square meter
available. This is especially true as retailors in duty free fall in different categories and
accordingly contract terms and treatment has to be handled differently. For example,
local companies add a unique traveling flavor to an airport; however, in most cases they
do not offer the same revenue stream as high-end international brands. According to
Mr. O’Connor an operations manager at Muscat Duty Free, revenues are not the only
important factor in airport contract management; there are other interrelated factors that
complicate the process.
Although great efforts are set in the area in practice, there are no clear guidelines of
best practices in contract management and its impact on revenues in academia. The
purpose of the study is to explore and verbalize the tacit knowledge gained by
practitioners in aviation retailing and contract management.

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Literature Review
When it comes to duty free revenues, understanding passenger’s characteristics and
factors affecting their buying behavior has been addressed by many (Torres,
Domínguez et al. 2005; Huang and Kuai 2006; Fasone, Kofler et al. 2016). On the other
hand, aviation newsletters are filled with approaches and projects taken by airports to
create a unique traveling experience using duty free. For instant, Amsterdam’s Schiphol
Airport offers a distinctive classical painting collections for art lovers, finest chocolate
collection in Brussels Airport, and competitive sale offers in Dubai International
Airport for the barging hunters (Pacheco, Fernandes et al. 2006). Although these visible
evidence can be easily noted, there are little indication on the backstage practices of
how duty free are managed, and what practices are used to offer competitive advantage
over other rivals. This is especially important as most modern airports are built with the
same high facility standards and same shop collection, yet still some fail to achieve the
same level of revenues contribution.
A very important factor that governs supplier-buyer relationships (Dubey, Chavas et al.
2018) and contributes to duty free revenues is contract management. According to
Muhwezi and Ahimbisibwe (2015), contract management is defined as “
the active
monitoring and control of the contract between the procuring and disposing entity and
the contractor, to ensure delivery of a cost effective and reliable service at an agreed
standard and price
”. Contracts are essential to risks and problems (Minnaar,
Vosselman et al. 2017; Donaldson and Piacentino 2018). It is important to note that
contract management does not end at the awarding stage, in fact, some emphasized on
the post awarding stage and its impact on contract performance and relationship success
(Chew, Lee et al. 2014).
Researches indicates that short-sighted contracting approaches and choosing suppliers
based on financial terms is used by many companies in the retailing industry (Dubey,
Chavas et al. 2018). Instead, a more comprehensive contracting approach should be
considered such as partners involvement and power relationship between the retailor
and suppliers which has a huge influence on overall performance (Paul and Frank
1998). At this stage another issue will rise which is trust between partner that is most
cases have different objectives (Minnaar, Vosselman et al. 2017).

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The Objective
The objective of this proposal is to study is to identify the relationship between duty
free contract management and the following questions:
1. Best practices in duty free contract management.
2. Identify terms and conditions set in the pre-awarding stage to insure future
contract delivery.
3. Bargaining power of contractors and its effect on contract terms.
4. Different practices between local retail contractors and international once.
5. Exploring the power of software solution in enhancing contract management.
Methodology
To address these objectives, and due to the lack of previous studies in the area of duty
free contract management a mixed research approach is chosen. In which the first stage
a qualitative approach is used by doing interviews of different concessions managers
and contractors to form the overall structure of the research. The aim of this stage is to
document the knowledge and experience of practitioners in the industry. This will
customize the research to aviation and help in identifying practices applicable to duty
frees. A combination of structured and semi-structured interviews will be done on duty
free managers and retailors in airports to generate a holistic view on the area.
The second stage will be utilizing the power of quantitative methods by analyzing
secondary data from airport concession to distinguish some of the factors that could
contribute to improving performance.
Limitations
It is important to note that the literature on contract management used in this section is
not from the aviation sector, due to the scarcity of research in this area. And the fact
that airport retailing and duty is dynamic and distinctive in nature; the factors discussed
above have to be validated and tailored to airport duty frees which will be the purpose
of the research. Another limitation of the research would be the availability of data used
in the quantitative analysis as airports might be resilient to share such information. And
if revenue shares from annual reports are used in the analysis, varying reporting

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standards will appear as there are no clear measures for duty revenue calculations
(Graham 2009).
Conclusion
In conclusion, non-aeronautical revenues have been in the spotlight for the past period
as it has huge potential in improving airport competitive regional and global position.
With the dynamic nature of the aviation industry a lot of challenges are constantly
introduced, which makes the management of commercial activity challenging. The
purpose of this research is to investigate the area of contract management practices in
airports duty free. The research will contribute to the area using the accumulated
experience of industry specialists as the main source of data.
References
Chew, E. P., L. H. Lee, et al. (2014). Advances in Maritime Logistics and Supply Chain Systems.
Singapore, SINGAPORE, World Scientific Publishing Co Pte Ltd.
Donaldson, J. R. and G. Piacentino (2018). “Contracting to compete for flows.” Journal of
Economic Theory
173: 289-319.
Dubey, V. K., J.-P. Chavas, et al. (2018). “Analytical framework for sustainable supply-chain
contract management.” International Journal of Production Economics
200: 240-261.
Fasone, V., L. Kofler, et al. (2016). “Business performance of airports: Non-aviation revenues
and their determinants.” Journal of Air Transport Management
53: 35-45.
Graham, A. (2009). “How important are commercial revenues to today’s airports?” Journal
of Air Transport Management
15(3): 106-111.
Huang, W.-H. and L. Kuai (2006). “The in-flight shopper.” Journal of Air Transport
Management
12(4): 207-211.
IATA Airport Planning, Operations and Management Training. Montreal, Geneva. ,
International Air Transport Association.
Minnaar, R. A., E. Vosselman, et al. (2017). “A relational perspective on the contract-controltrust nexus in an interfirm relationship.” Management Accounting Research
34: 30-41.
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Pacheco, R. R., E. Fernandes, et al. (2006). “Management style and airport performance in
Brazil.” Journal of Air Transport Management
12(6): 324-330.
Paul, F. and O. C. Frank (1998). “Supply chain relationships within airport retailing.”
International Journal of Physical Distribution & Logistics Management
28(6): 451-462.
Torres, E., J. S. Domínguez, et al. (2005). “Passenger waiting time in an airport and
expenditure carried out in the commercial area.” Journal of Air Transport Management
11(6): 363-367.
Wells, A. T. and S. B. Young Airport planning & management, New York, N.Y. : McGraw-Hill,
c2004.5th ed.