BAA eases Aer Rianta out of Eurotunnel retail contract

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UK airport operator BAA has signed a 15-year contract with Channel Tunnel operator Eurotunnel to provide retail services in its Folkstone and Calais/Coquelles terminals, replacing Irish rival Aer Rianta.

BAA - owner of London's three largest airports - says it expects to generate £100m in sales from retail, catering and other services at the terminals in 2000, despite the forthcoming abolition of European Union duty-free shopping.

The contract, effective 1 July, marks an important step into Europe for BAA's World Duty Free subsidiary, which is also targeting European airports with retail contracts up for grabs after 30 June, when duty-free retailing is scheduled to end.

BAA insists that retail revenue excluding duty-free will remain buoyant after the planned cut-off date. The pan-European pro-duty-free campaign is meanwhile awaiting the outcome of an EU finance ministers' meeting on 15 March.

BAA chief executive, Sir John Egan, says: "This is the first substantial contract in continental Europe for World Duty Free, our travel retail subsidiary…It helps BAA on its way to becoming the world's number one in this industry."

BAA was among four companies short-listed by Eurotunnel for the contract which replaces an existing agreement with Irish duty-free specialist Aer Rianta, one of the three losing bidders. The other two were French retailers, according to a Eurotunnel spokesperson.

The new contract is described as a partnership, since it allows far greater flexibility for BAA to develop the two facilities, with a share of retail profits going to Eurotunnel under a minimum guarantee clause.

A BAA spokesperson says: "We're planning to increase retail space in the terminals by around 50%, subject to planning permission."

The planned first phase of investment would pump around £3.5m into Folkstone and Calais, the spokesperson adds.

Retail income, including "regulatory revenues" from the three London airports, contributed over 50% to BAA's turnover in 1997. Its retail operations include airport and border town shops in the US and UK and in-flight duty free sales.

World Duty Free made a modest £7m profit in the first half of FY98 on sales from US, UK and European operations.