Duty-free shops from DFS to Avolta that sell high-end perfumes and spirits to big spenders are feeling the pinch as conflict in the Middle East closes airports and hampers travel to the region, a setback that could become more severe as the war drags on. The disruption, now entering its sixth week, has exposed the weaknesses of luxury and beauty groups that rely on airport shopping and hubs in the Gulf region - one of their highest-margin channels - to offset weaker demand in places like Europe, making even short-term airport closures likely to weigh on quarterly profits.
Analysts say a prolonged slump in Middle Eastern air traffic could add to pressure on a travel retail industry still recovering from the coronavirus pandemic, squeezing underperforming businesses such as LVMHL's DFS and dragging down well-known beauty and luxury goods companies such as Estée Lauder, Puig and L'Oréal.
International flights to and from the Middle East dropped significantly in the first half of March. While some airlines in the United Arab Emirates are slowly resuming flights, flight volumes are still well below normal levels.
Cirium data shows that flight cancellation rates in the Middle East, excluding Turkey, fell from a peak of 65% on March 3 to 13% on March 27, but the number of scheduled flights also fell.
LVMH Chief Financial Officer Cecile Cabanis told analysts this week that DFS "has cost two (percentage points) of growth in its selective retail division, which includes beauty brand Sephora."
LVMH said the conflict cut group sales by at least 1% in the latest quarter as consumption fell in the Gulf region.