Impact of Ongoing Conflict on Airport Retail: How Luxury Brands Are Affected and What It Means for Investors
Duty-free stores, from DFS to Avolta, are experiencing significant challenges as the ongoing conflict in the Middle East disrupts travel and airport operations in the region. This disruption, now in its sixth week, poses a serious threat to luxury and beauty brands that rely heavily on airport shopping, particularly in Gulf hubs, to compensate for declining demand in markets like China and Europe. Even temporary airport closures could significantly impact quarterly profits for these companies.
Analysts warn that a prolonged decline in air traffic to and from the Middle East could further strain the travel retail sector, which is still recovering from the impacts of the COVID-19 pandemic. This situation is affecting companies such as LVMH’s DFS and impacting prestige beauty and luxury brands, including Estée Lauder, Puig, and L’Oréal.
International flights to and from the Middle East saw a drastic decline in early March. While some airlines in the United Arab Emirates are beginning to resume services, overall flight levels remain substantially below normal standards. According to Cirium data, flight cancellations from the region (excluding Turkey) sharply decreased from 65% on March 3 to 13% by March 27. However, the total number of flights being scheduled has also diminished.
LVMH’s Chief Financial Officer, Cecile Cabanis, indicated that DFS’s performance is costing “two percentage points of growth” for their selective retailing division, which includes the beauty brand Sephora. The conflict has negatively affected group sales by at least 1% in the latest quarter due to reduced spending in the Gulf region, with Cabanis noting that demand continues to be significantly low.
The $74 billion travel retail industry faces inventory adjustments and temporary store closures due to these challenges. Analysts anticipate that a return to normal for luxury retail in airports may take time. For instance, Dubai International Airport has reduced its operations after a drone attack prompted temporary closure, while Kuwait International Airport remains closed due to ongoing drone strikes, affecting sales for businesses like Avolta and Boots.
CFO Yves Gerster of Avolta reported they are reallocating inventory from slower-moving locations to those with higher foot traffic. Despite partial airport closures, certain shops at Dubai Airport saw increased sales in food and other items for stranded travelers.
Kering CFO Armelle Poulou shared that travel retail has slightly decreased compared to the previous year, though local customer demand has shown resilience. The conflict resulted in a 3% decline in Kering’s overall sales in March, translating to a 1% dip for the quarter, with Gucci particularly affected.
Investors are closely monitoring Estée Lauder’s quarterly results due on May 1, especially as the company considers a $40 billion acquisition of Spanish competitor Puig, which generates approximately 10% of its revenue from travel retail and is thus vulnerable to fluctuations in airport shopping and international travel.
L’Oréal, which reportedly attributed less than 4% of its $44 billion in 2025 sales to its travel retail sector in Asia, is set to release quarterly results on April 22. While the company doesn’t disclose total travel-retail sales, analysts indicate that Asia represents a significant portion. Both Estée Lauder and L’Oréal declined to comment, and Puig was unavailable for immediate response.
Special Analysis by Omanet | Navigate Oman’s Market
The ongoing conflict in the Middle East poses significant risks for luxury and beauty businesses, particularly those reliant on airport shopping as travel restrictions threaten profit margins. With air traffic and airport operations severely disrupted, intelligent investors should consider shifting focus toward local consumer markets and adapting strategies to leverage emerging opportunities as the travel-retail sector navigates this instability. Now is the time for entrepreneurs to diversify revenue streams and innovate within resilient channels, minimizing vulnerability to geopolitical challenges.
