Duty-free retailing is very much a phenomenon of the second half of the twentieth century, its meteoric growth reflecting that of the growth in travel, particularly by air. Today it is an integral part of the travel experience for passengers and for transport providers generates significant income vital to the financing of the ever-growing global transport infrastructure.

The establishment of the first airport duty-free shop at Shannon airport in 1947 marks the start of the duty-free business as it is known today, but its roots lie in the maritime, diplomatic and military traditions.

History

The first documented example of a duty-free concession is an early English record in the Saxon charters dating from around 700AD, under which King Ethelred of Mercia granted the Bishop of London exemption from customs duties on imports.

Many years after Ethelred, diplomats based at embassy buildings, regarded as foreign territory, were entitled to sizeable allowances of duty- and tax-free goods. Similarly, duty-free supplies to the military became the norm.

Just as large as the military and diplomatic trade, the supply of ships’ bonded stores thrived until the mid-1960s , taking advantage of the age-old principle that duties could not be levied on goods consumed by ships crews outside national waters. Although there is no documentary evidence, this type of duty-free supply was probably practised at the time of the Roman Empire more than 2,000 years ago, and liquor has been issued duty-free to British seamen for onboard consumption since the 1500s.

Extending the chandlers practice of supplying crews so that it included supplies for passengers was an obvious step taken in the 19th century, and was instrumental in establishing the practice of allowing travellers to enter a country without paying import duty on unconsumed sustenance carried for the voyage or journey.

Eventually definitions of standard allowances for international travellers evolved as a uniform practice but not a right. Liquor, tobacco and fragrances have remained duty-free staples through to the present day. Why these categories? In earlier times even comparatively short journeys could take days or weeks, so the need to carry liquor and tobacco to lessen the effects of discomfort and counter boredom was understandable. The matter of personal hygiene in the crowded spaces of small ships was probably the origin of today’s comparatively high allowances for perfume, which were dutiable because of their alcohol base.

The legal basis for international air travel was laid down in the 96 articles drawn up by the International Civil Aviation Organisation at the Chicago Convention of 1944. This Convention, agreed by fifty-four nations, extended the duty-free status of ships in international waters to include aircraft on international flights. The Convention also provided for the creation of ‘Customs free’ airports to service these airports. The first such airport opened in Shannon in 1947, facilitating the opening of the world’s first airport duty-free shop.

The concept of ‘allowances’ dates from the 1954 New York Convention on International Travel (Convention Concerning Customs Facilities for Touring) agreed by 84 nations, which introduced several measures to facilitate the flow of travellers across international boundaries. It first established the principle that Contracting States shall admit free of import duties and import taxes, articles imported by a tourist for his personal use. Article 3 stipulated the quantities of tobacco products, wines and spirits, perfume and toilet water that could be carried by a tourist, the standard allowance still accepted today (except for wines and spirits which was originally set at one bottle of wine and one quarter litre of spirits).

Customs authorities complied by waiving duty on limited quantities of goods bought during the journey by arriving passengers, but most were rigidly opposed to allowing ground shops to sell duty-free to air travellers before they embarked. The result was that airlines could sell inflight, as shops on ocean liners had done before, but the few airport outlets other than Shannon had to take orders on the landside and deliver goods in sealed bags to boarding passengers at the aircraft gangway, a practice still prevalent in the USA today.

Even in Britain, which is widely considered to be a pioneer in the development of airport duty-free, it was not until 1959 that Customs & Excise agreed to permit duty-free sales to departing passengers in shops airside, and then for liquor only. In 1961 there was further improvement when sales free of purchase-tax (the equivalent of today’s VAT) were permitted but it was not until 1964 that there was general acceptance of duty-free shops selling gifts and tobacco as well as liquor.

The second reason for the slow development of airport duty-free stores is that airport authorities were dominated by operational mangers, often ex-military officers with no commercial experience, whose sole aim was to move departing passengers for whom at best a small bar/cafe and bookstall was provided.

Airport duty-free expanded very little until the end of the 1950s, and then gained momentum in the 1960s propelled by a combination of innovative entrepreneurs and enlightened airport authorities who could see the commercial potential.

By the 1970s, jet aircraft and reduced fares had revolutionised air travel, bringing about a sudden rapid increase in passenger numbers, with a corresponding demand for bigger terminals - which airport authorities realised could be part-financed by the commercial returns possible from duty-free shops.

Inflight sales also benefited from the growth of air travel, particularly the inclusive-tour business, and whereas the ship-supply business suffered in the 1960s with the arrival of jet air travel, the later increases in cruising and travel by ferry have ensured that this remains an important part of the business.

In Western Europe and Scandinavia, where the modern duty-free industry was born, Customs authorities clung to the modified tradition of travellers’ sustenance, and only granted duty-free allowances to international air and sea passengers. Authorities in every other part of the world have permitted duty-free border shops to sell to travellers leaving a country through land borders too.