Luxury and beauty brands that heavily rely on airport sales in the Middle East are facing significant challenges due to the ongoing conflict in the region. This has resulted in the closure of airports and a sharp decline in air traffic, impacting the profitability of these companies.

The Middle East has been a key market for travel-retail, with its duty-free stores attracting high-spending customers for premium products like perfumes and spirits. However, the current situation has disrupted this source of revenue, adding to the existing challenges faced by the industry such as the impact of the COVID-19 pandemic and weaker demand in China and Europe.

Analysts predict that a prolonged slump in Middle East air traffic could further strain the already struggling travel-retail industry and negatively affect companies like LVMH’s DFS and luxury and beauty giants like Estee Lauder, Puig, and L’Oreal.

In the first half of March, there was a significant drop in international flights to and from the Middle East, with some airlines in the UAE gradually resuming operations but still operating below normal levels. Flight cancellations have decreased from their peak of 65% on March 3 to 13% on March 27, but the number of scheduled flights has also reduced.

For LVMH, the conflict has resulted in a 1% decline in sales in the latest quarter due to lower spending in the Gulf region. According to the company’s Chief Financial Officer, Cecile Cabanis, this has had a significant impact on the performance of its selective retailing division, which includes beauty brand Sephora.

The conflict has also affected the operations of many companies in the travel-retail industry, leading to the temporary closure of airport stores and the need to shift inventories. However, analysts believe that it may take some time for luxury airport shops to return to normalcy.

Dubai International Airport, for example, has had to operate with a reduced number of terminals after a drone attack forced it to shut down temporarily. This has affected the sales of airport outlets owned by companies like L’Oreal, Kering, and Estee Lauder.

Avolta, which earns 3% of its revenue from the Middle East, has been moving inventory from slower sales locations to those with more foot traffic, according to its CFO, Yves Gerster. However, some airports that are partially closed have seen an increase in sales for essential items like food, benefiting companies like Avolta.

For Kering, travel-retail sales were slightly down in the first quarter compared to the previous year, and local customers have been more resilient than tourists in terms of demand, according to its CFO, Armelle Poulou. The conflict has resulted in a 3% decline in overall sales for Kering in March and a similar impact on Gucci’s sales.

Investors will be closely monitoring Estee Lauder’s quarterly results on May 1, as the company explores a potential $40 billion acquisition of Spanish competitor Puig, which relies