Jack MacGowan: “ARI is focused on investing to implement our ‘ARI2020’ strategy, expanding our global footprint and delivering our mission of the best customer experience every time”

INTERNATIONAL. Aer Rianta International (ARI) has reported an +8% year-on-year increase in profits across its international retail operations in 2017.

ARI’s overseas businesses, which include ARI’s share of profits from parent company daa’s 20% stake in Düsseldorf Airport, generated after-tax profits of €24 million last year. The figure does not include the performance of ARI’s Irish operations (see below).

The travel retailer said the results were underpinned by robust sales growth across its international portfolio, with Canada and Delhi delivering double-digit increases.

Revenue at ARI’s joint venture at Delhi International Airport was up +12% and in Canada (across multiple locations) sales growth was +11%. In Auckland, where the company completed the second full year of trading (a new departures duty free store was finished in December), sales increased +5%.

ARI said retail profits were also driven by an improvement in gross margins following investment under its updated ‘ARI2020’ strategy. It aims to create global and regional structures that include a more centralised buying function and a global support office.

In Ireland, total sales at The Loop, Dublin and Cork airports increased + 7% to €323 million last year, including retail and food & beverage sales by concessionaires.

ARI posted double-digit sales growth at Auckland Airport last year (new departures duty free shop pictured)

ARI noted the impact of increased passenger numbers at Dublin and Cork airports during the year and said the mix of duty free to duty paid customers was favourable. The weakness of Sterling also impacted sales, however. The retailer said daa’s annual report does not provide separate profit figures for ARI’s operations in Ireland, which are incorporated in the overall performance of the group.

ARI’s Middle East operations, which include Bahrain, Beirut, Muscat and Cyprus, performed “robustly in terms of continued sales growth”, according to the company.

The Loop duty free stores in Ireland posted solid sales growth, despite the impact of weaker Sterling on UK passenger spend

In Cyprus, there was pressure on passenger average spend driven by a decline in Russian passengers and a weaker Sterling but ARI said its operation there had still performed well.

Muscat Duty Free continued to be affected by an increase in the lower-spending transfer passenger segment and carry-on baggage limitations to the Indian subcontinent, ARI said. The Muscat Duty Free partnership between ARI and Oman Air opened a high-class new store in March in the new terminal building.

In Beirut, while passenger numbers and sales grew, political instability in the region continued to be challenging for the business.

“I, along with our partners, am very pleased with the group’s overall performance in 2017 in both our home and overseas markets,” said ARI CEO Jack MacGowan. “Despite external challenges, we demonstrated great resilience in driving continued retail profit growth.

“This was underpinned by a clear focus on our strategic goals to improve profitability and expand our retail estate by winning and seamlessly implementing new contracts. I want to personally thank our partners and all our staff for their contribution and support throughout the year.”

Looking ahead, MacGowan said the travel retail sector as a whole continues to face significant industry challenges which he said were likely to intensify in 2018.

Muscat Duty Free: New terminal, new era for the ARI partnership with Oman Air

“These challenges include intense direct competition between retailers leading to rising airport concession fees. Beirut commenced trading under the retained contract with Phoenicia in November 2017 and Muscat started trading under a new contract in the airport’s new terminal in March 2018. Both of these contracts have been materially repriced, which will add to the commercial challenges for the current year.

“Other industry challenges we are navigating include indirect competition from domestic and online channels, which is resulting in lower conversion of passengers to shoppers, and economic and political pressures including currency factors in certain territories.

“ARI is focused on investing to implement our ‘ARI2020’ strategy, expanding our global footprint and delivering our mission of the best customer experience every time.”

MacGowan noted that ARI undertook major refurbishments in Auckland and Bahrain last year, and said both were fuelling positive sales growth. ARI also retained the contract to continue to operate, with its joint venture partner, the concession in Beirut. The company won the contract for Quebec City Airport, where it opened new outlets just before Christmas.

With its local partner in Saudi Arabia, upon completion of final contracts, ARI’s joint venture company has a seven-year contract for duty paid stores in Terminal 5 at King Khaled International Airport in Riyadh. The first of these outlets opened shortly after the turn of the year.

In Jakarta, Indonesia, upon completion of final contracts, ARI said it intended to take a stake in a new retail operation that began trading at Jakarta Soekarno-Hatta International Airport during the year.

Bahrain Duty Free: A major 2017 investment in stores is paying off

Towards 2020

Commenting further to The Moodie Davitt Report, MacGowan that ARI 2020 marks a new strategic departure for the company.

Jack MacGowan: Challenges include industry consolidation, rising rents and fees at airports, lower conversion of passengers into shoppers and currency movements

“It is aimed at increasing profitability through growing average passenger spend, sales and new business,” he noted. “Last year the focus was more around putting structures and processes in place and building the team for the future. Now we are investing in the business for the longer term to help navigate the competitive challenges.”

On the competitive landscape, MacGowan cited some key dynamics that are reshaping the business today. These include industry consolidation, rising rents and fees at airports, a lower conversion of passengers into shoppers and currency movements (weaker Sterling and Rouble).

He noted: “These are industry issues but they have flowed through this year with the repricing of some of our key contracts. Weak Sterling affects many operators; we’re exposed in Ireland and Cyprus. But we are looking ahead and investing for the long term with our ARI2020 strategy.”

MacGowan also highlighted some particular positives in the market for ARI. “These include the return of Chinese passenger spending in Canada; strong passenger growth and good conversion in Dublin, including more duty free versus duty paid, plus long-haul traffic growth; and we are now seeing the best ever ARI customer satisfaction scores globally.”

Commenting on some key locations, MacGowan noted that refurbishments in Auckland and Bahrain had delivered sales growth “ahead of expectations, with the outlook positive for new openings in Riyadh and Muscat”.

On the company’s plans to develop its business at Dublin Airport T2, MacGowan said: “Our T2 redevelopment plan is well underway, with the first phase of the project due to open later this summer. This significant investment will transform our retail space; introducing a meandering walk-through to enhance customer experience, upgrading our liquor store to enhance our world-class offering and strengthening our brand and product portfolio across our beauty category.”

He concluded: “ARI has had a good year despite strong headwinds in the industry from political economic and currency movements,” he said. “We have invested in our shops and in our people.”

Healthy growth at parent group

ARI parent company daa’s profits after tax (before exceptional items) increased by +16% to €125 million in the year, driven by higher passenger numbers at airports in Ireland, increased commercial income and growth overseas.

Total passenger numbers at Dublin and Cork airports increased by +6% to a record 31.9 million last year. Dublin Airport posted its seventh consecutive year of passenger growth while Cork Airport, which is the state’s second-largest aviation gateway, increased its traffic for the second year running.

Both airports continued to maintain, and in some cases, improve their customer service performance during the year even though they are processing greater numbers of passengers.

Turnover increased by +8% to €855 million, with good growth in commercial activities, aeronautical income, and at daa’s international businesses. Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by +9.5% to €271 million for the year.

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