IRELAND. Aer Rianta International (ARI) aims to build on its solid performance in 2016 with an ambitious plan to deliver a further €50 million in profits over the next four years. That’s according to CEO Jack MacGowan, speaking to The Moodie Davitt Report after the Irish state-owned travel retailer revealed its annual results last week.
As reported, ARI’s share of after tax profits from its operations and joint ventures outside Ireland increased by +11% year-on-year in 2016 to €24 million. Profits from its overseas retail operations alone (excluding ARI’s 20% stake in Düsseldorf Airport) climbed by a robust +17%.
In Ireland, sales at The Loop, Dublin and Cork airports in 2016, including retail and food & beverage sales by concessionaires, amounted to €302 million. This marked an increase of +11% on 2015 and was buoyed by healthy growth in passenger volumes. Sales at ARI’s directly-operated stores in Ireland increased by +10% in the same period.
(Note: The DAA does not provide separate profit figures for ARI’s operations in Ireland, which are incorporated in the overall performance of the group.)
MacGowan says: “We’re ahead of where we thought we would be. Key factors driving profitability are like-for-like sales growth and some small improvements in gross margin. Our managed turnover is now €1 billion, +10% higher than last year.”
The task now for ARI is to continue to deliver, not only in turnover and profit terms, but in providing a compelling case to airports about its ability to drive average spend and consumer satisfaction.
“We have hit our target to double profits one year ahead of schedule and we have tripled international profits over the past four years. Our strategic plan is to add €50 million in incremental profits. But more than that, we want to build a team that can deliver higher passenger average spend than our competitors, deliver better average margin through improved buying supplier deals, and ensure that our business expansion is ahead of the competition.
“We do it in places but we don’t do it every day in every location. That is our target. We want to show consistency of over-performance against our competitors in passenger average spend and in average margin. That is the core reason for us winning contracts recently. We need to show we can do the job better than anyone else.”
Behind that lies a focus on hiring and promoting quality people into key positions, and on doing business differently than before.
MacGowan says: “ARI is different today than it was four or five years ago. One of the things people don’t see is the time we spend training our managers and staff. All 25 of our General Manager level people were in Cranfield University for a few days and signed up to take training and development programmes over the next two years. Our plan is to have the best salesforce in the world, but that means we need the best managers and supervisors. And we’ll recruit more of them.
“The type of company that a junior buyer or a new GM joins today is one where there is a career path laid out and they can see how they can become a better manager. That helps us attract people. The pipeline of people joining us or approaching us is getting better every year. Five years ago we didn’t have that pipeline.
“We are also re-engineering how we do business. Ten years ago you might have had a savvy GM deciding where to put what products in the shop, how do build a promotion or deal with suppliers. Today, before that GM sees the product we have a central team of analysts and buyers who are data-driven around how those items can be laid out, where they should be positioned and how we deal with suppliers. We are using technology to improve how we engage with the customer and indeed how we do that before, during and after their trip.”
On top of these internal changes is ARI’s improved track record in business development over the past two years, especially in the Middle East market, where it remains the biggest multi-location travel retailer.
MacGowan says: “Apart from Delhi Duty Free (in 2009) ARI had not won a lot of significant new business for some years. But now we have really stepped up in the Middle East, with our local partners. We have won Abu Dhabi, Muscat and now Beirut (with partner Phoenicia) we have doubled our average concession term in the Middle East. We have long-term concessions there today, which offers us strong tenure for the future.”
And the company’s ambition doesn’t stop there. “In terms of our footprint and growth, we’ll look carefully at Asia for the future. If we secure more business of scale in the next three years or so that would not be a surprise. We are ready to compete. We are not challenging for the very large concessions at Hong Kong or Changi but other locations are attractive. The bigger question for us is how we develop our North American and European business and we’re looking at that now.”
The company’s Asian footprint now includes Delhi and Auckland and may soon be joined by Jakarta. There, local partner Aura Cantik was named preferred bidder last year for the new T3 Ultimate at Soekarno-Hatta International Airport. The new terminal should open later this year. Subject to final contractual negotiations and due diligence, ARI may take a stake in this business, confirms MacGowan. “I’m hopeful and optimistic that we’ll operate there. We are in contract negotiations which should conclude soon.”
In Auckland, the business in 2016 performed “in line with expectations”, but the dual concession model remains “challenging and highly competitive”, notes MacGowan.
He says: “Auckland is growing and we are differentiating our offer to drive consumers into our stores. Our own concepts like Candy Cloud have helped in that regard. Sometimes the easiest thing to do is think tactically around promotions but we have tried to be more strategic and different.
“We have settled the business down and are now in the process of redesigning, refurbishing and moving into new space in departures. That project will improve the consumer offer and we think the Auckland consumer will react well to that. The work we have done with the airport, based on a lot of data, will reap rewards we believe.”
At Auckland Airport, ARI committed to an investment in new departures retail space as part of its contract award in 2015. The development is split into two phases and covers a total of 1,400sq m. The first phase of 900sq m is currently under development and is due to open in June to replace the existing duty free shop. The second phase of 500sq m is due to open in December this year.
Elsewhere, ARI’s retail business in Cyprus (CTC- ARI) – at Larnaca and Paphos airports – recorded a double-digit rise in sales last year, driven partly by a rebound in Russian passengers coming to the island.
ARI’s joint venture at Delhi International Airport delivered strong sales growth with revenues exceeding US$146 million in 2016, from US$140 million a year earlier. The business in Canada and Barbados also saw sales grow in 2016.
The Middle East continued to perform well overall despite ongoing political instability in the region and hand baggage restrictions in certain countries.
“The environment has been challenging in the Middle East due to external conditions affecting the market. Some airlines are undergoing significant changes with restructuring, and also we have a different passenger mix now with many more transfer passengers. That mix has brought its own challenges.”
The company continues to work towards the opening of its stores at Abu Dhabi International, as well as – later this year – the new terminal in Muscat, where it has a ten-year contract.
“The Muscat project will bring momentous change,” says MacGowan. “It will be like comparing night and day if you look at the stores today and what will open at new terminal in November and it’s very exciting. It will be a great shopping experience and a backdrop to implement the best in our new store design. We have our menu of international brands but also a great Sense of Place. Our Kids’ Kingdom confectionery and toys/gifts concept is a Muscat take on Candy Cloud and will have a big impact visually.
“Also in Muscat, we have a new concept in the beauty area called The Essence of Oman. It is inspired by the story of frankincense, which hails from that region. So P&C will be a brilliant combination of global beauty brands and Oman Sense of Place.”
In partnership with a local company, ARI also won the tender to operate the duty paid concession in Terminal 5 (domestic) at Riyadh King Khaled International Airport, Saudi Arabia. The seven-year contract is expected to begin later this year.
MacGowan says: “We are delighted to consolidate our position as the leading multi-location retailer in the Middle East. Riyadh has many passengers who are very interested in shopping and who have good disposable income. We want to deliver a motivating retail offer to them.”
Then there’s the core Irish business. Sales in Dublin were buoyed by a healthy +11% rise in passenger traffic (more than twice the European average last year) to a record 27.9 million, but other factors contributed too, notes MacGowan.
“Following the Brexit decision in the UK we have driven sales up despite the currency headwind from the weaker Pound Sterling. Terminal 1 is key for us, and has been a tremendous performer in its first two years [since a new-look store opened in March 2015 -Ed]. It really brings home to us the benefits of a consumer-centric and tailor-made approach especially in beauty. It was great to win the Moodie Davitt Dreamstore award for P&C last year for that T1 store. The performance is very encouraging given the amount of thinking we did about the design.”
He adds: “In Dublin we’re also seeing our online business grow from a small base and we think that will play a great role for us. We see stronger sales but importantly also a strong correlation between those who browse on the website and then buy in the store.”
With a solid base of recent concession gains and renewals, plus profit growth in a challenging year, MacGowan is upbeat about the year ahead.
“We are now in a stronger position than in any of the past few years. We have moved to new offices at Dublin Airport, we have hired new people into the organisation and we have a pipeline of new business, especially in the Middle East. Now we are working hard to get these new locations open and to make them a success for us and for our partners.
