Sense of Place
Positioning ARI for the upturn
In association with
As the most turbulent year in travel retail history closes, we speak to our partner in this regular column, Aer Rianta International (ARI), for the final eZine of 2020. Deputy CEO Anthony Kenny talks about the impact of COVID-19 on the Irish state-owned company’s business, its response and how consumer sentiment might take shape once recovery comes. By Dermot Davitt.
Consolidating the business, protecting cash, adapting to new consumer needs and striking sustainable agreements with airports and other partners sit high on the agenda for Aer Rianta International (ARI) management today, says Deputy Chief Executive Anthony Kenny.
He, along with CEO Ray Hernan and other senior executives, have been plotting a course through this most difficult of years, with people, passenger demand and profitability top of mind.
Reflecting on the period of close to a year since the COVID-19 storm broke, Kenny says: “Of course to say this crisis came as a body blow would be an understatement. Like everyone else we are winded, but we’re not mortally wounded.
Anthony Kenny: Trading is challenging but the business will bounce back
“And it hit in a period when all of our business units were trading really well at the start of the year. Auckland was the first to show weakness and that was because of the slowdown in Chinese travel in early February. Broadly it was March when we felt the full impact and almost all locations closed from late March through to July. Business has opened up since but it has been slow and recovery in passenger numbers has been modest. The government restrictions and the changing rules around travel have led to a lot of uncertainty. So there is a long way to go before we hit 2019 levels of traffic. We have seen tough times before, from 9/11 to SARS, but this is definitely the biggest challenge we’ve faced yet.”
Sense of Place: The classy Kypriaka environment in the new-look Larnaka Airport airside zone
In terms of recovery, Kenny cites the challenge of understanding the consumer in a new world as one the company is heavily engaged with today.
“What we have learned is that they want safety and reassurance but they also want as normal an airport experience as possible too,” he says. “We have been successful with regards to our COVID protocols, and giving people reassurance that they are in a safe environment. Our Passenger Average Spend figures since we reopened reaffirm that. That is down to the in-store measures from sanitation to contactless payments we have put in place, along with the excellence of our staff in managing the customer experience.
“Another thing we have done is to work hard on the relationships with our brand partners to maximise the performance of the business coming back, and to drive sales. That has involved great promotions and calling out value. We have really ramped up our global marketing campaigns, and tried to ensure these resonate and encourage people back into our shops.
“The other element on the passenger side is around ‘harmonised retailing’ or the blurring of the lines between the physical shop and the digital shop. That is about pre-travel messaging and awareness but also convenience, which is key. What convenience means is changing. It is not just about accessing our services but in fulfilment too, whether that means delivery to gate, seat or even home. That will marry with hyper-connectivity, meaning that people want to access services through a range of channels. So we have to offer virtual sales assistants, webchat and be able to answer queries at any time of the day or night.
How ARI is marking the festive season across some of its key locations (Cyprus pictured)
“Broadly we are asking ourselves how we can better communicate with consumers, how do we exploit the move to digital and make people aware of our offer, so they make decisions before they travel?”
ARI has built its ecommerce capabilities over the past year to respond to the shift to digital, but for travel retail it is as much about communicating as it is about selling through a website, says Kenny.
“Like the brands we are agnostic about whether people shop in the store or online as long as they spend with us. Our websites have to be really good not only as a sales channel, but as a backup to the brands and aligned with their digital communications. So if somebody is on Instagram, or any other social media channel, if they see something that they’re interested in, they can click through to our website, and they can get all the content and information they need on products and offers.
“All of this chimes with the brands’ approach and they have certainly shifted even more to digital than before. We have multiple projects on the go that involve aligning content, sharing influencers, communicating their products in a way that works for them and for us.”
Capturing the attention with key value messages in Montreal in the reopening phase
One element common to every retailer responding to crisis is the need to manage costs and preserve cash. But that in turn needs balancing against the requirement to have a well-trained workforce ready to seize the opportunity once travel resumes. Parent company DAA introduced a target of cutting 25% of staff through a mix of voluntary severance packages and career breaks this year, which also covers ARI.
Kenny says: “We asked ourselves how we saw our revenue lines recovering, and then built an organisation structure and resource that is aligned with those aims. The first line of attack was to minimise discretionary non-payroll spend. We have reduced manpower but while doing that we were also cautious about protecting staff for the future so we don’t damage the comeback.
“You also have to protect today. We were comfortable that if some people left we could cope in terms of experience and knowledge.”
With cash retention and business protection a priority, Kenny notes that ARI – with its strong balance sheet – “has enough cash and liquidity to get us through this crisis”.
Above all, he says, success will be determined by how quickly the industry can react to new consumer demand.
“We are looking closely at our customer value proposition post-pandemic. How do we need to redefine and repurpose in the light of changed customer needs and expectations? While some of those needs and expectations may be temporary, other ones will be permanent. We have put together a cross-functional, cross-location team, looking at our customer value proposition. And then we are asking how do we need to redefine our offer and our proposition against those needs and expectations? That is a big focus for us.”
ARI has delivered consistent communication around value across its estate without slashing prices too deeply to move stock
Those considerations are being made as the business trades again across all of its locations, with almost all stores open.
Kenny says: “In North America, the international and transborder shops are open in Montreal, but Halifax and Winnipeg are still closed. In Ireland, stores at Dublin and Cork airports have been open since late June though passenger traffic is low. Apart from domestic travel, Auckland Airport is seeing mainly repatriation flights.
“In the Middle East, Bahrain was one of the few airports that never closed, Beirut has been open since September and performing relatively well despite the socio-economic problems there. Cyprus was trading well [following an ambitious refurbishment that has been completed -Ed] until the latest UK lockdown saw visitors decline sharply once again.
“ARI operates in domestic T5 at Riyadh Airport with local travel remaining strong, boosting business there, In Muscat the airport opened in October with business at low levels for now. Delhi International too is mainly operating repatriation flights. The newest operation, in Montenegro, will open in coming days.”
With the major airport partners across these territories ARI has agreed relief from Minimum Guarantees in what has broadly been a “a sensible approach”, says Kenny. “With some we have negotiated mechanisms that extend for the life of the contract. They reflect fees that are aligned with recovery in passengers, which makes sense. Others have adopted a more short-term approach with a commitment to look again in 2021.”
Might the crisis prompt a rethink of the broader concession model, and if so, how would ARI like to see that take shape?
Kenny says: “The joint venture approach is very viable as it shares risk and reward and aligns interests. I think those conversations will come. From an industry viewpoint we are still trying to get through this, and the future of the model will be discussed in the months ahead. But you need a mechanism for situations outside the control of operator and airport.
Delhi Duty Free, a critical ARI location, has seen trading limited with low levels of international travel to and from India
“The JV is something we are pursuing and would bring value to. We have a track record and have demonstrated that it works.”
Whatever the model, business development remains firmly on the agenda, and the company will explore opportunities for new business, through bids or by striking new partnerships ‘off market’. By region, Kenny says that ARI will look most closely at North America and Asia, including the Indian sub-continent.
Supplier partnerships are also evolving, but does ARI have any concerns about the commitment of brands to the channel post-crisis?
“I have engaged with a lot of principals among the brand owners and they are still very committed to travel retail as a channel, including new openings. They can access the best consumer demographic you can get, and brands place huge store in that.
“Our exchange of information with those brands needs to be crisp and seamless so we can react very quickly to emerging trends. But we are still seeing exclusive to travel retail launches and we see investment in newness, and that will continue in 2021. The latest launch of Bushmills 30 Year Old cask strength is a case in point; ARI is receiving most of the limited allocation.”
What does ARI expect from 2021, especially given news of a possible vaccine rollout?
“That is definitely encouraging,” says Kenny. “There is demand for travel but we have to be realistic as well. Vaccine roll-out will take time. By the back end of next year we should see good recovery in travel but we have to focus on delivering the step changes to our business in that uncertain environment. And we’ll need to be very agile in case things happen faster than that.
“Beyond that we obviously need to protect the business and manage cash as well. And we plan to exploit the opportunities for business development when they come.”
The Moodie Davitt eZine Issue 289 | 21 December 2020
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