Aer Rianta International Middle East takes CHANGE in its stride

Transcription

1 Aer Rianta International Middle East takes CHANGE in its stride By Martin Moodie A retailer that never knows the meaning of the term impossible, and one that continually reaches out into locations that others shy away from and then converts them into high-class retail operations. The company is Aer Rianta International Middle East and 2004 will do down as its best ever in qualitative as well as turnover terms. I ve interviewed John Sutcliffe during more periods of crisis than he probably cares to remember. During the first Gulf war in 1990/ 91; after 9/11; during the second Gulf war 13 years later. But also during the good times the sharp growth of his regional retail and wholesale business during the 90s, and now the tremendous bounceback he is seeing across all sectors of the Aer Rianta International Middle East (ARI-ME) business. His persona as an interviewee reflects his personality. Sutcliffe is a straight-shooter who always tells it like it is. If business is bad he ll tell you so without resorting to euphemisms. His characteristic directness and affability have carried him a long way in over two decades in the region. But like many Irishmen, his ease with himself and those around him is coupled with a hard edge he s not a man to let down or mess with. He takes a fierce pride in his professionalism and that of the team around him. And, as with many inspirational bosses, he s tough and demanding. The resultant personality much more complex than the bantering, guitar-playing balladeer of many an industry function would have you believe has helped drive one of the industry s great success stories of the past twenty years. Today ARI-ME is a network of consistently successful businesses spread around a difficult region, one that is constantly vulnerable to political shifts. What other region in the world, for example, has traded through three major wars in the past decade and a half? What other region is at the very heart of the most fundamental geo-political issues facing mankind today? John Sutcliffe: We re headed for a record year. Most of our businesses have already reached their profit targets for year-end It s a landscape that demands much from any retail operation. Outsiders wrongly tend to think that Middle Eastern duty free retailers have it easy that their airports are full of high-spending, luxury-orientated Arab consumers, and that their governments are awash with cash to invest in airports. It s a view that irritates Sutcliffe just as it irritates his counterpart in Dubai, Colm McLoughlin. Easy it has not been, and in Sutcliffe s case the difficult early pioneering days of an operation have been repeated time and again as he has developed retail complexes around the region in places such as Damascus, Doha and Beirut. Interestingly, the three great personalities of the Middle East duty free industry of the past 20 years Sutcliffe, McLoughlin and Abu Dhabi Duty Free Managing Director Mohamed Mounib all possess a strong inner steel that has underpinned their respective success stories. All work within multimillion dollar organisations, and yet each is very much an entrepreneur. Each relies on gut feelings as much as business plans, and each take his work but never himself deadly seriously. For his part, Sutcliffe takes great pride in both the company s and the region s success story. If you look at the passenger numbers we re working with and compare them with the likes of BAA or other big international airports, then you can see exactly how much we squeeze out of a much smaller number of passengers, he comments. People say to me You ve got high-spend consumers down here, you ve got lots of Arab passengers. But in most cases, they re not really the people buying; it s contract workers 24 The Moodie Report

2 from places such as India, Pakistan and the Philippines, plus the tourists, coming in or through here. Sutcliffe shares something else with his peers McLoughlin and Mounib. He keeps things simple. People get a wide choice here and a good retail offer, he says. Now we re starting to see a compound effect of people knowing the reputation of Middle East duty free people know that wherever they land here they re going to get a pretty good retail offer. It s the most vibrant year I ve seen in the 20 years I have been in the Middle East. happening in Qatar and in Dubai; Emirates can even now fly you direct from Dubai to New Zealand. For example, I was on a flight on Thursday to Beirut from Bahrain, says Sutcliffe, and half the people on the flight were coming from Australia mainly Lebanese living in Australia. That s happening a lot; there s a huge amount of competition going on, pulling down the prices, making it very attractive in Y class. And that pretty good offer is translating into pretty good spends in As a group we re headed for a record year, says Sutcliffe. Most of our businesses have already reached their profit targets for year-end [the interview was conducted on 10 October]. That s always a good sign. It s not just in the ARI-ME business the whole region is really buzzing at the moment. Business is holding up fantastically. It s the most vibrant year I ve seen in the 20 years I have been in the Middle East. Then there is the terminal traffic tourism that is coming into the region, mainly into Dubai, Abu Dhabi and Bahrain. With the authorities in each location putting major investment into new tourist attractions and events (notably the Bahrain Grand Prix) the classic tourist market never the region s strongest in the past is rising fast. That s especially impressive, he points out, given that just 18 months ago the region was facing the serious twin impact of the downturn in travel caused by the Iraq war and SARS. It s been a tremendous bounceback, says Sutcliffe, and the good thing is that it s maintaining its momentum through the year. We expect all our businesses to finish with record years. So what are the key drivers of that growth? Firstly, says Sutcliffe, there is the increasingly robust health of the region s aviation market. There are tremendous things happening here in the aviation industry, he says. You can look at established and new airlines such as Emirates, Qatar Airways, Middle East Airlines, Etihad and Air Arabia together they are driving absolutely tremendous double-digit passenger growth out of the region. And a lot of the sales growth that we re getting is simply from additional numbers bodies on seats. Sutcliffe draws an interesting parallel between the Middle East s old role in the travel market and how it stands today. The Middle East used to be known as a big transit point before the [long-range] s arrived. It hasn t gone back to those days, but what we are seeing instead is an enormous amount of transfer traffic coming through. Transit traffic in the old days meant refuelling stops. People got off the plane and spent a lot of money in airports like Abu Dhabi, Bahrain and Dubai, which all benefited hugely. Those days are gone everyone wants a direct flight to Hong Kong, Singapore or wherever. But now the [region s] airlines are working well together going into inter-airline agreements with UK or US-based carriers, for example. Gulf Air has an arrangement with American Airlines. We are seeing people going down to the Far East or Australia now coming through Bahrain, for example. And it s Finding the formula for success: Bahrain Duty Free s awardingwinning Race 2 Win promotion But passenger numbers are just one part of the equation. It s who they are and how they spend that matters even more. And in the spending department, the US Dollar-linked economies of the region are driving a consumer windfall. The strength of the European currencies, especially against the Dollar, is making our retail prices very attractive, Sutcliffe says. We ve seen an upsurge in sales of luxury goods and consumer technology the likes of mobile telephones, gadgets and cameras. There s a huge amount of growth in that market. And also at the luxury end we ve never sold as many Rolex watches as we have this year. We ve brought in new upper-end brands which have worked very well. Because if you re someone who is getting paid in Sterling or Euros, our prices which were already really good value are now excellent. Sutcliffe also believes there has been strong pent-up demand for travel, constrained by the impact of external events. These included the stock market slide of the pre-9/11 period; the 9/11 attacks and resultant impact on world travel; then the invasion of Afghanistan followed by the Iraq war and SARS. We had three or four years of bad news relative to the Middle East, and we have seen a big release of that pent-up demand this year, he says. 26 The Moodie Report

3 Year of success for Bahrain Duty Free 2004 is shaping up to be a great year for Bahrain Duty Free (pictured below). For the eight months ended 31 August, sales were +39% ahead of last year on a passenger increase of +21%. Departures sales were up +35% year-on-year for the period and arrivals shops thanks to the impact of the new store opened late last year have rocketed by +80%. General Manager Maurice Burke said: The arrivals shop which was opened in November 2003 has provided good month-on-month growth. Penetration has grown by +41%, against an arrivals pax increase of +18%. Perfume and cosmetics are the retailer s number one category, representing 19% of all sales. The department is up by +48% on last year, Burke said, with Estée Lauder in particular showing outstanding growth. The top five fragrance brands with year-on-year growth were as follows: Chanel: +16% Christian Dior: +40% Estée Lauder: +54% Givenchy: +18% Lancaster Group: +44% Liquor was up by +29% for the period, driven mainly by Scotch whisky with increases of +31% (standard Scotch), +31% (premium) and +32% (malts). Tobacco products were up by +26% with outstanding performances from UK brands (+17%) and Cuban cigars (+31%). Confectionery/foodstuffs, consistently an outstanding performer in Bahrain, rose +21% with an excellent showing from top house Masterfoods. The top seven brands/houses performed as follows: Masterfoods: +33% Nestlé: +12% Tang: +10% Al Rafai Nuts: +72% Kraft: +27% Lindt: +14% Cadbury: +10% The region of course remains a long way short of stability, with the continued occupation of the Palestinian territories as well as recent events in Saudi Arabia and Egypt and, of course, Iraq continuing to dominate world headlines. Yet the travel sector is continuing normally, says Sutcliffe. No-one is panicking any more, he says. Of greater concern in specific industry terms is the recent rise in oil prices, prompted by events in Iraq. The knock-on effect on airline fares could be a dampener on travel, though there s no sign of that yet. Despite the perennial concerns about operating in such a sensitive zone, the commercial news is generally positive across the board, Sutcliffe says. And the duty free industry is benefiting from big investment before and after the 9/11 period. There was a huge amount of ongoing investment in the Middle East in our retail operations. You had Dubai, Bahrain, Qatar, Beirut and Abu Dhabi all undergoing major refurbishments and retail developments at a time when other people were keeping their money in their wallets. We never stopped. We kept going through all the troubles that have taken place and spending millions of dollars on our retail operations. Now that is paying off. A prime example is the arrivals shop in Bahrain, which opened in November Bahrain Duty Free doubled the size of the outlet and has reaped the benefits, posting a huge yearon-year increase of +80% for the eight months to August. Another location seeing tremendous growth is Beirut International Airport, which has now overtaken Bahrain Duty Free as ARI-ME s leading location by turnover. It s tremendous. The average spends there are phenomenal the highest in the region, Sutcliffe enthuses. We re delighted about it, especially as they re all good quality operations. Quality has been fundamental to our approach everywhere. The big story for ARI-ME this year came in July when it signed a groundbreaking management consultancy contract in Egypt to run duty free shops in partnership with Egyptair Duty Free Shops. The seven-year contract will involve the upgrading of Egyptair s operations, including Cairo, Sharm El Sheikh, Hurghada and Luxor Airports. In addition it will establish a new 2,000sq m downtown duty free shop at the new City Stars Retail & Entertainment Complex in the affluent Heliopolis area of Cairo. The first phase of the consultancy, completed in October, involved a comprehensive review of the current operations by ARI-ME and the formulation of a detailed business plan. The core elements of that plan focused on current retail operations (location, space allocation design) at all the airports, as well as systems, procurement, management structures and marketing. So how are October s attacks in the Sinai resorts likely to affect the Egyptian tourism business? After all, much of 28 The Moodie Report

4 November 2004 MEDFA OFFICIAL GUIDE 2004 ARI-ME A big and successful night for Aer Rianta International Middle East (ARI-ME) at the recent Frontier awards. Pictured from left: Denis Hourigan, General Manager Beirut Duty Free; Deidre Spillane, Senior Buyer Bahrain Duty Free Shops (BDFS); Gerry Crawford, Regional Procurement and Logistics Manager ARI-ME; John Sutcliffe, Managing Director ARI-ME; Maurice Burke General Manager BDFS; Joe Gavin, Head Of Purchasing BDFS; Peter Frohlich, Frontier Advertising Manager; and Mike Doporto, Trading Manager ARI-ME ARI-ME s original delight about the agreement was based on projections of strong tourism growth. As always, Sutcliffe is a realist. Obviously it s going to have an effect, he say. But you must appreciate the geography of this. Where it happened down on the Sinai peninsula is not on the mainstream Egyptian holiday line, which is further down the Red Sea coast in places like Hurghada and Sharm el Sheikh. They re quite a long way from what happened. This happened in a specific region bordering Israel, and it was a specific issue, Sutcliffe points out. I m not saying it was a minor issue it was horrific but it was isolated. So we ll have to wait and see over the coming weeks how it impacts on business. But if the government handles it well it should be all right. People in general realise that nowadays wherever you travel you could be in danger of being caught up in something like this. It could happen in New York or London or any place. You either stay at home or appreciate that it could happen. That s what changing now people are saying we just have to get on with life. So despite the bombings, he remains optimistic about the Egypt proposal. We ve given them an excellent plan to address all the issues at all their multiple locations. Everybody s in for a treat here and I mean the customers, the client (EgyptAir), the airports and the suppliers. Sutcliffe has warm praise for EgyptAir, but he is critical of the attitude of certain suppliers to the new business opportunity and doesn t pull his punches. I m a little disappointed no, make that very disappointed with some of the suppliers being choosy in terms of the support they re offering us for Egypt. This has happened to me before, and it s despicable. You have situations where in the past we have gone into places like Damascus, Doha and Beirut and created fantastic operations and a duty free industry in countries where it simply didn t exist before other than on a very basic level. Some of the suppliers at the time said We re not interested in that market but, as soon as we went in and did well, their interest lifted. Now we re going into Egypt and trying to change things. We ve said to the suppliers that we need them onboard with us on this one and a number of key suppliers, especially in the fragrances & cosmetics business, have come back and said We re not interested, we only want to be in certain locations with you. They re trying to pick and choose, which I think is unfair and unacceptable. In such cases, does Sutcliffe remember and reward the early supporters as opposed to the fair-weather friends? Yes I do. If they want to play this game then I ll play it too. Our operations are sizable around the Middle East now, so we re going to take a look at this situation, he warns. I m not tarring all suppliers with the same brush. The main problem is with the perfume sector, and the main problem there is with three or four principle suppliers which are generally being difficult and trying to pick and choose. Sutcliffe was one of the key voices in the preliminary White Paper produced after the Trinity Forum of June 2003, a document that focused on what was the right business model for an industry involving three distinct partners the airport, the retailer and the supplier (the Trinity ). Now he s not sure the cast of players in that particular industry stage play is the right one. The more I deal with suppliers in places like Egypt, the more I feel they should not be part of that Trinity because they simply don t take the risks that everyone else takes. The Trinity should be the landlord, the operator and the consumer the supplier should not be part of it because they pick and choose [where they invest]. The Moodie Report 29

5 Boom time in Lebanon When the host of the Frontier awards announced the winner of the Best Specialist Concept of the Year award in Cannes this year, the result caused a mighty celebration at the Aer Rianta International Middle East and Phoenicia Aer Rianta Company tables. The latter, trading as Beirut Duty Free, had deservedly won the accolade for its stunning cigar offer at Beirut International Airport. The World of Cigars outlet covers a total area of 400sq m, it has the largest walk-in humidor in the world, a unique Vintage humidor for rare and aged cigars, and even a VIP Smoking Lounge. It represents the culmination of the devotion to the category paid by Phoenicia Trading Afro Asia, which began retailing cigars on-airport way back in 1980, under very different regional conditions. The award was the icing on the commercial cake, one that has seen Beirut Duty Free outstrip all ARI-ME's operations in turnover terms this year. Lebanon is booming from a tourist point of view, and Beirut has been a star performer, notes ARI-ME Managing Director John Sutcliffe. The country has no doubt benefited from the terrorism issue in tourism terms a lot of Arabs simply aren't travelling to Europe or the US for their holidays, as it s getting very difficult for them because of the security issues. The US has slowed right down, and Europe has also fallen in popularity. So a lot of people are going to Lebanon. There is a fantastic development of the infrastructure there, and at Beirut in particular. It's unbelievable. General growth in traffic is around +25%, he says, adding: on top of that we're benefiting from the new shop which opened last year. It's a fantastic retail operation. Both shops are doing extremely well, and the overall growth is phenomenal. High-spend, good-quality passengers are going in there mainly Arabs and a lot of Lebanese living abroad who left during the Civil War. ARI-ME bears the name of one of the world s most illustrious airport operators. There s only one small hiccup that company, Aer Rianta, no longer exists. On 1 September Aer Rianta was replaced by the Dublin Airport Authority (DAA), the culmination of Irish Transport Minister Seamus Brennan s controversial break-up of the state organisation. DAA is the first of three proposed independent entities, covering Dublin, Cork and Shannon airports, and will remain in charge of Cork and Shannon temporarily until new boards are appointed to run the other facilities and their respective business plans win government approval. DAA also assumed control of the assets, liabilities, contracts and obligations of Aer Rianta including its international and duty free activities. So how does that leave ARI-ME positioned? It s early days, Sutcliffe points out, and the fate of ARI as a whole is still being discussed. We ll be deciding how to go forward but if anything it will strengthen the company. ARI-ME is essentially an autonomous, independent and devolved operation with support from our operation in Shannon, and we just get on with it. Getting on with it is exactly ARI-ME would love to do in Cyprus. Disappointment at being part of a consortium (The Hermes Airports Group) which came second to Alterra Partners in the bid to rebuild and operate Larnaca and Paphos airports was replaced by delight when Alterra dramatically pulled out of the deal in July. That left Hermes in pole position and Sutcliffe is hopeful that an agreement will be forthcoming. Hermes is now in negotiations with the Cypriot government, a process that could take several months. If we can pull Cyprus into our operation, then within a couple of years ARI- ME will be a half billion Dollar business, enthuses Sutcliffe. How will the retail operation there be structured? The main local Cypriot company involved is Cyprus Trading Corp (CTC). Should Hermes win the bid, CTC and ARI-ME would jointly form a new company based in Cyprus and take on the retail business. That is our modus operandi, says Sutcliffe. We always take a local partner onboard. It s a proven working formula. Elsewhere, there is a question mark over ARI-ME s highly successful management contract with Qatar Airways, which expires next April. It s a business that has grown exponentially in its two areas of focus airport duty free and Qatar Downtown Company, a local operation with the exclusive rights to alcohol distribution in Qatar. Sutcliffe believes his company has done an outstanding job and remains hopeful that a new agreement will be struck. Meanwhile ARI-ME s inflight sales operation onboard Gulf Air is performing well this year after what Sutcliffe admits was a slow We ve seen a big pick-up. We re working well with the airline to try to develop it, and we ve seen major improvements. Next year we ll see a much better performance because we ve managed to sort out a number of internal and onboard issues, such as staffing, and next year we should see a full 12 months benefit from that. All this growth has inevitably put pressure on the company s infrastructure, and Sutcliffe is looking for some key additions to his team. If we get Cyprus I ll need a team of four or five people there; and for Egypt obviously we ll need a good team. All this is putting a lot of pressure on our resources, and it s not always easy to find the right people. But John Sutcliffe has been coping with pressures like these for 20 years since he first came to the region as part of the pioneering Aer Rianta team that set up Dubai Duty Free. For him, pressure is part of the fabric and, one suspects, the pleasure of doing business. 30 The Moodie Report