ARI posts profits increase in 2019 but warns of sharp impact of COVID-19

ARI posts profits increase in 2019 but warns of
sharp impact of COVID-19
IRELAND. State-owned travel retailer Aer Rianta International (ARI) today reported an increase in profits
from its overseas operations for 2019 but warned of the severe impact of the COVID-19 crisis on performance
in 2020 and beyond.

International profits at ARI rose by +17% year-on-year to €13 million last year. The company posted “strong
like-for-like growth” across the international portfolio and said that gross margins continued to increase through
ARI’s central global buying structure. Total sales at Dublin and Cork airports, including retail and food &
beverage sales by concessionaires, increased by +5% to €348 million in 2019.

“While the increase in profits for last year is very welcome, our business has been badly hit by the collapse in
travel due to COVID-19,” said ARI Chief Executive Officer Ray Hernan.

The Beauty Hall at Dublin T2 was among the signature openings in 2019. Like other operations, Dublin Airport has been
badly affected by the impact of the crisis, with traffic down by -99% in April and May.

All but one of ARI’s retail outlets have been closed due to the pandemic, while its supply business in Qatar
continued to operate. ARI said it is “taking action to mitigate the financial and operational impact of the
pandemic as far as possible, with a range of cost reduction and other measures across the organisation”.

Ray Hernan: Customer shopping behaviour
will change post-crisis; ARI has teams working
to adapt its offer to new traveller expectations

“We’re working with our airport partners in every location and we’re adopting a collaborative and solution
orientated approach,” said Hernan. “ARI has a long track record of adopting a partnership approach both with
airports and suppliers and I think that will stand us in good stead during this current crisis.”

As reported in a recent interview with The Moodie Davitt Report, ARI has devised a re-opening plan for its
locations, with a focus on the health and safety of passengers and staff along with an adapted commercial offer.
Hernan noted that when countries begin to relax restrictions around travel, customer shopping behaviours will
change; ARI has dedicated teams working to deliver on these expectations in new ways.

He added that there will be a higher demand for click and collect and other digital/virtual shopping options for
passengers.

“The COVID-19 pandemic and the resulting financial crisis over the past number of weeks is without doubt the
largest shock that the global economy has ever experienced with every aspect of our business being impacted,”
said Hernan. “Experience is everything at ARI and we are working relentlessly to ensure we continue to provide
that enjoyable customer experience where we can when travel resumes.”

ARIME should benefit from an extended contract at Bahrain Duty Free over time

ARI said it has used technology to stay in touch with its employees and to broaden their knowledge base via its
proprietary Knowledge Hub learning platform and virtual training programmes. As a leading retailer in the sale
of Irish whiskey worldwide, it has been conducting live training and tastings with employees to expand their
knowledge of this fast-growing category.

2019 highlights

Last year ARI made a significant investment in a new Beauty Hall – Ireland’s largest – at Terminal 2 in Dublin
Airport. The 944sq m space is twice the size of its predecessor, and opened with 90 brands on offer, including
30 brands that were new to Dublin Airport. This was part of an overall upgrade of more than 2,000sq m of
airside retail space. A new flagship confectionery store also opened in T2 in August.

Delhi Duty Free: Continued strong performance in 2019 with sales climbing by +13%

ARI’s joint venture operations at Delhi International Airport, where the company holds a 33.1% stake, had
another year of strong sales growth, with turnover up almost +13% year-on-year. Delhi Duty Free’s departures
store was upgraded during the year, following the opening of a new arrivals store in 2018 (see below for a link
to a special Spotlight eZine dedicated to those projects).

ARI Middle East (ARIME), which comprises businesses in Bahrain, Cyprus, Lebanon, Oman, Qatar and Saudi
Arabia and is the largest multi-location travel retailer in the region, had a “solid year” in 2019. ARIME has
extended its management contract with Bahrain Duty Free for a further ten years, as reported.

The company’s operations in Beirut traded well, ARI said, but experienced disruption due to the high levels of
civil unrest towards the end of the year.

The Midfield Terminal at Abu Dhabi’s International Airport is now scheduled to open in 2021. ARIME will
operate various stores at the new terminal, including fragrances & cosmetics, sunglasses and jewellery outlets.

With beauty and liquor areas open, the final elements in a 7,000sq m upgrade of commercial services at Larnaca Airport
be complete in coming months despite the pandemic

At Larnaca and Paphos airports in Cyprus, sales were marginally down as anticipated, due to the refurbishment
of the retail area at Larnaca Airport, resulting in -30% less retail space for much of the year.

The larger and enhanced P&C zone opened at Larnaca at the end of October 2019 and the new liquor store
opened in January 2020. The refurbishment work at Larnaca continues and is expected to be fully complete
within a couple of months.

Total passenger numbers at Hermes Airports (which runs Larnaca and Paphos), in which ARIME has an 11%
stake, increased by +3% to 11.3 million.

ARIME continues to provide management support services to the duty paid retail operation in Terminal 5 at
King Khalid International Airport, Riyadh, in Saudi Arabia. The first of these outlets opened in January 2018
under a seven-year contract.

ARI-North America, led by Montreal, performed solidly in 2019, with sales rising +7%

Business in Canada and at Auckland Airport performed “solidly” in 2019, with sales increasing by +7% in both
locations underpinned by passenger volume growth and improved average passenger spends. Profits were down
in Auckland due to an increasingly competitive environment, ARI noted. Profit levels in Canada were
“satisfactory and above 2018 levels”.

Parent company DAA faces losses of €1 million a day

Ray Hernan discusses the impact of crisis in
the May edition of The Moodie Davitt
Magazine; click on the cover for access.

Meanwhile the pandemic has cost ARI parent company DAA an estimated €160 million in lost turnover so far
and will see the company record significant financial losses this year.

Traffic at Dublin and Cork airports has collapsed, with passenger numbers down by -99% in April and May.

With almost no passengers and no shoppers in its airport retail outlets, DAA is currently losing €1 million per
day, according to Chief Executive Dalton Philips.

“This is the most serious crisis that has ever faced the international aviation sector and our business,” Philips
said. “Our business and the wider sector have weathered many previous upheavals, such as the recent recession,
the impact of September 11, and the 1970s oil crisis, and it will eventually recover from the economic impact of
COVID-19. But it is likely to take some time as the short-term future is bleak, and the post-COVID-19 industry
will be very different.”

While passenger traffic has slowed to a trickle, both Dublin and Cork airports have remained open throughout
the crisis in line with Irish Government policy.

“As an essential service, a skeleton staff at Dublin and Cork airports helped ensure that Ireland could receive the
vital medical supplies it required to assist in the fight against COVID-19 and other crucial cargo for the
economy,” Philips said.

Modest traffic levels predicted for 2021

With almost no traffic in April and May, overall 2020 passenger numbers have already declined by -55% and
will fall further. Volumes for Dublin and Cork airports could be as low as nine million for this year, compared

to a combined 35.5 million passengers last year (+5% vs 2019), according to Philips. Passenger numbers for
2021 are estimated to hit about 21 million, which would represent a -40% decline in traffic against 2019.

“When Dublin and Cork airports last had that level of passenger numbers, they had between 750 and 1,000
fewer employees, so unfortunately we have to take unpalatable measures to lower our costs across all areas of
the business,” Philips added.

“The short-term future is bleak, and the post-COVID-19 industry will be very different,” says DAA CEO Dalton Philips

DAA has placed employees on a four-day week and a programme is underway to right-size the business through
a voluntary severance scheme, career breaks and reduced hours working. Changes in work practices are also
being introduced to keep passengers and staff safe in the new environment and also to make the business more
effective, the company said.

Due to the economic impact of COVID-19, the board has not recommended the payment of a dividend for 2019.
All capital spending is being reviewed and the delivery timescale of certain planned upgrades at Dublin Airport
will be reconsidered.

In preparing for the eventual phased resumption of business, both Dublin and Cork airports have undergone
deep cleaning and the airports have been transformed in light of requirements post COVID-19. DAA said: “The
way in which the public will interact with our airports will change dramatically and as always, we will be
putting the safety of passengers and all those who work at our airports first.”

In 2019, group turnover increased by +4% year-on-year to €935 million. Earnings before interest, taxation,
depreciation and amortisation (EBITDA) increased by +4% to €302 million for 2019. Profit for the year before
exceptional items increased by +13% to just over €150 million.

Last year, almost 87 million passengers passed through the airports and terminals that DAA either operates or
part owns, while about 150 million passengers used the airports in which ARI runs travel retail outlets.

Click on the icon above to hear Ray Hernan speaking about the impact of crisis on ARI and the changed
world of travel retailing.