ARI’s International Business Records €66.5m Loss Due To COVID-19
ARI’s international business recorded a group loss after taxation of €66.5 million in 2020, due to the significant impact of COVID-19 during the year. The loss compared to a profit of €13 million for the business in 2019.
The figures relate to ARI’s overseas businesses, which includes ARI’s share of losses from daa’s 20% stake in Düsseldorf Airport, but do not include the performance of ARI’s Irish operations at Dublin and Cork airports.
The investment in Düsseldorf Airport accounted for losses of €26 million during the year, but all other ARI locations were also affected by the pandemic.
“Like all of our peers in the global travel retail sector, ARI had a very difficult year in 2020,” said ARI Chief Executive Ray Hernan. “Our turnover for last year was affected by the pandemic in all locations, and we saw significant disruption due to travel restrictions and border closures. All of our outlets with the exception of Bahrain Duty Free and Qatar Distribution Centre were closed for a time during 2020, some for extended periods.”
daa’s Annual Report, which was published today, does not provide separate profit figures for ARI’s operations in Ireland, as these are incorporated in the overall performance of the Group.
ARI has a broad span of retail activities internationally, with direct or indirect interests in 14 countries across North America, Europe, the Middle East, and Asia-Pacific. It also holds daa’s shareholdings in Düsseldorf Airport in Germany, and in Hermes Airports, which operates Larnaca and Paphos airports in Cyprus.
“Given the major fall in turnover that we saw across all markets, the main focus for the year was managing our cash burn and ensuring that we had liquidity,” Mr Hernan said. “We took swift and decisive action in terms of reducing costs, but that was what was necessary to protect the business” he added.
“Difficult decisions were taken in 2020 to ensure the long-term viability of the ARI business. New organisation structures are now in place, but we are confident that these changes – coupled with the talented and dedicated people that we have across all locations – mean that ARI is well placed to take full advantage of the upturn in international travel when it comes.”
Mr Hernan praised ARI’s people across the business as they faced unprecedented challenges during the year. “I am proud of our wonderful teams in every market in which we operate. Our people had to adapt very quickly their professional and personal lives. They did so with fortitude and good spirits, and they are a huge credit to ARI and the wider daa Group.”
ARI worked with its airport partners in main markets to “share the burden” and commercial terms were renegotiated with airports and extensions were agreed for a number of key contracts. ARI also availed of Covid-related government supports in all locations in which they were available. Restructuring programmes were implemented during the year, which resulted in approximately 1,000 employees leaving the business across the ARI estate.
ARI management is now focused on ensuring that its retail offer is aligned with consumer expectations in the post-COVID-19 era, according to Mr Hernan. “Our business is adapting and will remain agile in a travel retail environment that is likely to endure uncertainty for the foreseeable future. But we have a strong balance sheet and liquidity position, coupled with an estate of world-class, award-winning outlets, with great teams and excellent partnership relationships with our suppliers and our airports; we will be ready to drive our business on as passengers return.”
Passenger numbers at Düsseldorf Airport declined by 74% to 6.6 million last year. As part of an extensive refinancing of the airport, a €20 million subordinated loan facility was provided, some €12 million of which had been drawn down by the end of 2020.
ARI’s joint venture operations at Delhi International Airport, where ARI holds a 33.1% stake, started 2020 very well and benefited from the opening of the refurbished departure duty free store. However, the material decline in international traffic since March had a severe impact on operations. Management at Delhi Duty Free have successfully managed cash resources and are well-placed to react speedily to a recovery in passenger volumes.
ARI Middle East (ARIME), which has business interests in Bahrain, Cyprus, Lebanon, Oman, Qatar, and Saudi Arabia had a difficult year in all markets, with the exception of the distribution business in Qatar, which traded in line with 2019. The situation in Lebanon was particularly challenging with civil unrest, currency weakness and a catastrophic explosion in Beirut Port. However, the combination of the immediate application of cost reduction measures, coupled with relief negotiated with airports and the leveraging of new e-commerce platforms helped all locations perform better than the underlying drop in passenger volumes during the year.
The new airport in Bahrain formally opened on January 28, 2021 and ARI looks forward to continuing its long-term relationship there. The contract in Oman has been extended on commercial terms that will underpin a viable business there during these uncertain times. Trading in Qatar and Saudi Arabia held up particularly well during 2020, driven by domestic factors in both locations.
ARI’s investment in its Saudi Arabian business – which operates outlets at the domestic Terminal 5 at King Khalid International Airport in Riyadh – completed during the year. Negotiations on an extension to ARIME’s contract in Qatar progressed satisfactorily during the year, and a multi-year extension was agreed. Qatar Distribution Company is the only licensed importer, retailer, and distributor of alcoholic drinks for the domestic, duty-paid market in Qatar.
Through its subsidiary CTC-ARI, ARI owns the travel retail offering at Larnaca and Paphos airports in Cyprus in addition to a joint venture shareholding in the food and beverage operation at both airports. ARI’s retail operations in Cyprus had a challenging year due to the fall in passenger numbers. Overall passenger numbers at the two airports decreased by almost 80% to 2.3 million which also impacted the airports’ operator Hermes Airports, in which ARIME has an 11% stake.
However, despite the impact of COVID-19 restrictions, the refurbishment and upgrading of the retail space in Larnaca was fully completed on time and on budget in August 2020. Management is confident that the business will recover quickly, underpinned by an increase in the range of global brands available, coupled with an extensive assortment of high quality local Cypriot products.
The performance of ARI’s retail operations in Canada and Auckland were significantly impacted by border closures and the fall in international long-haul traffic, particularly on Chinese routes, which typically have higher spending passengers. In Montréal, building on ARI’s existing collaborative relationship with the airport and its award-winning offer there, the contract was extended. ARI’s new e-commerce platform, The Loop was successfully launched in English and French in Montréal during the second half of last year.
In Auckland, ARI continued to work with the airport operator to develop a domestic duty paid offering and also collaborated on its e-commerce platform, while preparing for a reopening of the borders. The key Trans-Tasman corridor between New Zealand and Australia re-opened earlier this month, triggering a re-opening of ARI’s stores there.
During the year, ARI was awarded a five-year duty free retail concession at Tivat and Podgorica airports in Montenegro. Implementation work in Montenegro is complete, and the new store in Podgorica Airport opened recently. The store in Tivat is due to open in June.