Aer Rianta CEO: ‘We have had to take some painful decisions’

Ray Hernan offers a beaming smile and an apology for being a few minutes late on a slightly shaky video link from Montenegro, where Aer Rianta International (ARI) operates duty free airport shops. He was delayed by a board meeting that ran over.

As it happens, visiting Montenegro was Hernan’s last trip - in February 26th 2020 - before the pandemic struck and we were all locked down. He travelled home via Rome, which was “desolate” at the time as the first wave of the virus ripped through Italy. “There was literally nobody in the airport,” he recalls.

He didn’t travel again until October 2021, when he visited ARI’s two airports in Cyprus. “We had completely refurbished a store in Larnaca airport. We spent about €12 million on it during Covid. It had been open for over a year but I hadn’t seen it.”

Strange times.

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At the time of our interview earlier this week, Hernan was “concerned” about the prospect of Russia invading Ukraine, which came to pass within 48 hours, as Cyprus is a key destination for travellers from both countries and ARI has shops in Paphos and Larnaca airports.

“Cyprus is a huge destination for Russian and Ukrainian tourists so we are acutely aware of the potential impact on our projections for the current year the way it’s going. It does not augur well for us.”

According to Hernan, the Cypriot airport shops “saved the day” for ARI last year with the local Government being “proactive” in attracting visitors. “The Russians and Ukrainians had the highest spends of all of our destinations and we were delighted to have them back.”

Painful decisions

Not surprisingly, given its business model is built around travel retail, ARI has been badly bruised by the pandemic. A subsidiary of State-owned airport operator DAA, ARI closed each of its 17 locations around the world two years ago as travel was restricted globally to stop the spread of the virus.

In response, ARI renegotiated with all of its airport landlords and trimmed its workforce of about 4,000 employees to fewer than 3,000 within six months of the pandemic hitting.

In some locations up to two-thirds of staff were let go. In Ireland, where it operates duty free shops at Dublin and Cork airports and has its global head office, about 150 staff left the company, roughly a quarter of the team.

In the year before the pandemic, about €1.2 billion worth of sales were put through the tills of its various airport shops. Last year ARI did about 41 per cent of that level and Hernan is hoping that it will rise to about 70 per cent in 2022 as air travel recovers.

'We have had to take some painful decisions. It's been two steps forward and one step back so many times'

“It’s been a very tough two years commercially,” he says, adding that it could have been a lot worse without the Government supports it received in various countries. “We have had to take some painful decisions. It’s been two steps forward and one step back so many times.

“January and February of this year have been slower than we thought they would be because of Omicron. Passenger volumes are down across all locations compared to what we thought they would be when we did our budgets in November. But we are optimistic for the summer... as the restrictions are easing. And what we are seeing is a sizeable pent-up demand to start travelling again. We’ve come out of Covid a smaller company but one that is well set up now for the future.”

Sadly, one employee in the Middle East died of Covid. “That was a very sad day. She died quite suddenly.”

Hernan also accepts that he probably didn’t do enough to keep in touch with staff in the early weeks of the virus taking hold. “We had a general manager working in Delhi and I rang him up maybe around April 2020. To be fair to him he challenged me and said ‘Ray, about time. I’m on the 14th floor of an apartment block in a one-bedroom apartment and I get out twice a week for half an hour to buy my groceries and that’s it’. That was a real wake up call for me and the senior team to start to reach out and keep engaged and to encourage people to keep in contact. They didn’t have to talk work, just to keep in touch. The mental health and wellbeing of people was something we became very conscious of.”

Confidence boost

On a positive note, ARI recently secured a morale boosting contract win in Portugal, to operate duty free shops at eight airports on the mainland and on the islands of Madeira and the Azores. About 60 million passengers are expected to travel through these airports each year, roughly double the number that passed through Dublin Airport in pre-pandemic times.

ARI beat off competition from Swiss-based duty free giant Dufry ($8 billion turnover in 2019), among others, in the tender process, which made it all the more satisfying.

“It’s a very significant win for us. And it couldn’t have come at a better time in terms of a confidence boost for the whole team after two very difficult years,” Hernan says, adding that it gives the business greater scale and purchasing power.

“And I think there are more opportunities out there for ARI because we are recognised in the industry as excellent retailers. We think customer. We are always trying to be bespoke rather than cookie cutter. The proposition in Bahrain where you are selling Rolex watches...it’s the only location where we’re selling Rolex watches because the clientele is there. You have to be conscious of the customer demographic in each market.”

Hernan recounts a story of an Irish person who last week paid €65,000 to purchase a collection of 38 bottles of Middleton Irish whiskey via its shop and collect option

Those watches go for about €20,000 a pop, he says, which would put them out of the reach of most Irish people. That said, Hernan recounts a story of an Irish person who last week paid €65,000 to purchase a collection of 38 bottles of Middleton Irish whiskey via its shop and collect option at Dublin Airport. “This person was, we believe, a collector who had an interest in Middleton and would have been engaging with the team over a period of time and eventually decided that they were going to be flying and they would go to the airport and buy the collection. Whiskey has become a huge proposition.”

Career

Hernan has had a varied career, that has included a decade working for Ryanair, roles with sister retailers Selfridges, Brown Thomas, and Arnotts, and a 20-month “sojourn” in charge of State-owned Bus Éireann, a difficult period that involved industrial action by staff as the company sought to make significant work practice changes in response to the threat of external competition.

“I had 10 fantastic years in Ryanair, where if you showed an appetite and a hunger to develop then you were given loads of opportunity. I would have worked for [former deputy chief executive] Howard Millar and our business was always about scaling up, doubling the size every three to five years, which we did, and how you could come up with more efficient processes. What transformed Ryanair was the internet, people weren’t going into travel agents any more.”

What was it like working with Michael O’Leary? “Interesting. Very charismatic. He knows what he wants and he drives everybody but everybody was very focused and knew what they had to do from a strategy perspective. You either love or hate Michael but what has been achieved by Michael and Ryanair in terms of aviation in Europe is amazing.”

On his six years with Arnotts, post the 2008 crash when it was under the control of its lenders, Ulster Bank and IBRC, he says: “I’m extremely proud of what the team did there in terms of repositioning. If Arnotts hadn’t repositioned it would have gone the way of Clerys.”

This is a reference to the demise of rival Dublin department store Clerys, which closed in 2015. “If you don’t change and offer what the customer wants, you’re goosed.

“The banks said to us, ‘You operate the retail. the only thing we don’t want you to do is ask us for money, you can do whatever you want, we’re not retailers.’

Moving to ARI reunited Hernan with DAA chief Dalton Phillips, who had lured him away from Ryanair during his time in charge of Brown Thomas. “He said to me, ‘would you like to come back into retail?’”

What are the differences in being an airport retailer compared with being on the high street?

'We have a captive audience but we have to work hard through our proposition to convert them from passengers into customers'

“At airports, shopping is secondary so we have to coerce people into the stores. We have a captive audience but we have to work hard through our proposition to convert them from passengers into customers. Travel retail has been behind the curve compared with the high street in terms of communicating directly with customers. We don’t know who is coming into an airport from one day to the next.”

Hernan grew up in the small east Galway village of Ballygar, where his late father, who was from Rathcoole in Dublin, had established a veterinary practice. He has “very happy memories” of Ballygar before moving to Dublin to do a BComm at UCD. “I consider myself a west of Ireland man although my dad did convert us to being Dublin supporters in Gaelic football.”

In terms of the recovery of air travel, Hernan expects variations around the world, with its operation in Auckland likely to be a laggard. “It will be an inconsistent recovery across all of our locations. New Zealand is the most severely impacted because of the Government restrictions in place around international travel. I can’t see New Zealand recovering fully until probably 2024.

“However, Ireland over the last number of weeks has had its best weeks since 2019 in revenue terms and we’re optimistic that Ireland will be very strong this year. Cyprus was one of the strongest locations last year because they had a good summer as the Russians and Ukrainians flew a lot.

“Overall, we’re hoping that by the end of 2023 we will be close to 100 per cent and I think we will exceed 2019 numbers in some locations by the end of next year.”

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CV

Name: Ray Hernan

Job: Chief executive, Aer Rianta International

Age: 57

Family: Married with three adult children

Home: Booterstown

Hobbies: "I like to walk and go to the gym to do a spin class."

Something you might expect: He travels a lot. "I do enjoy travel but the novelty of it can wear off quickly."

Something that might surprise: He played centre for Connacht and captained a St Mary's rugby team in Dublin that included a number of former Irish captains and Lions players, including Ciarán Fitzgerald, Terry Kennedy, Paul Dean, and Vinny Cunningham. "Great times and fantastic memories." His son, Mark Hernan, is in the Leinster academy and has played for the Irish under-20 team.