Later this summer Aer Rianta will be restructured into a private limited company. The change might seem inconsequential, but its effect will be to bring Aer Rianta a little bit closer to a stock market flotation and privatisation. Whether privatisation comes about soon will depend to a large extent on how buoyant the stock market is, but it will also depend on how well the company copes with the EU ban on duty-free sales.
Aer Rianta just might be in denial over the EU decision that duty-free sales for travellers within the Union will be abolished on July 1st next year. The company recently doubled the size of its duty-free shop at Dublin Airport. In all probability, that extra space will be surplus to requirements next year.
But the duty-free issue is about more than just retail space at the airports, it is about over-dependence. Aer Rianta's results last week revealed profits of £42 million for 1997, but more than half of those profits were accounted for by duty-free sales. There are valid arguments, if not for the retention of dutyfree sales for travel within the EU, then, at least, for its abolition to be postponed. The decision to scrap duty-free was agreed on the assumption that it would be part of a package of measures aimed at complete excise duty harmonisation which, of course, is still years away from completion. These arguments, however, are going to get nowhere; the ban will come into place and the companies affected had better be prepared. And so they should be, having had nine years' notice.
Aer Rianta has taken an interest in the running of Birmingham and Dusseldorf airports. This reduces its dependence on the three Irish airports but not on duty-free sales which are a major earner (for the moment) at both Birmingham and Dusseldorf. To be fair, the company has also acquired duty-free concessions outside the EU - Bahrain, Russia and the Ukraine - while its subsidiary, Aer Rianta International, has established a formidable reputation around the world as designers and developers of duty-free shops. But for all that, duty-free sales still account for more than half the company's profits and a majority of those sales are shortly to be banned.
Aer Rianta is commendably profit-driven. But the company needs to overhaul its structures if it is to flourish in the aftermath of the duty-free ban. It has made what seems to be a good start with the £13 million acquisition of a Canadian duty-free chain but its debts are running at £90 million and further acquisitions might be difficult to fund prudently. One step it should consider is the sale of its Great Southern Hotel chain. There is no national interest served by having a State-owned hotel chain and its sale could raise in the region of £50 million. Neither, perhaps, is the national interest best served by allowing Aer Rianta control the three largest airports. This monopoly will come to an end sooner rather than later. All the more reason for the company to refocus itself.