Oil and Opportunity

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Oil and opportunity The Russian adventure begins

The creation of Moscow Duty Free in 1988 was a milestone for the Aer Rianta group, and the first step in the creation of an international business for Ireland’s airport authority. Liam Skelly, one of the legends of Irish duty free history, was a pivotal figure in that move, and is still revered in Irish and Russian industry circles alike for his contribution. This is his remarkable story – and the story of how the Irish became a force in Russian duty free.

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iam Skelly has spent much of his business career battling adversity. He masterminded the opening of the first airport duty free shop in the Soviet Union in 1988, at a time when few foreign companies dared to dream of trading there, and when many said it couldn’t be done. Yet Moscow Duty Free was the first building block in the creation of Aer Rianta International (ARI), and remains one of the platforms of ARI’s business today.

county of Tipperary was ultimately tempered by deep disappointment. In 1957, just as Skelly’s career at Shannon Airport was taking off, he decided he couldn’t travel regularly from Clare to train with the Tipperary team, and quit the inter-county game to focus on the aviation business. The following year Tipperary won one of the most celebrated of their many All-Ireland championships, and Skelly missed out on one of the greatest honours that Irish sport can bestow upon its sons.

Similarly, when Skelly was appointed Director of Shannon Airport in 1979, he had to turn around huge trading losses at Ireland’s mid-western aviation hub. With Shannon’s finances in so parlous a state, there were fears that the airport might have to close. But within three years, under Skelly’s stewardship, Shannon Airport was turning a tidy profit.

Almost 50 years on, the disappointment has mostly faded, but traces still linger. “It’s something I look back on with a little regret even today,” says Skelly. “An AllIreland medal would have meant a lot, but I had a choice to make.” As it turned out, Tipperary hurling’s loss would be Aer Rianta’s gain. And the skill and vision that Skelly brought to the hurling field was put to use in a lifetime of service to duty free.

Simply put, Skelly has made a career out of succeeding where others would have failed. When he was awarded a Lifetime Achievement Award by DFNI publisher Raven Fox in 2006, his friends and colleagues lined up to pay tribute to a career built on character, skill and vision, not to mention a dose of hard-headedness.

Liam Skelly began his working life as an accountant in a branch of the Irish civil service, the Comptroller and Skelly presided over some of Shannon Airport’s most profitable years, as reported here by Aer Rianta’s in-house magazine in 1984

Yet where do these qualities spring from? In Skelly’s case, a glance at his sporting CV might just provide a clue. As a young player on the Tipperary senior hurling team of the 1950s, Skelly came up against some of the greatest, and toughest, names in Irish sport – names like Christy Ring of Cork and Nicky Rackard of Wexford, legends of the world’s fastest field game – and still made his presence felt.

Skelly won medals at every representative level in the game.

But the thrill of competing for his home

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Brendan O’Regan’s Sales and Catering company, which had set up the first-ever duty free shop in 1947, was incorporated into the new Aer Rianta group in 1973

Auditor General’s Office, in 1948. “Our office used to carry out audits for the Shannon Sales and Catering Organisation, Brendan O’Regan’s company,” Skelly recalls. “The office considered Brendan’s company’s accounts and stock taking to be a bit unsatisfactory,” says Skelly.

“So he – clever man that he was – said ‘in that case why don’t you send me someone who can do accounts and control the stock?’ I was handed the job, and came to Shannon to work for him.”

That was in 1955, when Shannon was the final stop for all European flights bound for the US. “We had an awful lot of traffic, coming through especially at night, so the shop had to be open 24 hours,” says Skelly. “It was mainly Americans who bought in those days, including many of the big stars who were travelling from Europe back to the US. I saw Marilyn Monroe, Elizabeth Taylor, Doris Day, Van Johnson, Danny Kaye and many others in our shop during the 1950s.”

But if the stars of Hollywood were taken by the newness of duty free shopping, some of the world’s top luxury brands took more convincing. “Many of the big companies were wary of the duty-free idea in the old days,” says Skelly. “Companies like Rolex or Omega didn’t want to supply the business, believing that an airport shop was like a downmarket grocery store, something that would harm their brand’s reputation. Gradually though they were won over, and we developed a terrific range.”

By 1966 Skelly had worked his way up to become manager of Shannon’s catering division, counterpart to the shopping division that operated duty free at the airport. In 1973 Sales and Catering was integrated into Aer Rianta, Ireland’s newly created national airport authority.

The same year Skelly was appointed commercial and

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catering manager with responsibility for shops, mail order and tours, as well as bars and restaurants at Shannon, after his boss on the commercial side, another legendary figure, Jack Ryan, was named Shannon Airport Director.

“When Aer Rianta was created we were a bit worried,” he says, “because we were much more commercially minded than our new partners in Dublin, who had very little shopping to speak of. But we were given free rein to develop our own business and they came to us for advice on how to run their own retail…” he says, adding with a smile: “…which they eventually did very well.”

The late 1970s and early 1980s proved a pivotal period in the history of Shannon Airport and for Aer Rianta. It was a period when Skelly and his colleagues laid the groundwork for Aer Rianta International’s eventual expansion overseas.

But when Skelly took over as director of Shannon Airport in September 1979, the future didn’t look at all bright. The fuel crisis of 1978 hit traffic on North Atlantic routes, Shannon was facing mounting losses and the airport had a serious problem with overstaffing. The future looked bleak.

But within three years Skelly and his team had returned the airport to profit, and set in train a chain of events that would lead to the eventual opening of Moscow Duty Free, and the creation of ARI as we know it today.

“Aeroflot started to fly out of Shannon in 1980, and we knew they had a lot of North Atlantic routes to places like Cuba and Nicaragua and down to Peru,” says Skelly. “We saw that as an opportunity. Their representative Boris Kribchenko and (Shannon Airport Deputy Director) Michael Guerin hammered out a deal, whereby we would build oil tanks to enable them to refuel here, and they would tanker their fuel from Russia across the Baltic Sea, down the North Sea and up the Shannon estuary.

“It became a massive business. From a planned 300 flights a year, we serviced a peak of 3,400 flights. Aeroflot benefited because they could pick up their own fuel, and we charged them by the gallon. We even started bartering, taking fuel to sell on to other airlines instead of taking per-passenger fees from them. It turned the whole business around at Shannon.”

Talk of fuel soon turned to talk of shopping, when

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Overcoming the sceptics… and the challenge of Soviet Russia When Liam Skelly and his colleagues visited Moscow in October 1987, and agreed to the Aerofirst joint venture that would establish Moscow Duty Free, it didn’t take long for the sceptics to emerge.

“We agreed to open at Sheremetyevo on May Day 1998 but not many people thought it would happen,” says Skelly.

“The British Airways manager in Moscow at the time told me: “Yeah, you’ll open in May alright, but will be it be May 1988 or May 1991?””

Old Moscow hands lined up to tell Skelly that his business venture – as foreign partner in a Russian-dominated joint venture – had no chance of success. Other companies had come in and failed to make headway when faced with Russia’s bureaucratic machine and some uninviting corporate practices.

Skelly admits: “In Moscow things happened very slowly.

You’d see cranes attached to every building, giving the impression that there was lots of construction, but none of them were ever in use, and even if you came back three months later nothing had moved. So for us to open in that environment was real progress.

“But we had a strong partner in Aeroflot and our people worked around the clock to get things up and running. It wasn’t easy. The airport was built for the Moscow Olympic Games in 1980 and there wasn’t much life to it. So we decided the shop would have lots of life and colour and we tried to make it attractive to passengers.”

There were other challenges too, including convincing the Russian staff to embrace the idea of selling. “The Berioska, or hard currency shop, was a state-run business where goods went in but the primary concern of the assistants was that stock didn’t go missing,” says Skelly.

“Personal responsibility was this big thing in Russia at the time. If your stock went missing, it was your problem, not the company’s. But it meant the staff weren’t concerned with selling anything. There was no reward for them in selling, but there were severe penalties for losing stock. The result was that they spent one, or maybe even two or three days a week stock-taking, and the shop was often closed!”

Eventually, though, the Russian staff would take over much of the running of the business from the Irish pioneers. Skelly says: “At one point we had maybe 140 people employed in Russia, whether in finance or in retailing, but the Russians picked up the skills very quickly and wanted to do things themselves of course, so now there are only a handful of Irish people in each location. And that’s as it should be.”

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Aeroflot revealed its interest in developing retail at Moscow Sheremetyevo Airport. “Originally it looked as if they’d do a deal with Pan American Airlines, with which Aeroflot were negotiating about a joint Moscow–New York route, and Pan Am would assist them with duty free services,” says Skelly.

“But we had the advantage that all the leading Russian politicians travelled through Shannon and were impressed by the shops. With the help of Boris Kribchenko we managed to become Aeroflot’s preferred partner in what would become the Aerofirst joint venture.”

Not surprisingly, opening Moscow Duty Free involved overcoming a few obstacles, some more bizarre than others (see panel, page 33). Skelly says: “When we went over in October 1987 for the first meeting, the people we met were only interested in painting aircraft – they were all technical people. We said to them that we knew nothing about painting aircraft, and they said, well, we know nothing about shopping.

So eventually, after we had all sat there for a while, we came up with the idea that if they let us run the shops, then we would paint the aircraft for them! They could make the money to pay us out of their profit on the shops, we said. They thought it was a good idea, so off we went.

They flew in their planes to Shannon, we subcontracted

a painting firm to do the work in a hangar we reserved for them, and we opened duty free at Moscow!”

The story sums up Skelly’s modesty about his achievements. He turns one of the most ambitious, logistically challenging and complex agreements in duty free history into a funny anecdote. In fact, beating the challenge of a major US company – Pan Am – to the deal was a masterstroke. And Skelly was also quick to recognise the opportunities that consumerism would open up in Russia under perestroika. As a state-owned company with a track record of commercial success, Aer Rianta proved hugely interesting for a Communist country whose economy was restructuring. That profits would not end up in private hands, but would benefit both countries, proved a decisive argument.

Skelly’s pride in the achievement, and in the team that opened Moscow Duty Free, is palpable.

“People went above and beyond the call of duty out there.

They had the toughest conditions to operate in, from the extremes of temperature to the accommodation. I could go out and come home again, so I was fortunate in that sense. The people who went there and put that business together deserve great credit. They never complained

Creating the Russian connection adventure, although he himself was based in Shannon for his entire career.

It was Guerin who struck the first fuel deal with Aeroflot, a cooperation that later extended to retailing, and to the creation of Moscow Duty Free.

Michael Guerin, one-time Deputy Director at Shannon Airport, was the man whose contact with Aeroflot put Aer Rianta on a path that would later lead to the creation of Moscow Duty Free. Here he remembers the genesis of a long-term partnership that has had profound implications.

Michael Guerin is a pivotal figure in the history of the Irish overseas travel retail

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Like many of his contemporaries, including long-time colleague Liam Skelly, he began his career in the Irish civil service, and moved up the ranks to become an Executive Officer in the Ministry of Transport. This led to his secondment to Shannon Airport, where Guerin oversaw aeronautical activities, complementing the work of Brendan O’Regan’s Shannon Sales and Catering Company on the commercial side.

Among the central functions of the role was to attract additional airline traffic to Shannon. In the case of Aeroflot, which had been operating from Shannon since the mid-1970s, the task was to retain the business.

Following a series of oil crises in the period, Aeroflot threatened to pull out of Shannon in 1977, citing the high price of buying fuel.

“It looked like the end of Shannon’s relationship with Aeroflot,” says Guerin, “but I had a thought: why not try to strike a deal to ship their fuel to Shannon, where they could then fuel up whether they were heading east or west across the Atlantic.”

Guerin contacted local Aeroflot manager Boris Kribchenko, who put the suggestion to his bosses at the Soviet Ministry in Moscow. And it struck a chord.

“That contact later led to a deal: they would ship in the fuel if we built the tanks to store it,” says Guerin. “So we struck an agreement with oil company

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about the conditions, they were focused first and foremost on getting the job done.”

Once Moscow Duty Free began trading, it didn’t take long to spark interest in duty free – and other services – elsewhere in Russia. “I met the head of the Leningrad (now St Petersburg) branch of the Communist Party, who wanted us to build hotels for them!” laughs Skelly.

“They were talking about places like the Nevsky Palace, known as the Baltika then. I said I didn’t think we could build hotels, but we could probably do some duty free, maybe even in the hotels. So that’s how we got involved in duty free in two of the city’s hotels, shops that replaced the local Berioska.

Fuelling ambition: the Shannon Airport deal to supply fuel to Aeroflot paved the way for a lasting duty free alliance Tedcastles to help us. We got agreement that they would fuel up to 300 flights a year. We structured it so that the more fuel they used, the cheaper it became for them to use. At one point Aeroflot was doing well over 3,000 flights a year, not 300.”

Although working with Soviet bureaucracy had its drawbacks, the stateowned Irish airports group developed a strong mutual trust. “The more they saw of us honouring the agreement, the more business we got,” says Guerin. “The Russians didn’t see us as a threat because Ireland was a neutral country, not a NATO member.

Shannon Airport was also a state company, which they liked. We found their people very down to earth and not difficult to deal with. It was the system that held them back.”

Shannon Airport built on the fuel deal to barter Aeroflot’s fuel in agreements with other airlines, which raised vol-

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umes and gave Aeroflot an even better deal.

Tensions were high between the US and the Soviet Union, and the US even tried to stop Shannon’s cooperation with Aeroflot in the early 1980s. The downing of a Korean Air passenger aircraft by the Soviets in 1983 only raised Cold War tensions. Yet Shannon Airport was one of the few places jointly used commercially by Russians and Americans.

“Not long after the Korean Air tragedy,” remembers Guerin, “we had a US military transport coming through to refuel. They were parked next to an Aeroflot jet, and the US personnel were shouting abuse over at the Russians about their terrible regime, and their awful country. The irony was that they were being re-fuelled by Soviet aviation fuel supplied by Aeroflot.”

Guerin made several visits to Moscow

in the late 1970s to strike the deal, which began in 1980. “The poverty and the way of life there was striking,” he says. “Everything was done by hand, from the sweeping of the streets to construction jobs. The food was hit and miss. If you sat down in a restaurant with a menu, you learned never to order anything that had no price marked next to it, because it wouldn’t be available.

“And the entertainment was a throwback to the 1920s: you still had the same kind of cabaret acts that were going when the Communists took power. Time seemed to stand still.

Whatever was the norm then appeared to remain the norm 50 years later.”

Mikhail Gorbachev’s ascent to power in the Soviet Union in 1985 helped pave the way for closer cooperation with foreign companies. “He announced a ‘joint venture decree’ that took effect in 1987,” says Guerin,

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And of course we created Lenrianta, which still operates St Petersburg Duty Free today.”

Other joint ventures quickly emerged – notably Kievrianta in Ukraine and Frontier Duty Free, which traded successfully for some years on the Russian–Finnish border near Vyborg. The early expansion of Aer Rianta into new markets prompted the creation of a new subsidiary, Aer Rianta International, soon after Moscow Duty Free was opened.

Skelly, who remains on the boards of the Aerofirst, Lenrianta and Kievrianta joint ventures today, was ARI’s first Director General. “The Aer Rianta board had the feeling that we could do more at arm’s length, with the ability to make quick decisions and operate more effectively,” he says.

Since its creation in 1988, ARI’s management has retained the pioneering spirit of Skelly and his colleagues. “It’s something that this company has always done well, finding unpromising environments and turning them into opportunities,” says Skelly. “I remember one member of the old Aer Rianta board saying that he’d never want to go into a market where the government wasn’t stable.

“I replied that I only wanted to go places where the government was unstable! Everybody wants to go where they can find stability, but that can cost a lot. If you can find your way through environments where things are unstructured, then you can do very well.”

And Moscow in the late 1980s still remains the template for that kind of success. Skelly says: “Some people went to Moscow in the early days and wanted to come home at first. We asked them to stick it out and stay on, and after their six-month stints were ending many of them wanted an extension, so much did they love Russia by then.”

That spirit was never more evident than during the attempted coup in 1991, when the city was beset by panic.

Skelly recalls: “We had invested in our latest joint venture, the Arbat Irish House (operated by the Irish– Soviet joint venture SITCO), but it hadn’t yet opened, so I had to go in as the crisis broke to assess what was happening and how our staff were managing. I arrived at Sheremetyevo as half of Moscow was trying to leave.”

The Arbat Irish House was well located for business purposes, but its situation between the Kremlin and the White House made it a no-go area for three days. “While others were leaving our staff stayed on and there was a great sense of camaraderie about the place. Everyone stayed calm and it all worked out well in the end. The Irish House opened and traded very well in the subsequent years.”

So how does Liam Skelly see the duty free market today and the continuing influence of the Irish? “It was a sad day when duty free was abolished in Europe,” he says. “But the people in the business are energetic enough and have the ability to weave with the blows and come back again.

Travel will grow in the years to come so that’s a good basis.

had dating back to 1980. On top of that, we had the benefit that many high-ranking party officials had travelled through Shannon and had seen the quality of the shopping on offer.

That all eventually led to the opening of Moscow Duty Free.”

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“which allowed Soviet companies to trade with foreign companies in their country. It was Gorbachev’s idea to allow in Western expertise, but married to Soviet organisations.”

In a quirk of fate, Aeroflot’s Boris Kribchenko – who had helped strike the fuel deal – was back in Moscow and heading joint ventures. “It was his influence that led the way to the cooperation begin extended to duty free,” says Guerin. “It would never have happened but for that relationship we

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Guerin played his part from Shannon in the development of Aer Rianta International in the early 1990s, before retiring in 1995 after a period as the airport’s General Manager.

But the Russian connection has lived on since. After his retirement the Russian Federation decided it needed an Honorary Consul in the MidWestern region, and it turned to Guerin. “With all the flights going through Shannon I think they felt they needed someone who was closer to the airport than the embassy in Dublin,” he says, “someone who had links to the airport, who could smooth over

any problems.” Thus Guerin was named Honorary Consul of the Russian Federation in Ireland for Limerick, Clare, Tipperary and Kerry.

“It’s amazing how that original fuel deal, and the exodus of so many Irish people to Moscow to set up the duty free shop, has had such an impact,” says Guerin. “I was invited to a dinner in February (2007) of the Friends of Moscow. It turned out to be around 200 Irish people who had been based out there in all kinds of roles, from shop staff to carpenters to electricians, all of them with Russian links, and most from the Shannon region.

“They held a charity ball at the Limerick Inn and raised a lot of money for Russian orphans, a charity they had supported since their time over there. It’s great that our business is still having an impact on lives all these years later.”

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Hailing a hero: Aer Rianta dedicated a special edition of its in-house publication to Liam Skelly upon his retirement in 1992

“What’s important, as I hear Colm McLoughlin say, is that you don’t just adopt a selfish attitude. You have to ensure that everyone is looked after: that the staff are happy, that your customers get a good deal, and that your suppliers can make money too. As long as the industry can deliver value, then it has a bright future.”

On the influence of the Irish, Skelly says: “I wonder is it that spirit of adventure, from years of emigration, of travelling abroad, that inspires us as a nation. I think in some ways that Irish people have often done better abroad than at home – they’re prepared to work above the call of duty.

And they are very adaptable to new situations – and difficult situations too.

“I came across other nationalities who came to Russia in those days and didn’t stick it out,” he says. “But our people took the attitude ‘What does it matter if the food or the accommodation stinks? We’re here to focus on the business, and we’ll survive it.’ And that attitude and spirit has helped the Irish in many places – not just Moscow, not just Russia, but around the world.” �

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