Heinemann Takes A Bow As The Only European Travel Retailer To Be Back In Profit

One of the world’s biggest travel retailers, Gebr. Heinemann, has gone where none of its European competitors have in 2021: into profit. This is quite a feat given that air travelers—who are the core shoppers in the travel retail business—were thin on the ground in airport shops last year, with 5.4 billion passengers effectively removed versus 2019.

As a non-listed family business, Heinemann has rarely discussed profitability in the past. This time around at its annual results conference it moved slightly on this position to say that the return to profit was “a major success”, though no further details were given.

It is likely that the company has just scraped into the black given the caveat “excluding foreign exchange effects” but, bearing in mind the reduced level of travelers, the news is welcome.

Larger European rivals, while making big advances on their 2020 losses, were still in the red. Dufry’s results for 2021 revealed a net loss of $375 million (365 million Swiss francs) while Lagardère Travel Retail’s results showed its recurring EBIT was negative to the tune of $84.4 million (€81 million).

Heinemann’s group turnover in 2021 rose 31% year-on-year to $2.2 billion (€2.1 billion)—still less than half (44%) of its €4.8 billion in pre-pandemic 2019. For the current year, the Hamburg-based company hopes turnover will hit 75%.

Sticking to a 75% target

Though the number was calculated before the Russia-Ukraine war started and before the European Union inflation rate surged, the company has stuck to its forecast. The first quarter reached 67% according to chief operating officer Raoul Spanger. In an online conference he added: “When we reach our target in 2022 we will be looking at solid profitability.”

Heinemann’s border duty-free business was one pillar that helped it to withstand the worst of the Covid crisis when airports foundered. In 2020, the border business jumped to a 21% share of the business from 12% in 2019, and last year settled back to a 13% share.

Moving back into profit was helped by strict cost management which has also meant a smaller workforce (cut from just under 10,000 in 2019 to 6,700), plus further savings achieved through negotiations with airport landlords and other business partners. Government support measures during the pandemic in several countries also helped, though these are fizzling out.

Chief financial officer Stephan Ernst—who is departing at the end of June and handing the reins to Kai Deneke (an internal promotion)—said in a statement: “What brought us through the crisis and gives us momentum for the future is the continuous support of our shareholders and key banks. We earn their trust through transparent communication: what we promise and what we achieve is consistent.”

What will keep the revival going?

Consistently winning airport tenders is one way to drive the business forward. Successfully defending Heinemann’s position in Norway—a big airport duty-free business—through its joint venture Travel Retail Norway was a major success. The contract safeguards operations at the airports of Oslo, Bergen, Trondheim and Stavanger until 2027. “Norway was a real milestone for our company in this crisis—almost like a fast forward button,” said Spanger.

As well as Norway, Heinemann opened a total of 19 new shops in 14 countries in 2021—at airports, border crossings, on cruise ships and ferries, plus a resort destination in Macau. Among the locations were Bologna (Italy), Lviv (Ukraine), Malaysia and Australia, with new business also in Russia and Kazakhstan.

“Our strongest markets were Eastern Europe and South East Europe, especially the airports in Kyiv, Moscow, Istanbul and Tel Aviv,” said Spanger. “We were significantly stronger there in 2021 than in Northern and Central Europe. The lower the complexity of a location, the faster it returns to growth.”

Russia’s invasion of Ukraine at the end of February has stopped or reduced some of that growth. In the online call, the company’s CEO Max Heinemann said: “Our business was suspended in Ukraine for an unforseeable period, and we have decided to suspend deliveries of all products to Russia.”

Russian stores stay open

However—together with its Russian joint venture partners at the Moscow airports of Sheremetyevo, Domodedovo and Zhukovsky, as well as at the regional airports of Ekaterinburg, Nizhny Novgorod and Novosibirsk and Samara—almost all the company’s stores are still open.

Airspace bans in North America and Europe will impact these stores as international travel from Russia’s main gateways falls. In addition, the company operates Russian border stores at six crossings with Norway, Finland, Estonia, Lithuania, China and Ukraine as part of a joint venture.

While Asian international travelers remain elusive—and the high-spending Chinese are still missing from all non-Chinese airports—Heinemann is seeing a good spending trend. “We continued to miss Asian travelers in Europe in 2021, but their absence did not have as big an impact on spend per passenger as we had expected,” Spanger said. “Fewer people are traveling, but the propensity to buy continues unabated and many travelers are spending significantly more money than before the crisis.”

A good example is Istanbul Airport: one hub that did not suffer as badly as the rest. The gateway posted good sales even though only 50% of retail spaces were open and the volume of passengers was roughly half of that in 2019. “Our turnover for 2021 stood at around 70% of pre-crisis levels,” said Aydin Celebi, Heinemann area sales manager for Near East & Turkey. “The figures show that when travelers fly via Istanbul, they buy considerably more than before the pandemic.”

Also helping to steady the ship is Heinemann’s business split of retail and distribution. While turnover is weighted to retail at 76% (down from 81% in 2019), the distribution side (20%, up from 17% in 2019) has buoyed the company through Covid’s troubled waters. “Our distribution customers were—and are—a great help in stabilizing our business,” noted Spanger.