Oil and Opportunity

THE WORLD ROVERS | Russia

Oil and opportunityThe Russian

adventure begins

The creation of Moscow Duty Free in 1988was a milestone for the Aer Rianta group,and the first step in the creation of aninternational business for Ireland’s airportauthority. Liam Skelly, one of the legendsof Irish duty free history, was a pivotalfigure in that move, and is still revered inIrish and Russian industry circles alike forhis contribution. This is his remarkablestory – and the story of how the Irishbecame a force in Russian duty free.

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Liam Skelly has spent much of his businesscareer battling adversity. He master-minded the opening of the first airport dutyfree shop in the Soviet Union in 1988, ata time when few foreign companies dared

to dream of trading there, and when many said it couldn’tbe done. Yet Moscow Duty Free was the first buildingblock in the creation of Aer Rianta International (ARI),and remains one of the platforms of ARI’s business today.

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

Simply put, Skelly has made a career out of succeedingwhere others would have failed. When he was awardeda Lifetime Achievement Award by DFNI publisher RavenFox in 2006, his friends and col-leagues lined up to pay tribute to acareer built on character, skill andvision, not to mention a dose ofhard-headedness.

Yet where do these qualitiesspring from? In Skelly’s case, aglance at his sporting CV mightjust provide a clue. As a youngplayer on the Tipperary sen-ior hurling team of the1950s, Skelly came upagainst some of the great-est, and toughest, names inIrish sport – names likeChristy Ring of Cork andNicky Rackard of Wex-ford, legends of theworld’s fastest fieldgame – and still madehis presence felt.Skelly won medalsat every represen-tative level in thegame.

But the thrill ofcompeting forh i s h o m e

county of Tipperary was ultimately tempered by deepdisappointment. In 1957, just as Skelly’s career at Shan-non Airport was taking off, he decided he couldn’t trav-el regularly from Clare to train with the Tipperary team,and quit the inter-county game to focus on the aviationbusiness. The following year Tipperary won one of themost celebrated of their many All-Ireland champi-onships, and Skelly missed out on one of the greatesthonours that Irish sport can bestow upon its sons.

Almost 50 years on, the disappointment has mostlyfaded, but traces still linger. “It’s something I look backon with a little regret even today,” says Skelly. “An All-Ireland medal would have meant a lot, but I had a choiceto make.” As it turned out, Tipperary hurling’s loss wouldbe Aer Rianta’s gain. And the skill and vision that Skellybrought to the hurling field was put to use in a lifetimeof service to duty free.

Liam Skelly began his working life as an accountant ina branch of the Irish civil service, the Comptroller and

Russia | THE WORLD ROVERS

Skelly presided over some of Shannon Airport’smost profitable years, as reported here by Aer

Rianta’s in-house magazine in 1984

The Moodie Report 31


Auditor General’s Office, in 1948. “Our officeused to carry out audits for the Shannon Salesand Catering Organisation, Brendan O’Regan’scompany,” Skelly recalls. “The office consid-ered Brendan’s company’s accounts and stocktaking to be a bit unsatisfactory,” says Skelly.“So he – clever man that he was – said ‘in thatcase why don’t you send me someone whocan do accounts and control the stock?’ I washanded the job, and came to Shannon to workfor him.”

That was in 1955, when Shannon was the finalstop for all European flights bound for theUS. “We had an awful lot of traffic, comingthrough especially at night, so the shop hadto be open 24 hours,” says Skelly. “It wasmainly Americans who bought in thosedays, including many of the big stars whowere travelling from Europe back to theUS. I saw Marilyn Monroe, ElizabethTaylor, Doris Day, Van Johnson, DannyKaye and many others in our shop dur-ing the 1950s.”

But if the stars of Hollywood were taken by the newnessof duty free shopping, some of the world’s top luxurybrands took more convincing. “Many of the big compa-nies were wary of the duty-free idea in the old days,” saysSkelly. “Companies like Rolex or Omega didn’t want tosupply the business, believing that an airport shop waslike a downmarket grocery store, something thatwould harm their brand’s reputation. Gradually thoughthey were won over, and we developed a terrific range.”

By 1966 Skelly had worked his way up to becomemanager of Shannon’s catering division, counterpartto the shopping division that operated duty free atthe airport. In 1973 Sales and Catering was inte-

grated into Aer Rianta, Ireland’s newly creatednational airport authority.

The same year Skelly was appointed commercial and

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



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catering manager with responsibility for shops, mailorder and tours, as well as bars and restaurants at Shan-non, after his boss on the commercial side, another leg-endary figure, Jack Ryan, was named Shannon AirportDirector.

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

The late 1970s and early 1980s proved a pivotal periodin the history of Shannon Airport and for Aer Rianta. Itwas a period when Skelly and his colleagues laid thegroundwork for Aer Rianta International’s eventualexpansion overseas.

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

But within three years Skelly and his team had returnedthe airport to profit, and set in train a chain of events thatwould 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 weknew they had a lot of North Atlantic routes to places likeCuba and Nicaragua and down to Peru,” says Skelly. “Wesaw that as an opportunity. Their representative BorisKribchenko and (Shannon Airport Deputy Director)Michael Guerin hammered out a deal, whereby wewould build oil tanks to enable them to refuel here, andthey would tanker their fuel from Russia across the BalticSea, down the North Sea and up the Shannon estuary.

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

Talk of fuel soon turned to talk of shopping, when

Overcoming the sceptics… and the challenge of Soviet Russia

When Liam Skelly and his colleagues visited Moscow inOctober 1987, and agreed to the Aerofirst joint venture thatwould establish Moscow Duty Free, it didn’t take long forthe sceptics to emerge.

“We agreed to open at Sheremetyevo on May Day 1998 butnot many people thought it would happen,” says Skelly.“The British Airways manager in Moscow at the time toldme: “Yeah, you’ll open in May alright, but will be it be May1988 or May 1991?””

Old Moscow hands lined up to tell Skelly that his businessventure – as foreign partner in a Russian-dominated jointventure – had no chance of success. Other companies hadcome in and failed to make headway when faced withRussia’s bureaucratic machine and some uninviting corpo-rate practices.

Skelly admits: “In Moscow things happened very slowly.You’d see cranes attached to every building, giving theimpression that there was lots of construction, but none ofthem were ever in use, and even if you came back threemonths later nothing had moved. So for us to open in thatenvironment was real progress.

“But we had a strong partner in Aeroflot and our peopleworked around the clock to get things up and running. Itwasn’t easy. The airport was built for the Moscow OlympicGames in 1980 and there wasn’t much life to it. So wedecided the shop would have lots of life and colour and wetried to make it attractive to passengers.”

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

“Personal responsibility was this big thing in Russia at thetime. If your stock went missing, it was your problem, notthe company’s. But it meant the staff weren’t concernedwith selling anything. There was no reward for them in sell-ing, but there were severe penalties for losing stock. Theresult was that they spent one, or maybe even two or threedays a week stock-taking, and the shop was often closed!”

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




Aeroflot revealed its interest in developing retail atMoscow Sheremetyevo Airport. “Originally it looked asif they’d do a deal with Pan American Airlines, withwhich Aeroflot were negotiating about a jointMoscow–New York route, and Pan Am would assist themwith duty free services,” says Skelly.

“But we had the advantage that all the leading Russianpoliticians travelled through Shannon and were impressedby the shops. With the help of Boris Kribchenko wemanaged to become Aeroflot’s preferred partner in whatwould become the Aerofirst joint venture.”

Not surprisingly, opening Moscow Duty Free involvedovercoming a few obstacles, some more bizarre than oth-ers (see panel, page 33). Skelly says: “When we went overin October 1987 for the first meeting, the people we metwere only interested in painting aircraft – they were alltechnical people. We said to them that we knew nothingabout painting aircraft, and they said, well, we knownothing about shopping.

So eventually, after we had all sat there for a while, wecame up with the idea that if they let us run the shops,then we would paint the aircraft for them! They couldmake 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 forthem, and we opened duty free at Moscow!”

The story sums up Skelly’s modesty about his achieve-ments. He turns one of the most ambitious, logisticallychallenging and complex agreements in duty free histo-ry into a funny anecdote. In fact, beating the challenge ofa major US company – Pan Am – to the deal was a mas-terstroke. And Skelly was also quick to recognise theopportunities that consumerism would open up in Rus-sia under perestroika. As a state-owned company with atrack record of commercial success, Aer Rianta provedhugely interesting for a Communist country whoseeconomy was restructuring. That profits would not endup in private hands, but would benefit both countries,proved a decisive argument.

Skelly’s pride in the achievement, and in the team thatopened 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 theextremes of temperature to the accommodation. I couldgo out and come home again, so I was fortu-nate in that sense. The peoplewho went there and put thatbusiness together deserve greatcredit. They never complained


Michael Guerin, one-time DeputyDirector at Shannon Airport, was theman whose contact with Aeroflot putAer Rianta on a path that would laterlead to the creation of Moscow DutyFree. Here he remembers the gene-sis of a long-term partnership thathas had profound implications.

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

adventure, although he himself wasbased in Shannon for his entire career.It was Guerin who struck the first fueldeal with Aeroflot, a cooperation thatlater extended to retailing, and to thecreation of Moscow Duty Free.

Like many of his contemporaries,including long-time colleague LiamSkelly, he began his career in the Irishcivil service, and moved up the ranksto become an Executive Officer in theMinistry of Transport. This led to hissecondment to Shannon Airport,where Guerin oversaw aeronauticalactivities, complementing the work ofBrendan O’Regan’s Shannon Salesand Catering Company on the com-mercial side.

Among the central functions of therole was to attract additional airlinetraffic to Shannon. In the case ofAeroflot, which had been operatingfrom Shannon since the mid-1970s,the task was to retain the business.

Following aseries of oilcrises in theperiod,Aeroflot threatened to pull out ofShannon in 1977, citing the high priceof buying fuel.

“It looked like the end of Shannon’srelationship with Aeroflot,” saysGuerin, “but I had a thought: why nottry to strike a deal to ship their fuel toShannon, where they could then fuelup whether they were heading east orwest across the Atlantic.”

Guerin contacted local Aeroflot man-ager Boris Kribchenko, who put thesuggestion to his bosses at the SovietMinistry in Moscow. And it struck achord.

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

Creating the Russian connection




Tedcastles to help us. Wegot agreement that they would fuel upto 300 flights a year. We structured itso that the more fuel they used, thecheaper it became for them to use. Atone point Aeroflot was doing well over3,000 flights a year, not 300.”

Although working with Soviet bureau-cracy had its drawbacks, the state-owned Irish airports group developeda strong mutual trust. “The more theysaw of us honouring the agreement,the more business we got,” saysGuerin. “The Russians didn’t see usas a threat because Ireland was aneutral country, not a NATO member.Shannon Airport was also a statecompany, which they liked. We foundtheir people very down to earth andnot difficult to deal with. It was thesystem that held them back.”

Shannon Airport built on the fuel dealto barter Aeroflot’s fuel in agreementswith other airlines, which raised vol-

umes and gave Aeroflot an even bet-ter deal.

Tensions were high between the USand the Soviet Union, and the US eventried to stop Shannon’s cooperationwith Aeroflot in the early 1980s. Thedowning of a Korean Air passenger air-craft by the Soviets in 1983 only raisedCold War tensions. Yet Shannon Airportwas one of the few places jointly usedcommercially by Russians andAmericans.

“Not long after the Korean Air tragedy,”remembers Guerin, “we had a US mili-tary transport coming through to re-fuel. They were parked next to anAeroflot jet, and the US personnel wereshouting abuse over at the Russiansabout their terrible regime, and theirawful country. The irony was that theywere being re-fuelled by Soviet aviationfuel supplied by Aeroflot.”

Guerin made several visits to Moscow

in the late 1970s to strike the deal,which began in 1980. “The povertyand the way of life there was striking,”he says. “Everything was done byhand, from the sweeping of thestreets to construction jobs. The foodwas hit and miss. If you sat down in arestaurant with a menu, you learnednever to order anything that had noprice marked next to it, because itwouldn’t be available.

“And the entertainment was a throw-back to the 1920s: you still had thesame kind of cabaret acts that weregoing when the Communists tookpower. Time seemed to stand still.Whatever was the norm then appearedto remain the norm 50 years later.”

Mikhail Gorbachev’s ascent to power inthe Soviet Union in 1985 helped pavethe way for closer cooperation with for-eign companies. “He announced a‘joint venture decree’ that took effect in1987,” says Guerin,

about the conditions, they were focused first and fore-most on getting the job done.”

Once Moscow Duty Free begantrading, it didn’t take long tospark interest in duty free – andother services – elsewhere inRussia. “I met the head of theLeningrad (now St Petersburg)branch of the Communist Party,who wanted us to build hotels forthem!” laughs Skelly.

“They were talking about places like theNevsky Palace, known as the Baltikathen. I said I didn’t think we could buildhotels, but we could probably do some dutyfree, maybe even in the hotels. So that’s howwe got involved in duty free in two of thecity’s hotels, shops that replaced thelocal Berioska.


Fuelling ambition: the Shannon Airport deal to supply fuel to Aeroflot paved the way for a lasting duty free alliance

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

Other joint ventures quickly emerged – notably Kievri-anta in Ukraine and Frontier Duty Free, which tradedsuccessfully for some years on the Russian–Finnish bor-der near Vyborg. The early expansion of Aer Rianta intonew markets prompted the creation of a new subsidiary,Aer Rianta International, soon after Moscow Duty Freewas opened.

Skelly, who remains on the boards of the Aerofirst, Lenri-anta and Kievrianta joint ventures today, was ARI’s firstDirector General. “The Aer Rianta board had the feelingthat we could do more at arm’s length, with the ability tomake quick decisions and operate more effectively,” he says.

Since its creation in 1988, ARI’s management has retainedthe pioneering spirit of Skelly and his colleagues. “It’ssomething that this company has always done well, find-ing unpromising environments and turning them intoopportunities,” says Skelly. “I remember one member ofthe old Aer Rianta board saying that he’d never want togo into a market where the government wasn’t stable.

“I replied that I only wanted to go places where the gov-ernment was unstable! Everybody wants to go where theycan find stability, but that can cost a lot. If you can findyour way through environments where things are un-structured, then you can do very well.”

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

That spirit was never more evident than during theattempted coup in 1991, when the city was beset by panic.Skelly recalls: “We had invested in our latest joint ven-ture, the Arbat Irish House (operated by the Irish–Soviet joint venture SITCO), but it hadn’t yet opened, soI had to go in as the crisis broke to assess what was hap-pening and how our staff were managing. I arrived atSheremetyevo as half of Moscow was trying to leave.”

The Arbat Irish House was well located for business pur-poses, but its situation between the Kremlin and the WhiteHouse made it a no-go area for three days. “While otherswere leaving our staff stayed on and there was a great senseof camaraderie about the place. Everyone stayed calm andit all worked out well in the end. The Irish House openedand traded very well in the subsequent years.”

So how does Liam Skelly see the duty free market todayand the continuing influence of the Irish? “It was a sad daywhen duty free was abolished in Europe,” he says. “Butthe people in the business are energetic enough and havethe ability to weave with the blows and come back again.Travel will grow in the years to come so that’s a good basis.

“whichallowed Soviet compa-

nies to trade with foreign companiesin their country. It was Gorbachev’sidea to allow in Western expertise, butmarried to Soviet organisations.”

In a quirk of fate, Aeroflot’s BorisKribchenko – who had helped strikethe fuel deal – was back in Moscowand heading joint ventures. “It was hisinfluence that led the way to the coop-eration begin extended to duty free,”says Guerin. “It would never havehappened but for that relationship we

had dating back to 1980. On top ofthat, we had the benefit that manyhigh-ranking party officials had trav-elled through Shannon and had seenthe quality of the shopping on offer.That all eventually led to the openingof Moscow Duty Free.”

Guerin played his part from Shannonin the development of Aer RiantaInternational in the early 1990s, beforeretiring in 1995 after a period as theairport’s General Manager.

But the Russian connection has livedon since. After his retirement theRussian Federation decided it neededan Honorary Consul in the Mid-Western region, and it turned toGuerin. “With all the flights goingthrough Shannon I think they felt theyneeded someone who was closer tothe airport than the embassy in Dub-lin,” he says, “someone who had linksto the airport, who could smooth over

any problems.” Thus Guerin wasnamed Honorary Consul of theRussian Federation in Ireland forLimerick, Clare, Tipperary and Kerry.

“It’s amazing how that original fueldeal, and the exodus of so many Irishpeople to Moscow to set up the dutyfree shop, has had such an impact,”says Guerin. “I was invited to a dinnerin February (2007) of the Friends ofMoscow. It turned out to be around200 Irish people who had been basedout there in all kinds of roles, fromshop staff to carpenters to electricians,all of them with Russian links, andmost from the Shannon region.

“They held a charity ball at theLimerick Inn and raised a lot of moneyfor Russian orphans, a charity theyhad supported since their time overthere. It’s great that our business isstill having an impact on lives all theseyears later.”



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

On the influence of the Irish, Skelly says: “I wonder is itthat spirit of adventure, from years of emigration, of trav-elling abroad, that inspires us as a nation. I think in someways that Irish people have often done better abroad thanat home – they’re prepared to work above the call of duty.And they are very adaptable to new situations – and dif-ficult situations too.

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

Hailing a hero: Aer Rianta dedicated a specialedition of its in-house publication to Liam Skellyupon his retirement in 1992




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