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AIRPORT PROFILES Last modified on May 16, 2010

Bigger and better

Frankfurt Airport CEO, Dr Stefan Schulte, tells Kevin Rozario that the gateway has plenty to look forward to over the next 18 months.

It was no accident that a recent analyst presentation of Fraport’s 2009 annual results was conducted in full view of an A380, as in many ways the aircraft is central to the future development of Frankfurt Airport.

The construction of Pier A+ as a westward extension of Terminal 1 will give the superjumbo a home at Fraport.

Costing €500m, it will have a total area of 185,000sqm spread over four levels with positions for seven wide-bodied jets; four for the A380 and three for the A340-600, and will be exclusively used by Lufthansa and its Star Alliance partners.

Lufthansa, which commands around 60% of the slot capacity at the gateway, has ordered 15 A380s, which it claims “will take it to a new dimension” due to the superjumbo’s capacity, range and technology.

Lufthansa will deploy them on its intercontinental network from June but, at the time of writing, destinations had not been announced. The importance of Pier A+ is underlined by the airline’s planned investment of more than €40 million in new lounges and gates at the facility, which, in addition to giving Lufthansa a shiny jewel in its Frankfurt crown, is also expected to be a key profits generator for the hub due to more than 10,000sqm of concession space.

Schulte concedes that the existing Pier A, which handles around 18 million passengers annually, “doesn’t have the state of the art retail” that he would like, but is confident that this will be put right when the 800-metre long Pier A+ opens in 2012.

And with the primary users of the new facility expected to be traditionally high spending intercontinental passengers, the airport has an added incentive to ensure that Pier A+ provides an exceptional shopping experience.

He enthuses: “The summer 2012 inauguration of Pier A+ will give six million passengers access to more than 10,000sqm of retailing. We think they will be impressed by what they find and hope it inspires them to spend money with us.

“Feedback from customers shows we can significantly increase retail earnings here and push it up to €4 per person.”

Schulte is the first to admit that 2009 was a tough year for Fraport and its prize asset, Frankfurt Airport, where traffic and revenues were significantly down.

Frankfurt Airport handled a total of 51 million passengers (-4.7%), 1.8 million tonnes of cargo (-10%) and 463,111 aircraft movements (-4.7%) last year, the dip in throughput contributing to a 6.1% fall in revenues across the Fraport Group.

Fraport’s earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 8% and its earnings before interest and tax (EBIT) by 19.2% to €290.4 million.

The results prompted Schulte to declare that “the best thing about last year’s financial results is our outlook for 2010,” which he admits is much more positive.

“We are optimistic that we have risen from the trough of decline following the extremely high traffic fall at the beginning of 2009, which gradually improved quarter by quarter,” says Schulte.

“Last year was not all, of course. In fact, strategy wise, 2009 was one of the best years we ever had. We forced a lot of issues. More important (for Frankfurt) was the fee agreement with the airlines forthe period 2010 to 2015, and the ground handling and security issues. We were very successful on the strategic side, if not on the numbers.”

If preparation during adversity in anticipation of better times ahead was behind Schulte’s thinking, then his tactics may well pay off. In 2009, Frankfurt’s management laid a credible platform for growth by protecting future revenues through efficiency gains and medium-term deals.

On airport charges, he describes the discussions as “intensive” but, with a contract in place, Frankfurt can now plan around clear revenue increases. “The deal gives us stability and amounts to a 25% rise over the next six years to 2015,” says Schulte. “It is quite a good deal and we have a bonus system in place – based on growth rates of 4-5% per year – which gives airlines incentives to grow faster.”

With Fraport investing €1 billion annually in the modernisation of Frankfurt Airport, Schulte is keen to get something back. He says: “Each €1 billion Fraport spends requires about €100 million in additional expenditures for interest and depreciation. These expenditures must first be earned via traffic growth, additional airport charges, and proceeds from retailing. The additional capacities created (from modernisation) will ultimately benefit the airlines and their customers as much as they strengthen the competitiveness of Germany as an aviation base.”

As well as raising charges, one of Schulte’s mantras has been “reducing complexity”, and the programme is built around that. “We have to get more responsibility directly to our employees and be more customer focussed,” says Schulte. “It’s not just a cost-cutting process.”

Nevertheless, executive heads will roll as the management to staff ratio drops from 1:4 today to 1:7. A new structure is already in place through which decision pathways will be streamlined to produce productivity gains of more than 10%.

In ground handling, too, after two years of discussions centred on employee pay and conditions, Frankfurt has a contract in place that should create savings of €43 million by 2015. “We expect to bring ground handling back into the black over the next four to five years depending on traffic,” he says.

And on the security side, the business was opened up to the market, with Brinks operating in Terminal 2 from this year. “We still provide the security in Terminal 1,” but that may change. There will probably be another tender in 2011 so we have to decide whether to compete in that,” says Schulte.

Despite all the changes, Schulte is not predicting a big turnaround in financial performance in 2010. He says: “I am a bit disappointed that the passenger increase will probably be only 1-2%, but it’s early days. Much hinges on macro-economic growth.”

What will ultimately give Frankfurt an edge over rivals like Paris CDG and London Heathrow is a new third runway. As the only major airport in Europe to be adding a runway in the near future, it is expected to have a major impact on operational efficiency at the airport, and gets Schulte at his most animated.

“We are on budget and completely on track – no problem!” he says. “Some 300 hectares of forest are no longer there. The different construction contracts have been awarded and we’re confident we can take the runway into operation from October 2011. It will give us 90 to 100 movements in the coming years – and eventually up to 126.”

This effectively adds 50% extra capacity and discussions for the extra slots are already underway for the winter 2011 timetable.

Frankfurt held the top spot in Europe for routes served in 2009 based on a monthly average of 248 destinations, just one ahead of Paris CDG, according to data compiled by Sabre.

A third runway from 2011 should enable that destination list to grow and ensure that fears about the future lack of airfield capacity at Frankfurt becomes a distant memory.

Airport World 2010 - Issue 2

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