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Airport financial reports emphasise differing rates of economic recovery

5th August, 2011

Recent airport financial results indicate an overall improvement in prospects but are also indicative of the different rates of recovery in the global economy. Airport Investor Monthly has received a variety of three, six-month and annual financial reports from a diverse set of airport operators including Aeroports de Montreal (Canada), Birmingham (UK), Brussels (Belgium), MAHB of Malaysia and the three private airport operators in Mexico.

Montreal

Aeroports de Montreal (ADM) announced its consolidated financial results for the three and six-month periods ended 30-Jun-2011 together with traffic figures at Montréal–Trudeau and Montréal–Mirabel international airports.

ADM is the local airport authority responsible for the management, operation and development of Montréal–Trudeau and Montréal–Mirabel international airports since 1992. The Corporation employs 600 people at the two airports.

This report deals mainly with the three–month period (2Q2011) during which Montreal experienced strong growth. In a recent article Airport Investor Monthly pointed to ADM’s propensity to underachieve, given the physical size of the metropolitan region and its commercial and cultural clout. Finally, that underachievement is coming to an end.

Aéroports de Montréal financial highlights for the three months ended Jun-2011 (all financial figures USD million):

Measure

Amount USD million

Variation %

Revenue

101.1

+12.2

Total costs

96.5

+4

EBITDA

47.8

+22.4

Pax numbers

3.4 million

+6

EBITDA totalled USD47.8 million for the second quarter, an increase of 22.4%, over the same period of 2010. (For the half-year ended 30-Jun EBITDA grew by 22.2%, over the corresponding six months a year earlier.)

The ADM Corporation invested a total of CAD15.2 million during the second quarter of 2011 and CAD21.4 million for the half-year. Investments in the airports were financed by cash flows from airport operations, including airport improvement fees (AIFs).

This improvement in revenues (+12.2%) is attributable to the rise in passenger traffic, as well as to increases in fees and rates.

International terminal to be expanded

In fact, Montréal-Trudeau Airport is planning a large expansion of its international terminal in response to continued rapid growth in international traffic. For the first time in its 70-year history the airport expects this year to have more international passengers than domestic or trans-border. Montréal-Trudeau’s international traffic, which was only about 1.5 million annual passengers at the beginning of last decade, is expected to exceed 5.0 million passengers this year.

Passenger traffic totalled 3.4 million for the second quarter of 2011, up 6.0% from the corresponding period last year. International traffic showed the strongest growth, at 8.4%, while trans-border (US) and domestic traffic totals were up by 5.1% and 4.5% respectively. The addition of new services is the main reason for this good performance.

Growth has come from Middle East routes - Qatar Airways became Montréal –Trudeau’s 30th carrier – although there is a continuing stand-off between the government and some Gulf carriers because of the implications of expansion into Canada by those carriers on traffic prospects for Air Canada.

North Asia routes targetted

As a priority for the next stage of its network development plan, ADM is now working on trying to secure service to North Asia with a particular emphasis on China. Beijing is the largest single destination for Montreal passengers heading to East Asia, followed by Shanghai and Hong Kong. ADM is talking to Chinese carriers about potentially serving Montreal. Hainan Air and Air Canada currently operate the Toronto-Beijing route while the China’s three main flag carriers – Air China, China Eastern and China Southern, currently only serve Vancouver. ADM also believes there could be an opportunity for Air Canada to launch services from Montreal to China after the flag carrier starts receiving new B787s. Air Canada has about a 45% share of the Montreal market.

The airport is planning a two-phase expansion. When the expansion project is complete in 2016, the international terminal with have 17 contact gates compared to 11 currently. Two remote stands are also being added. The total cost of the project is expected to be between CAD500 million and CAD600 million.

Operating costs (excluding municipal taxes and rent paid to Transport Canada) for the quarter under review increased by1.7% from the corresponding period of the previous year. Operating costs for the six month period rose by 3.4%. This variance is due, among other factors, to higher costs related to snow-removal operations, AIF collection costs and professional fees related to various studies.

Rent paid to Transport Canada totalled CAD10.8 million for the second quarter and CAD21.6 million for the half year, respectively increases of 16.1%, 17.4%, over the corresponding periods a year earlier. This increase is directly related to the Corporation's higher revenues, since rent is calculated as a percentage of revenues.

The quarter generated an excess of revenues over expenses of CAD4.9 million, compared with a deficiency of CAD2.8 million for the corresponding quarter of 2010. Financial highlights:

Brussels

(Note: Since the financial results for Brussels International Airport were released, the ownership constituency has changed as MAp Airports swapped its 30.8% interest in the airport with Canada’s Ontario Teachers’ Pension Plan [OTPP] in return for a larger slice of Sydney Airport.)

Belgium’s Brussels Airport reports the following financial highlights for three and
six months ended 30-Jun-2011 (all financial figures in EUR million):

(a)   3 months

Measure

Amount EUR million

Variation %

Revenue

103.9

+12.4

Aeronautical

68.7

+13.4

Retail

13.4

+17.5

Property and real estate

9.7

-3.0

Car parking and car rental

6.4

+8.7

Commercial trading and other

5.7

+25.6

EBITDA

68.1

+28.0

Cap Ex

6.8

+15.2

(b)   6 months

Measure

Amount EUR million

Variation %

Revenue

185.3

+8.6

Aeronautical

118.0

+9.4

Retail

24.5

+10.0

Property and real estate

19.7

+0.4

Car parking and car rental

12.2

+4.9

Commercial trading and other

10.9

+18.1

EBITDA

105.8

+19.5

Cap Ex

10.3

-29.9

Revenue per passenger

EUR21.4

-3.1

EBITDA per passenger

EUR12.53

+6.6

MAp’s CEO at the time, Kerrie Mather, said: “EBITDA growth in the first half of 2011 over traffic growth continues to demonstrate the increasing operational leverage being achieved at Brussels Airport. It is particularly pleasing to report improving traffic performance with underlying growth, excluding the ash cloud effect in the pcp, of 6.9%, and below inflation growth in operating costs.”

“Underlying traffic growth of almost 7% for the first six months was achieved despite the impact on bookings to and from the Middle East and North Africa region due to political unrest. Traffic performance reflected strong growth across the board, but was particularly driven by Brussels Airlines’ long haul and low cost segments, each benefiting from increased capacity.”

Star Alliance hub

“Aeronautical revenue growth reflects the impact of the new five year charges agreement which commenced on 01-Apr-2011 and saw per passenger charges increase by 3.65% under the agreed inflation-linked formula. This followed the 0.62% reduction under the previous agreement in the first quarter. In addition, an increasing proportion of transfer traffic, as

Brussels Airport continues to develop its role as a Star Alliance hub, led to slightly lower average yields.”

She continued, “Retail revenue yields displayed strong growth in the second quarter after the first quarter results were negatively distorted by revenue recognition timing differences. Brussels Airport continued to benefit from changes made under the Financial Performance Improvement Plan with only a 1.5% increase in operating expenses in the first half of 2011.”

Key points to note from the second quarter results are:

  • Traffic was 16.3% above the pcp or 7.1% excluding the ash cloud effect in the second quarter of 2010, despite negative pressure on bookings to the Middle East and North Africa caused by political unrest in the region. During the second quarter, intra-EU and

extra-EU traffic grew by 18.8% and 12.1% respectively;

  • Aeronautical revenue increased by 13.4% on the pcp. This reflected the positive tariff indexation of 3.65% from 1 April 2011 as specified under the current charges agreement, partially offset by strong growth in the transfer traffic driven by increasing connectivity at Brussels Airport as it establishes itself as a Star Alliance hub;
  • Retail revenues were 17.5% above the pcp, underpinned by particularly strong growth in the Food and Beverage, and Services outlets at the airport; 
  • Employee costs were 15.3% above the pcp, predominantly reflecting salary increases, and higher provisioning for variable salary components due to strong EBITDA performance and revised accrual timings;
  • The 5.4% decrease in maintenance costs highlights the continuing positive effect of contract retendering in 2010. In addition, Security costs decreased as a result of processing efficiencies implemented in the first quarter;
  • Capital expenditure was 15.2% above the pcp. Despite the growth versus pcp, capital expenditure remained at a very low level during the second quarter as most projects budgeted for 2011 were in a planning phase during the period.

As we have hinted in other articles it is somewhat ironic that MAp chose to leave Brussels now, as the culmination of several years work reached its peak, resulting in solid financial returns and with the Cap Ex requirement reduced as the result of stiff opposition from FSCs to the proposed low cost terminal. But MAp’s loss is, based on this evidence, OTPP’s gain.

Malaysia MAHB

Malaysia Airports Berhad (MAHB) also released three and six-monthly financial reports covering 2Q2011 and 1H2011.

MAHB financial highlights for the three and six months ended 30-Jun-2011
(all financial figures in USD million):

(a)   3 months

Measure

Amount USD million

Variation %

Revenue

222.1

+24.6

EBITDA

62.3

+30.4

Net profit

27.6

+37.2

(b)   6 months

Measure

Amount USD million

Variation %

Revenue

427.3

+23.5

Airport operations

403.4

+23.8

Aeronautical

142.2

+0.2

Non-aeronautical

147.3

+10.9

EBITDA

126.5

+12.6

Net profit

57.5

+28.0

Revenue per passenger movement

USD9.72

-6.5

Aeronautical revenue per passenger movement

USD4.55

-11.0

Non-aeronautical

USD4.71

-1.5

Passenger numbers

31.2 million

+12.6

(KLIA)

18.4

+13.4

(Main terminal building)

9.9 million

+9.0

(LCCT)

8.6

+19

Total assets

USD2375 million

0.2% when compared with the period ended 31-Dec-2010

Cash and bank balances

USD370.9 million

-28.7% when compared with the period ended 31-Dec-2010

Total liabilities

USD1229 million

-2.3% when compared with the period ended 31-Dec-2010

The improvement in revenues was mainly attributed to the effects of adopting an alternative accounting system, which resulted in recognition of construction revenue in relation to the construction of KLIA2 (the new low-cost terminal at Kuala Lumpur airport) and expansion of Penang International Airport in the current quarter.

Stripping out the construction revenue, the consolidated revenue for the current quarter and financial period-to-date under review was higher than the same corresponding period in the previous year by 8.4% and 6.4% respectively. The improvement in revenue for the current quarter under review was mainly contributed by a positive growth of 7.3% from airport operations, driven by an increase in non-aeronautical revenue of 14.9% which was mostly derived from the Group’s retail business. Passenger movements for the current quarter under review were 6.8% higher than the corresponding period last year, in which the international and domestic passenger movements increased by 2.6% and 11.0% respectively.

The Group’s airport operations revenue was, however, impacted by increased airline incentives accrued, which will be given out to airlines in the current financial year.

Positive results from airport farm

Net revenue from non-airport operations registered an increase of 19.6% compared with the previous corresponding period. The positive variance was derived from the agriculture and hotel segments. Despite the lower total crop harvested as a result of the 1,721 hectares of land surrendered for the construction of KLIA2, revenue from the agriculture segment increased due to the higher fresh fruit bunch price. Hotel revenue grew 12.0% due to higher revenue from food and beverage related services and rooms occupancy rate which had improved to 69.8% from 67.5% in the corresponding period in the previous year.

MAHB has recently taken a decision not to install aerobridges in KLIA2, thereby catering to the demands of AirAsia, which dominated budget airline services there. Based upon AirAsia's decision not to use aerobridges at KLIA2, even during inclement or bad weather conditions, the terminal is being constructed without the installation of aerobridges and instead, ramps will be provided. This development makes for an intriguing contrast with that at Alicante, Spain, where Ryanair has threatened to withdraw 80% of its services this coming winter after AENA took the opposite position regarding use of aerobridges.

MAHB’s decision not to install them is expected to save the company up to USD34.5 million (MYR104 million). Chairman Tan Sri Aris Othman said the amount was for 80 aerobridges, at a cost of USD430,837 (MYR1.3 million) each.

The three private airport operators in Mexico revealed a mixed bag of results for these reporting periods though the trend is once again positive as passenger numbers slowly pick up, led by domestic demand. Flag carrier Aeromexico managed to achieve an operating profit increase of 926% in the six months to 30-Jun-2011 as passenger numbers grew by 33%. International demand continues to be influenced by economic factors (e.g. very slow growth in the US) and social ones (e.g. Mexico’s well publicised drug wars).

ASUR

Grupo Aeroportuario del Sureste (ASUR) reported financial highlights for the three and six month periods ending 30-Jun-2011.

ASUR financial highlights for the three and six months ended 30-Jun-2011
(all financial figures in USD million):

(a)   3 months

Measure

Amount USD million

Variation %

Revenue

93.8

+7.1

Aeronautical

53.1

+5.4

Non-aeronautical

29.2

+9.3

Commercial

25.3

+10.5

Construction

11.6

+9.4

EBITDA

53.3

+10

Net profit

33.1

+12

Passenger numbers

4.4 million

+2.2

(b)   6 months

Measure

Amount USD million

Variation %

Revenue

185.0

+3.4

Aeronautical

109.0

+3.6

Non-aeronautical

59.0

+7.3

Commercial

51.4

+8.1

Construction

16.9

-9.5

EBITDA

111.3

+5.5

Net profit

69.1

+4.0

Passenger numbers

9.1 million

-0.1

According to ASUR there is a lack of domestic capacity in Mexico presently and even if Mexicana and Aviasca reinstate operations in 2011, the operator will continue to see capacity constraints on domestic markets. ASUR expects traffic to “normalise” by the end of 2012. In terms of international traffic, ASUR reports no growth from the US market, some growth from Europe and strong growth from Canada.

ASUR will likely not bid for airport concessions in Brazil, due to the expectations of weak returns from the ventures. ASUR earlier expressed interest in building and operating a new airport in the Brazilian northeast beach resort of Natal.

There are rumours that the investor Fernando Chico Pardo is planning a sale of a stake in ASUR.

Grupo Aeroportuario del Pacifico (GAP) reported financial highlights for the three and six month periods ending 30-Jun-2011.

GAP financial highlights for the three and six months ended 30-Jun-2011
(all financial figures in USD million):

(a)   3 months

Measure

Amount USD million

Variation %

Revenue

103.8

+13.7

Aeronautical

63.2

+0.6

Non-aeronautical

16.8

+3.7

EBITDA

52.0

-0.5

Net profit

16.3

-0.5

Passenger numbers

4.9 million

-2.1

(b)   6 months

Measure

Amount USD million

Variation %

Revenue

210.4

+14.1

Aeronautical

129.3

+1.2

Non-aeronautical

33.6

+4.1

EBITDA

108.0

+1.1

Net profit

50.4

-19.5

Passenger numbers

10 million

-23.3

Total assets

2434 million

-2.2

Total liabilities

212.9 million

-1.9

GAP reduced its 2011 traffic growth forecast to a range of between 0% and 1.5%. This is a downward revision from an earlier forecast of growth of between 3% and 4%. The company cited weak performance at its Puerto Vallarta and Tijuana airports as the main reason for the lower forecast, although it is also feeling the impact of the demise of Mexicana.

GAP announced that the country’s competition watchdog, CFC, has supported Grupo Mexico’s offer to increase its current 23.5% stake in the airport operator. Grupo Mexico, a mining company, has been steadily purchasing GAP shares since 2010 to expand its transport business. Grupo Mexico’s plan may become more complicated as Mexico’s banking and securities commission must still approve the increase. GAP’s internal bylaws prohibit any shareholder from holding more than a 10% stake in the company.

Grupo Aeroportuario del Centro Norte (OMA) reported financial highlights for the three month period ending 30-Jun-2011.

Table 6: GAP financial highlights for the three months ended 30-Jun-2011 (all financial figures in USD million):

Measure

Amount USD million

Variation %

Revenue

59.8

+9.4

Aeronautical

38.8

+9.3

Non-aeronautical

11.9

+20

Operating costs

41.5

+14.5

Adjusted EBITDA

25.5

+9.8

Net profit

11.1

-31.8

Passenger numbers

2.9 million

+1.1

OMA saw a rise in passenger traffic in Jun-2011 – the first increase since Oct-2010 – as the expansion of the Mexican economy fuelled business travel to industrial centres such as Monterrey.

OMA opted to be the first Mexican airport operator to sell bonds as a method to finance terminal remodelling and refinance debt with an issue of MXN1.5 billion (USD129 million) of debt in Jul-2011. OMA’s offering may prompt other Mexican airport operators to turn to the bond market as a new source of financing.

Birmingham

Birmingham Airport Holdings (UK) reported financial highlights for the 12 month period ending 31-Mar-2011 (2010/11).

Birmingham Airport financial highlights for the 12 months ended 31-Mar-2011
(all financial figures in GBP million):

Measure

Amount GBP million

Variation %

Revenue

103.3

0.8

Aeronautical

50.4

(-2.3)

Commercial

52.9

0.8

Operating costs

85.4

(-3.0)

(Employee)

20.8

(-11.1)

Operating profit

18.41

38.4

Net profit

5.27

Cf. 0.592 in pcp

Passenger numbers

8.5 million

(-5.5)

There were no dividends paid in the year (2010: GBP nil), resulting in a retained profit for the year of GBP5.276 million (2010: GBP0.592 million).

Almost a loss-making 2009/10

Following what was very nearly a loss-making 2009/2010 the airport secured both an operating and net profit (EBITDA not disclosed) in its year-end results to 31-March-2011. CEO Paul Kehoe said: "We are seeing a return of the business passenger, but the discretionary leisure market - which is now the bulk of our traffic - remains weak." The accounts for 2009/10 have been revised since they were first published. The original statement declared a net loss in that year of GBP153,000.

The higher operating profit is attributed to lower employee costs and running costs. The lease of airport land to a hotel developer for EUR2 million also played a part.

Mr Kehoe continued, "While pre-tax profits increased year-on-year, it continues to be a tough period for the aviation industry...(it was only)... good stewardship through tight cost control (...that...) saw profitability improve.

Turnover was marginally down on the previous year, from GBP103.9 million to GBP103.1m in 2011.

The economy bites

Despite the return to profit, the airport suffered a 5.5% reduction in passengers over the 12-month period; attributed to “the continuing bite of the economy” and specifically to the aftermath of the ubiquitous Icelandic ash cloud. Some growth (4%) came in long haul due to a rise in activity from airlines Emirates, Mahan Air and Turkmenistan Airlines, also from European scheduled airlines (7.6%). That growth was slightly offset by a 9% decline in the low-cost airline market. Ryanair and bmibaby were the worst affected carriers at the airport

Mr Kehoe insists that, "Despite passenger numbers being down in 2010/2011, we have continued to invest heavily in infrastructure, including our one terminal facility and a host of new commercial offerings.” (The single terminal was created from the two existing ones and opened earlier this year). “Work also continues on a new air traffic control tower, which is under construction, and the runway extension project."

The airport’s share of income from commercial revenue continued to outpace that of aeronautical revenue, increasing by 0.8% and representing 51.2% of total income.

Birmingham Airport sees the 61% of ‘unsatisfied demand,’ within its one hour catchment area, as a significant opportunity for growth. That unsatisfied demand lies mainly to the south of the region, within the catchment area of Heathrow and Stansted airports and to a lesser degree to the north, where Manchester Airport’s catchment area overlaps. Together with its location and facilities, and in the longer term, the runway extension and the advent of high speed rail links to London, the airport believes it is well placed to satisfy that demand.

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