Olympic sized profits ahead for Beijing Airport?

Revenue rose 11.3%, driven by an 18.7% rise in non-aeronautical revenue. Concession revenues soared from advertising (+49.7% year-on-year), retailing (+33.3%), and F&B (+15.9%), although restructuring of ground handling and catering arrangements saw 16% reductions in both categories.

Passenger numbers rose 10.1% to 53.6 million in 2007, including strong growth in international traffic, which helped to underpin the robust earnings result.

Regulatory changes to airport charges (to reduce fees for foreign airlines, effective 01-Mar-08) are expected to have "no significant impact" on the company's revenue in the short-term, according to BCIACL, unlike Shanghai Pudong Airport, which is forecasting pressure on aeronautical revenues this year.

Rather, the outlook for "rapid growth" in traffic this year, bolstered by the 2008 Beijing Olympics, should result in strong aero and non-aeronautical revenue growth. The available commercial space in the terminals, for example, has been expanded by more than two times with the opening of the new Terminal 3.

BCIACL also believes the CAAC's new airport charges policy, to provide greater transparency in and fairness between the charges local and foreign airlines pay in China, will "favourably foster the increase of aeronautical revenues in the long run".

The airport enters 2008 with new facilities that have provided a huge lift in capacity from 35 million passengers and 780,000 tonnes of cargo p/a to 75 million passengers and 1.8 million tonnes of cargo p/a.

Those facilities will significantly enhance Beijing's competitive hub position in Asia by removing capacity bottlenecks and providing room to grow. Officially, the facilities should give the airport enough capacity until 2015, when a second Beijing Airport is scheduled to commence operation. History has however shown that demand at the capital has outstripped forecasts and it is possible that the facility could be experiencing congestion problems again by early next decade, subject to the performance of the Chinese economy over the medium term.

But the outlook for BCIACL's bottom line is less favourable.

The listed company conceded that it will be "inevitably exposed to heavy operating and financial pressures in the next few years", due to the planned acquisition of the recently added airport facilities and assets from its parent, as well as "significant" increases in operating expenses now that those facilities have commenced operations.

The company declined to give specific figures, but stated that it expected a "significant contrast of operational results to its past record".

Accordingly, the company will take several actions to offset the impact, including seeking the introduction of a "flexible pricing policy for peak hours" - ie higher charges at times of heavy demand. Such an initiative is likely to be resisted by airline groups, which are fighting the US DoT on a similar proposal at US airports at present.

BCIACL also aims to optimise its resource allocation to increase aeronautical revenues and promote the development of non-aeronautical activities, while it is also developing a financial plan based on current difficult credit market conditions to "cut down financial costs" to minimise the short-term impact of acquiring and operating Beijing Capital's new facilities.

So, while Olympics sized traffic growth is a certainty, profits are not for Beijing Capital Airport.