08-Sep-2015 11:00 PM

Airport financial results 1H2015 – primary airports, hubs, alliances, retail, sustain profitability

Analysis

Recently, Airports Council International (ACI), the airports global trade representative, observed that, "in many instances, airlines are not paying the cost of the airport infrastructure they use.

"In fact, some airlines are now pushing for even lower airport charges, arguing that such cuts would save passengers money and thereby boost employment opportunities.

"We believe such arguments are flawed and make overly optimistic assumptions of how directly passengers would benefit from such cost reductions."

Airports are now deriving on average 62% of revenues from passengers, through retailing and other activities, and only 38% from the airlines they serve.

Summary

Many airports are struggling to cover their operating expenses and major capital costs due to a squeeze on airport fees by airlines.
Airports are deriving on average 62% of revenues from passengers, through retailing and other activities, and only 38% from the airlines they serve.
Airports Council International (ACI) frequently reports that airports globally are struggling to produce positive financial results.
Airports in the 15-25 million, 25-40 million, and over 40 million passenger per annum categories are making out and are increasingly profitable.
Hong Kong International Airport (HKIA) is highly profitable with a strong EBITDA margin.
Airports in Asia Pacific, mainland China, Thailand, Australia, New Zealand, Malaysia, and Europe are performing well financially.

It is argued that because so many airports are struggling to cover their operating expenses and major capital costs, due in large part to a squeeze on airport fees by airlines, the world may face a shortage of vital airport infrastructure in the next 15 years unless regulatory change sees airlines paying a fairer share of airport costs.

ACI: 69% of airports are operating at a loss - but big is beautiful

ACI frequently reports that airports globally are struggling to produce positive financial results. Its 2014 Annual Economics Report suggests that as many as 69% of airports worldwide operated at a loss in 2013. Most of these airports (81% of the world total) have less than one million passengers per annum (ppa).

Conversely, those airports with in excess of one million ppa are presumed to be not only making out, but also to be increasingly profitable as a ratio of their passenger (and cargo) throughput.

This should especially apply to the 3% (in total) of airports that fall into the 15-25 million ppa; 25-40 million ppa; and >40 million ppa categories.

This report takes a snapshot of very recent (mainly 1H2015) and therefore up-to-date financial results reports from airports across the world, to test that theory, to compare profitability and to search for unique factors influencing those results during a period when air transport continues to recover generally, but more rapidly in some countries than in others, even in the same continent.

In the main the airports examined are those in the latter three carriers: 15-25 million ppa; 25-40 million ppa; and over 40 million ppa. The question is: do they display the sort of profitability that is assigned to them from these assumptions? The answer is yes.

It must be stressed that these are only snapshots. Every airport is different not only in its traffic mix but in the way that external factors affect it. Much of the data is common to each of the airports under examination but there are variations. Those that vary more than most are identified.

The analysis begins with the Asia Pacific region, one that rode the economic downturn better than did regions in the western hemisphere, where airport traffic grew by almost 5% in 1H2015 and where growth at one airport exceeded 50% in that period, but where there has been a marked slowdown in trade activities recently (-8%) threatening to put pressure on both passenger and freight traffic in the coming months. The region is also most exposed to the faltering China market.

Hong Kong International - one of the world's premier airports for passengers and cargo combined

Hong Kong International Airport (HKIA) is one of the largest and busiest in the world, with 63.2 million passengers in 2014. As of 1H2015 it is the seventh busiest in the world, having climbed three places since the previous comparative period.

In the cargo segment it is ranked #1 for both cargo payload and available freight tonne-kilometres (AFTKs), outstripping Memphis in 2014 to claim the #1 spot. A new midfield concourse will open before the end of 2015 but the main story is the addition of a third runway by 2024, an issue that has attracted concerted opposition.

In this case the financial report below is for FY2015, ending 31-Mar-2015.

Hong Kong International Airport

Airport Authority Hong Kong financial/traffic highlights FY2015

Measure	Amount HKD/USD million	Variation %
Revenue	16,367/2111	+10.5
EBITDA	11,314/1460	+13.8
EBITDA margin	69.13%
Net profit	7254/936	+12.4
Passenger numbers	64.7 million	+6.6
Cargo volume	4.4 million tonnes	+5.5%
Aircraft movements	396,000	+4.9%

The airport authority is demonstrated to be highly profitable within the parameters of the measures employed, and with a strong EBITDA margin.

Mainland China: aviation is still performing well

In mainland China, to give some context to the one airport reported here, the current hiatus in the economy that is causing concern on stock markets around the world has yet to be reflected in air traffic statistics.

CAAC has just reported that China's aviation industry as a whole incurred a profit of CNY28.9 billion (USD4.7 billion) in 2014, an increase of CNY3540 million (USD576 million) year-on-year. Details:

Revenue: CNY619.0 billion (USD100.7 billion), +8.2% year-on-year;
- Airlines: CNY421.6 billion (USD68.6 billion), +8.6%;
- Airports: CNY70.3 billion (USD11.4 billion), +11.8%;
- Others: CNY127.1 billion (USD20.7 billion), +4.8%;
Profit: CNY28.9 billion (USD4.7 billion), an increase of CNY3540 million (USD576 million);
- Airlines: CNY17.5 billion (USD2.8 billion), an increase of CNY1190 million (USD193.6 million);
- Airports: CNY7.3 billion (USD1.2 billion), an increase of CNY2800 million (USD455.6 million);
- Others: CNY4100 million (USD667.1 million), a decline of CNY450 million (USD73.2 million).

Thus, despite lingering concerns about airport profitability it is clear that in 2014 Chinese airports outstripped airlines in terms both of revenue enhancement and profitability.

This degree of profitability is underlined at Guangzhou Baiyun International Airport, which recently released its financial report for 1H2015. The airport serves the city of Guangzhou, a major industrial centre and trading port. The airport is located on Pearl River Delta, competing with Hong Kong, Macau, Shenzhen and Zhuhai airports.

In 2014 it handled 54.8 million passengers, an increase of 4.4%, making it the 15^th busiest airport worldwide and the second busiest in mainland China. (In 1Q2015 it has moved up two places globally to rank #13).

A number of important ratios are not made public by the authorities but from the information that is made available, it can be seen that both operating and net profitability is a high level.

Guangzhou Baiyun International Airport financial report for 1H2015

Measure	Amount CNY million/USD million	Variation %
Total Operating Revenue (of which)	2774/452.9	+3.4
Aviation services	2144/350	-
Catering	81.6/13.3	-
Ground transportation	197.5/32.2	-
VIP service	138.4/22.6	-
Ground services	173.4/28.3	-
Advertising	170.9/27.9	-
Operating profit	853.1/139.3	+21.5
Net profit	649.5/106	+16.5

Malaysia: not such a good half

The story is a little different in Malaysia, where Malaysia Airports Berhad (MAHB), the operator of Kuala Lumpur International Airport, the world's 20^th busiest in 2014 with 49 million passengers (and 38 other airports), saw revenues fall in 1H2015.

However, EBITDA increased by 84% in the period, after almost doubling in 2Q2015. A significant factor was the growth in non-aeronautical revenues and revenues per passenger, for which MAHB has striven in recent years.

Malaysia Airports Holdings Berhad (MAHB) financial report 1H2015

Measure	Amount MYR million/USD million	Variation %
Revenue	1816/499.2	(-7.2)
Airport operations	1294/355.8	(-31.2)
(Aeronautical)	681.0/187.2	+3.8
(Non-aeronautical)	613.5/168.6	+9.3
(Retail)	315.7/86.8	+4.3
EBITDA	824.0/226.5	+83.9
EBITDA margin (MYR figure)	45.37%	-
Net profit	11.9/3.3	(-85.9)
Total rev per pax	33.38/9.18	+8.2
Aeronautical rev per pax	16.47/4.53	+3.8
Non-aeronautical rev per pax	14.84/4.08	+9.2
Aeronautical rev per aircraft movement	1664/457.46	(-2.4)

Thailand: airports performing well

The financial report for the three months ending 30-Jun-2015 (3Q2015 in this case) from Airports of Thailand (AoT), which manages the two fast-growing Bangkok airports and four others, is very positive throughout, with both pre- and post-tax profits growing by over 60% compared to the p-c-p. As in the case of MAHB, non-aeronautical revenue growth (in this case identified as 'concessions') is the main growth stimulator).

In a formal letter of explanation from AoT to the Stock Exchange of Thailand, which is required from any listed Thai company whose operating performance fluctuates more than 20% comparing to the same period in the previous year, AoT said the increase "was mainly due to a number of flights and a number of passengers in six airports increasing by 19.27% and 28.67%, respectively.

This resulted in aeronautical revenues increased by 27.34% and concession revenues increased by 30.29%.

Airports of Thailand financial report 3Q2015

Measure	Amount THB million/USD million	Variation %
Revenue, (of which)	11,270/338.8	+23.4
Landing & pax charges	1387/41.7	+10.1
Pax service charges	4834/145.3	+33.4
Aircraft service charges	176.4/5.3	+23.9
Office & state property rents	468.0/14.1	+3.3
Service revenues	1064/32.0	+6.5
Concession	2926/88	+30.3
Profit before tax	5092/153.1	+61.9
Net profit	4074/122.5	+64.2

Passenger figures continue to rise. Indeed in Jul-2015 traffic at Bangkok's Suvarnabhumi Airport grew by 27% and at the low cost specialist airport Don Mueang, now considered to be the world's busiest budget airport, by a staggering 52%.

With Don Mueang poised for further LCC sector-led growth as Thailand's three main LCC groups continue to pursue rapid expansion, and with traffic also on the up again at Suvarnabhumi, the only - but highly significant - potential fly in the ointment is the possibility of further terrorist attacks following the recent one at the Erawan Shrine, and what that could do to influence tourist arrivals.

Australia: Sydney Airport is outperforming

In Sydney, Australia, where national flag carrier Qantas has just reported a substantial turnaround in its operating result for FY2015 (ending 30-Jun-2015), recording an EBIT of over USD1 billion, the net profit at Sydney Airport increased by 154% in 1H2015, and EBITDA by 6.4%.

There does not appear to be one single cause in Sydney's case, with aeronautical, retail, property and car parking revenues all increasing by between 3.9% and 8.7%.

Sydney Airport financial report for six months ended 30-Jun-2015

Measure	Amount AUD million/USD million	Variation %
Revenue, (of which)	594.7/466.1	+4.6
Aeronautical	247.1/193.7	+4.6
Aeronautical security recovery	41.2/32.3	(-0.2)
Retail	129.9/101.8	+3.9
Property & Car Rental	101.0/79.2	+4.8
Car parking & ground transport	72.2/56.6	+8.7
EBITDA	488.3/382.7	+6.4
EBITDA margin (AUD amount)	82.11%
Net profit	133.9/104.9	+154
Capital expenditure	128.2/100.5	+34.2
Revenue per passenger	AUD31.3/USD24.5	+2.5

Of course it helps if you are a monopoly as in this instance, but the new Sydney Airport (on which the existing operator has first option anyway) is many years away yet.

That monopoly position has helped Sydney Airport to retain one of the highest EBITDA margins in the world for an airport company, consistently above 80%. It only has a BBB credit rating though, one that it has maintained, remarkably, since 2002 and is not inclined to chase upwards, according to its CFO.

This may be to do with the reversion of T3 from Qantas' ownership to Sydney Airport effective 01-Sep-2015, which will cause the airport to draw down additional debt of AUD369 million from existing bank facilities to fund its AUD535 million payment to Qantas.

The proceeds will come from distribution, debt and cash sources, primarily from banking facilities amounting to that AUD369 million (USD272 million). The airport believes the mixed funding strategy will ensure Sydney Airport retains its BBB rating. According to the rating agency, the transaction will not materially negatively affect its financial profile, given its expectation for increased earnings post-transaction.

New Zealand: Auckland is another good performet

Across the Tasman Sea, another airport that historically achieves a high EBITDA margin is Auckland International, in New Zealand.

In this instance the financial report under review covers the period FY2015, the 12 months ended Jun-2015.

Auckland International Airport financial report for 12 months ended Jun-2015

Measure	Amount NZD million/USD million	Variation %
Total revenue (of which)	508.5/394.2	+6.9
Airside income (aeronautical)	93.3/72.3	+6.5
Passenger service charges	140.9/109.2	+7.1
Retail income	132.0/102.3	+3.9
Car parking	46.6/36.1	+8.9
Rental income - property	50.1	+10.8
Rental income - aeronautical	14.1/10.9	+3.7
North Queensland Airports	127.5/106.2	+2.8
Queenstown Airport	24.8/19.2	+13.2
EBITDAFI*	380.0/294.6	+7.0
EBITDA(FI) margin (NZD amount)	74.72%

The airport expected underlying net profit after tax (excluding any fair value changes and other one-off items) to be between NZD183 million and NZD191 million, subject to any material adverse events, significant one-off expenses, non-cash fair value changes to property and financial derivatives and deterioration due to global market conditions or other unforeseeable circumstances.

This is considerably more than the guidance figure offered in Feb-2015.

A strategic business plan is in place that is starting to show benefits in technology, retail and aeronautical infrastructure while the property development business performed very well in the 2015 financial year. While there have been new air routes and additional capacity, more retail operators, including duty free, have been introduced.

But the main financial benefits came from strong aeronautical performance (landing and passenger charges up by 6.9%) and property rentals (up by 8.9%).

A supplementary factor was the share of profit from associates, which include two much smaller airports, though it should be noted that the profit share from North Queensland Airports (in Australia) decreased by 9.8%.

Mainland Europe - non-aeronautical revenues driving growth

Mainland Europe has not yet benefited from any discernible 'end' to the financial crisis and the Euro zone has been subjected to the many attempts to resolve the Greek debt crisis issue.

There are two sets of results from the major players of the French airport operational category, namely Aeroports de Paris (AdP) and Vinci. In both cases they are for 1H2015, to the end of June.

Aeroports de Paris: holding its own

AdP is responsible for the Paris area airports, the most important two being Charles de Gaulle and Orly, and it has interests in a number of airports elsewhere in the world.

It is not as active in foreign investment as it once was but has a tie-up with Turkey's TAV (q.v.) in which it has a 38% stake, AdP does also collaborate with TAV, such as in the case of the Nuevo Pudahuel consortium, which was selected by the Chilean government for the concession of Santiago de Chile Arturo Merino Benítez International Airport.

So in AdP's case there is both the performance of the Paris airports and the subsidiaries to take into account, in addition to that of Air France-KLM, which made a EUR638 million net loss in 1H2015 although it was severely impacted by volatility in exchange rates as well as the price of oil.

The entity reduced its net loss to EUR198 million last year, it having been EUR1.82 billion the previous year. Amsterdam-based KLM is the more profitable of the two companies by some margin.

Aeroports de Paris financial report for six months ended Jun-2015

Measure	Amount EUR million	Variation %
Revenue	1422	+5.1
Aviation	844	+5.4
(Airport fees)	473	+3.6
(Ancillary fees)	103	+10.7
(Revenue from safety and security services)	247	+7.5
Retail and services	448	+4.3
(Retail activities)	206	+10.2
(Car parks and access roads)	88	(-4.2)
(Industrial services)	68	+1.2
(Rental income)	69	(-2.4)
Real Estate	137	+0.6
International and airport developments	42	+9.5
EBITDA	509	+3.2
EBITDA margin	35.79%
(Aviation)	168	+2.9
(Retail & services)	257	+7.8
(Real Estate)	77	(-6.3)
(International and airport developments)	(EUR4 million, compared to a loss of EUR 1 million in the p-c-p
Net profit	167	+2.8
Forecast for 2015. EBITDA		+30 to 35%

AdP held its own in the period, with a small increase in EBITDA and in Net Profit that was attributed by the CEO to dynamic retail activities. Sales per passenger (not in table) was up by 11.5% at EUR19.8.

This helped offset losses caused by 'a harsher winter.' AdP and the French State have reached an agreement on a new Economic Regulation Agreement (ERA) covering the 2016-2020 period which will see the emphasis being brought on the maintenance of infrastructure, the optimisation of terminals and the efficiency of the hub, within a EYR3 billion budget.

Tariff increases will be limited to an average of 1.0% per annum plus inflation. As always the EBITDA margin is small when compared to some airports in the eastern hemisphere.

In the same period the Vinci conglomerate reports that while group revenues fell by 3.2%, revenues grew by 12.7% in the airport segment of the business. What is more, EBITDA increased by fully 31 percentage points more than did the Group's EBITDA.

Probably the most significant statistic of all is an EBITDA margin of 51.56% for airports versus 13.82% for the Group.

The Vinci Group: better than expected

The Vinci Group, which calls itself a 'global player in concessions and construction' is active mainly in road, rail, energy and telecom infrastructures with a turnover of some EUR40 billion per annum.

Exposure to the airports business is small in the overall scheme of things but even so Vinci Airports operates 24 airports with 47 million ppa, including ANA Airports of Portugal.

10 of these airports are secondary/tertiary ones in France that are managed under contract though so Vinci is not strictly the same kind of primary airport operator as others under scrutiny in this report.

In fact its only primary airport of any size is Lisbon Portela. Traffic growth in the segment was better than the company had expected in the period.

Vinci Group financial highlights for six months ended 30-Jun-2015

[Measure	Amount EUR million	Variation %
Revenue (group)	17880	-3.2
(Airports)	384	+12.7
EBITDA (group)	2471	+1.7
(Airports)	198	+32.7
EBITDA margin (group)	13.82%
EBITDA margin (airports)	51.56%
Net profit	819	(-39.3)

Germany is another country where the performance of the main airports can be heavily influenced by that of its national airline. In this case it is Lufthansa which, quite apart from the reaction to the loss of a (subsidiary) Germanwings aircraft earlier this year is testing the waters with a charge on tickets booked through Global Distribution Systems.

Just what reaction that will provoke when it is introduced in Sep-2015 remains to be seen - there is concerted worldwide action against it - but for the moment at least financial results are positive, with a 52% increase in EBIT in 2Q2015.

Fraport: retail performing well

For its part Fraport, which has interests in Frankfurt Airport, also indirectly those at Hannover, Lima, Delhi, Ljubljana, St Petersburg and others (and soon to be joined by 14 regional airports in Greece), also reports EBITDA growth in 2Q and 1H2015.

Once again though, a relatively small EBITDA margin stands out.

Fraport financial highlights for six months ended 30-Jun-2015

Measure	Amount EUR million	Variation %
Revenue	1242	+10.6
Aviation	444.0	+6.1
Retail & real estate	233.1	+6.6
Ground handling	333.0	+4.9
External activities and services	231.8	+38.1
EBITDA	385.0	+8.7
EBITDA margin	31%
Aviation	102.4	(-1.9)
Retail & real estate	183.9	+6.7
Ground handling	12.7	(-9.3)
External activities and services	86.1	+29.9
Net profit	103.0	+12.3

Here again retail business activity was singled out by the management (in this case the Executive Chairman, Stefan Schulte) as a positive influence on the result, along with an increase in passenger numbers. The value of the external activities (airport management) should not be overlooked, with revenues increasing by 38% and EBITDA by almost 30%.

Most of these airports can be classed as primary/major, even where they are smaller ones (Ljubljana is a capital city airport and St Petersburg is Russia's second city within a metropolitan region of over five million people). On the other hand the acquisition of the Greek regional airports will affect that equation considerably.

Flughafen Wien: higher shopping and gastronomy income

Flughafen Wien (Vienna Airport) has been a bigger external investor/operator than it is now; it has scaled back to just Malta Airport (directly and indirectly) and Kosice Airport in Slovakia (directly).

Thus the operations at Vienna Airport itself carry more weight than they do at, say, Frankfurt and Paris. Vienna is locked in a battle with neighbouring airports at Budapest and Prague for regional dominance and increasingly will be with Warsaw. On the fringe, upstarts like Belgrade are also having a regional impact.

See the related reports:

https://centreforaviation.com/analysis/reports/airport-investment-in-eastern-europe-opportunities-abound-but-caution-needed-amid-changing-markets-232839 and

https://centreforaviation.com/analysis/reports/belgrade-airport-with-resurgent-air-serbia-challenged-the-hub-order-in-centralsoutheast-europe-213774

Yet again the management identified and highlighted non-aeronautical revenues as a key driver for the revenue increase in the first half of 2015 and particularly higher shopping and gastronomy income, which has been assisted by a strategy of bringing more (high) quality and new brands to the passenger terminal. During 1H2015, a significant reduction of net debt to EUR468 million was achieved thanks to the strong cash flow. For the full year 2015 the management expects passenger growth of between 0% and 2% as well as an increase in revenue and net profit for the period and a further decrease in the net debt.

The airport has forecast revenue of more than EUR645 million with net profit expected to surpass EUR85 million.

The airport will exploit new market potential on the basis of new service offerings such as online parking and the further development of an Airport City with new services such as an additional hotel, an automobile cleaning service and a new fitness centre. The single negative feature is ground handling (-31%), which has become a thorn in the side for many airport operators that have their own handling operations working within European competition rules in that segment.

Flughafen Wien financial highlights for six months ended 30-Jun-2015

Measure	Amount EUR million	Variation %
Revenue	311.5	+2.2
Airport	166.7	+2
Handling	73.6	+2.1
Retail & properties	63.4	+3.4
EBITDA	132.7	+4.9
EBITDA margin	42.6%	-
Airport	71.7	+4.2
Handling	5.9	(-31)
Retail & properties	44.3	+12.8
Net profit	47.6	+8.1

AENA: living up to expectations - to the surprise of many

One of the most anticipated financial results for 1H2015 is that for Spanish airport operator AENA, which went through a partial privatisation exercise (trade/institutional sale + float) in Feb-2015, the offer price being revised upwards quite dramatically just before the float on account of improved nine-month results from AENA (and which were reflected in the full year result as well).

Since the privatisation AENA's share price rose strongly, while the government benefited from what could be considered a windfall of EUR8 billion judging from AENA's precarious situation only a handful of years ago.

And the government was able to claim that the management was largely unchanged as well, the investors being no more than that - profit takers - with little control over the direction that AENA takes.

On the downside there are concerns about the Competition Commission's insistence on a reduction in aeronautical charges (which is being challenged for the third time) and about the outcome of the forthcoming General Election and its potential implications for privatisation in Spain generally.

For AENA those financial trends continued in 1H2015.

AENA (ENAIRE) financial highlights for six months ended 30-Jun-2015

Measure	Amount EUR million	Variation %
Revenue	1598	+12
(Commercial)	-	+14.6
EBITDA	826.4	+11.9
EBITDA margin	51.71%
Net profit	275.6	+79.9

It is a set of figures (simplified here) that any organisation would justifiably be proud of and it augurs well for the future even if the bottom line was amplified by a series of one-off tax reductions. Apart from higher air traffic (movements and passengers) that looks set to continue as Spain's touristic competitors are beset by problems, Of particular note is the increase in commercial revenues as AENA at last gets to grips with the methods of making money out of passengers in terminals and at car parks, something that it has been woefully poor at in the past. AENA has also been known for its ability to select winners amongst its foreign investments (AENA Internacional) and it is no surprise that its concession investment in the UK's Luton Airport (along with France's Ardian) is also starting to pay dividends.

Milan Linate and Malpensa: strong profit growth

The two main Milan airports, operated by SEA, figured in a recent report on their potential to grow at the expense of Rome's Fiumicino airport, following a fire there (see: https://centreforaviation.com/analysis/reports/as-romes-fiumicino-burns-fashion-capital-milan-could-benefit-alitalia-is-left-with-a-hub-dilemma-239586

In the six months ended 30-Jun-2015, there was again a good increase in EBITDA while aviation and non-aviation revenue streams grew equally quickly in this case.

SEA financial highlights for six months ended 30-Jun-2015

Measure	Amount EUR million	Variation %
Revenue	333.5	+2
(Aviation)	189.0	+4.1
(Non-aviation)	109.1	+4.1
EBITDA	101.4	+6.5
EBITDA margin	30.4%
Net profit	38.1	+98.1

Copenhagen Airport: non aeronautical leads the growth

In Scandinavia, where Copenhagen Airport is one of three capital city airports with similar passenger traffic numbers, and where there is a continuing battle for supremacy between SAS and Norwegian, an itemised financial statement makes clear how important the provision of security services (classified as an aeronautical revenue stream) has come to be, with a growth increase of over 3% in this segment.

Otherwise, it is clear again that concession and rental revenue streams are growing the fastest.

The non-aeronautical business generated strong growth, partly driven by a stronger offering at the terminal shopping centre. Parking revenue was up by 3.0% driven by the increase in the number of locally departing passengers, and revenue from the hotel business increased by 4.4% as a result of a continuing high occupancy rate at the Hilton Hotel Copenhagen Airport.

Copenhagen Airport highlights for six months ended 30-Jun-2015

Measure	Amount DKK/USD million	Variation %
Revenue	1915/286.8	+2.5
Aeronautical	1101/164.9	+1.5
('Take off')	207.9/31.1	+0.3
(Passenger revenue)	514.1/77	+0.8
(Security)	259.2/38.8	+3.1
(Handling)	88.7/13.3	+0.9
Non-aeronautical	814.1/121.9	+3.8
(Concession)	535.7/80.2	+5.1
(Rent)	91.2/13.7	+4.6
EBITDA excl one-off items	1039/155.6	+1.1
EBITDA margin (DKK amount)	54.26
Net profit	471/70.5	+8.0

TAV Airports: retail strong and helped by exchange rates

TAV Airports was mentioned earlier, in connection with its partner AdP, which holds a 38% stake. TAV acknowledges that revenue increases in both aviation and commercial (duty free, catering and retail) were boosted by favourable foreign exchange rates in 1H2015. A duty free operation commenced in Salalah, Oman. Revenues grew at more than twice the rate of the number of passengers served.

TAV operates at primary airports such as Istanbul Ataturk, Ankara and Izmir in Turkey, as well as (inter alia) Zagreb, Skopje, Tbilisi, and Medinah in Saudi Araba.

TAV Airports highlights for six months ended 30-Jun-2015

Measure	Amount EUR million	Variation %
Revenue	508.0	+17
Aviation	161.0	+17
Commission from duty free sales	120.0	+16
Ground handling	71	+7
Catering services and retail	53	+25
EBITDA	221	+21
EBITDA margin	43.5%
Net profit	88.0	+4
2015 guidance:
Revenue		+10 to 12%
EBITDA		+12 to 14%
Net profit		+5 to 10%

Russia - Moscow's Vnukovo Airport rides out the economic storm

It is difficult to obtain detailed financial data from large Russian airports and their operating companies, by which to assess profitability levels. The most recent data we have access to is for Moscow's third airport, Vnukovo Airport, for the six months ended Jun-2015 (1H2015). In that period revenue grew by 20% to EUR46.5 million.

EBITDA was only EUR211,000 (but that was +107%) and net profit EUR1.1 million (+117.7%).

Moscow Vnukovo Airport highlights for six months ended 30-Jun-2015

Measure	Amount EUR million	Variation %
Revenue	46.5	+20.0
EBITDA	0.21	+107.0
EBITDA margin	0.45	-
Net profit	1.1	+117.7

While it is classed as the 'third' airport, Vunokovo is growing at a similar rate to both the Sheremetyevo and Domodedovo airports and reached 12.7 million passengers in 2014 (+13.9%). Sheremetyevo, still regarded as the primary Moscow gateway airport, will be merged with Vnukovo Airport at the conclusion of a lengthy process in 2016, at which stage the joint entity - and possibly Aeroflot, which is an existing shareholder in it - will be partly privatised via disposal of some of the equity held by the state (currently 83.04%).

The economic crisis and sanctions are hurting Russian airports now and it is interesting that it is Vnukovo that appears to be riding the storm quite well, based on the available data. Vnukovo is home base to the only LCC, Pobeda, and has a high-speed rail link between its terminals and downtown, pitching it in to direct competition with Sheremetyevo and Domodevodo, both of which offer the same facility.

UK: London Heathrow and Gatwick financials came under Airport Commission scrutiny

In the UK, the financial capabilities of both of the contenders for an additional runway in the southeast of England - Heathrow and Gatwick airports - came under close scrutiny immediately prior to the final recommendation of the Airports Commission, which was delivered on 01-Jul-2015.

The Commission was concerned, naturally, that these large airport operators could actually pay for this expensive infrastructure, and internally generated funds are as important as the capital contribution of fund shareholders.

The latest report available to us from Gatwick Airport is for the period FY2015, ending 31-Mar-2015. Gatwick has seen passenger numbers growing quite sharply in 2015, by 7.8% in FY2015 and by 4.7% in Jul-2015, when there was a big jump in traffic to and from the Middle East. In fact there has been two and a half years of month-on-month growth and long haul flights are the ones witnessing the largest increases, the vast majority on a point-to-point basis such as Norwegian, which has cemented its position as a leading carrier at Gatwick. It has currently 8.4% of the seat capacity.

Gatwick still hopes to convince the government that the Airport Commission's recommendation was flawed.

The majority owner of Gatwick Airport, GIP, is also majority owner of London City Airport, which is being put up for sale at the time of writing (CAPA report to follow shortly). Whether or not this action presages a decision about keeping Gatwick (whether or not it finally loses the debate with Heathrow) remains to be seen.

Gatwick Airport highlights for FY2015

Measure	Amount GBP million	Variation %
Revenue	638	+7.5
EBITDA (pre-exceptional items)	293.7	+13.2
EBITDA margin	46.03%	-

The rival Heathrow Airport is focused on an ambitious programme of efficiencies and increased revenue, having secured cost efficiencies of GBP280 in 2014. Progress has continued in 2015 including the early closure of Terminal 1, enhancements to security productivity and initiatives to improve energy consumption. Now the airport is looking at the smallest details to lower overheads by more than GBP600 million. Every penny will count as it gears up towards expenditure of GBP18.6 billion on the runway and associated works, though some of that will be borne by the taxpayer.

Heathrow is a past master at 'rubber walls' and at squeezing even more flights and attendant revenues on to its two runways, usually because aircraft are getting bigger.

In 1H2015 an impressive set of financial statistics was led by a 10.5% increase in catering revenue (admittedly from a small base) and net profit gain of 450%. Car parking again is prominent as a specific high earner.

London Heathrow Airport highlights for six months ended 30-Jun-2015

Measure	Amount GBP million	Variation %
Revenue	1307	+5.9
(Aeronautical)	817	+6.5
(Retail)	247	+4.2
(Car parking)	52	+8.3
(Duty & tax free)	60	+1.7
(Airside specialist shops)	47	+4.4
Bureaux de Change	23	+15
Catering	21	+10.5
Adjusted EBITDA	748	+6.3
EBITDA margin	57.23%	-
Net profit	88	+450
Net retail revenue per pax	GBP6.67	+3.9
Capital expenditure	280	-

Heathrow anticipates full year EBITDA to be GBP1.6 billion, an increase of 2.2% over the p-c-p, brought about by stronger than anticipated traffic and retail revenue together with improved operating costs.

The forecast has been increased by approximately GBP40 million, due to early traffic growth, strength in retail revenue performance and improved operating costs. Capital expenditure is estimated to be approximately GBP700 million in 2015.

MAG: benefits from Stansted addition but passenger growth there isn't reflected in revenues and earnings

Apart from Heathrow and Gatwick and their respective 'groups' (though it should be noted that the Heathrow Airport company is now only Heathrow Airport), the financial performance of the Manchester Airports Group is also worthy of inspection. MAG's principal proposal to the Commission was the promotion of London Stansted airport, which fell at the first hurdle although latterly it has focused on how it might fill short-term capacity gaps. It is a very diverse group, encompassing an airport with one of the broadest possible traffic mixes; one of the world's leading LCC specialist airports; a leading UK cargo specialist airport (the second biggest freight facility); and a small secondary one catering mainly to LCCs.

In this instance the report is for FY2015, ending 31-Mar-2015.

MAG highlights for 12 months ended 30-Jun-2015

Measure	Amount GBP million	Variation %
Revenue	738.4	+10
(Manchester Airport)	369.9	+10.5
(London Stansted Airport)	271.1	+10.9
(East Midlands Airport)	59.4	+9.4
EBITDA	283.6	+17.2
(Manchester Airport)	137.8	n/k
(London Stansted Airport)	114.5	+28.8
(East Midlands Airport)	19.6	n/k
EBITDA margin (group)	38.4%
Cash generated from operations	298.1	+29.5
Passenger numbers	48.5	+10.7

The statistic that leaps out in MAG's case is the difference in revenues and EBITDA between Manchester and Stansted airports. Even allowing for the fact that Stansted is slightly the smaller in terms of passenger numbers (though catching up fast), the LCC specialist Stansted's revenue generation is almost GBP100 million less than Manchester's.

But when EBITDA is measured the gap is not so big. The cash generated from operations figure is particularly important for MAG as it has large-scale infrastructure improvements taking place or planned at Stansted and Manchester and likes to keep as much of the funding in house, from its own resources, as possible.

MAG will explore raising finance from bond or debt investors over the next 12-18 months, especially with a view to the GBP1 billion of improvements at Manchester.

As one of few airports or airport groups in the UK with significant municipal ownership the dispersal of the dividend is noteworthy. With government cutbacks to council spending increasing, leading to service curtailment or reduction and job losses, one of the municipal owners, Manchester City Council, will offset some enforced savings in 2015 with part of the MAG dividend payable to it. This is a rather arcane argument against privatisation except that MAG's acquisition of Stansted Airport early in 2014 (and the bigger dividends that arose out of it) was only possible with the co-operation of an Australian fund, IFM, which is very much in the private sector.

Canada: Greater Toronto Airport Authority enjoys traffic growth

Access to financial reports from US airports can be difficult but the 1H2015 report from the Greater Toronto Airport Authority (GTAA) in Canada, the not-for-profit organisation that runs Toronto Lester B Pearson airport, indicates that the same general rule of thumb applies in North America: the bigger the airport, the greater the ability to ride out the storm.

The airport has benefited from increased passenger traffic in all categories in this period, and with particularly strong growth in the international sector. Moreover, it has successively increased the ratio of non-aeronautical to aeronautical revenues, up from 21% in 2006 to 30% in 2004 and that ratio continues to increase.

GTTA financial highlights for six months ended 30-Jun-2015

Measure	Amount CAD/USD million	Variation %
Revenue	577.5/467.9	+2.8
Profit before interest and finance costs	202.3/163.9	-
Net profit	20.9/16.9	compared to a loss of CAD73.0 million (USD59.1 million) in p-c-p

Latin America: Mexico - strong growth across the three main airport operating groups

In Central America, the three privatised group airport operators - OMA, GAP, and ASUR, have all released their reports for 1H2015, ending 30-Jun-2015. Between them they operate 34 airports in Mexico, including Acapulco, Cancun, and Guadalajara, plus Montego Bay airport in Jamaica (GAP) and San Juan Luis Munoz Marin airport in Puerto Rico (ASUR) - but not Mexico City Juarez Airport.

They present a slightly different picture to the other examples in this report because they manage mainly smaller and mid-sized airports both domestically and internationally, and within Mexico their 'anchor' airports could be either large city ones (Guadalajara) or tourist-centred ones (Acapulco, Cancun). The respective financial reports are chronicled below:

Grupo Aeroportuario del Centro Norte (OMA), financial highlights for six months ended 30-Jun-2015

Measure	Amount MXN million/USD million	Variation %
Total revenue (of which)	2120/140.1	+23.2
Aeronautical	1427/94.3	+19.3
Non-aeronautical	502/33.2	+24.8
Adjusted EBITDA	1126/74.4	+30.7
EBITDA margin (MXN amount)	53.1%
Net profit	535/35.4	+13.4

Grupo Aeroportuario del Pacifico (GAP), financial highlights for six months ended 30-Jun-2015

Measure	Amount MXN million/USD million	Variation %
Total revenue (of which)	4172/275.7	+46.7
Aeronautical	2714/179.3	+36.6
Non-aeronautical	957.4/63.3	+36.5
Improvements to concession assets	500.9/33.1	+222
EBITDA	2575/170.2	+36.3
EBITDA margin (MXN amount)	61.7%	+29.2
Net profit	1332/88.0	+23.2

Grupo Aeroportuario del Sureste (ASUR), financial highlights for six months ended 30-Jun-2015

Measure	Amount MXN million/USD million	Variation %
Total revenue (of which)	3197/258.8	+43.8
Aeronautical	1966/129.9	+19.1
Non-aeronautical	1233/81.5	+22.5
Commercial	1091.8/72.1	+23.3
Construction services	718.0/47.4	+981
EBITDA	2272/150.2	+24.5
EBITDA margin	71.06%	-
Net profit	1477/97.6	+24.2

Two facts stand out from these abridged statistics. The first is a notably high EBITDA margin, in all cases. In Mexico, privatisation of the airports did not necessarily mean more competition; the three main groups were each set up with an 'anchor' airport, either a tourist resort or a large city, in order to attract concessionaires in the first instance. Later, two of the groups were floated on domestic and international stock exchanges.

Secondly, a low non-aeronautical revenue contribution in two of the groups (OMA and GAP - 23.68% and 22.94% respectively) but not in the case of ASUR (38.5%). ASUR has two leading tourist resorts amongst its portfolio and tourists do tend to spend more in the airport, but it is not immediately clear if that is the reason. In all three cases the groups anticipate increased revenues from both segments, and EBITDA, in the remainder of the year.

Africa: high tariffs an impediment to ACSA's growth but reports positive financials

In Africa, South Africa's state airports operator ACSA is usually examined first for signs of the future direction aviation is taking throughout the continent. ACSA is responsible for nine airports in the Republic, though only Johannesburg, Cape Town and Durban are of any appreciable size. It is also an investor in the Sao Paulo Guarulhos Airport concession in Brazil, a minority shareholder in the PPP that operates Mumbai Airport in Brazil, and it is currently pitching for another PPP transaction, on a clutch of airports in the Philippines.

ACSA's most recent published financial report is for the full year 2015, ending 31-Mar-2015. ACSA has been influenced by an indifferent performance from national carrier SAA over the years and was forced to hike tariffs enormously to pay for infrastructure for the 2010 soccer World Cup. It acknowledges those tariffs are an impediment to traffic growth and must come down.

In FY2015 ACSA was, despite these impediments (and arguably because of one of them - airline charges) profitable, managing to increase its operating profit by 17.2%. Revenue is split roughly two-thirds to one-third in favour of aeronautical, which means the non-aeronautical revenue contribution is higher by some margin than one would expect to find across Africa.

ACSA full year financials 2015 to 31-Mar-2015

Measure	Amount ZAR/USD million	Variation %
Revenue	7700/598.2	+8.9
Aeronautical	4900/380.6	-
Non-aeronautical	2800/217.5	-
Operating profit	3800/295.2	+17.2

EBITDA margin review

It is useful to compare the EBITDA margin from around the world, where it is known, as below.

Airport (group)	Country	Geographical Region of home base	EBITDA margin in reporting period as per individual table
Sydney	Australia	Oceania	82.11%
Auckland	New Zealand	Oceania	74.72%
(ASUR)	Mexico	Latin America	71.06%
Hong Kong	China	Asia Pacific	69.13%
(GAP)	Mexico	Latin America	61.7%
London Heathrow	UK	Europe	57.23%
Copenhagen	Denmark	Europe	54.26%
(OMA)	Mexico	Latin America	53.1%
(AENA)	Spain	Europe	51.71%
(Vinci)	France	Europe	51.56%
London Gatwick	UK	Europe	46.03%
(MAHB)	Malaysia	Asia Pacific	45.37%
(TAV)	Turkey	Europe/Asia Pacific	43.5%
(Flughafen Wien)	Austria	Europe	42.6%
(Manchester)	UK	Europe	38.4%
(Aeroports de Paris)	France	Europe	35.79%
(Fraport)	Germany	Europe	31.0%
(SEA Milan)	Italy	Europe	30.4%
Moscow Vnukovo	Russia	Europe/Asia Pacific	0.45%

The average for the 19 airports listed here is 49.48% and the median (which minimises the impact of the statistical outliers - especially Moscow Vnukovo) is 51.56%.

The last time CAPA published a comparative EBITDA Margin table like this was in Feb-2013 and it is also illuminating to compare the two. Out of 69 airports reported on then, Sydney and Auckland airports were, again, right at the top of the table (81.63% and 74.81% respectively), separated only by MAP Airports (79.8%) which is now Sydney Airport, having renamed itself since. Hong Kong occupied fifth position with 67.8% (a figure calculated from 2012 financial data). So very little has changed in that 2.5 year period and the consistency is remarkable.

Lower down the scale there have been instances where the margin has reduced quite notably, for example in the case of London Gatwick (-11 percentage points) and, equally, where they have increased (e.g. ASUR +9 percentage points). London Heathrow's margin is seven percentage points higher than its predecessor, BAA, which then had five airports instead of one.

Lack of competition, primary airports, hubs and alliance exposure underpin high earnings results

But the stand-out statistic is the margin recorded in Australia, New Zealand, Hong Kong and at two of the Mexican groups. What is the secret? Costs aside, there seems to be three main supply factors underpinning the very high figures for the first 10 airports or groups in the list, and they are lack of competition; predominance of primary airports and high exposure to legacy/network airlines.

Taking the latter factor first, Sydney Airport's seat capacity momentarily is over 77% on 'full service' airlines. At Auckland it is over 88%; Hong Kong 90%; and at London Heathrow a massive 98.2%. Of course this does not apply to all of the airports/groups, but even those groups with some secondary level airports (and Vinci, for example has many in France) also have primary airports in the mix. Then there is the lack of competition factor. AENA, for example, is notorious for this. It is what helped bring about very poor financial results experienced previously. There was no competition either within the 47 airport group and very little to speak of outside of it, with privately operated ones. Now that AENA has been partially privatised - and in the run up to it - a more commercial culture is evident throughout the entire enterprise (See the related report referred to earlier).

Neither does London Heathrow have much in the way of competition for the handling of full service airlines, and if and when its third runway is approved and built it will have even less. That runway will undoubtedly fill up quickly with new routes and increased frequencies but they will come from the airlines that are prepared to pay the top dollar that Heathrow charges for them.

Similarly with Hong Kong, Sydney and Auckland, all of which enjoy a monopoly status (although it could be argued that Hong Kong 'competes' within the Pearl River Delta region with airports such as Guangzhou). All three have been criticised at one time or another for excessive fees.

And many of these financially high ranking airports are regional hubs as well, able to attract an alliance presence and the associated traffic they generate. Only 18.3% of seats at London Heathrow currently are on unaligned carriers. At Auckland it is 24.1%; Hong Kong 24.4%; Copenhagen 37.3% and Sydney 50.8%. Contrast these statistics with, for example London Stansted airport, owned by MAG, where 100% of the capacity is non-alliance, and Kuala Lumpur, MAHB's flagship airport and home base of AirAsia, where it is 60.3%.

ACI gets it right on the importance of non-aero revenue streams

What else can be learned from this survey? The objective of this report was to contextualise ACI's claims about profitability or the lack of it.

ACI's claim about the continuing and growing importance of non-aeronautical revenues is supported. In some cases (e.g. Fraport, Flughafen Wien, AENA, Copenhagen Airport, MAHB and two of the three Mexican groups) these revenues increased faster than did the aeronautical ones. In other examples they are neck and neck. Not so long ago, ACI was pushing for all airports to get 50% of their revenues from non-aero sources. Already it is well over that figure in some cases and the importance of these streams is evident throughout this report for the individual airports and groups.

As a sub-set of non-aero revenues it is also clear that much more attention is being paid to car parking. This trend began in the US several years ago and is spreading. No longer is it a mere matter of making some spare space in a field available to accommodate vehicles. There is by now a complex online science involved in the car parking realm to maximise revenues from yield management in much the same way as airlines do, as well as the provision of ancillary services connected to private vehicle ownership such as valeting.

London Heathrow for example, which is connected to, from and by the London Underground, a heavy rail line and many buses, taxis and transportation network companies (Uber, Lyft, etc) saw a greater increase in car parking revenues in 1H2015 than from any other segment save catering. It was the fastest growing segment at both Sydney and Auckland airports and vastly improved car parking revenue production has contributed significantly to AENA's turnaround.

None of this is to say that a smaller airport, in the <1 million to 5 million ppa category, can't make money. A well-managed one, even if it is in thrall to LCCs, can do that if it can find its niche and avoid competition (the harder part), as in the case of the airlines, for example Allegiant Air in the US, or Rex in Australia. But the force is most definitely with - and the odds forever in the favour of - primary, hub and alliance hosting airports; as is evident from this sample data.