Lyon Antoine de Saint-Exupery Airport: Pride of Lyon, poised to grow

Lyon's main airport is near the distant village of Satolas in Colombier-Saugnieu, some 20km/13 miles southeast from the central business district (CBD) and clearly separated from the city's outer limits by several kilometres of countryside. Previously known as Lyon Satolas Airport it was renamed in 2000 - the centenary of his birth - to honour the French polymath writer, aviation pioneer and national war hero Antoine de Saint-Exupery, who was born in the city centre.

The airport, hereafter referred to by its IATA code LYS, has two north-south aligned and slightly offset asphalt runways, of 4000m and 2670m respectively, at least one of which is capable of handling the very largest passenger aircraft currently in use, such as the airbus A380 and the Boeing 747-8I.

It is not the only such facility within the city-region. There is another airport, Bron, en route between the CBD and LYS at 10 km/six miles, which began life as a military facility before turning to commercial aviation after World War 2 with flights to Geneva. In 1975 commercial airlines shifted from there to the newly opened LYS, leaving Bron to be used for general and business aviation. In this sense Lyon has gone against the grain of a growing preference for airports that are closer to the CBD.

Key transport facility

LYS is a key transport facility for the entire Rhone-Alpes region in the central/eastern part of France, its direct influence stretching as far as cities such as St Etienne (50km southwest), Clermont Ferrand (135km west) and Grenoble (80km southeast). Of these Clermont Ferrand has a small Air France Regional base, Grenoble handles mainly LCC and charter traffic connected to skiing holidays and St Etienne has very few services at all. There are surface transport connections by both bus and rail to and from these cities, together with an extensive national road (motorway) system that includes the A6 and A7 north-south national motorways to Paris and Marseille (with a direct airport connection on the A442) and the west-east A42/43 (Geneva and Grenoble). Lyon has been at a crossroads since Roman times and remains so today.

(This puts it slightly at odds with Birmingham, which does not have the same degree of regional dominance as it has to deal with competition within different segments from London Heathrow and Stansted, Manchester, East Midlands and Bristol airports).

LYS's main competition actually comes from Switzerland's Geneva Airport, which is only some 110km/70 miles to the northeast, as illustrated below.

The airport's ownership since 2005 has been as a Public Limited Company in the following ratio:

State (technically L'Agence de Participation de l'Etat, the Government Shareholding Agency)	60%
CCI (Chambre de Commerce et d'Industrie de Lyon)	25%
Region Rhone-Alpes	5%
Conseil General	5%
Grand Lyon (Comunaute Urbain)	5%

The latter three, in italics, are local authorities at varying levels. Rhone-Alpes has the sixth largest economy of any European region. This ownership share is typical of the way French airports were organised until the last decade, with the local CCI playing a large part in their management, under a form of 'licence' from the Government.

More recently (apart from in Paris where Aeroports de Paris [AdP] was partly privatised in 2006 via a public listing) there has been some limited privatisation in the form of management concessions at around a dozen small airports, together with a BOT deal on a new airport at Nantes.

This loosening of state control in favour of the private sector, which has taken place much more slowly than in the UK or Italy, but quicker than in Spain, was supposed to have resulted before now in the privatisation, by means not decided with certainty, of a series of secondary level airports including Lyon, Bordeaux, Toulouse, Marseille and Nice.

The privatisation procedure was interrupted by the French Presidential and government elections of 2012 and with a Socialist President and Government now in place there is no certainty it will proceed further. AdP has indicated it would be interested in investing in LYS. That could cause some competition issues but it is not a prospect that troubles the management at present.

Table of financial data: 2010-11

Turnover	EUR146.8 million	+5.3%
EBITDA	EUR49.1 million	+11.8%
EBITDA margin	33.45%	-
Cash flow	EUR38 million	+14.8%
Net debt*	EUR87 million	-
Taxes, incl Corporation Tax	EUR13.3 million	-
Net profit	EUR11.5 million	+18.1%

*Since 2007, Aéroports de Lyon has reduced its debt. This contributes to improve its cash flow to fund its investment programme of EUR260 million over the next five years.

With a turnover of EUR146.8 million in 2011, Aéroports de Lyon recorded a rise of 5.3% compared with 2010. The company improved its EBITDA by +11.8% to reach EUR49.1 million and post a net profit of EUR11.5 million, growth of +18%.

LYS' small land reserve - but space for two more runways

LYS is contained within a physically small area with a land reserve of only 900ha compared to 3000ha at Roissy-Charles de Gaulle (Paris). But the management is keen to point out that is more than at Marseille, which is limited to 300-800 ha. More to the point, the management has identified the potential to add two further runways although (and parallels with Birmingham are once again evident) there is no need for additional runways for the foreseeable future.

LYS has an interesting mix of traffic but one that, unlike many other 'regional' airports is oriented more towards network/full service airlines, which account for 76.5% of scheduled seat capacity, with LCCs on 21.3% and regional airlines on 2.2%. While LCCs have, for various reasons, still not caught on in France as they have elsewhere in Europe (allegedly because of high airport charges) this indicates a greater business travel element at LYS, which was 40% of the total in 2010 (2011/12 figures not available). Since easyJet opened a base in Lyon in 2008, the leisure traffic has increased and the ratio is now believed to be more in balance. (By comparison the LCC seat capacity in Western Europe as a whole presently [Jan-Jul-2012] is 43.5%).

Lyon-Saint Exupéry Airport capacity share (% of seats) by carrier type: 02-Jul-2012 to 08-Jul-2012

Source: CAPA - Centre for Aviation & Innovata

The other interesting mix is the equilibrium between domestic, international and Schengen (European borderless) traffic.

Lyon-Saint Exupéry Airport international vs domestic capacity (% of seats): 02-Jul-2012 to 08-Jul-2012

Source: CAPA - Centre for Aviation & Innovata

The principal airline is Air France-KLM and its subsidiaries (Regional, Brit Air, Arlinair, Air Corsica), which has a hub at LYS and which collectively account for 39% of traffic. (This operation is quite separate and distinct from Air France's recently introduced regional services at Bordeaux, Marseille and Nice, which was designed as a fight back against LCC strength there, but where some services will be reduced this winter). That 39% figure was down from 41% in 2011 but the flag carrier still grew slightly at LYS versus its other French bases.

Second in the pecking order is the foreign LCC easyJet (there are still no French ones), which has committed itself to the country more than any other. easyJet currently has four aircraft based at LYS and the airport could potentially benefit from the decision made by easyJet in Jun-2012 to close its Madrid base, though there will be others trying to attract those aircraft of course and easyJet Switzerland is based tantalisingly close by at Geneva. The LCC portfolio is complemented by Jet4you, Air Arabia (Maroc), Transavia and Vueling.

Other significant airlines are Lufthansa, with 7% of seat capacity, Tunis Air and Air Algerie, underlining France's remaining connections with its ex-colonies and the rate of immigration that has taken place into the country in recent years.

Lyon-Saint Exupéry Airport capacity by carrier (seats per week): 02-Jul-2012 to 08-Jul-2012

Source: CAPA - Centre for Aviation & Innovata

Lyon Saint-Exupéry Airport network summary: 08-Jul-2012

Total airlines	33
Domestic only	4
International	29
Total non-stop passenger destinations	86
Domestic	26
Africa	16
Asia Pacific	0
Schengen Europe	32
Other Europe	11
Latin America	0
Middle East	0
North America	1
Total non-stop freight destinations	0
Domestic	0
Africa	0
Asia Pacific	0
Europe	0
Latin America	0
Middle East	0
North America	0

Source: CAPA - Centre for Aviation & Innovata

Lyon's lack of long-haul services

The surprising statistic in any analysis of LYS' route network is the lack of long-haul flights. The only such services presently are to Reunion (Air Austral), Douala and Yaounde (recent launch carrier Camair), Moscow (Transaero) and a seasonal charter to Montreal (Air Transat). There are no Air France long-haul services; most of AF's connections through its LYS hub are domestic to short-haul international and vice versa with a sprinkling of domestic to domestic where direct flights do not exist and where the alternative high-speed rail service, the TGV, does not offer a cost-effective alternative. Here the lack of LCC connections is almost certainly a disadvantage; it was a key reason, for example, for long-haul, low-cost AirAsia X (now withdrawn from European markets in favour of the richer pickings of Asia) deciding not to fly to Lyon.

There has not been any presence thus far from any of the big three Gulf carriers until the Jul-2012 announcement from Emirates (see STOP PRESS) that it will enter Lyon on 5-Dec-2012 with five weekly flights on the A340-500. It is surprising that such an economically significant region took so long to attract any of them, especially when compared to the UK where they are very much in evidence, but on the other hand all three of them operate at Geneva Airport in Switzerland.

This emphasises LYS' biggest challenge. As CEO Phillipe Bernand (who was previously responsible for developing Vinci's airports division) points out, LYS is not so much in competition with the Paris airports, nor with other large regional airports like Marseille or Toulouse, as it is with Geneva, which handled 13.1 million passengers in 2011. Geneva offers trans-Atlantic scheduled services, the Gulf carriers mentioned previously and flights by several other Middle East and African carriers, as befits a financial centre. Moreover, it has been growing in 2012, and by 8.2% in May.

LYS was France's third busiest airport in 2011 with 8.4 million passengers, after Paris CDG and ORY, leading Marseille by around one million passengers and Toulouse by 1.5 million. Traffic has dipped in the first months of 2012 (-2.9% in Jan-May) but that was anticipated by the management, which is engaged in a consolidation process before pushing for growth again from 2014 with a target of 11 million passengers in 2016. The causes are the oil price (which has since moderated), the sovereign debt crises in Europe and specifically a worsening economic situation in France itself.

Traffic growth: 2005 to 2011

	Total passengers	Growth/ n-1	Domestic	International
2005	6,561,365	+5.30%	2,593,645	3,967,720
2006	6,752,333	+2.90%	2,708,484	4,043,849
2007	7,320,952	+8.40%	2,826,549	4,494,403
2008	7,924,063	+8.20%	2,936,736	4,987,327
2009	7,717,609	-2.60%	2,847,857	4,869,752
2010	7,979,228	+3.40%	2,864,867	5,114,361
2011	8,437,141	+5.7%	3,160,619	5,276,522

Source: Aeroports de Lyon

In detail:

• Number of passengers in transit: 119,470
• Number of low-cost passengers: 1,763,262
• Number passengers excluding low-cost in 2011: 5,923,909
• Number of charter passengers in 2011: 630,500

LYS has been growing continuously since 2005. Despite the challenging economic backdrop (following a year of crisis in 2009), the airport saw its traffic increase considerably in 2011: up by 5.7% compared with 2010.

In 2011, international traffic totalled 62% of the market share, rising by 4.5%. Domestic traffic grew by 10.3%, the biggest increase in over 10 years. The 'Arab Spring' had a strong impact on this result, though. Losses are estimated at 200,000 passengers, which accounts for almost 2.5% in growth loss. The political events led to a 17.1% drop in charter traffic, made worse by the withdrawal of Corsair from all French regional airports.

What LYS is doing to combat the Geneva threat revolves around the creation of a new terminal building, the encouragement of more LCC traffic to 35% seat capacity from the present day 21% and the integration of the three terminals, which will involve knocking one of them down.

LCC discounts to be substantial for connecting flights

On 28-Jun-2012 the chairman and CEO, Philippe Bernand, formally unveiled LYS' newly extended Terminal 3, one that is dedicated to providing 'simplified services' - coincidentally a term used by Geneva Airport for its since-abandoned low-cost terminal project. The terminal has been renovated and reconfigured. 50% of the initial 4000sqm is dedicated to check-in and it will be able to handle three million budget passengers annually, twice the previous total.

Airline charges to LCCs are at a discount of 40% and 45% for connecting flights. The history of the Geneva terminal and the dispute there over favourable rates for LCCs could cast a cloud over the opening but so far Air France, which was very actively against such an arrangement in Switzerland, does not appear to be fazed by the arrangement.

Lyon-Saint Exupéry Airport Terminal 3

Source: Aeroports de Lyon

By 2016, T3 will be connected directly to the extended T1 in a 15000sqm area that will be able to handle 10 million passengers p/a by 2020. The first phase costs amount to EUR110 million, out of EUR200 million overall. Financing has come mainly from retained funds; there is no external contribution from either public or private sectors. The existing T2 will be demolished as part of these procedures.

T3 has been designed specifically from an environmental angle and its cost is said to be 30% lower than a similar conventionally constructed building. LYS also aspires to the principles of CDM, Collaborative Decision Making, working together with Eurocontrol and French ATC to optimise air traffic management at the terminals.

The T1 redevelopment includes an A380 docking point. No particular airline was the driver behind the decision to implement this project, it was simply considered necessary to the long-term future of LYS.

The T1/T3 project represents 75% of total investment at this time. The project is a Design and Build one, undertaken by the leading French constructor Bouygues Batiment. The remaining 25% is allocated to the augmentation of long-term car parking, the development of its CargoPort freight zone activity (and a connection to CAREX, the European high speed rail freight network). Mention of rail naturally prompts a discussion of the high speed TGV line, and how it fits into the scheme of things at Lyon.

TGV lines run through both downtown Lyon (Part-Dieu and Perrache stations) and LYS itself, with connections running north, south and east (see map below). With such a comprehensive system in place the rail service could be a serious competitor, especially to domestic services, but the management actually promotes it widely on the basis that there is a comprehensive gateway transport system in situ that cannot be compared with any other French city, including Paris.

Source: Bonjourlafrance.com

Airport rail link - fast but pricey

Complementing the TGV since 2010 is the Rhone Express fast rail connection to and from downtown. Not quite non-stop (it pauses at two suburban stations), the journey time on what is claimed to be France's only genuine dedicated fast airport-city rail shuttle is around 30 minutes with 15 minute frequencies in the peak. The downside to the Rhone Express is its expense (EUR25 for a return ticket which is at a discount to the cost of two one-way fares), the distance from the terminal buildings at LYS and the fact that intermodal integration in the city centre around the Part-Dieu station in the business district is still a work-in-progress.

LYS is proud of its winter operations record. Situated in a part of the world that can be hot in the summer, it would be easy to overlook the occasional bad winter weather period, but the airport has equipped itself with similar snow clearing equipment to that at Geneva. It can cope comfortably with 35cm of snow and remain open and often acts as a diversion airport for other French airports.

A significant and growing part of LYS' traffic is inbound tourism, much of it at present oriented towards ski-ing and other such winter sports (but see below). Access is provided on regular shuttle services to over 30 ski resorts, many of which are more easily accessible from LYS than from Geneva.

But the region has the scope to expand its tourist appeal much more widely than by merely being a catalyst by which to shift skiers on to the mountains.

In common with several other European countries, there is a contest in France for the title of 'second city' and in this instance between Lyon and Marseille on the Mediterranean coast. The respective populations are similar at around one million but Lyon boasts a slightly larger urban region. In all other respects Lyon is generating a more profound city break offer which, with enhanced promotion, could and should help it compete with better know European cities in that market.

Like many European cities Lyon has been undergoing a metamorphosis of post-industrial regeneration. Throughout the last three centuries its centre has constantly shifted in line with the zeitgeist and the trend continues today as the Confluence district, at the junction of the Rhone and Saone rivers sees redundant industrial buildings replaced by state-of-the-art shopping centres, hotels, and art and design centres, many featuring cutting-edge design from some of the world's leading architects. The river banks themselves are also benefitting from the renewal activities.

Lyon a UNESCO World Heritage Site

The city boasts a raft of galleries and performance halls, many of them positioned within a designated UNESCO World Heritage Site since 1998, as well as events such as the annual Festival of Lights and Lumiere Film Festival for which it has become world famous (the cinematographic camera having been invented there in 1895). Moreover, it is widely regarded as the gastronomic capital of France, rather than Paris, with a range of Michelin-starred establishments in addition to hundreds of 'Bouchons' - cheaper establishments targeting the local population and budget travellers. The Part-Dieu central area has one of the largest shopping centres in Europe.

In the business field, what began as a centre for silk making and printing, later chemicals and mechanical engineering, has broadened into one that is ever more oriented towards scientific innovation clusters, knowledge industries, digital entertainment and the wider creative arts. The city is now regarded as the second business 'destination' in France after Paris and is regularly rated highly in European surveys of the best cities for business and entrepreneurship.

Outside of Lyon, indeed of France, Aeroports de Lyon has committed itself, in the past five years, to forming a small 'group' operation. It has done this partly by providing management consulting services at a number of African airports (the City of Lyon also provides partnership support in Africa in the field of urban services), and more particularly by taking a small (10%) stake in Kosovo's Pristina Airport in conjunction with Turkey's Limak Investments (90%). Limak manages the financial side while LYS deals with operational matters. The 20-year, EUR100 million operating concession involves the construction of a new terminal as a PPP project.

Aeroports de Lyon group activities could be expanded

According to Philippe Bertrand, these opportunities were seized upon partly because the airport management had the spare capacity and 'know-how' and partly because of his background with Vinci Concessions. He regards them as successful ventures and would be prepared to expand them if the right opportunity arose. The airport actively promotes its know-how in management and services on its website.

In summary, LYS is currently in a position to benefit from existing and planned infrastructure that can carry it into the next phase (10 million + ppa). That infrastructure is both at the airport itself and in the myriad rail and road travel options that are available. It has a good mix of traffic and is focusing its future route growth efforts on the low cost segment. This segment continues to grow in Europe so there is method in that philosophy, but opportunities in the network segment should not be overlooked.

The city-region itself is in rapid growth mode both economically and in tourism development and is establishing clear ground between itself and other French cities as the leading regional centre, even challenging Paris in some categories.

Lyon on track to a new future

If there is one thing missing at LYS it is the 'big aspiration.' Momentarily it aspires merely to stay 'human-sized'.

But doing so is arguably out of step with the value of spending EUR200 million or more on infrastructure improvements and that rather limited ambition seems out of sync with that of the city.

LYS has one immediate target if it seeks to take it on. That is to overhaul Geneva as a pan-national regional gateway transport centre. Beyond that, and with a high-speed rail system already in place, it might want to look at what partner-city Birmingham Airport aspires to, (and might even achieve). If it can attract more short-haul operations and the odd long-haul carrier (partly a chicken and egg equation), the upside could be substantial. Here it might again look to Birmingham, where 85% of the seats are international and 65% are LCCs.

STOP PRESS

On 04-Jul-2012, Emirates Airlines announced that it will be establishing services at Lyon-Saint Exupéry airport. As of 05-Dec-2012, the airline will begin offering five weekly flights from Dubai with an A340-500.