World's apart – Austrian Airlines and Flughafen Wien

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Nowhere is the divide between rich and poor (airports and airlines) as stark as in Austria’s aviation scene.

While loss-making Austrian Airlines’ future hangs in the balance this weekend, the operator of the airline’s home base at Vienna International Airport, Flughafen Wien, has cruised to a first half net margin of 18.5%.

Interested parties in the airline’s privatisation have until this Sunday (24-Aug-08) to register their interest in a 42.75% stake in the carrier. For investors, Austrian Airlines will be a difficult challenge. The airline had a net loss of EUR48.7 million in the first half of 2008 (net margin of -4.3%) and carries debts of EUR898 million. It handled 5.2 million passengers in the first half of 2008 (up just 2.3% year-on-year) and expects a full year loss of EUR70-90 million. But its strategic value for the right partner has the potential to change that pattern.

The Austrian sale comes with some heavy conditions, namely local shareholders - be it the state or a group of private investors, or both - must hold 25%, to be able to block key decisions by the "strategic partner”, while the Austrian brand, the Vienna airport hub, and as many jobs as possible must stay.

Encouragingly for the airline and the Austrian Government, it now emerges that Lazard has been hired by Air France-KLM as an advisor on a potential bid. Lufthansa, which previously indicated it would only get involved in Austrian when the situation at Austrian becomes “acute” or “when invited”, is now expected to show its hand, as are other would-be investors, including Aeroflot, Turkish Airlines, Air China and others.

Flughafen Wien meanwhile goes from strength to strength.

Flughafen Wien EBITDA margin and net profit margin (%): 2005 to 1H08

Source: Centre for Asia Pacific Aviation & Flughafen Wien 

Breathtaking though they may be, Flughafen Wien’s margins were about average for Europe’s major airport groups this year:

European airports 1H08 financial: Revenue growth vs Passenger numbers

Source: Centre for Asia Pacific Aviation

In fact, Flughafen Wien had the lowest total EBITDA volume (in terms of millions of euros) of this sample of major European airport groups in the first six months of 2008:

European airports 1H08 financial results: EBITDA vs Net profit

Source: Centre for Asia Pacific Aviation

Nonetheless, the Austrian capital’s airport has outperformed several of its rivals in terms of profit growth this year.

European airports 1H08 financial: EBITDA growth vs Net profit growth

Source: Centre for Asia Pacific Aviation

Flughafen Wien’s core earnings (EBIT) surged almost 11% in the second quarter, helped by strong passenger growth of 12.8%, boosted by steep gains among budget airlines – most of them at the expense of Austrian. North American and eastern European destinations showed growth rates of greater than 20%, while traffic to the Middle East gained 10%, as foreign airline competition intensifies. Vienna’s traffic and revenue growth in the first half was at the upper end of a sample of major European airports.

European airports 1H08 financial: Revenue growth vs Passenger numbers growth

Source: Centre for Asia Pacific Aviation & company reports

Overall, Vienna Airport is a profit-making machine, converting a 13.7% lift in revenue into a 15% increase in net profit in the quarter.

Flughafen Wien reiterated it expected full-year 2008 passenger volume to grow by 8%, and the airport has bullish growth forecasts up until 2015, thanks largely to rising interest in the airport by budget carriers and its expanding gateway status to destinations in the Middle East and emerging Eastern European markets.

Vienna International Airport passenger numbers and passenger numbers forecast: 2000 to 2015

Source: Centre for Asia Pacific Aviation & Flughafen Wien

A potential investor(s) in Austrian Airlines will sadly not be expecting this sort of financial return. But the traffic upside can be as great if the growth potential of Austrian’s network can be exploited effectively.

And that will be more welcome news for Flughafen Wien. Heads we win, tails we win.

For more airport data and analysis, view the Centre’s Airport Investor Monthly report.

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