Mck Mainports 2040 Final Report

Mainports 2040

Final report, June 2009

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibitedThis material is partly based on information that has not been generated by McKinsey & Company, and has not been subject to our independent verification. While we believe this information to be reliable and adequately comprehensive, we do not represent that it is in all respects accurate or complete.

Input for exploration phase long-term vision Mainports

McKinsey & Company 1|

Legal Disclaimer

McKinsey & Company has been supporting the Dutch Ministry of Transport (Ministerie van Verkeer en Waterstaat or VenW) to help VenW gain insight in the environment in which Dutch mainports have to strategically position themselves.

To this end, this report presents (i) different scenarios and key issues for the mainports (ii) perspectives on the current position of the Dutch Mainports, and (iii) the main opportunities and threats for the Mainports.

The preliminary comments contained in this report are based in part on data generated during several discussions with executives of VenW and, and on publicly available information, but has not been subject to detailed verification by McKinsey & Company.

The scenarios outlined in this report should not be taken for most likely scenarios and the issues listed should be interpreted as possible actions for VenW independent consideration, not as constituting any policy or other recommendation for action. McKinsey & Company does not guarantee the accuracy or completeness of the underlying assumptions in this report although we believe them to be adequate for the purpose of discussion. There is no implied warranty that these assumptions will come to pass.

In the event that this report or the information herein becomes available to a third party other than VenW, such party is hereby notified that this analysis was undertaken by McKinsey & Company for VenW and is being made available to the third party for information purposes only. The third party should conduct its own investigation and analysis of the matters set forth herein. McKinsey & Company makes no representations or warranties regarding the accuracy or completeness of the information in this report or any other written or oral communication transmitted or made available to the third party and expressly disclaims any and all liabilities based on such information or on omissions there from. Finally, this document is highly confidential. No part of it may be circulated, quoted or reproduced for distribution outside the VenW organization without prior written approval from McKinsey & Company


Key messages The two mainports create important direct and indirect value for the Dutch economy, even if they are of limited importance in

stimulating the growth of upcoming sectors like tourism and the creative industry

Economic interdependences between the mainports are limited and unlikely to be a key success factor for the individual mainports, thereby limiting the need for a joint strategy. There are, however, areas of mutual interest that warrant a coordinated approach

Schiphol could grow in volumes by a factor 1 to 7 towards 2040, mainly depending on developments after 2020 (developments until 2020 outlined in recent policy papers, such as the Luchtvaartnota). Growth beyond a level of 2.5-3x current volumes is likely to require major infrastructural works with relocation being the most extreme variant. Strategic choices need to be made on the basis of ambition level, no-regret moves that apply to all scenarios, and belief in the likelihood of specific scenarios. Questions that need to be addressed are, for instance:

What is the impact on The Dutch Economy, if Schiphol would become an airport with good European connections but limited direct intercontinental connections?

What is the economic impact (direct and indirect) if Schiphol would become one of the 3 primary European intercontinental mega-hubs, considering Schiphol would grow with a factor 5-7 of todays volume?

What are no-regret moves that are optimal in all scenarios, such as enlarging the catchment area through better hinterland connections and adaptive policy making to optimize flexibility around scenario-dependent moves?

A balanced choice needs to be made about which volumes of container cargo Rotterdam wants to attract and how these will be transported to the hinterland

Rotterdam could grow current throughput volume by a factor 1 to 2.5 until 2040, depending on which long-term CPB growth scenario will unfold. This growth would primarily be driven by container cargo

Port capacity plans seem sufficient to accommodate growth as liquid bulk, which consumes most port capacity, is expected to grow maximum with a factor 1.5x versus current throughput. However, this could require targeted policies to optimize the use of available space and assume no wild swing factor that would trigger a bigger volume increase, such as the rise of alternative fuels

Accommodating container volume growth would require large infrastructural investments to avoid major congestion issues in the hinterland, unless the modal split significantly changes thereby lowering the share of road traffic

There might be a need to set priorities between expanding capacity versus policies to make optimal use of current infrastructure. Questions that therefore need to be addressed are, for instance:

Which cargo flows have the highest value-add and least negative externalities in the Netherlands? What are the best policy instruments to primarily attract high value-add flows and enforce an optimal modal split?

EXECUTIVE SUMMARY


Chapter 1: Role of the mainports in the economy

The Netherlands is a small, open economy heavily dependent on foreign trade. Having logistical hubs and a strong infrastructure is a prerequisite for sustaining this position in the future. In this chapter, we assert that the two mainports create significant value-add for the Dutch economy, even if they are of limited importance in stimulating the growth of upcoming sectors like tourism and the creative industry

Direct value-add is estimated at ~ 1% of GDP for Schiphol and ~ 2% of GDP for the Port of Rotterdam. Direct value add is defined as the GDP contribution of companies directly related to the mainports key transport and business functions

Indirect value-add is estimated at ~2% of GDP for Schiphol and ~1% of GDP for the Port of Rotterdam the GDP. One element of indirect value-add is the role of mainports in attracting business to the Netherlands

Both mainports play a role in attracting business functions that rely on strong transport connections Examples for Schiphol are European headquarters or training centers, for which easy transportation of people

is a key success factor

Examples for Rotterdam are European distribution centers, which depend on efficient, low-cost cargo transportation infrastructure

Both mainports are of limited importance for attracting companies and activities not directly involved in either mainports key functions

Sectors that merely use the mainports, only require a basic level of connectivity and will not choose the Netherlands as a location on the basis of its superior logistical hub function. Other factors, such as proximity to clients, availability and cost of talent, and the tax climate, are more important location decision criteria

The role of the Mainports in supporting the growth of upcoming sectors such as the creative sector and tourism seems limited

EXECUTIVE SUMMARY


Chapter 2: Interdependence between the mainports

The existence of two major mainports in such close proximity is, within Europe, a feature unique to the Netherlands. The question remains whether the two mainports owe their position to the existence of the other. If so, how could this interdependence be exploited and stimulated for the benefit of the Netherlands? In this chapter, we assert that economic interdependences between the mainports are limited and unlikely to be a key success factor for the individual mainports, thereby limiting the need for a joint strategy. There are, however, areas of mutual interest that warrant a coordinated approach

Direct economic interdependence between Schiphol and Port of Rotterdam is limited Primary interdependence comes from companies that are linked to Port of Rotterdam for their cargo flows and

also use Schiphol to transport personnel and business relations. However, the spin-off effect on Schiphol is relatively small, contributing less than 1% of total business passengers

Secondary interdependence comes from companies that use both Rotterdam and Schiphol for cargo transportation. Even though these companies benefit from access to two nearby major logistical hubs, this is not a key location decision factor, as all competing ports have a major airport within hours by truck

Areas of mutual interest exist for which a coordinated approach could benefit both mainports and the overall economy:

Although hinterland routes for the mainports differ by nature, easing congestion on one could have a positive spill-over effect for the other e.g., dedicated rail freight routes would benefit Rotterdam directly, while it would ease congestion of the passenger rail network, benefiting Schiphol

Focused investments to improve the Dutch logistics talent pool, knowledge development and innovationcould help both mainports to maintain their competitive positions. Logistics knowledge build-up through research and innovation is likely to have a beneficiary spill-over effect of knowledge for both mainports

Government and related organizations involved in strategy and policy making for the mainports can learn from each other, which could result in better informed decisions at lower costs

* * *

As interdependence is limited, strategic choices for each mainport are discussed independent of the other

EXECUTIVE SUMMARY


Chapter 3: Strategic choices for Schiphol (1/3)

Schiphol could grow in volumes by a factor 1 to 7 towards 2040, depending on which long-term growth and airport industry structure scenario will unfold. Growth beyond a level of 2.5-3x current volumes is likely to require major infrastructural works with relocation being the most extreme variant. Given the high level of uncertainty surrounding these scenarios, strategic choices need to be made on the basis of ambition level, no-regret moves that apply to all scenarios, and belief in the likelihood of specific scenarios

Schiphol could grow in volumes by a factor of 1-7 towards 2040, depending on scenarios for passenger volumes and airline and airport industry structure developments

Air passenger volume growth is the key factor for determining future capacity constraints. Potential cargo volume growth is less of a factor as belly capacity free-rides on passenger flight movements and demand growth and full-freighters make up for only 4% of today's Schiphol flight movements.

Air passenger volume growth will be driven by 5 demand factors towards 2040: real economic growth, degree of continued globalization, relative cost of flying, access to destinations, and availability of alternatives to flying. Depending on how the combination of these 5 demand drivers plays out, European air passenger volumes could grow by between 1 and 5% per annum, resulting in 1.4-5 times today's volumes by 2040

High growth scenario (up to 5 times today's volume): Continued economic globalization and a further reduction in real cost of flying results in high leisure and business demand growth, in line with pre-crisis estimates of ~5% p.a.

Moderate growth scenario (up to 2.7 times today's volume): Slowdown of economic globalization, combined with an increase of the real cost of flying, results in moderate leisure and business demand growth of ~3% p.a.

Low growth scenario (up to 1.4 times today's volume): A stop to further economic globalization, combined with a steep increase in the real cost of flying due to high fuel cost, results in low demand growth of ~1% p.a.

The European airport industry structure primarily depends on the degree of airline consolidation and airport capacity constraints. Depending on the development of these key factors, the following 3 scenarios could unfold:

Schiphol is no longer a major hub (1-3.5 times today's volume): EU airline sector has consolidated into 3 major players. Each carrier has concentrated its intercontinental hub activities in one mega-hub , facilitated by a step-change in airport capacity. Schiphol is not one of these 3 hubs and has become a large 2nd tier airport, with specialized intercontinental routes and a large European network

EXECUTIVE SUMMARY



Schiphol is still a major hub (1.4-5 times today's volume): EU airline sector has not consolidated much further. The current airport landscape is still in tact, and all airports have grown at the same pace as far as capacity constraints allowed them to. Schiphol has maintained its current position as one of the 5+ major European hubs

Schiphol is a mega-hub (1.9-7 times today's volume): EU airline sector has consolidated into 3 major players. Each carrier has concentrated its intercontinental hub activities in one mega-hub, facilitated by a step-change in airport capacity. Schiphol has become one of these mega-hubs, with daily connections to more than 100 intercontinental destinations. Paris has been degraded to a large 2nd tier airport

The scenario that unfolds will determine whether major infrastructural investments are necessary A growth factor up to ~2.5-3 times current volumes can possibly be accommodated at Schiphols current

location, assuming selective policies, technological advances and/or less restrictive noise and environmental regulation. Measures to handle this growth include:

Overflow to regional airports: Transfer non-hub dependent traffic, especially LCC and charters, to overflow airports such as Eindhoven and Lelystad

Optimize current use of infrastructure within safety limits and legal constraints, e.g., shorten take-off/landing intervals; redefine noise restrictions; optimize the slot allocation and queuing system; increase pax/plane

Replace feeder flights with high-speed rail: This would reduce the burden on capacity from feeder flights (e.g., Brussels, Copenhagen), although potential impact may be small given the limited number of nearby feeder flights

Expand infrastructure at current location: Extend Schiphol with extra runways at the current location A growth factor beyond 2.5-3 times current volumes is likely to require major infrastructural works,

relocation being the most extreme of these. Two options for relocation are a dual hub system and a full relocation:

For a dual hub, the connection time between the two terminals should ideally be less than 5-10 minutes; otherwise, the hub function will be undermined and transfer passengers will choose alternative routes

An airport at sea has been found to be technologically and environmentally possible. Being a first mover could make Schiphol the largest European intercontinental hub, transforming the Netherlands into Europe's logistical centre of gravity for passenger transportation. However, there are questions around the cost-benefit trade-off

EXECUTIVE SUMMARY



Given the high level of uncertainty surrounding these scenarios, strategic choices need to be made on the basis of ambition level, no-regret moves that apply to all scenarios, and belief in the likelihood of the various scenarios. As the lead time of these types of projects spans several decades, procedures should be started as soon as possible if the ambition for Schiphol is a growth factor beyond 2.5-3 times current volumes

Define the ambition level regarding the role Schiphol should ideally play within the different scenarios that could unfold. Questions that would need to be addressed are, for instance:

What is the impact on the Dutch economy, if Schiphol would become an airport with good European connections but limited direct intercontinental connections?

What is the economic impact (direct and indirect) if Schiphol would become one of the 3 primary European intercontinental mega-hubs, considering Schiphol would grow with a factor 5-7 of todays volume?

Define no-regret moves that are optimal in all scenarios, such as enlarging the catchment area through better hinterland connections, optimizing airside access, adapting policy making to optimize flexibility around scenario-dependent strategic moves

Define optimal actions per scenario, depending on the ambition level: Carrier / alliance strategy: Which carrier / alliance should be given priority? Could a multi-carrier strategy be

optimal in some scenarios? What should be done with non-alliance traffic on the hub?

Strategic moves: How should Schiphol expand in the long run? Should it be relocated now, in the future or never?

EXECUTIVE SUMMARY


Rotterdam is the largest port of Europe due to its naturally favorable location: an easy-to-access deep sea port with a strong hinterland link over the river Rhine to the Ruhr area, combined with a relatively large port area. Rotterdam is by far the largest bulk port and the number one container port, but faces strong competition for the latter from Antwerp and Hamburg for the northern European hinterland. A balanced choice needs to be made about the volumes of container cargo that Rotterdam wants to attract and how these will be transported to the hinterland

Rotterdam could grow current throughput volume by 1-2.6 times until 2040, depending on which long-term growth scenario will unfold. Containers and new liquid bulks are likely to account for the majority of this growth.Trade growth up to 2040 will be driven by 7 key volume drivers: real economic growth, delta factor cost between developing and OECD countries, fragmentation of supply chains, degree of globalization, cost of energy, level of recycling and depletion of raw materials, and the rise of new (liquid) commodities. Three scenarios could unfold:

High growth scenario: Continued globalization, further specialization of supply chains and rise of cheap alternative energies and new liquid fuels drive growth of containers to ~6 times and bulk to 1.5 times today's volumes. It remains doubtful whether a container growth of ~6 times is realistic, as this would imply a tremendous growth in consumption of physical goods per capita

Medium growth scenario: Moderate economic growth, a continued difference in factor costs and expensive fuel drive growth of containers to ~3 times and bulk to 1.3 times today's volumes

Low growth scenario: Low economic growth, high transport and energy costs and a no further globalization limit growth of containers to ~1.5 times, while bulk volumes decline to 0.7 times today's volumes

The scenario that unfolds will determine whether optimized use of currently planned infrastructure is sufficient, or if a step-change in infrastructural investments is required to avoid major congestion

Container growth: In all volume growth scenarios, planned storage and terminal capacity seem to be sufficient, but hinterland road capacity constraints need to be resolved

The 2nd Maasvlakte provides enough room for storage and terminal capacity in all scenarios Both barge and rail have sufficient capacity to handle 3-7 times the current volume, given that the terminals in

the port can digest the volumes for loading and unloading of both modalities

Chapter 4: Strategic choices for Port of Rotterdam (1/2)EXECUTIVE SUMMARY


Current road capacity is constrained during rush hours. Measures to improve road congestion can help accommodate container growth of up to 5 times todays volumes:

- Divert all non-domestic trucked containers to other modalities

- Set up a dedicated barged freight corridor to the north of the Netherlands

- Construct intermodal barge and train hubs in the Dutch Hinterland

- Expand the road network around Rotterdam with, e.g., extra lanes on the A15, A20 and A59

- Increase rail capacity, e.g., by building a 2nd Betuwe route and other dedicated rail freight lines

Bulk growth: In a high growth scenario, planned terminal and hinterland capacity seem to be sufficient, but a step-change in infrastructure would be necessary to secure sufficient storage capacity

Barging and piping to the hinterland have enough capacity to accommodate even the high growth scenario For growth of up to 1.3 times current volumes, Rotterdam has little free space to accommodate potential liquid

bulk growth. Measures for freeing up capacity using current available space (incl. 2nd Maasvlakte) may include:

- Reducing strategic oil storage in the port by relocating storage to other locations, potentially abroad

- Relocating dry bulk storage (especially ores and coals for foreign countries) to locations outside the port

- Relocating liquid bulk storage capacity to the port of Amsterdam

Beyond 1.3 times current volumes, drastic measures seem necessary to accommodate growth. This might include constructing a 3rd Maasvlakte

In the face of these capacity constraints, The Netherlands needs to make a balanced choice between volume growth accommodation and policies to attract cargo flows that add most value to the Dutch economy. In order to make this decision, several questions need to be answered:

Which cargo flows have the highest value-add and least negative externalities in the Netherlands? What are the best policy instruments to primarily attract high value-add flows and enforce optimal modal split?

Chapter 4: Strategic choices for Port of Rotterdam (2/2)EXECUTIVE SUMMARY


Contents

Role of the Mainports for the economy

Interdependence between the Mainports?

Strategic choices Schiphol

Strategic choices Port of Rotterdam

Appendix - Beantwoording offerte vragen


Both mainports are of similar relevance to the Dutch economy

SOURCE: SEO, Economische Effecten Schiphol, 2006; Port statistics 2006; Havenmonitor 2006; CBS; McKinsey analysis

12

3

1

1

2

2

4

1

3

Distribution

Direct - other sectors1

Direct - aviation only

Total direct

Construction

Transport & communication

Other sectors

Total incl indirect effect

Professional services

17

5

12

0

1

4

7

2

2

3Transport modes3

Services for transport

Handing and storage

Direct value add - transport related

Industry4

Wholesale

Public and private services

Total direct value add -including business locationIndirect value add -economic multiplier effect5

Total including indirect effect

Estimate of value add Schiphol 2002, SEO (2006) estimatesNet value add (gross value add adjusted for depreciation)

Estimate of value add Port of Rotterdam2006, Port area Rotterdam RijnmondGross value add

1 Limited number of studies on value-add available, the numbers on this page are based on two recent reports from well known institutions2 Other Schiphol located but non-aviation activities, such as: distribution, other transport and financial services3 Includes the transport modes: road, rail, barge and pipeline4 Includes the sectors: foodstuff, petroleum, chemicals, metals, vehicles and electricity production5 Multiplier effect of 1.5 direct value add assumed6 Schiphol estimates are net value add and therefore compared with Dutch Nett Domestic Product in 2002, estimated at 396 bln by CBS;

Port of Rotterdam estimates are gross value add and therefore compared with Dutch Gross Domestic Product in 2006, estimated at 540 bln

Economic value add of mainports, billion1

~1%

% of Dutch economy6

~3% ~3%

~1%

~2%

McKinsey & Company 12|SOURCE: Rankings from World Bank Doing Business; McKinsey analysis

Many businesses interact with the mainports, but close proximityto a mainport is not necessarily a key location decision factor

which interact with the mainports in some way

which clearlyeconomically benefitfrom being close to one or both mainports

for which access to one of the mainports is a key success factor

Sectors

Business functions

Repair Centers Training centers European

Distribution

Training centers European HQ Production/Assem

blage

Shared Services Center

Call Center R&D Center Marketing and

Sales

Wholesale Maritime cluster Petroleum

Agriculture Energy Professional

services

High Tech Universities and

innovation Production Creative industry

NOT EXHAUSTIVE

Sectors and functions


The mainports play a role in attracting business functions requiring physical transportation of people or goods Very important

Not important

Important

Elements of investment climate

Corporate taxes

Availability & costs of skilled labor

Labor flexibility

Bureaucracy Languages spoken

Access to port

Living climate

Costs of doing business

Ease of access to key market

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Repair Center

Shared Services Center

Call Center

R&D Center

Production/Assemblage

Training center

European distribution

Marketing and Sales

European HQ

Access to airport

BUSINESS FUNCTIONS

SOURCE: Rankings from World Bank Doing Business; Cushman & Wakefield; IMD; OECD; EIA; World Economic Forum; IMDB World competiveness; McKinsey analysis


No HQ

>5 HQs

1-5 HQsThe Netherlands have not attracted many Asian businesses Non-HQ significant facilities1 of 1802 Asian companies with internationalization potential3

Norway

Sweden

Finland

U.K.

Denmark

Germany Poland

Czech

France

Belgium

AustriaHungary

Slovakia

Bulgaria

Luxembourg

Corsica

Spain

Sardinia

Monaco

Switzerland Slovenia

Macedonia

Greece

BosniaCroatia

Italy

Malta

Serbia

Albania

Monte-negro

Romania

Other 9 facilities scattered across the Europe in 9 different countries

UK: 24

x 5Marketingx 5Productionx 3Financex 3Subsidiaryx 2HRx 2R&Dx 2Service Centerx 1Mediax 1Distribution

France: 2

x 1R&Dx 1Production

Belgium: 2

x 1Subsidiaryx 1Production

Italy: 2

x 2

ProductionSwitzerland: 2

x 1R&Dx 1Production

x 1R&Dx 1Service Centerx 1Subsidiary

Germany: 12

x 2Marketing

x 3R&D

x 1Subsidiary

x 6Production

Hungary: 3

x 1R&Dx 1Marketingx 1Subsidiary

Denmark: 2

x 2Service Center

Poland: 2

x 1Marketingx 1Production

Portugal

NL: 3

1 All the facilities excluding HQ, sales and branch offices2 Data not available for 29 of the 180 companies3 Companies shortlisted on the basis multiple criteria viz. size, internationalization potential etc.

SOURCE: Company websites and reports; McKinsey analysis

BUSINESS FUNCTIONS


For Asian companies transport and accessibility is less important then other location decision criteria

CEO Awareness of the country Personal recommendation Visa & work-permits Closeness to market Proof of concept Direct personal contacts with the country Image of the country Tax advantages International Talent pool Market size Part of EU Transport and accessibility

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SOURCE: Swiss-American Chamber of Commerce

Key location factors for Asian companies

BUSINESS FUNCTIONSILLUSTRATIVE


The top 3 factors for location decision are access to market, availability and cost of qualified labor and tax climate

Cushman & Wakefield - European Cities monitor 2007

Ernst & Young - European Headquarters

Perception of EHQ location factors% of total weight

Essential factors for locating a business% of respondents (n=500), 2007

29Languages spoken

Climate of taxes/financial incentives 27

55

Client proximity 58

Qualified staff

52

Cost of staff 36

TransportInfrastructure

Quality of telecom

62

6

7

9

Transport/accessibility

15Quality & availability of labor

Corporate taxes

Centrality

Other 25

Airport proximity

23Client proximity

15

Ministry of Economics Affairs -Quickscan 2006

Key location factors

1 Headquarters Multilingual personnel Proximity to international airports Corporate tax rates

R&D Availability of qualified personnel International proximity

Distribution & logistics Corporate tax rates International proximity/centrality Quality of labor

Production & manufacturing Availability of skilled labor Real labor costs International centrality/proximity

2

3

4

Top 3 elements of investment climate: Market proximity Availability & cost of talent Tax climate

SOURCE: Ernst & Young (2005); Cushman & Wakefield (2008); Ministry of Economic Affairs (2006); Buck Consultants International (2006); McKinsey analysis

BUSINESS FUNCTIONS

McKinsey & Company 17|SOURCE: Berenschot 2008; Innovatieplatform; McKinsey analysis

Six industry clusters have been identified as key future growth areas in which The Netherlands should investEconomische sleutelgebieden

Distribution / Logistics Rotterdam Amsterdam Schiphol

High Tech Zuid-vleugel (maritime)

Eindhoven

Renewable energy Windparks Rotterdam / biofuels

Creative Industries Amsterdam-Utrecht Eindhoven

Chemicals Maastricht Eindhoven Arnhem Rotterdam

Food Wageningen Westland

Detailed further1

1 Creative industries and renewable energy are potential future high growth sectors for which the interdependence with the Mainports is least well known

SECTORSILLUSTRATIVE


Creative business services is the fastest growing segments within the broader creative industry

4.22.99.9

Employment growth for 2004-07Percent

(2.9)10.2

(11.4)6.0n/a

58.814.811.224.0

Creative industry

Arts

Media and publishing

Creative business services

SECTORS - CREATIVE INDUSTRIES

1 Based on data by CBS, measured in 2007 FTEs on SBI93 codes2 No Dutch employment data available

SOURCE: Broek, Wils and De Kleijn, 2008; Stam, Marlet and De Jong, 2008

Rarely driving economic innovation

Very high share of subsidies in total revenues

Nearly always innovative Small share of subsidies

in total revenues

Occasionally innovative Partially share of

subsidies in total revenues

Characteristics

30,32257,89436,317

Contribution in Dutch employment1

14,64114,08941,588

3,154n/a

13,29959,21333,739

9,011

Visual arts Performing arts Festivals, events

expositions etc.

Film Television & radio Literature & books Journalism Digital media

Design Architecture Advertising Fashion

Subsectors


The success and relative size of a regions creative industry is currently not correlated with intercontinental network quality

Creative employment of total employmentIndexed, Milan = 100

43

43

43

50

57

57

57

64

79

86

93

93

100Milan

Budapest

Helsinki

Barcelona

Dublin

Leipzig

Amsterdam

Munich

Sofia

Poznan

Birmingham

Riga

Toulouse

Number of long haul destinations1

3

2

7

0

0

38

68

1

15

9

19

4

46

SECTORS - CREATIVE INDUSTRIES

1 Long-haul defined as a flight lasting at least 6 hours. Schedule for 12 month period ending March 2009 analyzed

SOURCE: Florida, R. (2004), Europe in the Creative Age; Slideshare (2009) - Musterd, S. (2008), Creative Industries in Europees en regionaal perspectief, OAG; McKinsey analysis


Ethanol could make up for more than 5% of liquid bulk throughputand storage capacity for the Port of Rotterdam by 2020

Bioethanol

100% = 59,7 bln gallon

Trade flows of ethanol EU-27

Africa

NAEurope

Brazil

2,1 3,6

0,7

Ethanol demand worldwide, billion gallon, 2020

SOURCE: McKinsey land use and biomass model 2020

Assumptions ethanol Same subsidies as today Crude oil price 70 USD / bbl Tariffs - same as today

Brazil to NA: US$ 0.58/gallon Brazil to EU: US$ 0.91/gallon

Logistics - same as todayInland freights + maritime freights

Brazil to NA: US$ 0.16/gallon Brazil to EU: US$ 0.21/gallon

Breakdown of ethanol demand Percent 4.3 billion gallon

shipped to Europe equals ~16 mln m3

Currently Rotterdam is the biggest biofuel port in Europe

Assuming Rotterdam attracts 80% of the intercontinental traded biofuels, ~5% of all liquids in the port could be biofuels by 2020

89Local use 11 Traded ethanol

Energetic value of Bio-ethanol is 35 - 40% lower per liter than most oil based fuels

If bio-fuels volumes would grow significantly up to 2040, this could cause problems with storage capacity in the port

SECTORS - RENEWABLE ENERGY: ETHANOL


1 IEA estimates of CO2 emissions from fuel combustion and industrial processes in 2007. Does not include miscellaneous small CO2 emitters and non-CO2 emissions such as methane (e.g. forestry, farming, etc.)

2 Not including biomass, oil sands, paper mills, ammonia, ethanol, ethylene, hydrogen, and other industries3 Includes metal ores processing

Predominantly large, stationary sources

CCS could address almost half of European CO2 emissions from fuel combustion and industrial processes

CCS addressable emissions 100% = 2 GtCO2, 2007

Total emissions1100% = 4.2 GtCO2, 2007

Power: gas

Power: oil

Power: other

Cement

Iron & Steel3

Refineries

88

9

6

16

52Power: coal 1

53

47

100

2007

Not adressableby CCS

Addressable by CCS

SECTORS - RENEWABLE ENERGY: CCS

SOURCE: EEA GHG Emission Trends and Projections 2007; IEA World Energy Outlook 2007; McKinsey analysis


CCS expected to be economically viable as of 2020, if sufficient funding for pilot projects becomes available

Demonstrationphase (2015)

Early commercial

phase (2020+)

Mature commercial

phase (2030+)

/tonne CO2

Estimated cost of CCS

Carbon price forecast*

05

1015202530354045505560657075808590

Demonstration phase: Not economically viable in itself

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SECTORS - RENEWABLE ENERGY: CCS

1 Carbon price for 2015 from 2008-15 estimates from Deutsche Bank, New Carbon Finance, Soc Gen, UBS, Point Carbon, assumed constant afterwards

SOURCE: Reuters; McKinsey analysis

Commercial phase: Cost of CCS likely to approach the range of the future carbon price


Price differential of ~4% will not make people choose for The Netherlands as tourist destination instead of a city with a 2nd tier airport

Schiphol position as a major intercontinental hub is unlikely to be a key vacation destination decision factor

SECTORS - TOURISM

Tourists visiting The Netherlands instead of another European citybecause of Schiphol as a large hub

Price argument: flying to Schiphol is cheaper

Convenience: it is easier to fly to The Netherlands

1,250Amsterdam

1,300Helsinki

1,299Oslo

Stockholm

1,345Milan

1,301+4%

Ticket price from Tokyo toRound trip via Schiphol,

1 Oslo and Stockholm are one stop connections via Schiphol, others are direct flights

SOURCE: Destination Holland, NBTC (Nov 2006); AF-KLM website; OAG, McKinsey analysis

Travel time from Tokyo toHours, Airport to Airport1

11,810,3

13,7

12,412,4

AmsterdamHelsinkiOsloStockholmMilan

+5%

Travel time differential on a intercontinental trip only ~1.5 hours on a 12 hour trip, thus also not likely to be a key final tourist destination decision factor

CASE EXAMPLE


Intercontinental tourists do not seem to visit The Netherlands to benefit from Schiphol as easy access point into Europe

SECTORS - TOURISM

3,546

639

55

279

2,573

346

159

135

100

139

Total

Other intercontinental

Japan

UK

Germany 628

Italy

Belgium 192

874

Spain

France

US

Total Europe

Other Europe

Scandinavia

Total tourism spend in The Netherlands by residents from2005, mln

Most popular combinations with a visit to The Netherlands2005, mln

USA Germany France Belgium UK Ireland

Japan Italy UK Belgium Germany France

Other intercontinental guests Germany France Belgium UK Italy

More then 70% of foreign tourism spending in The Netherlands comes from residents of European countries

Intercontinental guests(


Contents







Some sectors use both Schiphol and Rotterdam for transportation of cargo and/or people

Flow

Schiphol Rotterdam

Pax Perishables Express High value products

Dry bulk Liquid bulk Containerized products

Business clusters using one or both mainports1

SOURCE: KiM: Synergie tussen de Mainports?; McKinsey analysis

Agriculture2

Petroleum

High Tech

Wholesale

Maritime cluster3

High use of flow

Medium use of flow

no use of flow

Only High Tech and Wholesale have limited over-lap in Cargo flows

Many business clusters use Schiphol for pax and Rotterdam for cargo, suggesting economic spin-offs exist

Professional services

BASED ON KIM REPORT QUALITATIVE ASSESSMENT

1 Business clusters as defined by KiM that extensively use one or both of the mainports2 Export mostly flowers, import grain, fruit and vegetables3 Shipbuilding, offshore, and maritime construction


Some direct economic spin-off exists between the two mainports

SOURCE: Port of Rotterdam, Schiphol, Airport Emission Control; McKinsey analysis

Schiphol requires approximate 600 mln liters of kerosene each year

This kerosene is transported from the Port of Rotterdam to Schiphol by barge and pipeline

Schiphol demand for kerosene equals ~1.1% of the total annual oil products throughput , which equals ~0.3% of annual liquid bulkthroughput of the port of Rotterdam

Rotterdam benefits from the need for kerosene by Schiphol

Schiphol benefits from pax generated by Rotterdam

An estimated 130k-500k Pax are generated by companies directly linked to the Port of Rotterdam

Lets assume 80% of these Pax will fly through Schiphol

Even then, with a total annual business volume of ~17.5 million pax, this equals to 0.6-2 % of total Schiphol business passengers, less than 1% of Schiphol pax volume


Port of Rotterdam generates less then 1% of Schiphol business passengers

SOURCE: McKinsey analysis

Pax Generated by Port of Rotterdam for Schiphol

Pax Generated by employees of port related companies

Pax generated by customers visiting companies

Pax generated by consultants helping companies

Pax Generated by direct port related companies

Pax Generated by indirect port related companies

80.500 employees directly working the port Due to local nature of work, 5-10% is expected

to travel by air Average annual travel by air per person 2-10

60.400 employees indirectly working the port Due to service orientated nature of work, 10-20 % is expected to travel by air Average annual travel by air per person 2-10

Approx 2.500 companies connected to Port of Rotterdam

On average an estimated 20-50 customers visit these companies

Approx 2.500 companies Connected to Port of Rotterdam

On average 20-50 (technical) consultants flying in on a yearly basis

Total business related PAX generated by Port of Rotterdam and flying on Schiphol: 0.1-0.4 mln

Estimated maximum of 80% of total Pax generated to fly from Schiphol

Rotterdam Airport expected to accommodate at the remaining (i.e., minimum 20%)

% of Pax generated by Rotterdam that uses Schiphol

Total Pax generated by Rotterdam

BACK-UP

INDICATIVE


Having an airport close to a major port is not a unique feature within the western European port sector


Port

Airport

All large NW European ports have a International air passenger hubwithin hours of driving distance

All ports have International air cargo hubs within hours of driving distance

All ports have small local airports,convenient for flying e.g. technical staff in and out

Most large ports have a major airports nearby which makes the proximity of Schiphol to Rotterdam not unique

ILLUSTRATIVE

McKinsey & Company 30|SOURCE: Press search; McKinsey analysis

Despite not having an international airport, Hamburg has been able to attract Chinese business through creation of a Chinese community

Hamburg has a welcoming attitude towards Chinese people Chinese healthcare practitioners are supported There is a large number of Chinese organizations

There are good distribution facilities

All official documents and websites are translated into Chinese The country leads in education of Chinese medicine There are Chinese sector associations (e.g., law, IT,

food, culture) Port of Hamburg is the largest Chinese distribution

centre of Europe

Relationships Business Research Politics

Sector conferences of Chinese and German businesses Most active student exchange program between

Europe and China Shanghai is twin city of Hamburg Ex-chancellors and the Chinese prime minister are

involved in establishing relationships between politicians

Culture There are cultural events for the Chinese

community in Hamburg There are large cultural events to educate

Hamburg about the Chinese culture

Many Chinese cultural associations 3-day city event that involves high-profile Chinese

and German politicians / CEOs

Examples

Hamburg is Chinas leading investment hub 400 Chinese companies in Hamburg Port of Hamburg is the most important trading partner of

China, processing 25% of the Chinese export to Europe Chinese expats consider Germany the most attractive

country to settle after the US

Pillars of the Chinese-German community CASE EXAMPLE


Although there is limited direct economic interdependence between the mainports, there are areas of mutual interest

Impact on Mainports Advantages of combined approach

Hinterland connections1

Solid hinterland connections will help secure and extent Schiphol O&Dcatchment area

Low congestion on hinterland connections is necessary for Rotterdam to continue its growth, especially in containers

Although hinterland routes for both main-ports differ by nature, easing congestion on one, could have a positive spill-over effect for the other e.g., dedicated rail freight routes would benefit Rotterdam directly, while it would decongest the passenger rail network, benefitting Schiphol

Talent pool, knowledge and innovation

Competitive position of Schiphol as a hub highly depends on quality and service of its labor force

Rotterdam's competitive position is partly due to its relatively high skilled labor force and resulting high quality of service

Focus on education of labor force in logistics could benefit both mainports in maintaining their competitive positions

Logistical knowledge build-up trough research and innovation is likely have a beneficiary spill-over effect of knowledge for both mainports

Strategy and policy making

Mainports benefit from sound policies and regulations

Government and related organizations involved in strategy and policymaking for both mainports can learn from each other, which can result in better informed decisions at lower costs

SOURCE: Expert interviews; DGLM interviews; McKinsey analysis

1 In practice, both mainports are also competing for funds, as public funds to invest in infrastructure are limited2 Quantitative ambition commission van Laarhoven (Innovation program logistics and supply chains): increase value add from ~ 3-10 bln by 2020


Contents







"Third league"(examples)

Schiphol currently in first league of European intercontinental airports

Number of long-haul destinations1

Weekly long-haul seat capacity offered, outbound seats 000

"First league"

"Second league"

New York Hong Kong Tokyo

Average daily frequency of flights2 by destination

45666699

111215151719212730353841414144

68

6885

9798CDG

FRALHRAMS

LGWMXPMADFCOMANMUCBRUZRHDUSORYHELLISDUBVIECPHARN

ATHBCNGVAPRGLYS

WAWBUD

MRS

35234689

13181723232034

1941

3248

3551

9628

61

234215

408153

0

11.86.7

26.06.8

2.03.64.66.5

4.01.9

4.94.8

1.52.5

0.91.9

4.80.91.82.2

2.23.32.4

0.90.4

1.41.0 0

0000000

00000

00

0

0

000

3.22.4

10.22.0

1.0

1.0

1.0

1.0

00000000

0

00

00

0

0

0

0

4.93.04.7

2.0

1.0

1.4

1.0

1.0

0.6

0.80.9

Three "leagues" of airports can be identified in long-haul offering

Schipholcurrently in top league

SOURCE: Back Aviation Solutions OAG database; McKinsey analysis

1 Flights lasting more than 6 hours included2 Weekly number of connections divided by seven

12 month period ending March 2009


Small home market is a potential threat for Schiphol attractiveness as a hub location, however relatively good score on other key factors

SOURCE: Expert interviews; McKinsey analysis

(Intercontinental) hub key success factors

Schiphol Frankfurt London (LHR) Paris

Evaluation of major EU hubs vs key success factors

Schiphol and Frankfurt are well positioned to serve as major EU hub and have strong infrastructure, small home market is primary weakness

London, although it has a strong home market, suffers from bad weather, sub-optimal geographical location and congested infrastructure

Paris has a strong home market, good location, good weather, but is a question mark due to its bad infrastructure

Large home market, .i.e. high O&D volume

Strong infrastructure and sufficient expansion options1

Favorable location (center of, e.g., continent)

Other (e.g., weather, quality,)

EXPERT OPINION

~

~

~ ~~

1 Includes hinterland connectivity (landzijdige bereikbaarheid), Airport infrastructure as well as airside connectivity (luchtzijdige bereikbaarheid)


Within the top-league, Schiphol has least long-haul destinations and is relatively dependent on transfer passengers

1 Number of annual flights divided by 3652 Flights lasting more than 6 hours included

SOURCE: OAG; UK CAA; McKinsey analysis

Passenger compositionMillion, 2007

45

59

65

68

87

35 68LHR

32 57CDG

AMS 41 46

13 35LGW

O&DTransfer100% =

55FRA 53

0

0.5

1.0

1.5

2.0

2.5

3.0

0 20 40 60 80 100

AMS CDGFRA

LHR

Long-haul destinations2Number

Frequency1Daily average

Airport breadth and depth12 month period ending March 2009

1st league2nd league3th league


Schiphol physically has most room for infrastructure expansionHectare of available land for expansion within a 20x20 km area around the airport

SOURCE: Internationale benchmark capaciteit luchthavens, Kennisinstituut voor Mobiliteitsbeleid; McKinsey analysis

0 1,000 2,000 3,000 4,000 5,000 6,000

DubaiAmsterdamMadridLondon StanstedParis CDGRomeFrankfurtLondon GatwickMunchenHelsinkiBarcelonaLondon LHRBrusselsMilan MalpensaCopenhagenViennaWeezeKolnLiegeIstanbulLuxemburgZurichParis - CharleroiDusseldorfManchester

Capacity for runways

Capacity for businesses

Within Europe, Schiphol has most room for business expansion

Schiphol also has most room forrunway expansion1

However, actual expansion potential dependent on restrictive policies, such as noise restrictions

1 Not taking the effect of noise and other restrictions on actual capacity into account


Schiphol is relatively constrained in its airside access, but easily accessible by land

90

97

97

89

23

10

11

77% 705Paris (CDG)

539Frankfurt

3 489London (LHR)

3 450Schiphol

291London (LGW)

Available slots

Used slots100% =

Together with Heathrow, Schiphol is very constrained on the airside access of the airportUsage of landing and take-off slots within legal constrains, 2007

SOURCE: Internationale benchmark capaciteit luchthavens, KiM; Airport capacity profiles, IATA; McKinsey analysis

Schiphol is 2nd best airport with regard to ease of access by land after FrankfurtGround access, 2003

30

10

16

29

10

4

4

4

4

4-6

15,970

36,500

18,220

29,900

27,000

Journey time to city centre by trainminutes

Frequency of train connectionPer hour

# of parking spaces

#1 #1 #2


Schiphol profits from being in a highly accessible location for trans-porting air cargo in to Europe, with fierce competition however

0.4

0.5

0.5

0.7

0.7

0.9

1.3

1.6

2.1

2.1

2 Frankfurt

3 Schiphol

4 London (LHR)

5 Luxembourg

6 Brussels

7 Cologne

8 Liege

9 Milan (MXP)

10 Copenhagen

1 Paris (CDG)

European Trucking Accessibility MapBased on time travel matrix1

Low accessibility High accessibility

21

34

56 7

9

10

8

Top 10 European Airfreight AirportsMillion metric tons, 2007

1 The travel time matrix and resulting accessibility indicator for trucks, i.e. for good transport, can be interpreted from the perspective of producers on (potential) markets as the answer to the question which location has the highest market potential

2 Top ten share of total volume transported is 64%

SOURCE: ACI; IRPUD; McKinsey analysis


While Schiphol is a large cargo airport, relatively air cargo is less important than passenger for understanding future capacity constraints

Amsterdams position as a major cargo airport seems secure due to its size Air cargo throughput, 2007 1000x tons

but Liege took off during that last 10 yearsFreight activity, 1000x tons

SOURCE: Sowaer website; ACI; Helder Kiezen, keuzes helder maken; McKinsey analysis

2,074Frankfurt / Main2,053Paris De Gaulle

1,610Schiphol1,314London Heathrow

856Luxembourg738Brussels705Cologne / Bonn

490Liege471Milan Malpensa

396Copenhagen333Istanbul322Madrid275East Midlands265Zurich251Munich207London Stansted192Vienna171London Gatwick166Manchester134Milan Orio al Serio

490406

32638237432727327020816435810

1994 95 96 97 98 99 2000 01 02 03 04 0605 07

As full freighters account for only 4% of all Schiphol flight movements, the remainder of this chapter focuses on passenger demand

20 76Schiphol

Major carriersFull

FreighterLCC

100%4

Pax flights are significantly larger in volume to than full freightPercent of total number of flight movements, 2006


There are 5 key drivers of air passenger volume growth towards 2040

SOURCE: Expert interviews; McKinsey analysis

High

Low

1 Visits to Friends and Relatives

1

2

3

4

5

Access to destinations

Alternatives to flying

Real economic growth

Continued globalization

Cost of flying

Description of trend Change in trend? Impact of driver

Real GDP growth is the key driver of air travel demand: more business means more travel and more GDP per capita means more leisure demand

Future economic growth uncertain, but will still be a key driver of air travel demand growth, question is at what multiplier?

Globalization increases the need for business travel to meet with overseas business relationships

Global social networks and VFR1 trips increase

Decreasing cost of flying (in real terms) has been a key driver of traffic growth, especially leisure demand

Increased offering of number of destinations and frequency

Trip time decreased

There is a physical limit to improvement of access and marginal utility of increasing frequency declines

Land travel: train, car Communication: video conferencing, virtual

meetings

High speed rail will play an important role on intra EU traffic

Virtual meetings impact on business travel is a question mark

Past Future

Key question mark is cost of (alternative) fuels and climate taxes

Globalization may continue, but may also flatten out as a response to current economic crisis


Economic growth has been the key driver of global passenger volumes

SOURCE: Worldbank World Development Indicators; ICAO; McKinsey analysis

y = 2.0562x - 0.0166R2 = 0.536

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

-3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%

Year on year change in global airline passengers carried, %

Year on year change in global real GDP%

1974, 75 stock crash, oil

1973 stock crash, oil

2004 recovery

1991, Gulf War

2002 (post-9/11)

1982, recession

Expectation given GDP change, 2009

Historically, there is a reasonably high correlation (R of 0.70) between changes in real GDP and passenger numbers

However, duringshocks to the economic system this relationship is broken

Observed YTD, 2009

Economic shocks

Normal GDP-air travel growth correlation

1BACK-UPCorrelation between yoy change in real GDP and global passenger numbers, 1971-2007


Globalization is an important underlying driver of air passenger volume2

Air travel to do business

International labour movement

Evidence

12111198

6665

2000 2001 2002 2003 2004 2005 2006 2007 2008

+10%

Number of seats (mln seats per annum both ways combined) offered on flights between China,HK and EU increased by 10% p.a.

Number of offered seats on Emirates flights from Dubai to India increased from 306 thousand in 2000 to 1.8 million in 2008

At the same time, the number of destinations in India served by Emirates increased from 4 to 10

SOURCE: SOURCE: Innovata schedules via APGdat, OECD; McKinsey analysis

1 Austria, Czech Rep, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Poland. Portugal, Switzerland, UK taken as sample for Europe

ILLUSTRATIVE

Explanation

Increasing business links between China and Europe

Value of FDI of European countries in China increased with an ~18% CAGRbetween 2000 and 2005*

Airline capacity offered between China and Europe also increased substantially

A high number of Indian people are currently employed in Dubai working eg in the hospitality industry and in construction

This has also led to substantial increase in air flows between Dubai and India


Cost of flying decreased significantly

1 yield = passenger revenue / revenue pax km2 Association of European Airlines members only, system wide traffic

SOURCE: AEA; McKinsey analysis

Passenger yield1 European carriers2, constant, USD cents / RPK

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 200710,0

10,5

11,0

11,5

12,0

12,5

13,0

13,5

14,0

14,5

15,0

15,5

16,0

16,5

17,0

17,5

-26%

3


Leisure demand is most sensitive to price changes

-2 -1.5 -1 -0.5 0

Elasticity

More Less

Rationale

Paid for by company; no substitutes

One part of trip spend but no need to travel

Paid for but has someland substitutes

One part of trip spend but no need to travel

Paid for but has many land substitutes

Opportunistic price-driven booking

3 SYNTHESIS OF 21PREVIOUS STUDIES

SOURCE: Air travel demand elasticities - Concepts, issues and measurement, Gillen, Morrison & Rietveld (2002)

Numberof studies

2

6

2

2

3

3

Market segment

Long-haul inter-national business

Long-haul inter-national leisure

Long-haul domestic business

Long-haul domestic leisure

Short-haul business

Short-haul leisure

Number ofestimates

16

49

26

6

16

16


At consistent high fuel prices airlines may change their behavior, reducing frequencies in order to increase load factor

60 55 5148

26

14

100 100

11050

21

202224

27

100

140

100

Fixed cost1

32

Other variable cost2

80

Fuel cost

Percentage of total operating costs for an average stage-length

Price of jet fuel $/bbl

As fuel costs increase, airlines may change their behavior

In a fixed cost environment, airlines were prepared to discount seats heavily to contribute to their fixed cost base

With variable costs above 50%, airlines may be prepared to reduce frequencies and only fly when the aircraft has adequate yield

The industry break-even oil price is around ~$95/bbl, at which point variable costs are ~45% of revenue

3

1 i.e., in the near term, cost is not affected by the load factor or the number of frequencies flown2 Most variable cost (including fuel) varies mainly according to the number of frequencies flown rather than the load factor

SOURCE: Airline industry fuel model; annual reports; Airline Business; press searches; McKinsey analysis


Ease of access to far-away destinations increased over time

SOURCE: OAG; press articles; McKinsey analysis

4 CASE EXAMPLE

Kangaroo route in 1947 55 hours needed to fly the route, excluding

stopovers 6 stopovers, including two overnighters: London-

Tripoli-Cairo-Karachi-Calcutta-Singapore-Darwin-Sydney

Lockheed Constellation flying the route, carrying 29 passengers

Average Australian needed to work 130 weeks to buy a return ticket

Kangaroo route now 21.8 hours needed to fly the route One stopover (e.g., in Bangkok, Singapore, Hong

Kong) B747-400, B777, A380 flying the route* carrying

between 224-525 passengers Average Australian needs to work 2 weeks to buy

a return ticket


High speed rail is a substitute for short-haul flights

SOURCE: UK CAA; Press Research; McKinsey analysis

5

Market share on Paris-London Route Market share on Brussels-London Route

64 69 71 72

36 31 29 28

100

2003

100

2004

100

2005

100

2006

56 6165

52 4439 35

48

100

2003

100

2004

100

2005

100

2006

Airplane

EurostarMarket shares, percent


Long-term scenarios are formulated as combinations of these 5 factors

SOURCE: Expert interviews; Workshop discussions; McKinsey analysis

Description of scenario and impact on air travel demand

High growth

Moderate growth

Low growth

Global scenario

Acce

ss to

desti

natio

nsAl

terna

tives

to fly

ing

~ ?

?

Glob

al rea

l

econ

omic

grow

thCo

ntinu

ed

globa

lizati

onCo

st of

flying

~

1 2 3 4 5

~5%

~3%

~1%

PositiveNegative

... Growth CAGR, %

Economic scenario Continued economic globalization

resulting in high economic growth and further supply chain specialization

Further reduction in real cost of flying, driven by technological advances and plenty available alter-native energy at reasonable cost

Stable economic globalization resulting in moderate economic growth and stable supply chain specialization

Real cost of flying flattens out, driven by and high cost of fuel and limited technological advances

De-globalization resulting in low economic growth and reversed supply chain specialization

Real cost of flying flattens out, driven by and high cost of fuel and limited technological advances

Impact on air travel demand High leisure demand

growth due to low ticket and global social and business networks

High business demand growth due to high econo-mic growth and continued economic globalization

Moderate leisure demand growth

Moderate business demand growth

Low leisure and inter-continental business demand growth

Moderate intra-Europe business demand growth


2.03.0

4.03.5

1.5

1.0

1.01.5

Volume growth under these scenarios could vary from 1-5% p.a.

SOURCE: Boeing; workshop discussions; expert interviews; McKinsey analysis

2007 volumesRPK, trillionFrom EU to

2040 volumesRPK, trillion

Growth assumptionCAGR, %

0.6EU0.4NA0.4ASIA0.4ROW1.8Total

Scenario summary description + =

2.01.9

2.42.08.2

1.21.1

1.41.24.9

1.00.60.50.62.8

Continued economic globalization Further reduction in real cost of

flying High leisure demand growth High business demand growth

3.5

4.7

5.75.0

>4x

~3x


Pre-crisis market forecasts support the high growth scenario of 5% growth per annum

0

2

4

6

8

10

12

14 Boeing

Airbus

AirlineMonitor

5.0

4.6

4.8

CAGR07-27Global passenger growth

Actuals

SOURCE: Boeing, Airbus, Global Insight; McKinsey analysis

Market forecasters see continued strong growth in global pax

The Boeing detailed growth rate forecasts for EU traffic are used as proxy for the High Growth Scenario

European passenger growth1

3.5

5.0

5.7

0

1

2

3

4

5

EU-ASIA

EU-RoW

EU-NA

EU-EU

4.7

1 Based on Boeing detailed traffic outlook per region

2000 20272007

2000 20272007

RPK, trillions, 2000-2027

BACK-UP


Airline consolidation and airport capacity constraints are key determinants of what the EU airport industry will look like in 2040

SOURCE: DGLM interviews; Expert interviews; McKinsey analysis

High

LowDescription of trend Impact on EU airport sector Importance

Carrier consolidation

Airlines are consolidating to increase scale economies

In a low growth scenario with airport overcapacity, airlines with multiple hubs in close proximity might rationalize the hub function

Competing non-EU hubs/carriers

Large ME carriers (e.g. Emirates) with a favorable geographic hub location compete for traffic

EU hubs maybe bypassed on increasing number of routes when these carriers get equipment that can economically make these alternative connections

Specialized airplanes

Larger equipment (A380) for trunk routes and specialize smaller equipment for long-haul direct connections make more combinations possible

Large economic equipment increases shift towards mega hub consolidation

Specialized long-haul equipment enables carriers to bypass large hubs

Rise of LCC

The market has seen an inflow of LCC and point-to-point players, flying directly between peripheral cities and even creating completely new routes

Pure LCCs do not compete with mainline carriers for traffic on key routes between large cities

EXPERT OPINIONS

Airport capacity constraints

Currently all major European airports are facing serious capacity constraints

In a high growth scenario without a step change in capacity by 1 or more of the 1sttier EU airports, growth will defer to 2nd tier airports and hub consolidation will not occur

1 depending on degree of airline consolidation, which is a driving factor


Key question is to what extend hubs will consolidate into mega hubsand what the role of Schiphol could be under such a scenario

SOURCE: Expert interviews; DGLM interviews; workshop discussions; McKinsey analysis

EU airline sector has consolidated into 3 major players Each carrier has concentrated its intercontinental hub activities into one mega

hub, facilitated by a step-change in capacity by these airports Schiphol has become a large mega hub with daily connections to more then

100 intercontinental destinations

Schiphol still a hub >5 large EU hubs

Schiphol grows into a mega hub 3 large EU hubs

EU airline sector has not consolidated much further OR airline consolidation has not resulted in hub consolidation due to airport capacity constraints

Current airport landscape still in tact, all airports have grown at the same pace as far as capacity constraints allowed them to.

Schiphol has maintained its current position as one of the 5+ major European hubs.

EU airline sector has consolidated into 3 major players Each carrier has concentrated its intercontinental hub activities into one large

mega hub, facilitated by a step-change in capacity by these airports Schiphol is not one of these 3 hubs, and has become a large 2nd tier airport,

with specialized intercontinental routes and a large European network

Scenario name Scenario need to believes

A

B

C

Schiphol not a hubanymore3 large EU hubs

S

i

z

e

o

f

S

c

h

i

p

h

o

l


2.7x 2.7x

Schiphol passenger volume could be 1-7x current volumes by 2040Schiphol 2040 passenger volume growth scenarios, indexed, volumes 2007 = 1

SOURCE: Workshop discussion; McKinsey analysis

Schiphol still a hub 5 large EU hubs1

Schiphol growsinto a mega hub 3 large EU hubs1

A B CSchiphol not a hub anymore3 large EU hubs1

High growth ~5%

Moderate growth

3.5x

Low growth ~1%

2.8x1.4x

Transfer

O&D

5.0x 5.0x

10.0x

5.0x

5.3x2.7x

1.4x 1.4x

0.7x2.7x

0.3x 1.4x

1.3x

5.0x

Assumptions: Today ~40% of passenger

volumes is transfer

If Schiphol not a hub, it looses 75% of transfer passengers

If Schiphol becomes a mega hub, transfer volume doubles, as Schiphol takes over transfer passengers from other hubs. This is on top of autonomous market volume growth

ESTIMATES

1.9x

1.0x

5.0x

2.7x

1.4x

7.0x

3.7x

1.9x

~3%

Total

Can growth be accommodated at current location?

Yes

Uncertain

No


Beyond 2.5-3x volume growth, relocation of Schiphol might be necessary

SOURCE: workshop discussions; McKinsey analysis

Replace short-haul traffic by train

Overflow to regional airports

Physical runwayoptimization at current location

Optimize use of current infrastructure

Reduces burden on capacity from feeder flights (e.g., Antwerp, Brussels, Copenhagen, )

Extent Schiphol with extra runways at current location in order to increase capacity within noise / environmental boundaries

Transfer non-hub dependent traffic, especially LCC and charters, to overflow airports such as Eindhoven and Lelystad

E.g. shorter takeoff/landing intervals; optimize slot allocation and queuing system; reconsider noise restrictions; more pax/plane

Rationale

1x 2x 3x 4x 5x 6x 8x

Expand at alternative location or relocate

Build new airports or expansion within 5-10 minutes by super fast train to current Schiphol (e.g., Singapore)

x1.2

X1.5-2

?

x1.1

Capacity increase multiplier

x

>8x

Volume growth factor Schiphol 2040 vs 2007

Low GrowthSchiphol not a hub

Moderate growth, Schiphol still a hub

High GrowthSchiphol a mega hub

7x

High growth, Schiphol still a hub

Actions

INDICATIVEESTIMATES


Schiphol could increase capacity by outplacing non-hub traffic

SOURCE: Lange Termijnverkennning Schiphol; Helder Kiezen, keuzes helder maken; McKinsey analysis

8 412 24Schiphol

17Paris (CDG)

7Frankfurt

1London (LHR)

Full Freighter

LCC- leisure & Charter

LCC -business motive

Currently, 24% of Schiphol flight movements do not contribute to the hub function

By moving charters and LCC with leisure motive to regional airports, Schiphol can free-up 8% of current capacity

If LCCs with a business motives also would be moved, Schiphol could free-up 20% of current capacity, creating room to increasehub related capacity by 25%

Percent of total number of flight movements, 2006


Schiphol could potentially double its capacity at current location

SOURCE: Lange termijnverkenning Schiphol; Jaarverslag Schiphol Group 2008; IATA; OAG; ACI; McKinsey analysis

INDICATIVEESTIMATES

~ 2x current traffic of 50 mln pax per annum

47Current operations

13Headroom capacity within current constraints

60Current foreseen maximum

10Technological advances -planes make less noise

10Technological advances -larger planes

80Capacity after technological advances

10Policy - stimulate use of larger planes

0-10Policy - enforce use of quiet planes

?Policy -less restrictive regulation

~100Capacity after policy measures

Impact of measures on passenger capacity Million

Schiphol Airport passenger capacity, million pax per year

Assumptions / rationale

2008 total pax handled 47 million

Current terminal capacity 60 million pax

New aircraft are 50% quieter than aircraft 10 years ago; IATA expects a 50% reduction in noise by 2020

Average aircraft size at LHR is currently 28% more than at AMS (195 seats versus 152 seats)

Use landing charges to incentivize use of quieter planes

Relaxation of regulation to increase competitiveness

Trend towards larger equipment, especially for truck routes (e.g. A380)


Substitution of feeder flights by HSL is estimated to have a small impact, unless all short-haul flights would be substituted

SOURCE: Lange Termijnverkennning Schiphol; McKinsey analysis

300

800

3,100

Total

Other1

Frankfurt

Brussels

London

5,800

15,000-21000

5,000-11,000

Paris

Feeder flights on destinations within 500-800 km can be partly substituted by High Speed RailNumber of flight movements that can be substituted

60

Assumed substitution %

Current total number of flight movements

of ~450.0001 Other European spokes within 500-800 km from Schiphol, such as Munich, Zurich, Lyon, Geneva, Copenhagen2 Assuming 100% substitution for Paris, London, Brussels, Frankfurt and the lower range of other (assuming 10% substitution for original estimate)

49

7

11

~3

Estimated effect of substitution 100.0002flight movements or 17% of capacity

This excludes the extra traffic that will be attracted as the effective catchment area is being enlarged

na


Contents







The port of Rotterdam is the largest European port, especially in the dry and liquid bulk segments

SOURCE: Port of Rotterdam (Port Statistics); McKinsey analysis

Total throughput 2006-07, Mln tons

0 100 200 300 400 500

2003

Rotterdam

Antwerpen

Hamburg

Amsterdam

Le Havre

Bremen

Duinkerken

Wilhemshaven

Zeebrugge

Gent

2007

Total dry bulk throughput 2007, Mln tons

1722

28105

512725

91

3641

14246271540

187

129

PoR

119

Antw

99

Hamb

10

Adam

28

Le H

58

Bre

16

Dnk

0

Wilh Z.bru

34

Containers

Other general

Gent

5

Total liquid bulk throughput 2007, Mln tons

Total container and general cargo throughput 2007, Mln tons

Rotterdam is the biggest port of Europe especially in bulk, while it has similar container volumes compared to its main competitors

24%

49%

26%

Market share Rotterdam

Delta 2003-07

28%

32%

34%

10%

42%

14%

8%

38%

-5%

49%


Historically, Rotterdam has benefited from strong global trade growth, driven by underlying global trade flow drivers

SOURCE: McKinsey global trade flows

Catch-up effect in 90s and 00s (opening of E. Europe/China)

ESTIMATES

Growth in global con-sumption/production

0.1 - 0.2Productivitygains

0.3-0.5 0.5 - 0.7

Labor cost arbitrage

~0.2

0.5-0.7

0.7 -0.9

Increasing specialization

0.3-0.51.7 - 2.1

2.0-2.6

Total multiple(trade on GDP)

~0.2

0.7 - 0.8

Long-term drivers of trade growth, 1980-2008

Sectors with high transport intensity (agriculture, construction) grow slower than GDP

Service industries grow faster than GDP

Substantial global labor cost differentials remain

Real transport cost at historical lows

Economies of scale drive consolidation in manufacturing

Multi-national manufacturers operate trade-intensive net-works and technology clusters become global factories

Long-term trade to GDP growth expectedat around 2

Catch up effect of 90s/00s fading

Impact on global trade

Physical output outpaces real value added

Factor as multiple of global GDP

0

9,000

3,000

4,000

5,000

6,000

7,000

8,000

Global trade growth, 87-08, mln tonnes

1987 2008

2000 01 02 03 04 05 06 20070

340

360

320

420

400

380

Rotterdam total volumes, 00-07, mln tonnes


Key global trends likely to drive cargo volume growth towards 2040

Globalization

New (liquid) commodities

Increase of global business resulting in more global trade

Emergence of different trade patterns driven by shifting economical powers and new rising economies (e.g., Africa)

Description of drivers

Rise of alternative liquid fuels driven by renewable energy revolution (e.g., biofuels, H2, other types of energy carrying liquids, LNG)

3Tick mark explanation

2Increased globalization

Decreased globalization

Low cost energy

Rise of alternative energy will result in low energy cost, both due to abundance of energy as low environmental taxes as renewables impose less burden on the environment

Rise of cheap new energy

Continued dependence on expensive fossil fuels

Depletion / Recycling

Depletion of easy to quarry raw materials could result is shift to harder to quarry raw materials in the rest of the world accompanied by changing trade flows

Possible rise of new commodities due to increased recycling with likely shifting trade patterns

Depletion and increased recycling

Little recycling possible depletion

Plenty new commodities

Continued dependence on current liquids

SOURCE: Expert interviews; workshops; McKinsey analysis


Future scenarios are formulated as combinations of these key drivers

SOURCE: Expert interviews; team analysis

Impact on global trade volumes

High growth

Low growth

Econ

omic

grow

th

Glob

aliza

tion

Low

cost

energ

y

High economical growth, while global trade volume outgrows GDP growth driven by increased globalization, specialization of supply chains, and cheap alternative energy

Gap between OECD and emerging countries becomes significantly smaller (e.g. factor costs, GDP per capita and consumption)

Medium growth

Moderate global economic growth due to climate taxes and expensive energy cost

Continuation of gap between emerging countries and OECD

Majority of production remains in Asia as difference in factor cost continues to exist

Low economic growth due to expensive energy and multiple international conflicts which has lead to de-globalization (regionalization)

High transport costs and international conflicts and crisis lead to emergence of regional trade areasalong continental split (i.e. EU, Asia, North Africa)

~

Global scenario1

1 See appendix for detailed description of scenarios and megatrends

Megatrends1:

Glob

al su

pply

chain

s

Delta

facto

r cos

ts

~

~

Recy

cling

/ dep

letion

New

comm

oditie

s

?

?

~5%

~3%

~1%

PositiveNegativeGrowth CAGR, %


CPB WLO scenarios are used to quantify these scenarios

SOURCE: Welvaart en Leefomgeving: scenario descriptions

Global Economy

CPB WLO scenarios Link to scenarios in this report

Similar to High Growth scenario Globalized open economy High global economic growth Low environmental burden on economy

Regional Communities

Similar to Low growth scenario Regional trade areas Low economic growth Environmental policies potentially

harming growth of economy

Transatlantic Market

Similar to Moderate growth scenario Current level of globalization remains Medium economic growth Difference in factor cost remain

between OECD and developing countries

Story behind CPB WLO scenario

Little governmental intervention in the European Union

Liberalization of global trade EU expands with Turkey, Ukraine

and other small countries Increased labor mobility

EU member states focus primarily on national interests

EU redirects its attention to the US Global free trade agreements fail Increased flexibility of the labor

market

Little modernization of welfare states World fragmented in couple of Trade-

blocks Welfare split in old EU members

and new EU members No free global trade


CPB scenarios estimate overall growth between -0.5% and 2.5% p.a.

SOURCE: CPB, Aanpassing WLO scenarios voor containervervoer, McKinsey analysis

0

200

400

600

800

1,000

1,200


Strong Europe

Transatlantic Market

Global Economy

0

100

200

300

400

500

600


Strong EuropeTransatlantic Market

Global Economy

Total volume Dutch ports (including container)

Total container volume Dutch ports

1984 2005 2020 2040

Total volume is expected to grow at maximum 2-3%, and is even expected to shrink in RC scenario

Primary driver behind this growth arecontainer volumes

2.5

CAGR, 2005-40, %

-0.5

5.2

1.3

1.4

3.3

Mln ton


Overall throughput growth is primarily driven by container segment


High Growth

Medium Growth

Low Growth

Global scenario

Scenario summary description

Volume 2040, mln tonnes Size vs 07

CPB scenario

542Container

426Bulk

968Total

High economical growth, while global trade volume outgrows GDP growth driven by increased globalization, specialization of supply chains, and cheap alternative energy

Gap between OECD and emerging countries becomes significantly smaller (e.g. factor costs, GDP per capita and consumption)

287Container

362Bulk

649Total

Moderate global economic growth due to climate taxes and expensive energy cost

Continuation of gap between emerging countries and OECD

Majority of production remains in Asia as difference in factor cost continues to exist

144Container

191Bulk

335Total

Low economic growth due to expensive energy and multiple international conflicts which has lead to de-globalization (regionalization)

High transport costs and international conflicts and crisis lead to emergence of regional trade areas along continental split (i.e. EU, Asia, North Africa)

A

B

C

5.9

1.5

2.6

3.1

1.3

1.8

1.6

0.7

0.9


The high growth CPB scenario would require a combination of verypositive developments to materialize

542

287

14492

2005 Low Growth

Medium Growth

High Growth

The high growth CBP scenario


implies one has to believe that

Consumption per capita of containerized goods in Western Europe increases by a factor 6x, and/or

the ~10% containers with non-Western Europe final destination grows by a 2 digit factor, and/or

global supply chains specialize further to such an extent that goods are shipped back-and-forward multiple times more than today

10.50.30.2Implied containers per capita

Mln ton

~90% of Rotterdam container throughput has a Western-European final destination


Especially the moderate and high growth scenarios could create serious congestion problems

Terminal transshipment capacity

Terminal space / storage capacity

Hinterland connections


Explanation

Liquid Bulk Little room for expansion of current storage capacity on terminals

Sufficient spare capacity for pipelines to hinterland

Container Terminal storage space reached its limits early 2007, but 2nd Maasvlakte likely to provide sufficient storage

Hinterland connections (especially road) currently congested, likely to become worse

~

Dry Bulk Storage capacity likely to be sufficient Hinterland connections mainly by rail

and barge, no major bottleneck expected

~

No bottleneck

Bottleneck

Detailed further

ILLUSTRATIVE


Different actions can help to accommodate container volume growth

SOURCE: Team analysis

Expansion ofhinterland road network

Transport more containers by rail or barge

Expansion of rail network capacity

Intermodal hubbing in Hinterland

Enlargement of Ring-Rotterdam from 2-3 lanes to 4-5 lanes and A15 & A59 from 2 lanes to 4 lanes

Build 2nd Noord-oeverconnection

Prepare roads with possible capacity increase

Build 2nd Betuweroute to accommodate growth

Build an new dedicated rail-route to Antwerp

Expand requirements set for certain modal split for all new-build capacity on 2ndMaasvlakte to rest of port

Construct Inland hubs and divert all transfer containers to this hub

Examples of actions

1x 2x 3x 4x 5x 6x 7x

Volume growth factor of Port of Rotterdam

Low Growth Medium Growth High Growth

+ ~1

+ ~1

+ ~1

Dedicated freight corridor to North of NL

Set-up a barge corridor to divert all cargo currently trucked to the north

+~0.3

+~0.5

CONTAINER HINTERLAND CONGESTION

Additional capacity from measure

+

ROUGH ESTIMATES


Rotterdam has the most containerized transfer traffic in the Hamburg -Le Havre rangeDestin

Documents

Mck Mainports 2040 Final Report