Top10 fastest growing airports in 2018

Source: Routesonline

GAD World 2019 | Realizing the full investment potential of regional airports in emerging markets 2

Top10 fastest growing airports in 2018

Regional airports are seeing steady growth; of the 10 fastest growing airports worldwide, nine are in emergingmarkets and all but two are regional airports

Phnom Penh (PNH)38.4%

Bangalore (BLR)28.7%

Jinjiang (JJN)31.9%

Semarang (SRG)29.6%

Lucknow (LKO)28.1%

Yantai (YNT)27.4%Sevilla (SVQ)

25.9%

Novosibirsk (OVB)25.6%

Da Nang (DAD)24.4%

Hyderabad (HYD)23.6%

AirportGrowth rate, 2017-18

10M passengers

Other (>15M passengers)

Regional (5-15M passengers)


Socio-economic development drives the travel propensity and is a general underlying reason for a growing aviation industry

Several factors drive this growth, the most influential of which are typically demand generation by capacityand inbound tourism as well as spill-over

Socio-economic growth

Industrial developmentSpill-over effects/

constraints at hubs

Base airline and/ or LCCcapacity

Promotion of inboundtourism

Source: ACI 2019; *Including Australia and New Zealand


Return on capital employed by region and airport size 2017

Regional airports appear to be an attractive investment proposition, particularly in emerging markets

15

5

20

0

25

40

10

45

11%

6%

Latin America-Caribbean

Africa

8%

44%

13%

ROCE (%)

North AmericaAsia-Pacific*

8%

World

6%

12%

39%

29%

12%

9%

16%14%

19%18%

12%13%

20%

9%7%

11%12%

Europe

13%

9%

11%9%

1–5m 5–15m 15–25m >40m25–40m

1) ATM = Air Traffic Movements in 2017Sources: ACI Airport Economics Report 2019, Lufthansa Consulting


Comparison of total airport cost and aeronautical revenues per aircraft movement and airport size in 2017 (in US$)

However, airports worldwide operate under severe cost pressure and aeronautical revenues do notsufficiently cover costs

342

538

1,042

1,3431,418

1,913

146

376

755

1,032 1,012

1,389

<1m 15–25m1–5m 5–15m 25–40m >40m

-57%

-30%

-28%

-23%-29%

-27%Total cost (operating + capital costs) per ATM

Operating aeronautical revenue per ATM

In order to fully realize the potential of investments in regional airports, investors should focus on four key areas


Holistic approach to drive financial viability and sustainable returns

SCALE/ CONNECTIVITY

Grow current and attract new airlines

REVENUE/ COOPERATION

Boost your non-aeronautical revenuesalso by partnerships

SCOPE/ CEX

Improve the airport experience andconvenience for your passengers

COSTS/ EFFICIENCY

Strive for operational excellence and managerisks for high quality and cost effectiveness


Bridge the gap between traditional airport and airline positions

A comprehensive Air Service Development strategy and related capabilities are critical to growvolumes in a targeted manner, and sustain them over the mid to long term

Cu

rre

nt

situ

atio

n

Ne

ed

for

actio

n

Stagnating traffic and flat or declining revenue Sustainable traffic growth to remain competitive

Upgrade air service offer by number of airlines(especially LCCs) and business segments

Raise number of served destinations and totalflight movements

Augment passenger and cargo throughput

Scale &Connectivity

Airports

Business development opportunities dependent on airlinenetwork decision making

Lack airline network management skills and data

Airlines

Reluctant to invest in new markets with uncertain potential

Require local market insights and support to optimizeexisting air services and to establish new routes

*Embarkation portSource: Lufthansa Consulting research; Cruise Baltic report, 2015


Self-connect opportunities (Milan, London Gatwick)

In addition to growing direct services, operators should seek non-traditional sourcesto encourage passenger flows

XXX

Scale &Connectivity

Cruise tourism connectivity (Rostock)

24%

13%

15%

23%

13%

26%11%

32%

10%

8%

6%

13%

Stockholm

Copenhagen

4%

Share of stops (calls)

4%

Kiel

Share of turnaround*

Rostock

Helsinki

Tallinn

Oslo

St Petersburg

Others

2018 Baltic cruise traffic share


Delivering an excellent customer experience

Smaller airports should play to their strengths, i.e. shorter distances, more convenience,local touch and ease of implementation of innovations

Scope &CEX

Nagoya, Japan

Tampa, USA

Quito, Ecuador


Regional airports often reflect untapped opportunity for non-aeronautical revenues

Non-aeronautical revenues, mainly driven by retail, F&B, car parking and real estateare key to achieve profitability

Source: Airports Council International, 2019

0

10

20

30

40

50

60

Europe

26%

Latin AmericaAfrica

25%

Asia Pacific North America

31%

36%

31%

35% 34%

44%42%

40%

50%

43%

38% 38%

5–15m 15–25m 25–40m

Non aeronautical revenues as share of total revenues, 2018

Number of passengers:

Revenue &Cooperation


Developing the ecosystem for transport and tourism

Working closely with local government or business entities drives joint planning of connectivityand airport/ destination marketing

Nagoya, Japan

Kilimanjaro, Tanzania

Multiple airports, Finland

Revenue &Cooperation

GAD World 2019 | Realizing the full investment potential of regional airports in emerging markets

Selection of data-driven decision use cases

A rigorous focus on process efficiency with a modern data-driven approach helps to manageinfrastructure and costs, improving the quality and viability of the airport

0 1 2 4 5 6 8 91

01

21

31

41

61

71

82

02

12

2

ScheduledActual

12

Passenger Flow ModellingRolling hour forecasts

Schedule change probability estimation

Costs &Efficiency

Aircraft Movement Modelling Predictive Maintenance

Real time dashboards


Regional airports are in contrast to major ones more endangered – especially due to dependency on one or few base carriers

Regular ‘stress tests’ identify and mitigate potential risk, business contingency planshelp to reduce the effects

Identify Risk Assess Risk

Collapse of base carrier

Risk 1

Partial shift of operations to different airport

Risk 2

Economic downturn

Risk 3

ExternalRisks

Internalrisks

Labor relations/ disputes

Risk 1

Debt payments

Risk 2

+

Risk management strategies, mitigation and business contingency plans

Market attractiveness

Ca

rrie

rh

ea

lth

Low High

Low

HighAirline A /

Market A

Airline B /

Market B

Airline B /

Market A

Airline A /

Market B

-15

-4

-20

-10

0

9

2

Likelihoodof risk

Financialimpact

ILLUSTRATIVE

ILLUSTRATIVE

Loss ofbase carrier

Gain fromnew LCC

Infrastructureoptimization

Netimpact

ILLUSTRATIVE

Costs &Efficiency

GAD World 2019 | Realizing the full investment potential of regional airports in emerging markets 14GAD World 2019 | Realizing the full investment potential of regional airports in emerging markets 14

0

100.000

20.000

80.000

40.000

60.000

Oct 2017Apr 2017 Aug 2018May 2018 Oct 2018May 2017 Jun 2017 Jul 2017 Jun 2018Aug 2017 Sep 2017 Apr 2018 Jul 2018 Sep 2018

Air Berlin ceasesoperations

Air BerlineasyJet

Eurowings Others

Summer 2017 Summer 2018

Costs &Efficiency

Airport risk case – Berlin: after Air Berlin ceased operations, the capacity gap was quickly filledby EasyJet and other airlines

Berlin (TXL): Scheduled seat capacity, Summer schedule 2017-2018

Note: Eurowings includes operations by Germanwings; Air Berlin includes operations by all group airlines in Germany and AustriaSource: IATA AirportIS

GAD World 2019 | Realizing the full investment potential of regional airports in emerging markets 15GAD World 2019 | Realizing the full investment potential of regional airports in emerging markets 15

While larger airports such as Berlin may recover quicker from a key airline’s bankruptcy due tothe inherent demand of the market, it may take longer for smaller regional airports

0

10,000

20,000

30,000

40,000

Sep2017

Aug2018

Jun2017

Apr2017

May2017

Jul2017

Oct2017

Aug2017

Apr2018

May2018

Jun2018

Aug2019

Jul2018

Sep2018

Oct2018

Apr2019

May2019

Jun2019

Sep2019

Jul2019

Oct2019

Air Berlin

Ryanair

Germania Others

EurowingsAir Berlin ceasesoperations

Germania ceasesoperations

Summer 2017 Summer 2018 Summer 2019

Costs &Efficiency

Nuremberg (NUE): Scheduled seat capacity, Summer schedule 2017-2019

Note: Eurowings includes operations by Germanwings; Air Berlin includes operations by all group airlines in Germany and AustriaSource: IATA AirportIS


Regional airports, especially in emerging markets, can be attractive investments if the investors acknowledgeand work on what is required

Thorough analysis of the Market Potential and its drivers

A strong marketing strategy to retain/ grow existing airlines and attract new airline customers via Air Service Development

Innovation management and service design to improve customer experience and to strengthen passenger airport loyalty

Strong focus on growing non-aeronautical revenue channels using also the community at/ around an airport

Continuous process improvement to increase efficiency and operational performance while reducing operating costs

Careful assessment of infrastructure utilization and future needs to optimize investments and capital expenditure

Constant “Stress Tests”, risk management and development of mitigation measures as well as business contingency plans

Growth drivers for regional airports: realizing the full investment potential of emerging markets


Documents

Top10 fastest growing airports in 2018