European airports, like those in UK, make large part of their income as shopping centres
Investors in airports are being drawn to the profit being made by the real estate and retail income they generate. Among European airports, Aeroports de Paris derived 39% of its revenue from real estate and retail in 2011; Zurich took in 50.3%; and Danish airport operator Koebenhavns Lufthavne A/S collected 33.6%. At TAV (Turkey), the share was 33%, and at Vienna it was 19%. Airports generally get the majority of their retail revenue after passengers check in and go through security. Goldman Sachs lists retail revenue as a major factor in recommending European airports to invest in. Two weeks ago, Fraport opened Pier-A-Plus, a terminal extension at Frankfurt, allowing Germany’s biggest hub to serve up to 6 million passengers a year and adding 50% to the airport’s retail space. According to ACI, air passenger numbers in Europe are up 2.3% this year compared to 2011, but Eurocontrol forecast that annual traffic growth will average 1.9% over the next 7 years in Europe, due to high oil prices and a weaker economic outlook.
Europe’s Airports Get Prepared for Takeoff
21.10.2012 (Wall Street Journal)
By MARIETTA CAUCHI
Europe’s listed airports have generally flown under the radar of investors, but cheap-looking stocks and growing retail revenue streams are changing opinions about this area of aviation.
Many airports have completed expansion programs, leaving them with more cash. And even as traffic growth slows and airlines cut capacity, improvements to the shopping and other facilities passengers find after going through security are tempting them to spend more.
While the bulk of most airports’ revenue comes from the air carriers themselves, income derived from retail and real estate has become a significant source of growth.
Analysts like the airport sector as a whole, but they are particularly bullish about Vienna’s Flughafen Wien AG; Ataturk, the main base of Turkey’s fast-growing airport operator TAV Holding, and Switzerland’s Flughafen Zuerich.
“We prefer the smaller airports, like Wien, which offers higher structural growth, and Zurich, which has better exposure to profitable retail revenues, but still trade at a valuation discount,” said UBS analyst Alex Brignall.
Among European airports, Aeroports de Paris derived 39% of its revenue from real estate and retail in 2011; Zurich took in 50.3%; and Danish airport operator Koebenhavns Lufthavne A/S collected 33.6%. At TAV, the share was 33%, according to company reports. (About 21% + at Heathrow from retail in 2010. Link ].
At Wien, real estate and retail revenue contributed just 19% to overall revenue in 2011, but the total is expected to rise significantly as the airport finishes renovating two terminals in the next two years.
Airports generally get the majority of their retail revenue after passengers check in and go through security. Zurich is an exception; it has more retail space in areas accessible without checking through security because its urban location also tempts non-passenger shoppers, said Mr. Brignall.
Goldman Sachs lists retail revenue as a major factor in recommending European airports such as Wien and German airport operator Fraport. Two weeks ago, Fraport opened Pier-A-Plus, a terminal extension at Frankfurt, allowing Germany’s biggest hub to serve up to six million passengers a year and adding 50% to the airport’s retail space.
“We expect Fraport to achieve the highest EBITDA growth of the European airports as a consequence of higher fee increases and the completion of Pier A-Plus in October,” Goldman Sachs analysts said in a recent note, referring to earnings before interest, taxes, depreciation and amortization.
In addition to increased retail revenues, airports are expected to benefit as they reduce capital expenditure after a prolonged period of investment in expansion programs. This will lead to bigger payouts for shareholders over the next five years, analysts said.
UBS thinks that ADP and Zurich, currently estimated to have a 3.7% and 3.2% dividend yield respectively over the next five years, are the most likely to make additional returns.
Optimism remains even as growth in airline ridership slows in response to Europe’s economic troubles, prompting airlines to cut capacity.
Just last month Eurocontrol, an intergovernmental agency for air-navigation safety, forecast that annual traffic growth will average 1.9% over the next seven years on the back of very high oil prices and a weaker economic outlook.
According to Airports Council International, passenger numbers for Europe had reached 827,598 for the year up to August, a rise of 2.3% from the same period last year. The total for all of 2011 was 1.57 billion, up 7.3% from 2010.
Large hub airports like Zurich, Vienna, France’s Charles de Gaulle and Frankfurt are relatively stable in terms of traffic because more airlines want to use them than they have room for, said Michael Burns, head of airports at PricewaterhouseCoopers. [It is not only Heathrow].
“Even if some aren’t at full capacity throughout the day they will be at peak times morning and evening, and if an airline goes bankrupt there will be another airline ready to take up the slack,” Mr. Burns said.
For example, Ryanair Holdings RYA.DB -0.48% PLC was quick to jump in and take up the slots used by Malev in Budapest when the Hungarian carrier fell into bankruptcy in February.
Shares in Europe’s airports have all risen since the beginning of the year. Both Wien and Zurich are up about 20% since the start of the year, but according to UBS, these smaller airports continue to trade at a discount to their peers.
TAV managed a 8.5% year-to-date gain as of the close of trading on Friday, and ADP and Zurich had both risen by double-digit percentages.
In addition to increasing stock prices, investors can expect healthy dividend yields, according to analysts. UBS is forecasting five-year yields of 4% for both ADP and Wien and as much as 4.8% for TAV.
Write to Marietta Cauchi at marietta.cauchi@dowjones.com
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See also
How much profit do airports make from their retail activities, rather than flying?
and
Airport retail: rise and rise of the shopping centre, with an airport attached
14.3.2012