Asia flying high

Grounded: Europe's Aviation Industry

Lufthansa plane in frankfurt by Simone M Neumann
Frankfurt Airport operator Fraport is looking for jumbo passenger numbers.
  • Why it matters

    Why it matters

    Governments in the Middle East and Asia are heavily investing in aviation infrastructure to bolster trade just as European airports are finding it increasingly difficult to grow.

  • Facts

    Facts

    • Mega-airports, handling up to 160 million passengers a year, are being built in Dubai, Istanbul and Beijing.
    • Fraport, which runs Frankfurt airport in Germany, has lost out on bids to run Brazil’s main airports.
    • The number of air passengers in Europe rose by 5.4 percent in March, but the industry average was 7 percent.
  • Audio

    Audio

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More than three years after German airport operator Fraport failed in its bid to run two big airports in São Paulo and Brasilia, the company is reaching out again to South America.

Fraport – which owns and operates Frankfurt airport and several others around the world – plans to partner with the state-run airport operator Infraero to bring Brazil’s dilapidated airports up to date.

Meantime in London, the new CEO of Heathrow Airport, John Holland-Kaye, is sweating out what could be the end of a five-year dispute over expanding the British capital’s log-jammed airport. A recommendation is finally due at the end of this month – assuming the vote isn’t delayed again by yet another report on air pollution. Perhaps Mr. Holland-Kaye will then get the long-awaited approval to build a third runway for the world’s third-busiest airport.

The link between the two scenarios? Both highlight the fact that the European aviation industry is ailing, and desperately looking for ways to grow.

New mega-airports in Asia and the Middle East, freed of the political and economic restrictions facing European airports, are gaining the upper hand.

The reasons for Europe’s struggles, in part, are that established carriers such as Air France-KLM and Lufthansa are bringing problems on themselves. Management was much too slow coming to grips with excessive costs or, as in the case of Air Berlin, Germany’s second biggest airline, new acquisitions were not properly integrated.

The European aviation industry also suffers from lack of political support. Instead of understanding aviation as a service provider for other industries, governments continue to impose extra charges – such as Germany’s ticket tax, or obligations to buy “emission rights” to curb climate change – that other airline industries don’t face.

Getting approval for airport expansion in Europe these days is increasingly difficult.

Fraport’s contract to operate 14 regional airports in Greece is now in doubt because of the Greek government’s standoff with European creditors.

As a consequence, the rest of the world is out-pacing Europe in expanding passenger traffic, according to the World Aviation Association.

While the number of passengers grew in Europe by 5.4 percent year-over-year in March, the industry average was 7 percent. The Asia-Pacific region saw an increase of 11.1 percent, while the Middle East was up 9.8 percent.

New mega-airports in the Persian Gulf, Turkey and China are likely to accelerate this trend. Governments there have recognized aviation as a driving force for their regions, and are also controversially supporting their airlines.

“If you want to build a financial industry or a health-care industry, like the Gulf countries do, you have to provide comprehensive access by air,” said Philipp Goedeking of Avinomics, the aviation consulting firm.

New investment bears witness to that, for example in Dubai.

Dubai International Airport is being expanded while a completely new mega-airport is being built in the desert. Sheikh Mohammed Bin Raschid Al-Maktum is spending more than €25 billion ($28 billion) on the project, which is set to be the world’s largest airport when completed in the mid-2020s.

The new Al-Maktum Airport will have an annual capacity of up to 160 million passengers and feature five parallel runways. There will also be enough room to accommodate hundreds of aircraft as big as the Airbus A380, the world’s largest passenger airliner.

 

Highly Competitive Market-01

 

Some say the new airport planned for Istanbul will be even bigger than Al-Maktum. President Recep Tayyip Erdogan has made this major project his own and construction is expected to cost €22 billion. The airport is intended to process up to 150 million passengers per year and should be complete by the end of 2018, according to news reports.

In China, after years of discussions, the central planning authority has also given the go-ahead for a new mega-airport south of the capital Beijing.  The hub is expected to begin operations in five years and then be gradually expanded. Annual capacity of 72 million passengers is planned by 2025.

Some European aviation companies are finding an answer to their own dilemma by investing abroad. Fraport, for example, is looking for solutions outside Europe. The company’s “external activities” division contributed 16.7 percent to revenues last year and nearly 20 percent to profits, and that is expected to grow.

Fraport’s contract to operate 14 regional airports in Greece is in doubt because of the Greek government’s standoff with European creditors. But in Brazil, prospects are good for healthy revenue increases in Latin America’s biggest aviation market.

 

Video: A glimpse at Frankfurt Airport.

 

But Fraport’s foreign expansion is no great help to the rest of the German economy.

“Aviation is an absolute prerequisite for an export-oriented economy like Germany’s,” said Mr. Goedeking.

High-value goods in particular tend to be flown. While only about 2 percent of all goods are moved by air, their value is about one-third of all transported products.

“Aviation is one of the German economy’s key industries with strategic importance,” said Ulrich Grillo, president of the Federation of German Industries, the BDI. “It must be supported.”

But inside Germany there is little backing for this global insight. Even investments that are already approved are sometimes questioned – for example, the construction of a third terminal at Frankfurt, Germany’s biggest hub.

The Green party faction in Hessen, a coalition partner to the center-right Christian Democrats in the state where Frankfurt is based, insisted on yet another expert analysis for building the terminal, a project for which planning permission had ago long been granted.

When the analysis went on to confirm the need, the supervisory board of airport operator Fraport decided to begin construction this year. The sigh of relief from Fraport boss Stefan Schulte could be heard well beyond the state’s borders.

 

Alexander Busch is Handelsblatt’s correspondent in South America, while Carsten Herz reports from London. Daniel Delhaes writes about transport and airlines from Düsseldorf. Jens Koenen leads Handelsblatt’s coverage of the aviation and IT industry. To contact the authors: alexander.busch@terra.com.br; delhaes@handelsblatt.com; herz@handelsblatt.com; koenen@handelsblatt.com

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