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Infratil Airports Europe Monthly Overview May 2008

17 Jun 2008

The large increase in the cost of fuel and softer economic climate are creating difficult times for the aviation industry generally, including in Europe.  These challenges are now being felt directly by IAEL as a result of the MK Airlines being in administration and a major review of European flying and maintenance by Polar.  There are two key factors, however, that should enable Infratil’s European Airports to emerge relatively strongly – the strength of many key customers and an efficient operating and capital cost base.

Low cost carriers in Europe still have large aircraft orders and this additional capacity, combined with the other challenging factors, is likely to result in further airline failures.  Any failures will remove capacity from the market, improving the prospects for the remaining airlines.  The strongest airlines – those that have entered this period with healthy margins, efficient aircraft, low costs and a strong investment base – will survive and ultimately prosper. Ryanair, IAEL’s largest customer, is probably the strongest airline in the market on these metrics and has announced in the last few weeks a substantial route expansion, including from Glasgow Prestwick, and good financial results.  Wizz Air also has a very efficient model with new aircraft, low costs and presence in markets with strong growth.

The dedicated freight market faces similar challenges.  Operators of older models of aircraft, such as the 747-200 aircraft in the MK Airlines and Polar fleets, appear to be finding it extremely difficult to maintain positive margins and compete with more fuel efficient aircraft such as 747-400 aircraft.  Cargolux is a good example of a major IAEL customer with strong fundamentals.  With a modern fleet and being the launch customer for the 747-800F freight aircraft gives Cargolux a strong market position in the current environment.  IAEL has been working with Cargolux to ensure Glasgow Prestwick and Kent International are able to handle this new larger 747-800 when it is introduced next year.

The highly efficient operating and capital cost base of IAEL’s airports is likely to be more fully appreciated by airlines as they look to remove other costs to compensate for fuel cost increases.  It also creates a strong base for IAEL’s existing customers to grow while their competitors using higher cost airports may be struggling.  Uncongested airports also reduce fuel costs by minimising holding times in the air and on the ground. Kent International and Glasgow Prestwick have the additional advantage of shorter flying distances, saving fuel and time, for many major routes that serve their respective markets.

These long term advantages do not diminish the short term challenges and IAEL continues to work with its existing customers, and potential new customers, to explore all incremental opportunities in the current market.  

Glasgow Prestwick Airport

Infratil Airports Europe May 2008 operational figures are made available here.

Glasgow Prestwick handled 221,840 passengers in May, up 2.5% on May 2007 and a 12% improvement on April’s performance.

The main driver for the positive year-on-year variance is increased capacity on a number of existing routes and new Ryanair and Wizz Air destinations, introduced since May last year.

The beginning of the month saw the relaunch of Ryanair’s Marseille service, a summer replacement for Grenoble, while Scottravel began weekly charter flights to Dalaman in Turkey towards the end of the month.

Ryanair has also announced three new winter ‘sun’ routes which are due to begin operations at the end of October. The new destinations are Malaga, Tenerife and Faro – all traditionally popular with Scottish holidaymakers.

Glasgow Prestwick handled 2,704 tonnes of freight during May, up 5% on the prior year performance..

After announcing a 1st Quarter 2008 loss of US$5.3 million due substantially to fuel  costs, Atlas Air Worldwide Holdings Limited (parent of Polar Air Cargo) has been reviewing its European freighter schedules.  Currently the Polar freight schedule shows no future freight flights stopping at Prestwick.  In addition, Polar has advised that it intends to cease heavy maintenance using its leased hangar at Glasgow Prestwick.

Discussions with Polar continue in terms of understanding future plans, but the business is preparing for a material loss of business by reviewing costs and through discussions with other carriers that may be able to replace capacity withdrawn by Polar.

Kent International Airport

Kent International handled 1,342 tonnes of freight in May. This is half of the throughput of May 2007 due ot both an early end to the produce import season and also the profitability issues being experienced by MK Airlines.

Seasonality remains a key issue with the produce business and it is noted that the May throughput was substantially higher than the June 2007 total of 749 tonnes.

On 11 June, MK Airlines Ltd advised it has suspended operations and appointed administrators after failing to secure investment to help refinance the company and secure more fuel-efficient aircraft.  Fuel costs had already resulted in part of the May downturn as MK chose to truck some produce from Luxembourg rather than fly directly to the UK.

Kent International, through its three scheduled carriers (MK Airlines, Egypt Air and Cargolux), has had a substantial market share in the African produce import market.  If MK does not recommence flying, the IAEL team will be working very hard to identify alternative capacity to replace the MK flying by time the produce import business returns strongly after the UK summer.  

Lübeck Airport

Lübeck Airport handled 50,103 passengers during May, down 5% on the prior year.

There were strong loads on services to London and Gdansk, while the new Jet2.com service to Leeds Bradford showed encouraging signs in its first month.

Ryanair announced its first domestic flight from Lübeck, and only its second in Germany, during the month. From October 26 a morning flight will operate to and from Frankfurt Hahn.

A new railway station serving the airport opened during the month.  Passengers can now travel directly to the airport from Lübeck station, a major regional rail hub. A large network of destinations, including Hamburg, are accessible with a single change.

The project has been jointly funded by Schleswig-Holstein, the city of Lübeck, Deutsche Bahn and Infratil, and will increase the attractiveness and connectivity of Lübeck.
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