Statement by Dr. Michael Kerkloh, CEO of Munich Airport, at the FMG annual press conference on February 6, 2007

Published February 7th, 2007 - 07:15 GMT

Statement by Dr. Michael Kerkloh, CEO of Munich Airport, at the FMG annual press conference on February 6, 2007

Ladies and gentlemen,

I’d also like to offer you a cordial welcome to our annual press conference. I’m delighted that so many of you are here with us again to gather information on the latest trends and developments at Munich Airport. As was already mentioned, I would like to begin by presenting our key traffic statistics and business figures and then explain our plans and the prospects for the future development of our airport.

When we look back at the past year, there are naturally two events that stand out right away that we at Munich Airport are sure to remember for a long time to come: On the occasion of the Football World Cup and the papal visit of Benedict XVI to Bavaria, our airport was among the venues at the focus of intensive media coverage in Germany and internationally. On both of these occasions Munich Airport was in excellent form, so it is safe to assume that His Holiness Pope Benedict and "the Kaiser" – as Franz Beckenbauer is known in these parts – and their retinues were well pleased with us.

This is obviously also the case for the majority of our other more than 30 million passengers. Otherwise it is very unlikely that they would have voted us Europe’s best airport in the largest worldwide passenger survey for the second consecutive year. Incidentally, more than seven million people took part this time in the Skytrax survey. In the worldwide rankings we even managed to move up one spot, achieving an outstanding third place in last year’s results behind Singapore and Hong Kong.

The growing international respect and popularity of Munich Airport was also reflected in 2006 in a new record for total passengers. With a total of 30.8 million passengers in 2006, Munich Airport topped the 30 million mark for the first time, and exceeded the previous year’s total by 7.5 percent, or significantly more than two million passengers. To put this growth into perspective, our year-on-year increase was more than the passenger volume handled in an entire year by airports such as Bremen, Dortmund or Dresden. No other German airport matched our increase in total passengers. With this rapid growth in traffic, our airport also remains one of the strongest growth engines among Europe’s top ten busiest airports in terms of passenger volume. As in the previous year, the only airports among Europe’s top ten to report higher growth rates were the two Spanish airports Madrid and Barcelona.

This strong performance among Europe’s leading hubs also moved Munich Airport up in the European rankings. For the first time, Munich passed Rome in terms of total passenger traffic, and now holds down seventh place. On the worldwide stage, Munich is expected to move up from 33rd to 30th place according to preliminary figures.

The number of commercial take-offs and landings at Munich Airport increased 3.3 percent last year to approximately 400,000. This means that growth in aircraft movements lagged well behind that of total passengers using the airport. This is mainly due to the fact that, again last year, airlines showed a trend toward using larger aircraft on their Munich routes. To name just one example of this tendency, Lufthansa stationed 12 new Bombardier 84-seat CRJ 900 aircraft in Munich as replacements for 50-seat CRJ 200s. This clearly shows that the feed aircraft that are so vital to our hub traffic are getting bigger all the time.

An average of 112 seats were available on each flight to and from Munich in 2006, an increase of three seats, or 3 percent, over the previous year. In addition, the larger seating capacity was used more efficiently than in 2005. As in the previous years, the average load capacity increased again in 2006, and is now close to the 72 percent mark. For airlines, this means that Munich continues to become more appealing.

The cargo boom has also continued unabated: In 2006, as in recent years, growth rates in the airfreight segment were in double digits. The total of 224,000 metric tons of flown airfreight in 2006 represented a gain of approximately 11 percent over the previous year. When the trucked freight is included – in other words the freight declared as airfreight but transported by truck –the total exceeds 400,000 metric tons. This represents an increase of 13 percent.

The main factor driving the strong gains achieved in the airfreight segment is the rapid expansion of long-haul traffic at Munich Airport. More than 70 percent of the airfreight flown to and from Munich is carried on long-haul routes, the majority as so-called co-loaded freight on passenger flights. Because the number of flights in the intercontinental segment is growing much faster – namely at a rate of 12.5 percent – than the growth rate posted by Munich Airport as a whole, freight transport capacity has also expanded rapidly.

Incidentally, airfreight is also a very good example for illustrating the enormous economic impetus generated by the development of the hub. Since the mid-1990s, when the hub development at Munich Airport began, our airfreight volume has tripled. Germany remains the world’s leading exporting country, and in Bavaria the export quota today is 45 percent. This makes it evident what a massive impact the steadily expanding route map of Munich Airport exerts on economic competitiveness. The excellent quality of our links to the global air transportation network gives our export-driven Bavarian economy fast and convenient access to key markets and major urban centers around the world. Conversely, the quality of air transportation links enhances the attraction of Bavaria as a business location for investors in Germany and abroad. The arrival of new companies in turn creates value and generates employment.

Also underscoring the strong growth in hub traffic in Munich is the significant rise again last year in the volume of connecting traffic. In 2006 the number of passengers who caught connecting flights in Munich exceeded 10 million for the first time, with 700,000 more passengers changing planes at Munich Airport than in 2005: a year-on-year increase of 7.2 percent. However, the so-called originating traffic – the total of all passengers starting and ending their air travel in Munich – posted an even stronger growth rate of 7.8 percent. A major reason behind Munich’s stronger growth in the originating traffic segment as compared with most other German airports is the greater range of flights made available through our airport’s hub function, which puts us in a better position to satisfy demand in our catchment area. Many routes served from Munich now in strong demand with passengers from Bavaria would never have got started without the development of the airport into an air transportation hub.

The so-called low-cost airlines also contributed to the growth of the low-cost sector again in 2006. In this sector, 14 airlines flew from Munich to 47 destinations last year. The total traffic accounted for by this segment rose to 4.6 million passengers, and its share in total traffic increased to nearly 15 percent. By comparison: Hahn Airport, which handles almost exclusively low-cost traffic, last year saw a total of just 3.5 million passengers.

All in all, ladies and gentlemen, the 2006 traffic year not only lived up to our expectations, but actually far exceeded them in some respects. We are also very happy with the business performance of Flughafen München GmbH – which brings me to our financial results. This information will be preliminary, however, until the figures from our financial statements are published in our annual report.

The preliminary figures show a 10 percent increase in total revenues in 2006 to approximately 753 million euros. When we include all of our group subsidiaries we anticipate total revenues of 919 million euros, a 9-percent gain as compared with the previous year.
FMG achieved a substantial 52 million euro increase in earings after taxes (EAT) in 2006.

However, this result is affected by a number of special factors that have nothing to do with operational activities.
A major contributing factor here was provisions of nearly 27 million euros that were reversed in fiscal 2006 and shown in the income statement.  Adjusted for these provisions, the revenues of FMG in the year under review amounted to 726 million euros—6 percent more than in the previous year. Without these special effects, our EAT was approximately 25 million euros. With that result we also show a strong improvement on 2005, when we reported EAT of 5 million euros. In the business year just started, we also expect to achieve a positive "double-digit" result.

The most demanding task now facing us in connection with our company’s business development is related to the ground handling division, which currently accounts for approximately 15 percent of our total revenues. In this age of low-cost traffic, the budget airlines, which operate under enormous cost pressure, have one main priority when it comes to ground handling: where they can save money. As an airport operating company, we at FMG are also in competition with private service providers that operate outside the public-sector wage system, and thus have more favorable cost structures.

In view of this situation we developed a restructuring concept last year in cooperation with the works council and the unions that demands considerable sacrifices from our staff. This includes extensive changes to make working hours more flexible and very specific financial sacrifices that we had to ask our ground handling staff to make. I would like to take this opportunity to express the gratitude of the management to the employees and their representatives for their committed efforts in bringing about this restructuring program, which is certainly not easy for them, and their continued commitment to the task at hand. This tremendous joint effort proves that, as a team, FMG is both willing and able to make the necessary adjustments to face the high demands of the intensifying competitive environment.

However, we are also aware that we have not yet turned the corner in the ground handling segment. We still have some way to go to achieve the desired profitability gains in this division required to ensure its long-term survival in the FMG Group. This makes it even more important for the employer and the employees to continue with their joint efforts on this important issue.

The key to securing jobs at Munich Airport in the long term is of course continued growth in traffic. Increases in air traffic happen to be the fuel that powers the job-generating engine that the airport has become. Our recent workplace survey again emphatically underscored this link: The number of people working at the airport has since reached 27,400, including 4000 new jobs created in the past two-and-a-half years.

That means that Munich Airport spawns four new jobs every day. Each year airport employees receive wages and salaries amounting to 900 million euros. The average salary, including the part-time workforce, has increased faster than the size of the workforce, and has now reached 32,000 euros. Thus Munich Airport continues to offer large numbers attractive jobs in a wide range of areas, and these jobs obviously include high-income positions.

These figures from Munich Airport clearly verify the proven rule of thumb that says that each additional million passengers per year generate 800 to 1100 new jobs at the airport. According to the recent survey, we have 924 jobs per million passengers. And according to another time-tested rule of thumb, each job at the airport generates up to two jobs outside it, with the airport region gaining about half of this spin-off employment.

By laying the groundwork today for the continuation of Munich Airport's dynamic growth in the future, we as an airport operating company are ensuring at the same time that our airport will continue to perform its role in the future as a major factor for the competitiveness and employment situation of southern Germany. By far the most important expansion project needed to achieve this purpose is the third runway. In 2006 we already passed major milestones en route to this necessary expansion of our capacity. Probably the most important decision we had to make in this context was the selection of a runway location.

Just to remind you, the starting point of all of our planning considerations was the objective of finding a runway location that would enable Munich Airport to handle at least 120 schedulable take-offs and landings per hour, as opposed to the 90 that are possible today. After intensive study of more than 30 sites, six runway locations remained. Among them we selected the one that appeared most tolerable in terms of the expected impact on the surrounding region.

With this preferred variant, FMG then applied to the District Government of Upper Bavaria last summer to initiate the regional process. We expect the results of this process in the next few weeks. On the basis of a positive regional planning ruling we then intend to assemble the documents for the planning approval proceedings. This will leave us on schedule for our target of starting operations with the third runway as of 2011.

Incidentally, the importance of staying on course with this capacity expansion project becomes clear when we note that, more and more often, when airlines are interested in offering new routes from Munich or adding flights to existing ones, we have to turn them down, citing runway capacity limitations. In the coming summer timetable period, two-thirds of the airport’s operating hours are already fully booked. During those times we cannot accommodate a single additional flight.

We know that the construction of a third runway, which inevitably will involve burdens for the surrounding communities, is meeting with understandable resistance on the part of our neighbors. Nevertheless I can state that the dialog between FMG and the airport’s neighbors has not been broken off at any time, and that we continue to pursue our intensive and goal-driven cooperation on numerous levels. This applies to traffic projects in the surrounding area, regional marketing and the compensatory fund proposed by FMG in connection with the expansion project.

Ladies and gentlemen,

In addition to the expansion of our runway system we are currently planning various specific expansion measures, some of which will take shape this year. For example, the growth in the airfreight sector I described earlier has made it necessary to carry out a further expansion of our freight facilities. The project in this case is the construction of a new building for freight forwarding companies with an adjacent parking garage close to the existing freight facilities. Weather permitting, the construction work will begin at the end of March.

The first phase of this new building, which is due for completion in the fourth quarter of this year, will already provide an additional 15,000 square meters of floor space for the freight forwarders located here. The start-up of operations of the new facility and the resulting relocations of companies will at the same time open up space in the existing freight building that we can use to optimize the freight operations located there. In addition, the new freight forwarders building can be expanded in the medium term in a second phase to provide a further 15,000 square meters.

We also see a need for more capacity in the hotel segment. Since Kempinski Hotel Airport München – the traditional location of this press conference – opened in 1994, our passenger volume has more than doubled, while the number of hotel beds at the airport itself has remained constant. Consequently, to complement our Kempinski – which is situated at the high end of the hospitality sector – construction is planned for a second hotel with approximately 250 rooms. This three-star hotel will be located where we now have the P41 visitor's carpark situated on the Munich Airport Nordallee near the S-Bahn rail station for the visitors park.

This new hotel will be run by an internationally renowned hotel operating company and financed by a well-known third-party investor from the real estate industry. We are now in the final stage of the selection process for the hotel operating company, with just three potential partners shortlisted. The new hotel is scheduled to welcome guests beginning in 2009.

With the ongoing development of our airport we are setting stage for significant expansion in the flight timetable particularly in the long-haul segment. Deutsche Lufthansa AG, our strategic partner accompanying the growth of our hub, has announced plans to add three new aircraft to its long-haul fleet stationed in Munich to bring the total to 21 widebody jets. Assuming that runway capacity is expanded to meet demand, the company plans to base 45 long-haul aircraft at our airport by 2015.

Each additional aircraft stationed in Munich brings jobs and generates additional value. Each long-haul aircraft stationed at the airport creates an average of 150 jobs in a wide range of areas – from check-in to aircraft maintenance to flight crews. In addition, the decision to station a plane of this kind means ties up a capital volume of up to150 million euros at our site. Consequently, the stationing of a long-haul aircraft has an impact equivalent to the arrival of a new mid-sized company – with all of the ancillary effects in terms of employment and the economy as a whole.

Alongside its long-haul fleet, Lufthansa operates another 100 aircraft at Munich Airport that are used in the short- and long-haul segments. In total, therefore, the airline already has 120 planes stationed in Munich. If Lufthansa’s Munich operation was a separate airline, its fleet today would already be bigger than the entire fleet of as Austrian Airlines Group, for example, or Swiss.

As air traffic continually expands, ladies and gentlemen, the strain on the land-side transportation routes to Munich Airport will also keep increasing. In any case, it has been a long time since Munich could reasonably claim to have a "balance of capacity," i.e. a well-matched development of air traffic and ground transportation capacity. Instead, the development of rail and road links lags far behind the dynamic growth of the airport’s flight schedule.

The future of mobility lies in closer networking of modes of transportation, ensuring that each transportation system can make full use of its specific strengths. For the networking of Munich Airport with the rail transportation system, the key to success is the Transrapid, which is intended to take just 10 minutes and depart every 10 minutes for the trip from Munich’s main railway station to the airport. The planning approval proceedings for the Transrapid are now entering the final phase. The subsequent ruling, and with it the construction permit, can be expected before the end of this year. That makes it even more important for the Bavarian state government and the federal government to take decisive action now on their – repeatedly announced – commitments to finance the project to avoid unnecessary delays.

By realizing the maglev rail link from the main railway station to the airport, we can overcome a serious defect dating back to the birth of our airport that would likely hamper our efforts to compete internationally in the years ahead. Travelers now take at least 40 minutes to get from the station to the airport by S-Bahn – significantly longer than at comparable European airports. It is thus hardly surprising that the mainline rail system still plays no role in feeding passengers to Munich Airport.

This shortcoming is even more frustrating when we consider that Munich is an extremely busy railway interchange. With approximately 350,000 travelers per day and 220 departures to distant destinations, Munich's main railway station is actually an ideal bridgehead en route to Munich Airport. Only with the Transrapid maglev train can this link be fully implemented to benefit rail and air transportation – but above all for the benefit of passengers.

The airport transfer will take just 10 minutes. This convenience, coupled with the fact that a trip by Transrapid will be something of an event, will prompt many passengers to leave their cars at home and come to the airport by train. This is one of the decisive differences that set the Transrapid apart from any option involving an express S-Bahn. Not many drivers will do without their car in favor of an S-Bahn that manages the trip to the airport in perhaps 25 minutes instead of 40. And one more thing: this express S-Bahn will not take just 15 minutes longer per trip than the maglev train – it will also take a full 15 years longer for its first trip, because so far there is no detailed planning, no provider and no financing concept. And even if financing were successfully arranged then – unlike the Transrapid financing – it would be possible only at the expense of other local transportation projects. And even when operating, an S-Bahn solution of this kind would need permanent subsidies, while the maglev train can be operated at a profit.

However, there is a pressing project related to the airport’s S-Bahn rail link, which we would like to see implemented as soon as possible. What I’m referring to, of course, is the completion of the ring line through Erding and construction of the Walpertskirchen link as well as the improvement of the rail line from Munich via Mühldorf to Freilassing. With a through connection from today’s S2 line from Erding via the airport to Freising, establishing links at the same time to regional rail traffic to north-eastern and south-eastern Bavaria, we would firstly obtain some relief for the feeder roads. But by making it easier to get to the airport it would also allow the airport's impact on employment to extend even further into the surrounding region.

The better the transportation links to the airport, the greater the airport’s impact will be on the job market. This simple link was confirmed once again by our most recent workplace survey. Of the approximately 4000 new employees counted at Munich Airport, the city of Munich and the district of Freising each accounted for about 1000. By contrast, the district of Erding, which has much poorer transportation links to the airport, particularly from its eastern areas, accounted for just 300 of the new jobs. The same number was counted for the city and district of Landshut, whose residents face a real challenge when trying to reach the airport by public transportation. And long commuting times mean that districts such as Mühldorf, Altötting and Rottal-Inn can hardly benefit at all today from the airport's job-generating effects.

That is what makes the Erding ring link and the related traffic projects so important. We need a clear signal that action will be taken on this issue, and we need it fast. Without a comprehensive solution for the landside infrastructure in the airport region, there will be serious consequences for the airport's development.

Germany’s Air Transport Initiative, in which FMG works alongside Fraport AG, Lufthansa and German Air Traffic Control on behalf of the interests of the aviation sector, also sees intermodality as a high priority. The aviation industry partners participating in this initiative are convinced that improved linkage between modes of transport can substantially enhance the efficiency of the transportation system as a whole. A separate study on this issue will be published in the coming weeks.

The Air Transport Initiative also sees a need for action in other areas. Heading the list of priorities of course is the urgent need to expand capacity at Germany’s passenger airports. The most pressing expansion measures involve the two central hubs, namely the airports in Frankfurt and Munich. The successful expansion of these airports – as my colleague in Frankfurt, Wilhelm Bender recently phrased it so well – is the prerequisite for “Germany, as the world champion in exports and travel, to retain its leading position in international air transportation in the future.”

However, the decisive influence on the policy environment for the German aviation industry no longer comes only from national transportation and infrastructure policy, but rather increasingly through rules defined by the EU. This is particularly evident with security issues. The far-reaching effects of EU regulations on our operations can be seen, for example, in the “mixing ban.” This regulation states that passengers catching connecting flights in Munich after starting their journeys at non-EU airports cannot mix with the passengers who board the same plane in Munich unless they are screened beforehand.

Strangely – and this is the unsatisfactory aspect of this regulation – the actual intensity and closeness of the screening undergone by these passengers at the originating airport plays no role at all. Thus, even passengers who start their journeys in Tel Aviv or New York, for example, are considered “unclean” at airports within the EU and must undergo screening again.

At Munich Airport we have implemented these additional checks for passengers arriving from non-EU countries to catch connecting flights to destinations within the EU in both terminals by carrying out targeted construction work and rerouting the passenger flows. However, to comply with the regulations to implement mandatory screening for connecting passengers flying on to non-EU destinations by the end of 2008, we must now build an additional routing corridor on the roof of Terminal 2 and retrofit 16 jetways with additional access ramps. Construction work will start in June. We’re talking about an investment of approximately 55 million euros which, in the final analysis, we are expected to finance only because, despite efforts by the EU Commission, it has so far proved impossible for policymakers to bring about agreement on mutual recognition of security standards beyond Europe's borders.

In the case of the most recent EU ordinance on liquids carried in hand baggage, the balance between costs and benefits is at best questionable. In the meantime we can at least cope with the effects of the ordinance on liquids at the operational level, more or less. In the current discussions on bag sizes and disposal issues, however, we have lost sight somewhat of the fact that on May 6 regulations will be tightened further.

56 by 45 by 25 – these are maximum allowable dimensions for hand baggage as of that date. Passengers at airports in EU member states will have to hand in all larger items as check-in luggage. This will have serious consequences not only for passengers, but also for Munich Airport and comparable airports. First, it will result in serious additional burdens on our baggage system because many items that would previously have gone on board as hand baggage will now be moving along the conveyor belts. Second, there are several unresolved issues related to the new regulation, particularly related to connecting passengers, which we will have to clarify with our partners in Germany and at the European level.

In any case it will be crucial to implement this new regulation with a strong sense of proportion and flexibility because we will otherwise run the risk of considerable conflicts at the screening checkpoints. Incidentally, ladies and gentlemen, you were very helpful with the issue of liquids. Thanks to your comprehensive coverage, many passengers were prepared for the new regulations. Bearing that success in mind I would like to focus your attention once again on the sixth of May and the numbers 56, 45 and 25.

Ladies and gentlemen,

After this excursion into the complex issues of security regulations at European airports, allow me to sum up briefly:
FMG can look back at a very successful year. Through strong gains in all traffic segments, Munich Airport not only maintained its position as one of Europe’s leading air transportation hubs, but actually succeeded in improving its ranking. For the first time Munich is ranked seventh among Europe's ten busiest airports in terms of passenger volume. This achievement has moved us a good piece along the road to our goal of making Munich Airport Europe's most attractive and efficient hub airport by 2010.

Our airport is still a reliable growth engine for the economy and employment situation in the entire economic region. Now the priority is to lay the groundwork for a continuation of this Bavarian success story. With the construction of a third runway we will ensure that the airport can continue to bolster competitiveness in the long term and provide impetus to the economy. In the age of globalization, a Munich Airport that grows to keep pace with demand will enable Bavaria and the people living here to have unrestricted access to the worldwide networks of knowledge, trade and cultural exchange.

The coming year will bring major challenges. In our most important development project, the expansion of our runway system, we want to take a major step forward. We are also hoping for decisive developments to move the Transrapid and the Erding ring link in the right direction. I hope that we will have an actionable timetable for both projects by the end of this year.

The range of flights and destinations offered at our airport will again get bigger in 2007. Lufthansa will be flying daily from Munich to our sister airport in Denver and will operate three flights a week from Munich via Seoul to Pusan, South Korea. South African Airways is returning to Munich Airport with a non-stop service to Johannesburg. The timetable will also include many attractive new European destinations.

I’d also like to mention a date that you’ve probably already marked in your calendars: On March 28 the big day will finally arrive: the first Airbus A 380 will land at our airport. And I promise you: This time it’s really coming. So even if the Pope won’t be dropping in this year, and the next Football World Cup is still far off, we at Munich Airport can look forward to an exciting year in 2007.


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