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Monday, 2 May 2011

Whatever the earnings model of airport Schiphol is, it surely ain’t based on flying!

Schiphol Amsterday Airport is the largest airport of The Netherlands and 2nd home port of Air France-KLM, one of the largest airlines in the world. It is a truly huge airport and with 1.5 mln metric tons of freight and 48.3 mln passengers in 2010 about the 15th airport in the world in both categories.

Schiphol Amsterdam Airport is an economically very important institution that brings work and income to about 60,000 people, spread over all kinds of companies and institutions that are in any way connected to Schiphol.

Owner of Schiphol Amsterdam Airport is Schiphol Group. This group not only owns Schiphol, but it is a global player in the airport business:

Kind of ownership
The Netherlands
Shareholder/CommRealEst (CRE)
Arlanda Stockholm
Retail Joint Venture
Malpensa Milan
Aeroports de Paris
Shares and Cooperation
Brisbane Airport
JFK New York
Shareholder Terminal 4
Angkasa Pura Jakarta
Joint Venture
Tradeport Hongkong
Aruba Airport
Management Contract

Schiphol Group is a financially healthy institute with €1,180 mln turnover and €239 mln profit before taxes in 2010. It´s shareholders are:
·         The Dutch State                     69.8%
·         The city of Amsterdam            20.0%
·         Aeroports de Paris                  8.0%
·         The city of Rotterdam             2,2%

So everything is right, right? Wrong!

About two months ago, I wrote about the intimate relation between Air France-KLM and ex-Minister Camiel Eurlings, during his stint of minister of Transport and Public Works. It goes too far to accuse him of straightforward corruption, but he has been looking for the edges of the concept ‘honorable behavior’.

Today I want to show you how Schiphol gets these healthy results. No matter how you look at it: it surely ain’t flying that is deciding Schiphol’s profitability. And also Schiphol is looking for the same edges of ‘honorable behavior’ that Camiel Eurlings traveled.

Let’s first look at the financial core data of Schiphol:
Total turnover: €1180 mln

Investments: €248mln
Exploitation Result: €297mln
(before taxes)                         

ROI in % based on
underlying investments in 2010
·         Aviation generates more than 57% of the total turnover of €1180 mln, but it generates only 15.15% of the exploitation result.
o    The investment in aviation is 66,13% of total investments, but return on the invested euro´s in 2010 is only 27.22%

·         Commercial Real Estate generates only 12.03% of the turnover, but it generates 31.99% of the exploitation result.
o    The investment in CRE is 20.97% of total investments, but ROI is 182.49%

·         Alliances & Participations generates only 7.03% of the turnover, but it generates 8.08% of the exploitation result.
o    The investment is only 2.02% of investments, but ROI is a staggering 479.03%.

·         Consumers generate only 22.97 of the turnover, but they generate a staggering 45.12% of the exploitation result.
o    The investment is only 10,89% of investments, but ROI is an enormous 489.92%.

What the figures make perfectly clear is that flying is almost considered an excuse for the existence of Schiphol. Although the figures of Schiphol Group are not totally clear about this, it is a well-known fact that aviation is in reality an unprofitable activity for Schiphol.  But of course it is an indispensable condition for having an airport and due to tax-free kerosene and other tax-breaks, aviation can be executed at a very small loss. But the real money makers are consumers, participations and CRE.

And how did the consumers became such money makers?
  • Parking on the daily parking garage costs €6 per hour($8.92) and due to the extremely slow luggage handling on Schiphol, visitors are often parked there for at least an hour when they pick up family or friends at the arrivals.  This means a turnover of ±15 mln visitors * €6 = €90 mln per year for day parking alone.

  • The Schiphol shopping mall is probably one of the most expensive malls in The Netherlands. Although the renting prices per sqr mt are not disclosed (it depends on the turnover of a shop), you can guess it by looking at the prices of the products for sale there:
    • Coffee small ± € 2.25       $3.35
    • Coffee large ± € 3.80       $5.65
    • Fresh juice    ± € 4.25       $6.32
    • Soft drink     ± € 3.10       $4,60
    • Sandwich      ± € 4.25       $6.32
    • Slice Apple P. ± € 3.50       $5.20
    • Beer            ± € 3.50       $5.20

  • All other non-food shops (even the taxfree ones) are in general 30-70% more expensive than normal shops in the Dutch cities.
  • From the moment you set one foot in Schiphol you start to pay as a consumer; especially the travelers that don´t have any other place to go while waiting. Although there are officially no price agreements at Schiphol, the price for beverages and food is surprisingly similar everywhere.

I don´t have information available on the participations, but it is clearly a cash cow.

Another cash cow is CRE at Schiphol:
  • The Schiphol CRE has renting prices of about €350 per sqr mt and additional service costs of €95 per sqr mt. The proximity of an airport puts an extra fee on top of the renting prices per sqr meter.
  • In the past Schiphol has expropriated enormous quantities of rough grazing, due to `safety purposes´, ´environmental purposes´, ´to prevent noise pollution´ or for the construction of new runways.
    • In comparison to f.i. Atlanta, Chicago and London Heathrow, Schiphol has more than twice as much runways per passenger per year.
    • The rough grazing was turned into building sites and the price of the ground per sqr meter exploded.
  • Schiphol has played every trick in the book, including:
    • using the national government and environmental rules as leverage to expropriate ground that was not directly necessary for the safety of Schiphol
    • allegedly bribing of government officials
    • allegedly bribing of public prosecutors, judges and justices.

Competing with Schiphol is like competing with a 7-headed dragon: it is almost impossible to win it as a private company. There has been a long winded trial (±25 years)  between Schiphol and Chipshol, a private CRE investment company, owned by father and son Jan and Peter Poot.

This trial is about illegal expropriation by Schiphol of building ground, formerly owned by the family Poot. Latest development in this trial is that two former justices involved in this case have been accused of perjury, confusion of interests and stately corruption. As there is a very strong witness against the two accused justices, there seems to be an ironclad case.

Even if Air France–KLM would decide to leave Schiphol as a home port, then Schiphol owns so much CRE and building property that it would effortlessly survive as a project development company. That could have been a reason for Schiphol´s year-long hoarding of building property in the neighborhood of Amsterdam. It becomes more and more clear that Schiphol didn´t always expropriate the building property in a fair and square way. For a state-owned company this is nothing less than a disgrace.

And one can argue if a state-owned airport should be run like a commercial company that owns property and shares in airports all over the world. Because: if the company starts to lose money, the tax payer is the one footing the bill.

1 comment:

  1. Did you know:
    Core business of Rotterdam Airport is Parking