EBITDA is net income with interest, taxes, depreciation and amortisation added back to it and is an accounting measure commonly used in the aviation industry. It is used to analyse and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. It also permits the creation of valuation ratios and comparisons of enterprise value (a measure of a company’s total value) and revenue.
One important ratio is the EBITDA margin, the measure of a company’s operating profitability as a percentage of its total revenue. It is equal to EBITDA divided by total revenue. In Fraport’s case the EBITDA margin for 3Q2017 was 44.4%, which is moderate for the industry. Margins can go as high as almost 90% in the case of the comparatively few airports where regulatory regimes are notably lax. (In other words they can charge airlines what they like).
TABLE - Fraport's EBITDA margin is larger than Groupe ADP and Royal Schiphol Group but considerably less than those seen at AENA and Heathrow Airport HoldingsSource: The Blue Swan Daily and CAPA Airport Investors Database
But that does not detract from the increase in net profitability and EBITDA which was driven, as indeed it has been throughout the first nine months of the year, by a jump in passenger numbers across the group’s airports. A new daily traffic record was reached on 29-Sep-2017, when 225,801 passengers passed through Frankfurt Airport. Fraport's executive board expects passenger traffic there to grow by 5% in 2017.
The international Group airports also generated strong passenger traffic with some registering double-digit growth throughout the year to date.
Included amongst that group are the following airports...
- Burgas Airport, Bulgaria
- Varna Airport, Bulgaria
- Saint Petersburg Pulkovo Airport, Russia
- Antalya Airport, Turkey
- Lima Jorge Chavez International Airport, Peru
- Delhi Indira Gandhi International Airport, India
- Porto Alegre Salgado Filho Airport, Brazil
- Fortaleza Pinto Martins Airport, Brazil
... as well as 14 provincial airports in Greece, which have been added recently, along with the two Brazilian concessions. Those Greek airports have proven to be a thorn in the side of the group operation, as reported here: 'Conflict between private concessionaire and public owner snags airport privatisation efforts in Greece'.
Cargo volume has also developed positively. Ground handling activities posted a small gain in revenues but a reduction in EBITDA while retail and real estate activities declined in both categories. Interestingly, the head of the subsidiary Fraport USA (previously AIRMALL), commented recently on the future direction of airport retailing there, focusing, like the Air France airline subsidiary Joon, on catering to ‘millenials’ who “prefer transactions to be quick, convenient and with integrity”. Don’t we all? Accordingly, it is likely to increase the number of pop-up stores and FBOs at airports where it is active. Is that the future for the retailing side of the Fraport brand as a whole? Time will tell.
Fraport anticipates that Group revenue in 2017 (including the new Greek airports and Brazilian concessions), will reach up to EUR2.9 billion, with EBITDA in the range of about EUR980 million to EUR1,020 million, and the Group net result in the range of EUR310 million to EUR350 million.
The other side of the coin though is the capital expenditure anticipated in connection with Fraport Brasil. Brazilian airport transactions have been notoriously expensive since the first ones took place in 2012 and heavy capital expenditure is expected of the concessionaire. Fraport expects a further increase in net financial debt by around EUR300 million in FY2017. Overall, group net financial debt will reach EUR1.2 billion.