Fraport: Turning Around Capital Returns

Fraport (ETR:FRA), the operator of Frankfurt Airport (FRA), has been facing some challenges in recent years, with passenger numbers still below pre-pandemic levels and increasing government-induced location costs. However, the company is taking strategic initiatives to improve its financial performance and turn around its capital returns.



One of the key factors contributing to Fraport's recent underperformance is the sharp rise in government-induced location costs. These high costs are making it increasingly difficult for Frankfurt Airport to maintain its competitive edge as a hub for airlines, which are now considering locations with lower fees. This has led to a decline in passenger numbers, as airlines are investing in locations with lower government-imposed fees.

However, Fraport is not sitting idle in the face of these challenges. The company is implementing several strategic initiatives to improve its financial performance:

1. Expansion of Frankfurt Airport: Fraport is expanding Frankfurt Airport to increase its capacity and accommodate more passengers. This includes the construction of a fourth runway and a third passenger terminal (Terminal 3). The expansion is expected to increase the airport's capacity to handle up to 100 million passengers a year, helping Fraport to tap into the growing demand for air travel and generate more revenue.
2. Retail expansion: Fraport is also expanding the retail space at Terminals 1 and 2 to 20,000m². This will provide more opportunities for retailers to set up shops and generate revenue. Additionally, the Airport City Mall was fully redesigned and reopened in March 2010, connecting to major car parks, the regional train station, and Terminal 1. This will also increase foot traffic and retail sales.
3. High-speed rail services: Fraport is investing in high-speed rail services to connect Frankfurt Airport to other major cities. This will make it easier for passengers to travel to and from the airport, increasing passenger numbers and revenue.
4. Optimization of existing systems: Fraport is optimizing the operation of its existing runway system and implementing new technology to improve efficiency and reduce costs. This includes partnerships with other airports and discontinuation of flights in favor of train travel where possible.
5. Noise abatement measures: Fraport is continuously working on noise abatement measures to minimize the environmental impact of the airport. This includes a binding scheme to minimize noise through restrictions, new charges and fees policy, new flight routes, passive noise abatement, property management for residents who are affected, noise measurement scheme, and a commitment to noise reduction. These measures help to maintain the airport's social license to operate and avoid potential fines or penalties.
6. Regional Dialog Forum: Fraport has established a Regional Dialog Forum to continue and ramp up the dialog that was started with the mediation group. This helps to build relationships with local communities and stakeholders, ensuring their support for the airport's operations and expansion plans.

These strategic initiatives are designed to improve Fraport's financial performance by increasing revenue, reducing costs, and maintaining the airport's social license to operate. By implementing these initiatives, Fraport is positioning itself to benefit from global growth and future industry trends.

In conclusion, Fraport is facing some challenges in the form of increasing government-induced location costs and a decline in passenger numbers. However, the company is taking strategic initiatives to improve its financial performance and turn around its capital returns. By expanding Frankfurt Airport, optimizing existing systems, and investing in high-speed rail services, Fraport is positioning itself to benefit from global growth and future industry trends.