INVESTMENTS HIGHER THAN EARNINGS – COPENHAGEN AIRPORT
Copenhagen Airport pulled no punches in its annual report issued today, admitting that it is under pressure, with recent investments of around DKK2 billion a year being “substantially higher” than its earnings.
As a result, its profit before tax fell by 8.7% in 2019 to almost DKK1.3 billion.
The Danish gateway says it enjoyed a busy 2019, handling close to 30.3 million passengers or an average of 82,895 travellers daily.
“Connecting the world through air transport not only creates cultural and social value. Every single air route creates wealth for all of Denmark, so we shouldn’t fly less. But we should fly sustainably and with climate considerations,” notes airport CEO, Thomas Woldbye.
Highlights, says Woldbye, included the inauguration of its DKK2 billion Pier E, which provides more space for travellers and large modern aircraft on long-haul routes out of Europe.
SAS also decided to base the company’s new fleet of eight modern, fuel-efficient and quiet Airbus A350 aircraft at Copenhagen Airport (CPH).
And the airline switched a direct route to Los Angeles from Stockholm to Copenhagen.
Another success was CPH being named Europe’s most efficient airport for the 14th time in 16 years by the Air Transport Research Society (ATRS).
Business under pressure
However, the annual report reveals that the business of Copenhagen Airport A/S is under growing pressure, and about DKK2 billion has been invested annually in recent years to develop the airport.
“These are record investments that are much higher than our current profit before tax. That is not a sustainable situation in the long term,” warns Woldbye.
The CPH cash flows have come even more under pressure due to global economic uncertainty, Brexit, trade wars and the corona virus, notes the report.
“We aim to continue investing in the Airport of the Future and to improve Denmark’s international connectivity through direct routes to all parts of the world,” says Woldbye.
“The plan is to develop the airport as passenger numbers increase. However, in light of the growing global economic uncertainty, all of the planned investments may not be possible given the cash flows available. That is proper diligence and due care.”
As a result, CPH will assess and amend the level of investments according to the general economic development and risk situation.
“If we are to succeed, we will need as stable a framework and as predictable a financial platform as possible. Climatic and financial sustainability is essential for the airport,” insists Woldbye.
Drop in revenue and lower dividend
Profit before tax for 2019 fell by 8.7% to almost DKK1.3 billion, primarily due to a drop in charges paid by the airlines for using the airport’s infrastructure and services.
That is in line with the guidance provided in the Q3 2019 report.
The aeronautical business was marked by lower charges paid by airlines for using the airport. Charges were lowered 10% in 2018 and by another 5% in 2019.
In addition, traffic at the airport was affected by [a number of] bankruptcies, a seven-day strike by SAS pilots and by Norwegian’s new strategy of focusing on profitability rather than growth. Aeronautical revenue was down by 6.2% to DKK2.4 billion.
The non-aeronautical business is based on, among other things, rental income, concession revenue from parking and the shopping centre.
Overall, the non-aeronautical revenue for the year was up by 3.2% to DKK1,930.5 million. CPH’s overall revenue fell by 2.2% to DKK 4,345.7 million.
Historically, CPH have met the shareholders’ expectations of dividend payments, including that of the Danish state, and has annually distributed 100% of the net profit; but in light of the situation with the global economic uncertainty, lower charges and a very high level of investments, the Board of Directors have decided to recommend to the Annual General Meeting that no dividend will be paid for the second half of 2019.
New master plan for the airport of the future
Also in 2019, CPH submitted an application to the authorities to enact new legislation that would constitute the framework for the continued development and sustainable transition to the airport for the future.
Supported by SAS, Norwegian and DAT, CPH wants to relocate the rarely used third runway – the cross-wind runway. This, it says, will free up space for the modern fuel-efficient and less noisy aircraft types of the future.
According to its new master plan, CPH will develop the airport within the current area, with all facilities under one roof and with the shortest possible walking distances to gates and public transport.
An approval of the “master plan” is one vital part among several providing CPH with the operational framework that enables a continued green transformation of the industry.
Outlook for 2020
The airport admits that global aviation is under pressure from amongst other factors economic uncertainty, climate change and the recent outbreak of Coronavirus COVID-19.
Indeed, it notes that due to the great uncertainty COVID-19 has created for air travel in Denmark and the rest of the world and uncertainty about the duration of the situation, it is currently not possible to make a reasonable assessment of the financial impact of the Coronavirus at this time.
It therefore says that it is not possible to give an outlook for revenue, profit before tax and total investments.
As a consequence, CPH will continuously assess and adjust the level of operational costs and investments.