Fraport Frankfurt Airport Services Worldwide AG
XMUN:FRA
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Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome, and thank you for joining the conference call of Fraport AG. [Operator Instructions] May I now hand you over to your host today, Christoph Nanke, SVP, Head of Finance and IR. Please go ahead.
Thank you, Emma. And also a warm welcome to everybody from my side. Happy to have you on the call, Q1 of Fraport Group. I have with me at the table, our CFO, Matthias Zieschang, and he is ready to start the presentation.
Yes. Thank you, Christoph. Good afternoon, ladies and gentlemen, also from my side, and a warm welcome. Today, we are unfortunately celebrating our first anniversary as we are having 1 year negative impact from COVID-19 on our traffic and financial numbers. The positive information, however, is that we do not expect to have another second anniversary of COVID-19 for our group. The global vaccination campaigns are gaining momentum as more and more vaccines are being licensed, produced and rolled out. In Germany, we meanwhile administered about 30 million doses, and therefore, reached almost 33% of the German population. Fully vaccinated are about 10% of the German population. In addition, another 3% of the Germans have already been affected with COVID-19. Keeping those run rates, German scientists are expecting to reach herd immunity in Germany end of Q3.Also, the trends in key markets like the U.S. or U.K. are very encouraging. We also warmly appreciate the plans by the EU Commission to re-allow U.S. tourists to fly into Europe for the summer again. Hence, we are on a good path to return to growth and leave the negative impacts of COVID-19 step-by-step behind us. On my first chart of the presentation, you see how strong COVID-19 has impacted us here in Frankfurt in terms of passenger numbers, but also in terms of group revenues. On the flip side, we managed to compensate large parts of those negative effects, and we were able to lay the cornerstone of a new Fraport to evolve. Despite the revenue shortfall of about EUR 2 billion, we managed to achieve a positive underlying EBITDA in the past fiscal year as we did in the current Q1 period under review. Moreover, on the back of this [ full-blown ] negative impacts of COVID-19, we started an unprecedented restructuring program with a target to reduce our Frankfurt labor force by about 4,000 people, as you will also see on my next chart. Today, we can confirm that by year-end 2021, we will be a minimum 4,000 employees leaner company as we already achieved 96% of our target value last month, so in April '21. Simultaneously, we took out all nonessential cost items and reduced non-staff costs in a clear 3-digit million euro amount. To preserve cash, we also streamlined and stretched our investment programs. The new terminal in Lima, for example, will turn out to be a clearly smaller and therefore, cheaper terminal. We also secured significant amounts of cash to the group. We increased our available liquidity from EUR 1.7 billion at year-end 2019 to almost EUR 4.4 billion at the end of the first quarter this year. But before I go into too many details here, let me start my presentation with our restructuring chart first. In the light of the negative financial impacts of COVID-19, we needed to react quickly and launched a 4,000 employee staff restructuring program. The target was to recover our financial results even at a lower passenger number of 50 million to 60 million passengers in Frankfurt and to improve our financial and leverage situation. Initially, the target was meant to be achieved in fiscal year 2023 and the financial impact was estimated at about EUR 250 million lower staff cost for our Frankfurt operations. Today, we can tell you that we will not just meet the target, but we will exceed the target. On Chart 4, you see the progress of our Frankfurt restructuring program we took over the past 12 months. We started with almost 20,800 employees at year-end 2019. Our current Frankfurt staff level is about 3,000 employees lower when compared to our starting point year in 2019. Another 849 employees left the company on the 1st of April this year and will be reflected in our Q2 results. Hence, our target achievement moved up, so to say, overnight from 75% end of Q1 to 96% on April 1. Hearing the natural fluctuation and another roughly 100 employees in mind that have agreed to leave under the redundancy program will lead to a target achievement of more than 100% by end of this year. Hence, we are very satisfied with the progress taken in our restructuring program and now expect to move into the direction of 5,000 employees leaner company. Let me highlight here that this reduction does not assume any divestments or further restructuring that we still might take. Having said this, I'd like to move on in my presentation to Chart #5. Here, indeed, you see a further restructuring measure that we agreed for our Frankfurt operations just a week ago. Before the corona crisis, the waiting times at the security controls were by far the biggest pain point for passengers, and therefore, for our airline customers at Frankfurt. As you know, we have long intended to take responsibility for the organization, control and implementation of the security checks. We are firmly convinced that with the same safety standards, we can increase the efficiency of the controls, if we gain responsibilities in the future. Under the new agreement, this responsibility will contain the procurement of control devices, the structuring of processes and how the capacities and personnel are deployed. To guarantee the necessary security standards, the Federal Ministry of the Interior will continue to set the framework conditions and the federal police will continue to supervise the security checks. Hence, there will be no compromise in terms of security standards due to the agreed upon contract. The contract itself will become effective on January 1, 2023. Moving on to our traffic update on Slide #6. While the year-over-year comparison will certainly improve from here on, we continue to measure ourselves also against 2019. When benchmarked against Q1 2020, there's a clear improving trend for basically all airports, except for Fraport Brazil visible towards March this year. Measured against 2019, the percent shortfalls nonetheless continue to range between 70% and 90% for large parts of our portfolio, except for Fraport Brazil and our minority airports in Turkey, Russia and China. Indeed, our Chinese investment performed almost on the 2019 traffic level for the month of April as we will report in only a few days from now. With regard to our traffic outlook for the group in the full year, we continue to stick to our guidance we provided you 2 months ago. Here, it is essential to highlight the importance of the third quarter. The third quarter is by far the most important quarter for our group airports. In 2019, Fraport Greece handed about 50% of full year traffic during the third quarter. For Frankfurt Bulgaria, the importance of the third quarter was even higher at about 2/3 of the full year traffic. For Antalya, Q3 represented also a high 45% share of the full year traffic. Hence, despite the lockdown extension for large parts of our portfolio into Q2, we remain confident to see more traffic momentum up from June, July and stick to our traffic outlooks. The financial performance of the group in the past quarter is shown on Chart #7. It's no major surprise to see that total revenues continued to suffer due to the negative traffic performances we recorded in the past quarter. At close to EUR 380 million, total revenues were down by 39%. Here, it is important to highlight that the adverse traffic impacts were dampened by the steady performance of our Frankfurt real estate business, but also by more stable landing and takeoff charges, maximum weight-related charges and the settlement of a long-lasting legal dispute with the German government about the billing of security services in Frankfurt. The latter one led to an extraordinary effect on revenues and EBITDA of about EUR 58 million, taking an additional effect of EUR 17 million higher income from the settlement into account, meant an extraordinary effect on EBITDA and net result of about EUR 75 million. Adjusting for the EUR 58 million revenue effect, our total group revenues would have declined by just under 50%. As we were not able to influence the traffic performances during Q1, our top priority remained to control cost items in the past quarter. As a consequence, we focused on all cost items and took out costs in the amount of about EUR 150 million or 30% on a group-wide basis. Thanks to our cost focus, but also due to the security settlement, we were again able to achieve a positive group EBITDA of EUR 40 million in the period under review. Bottom line, we saw broadly stable D&A charges and an improving financial result. Despite the higher indebtedness and therefore, higher interest expenses, the financial result was supported by the before-mentioned EUR 17 million positive interest effect from the securities settlement as well as an improving result from at-equity consolidated investments, mainly thanks to Xi'an in China. Our group result after minorities, therefore, was only down by EUR 36 million despite a revenue reduction of about minus EUR 236 million. So a good job from our employees, whom I'd like to thank at this point. Moving on to our free cash flow reconciliation and our group indebtedness on Slide 8. Due to the low operating results and the cash out for interest payments, our operating cash flow was negative in the period under review. Here, 2 factors are clearly important to highlight. Firstly, the cash inflow from the settlement of the security costs dispute with the German federal police took place in April, and therefore, is not reflected in our Q1 operating cash flow as well as in our group indebtedness at the end of the first quarter. Secondly, the operating cash flow was clearly adversely impacted by cash out for severance payments in the period under review. In total, we used EUR 260 million of the provision we booked last year. Cash-wise, this resulted in outflows of about EUR 150 million in Q1 and will lead to another EUR 50 million in the second quarter. Adding those 2 topics to our cash flow statement means that a positive operating cash flow would have been possible as you will most likely see it in Q2. Regarding our cash-out for CapEx, we clearly see that expansion CapEx in Greece and Brazil ended. From here on, we will be discussing only 2 large CapEx programs, Terminal 3 in Frankfurt and the expansion of Lima Airport. In total, our free cash flow, therefore, stood at a negative EUR 495 million at the end of in Q1. Here again, cash-outs of about EUR 150 million for the severance payments are included. Adjusted for the severance payments would have meant a negative free cash flow of about EUR 350 million in Q1. Translating this number on a monthly basis was a negative free cash flow of about EUR 110 million to EUR 120 million. Looking forward, we now expect clearly reduced cash burn numbers, thanks to positive effects from our cost control and CapEx measures as well as more traffic momentum as of June, July plus the positive proceeds from the settlement agreement with the federal police. Due to the negative free cash flow in Q1, net debt moved up to a level of about EUR 6 billion. On the flip side, our group liquidity increase, which is shown on my next chart. On Slide #9, you see the development of our group liquidity and available cash reserves during the past quarters. Despite the clearly negative free cash flow of EUR 1.4 billion we recorded in fiscal year 2020 and the negative EUR 495 million in Q1 2021, our group liquidity moved up by about EUR 2.7 billion. Besides the negative free cash flows, this amount factors in repayments that we made last year and during Q1 this year. In addition to the increase in group liquidity, it is also important to point out that we were able to achieve a reduction in our average interest rates. While end of 2019, we faced an average interest rate on group level of 2.4%, the new borrowings reduced our group interest rate to an average level of 2%. Indeed, our current funding rate is even below that level. The additional finance we assumed in Q1 of EUR 1.9 billion were secured at an average rate of about 1.5% at an average tenor of just under 6 years. The additional debt raising meant that our all-in cash reserves or firepower moved up to almost EUR 4.4 billion by end of Q1. Assuming our conservative business plans, the high cash reserves will clearly bridge us into the fiscal year 2024. Moreover, the high level of fixed rate borrowings of about 85% protects us against any rise in the interest rates that might be over the next few years. How do these additional borrowings fit into our repayment profile? I'm now on Slide #10. Despite the new funding, our repayment chart remains well balanced. On average, we need to pay back about EUR 400 million to EUR 800 million per annum over the next few years. Indeed, the repayments over the next 3 years are well covered by our EUR 4.4 billion liquidity reserves at the end of Q1. From today's perspective, the biggest repayments will start in 2024 and then in 2027 and 2028 due to our bond issuances. Let me now move on to our segment performances in the first quarter, starting with Aviation on Slide #11. For all segments, we provided you the financials compared to Q1 2020, which were already slightly impacted by the pandemic and also compared to Q1 2019. It is no surprise that the revenues in the Aviation segment were clearly impacted in light of the reduced passenger numbers in Frankfurt. However, at EUR 139 million or minus 26%, Aviation revenues in total performed better than the pure passenger development in Frankfurt of minus 78% compared to 2020. Key drivers for the better revenue performance were non-directly passenger linked charges such as landing and takeoff charges. In addition and even more important this quarter are the revenues from security services, which increased thanks to the settlement with the federal police by EUR 50 million. Thanks to our countermeasures, we also managed to save around EUR 46 million or 24% of the OpEx compared to Q1 2020. All in all, based on the cost savings and the security settlement, we reached an EBITDA close to breakeven and an EBIT of minus EUR 34 million. Moving on to our Retail & Real Estate segment on Slide 12. Looking at the revenue streams, once again, we see the different drivers of the segment, starting with real estate. We are happy to see the continuous resilience of this subdivision at more than EUR 40 million. Based on fixed rental contracts, we can rely on the payments from our customers, which support the segment even in times of crisis. In contrast to that, the retail revenues were down by 73%. Despite this clear shortfall, the retail subdivision still performed better than the pure passenger development in Frankfurt. With the help of more stable revenue streams such as advertising, but also due to an increased spending behavior of the remaining passengers, our retail per passenger key indicator grew remarkably by 40% to EUR 5.06. This represents an all-time high also on a very low passenger number. Parking revenues also were more resilient due to corporate parking as well as car rental companies. At EUR 63 million, segment revenues, all in all, declined by 38% compared to Q1 2020. Thanks to the resilient revenue performance and the remarkable cost reduction of 40%, we were able to realize clearly positive EBITDA of EUR 49 million. The financial performance of our third Frankfurt segment, Ground Handling, is shown on Slide 13. As with the other 2 segments, revenues in Ground Handling were more resilient than the pure passenger development in Frankfurt. At EUR 67 million, the segment revenues were only down by 52% compared to Q1 2020. The key drivers for the better revenue performance were again charges, which are not based on passenger numbers, such as maximum takeoff weight and movements-related charges. Still in absolute numbers, we lost revenues of around EUR 70 million against 2020. On the other hand, we were able to save operational expenses of about EUR 50 million. Despite those savings, EBITDA was clearly negative at minus EUR 32 million in Q1 2021. To further restructure our Ground Handling business, we already informed you with our full year results that we will establish a new ground handling subsidiary. We are optimistic to have the new structure in place as of 2022. Of course, we will keep you informed about the progress. On Slide 14, you'll find the summary of our achievements in Frankfurt for the Q1 period. If we compare our operational expenses to 2 prior years, we clearly see that our quick and determined measures are bearing fruit. All in all, we achieved total Frankfurt savings in the amount of more than EUR 110 million or close to EUR 40 million per month compared to Q1 2019. This means a cost reduction of around 30%, which is mainly driven by staff cost savings. These figures show that we are well on track to achieve our goal to reduce total cost by up to EUR 500 million in the full year 2021 compared to the base year 2019. On Slide 15, you see the financial performance of our major international holdings in Q1. A very positive message is that despite the massive impact of the pandemic on passenger numbers, all holdings together contributed some EUR 13 million to the group EBITDA in Q1. Except for Fraport Greece, which is, as always, in the low season in Q1, all investments generated a positive EBITDA or an EBITDA close to breakeven. This proves the strong efforts that also our group companies worldwide are taking to minimize the financial impacts of the crisis. Extraordinarily high was certainly the contribution from Fraport USA, which was EUR 14 million. Here, we recorded a special effect in the amount of EUR 12 million from the waiving of minimum lease payments to compensate for financial losses due to the pandemic. Looking now at the segment performance as a whole on Slide 16, so including for the services part in Frankfurt. You see a clear revenue drop by more than 50%, if excluded for IFRIC 12. On the other side, we significantly reduced the underlying OpEx. Like this, we saved around EUR 50 million or more than 40% compared to Q1 2020. Compared to Q1 2019, we even saved 45% of total OpEx. In total, the segment, therefore, managed to achieve a positive EBITDA of EUR 24 million, which again was positively impacted by the one-off with Fraport USA in the amount of EUR 12 million. Having said this, ladies and gentlemen, I would like to conclude my presentation with our outlook on Chart 17. I can go through this quite quickly, as you already know this slide from our full year presentation. Here, we did not make any changes to it. All of you know that we still have low visibility when it comes to the performance of this year. There's still uncertainty in the market about how and when the air traffic markets are reopening materially. However, based on the current developments, we stick to our expectation that traffic levels in Frankfurt might see a recovery as of Q3. In addition to that, we are happy to see that Greece wants to open up for travelers within the next few weeks. To remind you of our outlook for 2021 for Frankfurt, we expect passenger numbers of below 20 million to up to 25 million passengers and traffic recovery to 2019 levels is expected by around 2026. Potentially, thanks to a better traffic performance within our international airports, we expect a clear improvement this year, which means an EBITDA between around EUR 300 million and EUR 450 million. Based on an increasing efficiency, we expect to see EBITDA levels of 2019 already by 2023. With this, I would like to thank you for your attention and look forward to your questions.
[Operator Instructions] The first question comes from the line of Ruxandra Haradau-Doser with Kepler Cheuvreux.
Three, please. First, you indicated that a higher number of employees is likely to leave the group. What does this mean in terms of cost savings? And are the additional employees working in the ground handling or in the administrative area? Second, complex topic. Could you please run us through your different businesses and explain what are the main risks and opportunities for revenues and costs in a scenario with increasing inflation over the next years. And third, could you talk about the railway infrastructure at Frankfurt Airport, to which extent does it allow for further improvement of the railway network? And do you see the opportunity to maybe enlarge your catchment area by improving the high-speed connectivity going forward?
Yes. Thank you, Ms. Haradau-Doser for these very interesting questions. So I would like to start with topic 1, cost savings. I think these are well balanced or the reduced number of employees are well balanced between ground handling on one side and the administration on the other side. And in my presentation, I said that we will not stop with 4,000. So it's clear that end of 2021, we will see a number which is clearly above 4,000. So we are overfulfilling our target. And as I said, we try to achieve as much as possible. And we are attacking everywhere in the company. And it is clear that the main focus also for further improvements or further reductions on the personnel side are primarily on the admin sector because here, we have, I wouldn't say the guys who are not productive, but at the end of the day, our passengers, they feel reduced comfort levels on the baggage side, but not whether we have 100 controllers or just 80 controllers in the controlling department. So again, it's everywhere, but with a clear focus on admin because this is sustainable. And when the traffic is picking up again, we do not have a recovery effect on the admin areas and the admin departments. Second question, risks and opportunities, also regarding inflation rates. So we can go through. Let's start with Retail & Real Estate because it's very simple. On the retail side, you know that our revenue proceeds come from a percentage of the revenues in the shops. So if there would be higher inflation, prices will go up, revenues will go up. And our share of this increased revenue is going up in a balanced way. So we have on the retail side, we have a full inflation protection by the percentage of revenue, which we are collecting from our tenants. On the real estate side, it's more or less the same because in most contracts, we have an inflation escalator embedded, not year-by-year, but in most cases, after 5 years. So if in this period, the inflation rate goes up by x percent, it can roll over or transfer this inflation increase via higher rental income. So also more or less 100% protection against higher inflation rates in this segment. So both subsegments are fully protected. In Ground Handling, it's more or less the same. In all or most of our ground handling contracts with the airlines, we have also this inflation escalator embedded, so also more or less a full inflation protection. The only segment where we do not have a formal inflation protection is in Aviation because we have a clear regulatory approach. We have regulated asset base on one side, we have the WACC on the other side. You can say there's some indirect protection because if inflation rates would go up, I think there's a clear correlation that also interest rates normally must go up again and via a higher WACC, we can also collect more fees, but this is more so far a theoretical issue because in the moment, we are far away from any limitation by WACC. So we have a clear upside potential on the Aviation segment, so that there's enough headroom to go up with higher fees in the case of an increasing inflation scenario in the Eurozone or in the world. And yes -- and outside, let me say, outside Frankfurt, we have in Greece, we can always year-by-year take the inflation rate times 0.9 as an escalator for the fees in the Aviation sector.We have the same phenomenon or the same elements in Brazil as well as in Lima. There's only -- in the U.S. market, we are collecting also percentages from the revenues inside the shops. So there's just one airport where we are fully exposed to inflation in the Eurozone. This is in Antalya, where we can collect EUR 15 per departing passenger. And this is a fixed nominal amount regardless how lower or how higher the inflation in the Eurozone will be. But you know that in 2026, this concession will end, you can say, yes, yes, for the final 5 to 6 years, we have -- there is theoretically an exposure to higher inflation rates in Antalya, but this is the only risk, the only exposure which we have. So third question was, yes, the intermodality here at Frankfurt Airport. You know that -- also in our presentation on Slide 36, you can see what is now intended to do to improve intermodality in Germany, especially in favor of the Frankfurt Airport. And there are ongoing discussions and there is a working group, a high-level working group between Lufthansa, between us and between the German Railways because there's a clear political expectation to do something in favor of an increased intermodality to substitute domestic flights by more and more railway links and feeder traffic to Frankfurt Airport. And due to the fact that we are in the middle, geographically in the middle of Germany, and we have this perfect access to the railway high-speed link, and we have this railway station on our site, so the perfect, let me say, location to connect the high-speed network of the German railways with our airport. And this is the clear intention, it's the clear plan. And you can see what will happen in the next couple of -- in the next 2 years. And we will get a lot of sprinter trains going directly to the airport. And by this, we are shortening the distances to our airport, so to say. We are increasing by this better connection to the high-speed network our catchment area. So that's from a theoretical perspective, this move is in favor of us. So we appreciate this. We are working together with our system partners. And we think that in the long run, when we will see more and more political pressure on this issue, we could be and we will be the winner of this policy, so to combine, let me say, the German high-speed network with our airport and to have, at the end of the day, Germany as our whole catchment area and combined by a lot of direct links with sprinter trains going without any stop in between directly to the Frankfurt Airport. And on this slide, you can see it is intended to have direct sprinter trains from Bremen, from Hamburg, from Berlin, even from Munich, Munich city directly to Frankfurt. Now you have to take the S-train from the city of Munich to go to the Munich Airport, but you can take the ICE train to run directly from Munich center to Frankfurt airport. And this is a huge advantage. And when you look, for example, our competitor or friendly competitor, Munich Airport has no direct access to the high-speed network of the German railways. And this is one of our great advantages, which we are -- which we have. And if you think about the next election coming in September, and I think with a high probability that the Green party will be part of a coalition, whether they are heading the coalition or not is open. But it's clear they will be. If you look into the programs of the parties, yes, you can't find a topic that the inner domestic traffic is not any longer allowed to take the train, but there's a clear preference to improve the access from the train to the airport as much as possible, and we feel very comfortable with these programs.
The next question comes from the line of Elodie Rall with JPMorgan.
Can I have first about the near-term traffic expectations, what you're seeing for -- from bookings for this summer from the airline side? And do you have any expectations that you can give us in terms of quality recovery for the next -- for the remaining of the year? Second, could I ask about the retail spend CapEx? I mean, obviously, we at all-time high in this quarter, it's probably altered by the lack of traffic. So should we expect a normalization of this trend in line with the federal traffic recovery throughout the remaining of the year? And could you explain to us why you see limited pressure on contracts from retailers maybe versus other European peers? And lastly, can I ask about tariffs. When will you make your proposal for next year's tariffs? And how are you thinking about that just on a yearly basis? And will then it be time to actually look at negotiating a 5-year agreement at this stage?
Yes. Thank you for your questions. Starting with the traffic expectations. You know our guidance below 20 million up to 25 million. This is a broad range. As of today, I expect about 20 million for Frankfurt Airport. So to be at the lower end, this has to do that. In the first months of this year, the speed and the rollout of the vaccines was very low. Now it's gaining momentum. And today now, we have about 1 million vaccinations per day here in Germany. So it's now we are -- it's speeding up. But let me say the May -- month of May is more or less gone. So we expect an increase up from June and then a good momentum up from July. So with other words, Q3 is and will be key as always. And now we have to see how far we are with the, so to say, herd immunity or how many percent, not just of the Germans, but of the European population then is vaccinated or has already received the first vaccination.But in the moment, it looks relatively good. We know, for example, from Greece. Greece is opening on the -- I think on the 18th of May. And the incidences are very low. They expect really stormy impact from U.K., where we have nearly reached herd immunity. And -- because, as always, the people from U.K. are the #1 passengers going to Greece. So with regards to Greece, we expect a good third quarter. In Frankfurt itself, also again, up from the third quarter, a strong increase. We know from all the airlines that they are preparing for significant passenger increase more or less overnight or in a couple of weeks, which is from an operational perspective not very simple to do this. And -- but on the other side, when -- let me say when this -- what we expect will come through, we have a strong second half of the year. But if you just look on the already realized numbers in the beginning of '21, we have these -- let me say, this burden from low numbers. So that's when I say 20 million for Frankfurt for the full year means a strong second half and a very weak first half. And then end of the year -- or end of Q3, everybody expects that then Germany as well as most of the other European countries then are reaching herd immunity, so that then the corona topic is more or less over, and then we can come back to the old times. With regards to our international assets, we -- in -- let me say, let's go through the portfolio increase. We expect always for the full year about 50% of the 2019 passenger numbers as well as for Bulgaria, perhaps Bulgaria a little bit lower number. In Brazil as well as in Lima, clearly more than 50% regarding 2021. In Slovenia, it's about 40% for the full year. And in Turkey, in the moment, it's a little bit difficult to predict because in the moment, the corona numbers are extremely higher. And the question is whether you can trust these official numbers or not. This is the second issue. And we have to see when and how they are coming down. That's the reason with regard to -- normally in Antalya, the season would be a good one because we know there's an extremely strong demand, especially from Russian tourists coming to Turkey, but at the moment, it's forbidden to fly from Russia to Antalya, to Turkey. But again, we have to look now on these numbers at Turkey or especially at Antalya. So this is the traffic forecast as we see it in the moment. But all these expectations, you can say, are direct linked to the progress regarding the vaccination in the European countries. And then also a very important impact is the situation in the U.S. market because the U.S. market is on one side, key for the Lufthansa intercontinental traffic from the U.S. to Germany and also from Frankfurt to the U.S. You know that the vaccination rates in the U.S. market are much higher. And we expect that perhaps up from June, the U.S. market will reopen again, that in the first step it's allowed that U.S. passengers can fly from North America to Frankfurt, which would be a great success for us and for Lufthansa. But here, we are also dependent from the -- from political decisions in the U.S. market. But we are relatively optimistic that in the next couple of months, there will be a change or an opening of the U.S. market minimum in one direction. So this is the traffic situation. Then we have the retail situation. Yes, we have -- in the moment, it's all-time high. It's fantastic. Let me say 3 reasons why the numbers are so high. On one side, we still are collecting some minimum annual guarantees, which is supporting this KPI. Second, we have still strong proceeds from advertisement, and which is not related to the passenger numbers. This is stabilizing or improving, this number. And third, from the remaining passengers which we have, and we are not talking about Russians or Koreans or Chinese people, we are just talking about Germans and Europeans, their spending behavior in the moment is better than before the crisis. It can be that this is directly linked to the crisis because these guys, which are today flying, are in a relatively relaxed mood. Why relaxed? Because they're happy that they are healthy. Second, there's no stress at process items at the airport. So everything is seamless. It is working very nice. There's room and place in the terminals. So everything is really relaxed, and perhaps they are. That's the reason why -- then there are also at times no waiting times at the security lines and then they are spending money. And that's the reason why the number is so high. Nevertheless, of course, when the traffic numbers now will go up again, the KPI will go down. That's for sure. Absolutely, for sure. But in the moment, we think that even in a, let me say, in a new equilibrium or in the new steady state equilibrium, the new normal KPI will be higher than before. And perhaps we will see numbers of still of about EUR 4, which was our old target since years ago. So in the moment, we are very optimistic regarding the retail business when the traffic is picking up again. So far, the answers.
The next question comes from the line of Andrew Lobbenberg with HSBC.
Can I come back to the labor reduction issue that you spoke about a bit with Ruxandra's question. But you mentioned that you might get the reduction in head count as high as 5,000. Would there be more provisions associated with that if you were to get there? And also, in your prepared remarks, you said that the -- getting to 4,000 or a bit higher, that would come with real reductions and would not include any divestments. What are you referring to with potential divestments? Then can I ask about the taking control of the security lines. Very excited to hear that news and the prospect of an improving processes at Frankfurt. But then I thought I heard you say that wouldn't happen until the first of January '23. Why such a long delay? And how will you manage through the pickup of traffic at least, hopefully, in '22? And then my final question would take us to Lima and the political developments in Peru. I'm so old, I had the joy of covering Fraport when it was first listed and when the incident in Manila happened. How confident can you be that we're not on course for a repeat of that?
Yes. Mr. Lobbenberg, thank you for your questions. First one was labor reductions and regarding provisions. So clear answer. We -- last year, we built provisions of EUR 299 million. As of today, we have cashed out EUR 230 million -- cash out for the provisions is EUR 230 million. We have booked already nearly EUR 280 million. This means we have an additional reserve of EUR 20 million, which we can use for ongoing personnel reduction, but that's it. There will be definitely no further increase for provisions because it's fine. And we know from -- we have natural -- or we have still 100 people to leave based on severance payments, contracts. In the next 18 months, about 500 people will leave based on partial retirement plus natural fluctuation, which is permanent. If you have, let me say, thousands of people, you have also a permanent natural fluctuation. That's the reason why I'm relatively confident that we can continue the personnel reduction, and I mentioned 5,000. This is not an official target, but we try to achieve as much as possible without any additional money to spend except the EUR 20 million provisions, which we still have and will lead, of course, to EUR 20 million cash-out. Second...
Adjustments to labor.
Pardon.
Adjustments, yes.
Yes. It's just an example. We -- it's a matter of fact that we are going to take over the responsibility for the security business. And we have now -- the contract is signed. So it's not just a commitment. It's a done deal in a way that it's signed. And so formally and finally, the responsibility will be transferred on the 1st of January 2023. But already before, of course, now we are collaborating with the police and the Ministry of Inner Affairs, so with regard to ordering of new machines, new technology, et cetera. So it's, so to say, a soft transfer of the responsibility. Formally and finally, it's the 1st of January '23. But before it's an ongoing process where more and more tasks will be transferred to us. So that you will see relatively soon also improvements on this side. And one issue of this whole security topic is that in the moment, we have thousands of people behind the security line. We can say more than 50% of all this stuff comes from other companies, which are ordered from the police. But we are still also offering security people to the police. All these guys are deployed in our subsidiary called FraSec, which is a company of nearly 4,000 FTEs, 100% control pass and fully consolidated. And more than 50% of these nearly 4,000 FTEs are working on the security lines. And to avoid any conflict of interest later on when we are going into the market, and let me say, allocating the slots to these security companies, we cannot order ourselves. That's the reason why we are in the moment already in the market looking for a strategic partner or strategic investor taking over 51% of our subsidiary and then running and controlling these people in the FraSec. And we are already in negotiations. As of today, I would say, end of this year, this deal is done. So then we have a strategic partner with that up from the 1st of January next year. This company is deconsolidated from our balance sheet and our P&L. And then we -- at the end of the day, we have to see how many of these employees then remain in these pure security line companies. Some of them are protecting our fences, they will be carved out. So -- but clearly, more than 2,000 FTE then will leave the company or will be deconsolidated. So regarding the P&L, this has no impact because at the end of the day, the whole cost for these personnel is reimbursed from the ministry or finally from the airlines. But we are again becoming a leaner company. So that's looking into the future. At the end of the day, we are the managers of this responsibility. We are managing, we are controlling these security issues and all the staff is provided by other companies. This is the role model. And let me say the deconsolidation or the sale of these guys to a strategic partner is one of the steps which we are now rolling out. Then your question regarding Lima. We are in Lima since [ 2021 ]. And we have seen so many presidents from all political wings. And I think there's one thing which you always can see in Lima. Let me say, during the elections, you see extreme positions of potential presidents. And when they afterwards, they have been elected and they get the power and -- in all cases, in the past, they move to the middle. And this is also what we expect now, regardless who will become in the final round, the new President. At the end of the day, he will more or less have a clear move into the middle and become, so to say, a normal President. So at the end of the day, we don't expect any threat for our -- or risk for our investment in Lima, and we are looking positively forward as always in the last 20 years.
The next question comes from the line of José Arroyas with Santander.
Three questions for me. I want to come back to an already asked question. It's about your conversations about tariffs for 2022, if you can share some insight as to how you believe things might pan out? And the second question I wanted to ask you is about economic relief packages. Can you remind us of what additional benefits you may still get in countries like Greece and wherever Fraport has not yet struck an agreement? And lastly, and I understand this is perhaps early days, if you can give us an indication of the benefits of the new entity for the ground handling business. How is it going to be different from the current setup?
Yes. First question was regarding tariffs 2022. We have now prepared all our files and the material and in the next couple of days, it will be forwarded to the regulator. For us, the regulator is, as always, the Ministry of Economic Affairs. And in this proposal, there will be an increase of the fees in a single-digit amount for 2022. And we do not expect any problem with the regulator. Whether there will be problems with the airlines, you never know. But due to the fact that the increase will be modest, we do not expect big obstacles. And yes, we are looking positively forward that it will be definitely approved by the regulator. And this is a step for 2022. And as we always said, you can expect a series of single-digit fee increase in the next couple of years, always fair, always modest, but they will come, and we will start with 2022. Second question was regarding economic compensation packages. We have -- yes, we have to go through. First of all, in Brazil, there's a so-called economic equilibrium as part of the concession agreement. So whenever there is an extraordinary impact, so to say, force majeure, it will be economically compensated by the government. It happened already for 2020. That's the reason that the EBITDA last year in Brazil was more or less on the same level compared to 2019, and the same will happen for 2021. So more or less, that's the reason why we expect an EBITDA in Brazil on the 2019, respectively, 2020 level because at the end of the day, you are looking what is the final realized EBITDA. And on top, there's a compensation by the government to fill up this gap to the 2019 level. So this is Brazil, and this is as always a done deal because this economic equilibrium clause is a normal clause since years in all infrastructure concession agreements in Brazil. In Greece, we have also a similar clause in our concession agreement. And this means that we will also receive a compensation. The compensation is not a cash payment from the government. It's -- in so far, it's a compensation in a way that normally we have to pay increased 2 concessions payments. First of all, we have a fixed concession payment per annum of about EUR 23 million per annum. And on top of this, there comes a 28% share of the realized EBITDA. So 2 kinds of concession payments to the government. And as a compensation, there is -- so as long as we have corona, we are not going to pay any concessions to the government to compensate us for the losses caused by corona. In the U.S. market -- and this is already included, let me say, in our forecast and our guidance. In Germany itself, we are expecting -- or we claimed a compensation for -- not just we, all the German airports for the second -- we claimed the compensation for the full year 2020. But let me say the answer of our government in Berlin was that we just will get a compensation for the second quarter of last year, all the airports, which kept the airport opened during this times. And in our case, now there is an amount fixed from Berlin of exactly EUR 160 million. EUR 80 million of this amount will come from Berlin, and there must be a matching fund from the federal state of Hesse, also EUR 80 million. So in total, we will receive EUR 160 million. In the moment, we are filing the application to get the money from the federal state. So in total, EUR 160 million. I see a total probability of this compensation more than 90%, so it's more or less a done deal. We expect the money in June, July this year. Prerequisite for this is that we declare that we are not going to pay any dividends for the fiscal year 2020, which is a given because there is no profit which we can transfer into dividends. And the second prerequisite is that there are no variable bonus payments to the Board of Directors, and we also agreed that for 2020, we do not get any money on a variable basis. So with other words, we will see EUR 160 million as a direct payment in Germany into our P&L, which is not part of our guidance. So when we will receive the EUR 160 million, it's cash in, it's additional profit, additional EBITDA and will come on top of the range of EUR 300 million to EUR 450 million EBITDA in this year. In the U.S.A., we also got a waiver for concession payments to the owner of the airports of EUR 40 million?
EUR 12 million.
EUR 12 million in this year. Whether we get money in the next year, it's an open issue. We tried to get it, but there's no clause in the agreement. It is really on a voluntarily basis. And Slovenia, we received already EUR 5 million corona compensation from the state, which we -- and the money we received on the 19th of April. It's nice money for Slovenia. And did I forget something? Yes, in Turkey, we already received an extension of the concession from end of 2024 to end of 2026, so an extension of 2 years. And the last airport, which I have to mention is Lima. Due to the elections, there was no flexibility to help us by a direct compensation because it's also not part of the -- there was no topic in the concession agreement. But at the end of the day now, it's in so far, let me say, some compromise that we agreed to build a smaller terminal than before and now using still the old terminal plus the new one so that we could, in total, reduce the CapEx amount by roughly 1/3 compared to the old CapEx numbers. So this is all in all, all the packages, which we received or which we will receive in the next couple of months.
The next question comes from the line of Arthur Truslove with Credit Suisse.
Excuse me, we can't understand you. So the line is not very good.
Yes. We can try once more, but I believe the line of Mr. Truslove is impossible to understand. One second. Yes. Unfortunately, we're going to move on to the next question from the line of Dario Maglione with Exane BNP Paribas.
Hopefully, you can hear me well.
Yes.
Great. First question, actually, just to confirm, for the security deal that you have reached. So just to confirm, there's no savings in terms of OpEx, it's more from an operational side. And also what kind of OpEx savings do you expect from the restructuring of the ground handling division by creating this new subsidiary? Second question is around the equity raise. Clearly, you have good access to the market at the moment. But I see that at the next AGM in June, on the agenda, there is the request for shareholders to approve a potential equity raise, so convertible bonds, if needed. So I'm just wondering what kind of scenario do you think you will need to raise equity and why at this point? Yes, that's it.
Yes. Thanks for your questions. Number one was savings in the security business. So with this move, with this deal, we do not expect a P&L impact for us. So it's just to improve quality, to improve efficiency because this was really the last couple of years when we reached our capacity limitation. This was the #1 pain point for our passengers. And everybody has said, it's a nice airport, but your waiting times are not acceptable and the quality at the security line. So all the complaints about us focused on the security issue. And that's the reason why we tried to overcome this problem, so to gain efficiency, to improve service levels and to make it a long cheaper for the airlines. Because there's also some special elements embedded in this deal before because at the end of the day, the airlines are paying for the security services per passenger. And in these amounts, in the past, they paid to the government that was included VAT. So this was cost plus, plus 19% VAT. In this new construction, don't ask why, we were able to take out the VAT so that overnight there is a cost advantage for the airlines of 19% on a like-for-like comparison, just to take out VAT out of this business. So again, for us, it's no impact on the P&L, but we are taking out in so far, let me say, deployment risk because we are looking for an investor who will take over 51% in the first step. And perhaps later on, he will take over 100% of our security company, so we are leaner, we are more resilient on the cost side, but no direct improvement on the P&L side. Regarding the new ideas or the restructuring efforts in ground handling, it's different. Here, we are founding this new company as a 100% subsidiary, so that all along. Today, we have still a subsidiary, and we still have employees on the level of the AG. So we have a world of different labor contracts. And of course, in the existing company, the wage level is lower. At the AG level, the -- at the AG, the wage level is higher. And now we are concentrating all activities and all employees in the new company. This means whenever one of these existing guys on the AG with the higher wage contracts is leaving the company, so he will be substituted and replaced by an employee in the new company with a much lower wage level. Plus, when you have just a company which is 100% focusing on ground handling activities, the flexibility inside, because it's a pure play, is much higher than if you are a segment in a huge company, which is doing a lot of services. So in the first step, of course, when we are carving out these activities, we don't see any impact on the P&L. But all along, step by step, we are growing. We are moving in a new scenario, which lower cost units. And then step-by-step, you will see an improved P&L in the ground handling business. Third question, equity. It's good that you raised these questions. So now on our next AGM, we are asking for authorized as well as contingent capital. First of all, the formal things. On the authorized capital, we have the option to issue up to 46 million shares. This is a theoretical maximum which is possible. If you would translate this based on the current stock prices and market conditions, this means theoretically, we could go for about EUR 1.5 billion additional equity on the authorized side. On the other side, on top of this, we have a contingent capital with a limitation of 13% of the existing shares and a maximum of EUR 800 million. So with other words, if you take both things together, EUR 1.5 billion plus EUR 800 million, there is a theoretical option for EUR 2.3 billion, but this is just a theory. Before we went or we are going to this AGM, we had intensive discussions with our shareholders. This means with the federal state of Hesse on one side and the city of Frankfurt on the other side. We discussed this topic, and we came to the following conclusion. So we need this option to have a life insurance, in a way, that if there would be an emergency case, we can go for this capital increase, and we know from the commitment of our shareholders that in this case, they are going to support us 100%. This is a strong commitment. This is, you can say, an implicit guarantee, and this is extremely helpful for us on the debt market because the banks and the investors on the debt market know now there is a clear implicit guarantee, which is a fantastic backing and a strong commitment from our shareholders. On the other side, we know -- or we discussed this issue, and we are just -- theoretically, we are just going for this option if really we are in a situation where we do not have any longer access to the debt markets. So with other words, to bring it on the point, there's no intention to go for an equity increase. It's just life insurance. And so we take the best of 2 worlds. We have the strong commitment and the implicit guarantee for the debt market on one side, and our shareholders on the equity side know that there is no threat and risk of dilution. So you can say we are doing the best for both sides. And I think this is a brilliant move for everybody, for us, for the debt market as well as for the equity market. That's behind. We are not Lufthansa.
[Operator Instructions] The next question is the question from Arthur Truslove with Credit Suisse.
Arthur Truslove from Credit Suisse. Sorry about the last time. So I guess my first question was just on the -- going up on cost savings again. So obviously, you're talking about going slightly beyond 4,000 employees out of the business. And in terms of actual costs taken out versus 2019, how should we think about that at both 60 million passengers and 70 million passengers, the latter obviously being in line with what you delivered in 2019. And the second question I had was just on the ground handling. And what do you think is a sort of reasonable long-term margin ambition for that business, given all of the costs that you are taking out? And if you could just explain why or if you think you should be able to do materially better than you were able to do in 2019.
Yes. I think the cost targets are absolutely transparent. We said we want to show up to EUR 500 million per annum cost savings, always compared to 2019, even if you ramp up with the passengers. So this means if you take this 50 million, 60 million passengers, having in mind that we have them not -- then we have already realized the significant cost reductions. This means that already at a level of 50 million to 60 million passengers, we will end up with an EBITDA, which is equivalent to this what we showed in 2019, and this was EUR 1,180 million EBITDA. So this is a great advantage by our efforts on the cost side. And what was the second part of your question? Sorry. Can you repeat it?
Ground handling margin.
Yes, just on the ground handling...
Yes, first of all, ground handling. At the moment, it's terrible. Ground handling margin is a disaster. And that's the reason why we are doing all these things and hoping that there will be a strong recovery now, first of all, by increased passenger numbers on one side, but also due to the fact that there was a significant reduction of employees, especially in this segment.
Sorry, just on the ground handing margin, what I meant was more around as you look forward down the track somewhat in terms of the reasons why you think you might be able to do materially higher margins than perhaps you were able to do in 2019? So I was just wondering whether you could talk to the competitive landscape and anything else do you think will support that?
Let me say, first of all, it's clear that at the end of the day, we want to have higher margins, but the first step now is to come back into the black numbers. And as soon as possible and when we are on the positive side, then trying to gain as much margin as possible. But step by step. In the moment, we are deep in the minus numbers. And now we have to do all, to undertake all efforts to achieve, first of all, breakeven and then to bring in again a nice margin.
At this time, there are no further questions, so I hand back to Dr. Zieschang for closing comments.
It's Christoph again taking over. So if there are no further questions, I would like to thank you all for participating. As always, you can give us a call later today or in the coming days in the IR for further questions and remarks. So happy to take your call. And yes, for the time being all the best, we stay in touch and hopefully start to travel soon. Thank you.