Fraport Frankfurt Airport Services Worldwide AG
XMUN:FRA
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Welcome. Hello, also from my side to Fraport analyst call today. I have with me in the room, our CFO, Matthias Zieschang, and he is ready to start the presentation now.
Yes. Thank you, Christoph. Welcome, ladies and gentlemen, also from my side to our H1 presentation. Let me start my presentation today with an overview on the past 6 months and a very positive message.
Having discussed COVID-19 now for more than 2 years, we are steadily leaving the pandemic behind. As a result, we experienced a strong traffic and potential recovery in Frankfurt and even stronger momentum in most of our international airports.
In addition to this very positive business development, we have streamlined our international portfolio with the exit of Xi'an Airport in China. The divestment of our 24.5% stake led to financial growth over and beyond our operational performances, while the exit simultaneously reduced our group leverage.
On the other side, we fully wrote down our loan issue to Thalita Limited, the parent company of St. Petersburg Airport in the light of the war-related sanctions against Russia.
On the financing side, we took further steps to finance our expansion activities in Frankfurt and abroad. Despite adverse macroeconomic effects from a rising inflation and higher bond yields, we continue to see steady [indiscernible] to the debt capital markets at reasonable prices. Consequently, we summarized the traffic and financial performance of the past quarter is very successful.
Taking a closer look at the traffic development of Frankfurt Airport on Slide #3. As you know from our past publications, we had a challenging start to the year because of the Omicron variant.
As of March, however, we recorded a steady increase in our passenger numbers. Consequently, traffic momentum build up and we reached passenger recovery of about 80% at the end of June.
With the beginning of stronger travel disruptions in the European aviation sector, we, however, saw capacities being taken out of the market from July onwards. These cancellations in particular, focused on high-frequency domestic and short-haul routes.
Affected by these cancellations, we saw the pace of the recovery slowing down. From now on or latest as of September, we are expecting the operational disruptions to diminish and expect a more stable business operation going forward.
Despite the before-mentioned cancellations, we continue to expect a recovery rate of about 70% to 75% going forward. As a result, we upgraded our traffic guidance for the full year. While we initially expected a passenger number of about 39 million to 46 million passengers, we are now forecasting some 45 million to 50 million passengers this year.
Moreover, we expect the adverse impact from the Omicron variant to serve as an easier comparable basis for the upcoming year. This effect will help us to continue our operational recovery in the upcoming year.
The latest traffic development of our international airports is shown on Slide #4. As you are aware from our traffic reporting, we are seeing a steeper passenger recovery at our international airports in general. Here, in particular, the key European short-haul touristic market, so Greece, Turkey, but also Spain and Portugal, are more or less back on the pre-COVID record levels.
With regard to Antalya, the gap to be fully recovered can easily be explained by the adverse impact from the Ukrainian war, which led to a shortfall of Russian travelers.
Most recently, we are also recording an increasing momentum in Antalya again at a recovery rate of about 93% for July, Antalya Airport handled some 5 million passengers, a strong passenger number, which is comparable to the level we currently handle in Frankfurt.
In LATAM, also Lima and Brazil are showing a good passenger momentum. Both assets are still missing some international traffic, but we are very satisfied with the latest traffic results. For the remainder of our European portfolio, so Ljubljana and Twin Star the picture is different.
Ljubljana is still adversely impacted by missing corporate traveling activities. As you are aware, Ljubljana is a capital airport of Slovenia. So we also had some corporate travelers in 2019. Moreover, Adria Airways, the former national carrier of Slovenia, left the market in September 2019. So 2019 is a tough comparable basis for Ljubljana.
2019 is also a high basis for Varna and Burgas. In addition, the 2 airports suffer from the war in the Ukraine, the Bulgarian Black Sea Coast is one of the closest European touristic destination to the Ukraine, which makes it less attractive for families nowadays.
Moreover, in opposite to Turkey, Bulgaria has imposed a strict flight ban to and from Russia, so we are experiencing a very special situation for Varna and Burgas.
How did the traffic results impact our financial numbers in the past 6 months? I'm now on Slide #5. Thanks to the strong passenger recovery, all major airports and revenue streams showed a positive underlying development.
Consequently, total revenues moved up by some 28% or almost EUR 300 million to EUR 1.3 billion, excluding for IFRIC 12. Adjusted for the high number of special effects, which we recorded predominantly in the previous year, the increase was even stronger at roughly 75%. Compared to the first half of 2019, total revenues this year represented a recovery rate of slightly more than 80%.
On the OpEx side, you can see an increase compared to the previous year. Here, about 1/3 of the increase can be traced back to the dropout of short time work in Frankfurt.
In addition, we mainly recorded higher turnover-related concession charges in our international activities as well as higher cost for energy supply and cash-outs for temporary staff in Frankfurt.
Despite the increase in OpEx, we are still pleased to see that OpEx remained some EUR 150 million or 15% below the level of 2019. Here, it is important to stress again that we have faced high inflation in the meantime and higher wages.
On the level of EBITDA, you see a meaningful increase compared to the previous year. on a reported basis as well as on an underlying basis. Compared to 2019, we achieved roughly 80% of our pre-COVID EBITDA or 70% when adjusted for the Xi'an divestment.
Bearing the very modest start to the year in mind due to Omicron, this was a very good result, which was even better in Q2, as you will see on my next slide.
To finish up, I already mentioned that we wrote down the St. Petersburg loan completely in Q2. Here to be precise, we are not dropping any of our claims or donating any money to Russia. The loan write-down is just an accounting effect, which was triggered by the sanctions.
Consequently, we continue with all our claims in the full amount and are not willing to give away anything for free, so we still want our money back. As a result of the write-down, our group result turned negative. Despite this negative H1 performance, we continue to expect a positive group result for the full year, as we released this morning with our updated guidance.
Taking a closer look now at our most recent financial development in Q2 this year. As I already mentioned, Q2 marked the quarter which has been least impacted by COVID-19 so far. On Slide 6, we provide you with a comparison of our Q2 results this year against Q2 2019.
Without consideration of our Chinese steel divestment, Q2, total revenues recovered to almost 90% of the 2019 level. The sharp recovery was mainly driven by our international activities, as you will also see later on in my presentation.
Frankfurt still remains some EUR 100 million or about 20% below the level of Q2 2019. On the other side, Frankfurt clearly took out cost items. While international activities also exceeded the 2019 EBITDA level, Frankfurt still remains some 25% below the level of 2019.
The group, in total, therefore, recovered more than 90% of the pre-COVID EBITDA during the second quarter, a very strong result, bearing the continued lower passenger numbers in mind.
Consequently, our EBITDA margin clearly improved compared to 2019. At 38.5%, the margin was up by 1.2 percentage points, a strong development, which we expect to further improve over the third quarter. So despite the St. Petersburg loan write-down, we are very pleased with the latest financial development.
Digging now more in detail and taking a look at the financial performances of our segments, starting with Aviation on Slide #7. The Aviation segment developed very well in line with our expectations. Compared to the first quarter of 2022, we recorded some EUR 80 million higher revenues driven by the increase in passenger numbers.
On the other side, we were able to keep OpEx flat against Q1 2022 and even slightly reduced some cost items. As a consequence, we were able to safeguard all of the higher Q2 revenues into EBITDA, which grew by more than EUR 80 million compared to Q1. Consequently, the Aviation segment showed a strong Q2 EBITDA margin. At 31%, the margin of the segment kept with a high level of Q2 2019.
Looking ahead, we expect a further improvement for the third quarter. As a result, we raised the financial outlook for the Aviation segment in line with the higher passenger expectation.
Moving on to our Retail & Real Estate segment on Slide 8. Comparable to the Aviation segment, also our Retail & Real Estate segment achieved a higher Q2 revenue to earnings translation. Out of EUR 21 million higher Q2 revenues, our segment EBITDA grew by some EUR 18 million, indicating a strong incremental EBITDA margin of roughly 85%.
Looking at the individual revenue streams in detail. We continue to see strong results in our real estate and car parking subdivisions. While real estate revenues are already higher compared to the pre-COVID levels, parking revenues continued to outperform the pure passenger performance.
In contrast, retail revenues are impacted by lower advertising revenues and the absence of high spenders. As a reminder, our 5 key spending nations, so China, Vietnam, Japan, Russia and Korea represented about 30% of our retail revenues in 2019. These nations are still clearly down compared to 2019.
Moreover, the operational disruptions, which we faced during Q2 reduced [ dwell time ] and the mood of the passengers and adversely impacted our retail sales. As a result, we are seeing our retail per passenger key performance indicator, normalizing against 2019.
Turning the page to our Ground Handling segment on Slide #9. Between Q1 and Q2, Ground Handling showed a strong revenue growth of some EUR 40 million and was able to safeguard about half of the revenue growth into EBITDA.
Having said this, besides the EUR 40 million revenue growth, we recorded some EUR 20 million higher costs in Ground Handling during Q2. Here, in light of the tight labor markets, we had to accelerate our recruiting activities and also needed to hire temporary external staff.
Temporary external staff usually is more expensive than internal stuff, so we faced extra costs beyond our normal costs of operation.
Let me precise here. We are currently facing traffic figures in the daily peaks of up to 100% of 2019. For our staffing, this means that we have to have sufficient staff to handle this amount of traffic in the peaks. Having said this, we are seeing a very challenging operational situation on the one side, with high imbalances throughout the day and throughout the week.
And on the other side, we are running a very inefficient cost structure where we need to employ staff for our full operation, which we may not need during off-peak hours.
So despite a reasonable revenue to earnings translation in Q2, the EBITDA, which we are currently generating in ground handling is too low. As a result, we needed to revise our full year EBITDA guidance down to slightly negative, a situation which we have to turn around again.
On Slide #10, you will find our meanwhile common update on the Frankfurt cost situation. The very positive information first. We continue to run a clearly lower cost base in Frankfurt. Despite the high inflation in Germany and tight labor markets, we continue to save substantially compared to 2019. Those savings are linked to our restructuring measures and will support us to achieve better earnings margins long term.
An update on the staff development in Frankfurt or Germany, you can also find in the Appendix of the presentation. Here, you can see that we continue to run a 4,500 employees leaner company compared to year-end 2019. And despite the rehiring ground handling, which becomes also visible.
On the Chart #10 of the presentation, you will also see what I just mentioned, some higher costs in Q2 compared to Q1. This higher Q2 cost can be solely traced back to the EUR 20 million higher cost in the Ground Handling segment.
The other Frankfurt segments continue to operate very lean, and we were even able to reduce the residual OpEx compared to Q1. As we expect the financial imbalances in ground handling to last for the remainder of the year, we now expect to save total cost in Frankfurt of up to about EUR 250 million compared to 2019.
Despite the slight reduction in our OpEx saving target, it is not necessary to say that we continue with our high focus on cost items and cost control.
Leaving Frankfurt behind and moving on to our international activities segment on Slide #11, you already see a very positive message in the headline of the chart. Our international activities segment is not just fully recovered to 2019. International activities recorded higher Q2 revenues, higher Q2 EBITDA and a higher Q2 EBIT compared to 2019.
Before I will go into the Q2 details on my next slide, let me summarize our H1 performance. First, despite the adverse impacts of the Omicron variant first half revenues, excluding the IFRIC 12, nearly achieved the pre-COVID levels.
On the other side, H1 OpEx was positively impacted by restructuring measures. H1 segment EBITDA, therefore, was higher when compared to 2019 with or without the extra income from the divestment of our Xi'an assets.
On an underlying basis, we recorded an EBITDA increase of roughly EUR 9 million or 5% compared to 2019. At lower revenues, this represented a clear increase in the segment EBITDA margin from 39% in 2019 to 45% in this period under review.
The increase was even more impressive in Q2 from 45% to 52%. Both figures excluded the Chinese divestments, so we focused on the underlying business development. The reasons for the extraordinary Q2 development are shown on Slide #12. Here, you will find the Q2 results this year compared to Q2 2019.
Key driver for the positive earnings momentum in international activities was our investment in Fraport Greece. While Q2 passenger numbers more or less fully recovered in Greece, revenues, EBITDA and EBIT outperformed the 2019 level by EUR 24 million to EUR 33 million. Here, higher airport charges were the main reason for the earnings improvement.
Post the completion of the EUR 400 million mandatory CapEx program, the airport charges were raised by more than 40%, in line with the concession contracts. Hence, in Q2, we recorded some EUR 25 million higher revenues from airport charges. Looking ahead, the airport charges will be adjusted by 90% of the local Greek CPI as we also discussed this in our Q1 presentation.
The second driver for the earnings momentum in Greece were higher retail sales. Within the scope of the mandatory CapEx program, we also invested into state-of-the-art retail areas in Greece. Compared to 2019, we were now able to double the retail sales per passenger. So we are very pleased by the development in Greece.
For the remainder of our international portfolio, we recorded an EBITDA of roughly 78% of the 2019 level, slightly above the recovery rate in Frankfurt.
While Fraport Twin Star and Ljubljana continue to be adversely impacted by the slow traffic ramp-up, Fraport Brazil, in particular, showed strong earnings momentum. Here, the development is even better in local currencies.
In Brazilian real, the revenues already exceed the pre-COVID levels, thanks to higher aeronautical charges and better retail performances.
Despite a 19% devaluation of the Brazilian real, Fraport Brazil's euro EBITDA was therefore higher by 26%.
How did the financial development impact our group cash flow and indebtedness situation? On Slide 13, you see our cash flow development in the past 6 months. Despite the slow start of the year, our operating cash flow improved by almost EUR 400 million to EUR 185 million.
On the CapEx side, we are also progressing well in line with our expectations. And roughly, 530 million, we are almost halfway to our EUR 1.1 billion to EUR 1.2 billion CapEx expectation for the full year.
As a result, also our free cash flow performed as expected and was negative at roughly EUR 360 million or EUR 730 million and taking the initial Antalya equity contribution into account.
Within the section Other, you see among others, the positive impact from our Xi'an divestment. In contrast FX effects led to higher euro debt of our LatAm assets, so Frankfurt, Brazil and Lima.
On my next slide, you will find a closer look at our group cash flow development in the second quarter on a stand-alone basis.
As I already mentioned, the first quarter was impacted by Omicron so it's also worth to eye on Q2 exclusive. Out of the EUR 185 million operating cash flow, which we achieved in the first half, we generated almost the entire amount in the second quarter.
Our Q2 operating cash flow, therefore, reached nearly 80% of 2019. On the other side, we reduced our CapEx compared to Q2 2019 by some EUR 20 million or 7%. Here, in particular, cash outflows for Fraport Greece and Brazil were reduced, while CapEx for the expansion of Lima Airport was increased.
On the chart, you will also find our current free cash flow, excluding the expansion projects in Frankfurt and Lima. Without consideration of the 2 expansion programs, our free cash flow would have been positive in Q2 at roughly EUR 122 million. The development is even more impressive, bearing in mind that is still running at 30% lower passenger number, and also some of the international airports haven't fully recovered yet.
So besides the strong passenger recovery, we have recorded a strong recovery in our Q2 cash flow. As we continue to invest into the expansion in Frankfurt and in Lima, we also continue with our financing activities.
On Slide 15, you will find the development of our available funds over the past 2.5 years. While our H1 cash position was negatively impacted by the free cash flow and initial Antalya equity contribution, our finance team managed to keep liquidity high at a level of more than EUR 4.2 billion.
Moreover, you see on the chart that we added some EUR 400 million of post funds, the balance sheet date. These funds will also serve the upcoming repayments and support our group cash position.
Despite the current rise in bond yields and increased macro uncertainty, we continue to see steady access to the debt capital markets at reasonable rates.
Based on our current business and the financial projections, we now expect that our today's available funds are sufficient to bridge us well into the fiscal year 2025 without considering any additional finance.
Here, we continue to work on the new Lima project finance which will cover the upcoming CapEx for the new terminal. Summing our liquidity situation, we are very comfortable with our financial and leverage situation at the end of the first half.
On Slide 16, you will also find our current repayment charge and average interest rate. As I already mentioned, based on the upcoming repayments and current business projections, we see ourselves well funded until fiscal year 2025. Moreover, despite some new finance, we have not recorded any major changes in our average group interest rate, so far.
Leaving the current business development behind and moving on to our outlook section on Slide #17. Thanks to the strong passenger demand, we are also becoming more optimistic on our Frankfurt passenger outlook.
While we expect it up to 46 million passengers before the upper end of the new guidance, it's now set at some 50 million passengers or 4 million passengers higher.
Consequently, we are raising the financial outlook for the Aviation segment and also expect more retail revenues. On the other side, we lowered our expectations for the Ground Handling segment.
In international activities, also Fraport Greece is running better than expected. Simultaneously, we recorded some EUR 45 million higher EBITDA from divestment of Xi'an. Adding all those effects together will lead to an increased EBITDA expectations of some EUR 90 million.
Bottom line, we are reflecting the EUR 160 million write-down of St. Petersburg loan. In contrast, the Xi'an divestment will lead to a EUR 74 million EBITDA positive one-off. As a result, we are now expecting a group result in the range of EUR 0 million to EUR 100 million.
Adjusting for the 2 major one-off effects, which have meant that the previous net result guidance of EUR 50 million to EUR 150 million would have still been a valid range for the full year.
For our group indebtedness, the positive cash flow, cash inflow from Xi'an will also lower our net debt expectations by some EUR 100 million. Here again, we are seeing some balancing effects from the euro devaluation against the Brazilian real and the U.S. dollar.
Having said this, ladies and gentlemen, I'd like to conclude my presentation, and I'm looking forward to receiving your questions now.
[Operator Instructions] And our first question is from the line of Ruxandra Haradau-Doser from Kepler Cheuvreux.
We can't hear you.
The line is cut.
Next question.
Then we perhaps take the next question.
And the next question is from the line of Christian Nedelcu from UBS.
Maybe the first one on retail spend per passenger in Frankfurt, could you give us a bit more color? Are the German and European tourist spending these days the same as they did in '19 or more or less?
And in particular, for the overall number, how do you expect the retail sales per pack developing into 2023, '24 as mix is getting closer to what it used to be?
Secondly, international EBITDA, as you pointed out already in the second quarter, your EBITDA was higher than in '19, how do you think that the incremental growth in EBITDA in international in 2023? We also having there some headwinds in Greece from the variable concession payment. So if you can give us a bit more color what type of growth we could expect there next year?
And the last one, if I may, Ground Handling, what are the benefits of owning Ground Handling in-house versus potentially separating the business or having a minority ownership in that business. So does it make sense to consider different possibilities with that asset going forward?
So thank you for your questions. #1, retail spend Capex was clearly for us disappointing, and we expected a higher number. So it's a real base question, what is behind. So it's difficult to give you an exact answer.
So it's a combination of the -- what we interpret as a reason -- the mood of the passengers. So when you have to wait for hours, so you are not in the mood to spend a lot of money. So this is one argument. Second, we -- absence of business travelers, a lot of domestic tourists, which have relatively low willingness to spend money for goods just for F&B.
A third explanation could be a very relatively low number of media revenues or advertisement. And this is in the moment explanation. So it's not satisfying, but we have, today, we have already the July numbers in retail.
And when you look on the passenger numbers in July, it's exactly the same level as in June. And we could see EUR 2 million higher revenues in retail. So it seems to be that perhaps outbound traffic in June, the tourists, now it's more normalized in income and as well as incoming and outbound traffic.
So we have the hope that it will be a little bit better now in the coming months and quarters. But at the end of the day, today, we cannot give a precise answer why the numbers, especially in Q2. And in Q2, then especially in June was so negative or so bad. We hope that with these arguments and explanations, we can cover more or less the substance of your question.
The second question, EBITDA expectation for next year in international activities. So first of all, very positive. Why? Because we -- except in Bulgaria and in Ljubljana, we expect everywhere a full, this means a minimum 100% recovery of passenger numbers.
And so the traffic is back, while in Bulgaria and in Ljubljana, these are not the big airports. So this is not the big negative impact on the downside.
So we are fully back on track regarding passenger numbers. We have a clear focus on the cost situation. We have more or less everywhere significantly higher fees driven by inflation rates or by the mechanism of the concession agreements.
And this combination of cost discipline on one side, then higher passenger numbers on the volume side in combination with everywhere, higher fees will lead to a very positive EBITDA number in next year.
So that's, so to say, that today's guidance for 2023 regarding the international segment is clearly higher than this what we see for 2022, and 2022 will be already a very good year, a very good number.
And that's also the reason why we have adjusted our EBITDA guidance for 2022. So what we say now is that we expect up to -- yes, I mean I go through the numbers. It's up to -- including the Xi'an effect, it's up to EUR 500 million EBITDA in a very positive way up to EUR 500 million EBITDA contribution coming from the international segment, including Xi'an.
And as of today, I would expect next year an improved EBITDA number, also having in mind that Xi'an will not happen again in next year. So very, very positive.
Third question, what are the benefits to have in-house ground handling? Clear answer, there are no benefits as of today. So quality is down, profitability is negative. So we are not satisfied with both of it. And -- but before we come to any strategic conclusions, we have to fix the business.
So first of all, absolutely highest priority is to bring back the quality on the level which we had before. The good information is that when we look now on our key performance indicators, so we can really say day by day or week by week, it's now improving.
And it's also confirmed from Lufthansa, there was a press release, I think, 1, 2 days ago as they also confirmed that the quality situation is improving because everybody tries to bring in additional resources, so we have also now learn effects regarding the process operational processes, et cetera. And so quality is going up.
And as of today, in combination with the additional resources, which are brought in from us as well as from the airlines, I think latest in September, the whole quality issue is fixed again.
On the financial side, we have a lot of extraordinary cost items already in the first half. This will continue in the second half because we are pumping in heavy, a lot of external temporary staff, which is very expensive.
We are paying extra bonuses for extra shifts to bridge the difficult situation at the moment. This is fading out then latest in Q4. So that we have then the expectation that end of Q3, the quality problems are solved.
And then in Q4, we also can restart again focusing on productivity, which in the moment is out of order, but this has to do that -- what I mentioned in the beginning of my presentation, we have a totally imbalanced traffic recovery. We have in some peak hours during the day. We have sometimes more than 100% of the 2019 passenger numbers.
And today, we have about 80% of the former staff compared to an average 70%, 75% passenger numbers. So we have more staff in relation to the passenger volumes. This is the reason for the very low productivity.
Nevertheless, in peak hours, we have too less staff. But now looking forward, when additional traffic is coming into the market that it goes into the valley. So this imbalance is step-by-step improving. And this has a collateral effect that the productivity numbers are also going up.
So to make the long story short in Q4, quality will be back on track. Productivity will improve again. And then we have to see how to manage the business in '23. And as of today, I am in so far convinced that in the next year, all the quality issues are solved.
And we then also have, again, a strong focus on productivity numbers. The traffic then will be automatically in a better balance so that we have a combination of higher quality as well as higher productivity, which then will lead to positive EBITDA numbers again in '23, but 2022 will be a tough year for the Ground Handling segment. So these are the answers for your 3 questions.
Next question is from the line of Stephanie D'Ath from RBC.
My first question is could you please update us on your relationship with Lufthansa now that the operational issues are easing and your strategy going forward, like which airline group are you expecting to drive traffic growth and where do local carriers stand in that strategy?
And I guess the broader question is, if you continue to increase them, which is good for your cost of -- earning your cost of capital. Just I guess, make you less competitive to re-attract the low-cost carriers? That's a very wide question, sorry.
And my second question is on Antalya at 93% of 2019 passenger levels is very encouraging. Could you maybe give us a little bit more granularity on what -- which kind of passenger group were back to pre-pandemic levels, for that question versus European passengers, I guess?
And my third question is on the dividend. When do you expect to be able to start paying dividends again? And if I may, just add a fourth one on -- a follow-up on your retail comments from earlier. Could you let us know which categories are doing better? I don't know if food and beverage or convenience because some other airports have been [ quoting us ] the longer wait times, actually a positive for these times.
Your first question, relationship with Lufthansa, clear answer is in the moment it's excellent. So we are happy to have Lufthansa as the main carrier.
I think Lufthansa is also happy to be here at Frankfurt Airport because when you look on the H1 numbers, you see that they made a brilliant results in cargo, and cargo was based here in Frankfurt. So Frankfurt is a place where Lufthansa is making their money. And when our customer is happy, we are also happy, so it's an excellent relationship.
So regarding future traffic development. So again, we have Lufthansa. We are happy to have such a strong flagship carrier here in our airport. And we assume that this will continue. So Lufthansa is the biggest one, will be the biggest one.
And whether low cost will come back to Frankfurt or not, this is not our decision. So when low-cost carriers decide to come to Frankfurt, they are coming. And if not, they are not coming. So this is a question which we cannot answer because it was up to the decision of low-cost carriers.
And regarding Antalya, yes, this was also a surprise for us. It's a very strong recovery. When we started the year, we had a plan of about 30 million passengers for 2022, there of 11 million coming from Russia as well as from Ukraine. Then we had the war. We have the war. So in a worst case scenario, we would end up with 20 million, but this is not the case.
So we have a very strong ramp-up. And we have over proportionately incoming traffic from middle European countries. If I look on my numbers here, also versus the 2020 numbers compared to 2019.
So for example, we have -- from U.K., it's 50% more compared to 2019; from Poland, 50% more; from Kazakhstan, 44% more; the Dutch, showing 16% more; the Israelis, 26% the Dan 60%; Switzerland, plus 50%. So these are numbers, 2022 versus 2019, where are the Germans here, Germany is plus 7%.
And on the other side, of course, we have the significant reduction of Russians, but it's just minus 46%. So in the beginning, there was a negative scenario that perhaps 80% of the Russians wouldn't come back.
But now we have minus 46 million. And what -- we hear that there are discussions between the government in Turkey as well as in Russia to pay in ruble. So the Russians -- the Turks are paying in ruble. And therefore, when the tourists are coming, also paying with ruble, so it can be that this minus 46% can even improve in the next 2 months. We have to see.
But with 93% recovery in July, this is a non-expected very positive number, and we have to see how this will continue. But now we are very positive that end of 2022, the number will be close to this, what we have planned. And again, we will see less Russians, but more or less a full compensation by more traffic coming from other European destinations.
And last question, when we are going to pay dividends. We have a net debt-to-EBITDA number, which is 8.6x and we have to go back to 5x. When we are at this level or close to this level, then there is headroom for paying dividends.
So I can definitely say that in next year, we are no -- we are paying no dividends. Whether in '24, there is headroom or not, we have to see depending from the financial results and files, which we show in '23, whether there is headroom in '24.
And maybe just a follow-up on retail, which categories are maybe outperforming...
In retail, we had a strong, in the first month, so except June so because in June was a very bad, so to say, a month. Before there was a strong focus on F&B as well as on luxury goods, especially watches.
But now in June, it was a stop on the luxury side because it has to do with the thousands of Germans flying outbound to the holiday destinations, but this is a very early interpretation. And again, we are in so far hopeful that June was very negative.
I told you that in July, there is a -- we see already recovery of the retail numbers. And we hope that also this focus on luxury goods like watches, et cetera, then will continue again in the future months.
So F&B is still running good. We had also this negative momentum now in media. And perhaps this is also, so to say, Germans, so summer low or summer dip and this perhaps when Q3 will perhaps also be better again. We have to see.
The next question is from the line of Elodie Rall from JPMorgan.
I'll have 3 of them, please. First of all, on cost savings, you had originally guided for EUR 350 million to EUR 400 million of sustainable cost savings, and then you reduce this to around EUR 300 million at the beginning of the year.
You have reported EUR 125 million of reduction in OpEx versus H1 '19. So on a full year basis, that's around maybe EUR 250 million. I mean, can you give us an update on where you think you'll land this year versus 2019 versus the EUR 300 million revised in -- at the beginning of the year?
Second, on top of that, where do you see staff costs going given the need to rehire? And how much will this weigh on cost saving going forward? And lastly, could you give us an update on tariffs, if there is any. You were still quite confident to achieve some higher increase in '23. So wondering if you have an update?
First question, cost savings, you exactly told the story regarding in Q1, we set the target for 2022 versus minus EUR 300 million. Now we adjusted this target down to EUR 250 million. We showed exactly EUR 125 million in the first half, and we expect the same in the second half.
What is the reason for this reduction is relatively simple is this quality problem in Ground Handling, where we now pump in a lot of resources, which are extremely expensive.
We have -- in the moment, we have about 700 employees from service providers, which are in the operation to stabilize the operation, and these are temporarily paid extremely expensive. Also, we are bridging the situation with extra shifts with our internal guys. And therefore, we have to pay a lot of money for these extra shifts to create motivation to come and show additional work.
And so this combination of bonuses, 700 additional temporary staff from service providers, plus a regular wage increase now, which is higher than expected, this created this additional cost of nearly EUR 40 million in the first half and also some additional extra costs in the second half.
And that's the reason for this adjustment from Q1 to Q2. So to make the long story short for the full year, the new target, so to say, always compared to 2019 is now at minus EUR 250 million.
Staff costs, you see also we have inflation in the market. So to make the long story also short, the average wage increases will be higher than in the past. In the past, we also -- we always calculated 2.5% per annum weighted average increase. Now we calculate for '23 with minimum 5% weighted wage increase for the whole staff here at the site of Frankfurt.
The tariffs, I assume you mentioned the tariffs here for Frankfurt Airport. We increased tariffs. As of 1st of January next year was 4.9%. So these are the answers.
Our next question is from the line of José Arroyas from Santander.
I have 3 questions as well. The first one is on Ground Handling. I've read recently that Frankfurt is offering a pay rise of about 14% and some sign-up bonuses of around EUR 1,400.
And I wonder when these new labor conditions started to be applied and to whom they were directed? Is it to all employees or just to the new hires in this unit?
And also following on from Elodie's question a minute ago, could you help us bridge the cost savings target, which is now EUR 250 million for Frankfurt to 2023, reconciling the 5% increase in labor costs that you talked about?
And my last question is on Lima Airport. On Page 18 of the earnings release, you provide an update on the new agreement with the government of Peru and you talk about a 3-digit down payment. I wanted to understand when this down payment will be? And also, what is the magnitude of the total investment that you expect for the new terminal?
First question, 14% wage increase. First of all, to explain again, the staff structure in Ground Handling. In Ground Handling, as of today, you can see in the appendix of our presentation, the numbers, it's on Slide 25. And you can see that as of 30th of June, we have about 7,400 employees in Ground Handling.
And you can see that nearly 50% of these personnel is on -- at Fraport AG. So the parent company, they have, so to say, the old tariff agreements which are an average 30% to 40% higher compared to all the other employees, which are in 100% subsidiary called FraGround.
And we have this model that since years, all the new employees are now employed at FraGround. So over time or looking forward in 10 years, we have perhaps 5,000, 6,000 employees in FraGround and perhaps 1,500 still in AG.
So -- and again, these guys in the FraGround, they have these, so to say, new tariff agreements since 5 years and longer, which is 30% to 40% lower. And this 14% increase is valid to these guys to close the gap between the highly paid guys and the low-paid guys, so to say.
So it's not for 100% of all the employees in Ground Handling. The payments, of course, the bonus payments for extra shifts, they are valid for each and everybody in the whole Ground Handling segment.
Second, question. So again, the cost saving targets compared to the 2019 numbers for this year, EUR 250 million. And behind these cost-saving targets we have -- as of today now, we have 4,500 people less, and this will, in so far, change a little bit that we are now ramping up.
In Ground Handling, you can say the net increase is about 50 employees per month. If you now make a simple mickey mouse calculation. So end of this year, we have, on a net basis, perhaps 300, maximum 400 employees more in Ground Handling. So from the 4,500, you have to deduct 400.
But on the other side, we still see reductions, further reductions in the admin departments so that the net effect is lower than 400. Perhaps we will end up 4,200. I don't know exactly.
But the good information is all along. We continue with about 4,000 less employees always compared to 2019. So on the volume side, we continue with this lower base also all along because it's more or less -- or most of it is realized in admin and semi admin functions.
So nevertheless, of course, we have -- on the volume side, we are constant. But of course, each and every wage increase is running against us.
So that as of today, but this is absolutely preliminary, I would say that in 2023, the cost advantage, then again, based on 4,000 less employees, perhaps it's about EUR 200 million, but it's too early because we have to see what will be final wage increases for next year, what will happen with the prices on the material expense side.
So inflation numbers, et cetera. These are the unknown variables, which at the end of the day, are relevant for the final cost-saving target then for 2023. But again, the good thing is we also run the year 2023 with 4,000 employees less.
And last question was regarding, yes, what is the situation in Lima? So we -- also, we have a bunch of good information. The runway is ready in time, in budget, so less than EUR 500 million. We said -- some years ago, we always said we are going to spend EUR 500 million. So now it's less than EUR 500 million. The runway is ready, will be inaugurated now they make some tests, et cetera, lighting and so on.
Also the air traffic control tower is ready. And we started to construct the new midfield terminal. And here, there was a dispute, so to say, with the government. Why?
Because, we, since years, we showed a so-called 2-terminal system. This means that in 2025, our plan was to start with the midfield terminal but also to use the old terminal. So to have a dual terminal solution, a split operation. And here, we didn't get the final approval from the government due to a change in the government, et cetera, a very difficult and bizarre situation to make the long story short.
Now we decided to go back to the old plan. So this means in 2025, we are, as when we are opening the new terminal. We closed the old one. And therefore, to realize also the traffic when the new terminal is opened, we immediately started constructing a second expansion phase, which was already planned. But in our old 2-terminal plan, we plan to start with the expansion just in 2030.
Now we are starting 5, 6 years earlier. So we are pulling forward CapEx so, which is now a higher CapEx amount, but therefore, later a reduced CapEx amount. A further advantage, so to say, is that maintenance CapEx, which we had to invest in the old terminal. Now is not any longer valid because the old terminal will be closed.
So that's the nominal CapEx in the long run is lower than before because it's less maintenance CapEx. And also, when you invest in 10 years construction costs due to inflation rates is higher than when you invest now, but it's temporarily an earlier CapEx.
So coming now to the numbers. for the -- we're still digging and constructing the new terminal. Up from 2023 onwards, we are spending about EUR 700 million in the new Midfield terminal. Now we have to calculate what will be the additional cost for pulling forward the second expansion phase. This will be an amount of EUR 100 million, EUR 150 million. But here we are in the first preliminary planning phase. So far the situation in Lima.
Next question is from the line of Sathish Sivakumar from Citi.
I've got two questions here. How should we think about retail per pax as this is the traffic mix is more premium segment, because if you listen to Lufthansa, they are talking about increasing their premium speed exposure into next year, i.e., convert some of the economy cabin seats.
Obviously, that will reduce the number of passengers, but what should we see in terms of mix impact on the retail spend?
And the second one is actually on the staff ramp-up, what flexibility do you have if they start to see some consumer slowdown on airlines cut capacity into the winter?
Answer for the first question is, again, it's difficult because it depends -- as you mentioned, it depends from the structure of passengers in the future. So as of today, everybody expects more tourists and so more leisure traffic, but less business traffic, but we have to see whether this will come true or not.
And we also know that these guys, which, let me say, are using, let's say, using the leisure segment, they have -- compared to the whole population, they have a higher average income.
So there's a spending potential, and we have to see whether to the spending potential, there's also spending willingness. And this has also to do now with the inflation or the outcome of the inflation in 2023. Today, saying what will be the spend per pax in '23 or '24, I think it's absolutely too early this.
Also what we have to see is whether the -- our highest spenders in my presentation, I mentioned the absence of the Chinese, Koreans, Vietnamese, Japanese guys, will they come back in next year? Yes or no.
If no, let me say that the current situation more or less will continue. If there will be a come back, and I mentioned the number, these 4 nations, they are responsible or in the past, they have been responsible for 30% of the total revenue.
Today, we have more or less a total absence of these customer groups. If and when they will come back, this is a push or will be a push for our business, but nobody can answer or give a clear information when this will happen.
So a lot of question marks. But I think the more of the question marks are showing an upside potential. So if again, the Chinese and the Vietnamese they are coming back, we have an upside. If not, we continue on this low level. So all these things showing upside potential, but no downside. This is so to say, the good story of this unclear situation in the moment. I hope I covered all your questions.
The next question is from the line of Christian Cohrs from Warburg Research.
First, maybe coming back to the savings potential you said potent wage hikes and salary increases are running against your savings. So far, understood. Now coming to the question about are you able to pass on these price increases to your customers, to the airlines with the time and will it be quite quick? Or will there be a time delay and therefore, temporarily squeeze on margins or margin potential?
Question #2 relates to Ground Handling. In your answer for previous question you said before taking any strategic considerations you have to fix the business? Does a strategic consideration actually mean that you would be willing to sell the business because in the past, I understood, I think also your statements that having Ground Heading as a prerequisite for smooth operations and also for the hub quality of Frankfurt.
Thirdly, thinking about your financial leverage, the sale of Xi'an Airport? Are you happy with your current airport portfolio and the assets you actually have? Or is there any non-core or anything you're less excited about which you would be willing to sell in order to improve the financial level?
And then lastly, could you maybe provide us with passenger split, leisure versus business in Frankfurt, the prospective split for 2022? And do you have -- because I think it now turns more to the leisure side, what are your thoughts? Or do you have any concerns about the downturn in consumer sentiment with regards to the travel recovery going forward?
Yes. Thank you for your questions. First, inflation impact on our business. Yes, first of all, of course, we are impacted by the inflation. If you look on the Frankfurt side, 70% of our cost base is personnel cost. So inflation, there is a direct impact from inflation on the wages and vice versa. And so we will see additional cost burden from inflation/higher wages. So this is the negative information.
On the positive side, we have the market power to pass through these higher cost levels on the revenue side via higher charges, and we are willing to do so. And we already have this reflected to the market.
And so our customers know that it's a fair deal because in the moment, everybody is doing this, that this what we are suffering on the cost side, we have to transfer on the revenue side. So to make the long story short, we pass through all the inflation impacts on the cost side via higher charges.
And when you look on the regulatory mechanisms, this means concession agreements as well as normal regulatory systems, it is possible. We have simple mechanism like in Greece, where we are taking the CPI from Greece times 0.9. This is a very simple mechanism, and this reflects then the fee increase for the coming year.
And just to give an example. And as of today, I think the inflation rate increase is about 8% to 9%. If this will continue for the rest of the year, then time 0.9, we will start the next year with an 8% fee increase. And it's more or less the same what we are doing at all our airports, of course, including Frankfurt.
And for next year, it's already fixed with [ 4.9% ]. But of course, we always look on the level and the impact from the inflation, and we have to see what we are doing in 2024. Yes, of course, there is always an annual delay, but we can live with this delay because in the following year, then we pass it through.
In Ground Handling, you told us a story we have to fix the business. We have to bring back the quality on our old good levels. And in the moment, there's absolutely no intention to sell the business. We needed to have a proper operation here at Frankfurt Airport. Again, no intention to sell the business.
Financial leverage, portfolio balance or portfolio diversification. We sold Xi'an. I think price was okay. And it's -- it has been a minority asset, and we clearly said that also regarding our 10% stake at Delhi Airport, we have clear intention to sell it into the market. And we have to see whether in the next 12 months, we are able to realize this transaction, but this is clearly on our list.
Regarding the rest of the portfolio, we feel absolutely happy. You see the strong contribution from the international business regarding EBITDA and also net income numbers.
So we feel well positioned, especially due to the fact that when you look at our international assets, it's a clear leisure portfolio with a higher leisure exposure. And this is exactly these assets, which, in the moment, runs very good, strong recovery numbers. Greece is #1. That's for sure.
But also regarding the other assets, we see good momentum. So we feel happy and also our shareholders can feel happy in the next couple of years when this contribution goes up year by year.
And regarding the split, this is a question on issue for Frankfurt Airport because outside Frankfurt business doesn't play any role. So in 2019, it was relatively similar -- not in 2019, you can say in the last 40 years, we always had -- above 1/3 of our passengers had been businessman, 2/3 have been leisure guys. And this has changed by COVID-19.
And also looking forward, we believe that this now is a structural, sustainable change, which we have to accept now that there's a strong recovery on the leisure side and a modest recovery on the business side, and we don't expect a full recovery on the business side.
This means looking forward that perhaps as of today, the long-term balance split will be 20% businessmen and 80% leisure traffic compared to 1/3, 2/3 in the past.
And any thoughts -- given the stronger leisure focus, any thoughts about the downturn in consumer sentiment? Do you see the risk that, yes, the good summer 2022 could be -- and the recovery could be rather short lived?
This is a general question what will be the -- are we facing a recession next year? Yes or no? How deep will be the recession? What will happen on the consumer side? The sentiment is still down. When you see on the numbers, everything is going down.
But please have also in mind that people, you can see there's a significant reduction in consumer goods, but not on the luxury side and also not on holiday trips. So in the moment, this is people use the money to have fun. There's also pent-up demand from COVID-19.
The question is, will this also happen again in 2023? I think on the leisure side, it will continue. So I'm -- normally, I'm not the optimist, but regarding 2023 on the leisure side. I'm very optimistic that we also will see a strong summer or even a stronger summer in 2023, and perhaps it's also a psychological reaction.
So when everybody is going in the wrong direction, everything is going low. So you have to go higher on the holiday side, so to say, so to compensate your frustration in other things. And I think the leisure traffic will continue in -- on a strong basis in 2023.
The next question is from the line of Nicolas Mora from Morgan Stanley.
Just a couple of follow-ups. On your indication of International Airports EBITDA into next year, the EUR 500 million plus. I'm not sure you answered Christian's question, whether or not included the EUR 60 million from Greece. I suspect it doesn't include the restart of the concession fee. That's #1.
And #2, I understand you front-loaded the wage increase for aviation staff to August this year. Could you explain us why we should be confident the same stuff is not going to ask for a massive wage increase come January next year? That would be it.
Yes. First of all, what you said, we pulled forward the mechanism, which normally would had happened in next year because we had this restructuring contract with the unions and which faded out and expired in next year.
So we used this mechanism to pull forward also to bring in more motivation for the people to go for extra shifts, et cetera, and look at the whole trend, including also improving our potential to recruit faster additional personnel. And this means so we have this what we pulled forward ,this would have been the normal burden next year. It's not coming on top.
And also what I said, we -- now we have an extraordinary burden for extra shifts. We assume that regarding a higher number of employees, which we have in Ground Handling up from January next year, in combination with a much more balanced traffic during the day.
So we -- the reason for the extra costs are not any longer given because if everything is balanced, and the ground staff is much higher, there's no need to go for extra shifts. And then also, we could reduce again these 700 guys, which we are now using from third parties, from service providers.
And so with other words, it's not automatically that we continue on this high cost basis and on top comes other things in next year. So we -- and regarding the wages, we have a special tariff agreement for FraGround, for this subsidiary, for all other staff, which we deploy or employ in the Fraport AG.
We have a tariff agreement so-called [indiscernible]. This is a tariff agreement for all civil servants in Germany as the negotiation is done between the Minister of Inner Affairs on one side on behalf of, I think, 3 million civil servants in Germany.
So we have to accept this what he is going to negotiate. And the good thing is that the government budgets are in deficit. So the headroom for too big rate increases is not given. So it will be higher than in the past. That's for sure, but we do not expect extremely high wage increases.
So, and that's the reason I said for next year, we calculate this 5%. This is more than 2% more, than in the past. But that's it, not double-digit numbers, which perhaps in other sectors in the industry might happen.
But even if this would happen, what we do not expect, then again, we would use in a pass-through mechanism on the fee side to cover these extra costs on higher revenues by higher fees.
So [indiscernible] the surprise us, we are thinking, for example, Lufthansa's checking staff getting 15% to 18% tariff price. There's no risk of a whatever, 8%, 10% wage increase come January?
No. The difference is that Lufthansa, they have different groups of employees. And for each and every group, they have a so-called home tariff agreement. We just have one house tariff agreement on the FraGround side.
The rest, we are under the coverage of this tariff agreement of the civil servant, so which, for us, it's, you can say, a kind of protection because there's no special black mailing power against just one airport. If they are going for strike, they have to go for a strike with 3 millions, these civil servants.
Yes. And on the Greece part because it's -- we're talking EUR 60 million potential plus or minus. So just in terms of the timing of that restart, is that included to your $500 million kind of indication for next year?
Let me say, we have, in so far, we are in discussion with the Greek government for additional COVID compensations. This is still under discussion. Today, I can't tell you what will be the outcome because this than has or will have an influence for 2023. But this preliminary guidance, this is not included.
[Operator Instructions]
So we have one more question from Ruxandra Haradau-Doser from Kepler Cheuvreux.
Yes. I apologize for the technical problems earlier. I was out of the call. So, please apologize if I ask a question that has already been answered. First, on Greece, congratulations on the performance here. Traffic was up relative to 2019 by 11% in July, and it is largely flat year-to-date.
Considering the July traffic performance, the capacities announced for Q3 by airlines, the full year traffic guidance looks very conservative. You would need a traffic decline of more than 20% between August and December to be on a full year basis at only 90% recovery relative to 2019.
So why is this guidance? And how is group EBITDA impacted by 10% change in passenger traffic increase? And you mentioned that retail performance in Greece has positively developed, could you please provide some details on the retail revenues per passenger in summer increase?
Then on Frankfurt Airport, have you proposed an incentive scheme for next year? And if yes, could you please give some details. On Slide 7, you mentioned that based on the incentive scheme this year, the upper end of the new passenger guidance will imply EUR 30 million recovery incentives to airlines.
And if I understand correctly, half of these have already impacted H1 performance. Does this mean that your base case in Frankfurt is that you will be at the upper end of the traffic guidance this year?
And then I have a technical question on Pier G. The building is finalized. CapEx finalized, but the Pier will be commissioned only in 2026. Does this mean that Capex for Pier G will be included at 100% in the RAB until commissioning and decreased to 50% on the afterwards.
Yes, Mrs. Haradau-Doser. Thank you for your questions. We expected the question in the first run, but you told us, you had some technical problems. So Greece. Frankly spoken, we have been absolutely surprised by the July numbers. So nobody expected to have much more traffic than in 2019. So this was absolutely a positive surprise for us.
And with other words, based on this surprise, yes, our outlook is conservative. I fully can confirm it. So whether in Q4, there will be 20% less or not, I don't know. As of today, I would say, perhaps the trend is my friend and positive trend will continue, but I cannot guarantee this.
So it's more important your 1b question, what is the impact of 10% additional passenger numbers. So we have -- it's relatively simple, we -- the departing passenger, we are charging at the moment EUR 18.50 plus.
What do we have retail is EUR 1 -- just a minute to give you again the exact number. It's EUR 1.20 per passenger. So EUR 18.50 divided by 2, EUR 9. So we have about EUR 10 EBITDA contribution per passenger. So 10% more, it's nearly EUR 3 million. EUR 3 million times 10, we are talking about EUR 30 million.
Minus variable component.
Yes, of course, minus the variable component of 28%. So in EUR 10 per passenger minus a variable component, which is EUR 3, roughly so the net impact is EUR 7. So then it's a simple calculation.
And again, retail in Greece. The exact number was EUR 1.18. So it's doubling compared to last year. And this has to do with fancy restaurants and F&B is running very well. And it's the first year now where we experienced fully furbished and fully expanded 14 airports in Greece. It's just the first step. We test in combination with our tenants, the concepts and so on.
And again, to double is good. And we think there's further upside now in the next couple of years. We'll not double the next year again. This is for sure. But let me say, double-digit percentage increases on the retail side, we think are absolutely realistic.
So then we had the incentive scheme. We are going back to Frankfurt incentive scheme for this year. We -- the incentive scheme works up from 44.5 million passengers. So why?
Because we expected this as a maximum before, we said if there's a positive price, we are willing to share this with the airline. So the threshold for this year is 44.5 million. And whenever the number of passengers will be higher, then we are sharing 50% of the additional revenue with the airlines. And now it's relatively simple.
We have, for the full year -- we expect a revenue sharing of EUR 30 million. So the total proceeds of EUR 60 million. And we have calculated EUR 5 million more. So about 49, 49.5 million passengers, 5 million above the threshold, times EUR 12. It's 60 million divided by 2, EUR 30 million, we have to kick back to the airlines.
And from the EUR 30 million we have already put into the provision EUR 15 million for the first half. Another EUR 15 million will be provided in the second half. And then we have to see whether this is too optimistic or not. If it's just too optimistic then, of course, there will be a release of the provisions.
For next year, 23 in combination with a fee increase of 4.9%, we have also, again, a new incentive scheme just for '23. And here, the threshold is 59 million. So if we would end up with more than 59 million passengers. Then the same story. For example, it would be [ EUR 62 million ]. Then we have [ EUR 3 million ] more times whatever it is divided by 2, and this would be kicked back to the airlines.
And your fourth question, Pier G. Yes, the CapEx is already included in the rep. It stays with 100% in the rep until the day we are going to open Pier G. And as of today, this is in combination with the whole terminal summer season, summer schedule in 2026. And then, of course, there's a 50% reduction.
There are no further questions at this time, and I hand back to Christoph Nanke for closing comments.
So thank you, everybody, for taking interest in our call today. Thanks, everybody, for the good questions and discussions. We will stay available in IRR. I wish you good rest of the day, and don't forget to fly. Thank you.