Rasmus Christiansen Copenhagen

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CPH’s Approach to Maximising Airport Concession Opportunities AAAE Airport Issues Conference | Budapest | November 2005 Bo Haugaard | Copenhagen Airports International A/S

Contents: 

Contents Copenhagen Airports A/S (“CPH”) in brief Maximising airport concession opportunities Case Study: Commercial turnaround in Newcastle Learnings to take to Central Europe & Russia

Copenhagen Airports A/S in brief: 

Copenhagen Airports A/S in brief

Copenhagen Airports A/S: 

Copenhagen Airports A/S Copenhagen Airports A/S ("CPH") is the owner and operator of Copenhagen Airport and Roskilde Airport, a General Aviation airport, in Denmark. CPH was established as a public limited company in 1990 by the Danish Government and was listed at the Danish Stock Exchange in 1994. Through 3 equity offerings (the IPO in 1994 and follow-on offerings in 1996 and 2000), the Danish Government has reduced its stake to 39.2%. In 2004, CPH handled 19.0 mio passengers, 259,002 air transport movements, and 336,000 tonnes of air cargo. Copenhagen Airports International A/S is a 100% owned subsidiary of Copenhagen Airports A/S. CPH International handles the Group’s international investments, which isolated in 2004 counted for 26.2 mio passengers.

CPH – "World's Best Airport": 

CPH – "World's Best Airport" Rated ”The World’s Best Airport” by IATA Global Airport Monitor in 2000 and 2002 (15 mio – 25 mio passenger category) based on surveys of 80,000 travellers worldwide CPH received top scores in these specific areas: Best shopping centre Best restaurants Best customs and customer service Best in-flight information signs Best infrastructure to / from the airport Best airport atmosphere Furthermore, awards have been received within a range of areas: World’s best food and beverage Architectural and construction awards Route Development- and Airline Business marketing awards “European Best Airport” 2003, 2004, 2005 by German magazine, Business Traveller

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CPH owns directly and indirectly 7.98% of the shares in the Mexican Southeast Airport Group, a 100% privatised airport company listed on the New York Stock Exchange and the Mexican Stock Exchange. ASUR has the right to operate and develop the nine Mexican airports for a 50-years concession period. The airport group served 13.9 mio passengers in 2004. CPH is strategic partner for ASUR based on a 15-year Management and Technical Services Agreement. In 2002 CPH bought 20% of the shares in Hainan Meilan Airport, the 7th largest airport in China, serving 7.5 mio passengers in 2004. Hainan is a tropical tourist destination. CPH has a 10-year Technical Services Agreement with HMA. In 2001 CPH bought 49% of Newcastle International Airport. Newcastle is today the tenth largest airport in the UK, serving 4.7 mio passengers in 2004. CPH holds a 15-year Technical Services Agreement with NIAL. CPH – Platform for future international expansion NEWS: CPH is preferred concessionaire and operator of Varna and Bourgas Black Sea airports in Bulgaria. Current aggregated passenger flow is 2.8 mio annually foreseeing significant growth from growth in tourism over the coming years. CPH will operate under a 35-year concession expected to start by year-end 2005.

Maximising airport concession opportunities: 

Maximising airport concession opportunities

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Industry perspective Airport industry enjoyed decades of steady traffic development and economic benefit Last decade represented increased competition, low cost business model, transparency in ticket pricing, terrorist attacks Impact: - need for focus on revenue sources other than traffic income = commercial income - bigger variation in customer base (behavior and buying power) Trends in industry: Focus on revenue diversification

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Commercial perspective Market expands, but leisure passenger segment proportionally more than business passenger segment Tendency to travel more frequent (over shorter distances) >>> shorten “dwell time” “Dwell time” reduction >>> change in passengers’ purchase behaviour must be reflected in commercial concepts Portfolio optimization required! Examples on change 1. Classic paradigm: “thurst and hunger” 2005: “eatertainment” allowing impulse buying, faster meals, “to go” 2. Classic paradigm: “coffee” 2005: “selection of coffee” and “branded coffee” 3. Classic paradigm: “retail outlet” 2005: “branded retail” targeted at customers, open facades/walk-through, in-store promotions, events Passenger requirement: Optimize commercial portfolio

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Maximizing concession revenues requires a balanced approach to all processes in business development CPH touch: Structured approach to all processes in commercial development Analyse customer profile Select concept portfolio Decide business model Tender of concession Establish operation Evaluate and select operator In-sourcing Concession management

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Rigorous appliance of CPH best practices in commercial development Appliance of CPH skills, methods and tools Analyse customer profile Select concept portfolio Decide business model Tender of concession Evaluate and select operator Concession management

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Standard concession contract is reference for ambitious win-win-win partnership (airport – concessionaire – passenger) Strong operational guidelines are part of all concession contracts CPH is the active landlord involved in daily operator performance, e.g. sparring on shop merchandising, measuring timeliness in opening hours, product assortment Common shopping center approach, e.g. marketing campaigns, shopping bags Customer Approach Programme is CPH’s concept for training of operators’ personnel, i.e. language skills, service perception, hygiene, sales Mystery Shopping – results are disclosed, creates competition and increases customer satisfaction Active participation in operator’s budgeting, KPI performance (penetration, spend figures) Operator’s incentive is crucial! CPH: “The Active Landlord”

Case Study: Newcastle International Airport: 

Case Study: Newcastle International Airport

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“Classic” revenue composition – heavy dependence on aeronautical revenues Newcastle International Airport anno 2002 GBP 12.7 mio commercial revenues or 32% GBP 26.7 mio aeronautical revenues GBP 39.4 mio total revenues 2002 EBITDA: GBP 17.6 mio or 45% margin Commercial revenues restrained by Poor commercial offer Small airside lounge leading directly to gate lounges Tired and outdated product presentation Radical changes were needed

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A route development strategy was developed and working boosting passenger numbers instantly from 3 mio to 5 mio annual passengers – in three years NIAL decision to keep outsourcing model (external operators of key activities) “Best in class” retailers and F & B providers were attracted to strong growth Customer research undertaken – changes in passenger profiles due to traffic growth (inbound and frequent travellers) Terminal design developed respecting with layout respecting commercial activities, e.g. passenger flow, locations, etc. – “CPH Space Management Approach” “CPH Tender Model” launched after to contract industry’s best operators A commercial turnaround was planned and based on key elements Growth and expanded facilities attracted international operators

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Airside space more than doubled, security area five times larger Process improvements to increase passengers’ time spent within the departure lounge (dwell time) to maximise commercial spend Quality recognised brands introduced Choice in food, shopping and entertainment Right mix of business lines and concepts targeting key passenger segments NIAL arriving to new and balanced commercial offer

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Strong growth in commercial income – EBITDA margin increased dramatically GBP 16.5 mio commercial revenues or 37% of total +30% GBP 27.6 mio aeronautical revenues +3.3% GBP 44.1 mio total revenues 2004 EBITDA: GBP 26.1 mio or 59% margin Growth and balance in revenue base in 2004

“Case learned” transferred to Central Europe & Russia: 

“Case learned” transferred to Central Europe & Russia

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All processes in commercial development are equally important Understand your customer – then design commercial portfolio Most Central European and Russian airports are growth airports – both Biz & Leisure Imperative to understand and forecast the sizes of passenger segments Choice of new business models that creates value: not just the classic one – pioneer spirit Need for partnership and an active landlord – not an administrator Value is not created from fancy concept development – but from the mixture of right concepts and successful operations Six conclusions concerning Commercial development in Central Europe & Russia

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Contact Details: Bo Haugaard Ass. Director, Strategy & Acquisitions Copenhagen Airports International A/S Lufthavnsboulevarden 6 DK – 2770 Kastrup Phone: +45 32 31 21 25 Cell: +45 21 45 46 34 E-mail: boha@moc.cph.dk Web: www.cph.dk Thank you for your attention!