A helping hand for Hannover – rare opportunity may arise to buy into regional German airport

Famous for its interest in Germany’s largest airport, Frankfurt, Fraport AG is reported to be considering divestment of its long-held stake in Hannover Airport, the only other one in Germany in which it has an investment. It holds 30% of the equity, with the City of Hannover and the State of Lower Saxony (Niedersachsen) each holding a 35% stake. Fraport says: “As part of our investment management, we subject all assets and investments of the Fraport Group to a regular assessment”.


Summary:

  • Fraport may be ready to sell its stake in Hannover Airport, but the reason is not clear as it is performing quite well and business is growing;
  • However, of late Fraport’s focus has switched to its Greek and Brazilian investments and Hannover could be offloaded;
  • Avialliance could be a likely purchaser as it already holds 49% and 30% of Hamburg and Düsseldorf airport, respectively.

Hannover is Germany’s 13th largest city, but still has a metropolitan population of over one million people. It has the world’s largest commercial fairground and hosts many trade fairs each year. It has important universities and a medical school. Volkswagen has a large manufacturing plant and it is home to the global Hannover Re insurance group. The city is also a major crossing point of railway lines and highways, connecting European main lines in both the east-west (Berlin to/from the industrial Ruhr area) and north-south (Hamburg-Munich) directions.

MAP – Hannover is the capital city of the German state of Lower Saxony and is a a major centre of Northern GermanySource: GoogleMaps

Hannover is a middle-ranking airport with annual traffic between five and six million passengers per annum. In the last two years it has grown quite strongly, and cargo growth has been better still. It has two parallel runways, one of 3,800m. The airport operates 24/7/365.

CHART – Hannover Airport had seen traffic levels slip in 2012 and 2013, but they have been on the rise since with notable levels of year-on-year growth recorded last year and H1 2018Source: CAPA – Centre for Aviation and Flughafenverband ADV (German Airports Association)

Hannover this week has 76 non-stop passenger destinations, all but 8 of them in Europe. For comparison purposes Hamburg has 124, Düsseldorf 180 and Bremen 44. It lacks transatlantic and Asia Pacific (excluding a link to Kostanay in Kazakhstan in Central Asia) services but has adequate ones to important industrial cities in Europe.

As the charts below indicate it has a well-balanced mix of full-service, low-cost and charter airlines. The leading airline is Eurowings, the Lufthansa LCC subsidiary. Eurowings is a long-haul carrier but that activity is focused on Düsseldorf and Munich and unlikely to find a home in Hannover.

CHART – Operations at Hannover Airport are dominated by full service airlines (top), but Eurowings is the largest single operator, although TUIfly, Lufthansa and Condor also hold double-digit shares (bottom) Source: CAPA – Centre for Aviation and OAG (data: w/c 06-Aug-2018)

It is in fact quite unusual for an airport of this size, serving a population of one million people, to have 55% (including regional/commuter) of its seats on full-service carriers. If a comparison is made with similarly sized industrial cities and their airports in Europe (also with Hamburg, which is the main competing airport in Germany) – see the table below – it can be seen that Hannover has a superior ratio of full-service capacity, which would be attractive to an investor. (Routes tend to be more stable and airlines less demanding on charges, together with the added prestige).

If there is a weakness it is in the lack of penetration of airline alliances – 68.3% of capacity is unaligned at Hannover, but comparing the same airport set the peer group is only significantly better represented by alliances at Bilbao.

TABLE – Hannover Airport has a large share of full-service operations, while its unaligned seat ratio is in line with its peer airportsSource: CAPA – Centre for Aviation Airport Profiles

The reason for a sale has not been advised but judging from the above, operational performance seems unlikely to figure. Fraport had been gravitating towards larger airports in its international portfolio but at the same time it has smaller ones such as Burgas, Varna in Bulgaria, Ljubljana in Slovenia (all with less than three million ppa), 14 small Greek airports and two smaller regional airports in Brazil.

Holding less than one third of the equity at Hannover it would not make much from a sale but it would reduce its commitments when it wants to focus on Greece and Brazil and remains interested in Cuban airports, which would occupy many man-hours.

As for buyers, Fraport’s culture is one of continuing expansion and it sells so infrequently, especially in Europe (the last one was Hahn Airport in 2009), that it has no history of disposal to speak of. A likely candidate could be Avialliance, which holds 49% and 30% respectively of Hamburg and Düsseldorf airports, again together mainly with municipalities or other public sector owners and thus understands the opportunities and constraints.