Chairman of the Executive Board, Dr Stefan Schulte, talks to Joe Bates about his ambitions and development plans for Frankfurt Airport and the Fraport Group’s global airport portfolio.
Being in the spotlight is nothing new for Frankfurt Airport or owner and operator, Fraport AG, with barely a week seeming to pass without them making headlines somewhere across the globe.
Germany’s busiest airport and Europe’s fourth biggest passenger gateway is, of course, of great interest to media outlets across the world, as are Fraport’s ever-growing portfolio of global business interests, and Airport World is no exception to the rule.
Indeed, in the first few weeks of this year we ran stories about Frankfurt Airport’s new hanging gardens, a unique new retail offering and the recognition of Fraport as one of the world’s most sustainable companies.
And we could have run so many more stories because Frankfurt Airport continues to innovate and impress in terms of its facilities and customer offerings, and in March this year, Fraport enters the next phase of its global development with the start of the concession to run 14 regional airports in Greece.
So, where do we possibly start? Well, the first thing to probably say is that, for the most part, the global news being generated by Fraport is hugely positive, and that speaks volumes about how Frankfurt Airport and the international assets of Fraport are faring under the leadership of Dr Stefan Schulte.
Highs and lows
Schulte joined Fraport as CFO in 2003 and since succeeding the retiring Wilhelm Bender as chairman in September 2009 has led Frankfurt Airport through significant infrastructure enhancements while simultaneously expanding Fraport’s business activities outside of Germany.
The Frankfurt Airport (FRA) upgrade has included the opening of Pier A-Plus, the inauguration of a fourth runway, the redesign of the Terminal 1 forecourt and other developments aimed at enhancing the customer experience.
When asked about the highs and lows of his seven-and-a half years in the hot seat, Schulte says: “The highs would be the inauguration of the new runway in 2011, the recent ground-breaking ceremony for the new Terminal 3, the opening up of the airport to low-cost traffic and the expansion of our international business.
“The lows would probably be the protests that took place after the opening of the new runway. Suddenly, we had a lot of people newly affected by aircraft noise, and knowing how to react to this and adopt the right strategy to address the issue made for a difficult half a year or so.”
On the plus side the new runway has proved pivotal in allowing Frankfurt Airport to expand its long-haul route network over the last five years despite the enforced imposition of a night curfew between 11pm and 5am.
Schulte says “geo-political factors” caused a slight dip in traffic numbers at Frankfurt Airport last year, although the 60.79 million passengers (-0.4%) was enough to maintain its status as Europe’s fourth busiest gateway just ahead of Istanbul–Atatürk with 60.19 million.
Aircraft movements were also down 1.1% in what Schulte refers to as a “difficult year” for the airport, although cargo volumes climbed 1.8% to 2.1 million tonnes in 2016.
“Traffic development wasn’t easy, but we kept things more or less stable due to a good end to the year after a slowdown in the summer caused by geo-political factors across the world,” says Schulte.
“We are, however, optimistic about the year ahead as the strong end to 2016 and our decision to attract more traffic from the low-cost segment, which will see Ryanair launching flights here at the end of March, makes us confident that 2017 will be better in terms of passenger growth.”
Growing the hub
Discussing the reasons behind the move to welcome Low-Cost Carriers (LCCs) to FRA, Schulte notes that budget carriers are experiencing tremendous growth in the point-to-point market across Europe and that the airport risked losing market share if it didn’t accommodate them.
Compared to other European countries, LCCs currently have a smaller share of the German market, but this is changing, says Schulte, noting that the market is heating up and that Fraport cannot ignore this challenge and opportunity.
Ryanair will be joined at FRA by Wizz Air on May 22 and Eurowings from 2018, although he insists that that the gateway remains very much an inter-continental hub for Lufthansa, the Star Alliance and other legacy carriers.
“Our focus will always be on developing Frankfurt as an inter-continental hub as this is our core business and our infrastructure has been created for this,” says Schulte.
“LCCs have, however, changed the way people travel in Europe and continue to open up more destinations, so adapting to accommodate this segment makes sense as it will further boost our connectivity and drive traffic growth.”
Ryanair and all the LCCs that follow them will operate from a dedicated new area that is being set aside for low-cost traffic.
German national flag carrier, Lufthansa, remains the biggest airline in Frankfurt currently accounting for around 66% of the airport’s annual passenger traffic.
New Terminal 3
At the southern side of Frankfurt Airport, Fraport has started construction of the brand new Terminal 3, the first phase of which will cost about €3 billion and include a 90,000sqm complex comprising a central building and two piers boasting a total of 24 gates.
The new terminal will cover a total floor space of around 306,000sqm and initially be equipped to handle 14 million passengers per year when it opens in 2023.
“We need Terminal 3 to be able to accommodate future demand as we already have a shortage of contact gates and are expected to reach our current capacity of 68 million passengers within a few years,” comments Schulte.
Having long since realised the importance of good customer service, it should come as no surprise to learn that Fraport’s efforts have been noticed by others, and in 2016 it was named as one of Germany’s customer service champions in the annual ‘Top Service Deutschland’ list compiled by German business magazine Handelsblatt, the University of Mannheim and ServiceRating.
Frankfurt Airport has certainly cranked up its customer service initiatives in the last few years in a bid to make sure that visitors enjoy their airport experience.
New passenger friendly additions include the opening of yoga rooms, installation of ‘silent chairs’ where people can rest and unwind, and trials of a free entertainment system that allows passengers to watch the latest movies, TV shows and music releases on their mobile devices.
FRA was one of the first airports to offer free Wi-Fi and continues to lead with a host of innovative digital initiatives such as the home delivery of duty free goods and pre-booking of car parking, retail and F&B offerings online.
“Putting our passengers and airline customers first is at the heart of our business, and a leadership focus area, as new infrastructure is just a commodity to get something done,” states Schulte.
He notes that it is important to always look forward and constantly innovate in terms of passenger services as the needs of travellers will inevitably change over time.
“Today’s travellers want less personal interaction with staff at airports than in the past, which is one of the reasons why we introduced our digital platforms,” he says.
Fraport’s global airport portfolio
In addition to its Frankfurt Airport home base, Fraport has a stake in a number of international assets in Europe, Latin America and Asia-Pacific that will soon be joined by 14 regional Greek airports.
Last year marked the 10th anniversary of its Bulgarian concession, during which time Schulte notes that it has tripled traffic at the Black Sea gateways of Burgas and Varna to 4.5mppa and invested more than €180 million on enhancing their facilities.
And he is equally quick to point out that Fraport’s efforts in Peru – where it has a controlling 70.01% stake in Lima Airport Partners (LAP) – have led passenger numbers at Jorge Chavez International Airport to grow by an average of 10.6% per annum since the concession began 16 years ago.
Putting that in perspective, he reveals that 19 million passengers passed through Peru’s gateway to the world in 2016 compared to just 4.5 million in 2001.
Indeed, such has been the growth that the airport needs to further expand and Fraport is currently talking to the Peruvian government about the possibility of extending its 30-year concession by 10 years to 2041.
He also reveals that Fraport continues to look for opportunities to expand its global business either through direct equity investments or winning management and consulting contracts.
“We keep a close eye on the market and are always looking for assets and business opportunities where we can manage and develop complex airport infrastructure or alternatively provide a number of airport related services,” says Schulte.
“Our international business strategy can best be summed up by the desire to make money, bring in our special know-how to increase an airport’s operational performance and also make the Fraport Group a little less dependent on Frankfurt Airport.”
He says that the business plan is very much focused on asset development, so points out that a very efficient, well run airport making maximum use of its infrastructure and facilities is unlikely to be on Fraport’s radar.
Fraport also 100% owns AIRMALL, which operates the shopping malls at Baltimore/Washington, Boston Logan, Cleveland and Pittsburgh airports in the US.
In fact, so successful has its overseas investment strategy been that Schulte reveals that 40% of Fraport’s profits in 2015 came from its international assets.
He also believes that having a big airport portfolio allows for certain synergies, such a sharing best practice solutions for retail and other services, and makes it easier to overcome any downturns in the business.
“I believe it helps to have a bigger portfolio because it is difficult to foresee what the future might hold in 10 to 20 years,” explains Schulte.
“No matter how much planning and due diligence is involved, sometimes there are surprises in store, and having a diverse portfolio of airports in different markets and regions gives you the opportunity
to better balance the positives and negatives over time.”
Embracing the digital marketplace
To meet the challenges it faces in travel retail, Frankfurt Airport, Germany’s biggest shopping mall, has been transforming itself into an omnichannel marketplace where visitors can buy goods and services online.
Its decision to embrace a number of new digital initiatives means that any of the airport’s 160,000 daily passengers can use any device to have pre-ordered shopping brought to their gate, book a table at a restaurant, reserve parking in advance or arrange to have duty free items waiting at airport pick-up points or groceries delivered to their home.
The digital transformation is powered by the Omnichannel Multi-Merchant Marketplace (OM³) platform developed by AOE to create a new line of business for Fraport to boost retail revenues and the passenger experience.
OM³ is an Enterprise Open Source-based integrated commerce suite that enables airports to digitally provide the physical product range from all retailers as well as their entire service offering such as on-premise (lounge, gate, etc) delivery within one hour; “full earn and burn loyalty integration” across all services; and full integration of ancillary revenue (parking, VIP services, fast track, for instance).
The solution helps to maximise non-aviation revenue and creates a powerful single-customer view with numerous personalised marketing features.
“OM³ enables any global travel hub to provide a truly connected and integrated passenger experience, never possible before. The solution combines data from more than 30 systems and is scalable to millions of products, orders, retailers and customers,” enthuses AOE’s CEO, Kian Gould.
Greece’s regional airports
The latest chapter in its international adventures is scheduled to begin in Greece in March when subsidiary, Fraport Greece, assumes responsibility for operating, maintaining and developing 14 Greek regional airports for the next 40 years.
The concession, which has been several years in the making, is for Aktio (PVK), Kavala (KVA) and Thessaloniki (SKG) airports on the mainland and the island gateways of Corfu/Kerkyra (CFU), Crete/Chania (CHQ), Kefalonia (EFL), Kos (KGS), Mitilini (MJT), Mykonos (JMK), Rhodes (RHO), Samos (KGS), Santorini (JTR), Skiathos (JSI) and Zakynthos (ZTH).
Fraport Greece – a joint venture between Fraport AG and Greek partner, the Copelouzos Group – will pay an upfront fee of €1.2 billion to the Greek government for the concession plus a fixed annual payment, starting at €22.9 million, throughout the duration of the contract.
All 14 airports, which handled 25.3 million passengers (+9%) between them in 2016, remain 100% owned by the Greek government.
Talking about the attraction of Greece’s regional airports, Schulte says: “Greece has global appeal as it is a wonderful country with beautiful people, a beautiful lifestyle and a great tourism industry, which we believe we can help boost by improving the capabilities of its underdeveloped regional airports.”
Schulte notes that Fraport Greece has created a brand new airport management organisation with the necessary IT, accounting and administrative systems and around 400 staff to ensure that the concession is a success.
“We have actively engaged with the various stakeholders at the 14 airports spread throughout the Greek islands and mainland so we understand the local needs and issues,” he adds.
“We have completed extensive technical site visits, studies and master planning; and implemented the necessary steps for an infrastructure modernisation programme at the airports.”
From Fraport’s perspective, says Schulte, this means improving processes, procedures and, in some cases key infrastructure, to make them more efficient and user-friendly to actively encourage and support tourism development.
Specifically this will involve investing more than €330 million on new terminal extensions and upgrades, which include revamping Thessaloniki Airport to allow it to open a remodelled commercial area, double the number of security lanes and add 50% more gates.
And, as part of the anticipated upgrade at all the airports, Fraport has announced that it will equip the Greek gateways with SITA’s latest common-use terminal equipment (CUTE) technology to help them improve their operational efficiency.
“We are confident that our management capabilities and investment in new systems, services and aviation infrastructure can encourage tremendous tourism growth. It really is a win-win situation for everyone,” he says.
Schulte is quick to praise his “willing and capable” management team for the job they do in making it possible for him to juggle the roles of overseeing the growth and development of Frankfurt Airport with managing a global group of airports.
He says: “They make it possible for me to do my job as a strategist and also act as the figurehead of the company in looking for new business opportunities and representing it on the international stage.”
By his own admission the job involves frequent travelling and he expects to do more than ever in 2017 following his decision to accept an invitation to become president of the BDL, an association representing the interests of Germany’s airports, airlines and service providers.
“I go to Berlin and Brussels quite a lot now,” says Schulte, who, of course, also sits on ACI World’s World Governing Board as well as acting as head of its Audit Committee.
“As the largest airport in the country and one of the biggest participants in the German aviation market it is our responsibility to help our industry in terms of ensuring that we have the right framework conditions in place to support its competitiveness.
“It is not fair, for example, that German airports have to pay 100% of the security costs imposed by the government when in other countries it is just 20% or 30%.”
He cites the recent success of reducing the bill for “non-typical” air navigation costs to German airports by €200 million as an example of what the BDL can accomplish.
With results like this Fraport, BDL and ACI World are lucky to have Stefan Schulte on their side!