Interview withStefan Schulte

Fraport is turning into a cash flow machine

The airport operator Fraport faces billion-dollar investments, primarily in Frankfurt but also in its international business. Once these are tackled, the free cash flow is expected to flow abundantly, paving the way for the resumption of dividend payments.

Fraport is turning into a cash flow machine

Herr Schulte, in the short term, airlines and airports anticipate further growth, but what about the medium term, given the current high ticket prices, high inflation, and looming economic challenges?

Like many other industry representatives I am generally optimistic. The desire to travel is pronounced worldwide, and in many places, pre-crisis levels have already been reached. As an internationally oriented airport operator, this is encouraging for us. We expect further accetion, although growth in core Europe will be lower than in other parts of the world.

Why is that?

There is less pent-up demand here than in other parts of the world, and economic dynamics are lower. But even in Germany or core Europe, I do not expect a deep recession; rather, I anticipate stagflation.

But ticket prices are likely to remain high, eventually impacting demand, right?

The costs of airlines, like ours, have increased significantly, especially labor costs, which remain a driver of inflation. As Fraport, we will have to discuss other handling prices and higher airport fees with our customers. Airlines will have to factor in their higher costs, as will all system partners, so ticket prices will remain higher. All in all, the system is moving to a somewhat different level.

And consumers will go along with this in the long term?

If wages increase, consumers have more money in their pockets. Of course, in the face of rising living costs, their expenses also rise, but the preference for travel remains very high. Maybe to a more affordable destination, but people will still travel.

As flying in Europe becomes more expensive, also due to growing environmental regulations, Lufthansa CEO Carsten Spohr expects traffic to shift, for example, towards Turkey. Do you see this threat as well?

It is clear that air traffic in Turkey is growing more dynamically than here – the reasons include higher pent-up demand and a younger population. However, those responsible in Germany and Europe must ensure that we do not create further domestically induced competitive disadvantages, such as the German air traffic tax or the requirements of the EU's Fit for 55 climate plan. We urgently need regulation that is neutral in terms of competition; otherwise, we will sustainably weaken German and European aviation providers.

Are your concerns being heard in politics?

It is definitely challenging. At least a revision clause has been agreed upon for the blending quota for sustainable aviation fuel (SAF) proposed in the EU plan. After a few years, it will be reviewed whether the requirements for the use of SAF lead to competitive disadvantages. But I openly admit that I would have preferred competitive and neutral regulation even now – and that would have been better for the goal of global CO2 reduction as well!

Frankfurt will consistently contribute the largest share to the group's results; that's our core business.

Stefan Schulte

The past months have once again shown that international business is becoming increasingly important for Fraport. What is your focus in this area when it comes to potential acquisitions?

First and foremost, I want to emphasize that Frankfurt Airport will always remain our most important asset. Frankfurt will consistently contribute the largest share to the group's results; that's our core business. However, we want to expand our international business, which has very high dynamics. Currently, we have 28 airports in our portfolio, and our focus is clearly on expanding existing holdings. We are investing in the expansion of our airports in Lima and Antalya, but especially in Frankfurt as well with the construction of a third terminal.

So, no new acquisitions?

Not even two years ago, we extended in Antalya for another 30 years, involving a sum of around 7 billion euros. Otherwise, our focus for the next two to four years is clearly on reducing the debt that was built up during the pandemic. We aim to generate positive free cash flow in 2025 and then be able to pay a dividend again. Therefore, as Fraport, we would mostly not make a big move in terms of acquisitions.

When major projects like T3 or Lima are completed, Fraport expects a significantly positive free cash flow, with talk of 1 billion euros at the end of the decade. What will you do with the money?

Indeed, investments will significantly decrease from 2026/27 onwards, and then the debt will also decrease. At that point, we will consider whether to engage in new ventures if there is a suitable asset. However, that is still far away in terms of time.

If the Fraport Group becomes increasingly international, is the shareholder structure with state ownership still appropriate?

For what we do, we have the full support of the main shareholders, the State of Hesse and the City of Frankfurt, so for me the question doesn't arise. The essential asset is and remains Frankfurt Airport. Results and cash flow generated by international business also strengthen the Frankfurt location.

We are becoming more attractive to investors because we are entering a phase of positive free cash flow.

Stefan Schulte

Has Fraport become more attractive to foreign investors due to its strong presence abroad?

We are becoming more attractive to investors because we are entering a phase of positive free cash flow and will start paying dividends again. Many investors will scrutinize us more closely in the next 12 months.

What will change for Fraport if black-green is soon replaced by black-red in Hesse?

We have worked together with the current government in a spirit of trust, even finding a solution for the challenging issue of a night flight ban. I expect that the good collaboration will continue under black-red as well.