Introduction
Fraport (FRAG.DE), the operator of Frankfurt Airport, has announced that its core profit for 2023 is expected to reach the upper half of its forecasted range. Second-quarter earnings have been strengthened by robust travel demand, following the easing of pandemic restrictions. In particular, the company forecasts a significant increase in passengers traveling between China and Frankfurt in the coming year.
Financial Overview
Matthias Zieschang, Fraport’s finance chief, has stated the company expects strong growth. The forecast includes core profit (EBITDA) hitting the upper half of the projected range of 1.04-1.20 billion euros ($1.14-$1.32 billion) this year, and net profit settling at the upper half of a range between 300-420 million euros.
Increased Travel Demand from China
Zieschang emphasized the importance of Chinese passengers, predicting a “huge and significant” increase in travelers to and from Frankfurt next year. The capacity is set to climb up to 90% of pre-pandemic levels by December 2023, from under 40% in the second quarter of the same year.
Zieschang commented, “Passengers with high purchasing power are coming back.” This is viewed as an encouraging sign of recovery in the travel industry.
The Global Reach of Fraport
The German group operates 28 airports worldwide and anticipates overall group earnings to meet its earlier expectations. Demand for leisure travel, which has swelled profits for airlines and airports since pandemic restrictions were lifted last year, is not showing signs of waning.
Frankfurt Base Recovery
Traffic at Fraport’s home base in Frankfurt has grown 29% in the first half of the year, almost reaching 87% of 2019 traffic in July. Full-year passenger numbers are expected to settle in the middle of a forecast range of 80-90% of 2019 levels.
The recovery in Frankfurt has been slowed by capacity shortages and China’s slow recovery to date. However, passengers traveling to and from China have already reached 39% of pre-pandemic levels in the second quarter, double the first quarter’s level.
“We expect very good and solid growth in 2024,” said Zieschang, deeming a 10% passenger growth in Frankfurt, driven mainly by China, as “realistic.”
Future Predictions
The group anticipates 65-66 million passengers will use the hub in 2024, nearing the pre-pandemic record of 70.6 million. European traffic has enjoyed a boost from strong demand for warm-weather destinations and improving business travel. Fraport predicts passenger numbers at its group airports to be close to 2019 levels this year.
International Portfolio
Within Fraport’s international portfolio, airports in Greece were the main beneficiaries of holiday demand. Intercontinental routes also witnessed high growth rates for holiday destinations in North and Central Africa and the Caribbean, while North American traffic is nearing pre-pandemic levels.
Q2 Financial Results
Fraport’s second-quarter revenue reached 1.04 billion euros, 6% above consensus as cited by J.P. Morgan, but quarterly EBITDA fell to 323 million euros, 4% below consensus. Analysts at JPM indicated the miss seemed to be primarily driven by weaker than expected margins in both Ground Handling and International sectors.
Stock Performance
Fraport’s stock was on the rise, with shares up around 7% at 1359 GMT, making it one of the best performers in Germany’s mid-cap index (.MDAXI). The company was on track for its best day since March 2022.
Conclusion
Fraport’s optimistic outlook for 2023 and beyond reflects a broader recovery in the travel industry, spurred by an increase in leisure travel and strong demand from China. Despite setbacks such as capacity shortages and China’s slow recovery, the company has successfully navigated the challenges to project strong profits and passenger growth.
The airport operator’s strategic investments in international portfolios, its adaptation to market demands, and an uptick in routes to holiday destinations are critical components in this successful forecast. With the continued recovery from the pandemic, Fraport is poised to capitalize on emerging opportunities in the travel sector.
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