Ryanair and Frankfurt Hahn - airline and airport strategies coincide December 2001

Ryanair has announced its long awaited plans to open its second continental European hub at Frankfurt’s Hahn airport. It already flies into the airport with four daily flights from London Stansted and daily operations from Glasgow and Shannon. It plans to base up to four 737s at the airport and has announced plans to start operations to Milan, Pisa, Pescara, Oslo, Montpellier, Perpignan, and Bournemouth from the middle of February. In its first year of operation it is assuming that it will generate an additional 1.5m passenger throughput.

As we highlighted in the July/August issue ("Ryanair, just too good a negotiator"), Ryanair is excellent at getting the small regional airports to pay it to serve them. (In that issue we estimated that the airline was receiving a net benefit of some €3.5m from Charleroi airport and the local government to use that as its Brussels hub). It is unlikely that the agreement with Hahn is quite that generous, but Ryanair will have cut a good deal.

Operating in Germany is not easy and within a day of the announcement, Lufthansa sought and gained a court injunction banning Ryanair from using comparative pricing in its advertising on the rather spurious basis that Frankfurt–Hahn airport was not a Frankfurt airport. Silly reaction really — every time the no frills carriers come up against a major, the flag carrier does something to ensure that its new competitor gains a major publicity advantage.

This move from Ryanair certainly and rightly has upset Lufthansa — but should not have come as a surprise. Lufthansa will have seen the damage that BA had received from the establishment of the low cost carriers in the UK — and even may have taken lessons from BA’s mistake in setting up its own low–cost subsidiary Go, and the resulting cannibalisation of its own traffic base.

Fraport gains too?

Frankfurt Hahn airport (HNN) is one of the old US military airfields that only came into civilian use when the Americans abandoned it in 1993. It is managed and majority owned by newly privatised Fraport AG, which runs Frankfurt am Main airport (FRA). The remaining 25% is held by the Land of Rheinland–Pfalz. Fraport plans ultimately to take over full ownership and in the meantime underwrites any operating losses.

The airport has successfully built up a strong cargo operation with some 1.2m tonne throughput (including road logistics), but only handled 380,000 passengers in 2000 (although forecasts 600,000 in the current year). This compares with the 50m a year at FRA. It is currently loss–making, and is likely to remain so at least until it can build up its passenger throughput beyond the 2m mark. Ryanair is really its only scheduled carrier. Despite Lufthansa’s objections, it is officially designated as a Frankfurt airport.

Like many of Ryanair’s airports, it is a long way from the town it serves. It is based some 110km by road from Frankfurt, within the rich magic triangle between Frankfurt am Main, Cologne and Luxembourg. This puts it in the middle of the "blue banana" of maximum population density within Europe (which extends from London via the Benelux to Milan) and claims a catchment area containing some 13m people within an hour’s access. Unlike major airports nearer city centres (particularly that coming at FRA) it has no night–flight restrictions.

Fraport is seriously interested in building Hahn as an overflow to Frankfurt/Main — and publicly congratulates and wants to emulate BAA in its success at building London’s Stansted airport into a low–cost carrier base — although of course Frankfurt does not have the same point–to–point demand that London generates.

The main Frankfurt airport is severely constrained and has effectively been operating at its runway capacity of 78 movements per hour. Lufthansa started the ball rolling for the building of a fourth runway in 1997. The Hessian state government initiated a mediation process in 1998 which concluded in 2000. Its main recommendations included a curfew on night flights (up to now it has been able to operate round the clock — only with restrictions against non–chapter 3 compliant aircraft between 22.00 and 08.00). The planning application process is now underway with an expectation that the new runway will be built by 2006/7.

Fraport responded to the mediators' report with a ten point action plan at the top of which was the proposal to move operations to Hahn — and specifically point–to point passenger, night charter and night mail/cargo flights. It hopes of course to continue to be allowed to operate without a curfew but the recent decision from the European Court of Human Rights against BAA’s Heathrow means that there will be increasing pressure at all airports near built up areas to restrict night flights).

In addition, Fraport is heavily dependent on Lufthansa and its partners — with some 70% of its terminal passenger throughput at FRA generated by the Star Alliance. Lufthansa’s second hub is at Munich (still government-, city- and Land–owned) and has some bargaining power against Fraport. Partly as a result of this the management are trying to improve revenues and returns from sources other than FRA, with the aim of generating 30% of its revenues from this area within five years. Building up operations at Hahn gives it a modicum of opportunity to offset its reliance on Lufthansa and fulfil this strategy.

Hahn is a very small element of Fraport’s portfolio and it is very unlikely that this deal with Ryanair will do much to boost Fraport’s short term returns. In the longer run it should be seen as a reasonable strategic benefit.