Financial reportSituation of the Group

Business model of the Group

Situation

Flughafen München GmbH (FMG) is headquartered in Munich. As the parent company of the Munich Airport Group (Munich Airport) it is the operator of Munich’s commercial airport.

Munich Airport is active via the business units Aviation, Commercial Activities, Real Estate and Participations, and Services & External Business. The service profile of the Group covers virtually all the services available on the airport campus – from air travel including passenger and cargo handling through to retailing, hotels and catering services. This integrated business model and depth of added value sets Munich Airport apart from its European competitors.

Munich Airport is committed to a corporate policy of sustainability. The orientation towards economic, environmental, and social goals ensures public acceptance of the airport and consequently the viability of its business model.

Main features of management and control

The owners of FMG are the Free State of Bavaria with 51.0 percent, the Federal Republic of Germany with 26.0 percent, and the City of Munich with 23.0 percent.

The shareholders’ general meeting is the highest monitoring and decision-making body. It decides unanimously on the Group’s business fundamentals, including such matters as airport expansion and borrowing. On all other issues, resolutions are adopted by a simple majority.

Governance Structure

Graphic: Governance Structure

Supervisory Board

FMG has a Supervisory Board, as specified in Article 1 (1), (6) of the German Co-Determination Act (Mitbestimmungsgesetz – MitbestG). The Supervisory Board exercises monitoring and co-determination rights. It appoints members of the Executive Board and determines their remuneration. Transactions exceeding certain thresholds and terms require Supervisory Board approval. The employees’ representatives in the Supervisory Board are elected for a five-year term by the Group employees. The shareholders’ representatives are elected by the shareholders’ general meeting. Their term in office ends with the shareholders’ general meeting that resolves on the formal discharge of the members for the fourth fiscal year after the start of their term in office.

The Supervisory Board has appointed a proposals committee, a working committee, and an HR committee. The proposals committee, working committee, and the HR committee were entrusted with the following tasks, inter alia:

Committees in the Supervisory Board

   
Proposals committee • Right of proposal for the appointment of a member of the Executive Board in the event that voting in the Supervisory Board does not achieve the requisite two thirds majority for the member of the Executive Board to be appointed in the first ballot
Working committee • Statement on the resolutions proposed by the Executive Board
 • Approval of certain legal transactions that exceed set maximum monetary values and terms
HR committee • Designing the contracts of the chief executive officer (with the exception of remuneration), general representatives, and authorized representatives
 • Consent to the setting and amendment of the rules governing remuneration in the area of the Group not governed by collective wage agreements, to the setting or amendment of the salary level of certain employees above a set salary level or level of remuneration as well as to commitments to an occupational pension, including the company pension scheme

Executive Board

The Executive Board of FMG’s term of office is normally five years; reappointment or extension of the term in office is permissible. It comprises three members and is responsible for the Group’s corporate policy and strategic focus. It determines the budget and monitors business developments.

The executive officers of FMG receive a fixed (salary) and a performance-related remuneration including short and medium-term incentives (bonus). The bonus is primarily linked to the consolidated profit before taxes.

Female quota

In the context of ensuring equal participation of women and men, the Supervisory Board and Executive Board of the parent company FMG stipulates targets and deadlines for the proportion of women in the Supervisory Board, Executive Board, and on the first two management levels.

A target of 31 percent was stipulated for the proportion of women on the Supervisory Board by June 30, 2020.

The proportion of women in the Executive Board is currently 33 percent, and is to be retained at this value until June 30, 2020.

The Executive Board of FMG has defined a target of 19 percent by June 30, 2020 for the proportion of women at the first management level. For the second management level, the target value of 29 percent is to be retained.

Business activitiesGRI 102-45

Organizational structure

The Group’s organizational structure is divided into the business divisions, service divisions, and corporate divisions of FMG. Commercial management and the internal reporting system are based on the business units. The business units shown in the figure comprise the business and service divisions of FMG and the Group companies integrated in the business units. The business units are explained in the following sections.

Organizational structure of Munich Airport

Graphc: Organizational structure of Munich Airport
1) MediCare Flughafen München Medizinisches Zentrum GmbH has a 100% equity interest in Munich AirportClinic GmbH.
2) AeroGround Flughafen München GmbH has a 100% equity interest in AeroGround Berlin GmbH.
(As of Dec. 31, 2018)

There have been no fundamental changes to the legal and organizational structure in the 2018 fiscal year, compared to the previous year. There have been no material increases or reductions in shares. A detailed overview of the ownership structure is included in the Notes to the consolidated financial statements.

On February 20, 2018, LabCampus GmbH (hereinafter LabCampus) was established as a wholly owned subsidiary of FMG. The purpose of the company is to build, market, and operate buildings and infrastructure on the area of the LabCampus.

Flughafen München Realisierungsgesellschaft mbH (hereinafter MUCreal) was established on July 17, 2018 as a wholly owned subsidiary of FMG. The purpose of the company is business activity conducted on instructions for the planning and realization of infrastructure and expansion projects as well as the construction of buildings in conjunction with the operation of Munich Airport.

In total, the Group comprises 14 fully consolidated companies, one associate, and four companies that are not consolidated. These are directed by Corporate Controlling and Investment Management in line with the business division strategy assigned in each case.

Business units

  • Infrastructure at the limit of capacity
  • Wide variety of first-class services and offerings along passenger routes
  • Highly attractive real estate location
  • Participations: Full service provider for the airlines
  • Services: Energy and telecommunications for all airport tenants

Aviation business unit

The Aviation business unit covers the operation of Munich Airport’s air traffic infrastructure.

The following airport charges are levied for the provision and operation of the air traffic facilities:

Air traffic charges

  Assessment basis
Take-off and landing charge Maximum take-off mass of the aircraft (MTOM) on take-off and landing
Noise-bowed charge Fixed amount per landing depending on the noise category
Emission-bowed charge Nitrogen oxide equivalent emitted per landing
Passenger charge Number of passengers on take-off
Cargo charge Number of workload units on take-off/landing
Parking charge Maximum take-off mass (for every started period of 24 hours, from the fourth hour)
Security charge Number of passengers and/or workload units on take-off
Fee for passengers with reduced mobility (PRM fee) Number of passengers on take-off
De-icing charge Number of passengers and/or workload units on take-off
Waste disposal charge Number of passengers on take-off

In fiscal year 2014, Munich Airport agreed a master agreement on charges with uniform terms and conditions for all airlines, which sets the future trend of air traffic charges until 2020 and consequently ensures funding for infrastructure. On average charges rise by around 2 percent per year.

Currently, Munich Airport has two runways with a maximum capacity of 90 aircraft movements per hour during daytime operations. In principle, this capacity is fully utilized over large parts of the day. Market-appropriate traffic development is hardly possible anymore, as many requests from airlines cannot be satisfied. This fact has been confirmed again by the airport coordinator of the Federal Republic of Germany charged with assigning the landing and take-off times (slots). Between 10:00 p.m. and 6:00 a.m., flights are very limited and confined solely to exceptionally quiet aircraft. Scheduled and charter traffic is restricted to 28 planned aircraft movements per night. The restrictions may also be relaxed for homebase airlines and delayed flights. In the period between 12:00 midnight and 5:00 a.m., only night mail and survey flights by German air traffic control are permitted. Other exceptions to the curfew include, for example, emergency and medical aid flights, landings required for reasons of air safety as well as flights approved by the Bavarian Ministry of Housing, Building and Transport as the responsible authority in justified exception cases.

The improvements made and extensions built at the terminal over the past number of years, particularly the construction of the satellite building at Terminal 2 and the extensions to the identity check areas have further enhanced the efficiency of handling.

Through its central location in Europe, at the heart of one of the most economically successful regions, Munich Airport is ideally positioned in strategic terms. The region around the airport is distinguished not only by above average economic development but also by constant growth in the population and people in employment. This is also why Munich Airport is the German airport with the highest proportion of business travelers and is consequently predestined for especially valuable scheduled connections. At the same time, population growth and rising prosperity are also leading to increased demand for private flights from Munich Airport.

Collaborative work with Deutsche Lufthansa AG (hereinafter Deutsche Lufthansa) has helped Munich Airport become a major international air traffic hub. Joint extension projects, such as Terminal 2 and the satellite building, form the basis for a sustainable partnership that ensures long-term growth, secures global connections for Munich and Bavaria as business locations, and satisfies the continuous growth in demand for air travel with a high quality offering.

Thanks to its excellent market position and successful cooperation with Deutsche Lufthansa, Munich Airport has the densest network of continental connections in Europe, measured on the basis of the number of flight destinations. Highly frequented transfer connections ensure an optimal connection of the Bavarian business hub to Europe and the world. The combination of a dense network of German domestic and European links and a strong local demand makes it possible to offer an attractive portfolio of long-haul flights from Munich. Due to the attractiveness of the location as a tourism destination as well as the growing catchment area with an affluent population, Munich Airport is becoming increasingly interesting for point-to-point connections. This is evidenced, inter alia, by the increasing number of low-cost airlines trying to establish a base in Munich.

The positive growth scenarios for Munich Airport are being impeded by the bottleneck in the runway system. In addition, the lack of traffic rights and still ongoing traffic right negotiations are slowing the development of traffic, to Africa (Ethiopia) and China, for example. The departure of Great Britain from the European Union (Brexit) could also have an impact on the aviation market and the entry requirements. The German aviation tax continues to be an additional obstacle to market-appropriate growth.

Cargo handling too is heavily dependent on the development of passenger traffic and the capacities of the runway system. Because the largest share of airfreight at the location – over 80 percent – is transported as bellyhold cargo on normal long-haul flights. Pure freight flights are a little more flexible in terms of their flight times than passenger airlines. Freight airlines are however increasingly dependent on night flights, which are only possible in Munich in exceptional situations due to the strict night-flight curfew.

Commercial Activities business unit

The Commercial Activities business unit is responsible for developing, marketing, and managing space throughout Munich Airport that may be used for commercial purposes. This includes both strategic planning of the sector mix with regard to the retailing, service, and catering space as well as the issue of leases and concessions to third parties and Group companies.

Munich Airport has around 21,000 square meters of catering space and approximately 25,600 square meters of space dedicated to retailers and service providers. There were changes with respect to the previous year due to the closure and re-opening of individual units as well as renovations to existing units. FMG’s subsidiaries operate their own retail or catering businesses on around 63 percent of the total area.

Commercial Activities is also responsible for the five-star hotel in Munich airport’s central area. It has 551 rooms and 30 conference rooms.

This business unit also develops and markets demand-oriented parking capacity. At present, there are around 36,000 parking spaces, of which 27,000 are in multi-story or underground car parks, and around 9,000 spaces are on paved and unpaved car parks.

Commercial Activities markets the advertising media and spaces at the airport as well. The offer of what is known as out-of-home advertising at Munich Airport features high-profile advertising spaces with little wastage, tailored to clients’ individual requirements.

The business unit’s service portfolio also includes the events business.

Real Estate business unit

The Real Estate business unit develops, operates, and markets all real estate and property owned by Munich Airport, both on and off-campus. The real estate location is divided into location-specific areas, which are marketed under the AirSite concept.

Munich Airport has a lot to offer as a real estate location: an attractive environment, good road connections, very good parking, and a comprehensive range of goods and services for daily needs. The existing rail traffic access has significantly improved as a result of the addition of the Neufahrner Kurve. The cross-regional airport express has established a direct rail link between Munich Airport and eastern Bavaria (Regensburg and Landshut). The rail access in the direction of Erding is to be expanded in the future via the Erdinger Ringschluss.

In keeping with the high expectations of the entire site, a vibrant, distinctive urban development concept, which will provide the basis for excellent leisure amenities and a successful business environment, is currently being developed.

The demand for living space in the airport region is growing constantly. For this reason, Munich Airport has developed strategies to support new employees in finding accommodation. The aim is to provide fixed-term, furnished accommodation within easy reach of Munich Airport.

Participations, Services & External Business business unit

The Group’s other companies complete the airport’s business. The most significant subsidiaries are:

Significant subsidiaries

   
AeroGround The companies provide landside and airside handling services for airline passengers, including ground handling services and passenger care, at the Munich and Berlin locations.
aerogate The company offers passenger handling services, operation services with ramp supervision, ticketing services as well as Lost & Found services with a baggage delivery service and arrivals service at Munich Airport. The range is completed by general aviation services and consultancy and training services.
Cargogate As a regulated agent, the company carries out services in relation to the throughput of airfreight and dealing with the associated customs formalities. The company packs and stores the airfreight in a hall area of circa 20,000 square meters as well as handling the documents involved. Cargogate also offers handling services for all common special goods, such as hazardous substances, refrigerated goods, and valuable goods. Since September 2018, Cargogate is the only airfreight handler on the campus certified according to the Pharma Good Distribution Practice (GDP).
MAI In addition to the traditional relocation and commissioning services, the company’s portfolio also includes the provision of management and terminal operation services at airports in other parts of the world.

Besides the business units and subsidiaries, Munich Airport’s service divisions are also involved in external sales. The largest contribution comes from the following service divisions:

Significant service divisions

   
Technology The service division is responsible for the secure, cost-effective, and technical operation of airport infrastructure. Among other things, this includes the supply of energy and heating/refrigeration, maintenance of buildings and airport specific equipment as well as vehicle management for series vehicles and handling equipment. This division also plays a significant role in implementing Munich Airport’s CO2 strategy as part of its energy management.
IT The IT service division offers its customers at Munich Airport various services from the fields of media and communications technology, workplace IT equipment as well as server, database, and storage system technology. The core competencies of the division lie predominantly in the integration of various technical IT platforms and in the creation of tailor-made support services for logistical processes at Munich Airport.

In total less than 5 percent of the Group’s external sales are accounted for by activities in the Participations, Services & External Business business unit (excluding ground handling services). Therefore, the economic development of this business unit is not explained in detail. In contrast to this, the developments in handling services within the Group have been included in the passages covering aviation.

Control system and values management

Munich Airport measures the performance of its managers using financial and non-financial indicators. The most important of these are the indicators that measure corporate sustainability and quality. Accordingly, the perception of traditional sustainability management is governed economically by earnings before taxes (EBT) and ecologically by CO2 reductions. With the Passenger Experience Index (PEI), Munich Airport determines whether quality goals, which envisage the enhancement of customer satisfaction as a strategic approach, have been achieved. Every year, FMG surveys internal and external interest groups to determine and regularly affirm the relevance of the performance indicators for stakeholders.

Earnings before taxes (EBT)

The earnings targets of management are formulated on the basis of earnings before taxes (EBT). EBT is the input factor for determining profitability. It relates to the consolidated profit before taxes, calculated by applying the International Accounting Standards in the version adopted into European law by the European Commission.

CO2 reductions

Using the indicator carbon reductions (in tonnes), not only can the direct reduction of greenhouse gas emissions be measured, but factors such as the conservation of resources and the efficient use of energy can also be taken into consideration. At the end of 2016, Munich Airport set itself the new climate protection goal of ensuring that as of 2030 its airport operations would be carbon-neutral. At least 60 percent of the emissions are to be effectively saved, while the remaining 40 percent will be offset using high-quality compensation measures. Both emissions caused directly by Munich Airport itself through energy supply and fuel consumption (Scope 1) and emissions arising from energy procurement (Scope 2) are factored into the calculation.

Passenger Experience Index (PEI)

The PEI is a customer satisfaction measurement model that allows Munich Airport to derive location-specific targets adjusted to the needs of target groups and assign the fields of action to improve service to existing customer contact points. In the interests of objectivity, an independent, external service provider determines these values. Using questionnaires, it regularly surveys satisfaction levels among departing and arriving passengers through the entire year. On a monthly basis and at the year’s end, Munich Airport thus receives a great deal of detailed information on the satisfaction levels of its air passengers in eleven categories along the passenger experience chain. As a target value for 2019, the total satisfaction level of departing and arriving passengers is taken from the PEI.

Innovation and ideas management

The aim of Munich Airport’s innovation management is to enhance customer satisfaction and customer experience through new services and products. Since 2017, there has been an increasing demand for the development of products for the airport industry.

Through the analysis of trends and market requirements, innovation management develops targeted innovations for passengers and customers. The feasibility and cost-effectiveness of innovations is reviewed in pilot projects and subsequently a decision is made on whether they should be continued, implemented, and possibly expanded to further areas. In this process, Munich Airport innovation management cooperates with start-ups and established companies in the region, but also increasingly with globally active companies, so that it can always access the latest scientific and entrepreneurial expertise.

Further important input for innovation management comes from the ideas of the company’s own employees. In the year under review 2018, a total of 604 ideas were submitted via the in-house open innovation and ideas management system «InnovationPilot» on topics such as employees, spaces and buildings, technical plants and vehicles.

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