CEOInterviews.AIControlling bei der Fraport-Gruppe – CFO Prof. Dr. Matthias Zieschang im Gespräch

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Peter Blum0:00

Welcome to the Performance Manager Podcast. I'm Peter Blum, host. The coronavirus pandemic had a profound impact, and one industry that saw its business collapse overnight was air travel. About a year ago, I spoke with Fraport AG CFO Dr. Matthias Zieschang about crisis management. Today we want to discuss how Fraport emerged from the crisis and its current positioning. Please welcome Dr. Matthias Zieschang.

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Matthias Zieschang2:02

Good day, Mr. Blum. Thank you for having me. Fraport is an international airport operator with four business segments: aviation in Frankfurt, non-aviation (retail and real estate), ground handling, and international investments in 27 airports worldwide.

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Peter Blum4:27

Thank you for the overview. Passenger traffic is recovering, currently at 80-85% of 2019 levels and 10% above 2022. What factors are driving this positive recovery and what is your outlook for the next few years?

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Matthias Zieschang5:27

The trend is very positive. People want to travel; flying has become a basic need. Private travelers have recovered quickly, nearly back to 2019 levels. Business travelers are at 60-65% and may not fully recover due to home office and video conferencing. However, private travelers will overcompensate, and we expect Frankfurt to return to pre-crisis levels by 2025-26, with international operations exceeding them.

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Peter Blum7:34

Despite the positive trend, there are still uncertainties and risks. Can you summarize the main risks you see?

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Matthias Zieschang8:15

The main risks are recession and inflation. A recession would temporarily impact passenger numbers, as flying correlates with GDP. Inflation reduces purchasing power, especially for lower income groups, which could affect flight behavior if it persists.

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Peter Blum10:01

You have strategies to capitalize on the positive environment. What measures have contributed to Fraport's good post-crisis development?

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Matthias Zieschang10:37

Speed and responsiveness were key. We made drastic personnel cuts to survive and are now ramping up. By summer 2024 we'll be back to full performance. The strategy is to quickly reduce capacity in a crisis and quickly ramp up when demand returns.

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Peter Blum12:10

Let's look back at 2020, an existential situation where revenue went to zero overnight. Can you summarize that and how it shaped future strategies?

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Matthias Zieschang13:06

In early March 2020, everything was normal. By end of March, 98% of passenger volumes were gone, only repatriation flights remained. No revenue but full expenses. We survived by having high liquidity (six months' worth) and nearly doubled it within four weeks. We also drastically reduced cash outflows through personnel, materials, and investments. Then traffic slowly returned and we climbed back up.

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Peter Blum14:51

Looking back, would you say you did everything right, or would you do some things differently?

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Matthias Zieschang15:41

The plan was right and we wouldn't change it. In execution, we achieved cost targets but made a procedural mistake: we lost many experienced employees. When ramping up, we couldn't quickly regain that qualification, causing operational problems in 2022. Overall, it was a good performance, but we learned to pay attention to detail.

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Peter Blum18:34

So from today's perspective, you're happy to be among the one-third of aviation participants that survived independently.

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Matthias Zieschang18:49

Yes, we are. We have 5,000 fewer employees at Frankfurt, a 25% reduction, yet volumes are nearly back to pre-crisis levels, so productivity and flexibility are higher. The crisis forced us to become leaner and faster. Culturally, Corona shattered the previous culture of invulnerability. That near-death experience reminds us we are not invincible and must react quickly and stringently.

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Peter Blum21:34

You mentioned the feeling of invincibility. Could the experience make the company less bold in its long-term strategy, for example regarding the new Terminal 3?

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Matthias Zieschang22:40

The opposite happened. Before the crisis, decision-making was slow. In the crisis, we made quick, top-down decisions with clear objectives. That has become our new leadership style: faster decisions, shorter processes. We've learned to stay in that mode. The second lesson is the need for high flexibility and variability of costs to quickly scale down and up.

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Peter Blum24:46

Despite the existential crisis, you never lost sight of the future. When did you realize the turning point was coming?

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Matthias Zieschang25:47

The turning point was in July-August 2020. Summer traffic returned to about 25% of normal, and with our cost reductions, we covered operating costs with that volume. That gave us confidence that our measures were working and we could survive. We believed air travel would recover, and that milestone showed we could make it.

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Peter Blum27:49

During the crisis, there was no room for discussion—management by objectives. Has that culture of quick, clear implementation been maintained after the crisis, or is it slipping back?

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Matthias Zieschang29:01

The first hurdle is surviving the crisis. The second is preserving the positive experiences. In its pure form, it's impossible because extreme pressure is needed. But the art is to retain about 50% of that stringency and speed in the culture. That's a huge success. The danger is falling back to pre-crisis ways. It's a marathon to maintain that, and I think we will succeed.

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Peter Blum30:35

A new Terminal 3 is being built in Frankfurt. Construction started before the crisis, and you plan to go live in 2026. Were there any doubts during the crisis about whether it was the right decision?

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Matthias Zieschang31:25

Yes, there were doubts. The investment is over 4 billion euros. T3 has a long history; we were in the middle of construction when Corona hit. We analyzed whether to continue or abandon. Abandoning would have meant losing the investment and facing penalty claims, with no terminal. So we decided to continue but stretched the timeline. If Corona had come two years earlier, we would have abandoned. We were lucky. We will open in 2026, and we will need it because existing capacity will be exhausted.

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Peter Blum34:22

Can you tell us more about T3? I understand it's mainly for long-haul flights, and some airlines have already been named.

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Matthias Zieschang34:44

Yes. Star Alliance (Lufthansa) will stay in existing infrastructure. Other alliances and non-alliance carriers will move to T3. This gives Star Alliance room to grow, while others get modern infrastructure for premium carriers. T3 will give us total capacity of about 90 million passengers, making us the largest airport in Europe by capacity. No other major European airport can expand due to political constraints, giving us a competitive advantage.

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Peter Blum37:00

I'm looking forward to it as a customer. Let's talk about controlling. Has its role changed after the crisis?

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Matthias Zieschang38:11

We changed controlling massively. We cut over 50% of controlling staff, centralizing the function. We shifted from reporting to steering: accounting produces numbers, controllers steer and challenge expenses, focusing on cash and liquidity. Even if a budget exists, spending must be justified. This cash orientation is a trend I see in other companies.

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Peter Blum41:15

Another trend is continuous steering and automated forecasting, possibly using AI. How do you handle that?

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Matthias Zieschang42:20

We have fully implemented that. Planning is now purely top-down, based on past data and future improvements. Forecasting is machine-generated using predictive analytics and SAP data. This saves time and resources, and the deviation between forecast and actual is smaller than ever.

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Peter Blum44:20

Many observe that automated forecasting with AI yields better results. Finally, can you give an outlook for the next years or decades? What are the strategic priorities?

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Matthias Zieschang45:28

We have two main strategic directions. First, the final expansion of Frankfurt Airport with T3, completing by 2026, giving us the largest capacity in Europe. Second, our international portfolio, which contributes 50% of earnings. We will expand it organically and through acquisitions when our balance sheet allows. International will be the main growth axis, as our airports are in emerging markets with higher growth rates.

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Peter Blum48:30

That was Dr. Matthias Zieschang, CFO of Fraport AG. We discussed the Fraport Group and its development after the coronavirus crisis. Thank you for your input.