#570 Controlling bei der Fraport-Gruppe – CFO Prof. Dr. Matthias Zieschang im Gespräch (2/2)

So, maybe chronologically: At the end of March, the lights went out. End of March 2020, no traffic, no revenue. Then we took the immediate measures I described: increase liquidity, reduce cash burn. But everyone knows that wouldn't have worked sustainably. You can't bring in that much money if you keep burning it. So it was clear we had to at least have the prospect that the cash burn would neutralize. That was exactly the point in July/August of that year, just a few months later. Why? Because in July/August we already had some summer traffic, about 25%. So we had lost three-quarters, but now we had a quarter back. At the same time, through our rigid cost-cutting measures, we were able to fully compensate for the operating costs with 25% of the volume. Not the interest, not the CapEx, but that was the point where we saw that the opex was covered by revenue. That was the first minimum requirement achieved. And that gave us the feeling, not that we had made it definitively, but it was a crucial milestone to say: if we already cover operating costs in these two summer months. Later it went down again because the next Corona wave came, but that gave us the confidence that our measures were working. We had brought the break-even down to 25% of volume. And we knew that if we kept fighting consistently, and always based on the belief that air travel would recover after the pandemic, we had the conviction: now we've made it, now we can make it, and now we will make it.

Now you've raised a crucial point. The first hurdle is surviving the crisis. If that succeeds, and it did for us, then comes the second point: Can you sustainably preserve the positive experiences from the crisis? Clear answer: No, not in that purity. It's completely impossible because you only achieve that extreme performance under extreme pressure. But the art is, roughly speaking, to preserve about 50% of the stringency, speed, and directness you ensured and implemented during the crisis, and anchor that sustainably in the culture. That would be a huge success. Because the danger is indeed that you fall back exactly to where you were before the crisis. And that is now a marathon. Because naturally, there are always tendencies to say, 'Now everything is fine, we got through it, we can continue as before.' And that is the second, long breath that must lead to preserving at least 50% of what was achieved. As of today, I say we will succeed, but it remains a task. Because people's tendency is to say, 'Before the crisis, it was all a bit more relaxed, let's get back to that, because it wasn't so bad.'

These concerns existed, and they had to exist, given the sum of over 4 billion euros tied up in this further expansion of the airport, which has a long history. The beginning of T3 was in the late 1990s, then came the architectural competition, the planning approval decision—everything takes an incredibly long time in Germany. The groundbreaking was at the end of 2015, and when Corona came, we were in the middle of construction, a bit before halftime, and at the worst possible time. But that's usually the case with major crises. Of course, we said we have to look at this project because it was a major contributor to the cash burn. There was only a binary decision: continue or abandon. We had the responsibility to analyze it intensively in the shortest time, again a window of a few weeks. We approached it completely neutrally; there was no pre-decision to continue or not. We looked at it, laid all aspects on the table, weighed the pros and cons, and came to the conclusion that abandoning would have resulted in a loss of the investment made so far. Moreover, most contracts with construction companies were already locked in, with claims for damages, etc. Long story short, we would have had further high expenses due to the contractual situation but no terminal at the end. So we decided, together with the supervisory board, to continue. But it was a very difficult decision because it meant further high cash outflows. The only thing we did was to stretch and decouple the timeline a bit, which also helped the construction site. It was a difficult decision that would have turned out differently two years earlier. If Corona had come one or two years earlier, we would have abandoned with all consequences, and there would be no T3 now. So we were also lucky that the decision turned out as it did. We survived the crisis, we will put the terminal into operation from 2026, and we will need it because that is exactly the point when capacities in the existing infrastructure will be exhausted. And then, the next management generation will be especially happy to have a large infrastructure with big reserves in a fixed-cost business, and as traffic grows, the harvest will come, and cash flows will be particularly high and positive.

Gladly. We have the three major global airline alliances. Of course, our main partner is Lufthansa with the Star Alliance. Lufthansa with Star Alliance will remain in the existing infrastructure because it has the largest capacity there. That means the other two alliances and the non-alliance airlines will go into the new T3. So for Star Alliance, there is ample capacity to continue growing in the existing structure. Conversely, the other airlines get a state-of-the-art new infrastructure, especially for the high-value customers, for example, the Middle Eastern carriers, which have a very high-quality clientele that places great value on huge and excellent lounges. They can implement completely different requirements in this new terminal compared to the old infrastructure. So we will have a clean allocation of alliances to the individual terminals. Everyone can grow, and we will have an infrastructure that fits the needs of the respective airlines very well. With T3, we will have a total capacity of around 90 million passengers. That means we will be the largest airport in Europe in terms of capacity. And against the background of social acceptance, I dare say—and this is not a bold theory—that no major airport in Europe can expand its capacity anymore; it simply cannot get political approval. We were lucky with the time window to have made this decision in the past, so that going forward, with our large existing capacities, we can grow long-term and thus have a huge competitive advantage over our friendly competitors in other countries.

We have massively changed controlling, also due to Corona. One reason was that the controllers had to lead by example in terms of headcount reduction. In the controlling areas, we reduced staff by slightly over 50%. That was only possible through total centralization of the controlling function. Previously, we were relatively decentralized with independent controlling units in the business areas. We centralized everything. Point one. Point two: We relieved controlling of its basic task. Controlling often comes from the tradition of having a reporting function. We said: No more reporting in that sense. The numbers come from accounting, from the machine, from SAP. So accounting produces the numbers; they no longer go through controlling. Instead, the controller is there to steer in terms of translation, not to report. Steering means, on the one hand, steering the profit figures—going into individual expense items, questioning them—and secondly, even more importantly, steering liquidity and cash. So a move away from primary profit steering of the past to a strong focus on pure cash metrics. And even to the philosophy: In the past, there was a budget, and if there was a budget, you could spend it. Today, we say: Even if a department has a budget, it may not spend it if the circumstances are not plausible or sensible. So the controller makes himself unpopular by checking every supposed expense and saying, even though the business area still has a budget, it cannot spend it because, from the controlling perspective, after intensive discussion, the whole matter is not comprehensible. So it's a pure steering function, no reporting. That comes exclusively from accounting. That was the lever to be able to reduce staff by over 50%. And this concentration on this new core function is actually a key moment. I recently discussed this with many other CFOs, and it's a trend I hear from other companies: controlling, against the background of recessive tendencies, is focusing more and more on cash orientation and away from the famous number crunching and explaining reconciliation bridges for profit figures. I think that's a very important trend that you hear in many places. And another trend that you also hear in many places is that people say: Budget planning, planning is important as an annual plan, but in principle we need something completely different. We need continuous steering from controlling. And when we talk about continuous steering, we are talking about forecasting, about automation of forecasting, because a forecast of a certain quality will not come from doing planning 12 times a year or simply taking the actual and adding the plan for the rest of the year.

We have fully implemented that. Before the pandemic, we had the classic processes: planning top-down and bottom-up, asking decentralized, then the numbers were escalated, then they were bad, then they were corrected. You know all those processes. We had that too. But we no longer have that time. The planning process itself is now purely top-down. We take the past, look at what we can improve going forward, reduce costs, so that planning is forward-looking with steering impulses for the future. And it is essentially no longer discussed compared to the past. That has saved a huge amount of time, staff, and also frustration, because those endless discussions about the meaningfulness and appropriateness of budgets no longer take place. For forecasting, a similar situation. Previously, we would ask the units how they saw the forecast, then plausibility checks back and forth until agreement. Today, the forecast is generated by the machine. We have predictive approaches, classically extrapolation from actuals with predictive methods, and also pulling data from SAP, which is then multiplied by expected changes, so that the forecast numbers come out of the machine. The nice thing is that you can always compare the forecast with reality. So we have a much faster process, a more resource-efficient process, and most importantly, the deviation between forecast and actual has never been as small as it is now. So that is also the healing effect of a major crisis and its positive impact. I think that's something many observe who have gone into automated forecasting, also incorporating AI. They report the same effect: the human factor is important, and of course, major disruptions like we discussed at the beginning, AI won't directly recognize that. That won't happen. But the machine makes better forecasts than the result of many discussions that only cost time and brought no great insight. You can see it positively or negatively depending on your perspective, but you have to accept the reality that the deviation is becoming smaller and that the forecast has never been as accurate as with modern methods available today.

Yes, we have two main strategic thrusts. One is, as already mentioned, the final expansion of Frankfurt Airport with T3, resulting in us having the largest capacity in Europe. We need to complete that by 2026 in order to be able to fill that capacity going forward, and we will, because airlines have the opportunity to ramp up their traffic here. The other is our international portfolio, which now contributes about 50% of our earnings. Going forward, that will likely increase even more. Why? Because most of our airports are located in emerging market countries that have higher GDP growth rates and thus, going forward, higher growth in passenger numbers. So we will automatically participate organically. But we also have a clear focus on further expanding this good portfolio. We are constantly on the lookout, though not for large projects at the moment because our balance sheet is highly leveraged due to Corona. But it is foreseeable when free cash flow will become clearly positive again, and that will open up room for further acquisitions. So inorganic growth will be the major strategic axis going forward: through targeted acquisitions to further expand the international portfolio and further optimize and enlarge our international standing as a global airport operator.