Ladies and gentlemen, welcome to the presentation of Zurich Airport's Half Year Results 2019. I would like to remind that the analyst presentation is available on our webpage, sirick airport dotcom. My name is Sefa Mitrick. I am the CEO of Zurich Airport, and I will host this conference call together with Lucas Brosi, our company's CFO. I will start with the business update before our CFO will provide you with detailed information on our financial performance, followed by the outlook.
At the end, we will have enough time to answer your questions. On Slide 3, you will find some of our highlights in the 1st 6 months of the year. A new passenger record was set in 2019. On July 28, we welcomed for the first time more than 115,000 passengers in one single day. Though it has become more challenging to handle the operations at peak hours, we are able to keep our quality promise and have recently been awarded once again with the most prestigious industry award as best effort in Europe.
During the first half year and in particular during the summer vacation period, we have seen the expected deceleration of passenger growth. Nevertheless, population growth, economic development and increasing internationalization are all driving a rising demand for global mobility going forward, so on slightly lower levels compared to the last years. In June, the Swiss Federal Council made an important decision on the ordinance on airport charges. With this, the framework for the upcoming tariff negotiations with our partners is clear. The economic parameters will, contrary to the initial regulatory proposal, not be adjusted.
We regret that there has not been an adjustment to the calculation formula for the allowed return due to the continuing low or even negative interest rate environment. On the other hand, we very much welcome that the percentage for transfer payment will not be raised. On the commercial side, changes in the offerings on air and land side, combined with newly signed contracts, have led to a higher average concession rate and an increased use of digital channels supporting the airport's ambition to remain one of the leading commercial centers in the top market. The Circle project is progressing well. And at the same time, we have started the planning of a new large scale project to expand the land side passenger zone to accommodate future growth and offer additional shopping space.
During the last month, we have also tended out the advertising space at the airport. APG, together with JCDECO, were newly awarded with a contract starting in 2020. It is becoming more and more important to address different target groups with different offerings, and we believe that APG's innovative digital form of advertising can present products as well as services on a more individual basis combined with the international distribution network of JCDECO. As a result, we expect to see slightly increasing advertising revenues as of next year. And last but not least, in March 2019, Flugafen Zurich AG was awarded the concession to operate 2 additional airports in Brazil, Victoria and Macau.
This marks a logical next step in our international strategy, and we look forward to adding those 2 additional airports to our portfolio. On the next slide on number 4, you will find a brief overview of the group key figures. In the 1st 6 months 2019, total passenger numbers grew by 2.4% to roughly CHF 15,000,000 Our revenue increased to CHF 588,000,000, a plus of 8.8 percent, while both segments, aviation and non aviation, were on a positive trend. In sum, Flugach and Zurich AG reported a profit of CHF 143,000,000 for the first half of 2019. The same period in 2018 has been negatively impacted by additional provisions for sound insulation measures.
After adjusting for this one off effect, profit rose by 10.1%. Let us now have a closer look on the Aviation business on Slide number 5. The number of local passengers rose by 1.1%, while transfer passengers recorded an increase of 5.7%. As a result, the proportion of transfer passengers went up from 28.4% to 29.3% compared with the prior year period. Markets in all regions performed well, while the European market grew by 0.4%, the number of passengers heading for intercontinental destinations increased by 8.4%.
The number of flight movements climbed to 0.9% to nearly 136,000 takeoffs and landings. Compared with the prior year period, the volume of freight handled at Zurich Airport fell by 7.5% to 2026,000 tonnes. From a financial point of view, freight revenues are rather marginal. I'm moving on to the overview on the revision on the ordinance of airport charges and the subsequent tariff setting process on Slide number 6. In November 2018, the Swiss FOCA presented its proposals for a partial revision of the ordinance on airport charges.
The proposed changes aimed to substantially increase the gross subsidy from the non aviation to the aviation business segment. In June this year, the Swiss Federal Council at the last decision body overruled the ministry to our advantage and adopted the revised ordinance. There is no increase in the transfer payment. 30% of the economic added value generated by our air side commercial activities and car parking will continue to subsidize the regulated business. On the other hand, our request to change the formula for calculating the return on investment capital due to the current low interest rates also remained unchanged.
The revised ordinance will form the basis for the upcoming round of setting airport charges for the next regulatory period. We are now preparing the negotiation process with the airlines and expect an outcome of the negotiations next summer. I will now move on to the non aviation business and share some insights on the commercial business followed by an update on our strategic projects. On the commercial side, year to date performance was positive despite several changes and refurbishment works in the commercial areas on air and land side. The strong Swiss franc environment and the trend to online shopping are facts that we share with every other commercial center in Switzerland.
That said, Zurich Airport has some convincing USPs for further growth in the commercial business. 1st of all, frequencies, the main driver for commercial business, are increasing on land and on air side. Think about the additional roughly 6,000 employees in the circle who will generate additional footfall starting next year. Passengers continue to grow as well as commuters since Zurich as a city is growing fastest in the north around the airport. Secondly, shopping at the airport is convenient.
We have been the largest shopping center in Switzerland with good categories in a premium environment for more than a year now. Thirdly, the purchasing power of our passengers is high. As an example, high margin luxury goods such as watches and jewelry are still on a very positive trend. And last but not least, we are benefiting from favorable opening hours compared to traditional shopping malls in Switzerland since we are the only shopping center open on Sundays. In conclusion, we are convinced that our airport remains the top destination for commercial offerings.
Moreover, we are steadily adapting the mix of tenants to focus on our USP. On Slide 8, you will find some of the latest new commercial concepts. On land side, our premium offering was strengthened with an espresso boutique plus the opening of Globus Delicatessa and Bar. For the first time in Switzerland, the British company Pretamorge opened 4 locations at the airport, of which one is on the inside and the remaining 3 on air side. Also on air side, a new Rolex boutique has recently opened.
Furthermore, we have added several Hudson stores at the gates and linked them to the duty free stores, which increases conversion rates. On top of that, in July, we have been able to add the Bottega Veneta boutique, which offers beautifully crafted accessories for men as well as women and international fashion brands, Maure Claire, to our list of tenants. On Slide 9, our commercial performance is shown. Total sales for retail outlets, duty free shops and restaurant operators at Zurich Airport amounted to around CHF 286,000,000, an increase of 0.5 percent. In particular, as mentioned before, the Luxury Goods segment posted above average growth rates.
Moreover, the targeted use of digital channels enabled the growing number of travelers from Asia to be directly informed about offerings at Zurich Airport already ahead of their journey. On land side, despite the impact of several remodeling projects during the first half of the year, turnover rose by roughly 1%. After the increase in the average concession rate in the financial year 2018, another remarkable rise of 0.8 percentage points to 22.3% was achieved in the first half twenty nineteen compared to the half year numbers 2018. While the increase last year was mainly attributable to the new duty free contract, the increase in 2019 is the result of various renewed contracts on Air and Land side. I continue with an update on the circle on Slide 10.
The building work is proceeding well, and our new service destination is on track to open in stages from mid-twenty 20. Good progress has been made in attracting tenants. Further rental contracts were signed during the first half of the year, including the new headquarter of the airline Edelweiss, the management consulting firm, Horvath and Partners, IT company, Inventix and the premium Swiss department store, Globus. Preletting stands now at roughly twothree, and the pipeline with interested tenants is still filled well. With the circle near to completion and the construction of the new baggage handling system in full swing, the next large scale project is in its planning phase, the expansion of our landside area.
The projects involves the redesign of the landside passenger routes between railway bus and trams, improving the landside and airside logistics, optimizing the underground links to the circle and creating additional retail units and a foothold to expand the airport's commercial offering. The expansion of the landside area provides us with additional flexibility as well as capacity to get our infrastructure ready for up to 50,000,000 passengers a year. The project planning of this project has started in June, and the new land site passenger areas are scheduled to be fully completed in spring 2025. In total, land site retail space is expected to grow by approximately 6,000 square meters at completion. Slide 11 provides you with an update on our international operations.
Following a public tendering process, Frugalp Zurich Jage was awarded Southeastern Brazil in March 2019. Together, these airports handled some 3,200,000 passengers in 2018. Under the terms of the 30 year concession, Programme Series AG is obliged to invest around CHF 80,000,000 in expanding the efforts in the coming years. It is expected that Midoriya and Macae will already contribute positively to the EBITDA in its 1st year of operations. The new terminal at Florianopolis Airport, our other project in Brazil, is on schedule to open at the beginning of October 2019.
Including the 2 newly acquired airports, Flurghaven Surijaga is currently involved in the operations of 8 airports in Latin America. With around CHF 8,000,000 in half year 19, the international concessions contribute already positively to the EBITDA of the company Due to high fixed costs and typically overcapacities in the 1st years, the margins are lower at the beginning of the concession and expected to increase substantially in due course. We are confident to reach at least a 10% IRR in real CHF terms for our international portfolio. With this, I'm handing over to Lukas.
Thank you, Stefan. Good morning, ladies and gentlemen. Welcome also from my side. I will now give you an overview of the financial performance of the company. Revenue of the 1st 6 months in 2019 grew by 8.8% year on year to CHF 588,000,000.
Factoring out the one off effect in the prior year period, EBITDA improved by 2.2%. The EBITDA margin decreased to 51.6%. Factoring out the gross accounting, the EBITDA margin stood at solid 55.9%. Profit in the first half of twenty nineteen amounted to CHF 143,000,000. When adjusted for last year's one off effect, profit was lifted year on year by 10.1 percent driven by a stronger operating performance, lower depreciation and amortization and a better finance result.
The aviation revenue breakdown is on Slide 14. Because of an increased share of transfer passengers, passenger related charges grew disproportionately lower compared to passenger growth to CHF 209,000,000. On the back of more takeoffs and landings and the higher average maximum takeoff weight, other flight operating charges grew by 1.8 percent to CHF 67,000,000. The positive trend in aviation fees and other aviation revenue, which increased by 5.6% to CHF 39,000,000 is mainly attributable to higher deicing revenue. In sum, aviation revenue rose by 2.1 percent to CHF 315,000,000.
The non aviation revenue breakdown is on Slide 15. Due to the higher commercial turnover in combination with an increase in the average concession rate, revenue from commercial and parking increased by 2.6 percent to CHF 121,000,000. The increase of CHF 2,200,000 in earnings from Facility Management was mainly driven by higher revenue from rental agreements, which is also reflected in a lower wait and see rate. In particular, as a result of the expansion of the infrastructure in Florianopolis in Brazil, revenue from international airport business rose to $68,000,000 in the first half of twenty nineteen. Let me remind you of IFRIC 12, the so called concession accounting rules.
According to the international reporting standards, CapEx in our international concession has to be reflected in the P and L as revenue and operating costs at the same time. In total, this has a neutral impact on EBITDA. Non aviation revenue increased in sum by 17.9% to CHF 273,000,000. Excluding ARFIC 12, non aviation revenue grew by 2.3% with all segments on a positive trend. Slide 16 gives you an overview of our operating Personal expenses for the reporting period rose by CHF 2,800,000 to CHF 106,000,000 mainly because of a slightly higher headcount.
Expenses for police and security increased only slightly by CHF 1,200,000 to CHF 61,000,000. After adjusting for last year's one off effect, operating expenses rose by 17% to CHF 284,000,000 primarily as a result of the development of the infrastructure in Floyanopolis. Excluding concession accounting, operating expenses rose by 2.1%. I will now outline some key figures on Slide 17. Net financial debt, excluding the Airport Zurich Noise Fund, stands at nearly CHF 800,000,000, increasing the net debt to EBITDA ratio to 1.3x.
We estimate the net debt to EBITDA ratio to go up to roughly 2x within the next years. The increase in leverage is mainly a result of additional international debt, CapEx peak in Zurich and the payout of the last additional dividend in 2020. Further, our EBITDA will be lower due to the lower aviation revenues, reflecting the expected tariff adjustment at the end of 2020. The return on invested capital stands at 9.3%, up by 0 point 8 percentage points compared to the prior year period. Major reason for this increase were the better operating performance as well as lower depreciation and amortization.
The operating cash flow was slightly higher compared to the prior year period. At the same time, the free cash flow has decreased because of higher CapEx in the reporting period. To end the financial part of the presentation, let me give you some additional information on CapEx on Slide 18. In the period under review, Flukka and Zurich AG invested almost EUR 200,000,000 in ongoing projects. This included, in particular, our share of the investment in the circle of CHF 44,000,000 followed by the renewal of the package system and the upgrade of the power supply system.
On top of that, a significant amount of approximately CHF 4 $5,000,000 was spent abroad in conjunction with the new terminal in Florianopolis. With this, let's move on to the outlook. Let me first share some insights on traffic development on Slide 20. While Swiss, Edelweiss and some third carriers have increased their offering for the current sample timetable, there have been some reductions as well mainly from the low cost carrier segment. The dropped routes were mostly highly competitive, and they are still served by other airlines.
Another aspect that currently limits the growth potential of some airlines is the 737 MAX grounding. As the waitlist market has completely dried, some airlines can't operate the desired numbers of aircraft. In 2020, Swiss will receive 2 additional Boeing 777 Long Haul Aircraft. The airline will use the new Boeing to increase the and A330 aircraft. These 2 aircraft will be in service on 2 new routes to Washington and Osaka.
Since 2016, Zurich Airport has been connected to a total of 15 new long haul destinations, a remarkable number. Before presenting the updated guidance for 2019, please find our midterm CapEx road map of Zurich and International on Slide 21. Because of the completion of the circle, CapEx in Zurich will peak next year. Going forward, we expect to spend approximately €300,000,000 per year in Zurich, whereof the larger portion shall be in favor of the regulated business. Beside maintenance CapEx, the regulated CapEx is mainly life cycle and capacity driven and will allow to meet the demand we expect over the next decades.
Internationally, we will complete the new terminal in Florianopolis in the next months. After 2019, we expect to spend approximately CHF 80,000,000 on our new assets in Brazil, mainly on a new runway in Macau. These investments will not only impact the free cash flow but also be subject to the IFRIC 12 accounting rules. Let me finish with the guidance for 2019. For a better 2019 remains mainly unchanged beside our expectation on passenger growth and CapEx in Zurich.
Flukewarm in Zurich, okay, expect passenger growth of around 2% for the full year 2019. After a pretty solid start into 2019, growth slowed down earlier than initially expected. Aviation revenues will be driven by the volume growth. Please be aware that the number of flight movements usually does not rise as fast as passenger numbers, and the passenger mix may change, too. Therefore, the increase in aviation revenues is typically slightly lower than the increase in passenger figures.
Non aviation revenues will benefit mainly from commercial contract renewals on our international activities. International business will be the main driver for OpEx as well. Additionally, costs in Zurich are expected to be slightly high, too. Given the number of complex projects that need to be planned and executed in the upcoming years, the headcount will slightly increase. Please note that non aviation revenues as well as OpEx will be impacted by the already mentioned concession accounting.
However, this impact is EBITDA neutral. Factoring out one off effects. EBITDA is expected to be slightly higher, whereas net profit is still expected to be up by approximately 5%. Although the passenger guidance has to be reduced, net profit growth is expected to remain unchanged. This is mainly due to higher than anticipated gains on financial assets of the Airports Zurich Noise Fund.
Lastly, the company has earmarked around CHF 350,000,000 for investments in 2019 in addition to various work to maintain the value of the airport's infrastructure, the biggest investments are for the circle. With this, we would like to conclude the presentation, and I hand back to Stefan.
Enough said. We now open the question and answer part of this presentation.
The first question comes from Pascal Fouger from Vontobel. Please go ahead.
Yes. Good morning. Three questions from my side. So the first one on the CapEx guidance. Here, you lowered it to €350,000,000 In particular, You lowered your expectations for the circle to €110,000,000 Are there any delays there?
And can you remind us how you set up the contracts? Is there a specific date when the contracts will start at the circle? And this leads me to my second question here. You successfully improved pre letting to twothree. My question is, have you closed all contracts in line with expectations?
Or did you give away any sort of rent incentives for those new contracts? And then the last question is with regards to retail. Here, we saw a strong boost in concession margin to 22.3%. You mentioned several drivers. Could you just give a bit more granularity how much is basically attributed to this new refurbished works and new concept?
How much is attributable to a strong performance in Luxury? And overall, is this 22.3 percent sustainable concession margin in your view?
Thank you.
Pascal, please. Let me start with answering your question and Stefan can add. The EUR 350,000,000 CapEx is the CapEx we expect this year Zurich. There has been a reduction on the circle. That's correct.
The circle will be confirmed time line, so there's no delay in the circle. Circle. Please be aware that this can be always impacted by accruals and deferrals, etcetera. So to answer your question, no, there is no delay in the circle. The circle is on track, then the time line can be confirmed.
Contracts which have been signed for the circle are, yes, mostly in line with our expectations from the business plan. But there to be very honest, we also have expected a certain first mover incentive. But overall, it's we also can confirm that the economic conditions of this contract reflecting our business plan assumptions. I think your last question was on retail. I think it's a quite balanced combination of all the drivers that you have mentioned.
The 0.8% increase in the average concession rate is mainly driven by the renewal of contracts. And yes, I think that's a sustainable number, although that the growth rate of the average concession accounting that we now have seen for 2 years being 0.8% of the half year numbers is not a trend that will continue. This is last year, as Stefan has mentioned, driven by the duty free contract and this year by, let's say, some new contracts signed with better conditions. I think that the average concession can be following the trend to increase, but not on that magnitude that we have seen for the last 2 years.
I have nothing to add. I can only confirm that rental agreements signed for the Circle are all along the expectations we have in the business plan. So next question?
The next question comes from Nicolas Moura with Morgan Stanley. Please go ahead.
Yes. Good morning, gentlemen. Just to start up, can you explain a little bit why the D and A was so much lower in the non regulated part of the business? That would be the first one. 2nd one on costs at Zurich.
So they were up 2.5% in the first half. You've continued to get for a small increase in the year. Are we on the right pace, 2.5% for full year or anything to take into account for the second half? And then third question on international and M and A. You're flagging again Southeast Asia as an area of opportunities.
Can you give me a little bit more specific as to what you're targeting at the moment? These will be the 3 questions. Thank you.
Good morning, Nicolas. Yes, let me start with depreciation and amortization by what is the impact of a lower number that we have seen. It's basically it's mainly coming from the end of the depreciation cycle of certain infrastructure coming from the years 2,001 to 2,003 when we have constructed the largest expansion phase, excluding Airside Center, including the PRE. So this is something that we have expected and also have reflected in our guidance. So depreciation and cycle is the main driver behind that.
Cost in Zurich being 2.5% higher on half year base. I think that's sustainable also for the full year and might be also that we see a slightly lower number than the 2.5% on a full year base. But also, the cost side is on track with our expectations and on track on what we have guided at the beginning of the year. And in terms of the international pipeline, we're still focusing on our focus area being Latin America, being Asia and Latin America with the award of 2 additional airports. The focus is mainly in the start up of the operations.
We will take over the 2 airports at in December or January, the latest. So the focus of the resources there is on the completion of the terminal and the start up of the new airports. But nevertheless, we see also privatization around in Brazil that we definitely will have a look at. And in Asia, there, in particular, on our focus markets being mainly India, Indonesia, we see a lot of activities in the project second airport to Delhi, which are projects which I think under attractive concession conditions that are in line with our strategy. And also in Indonesia, we see 2 projects for the next 6 months that might materialize where we have a closer look at.
Okay.
And if I may, just on Brazil, on Victoria Masai, you've I mean, you might have seen that AENA called for a few exceptional costs in the second half when they get their own bundle of airports ready? I mean, are you expecting also some substantial one offs to be charged in the second half, so redundancy and other costs to be paid to Enfiro? And last one on traffic, your revised guidance to 2%. I think you know that the seat capacity are turning negative for actually from now into the end of the year, even 2% a little bit on the high end of what we could expect?
Well, first on the one off costs for the start up in Vittorio Marque. We obviously have calculated with certain start up costs in the business plan by preparing the bid. And we expect here a low single digit million number that is reflected in our forecast and in our guidance. And on traffic, we now have completed summer vacation, which has the highest passenger numbers. We also see in the bookings for the next occasion in autumn quite good situation.
So I don't think that we are on the aggressive side with the 2% guidance.
Okay. All right. Thank you very much.
Welcome. Next question please.
The next question comes from Christian Nadellco with UBS. Please go ahead.
Christian?
Mr. Nobelcourt, your line is open. Please go ahead.
Hello. Can you hear me? Yes. Good morning. Hello.
So apologies. This is Chris Staelga from UBS. Thank you very much for taking my questions. 3, if I may. The first one, on the dividend on the midterm, there is quite a wide range of expectations out there that the level of the dividend from CHF 4.5 going to CHF 7 among the sell side and the buy side analysts.
Could you maybe help us narrow a little bit that range? And eventually, if you can mention which are the factors that you are considering going forward when you are setting the potential base for the progressive dividend? Secondly, and I come back to the previous question, on the retail concession rate, again, a strong performance in the first half that you explained. My question is, if the environment, overall spend environment over the next 3 years continues to be difficult with declines in air side spend. I'm trying to understand how much more support you can get from the concession rate on the one hand, but also from the minimum annual guarantees that you have in place.
I don't
know if you
can provide us a bit more details on the help that you get from these 2 levers. And the last question, if I may. Just looking at the financial income, I think the $6,400,000 the fair value adjustment in the noise fund. If you can please give us a bit more detail exactly what triggered that? And equally so, and the stem from your guidance, depreciation is expected to be lower year over year.
And I think in the first half of the year, depreciation charges are roughly €8,000,000 lower. So should we assume a sort of similar dynamic for the second half of the year? If you can provide any more color on this point, please?
Well, starting with the dividend. So the current dividend policy is confirmed. We have informed with the full year results in March that we tend to pay out the last additional dividend next year. And also from a tactical point of view, I think we still are not with the beginning of the tariff negotiation, we won't have this topic to be communicated most likely with the full year results in March next year in terms of an adoption of the dividend strategy. What I also have said in March is that in general, I think the management and the Board intends to pursue an attractive dividend policy even after the capital contribution reserve will be depleted and the additional dividend will be stopped.
On the other hand, our profit is estimated to be more volatile in the future and not only because of the tariff topic but also because of the increasing importance of the international business. So one thing that we currently thinking about is like a decoupling of the dividend from the profit. So assuming a positive course of the business, the object would be to have a small constant ordinary dividend increase instead of dividend linked to profit. But this is like more thinking out loud than anything has to be decided on that. In terms of the range, I think the upper end, so being a rollover of the additional dividend becoming an ordinary dividend, in my view, is too aggressive.
But the main question, if we would change the model of the dividend payout, is the starting point. So I think the conservative end is like taking the starting point of the last ordinary dividend and the most likely something in between, which we don't want to communicate at that stage. On commercial on your commercial question, the I think that on particularly on air side, nevertheless, the increase in passenger is lower than what we have seen over the last years. But nevertheless, it's still growing, especially in the transfer market, which also is an important segment for the airside commercial activities. We do not comment on details, minimum guarantees, individual concession rates on individual contracts.
But nevertheless, we as Stefan has mentioned in terms of the USP, we are in a favorable situation. As the footprint is given, the underlying drivers are still growing. So this makes me at least positive that for also in the future maturing contracts that we are in a positive situation in dealing the concession terms of the contract. Fair value of Noyesfarms is something that is not really under our own control. We have seen a loss in the finance result last year of $6,000,000 roughly $6,000,000 profit this year.
This volatility comes from basically the market developments where we have invested the Neuss Fund. The Neuss Fund is mainly invested in debentures but partly also in equities and listed real estate. So whatever happens to the markets, we have to recognize that in the fair value that, yes, gives us a little bit more volatility in the finance results. And depreciation, yes, the trends or the we can confirm that for the full year, we will also, as we have guided, being on lower depreciation.
Maybe one addition Thank you very much.
Yes. One addition from my side on the midterm outlook on retail sales. Since we have this increasing importance of online sales, we still are convinced that when you see, for example, watches or even luxury goods being sold online, they remain very important to be shown to the consumer before they have a purchase. And airports are the logical place to show luxury goods, which means that we have a certain shift from sales to marketing income on showing these products. And that means for us also that our structure of retail contract shifts a little bit back from a pure revenue share model to a bigger importance of fixed rental income again due to this change from sales to marketing.
And this has also been reflected, of course, in the newer contracts that the assurance on a fixed outcome is higher than in the past and will also be a trend in the future in my view.
Understood. Thank you very much. Is it possible to have one more question, please? Sure. On the CapEx side of the international or the international side of the business, I think you've spent EUR 45,000,000 in the first half.
Can you give us an indication for the full year in international? And equally so for 2020, maybe for both Zurich, where you mentioned, I believe, in the slide that is the year of peak CapEx as well as for international. Any color that you can provide at this stage?
Well, from today's point of view, next year in Zurich, we will be, I would say, closer to 400,000,000 dollars in that area. If the international business will be definitely lower as the construction for the terminal floor in Opelisk comes to an end. We expect for the full year 2019 roughly €80,000,000 referring to the number that you see in the concession accounting, so another roughly €35,000,000 in the second half. And then international investments will be lower as we have guided on the slide that we expect over the next year, only $80,000,000 in total to be spent for the new airports.
Thank you very much for that. Welcome.
Thank you, Christian. Next question please.
The next question comes from Stefanie Doss from RBC Capital Markets. Please go
ahead. Good morning. I have three questions, please. The first one is on your expected tariff cuts next year following the regulatory announcements from June. You had previously guided for, I think, 20 plus percent cuts, assuming cost of the rate increase.
Could you please let us know what your expectations are now just based on the WACC line? My second question is on traffic after the tariff cut. So you mentioned that some of the local carriers had pulled some capacity out. Would you expect or are you in discussions with them to re encourage them to create volume growth next year after your tariffs have become more attractive? And then my third question is on the concession rate.
We saw 80 basis points improvement in the first half. You said we shouldn't extrapolate that for the coming years, but is that a good range for this year's overall improvement in terms of concession rates?
Thank you. First on tariff cuts. As we start the negotiation process with the airlines, we are not giving like a more concrete guidance on our expectation. I think the market is pricing in certain decrease, obviously, but no more information, mainly from a tactical point of view from our side. Please be aware that the tariff decrease will only be partly relevant for the next financial year as I think the earliest timings end close to the end of next year.
In the long term, we expect and we could confirm still our medium to long term guidance of 2% to 3% volume growth in Zurich. And even your questions regarding, is there any incentives or similar for low cost carriers, something that from the model of the tariffs, we are now going into the discussions with the airline. So unfortunately, not really more color on this from our side. And your last question was on the concession of the commercial, if I understood correctly, if this trend can be assumed to continue. And here, as I've mentioned earlier, I still think that the average concession rate can be increased as a trend going forward, but not in the magnitude as we have seen for the last 2 years as this has some particular reason that we have explained.
Fine for you, Stephanie.
Yes. My question on the customer share rate was just rather for the second half, if we could expect to see improvement in the first half rather than in the coming years?
Yes. So we could confirm that the full year effect is similar to what we see in the half year, yes.
Thank you very much.
Thank you. Next question, please.
The next question comes from Philippe Sarot from Bicte. Please go ahead.
Yes, good morning. Thank you for taking my question. I have a question on the regulation and on this passenger tax, which has been discussed in Parliament today in Switzerland, which is CHF 30 to CHF 120 per passenger. How maybe could you comment on this? What do you think the likelihood this is implemented is today in Switzerland?
And what do you think the impact will be on your traffic? And then second question on the cycle. You mentioned you're at 66% relating today, which is better than the 60% you had in the first half. But isn't it that your target to start was closer to 70%, 75% and we're now kind of a couple of quarters ahead of the launch? Or are you not kind of tracking behind this your metrics there?
And then the last question is just the precision. You mentioned a target for net debt to EBITDA earlier on during the call. I didn't really catch it. You talked about 2 times net debt to EBITDA as a target once the concession charges have been reset? Could you just maybe elaborate on this?
I'll start with the first question on regulation. Philippe was referring to climate tax that is maybe introduced in Switzerland. There is still, I would say, a 2 year legislative process with a public quotation on that coming on, so it's nothing in a short term. We are quite convinced that this climate few years ago, which did not really have an impact on traffic. So we don't think it has an impact on our traffic.
We are still opposing it because at the end, it's a fiscal tax without using the money to make aviation greener, but it's not a core issue for us in terms of business.
In terms of the pre letting of the circle, we are quite happy with the progress. The target of the opening was always being in an area of 75% to 80% preletting, and this is something that we see achievable from today's point of view. And I think much more crucial than the percentage
number at
a certain stage is also the mix of tenants and also on what conditions these contracts have been signed. And we were very disciplined with incentives, which is, in my view, rather more important than showing a high pre letting quote a year before the opening of the circle. Also, in my view, so the target at the opening can be confirmed and also the mix of Ternan is correct and also the target set by the business plan may be achieved. So overall and also with at the current stage being at 2 third of pre letting, we are quite happy with the success. And in terms of the net debt, it's not a target to be at 2x net debt to EBITDA.
This is some this is like a combination of what we see this ratio goes to. As I've mentioned, increasing debt from international business, CapEx peak in Zurich and the additional dividend paid out last year. And also reflecting the base of the EBITDA will be lower from the tariff cut. And if you take all this together, we will see a net debt EBITDA ratio of roughly 2x in the next 2 years to materialize. We have maybe earlier said that it's hard that in that sense of 3x net debt to EBITDA is something that can be realistic once international business has more projects and importance in terms of the spending and in terms of the leverage.
But from the ongoing business, my message is that we also see an increase in net debt.
Just maybe as a decision on the the climate tax, which is being floated, is about CHF 30 to CHF 120. What's the average ticket price in Zurich airport today? How much would it be compared to the existing ticket price?
We don't monitor average ticket prices of the airlines. I can't give you a figure on that.
You don't have any how much you will impact through elasticity to price?
Mel, the best I would still recommend the best thing to analyze is since a similar amount has been introduced in Germany 2, 3 years ago. There you can see the elasticity of a fiscal climate tax, and we can't see anything there. So that's probably the
Was it as high as CHF 30,000,000 to CHF 120? Within France, they have floated 1 and they took a flat at the lower number. It's like in the 1 or 2 digit numbers.
Yes. I mean, it's not yet defined in detail what will be the tax for European traffic, what will be the differentiation between business and economy. But the bill that is currently discussed clearly says that the bill may not have an impact on the long distance network of SWISS in its competitiveness. So this has to be also taken into consideration when defining the details. In general, the tax plan is substantially higher than in France and very slightly higher than the fiscal tax that has been introduced in Germany a few years ago.
Thank you very much.
Next question, please.
Ladies and gentlemen, there are no more questions at this time.
So thank you very much for your interest. Have a good day.
Thank you.
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