Situation 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 in the business units Aviation, Commercial Activities, Real Estate and Participations, Services & External Business. The service profile offered by the Group covers virtually all the services available at 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 on 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 airport expansion and borrowing. Moreover, decisions are passed with 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:

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 employment for the Executive Board (with the exception of remuneration)
 • Setting and amending the rules governing remuneration in the area of the Group not governed by collective wage agreements.
 • Setting or amending the salary level of certain employees above a set salary level or level of remuneration
 • In individual cases, giving commitments regarding occupational provision benefits, including company retirement provision

Executive Board

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

The Executive Board of FMG receives 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

The female quota on the Supervisory Board stood at 31 percent as at June 30, 2017, above the target level of 25 percent. This quota of 31 percent is set to be maintained through June 30, 2020.

Through June 30, 2017, the proportion of women on the Executive Board should be increased to one third due to the planned appointment of another member of the Executive Board. This has been achieved through the appointment of Andrea Gebbeken as of October 1, 2016. The current quota of 33 percent is set to be maintained through June 30, 2020.

It was not possible to achieve the set target of 13 percent for the proportion of female managers in the highest management tier of the Group parent company FMG through June 30, 2017. However, at that point, new appointments to the first management level were already known, so the quota of female managers rose to the target of 13 percent through December 31, 2017.

The quota of female managers in the second highest management level stood at 21 percent through June 30, 2017. It was therefore not possible to achieve the set target of 29 percent. This was due to the fact that males were newly appointed to three positions that were previously held by females. In these cases, no female applicants were available in the application procedure who fulfilled the necessary criteria for the vacant positions.

On the premise that there are regular changes of personnel on the top and second-highest management levels, a target value of 19 percent for the female quota through June 30, 2020 was set for the top management level. The target value of 29 percent was retained for the second-highest management level.

Operating activities GRI 102-45

Organizational structure

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

With a notarial deed dated July 20, 2017, Flughafen München GmbH transferred the «International Consulting Business» division to Munich Airport International GmbH (hereinafter MAI) by way of a spin-off against the granting of new shares in accordance with Section 123 (3) of the German Reorganisation Act (Umwandlungsgesetz - UmwG). The spin-off was carried out retrospectively as at January 1, 2017. MAI was consolidated for the first time upon starting business operations on January 1, 2017.

As at January 3, 2017, Munich AirportClinic GmbH (hereinafter MaCl) was founded as a subsidiary of MediCare Flughafen München Medizinisches Zentrum GmbH. The purpose of this company is the commercial operation of a clinic at Munich Airport for the exclusive treatment of self-paying patients and patients covered by private health insurance, including all ancillary activities that serve this business purpose either directly or indirectly. MaCl will not begin business operations until 2018.

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

Organizational structure of Munich Airport

Grafik: Organisationsstruktur
1) MediCare Flughafen München Medizinisches Zentrum GmbH has a 100 percent interest in Munich AirportClinic GmbH and an 18.2 percent equity interest in Radiologisches Diagnostikzentrum München Airport GmbH.
2) AeroGround Flughafen München GmbH has a 100 percent equity interest in AeroGround Berlin GmbH. In turn, AeroGround Berlin GmbH has a 100 percent equity interest in HSD Flughafen GmbH.
3) MAC Grundstücksgesellschaft mbH & Co. KG. i.L. (MAC KG) has been in liquidation since November 1, 2016.

Business units

  • Infrastructure operations at the limit of capacity
  • First-class service and wide variety of 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

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 charge Fixed amount per landing depending on the noise category
Emissions charge Nitrogen oxide equivalent emitted per landing
Passenger charge Number of passengers on take-off
Freight charge Number of workload units on take-off/landing
Parking charge Maximum take-off mass (for every started period of 24 hours, from the forth 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 concluded 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.

At present, Munich Airport has two runways with a maximum capacity of 90 aircraft movements per hour during daytime operations. As a rule, this capacity is fully utilized over large parts of the day. Market-appropriate development of the traffic is scarcely possible any longer, as there are already a large number of requests from airlines that can no longer be satisfied. This fact is confirmed by the airport coordinator of the Federal Republic of Germany who is commissioned with awarding the landing and take-off 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 midnight and 5:00 a.m., night mail and survey flights by German air traffic control are the only permitted movements. 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 the Interior, for Building and Transport as the responsible authority in justified exception cases.

Although the runway system is still the real bottleneck, the airport terminals must also be continuously adjusted to increasing demand. The Terminal 2 satellite building put into operation in the previous year was used intensively in 2017 with a total of about 11 million passengers. Moreover, the identity checks in Terminal 2 were given new, more powerful body scanners. The security checks in Terminal 1 were extended last year to create handling capacities that satisfy the demand. In addition, the plans to convert Terminal 1 to improve the service quality even further were moved forward in 2017.

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 the business locations of Munich and Bavaria, and satisfies the continuous growth in demand for air travel with a high-quality offering.

Thanks to its outstanding market position and the successful cooperation with Deutsche Lufthansa, Munich Airport possesses the densest network of continental connections in Europe, based on the number of destinations. Extremely popular connections guarantee ideal links between the Bavarian commercial capital and the rest of Europe and the world. The large number of long-haul connections is feasible only with an efficient system of feeder flights. Without this system, the original demand in Munich, based on the size of the catchment area, would not be sufficient for most contemporary long-haul connections. Incidentally, this state of affairs also applies to every other location in Germany. Due to the tourist attractiveness of the location and the growing catchment area with a wealthy population, Munich Airport is not only interesting for the Deutsche Lufthansa hub traffic but also for point-to-point connections. This can be seen in part by the fact that increasing numbers of low-cost airlines are trying to establish themselves in Munich. Following a change of strategy, the airline Ryanair is showing interest in major locations like Munich and added its first flights from Munich to its portfolio as from the winter timetable 2017/2018.

The pleasing growth scenarios for Munich Airport are hindered by the bottleneck in the runway system. In addition, a lack of traffic rights or ongoing traffic rights negotiations may hinder the development of traffic, for example to Africa (Ethiopia) or to China. An additional obstacle to market-appropriate growth is still the German aviation tax: While neighboring countries abolished comparable taxes again (Netherlands) or plan to reduce such taxes considerably (Austria), there are currently no plans in Germany to adjust the aviation duties.

Cargo handling is also heavily dependent on the development of passenger traffic and the capacity of the runway system. After all, the majority of the airfreight – over 80 percent – at Munich Airport is transported as bellyhold cargo on long-haul passenger flights. Exclusive freight flights are rather more flexible in their flight times than passenger routes. However, freight airlines are more and more dependent on night flights which are only possible in Munich in exceptional circumstances due to the strict night-flight regulations.

Commercial Activities

The Commercial Activities business unit is responsible for marketing 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 over 20,089 square meters of catering space and 25,916 square meters of space dedicated to retailers and service providers. 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 the airport’s central area. Since the opening of its extension in March 2017, the hotel now possesses 551 rooms and 30 conference rooms.

This business unit is also responsible for marketing parking at Munich Airport. At present, there are around 36,000 parking spaces, of which 23,000 are in multi-storey car parks and garages and around 13,000 are on paved and unpaved car parks.

Commercial Activities markets the advertising media and spaces at the airport as well. As a niche area of out-of-home advertising, 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

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 will be significantly improved by the addition of the Neufahrner Kurve.

In accordance 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 initial development measures at AirSite West have been launched recently.

Another field of activity is the creation of cost-effective living space for employees in collaboration with external partners. Here, too, initial contracts are due to be concluded soon.

Participations, Services & External Business

Participations

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

Significant subsidiaries

   
AeroGround The companies provide landside and airside handling services for airline customers, including ground handling services and passenger care, at the Munich and Berlin locations.
aerogate The company provides passenger handling, operation services with ramp supervision, Lost & Found with luggage delivery, ticketing service, and arrival and concierge service at Munich Airport. The range is completed by general aviation services, as well as consulting and training.
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 and valuable goods.
MAI The company provides consulting services for the commissioning and ongoing operation of airports all over the world.

Services

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 and cost-effective 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 CO strategy as part of its energy management.
IT The IT service division provides its customers at Munich Airport with various services in the areas of media and communications technology, IT workstation equipment, and server, database, and memory system engineering. The core competencies of the division are primarily the integration of different technical IT platforms and the provision of customized support services for the 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 (excluding ground handling). Therefore, the economic development of this business unit is not explained in detail. In contrast, the developments regarding the ground handling services of the Group have been incorporated in the sections on Aviation.

Control system and values management

Indicator system ensures sustainable business

Munich Airport measures the performance of its managers using financial and non-financial indicators. In doing so, it focuses on indicators that measure corporate sustainability and quality. Accordingly, earnings before taxes (EBT) give the economic, CO2 reductions the ecological, and the employee retention index the social perspective of traditional sustainability management. With the Passenger Experience Index (PEI), the airport measures the achievement of its quality targets, which are designed as a strategic approach towards improving customer satisfaction. FMG surveys internal and external interest groups every year to determine and regularly affirm the relevance of the performance indicators for stakeholders.

Earnings before taxes (EBT)

Since the previous year, the earnings targets of management have been 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

CO2 reduction measures include cutting greenhouse gas emissions, conserving resources, the use of energy, and energy efficiency. At the end of 2016, Munich Airport set itself a new target of becoming climate neutral by 2030. At least 60 percent of the emissions are to be cut effectively, and the remainder will be compensated for using high-quality certificates. This analysis considers both the emissions caused by the energy generation and consumption of Munich Airport itself (Scope 1) and the emissions from purchased energy (Scope 2).

Passenger Experience Index (PEI)

The PEI is a measurement model for customer satisfaction which allows Munich Airport to derive location-specific targets adjusted to the needs of target groups and to assign the fields of action for improving service to existing customer contact points. For reasons of objectivity, an independent, external service provider determines these values. Regularly throughout the entire year, this service provider measures the satisfaction of departing and arriving passengers. On a monthly basis and at the end of the year, Munich Airport therefore obtains a wide range of detailed information about the satisfaction of its air passengers in eleven categories along the entire passenger experience chain. The overall satisfaction with the airport experience is reflected in the PEI value which is calculated from all the measured values weighted by passenger relevance. As the target for 2018, the PEI follows the two values calculated in 2017 for the overall satisfaction of arriving and departing passengers.

Employee retention index

Munich Airport surveys all Group staff every three years to determine the level of employee satisfaction. The employee retention index represents the percentage of employees indicating their loyalty to the company in the employee survey. The last survey took place in 2017. As the employee retention index is measured on a three-year cycle, it is not possible to give an expected/planned value for 2018.

Innovation and ideas management

The aim of innovation management at Munich Airport is to improve customer satisfaction and customer experience with new services and products. The development of products for the airport industry has also been promoted more intensively since 2017.

Thanks to the analysis of trends and market needs, innovation management is able to develop target-oriented innovations for both passengers and customers. The feasibility and cost-effectiveness of the innovations is reviewed in pilot projects and subsequently a decision is made on whether they should be continued, implemented, or possibly expanded to involve other divisions. In the process, innovation management at Munich Airport works with startups, established companies of the region, and also increasingly with international companies to be able to access cutting-edge scientific and business knowledge at all times.

The ideas of the company’s own employees provide another significant input for innovation management. In the reporting year, a total of 675 ideas were submitted via the internal open innovation and idea management system, «InnovationPilot», on subjects such as employees, areas and buildings, and technical equipment and vehicles, and 45 of these ideas were implemented.

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