Business model of the Group

Situation

Flughafen München GmbH (FMG) is headquartered in Munich. As the parent company of 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, Services & External Business. The service profile of the Group covers virtually all the services available on the airport campus – from flight operations to 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 toward economic, environmental, and social goals ensures acceptance of the airport and consequently the viability of its business model.

Main features of management and control

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

According to section 5 of FMG’s articles of association, its executive bodies consist of the Executive Board, the Supervisory Board and the shareholders’ general meeting.

Executive Board 
As a rule, the members of FMG’s Executive Board are appointed for five years; reappointment is permitted. The Executive Board consists of three members (including the Chairman of the Board), represents FMG externally and is responsible for corporate policy and the strategic direction of the Munich Airport Group.

FMG’s managing directors receive non-performance-related compensation (fixed salary) and performance-related compensation with short- and medium-term incentives (bonus). The bonus is primarily linked to the earnings before taxes.

Supervisory Board 
FMG has a Supervisory Board pursuant to Sections 1 (1) and (6) of the German Codetermination Act (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 or terms require Supervisory Board approval. The employees’ representatives on the Supervisory Board are elected by the Group employees. The shareholders’ representatives are appointed by the shareholders’ general meeting. The term in office of the Supervisory Board members 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, and it has entrusted them with the following tasks, among others:

Shareholders’ general meeting
The shareholders’ general meeting is the highest monitoring and decision-making body. Central decisions on the business and economic fundamentals of the Group (including airport expansion and borrowing) must be adopted unanimously.

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

A target of 25% women has been set for the Supervisory Board by June 30, 2024. The employee representatives on the Supervisory Board are elected, while the shareholder representatives are mainly appointed on a function-specific basis. In this respect, the possibility of directly influencing the proportion of women in the Supervisory Board is limited.

The current proportion of women on the Executive Board of 33% is to be maintained until June 30, 2024.

A target level of 25% by June 30, 2024 has been defined for the first management level; the figure for the second-highest management level is 30%.

Activities

Organizational structure
The Group’s organizational structure is divided into FMG’s business, service and corporate divisions. The management and internal reporting of the business units is primarily handled by FMG’s Group management. 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.

By selling its 100% equity interest in AAS Berlin GmbH (formerly AeroGround Berlin GmbH), the Group ceased its activities at the Berlin airport effective 31 December 2022. In addition, Munich Airport US Holding LLC also sold its 51% equity interest in Reach Airport LLC during the fiscal year.

There were no other fundamental changes to the organizational structure in the 2022 fiscal year. A detailed overview of the ownership structure is included in the notes to the consolidated financial statements.

As of December 31, 2022, the Group comprises 15 fully consolidated companies, one associate, one joint operation, and four companies that are not consolidated. These are directed by operational and strategic Corporate Controlling and Investment Management in line with the business division strategy assigned in each case.

Aviation business unit 
INFRASTRUCTURE FOR AIRLINES AND PASSENGERS 
The Aviation business unit covers the operation of Munich Airport’s air traffic infrastructure.

Munich Airport operates two runways with a maximum capacity of 90 aircraft movements per hour during daytime operations at normal capacity. This capacity was exhausted for long stretches in normal operations in the years before Corona. As a general rule, between 10 p.m. and 6 a.m., flight operations are only permitted to a very limited extent and only with particularly low-noise aircraft. Flights are not allowed between 12 midnight and 5 a.m., with the exception of emergency and medical aid flights, landings required for reasons of air safety, as well as flights in justified exceptional cases that are approved by the Bavarian Ministry of Housing, Building, and Transport as the responsible authority.

The Aviation division of Flughafen München GmbH is responsible for operating Terminal 1 at the Munich airport, while Terminal 2 is operated by Terminal 2 Gesellschaft – a partnership between Flughafen München GmbH and Deutsche Lufthansa. The terminals will be continuously optimized and expanded as needed. The pier at Terminal 1, which is currently under construction, is designed to meet future requirements for efficient security checks and terminal infrastructure, in order to ensure its status as the premium hub as well as the corresponding quality of stay.

Various charges are levied for the provision and operation of these air traffic facilities. In the 2021 financial year, the new framework agreement on charges (EVR) came into force with uniform provisions for all airlines, which fundamentally regulates the development of air traffic charges up to and including 2030 and thus ensures the refinancing of infrastructure to a defined extent. Pursuant to the ERV, charges were raised by an average of 2.8% for the year 2022.

Munich Airport is strategically well positioned thanks to its central location in Europe in the middle of the Munich metropolitan region, which is characterized as a center of innovation, knowledge and business with a broad-based economic structure. However, growth in population and employment in the economically important airport region has slowed as a result of the coronavirus pandemic. ¹⁾ The transportation structures that changed as a result of the pandemic and the travel restrictions increasingly returned to pre-pandemic levels during the course of the year. The international hub traffic returned with the 2022 summer travel schedule, and the business travel segment also recovered. Despite downturns, the demographic and economic conditions in Bavaria and especially in the airport catchment area suggest that transportation demand at Munich Airport will continue to grow in the medium to long term. Further comments on this topic can be found in the section «Economic environment».

Over the years, Munich Airport has developed into a major international aviation hub in cooperation with Deutsche Lufthansa AG (hereinafter referred to as Deutsche Lufthansa). Jointly supported expansion measures such as Terminal 2 and the satellite building, as well as Lufthansa’s commitment to station the Airbus A350 long-haul fleet in Munich, are the foundations of a sustainable partnership that stands for long-term growth. The stable demand at this location is also evidenced by the return of the Airbus A380 aircraft.

Thanks to its promising market position and successful cooperation with Lufthansa, Munich Airport had one of the most extensive networks of continental connections in Europe, measured in terms of the number of destinations, before the Corona crisis. Most of these connections returned with the 2022 summer flight schedule. The combination of a dense network of German domestic and European links and strong local demand means that the airport can once again offer an attractive portfolio of long-haul flights from Munich. Only some of the previous Asian connections are still missing. Due to the attractiveness of the location for tourists and the growing surrounding area with an affluent population, Munich Airport has also become an attractive location for point-to-point connections. However, according to the current forecast by the International Air Transport Association (IATA), a return to the traffic level of the year 2019 is not expected until 2024. ²⁾ Lufthansa assumes that by then, it will once again operate a hub again at Munich Airport with approximately 30 long-haul aircraft stationed there.

The cargo business at Munich Airport is heavily dependent on the development of passenger traffic. The reason for this is that, as a rule, the majority of airfreight at Munich Airport – over 80% – is transported as bellyhold cargo on normal long-haul flights. However, globally speaking, the share of airfreight volume accounted for by additional cargo is only around 50%. ³⁾

The German air traffic tax and protectionist measures – particularly the lack of traffic rights – hampered future market-driven growth at Munich Airport. The zero-covid strategy operated in China until November 2022 further limited travel, although the opening-up of large parts of Asia was progressing.

Commercial Activities business unit 
FIRST-CLASS SERVICE AND PROMOTIONS ALONG THE PASSENGER ROUTE 
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 maintains around 18,750 m² of catering space (previous year: 18,500) and some 20,500 m² of retail and service space. Changes compared with the previous year were mainly due to pandemic-related terminations or surrender of premises. FMG subsidiaries operate their own retail or catering businesses on approximately 71% of the total area.

Commercial Activities is also responsible for the five-star hotel in Munich Airport’s central area. It has 550 rooms and 30 conference rooms.

This business unit also develops and markets demand-oriented parking capacity. At present, there are approximately 33,500 parking spaces, of which some 20,350 are close to the terminal.

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

The business unit’s portfolio also includes the event business.

Real Estate business unit 
REAL ESTATE LOCATION WITH ATTRACTIVE APPEAL 
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, excellent parking, and a comprehensive range of goods and services for daily needs. The airport’s connection was further optimized with the Erding ring closure and the construction of additional lanes and bridges.

In accordance with the high demands placed on the entire area, an urban planning concept was developed that is continuously updated and is already visible with the construction of the first high-rise buildings.

Participations, Services & External Business  
PARTICIPATIONS & EXTERNAL BUSINESS: FULL SERVICE PROVIDER   
The other companies in the Group complement the range of services offered by the airport. The most significant subsidiaries are:

SERVICES: ENERGY, IT AND DIGITAL FOR ALL TENANTS AT THE AIRPORT
Airport’s service divisions are also involved in external sales. The largest contribution comes from the following service divisions:

The activities in the Participations, Services & External Business unit (excluding handling services) account for a small share of the Group’s external sales, therefore a detailed explanation is not provided in the section in the «economic environment». Developments relating to handling services in the Group have been included in the passages covering Aviation business.