Assessment of the Strategic Plan for Groningen Airport Eelde

In its strategic plan, ‘Werelden Verbinden’ (Connecting Worlds), Groningen Airport Eelde (GAE) sets out its objectives for the next ten years. These are to: attract a feeder service and business services, provide more low-cost services and at least maintain its position in the charter segment. Based on these objectives assumptions are made regarding traffic growth. Although the assumptions are surrounded with uncertainty, they are presented as certainties. Based on these assumptions, the airport expects to handle some 600,000 passengers in 2023.

Our forecast shows that even under very favourable assumptions no more than 425,000 passenger movements are to be expected at the airport in 2023. We consider a feeder service to a major hub airport unlikely, given the small size of the area served by GAE and the fierce competition from Schiphol. A business or low-cost service to London should be feasible however, based on current demand. In addition a low-cost airline should be able to serve multiple destinations profitably from GAE in the longer term. The strategic plan however overestimates the growth in the low cost segment in the short term. First, the plan does not allow for the fact that the number of low-cost passengers at the airport is likely to decline in 2014. Secondly, Ryanair, the only low cost airline operating at the airport will not be adding any capacity to the network in the short term.

The airport expects to achieve a positive operating result (EBITDA) in 2017 with some 300,000 passengers. Our analysis shows that this is too optimistic. First, the traffic forecast does not take recent trends at the airport into account: the decline in the number of low-cost and charter flights. Secondly, we expect that at least 450,000 passenger movements are required for a positive operating result. Even under very favourable assumptions we expect this number no earlier than in 2024.

The strategic plan does not show how uncertainties affect the traffic forecast and the operating result. There are however various uncertainties that may severely impact the airport’s traffic and revenues, such as: lower than expected revenues from airport charges, the development of Lelystad Airport which will constitute a serious threat to GAE’s main market segments and the different funding mechanism of ATM which may lead to a significant increase in the airport’s visit costs, making it less attractive to airlines.

The airport deems expansions in airport infrastructure necessary to keep up with the forecasted demand. According to the profit and loss account, however, depreciation hardly increases during the planning period, which indicates that depreciation on investments has been omitted. This implies that the airport assumes that these investments will be funded entirely by the shareholders.