1
Walter Sinigoi
MIB School of Management
12 January 2007
2
EXECUTIVE SUMMARY Investor’s recommendation: hold
The analysis provides the basic financial information of the company S...
3
An Introduction to the company: mission and vision
The Save group are the company who manage, since the 1987, the Venice...
4
manage”4
. In the vision declaration of Save Spa, the company focuses its attention on
the customer side, to “become a m...
5
The recent performance: the income statement show how the Save group have been
worked in these last four years: as we ca...
6
Starting from this year, the airport operations should receive a boost thanks to the
effects of the new tariff system ma...
7
Companies peer comparison: even though that the biggest airports are in USA, the
biggest airport companies are in the Eu...
8
three department of Save: air traffic growth should fuel the top line performance for the
F&B retail outlets located in ...
9
SWOT analysis
Weaknesses
The Treviso airport concession
expires in 2012
Still not the main hub for any airline
Excessive...
10
Bibliography
SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006
Citigroup Global Markets, country ...
11
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Airline management analysis_Walter_Sinigoi_2007

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The analysis provides the basic financial information of the company Save Spa from a point of view of a generic investor, analyzing the general performance, the key success factors, the business strategy and the main challenges they may have in the future. We focus our attention especially over the airport management that is the core business of this company.

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Airline management analysis_Walter_Sinigoi_2007

  1. 1. 1 Walter Sinigoi MIB School of Management 12 January 2007
  2. 2. 2 EXECUTIVE SUMMARY Investor’s recommendation: hold The analysis provides the basic financial information of the company Save Spa from a point of view of a generic investor, analyzing the general performance, the key success factors, the business strategy and the main challenges they may have in the future. We focus our attention especially over the airport management that is the core business of this company. The main points can be summarized as follows: • Profitability in the airport-management industry is generally increasing. The financial performance is quite good, the Save group generated consolidated revenues of 166 millions of Euro in 2005 while EBIT has increasing from 10,6 millions (2002) to 24,3 (in 2005). The airport business is the most relevant part of the company, with more than 50% of revenues. However, the airport system is running below 60% of its capacity. • The general strategy is based on diversifying the business into lower risk areas (the food and beverage and retail activities) and selective acquisitions of other airport concessionaries, be aware of the increasing competition from the local to the regional airports and the battle for mega hubs positions currently taken by the airports. The main success drivers are the traffic growth and the limited capacity. • Save could invest on acquiring new airport concessions in Italy and Eastern Europe and try to create other local hubs for passengers heading for international destinations via the Venice airports (with agreement with other Italian players). Save Spa may focus more on the operational efficiency (they cannot take a huge advance in the economy of scale). • Positive aspects of the company: the company revenue mix is well-diversified, the financial performance has been positive during the last four years, the Venice airport concession expires in 2041, the airport improved profitability and the synergies between the departments are increasing. • Negative aspects of the company: Save have a number of litigations with its shareholders (specially with the Comune di Venezia and the Provincia di Venezia which didn’t approve the IPO following Save’s entrance in the Milan stock exchange), the passenger traffic growth is a little below expectations (-0,9%), the Gemina acquisition have future dubious consequences. The Airport has a negative revenue mix.
  3. 3. 3 An Introduction to the company: mission and vision The Save group are the company who manage, since the 1987, the Venice Marco Polo airport. From the 1996, the company also owns 45% of Treviso airport, a structure that has been growing at a furious pace on the back of the boom in European low-cost carriers. The Venice airport is the third main intercontinental airport in Italy (in the first two position we find Rome and Milan) and, linked with the Treviso airport, the Venice airport constitute the “Venice Airport System”, the third largest hub in italy in terms of volume of traffic (7.1 millions passenger in 2005)1 . The Save group manages infrastructures and related services in 103 Italian railway stations2 . From the year 2000, Save also started operation in F&B department. Save was listed on the Milan stock exchange on 2005 and the same year they bought 10,4% of holding company Gemina while, one year after, the Save group acquires 100% of AIREST from Austrian airlines. The main shareholders are the Marco Polo Holding (39%), private investors (63,8%), Veneto region (36,2%), Province of Venice (14,5%) and City of Venice (14,6%)3 . The mission of the company can be summarized as follow: the Save group want to “manage the different business units in an innovative way, with high responsibility and integrity, with the final aim at developing the territory witch it serves”, and “manage all the three business units in a integrated way in order to anticipated the travelers needs as they pass through the infrastructures the Save 1 The numbers have been taken from http://save.irelations.it 2 In the context of its strategy, whose aim is to develop and expand management activities in the infrastructures and buildings connected with passenger transport, the SAVE S.p.A. Group, through Archimede 1 S.p.A., in which it has a 60% holding, has acquired 40% of Centostazioni S.p.A., the company that handles the integrated management of the 103 medium- sized Italian railway stations. 3 Source: http://save.irelations.it
  4. 4. 4 manage”4 . In the vision declaration of Save Spa, the company focuses its attention on the customer side, to “become a mobility player offering high quality services” and to “increase the time value of travelers during their stay in the airports and in the other mobility infrastructures”5 . Save group: the company profile The Save Spa operate in a high competitive environment: the airport management industry’s market includes around 50000 airports of different sizes and specialties and also some firms which are specialized on managing the airports. The Save Group actually falling in the services to travelers, specifically into three different business areas: • the airport management (the main activities are the management and development of airport infrastructures and handling of aircrafts, passengers and cargo, the management of car parks, the creation of software for air traffic data management and the ground services at the Treviso and Venice airports regarding cargo handling and general aviation activities) • the management of mobility infrastructures, related services and public catering (property management and development of projects for upgrading the railways stations, the management of integrated services for the properties, implementation of investment plans, management of tenders) • the management of the travelers shops in the mobility infrastructures (the F&B and retail division directly manages 43 food and beverage outlets and shops selling mainly items for travelers). 4 From SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006 5 Source: SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006. The company called these different phases of their vision like the “Traveller Mobility Value” and “Pleasant travel experience”.
  5. 5. 5 The recent performance: the income statement show how the Save group have been worked in these last four years: as we can see in the graph below, the Save group generated consolidated revenues of 166 millions of Euro in 2005, EBITDA is increasing, recorded in 47,5 millions during the same year, while the EBIT is totally increasing from 10,6 (2002) to 24,3 (2005) millions6 . The company is profitable because, instead of the diminution in the net profit caused by the increasing of the tax rate, if we calculate the ROS we have, in 2005, plus 6,6%7 . If we take an overview of the three SBUs performance made it in 2005, we can say that the airport business are the most relevant part of the company, with more than 50% of revenues generated by non-aviation activities. The airport system is running below 60% of its capacity (as a consequence, also below the European average)8 . Save has a concession to manage Venice and Treviso airports expiring in 2041 (Venice) and 2012 (Treviso); the airports concession accounted for 58% of the revenues and 84% of the EDIBTA in 20059 . 6 From http://www.veniceairport.it 7 The graph of sales, ROCE and margins are taken from http://www.borsaitaliana.it/bitApp 8 Source: Mediobanca Securities report 9 From Citigroup Global Markets, country research Italy. INCOME STATEMENT Save Spa 2002 2003 2004 2005 Total revenues 88,8 133,8 155,3 166,0 EBITDA 24,0 39,6 47,0 47,5 EBIT 10,6 17,9 18,4 24,3 Net Profit 8,9 8,6 4,9 11.0
  6. 6. 6 Starting from this year, the airport operations should receive a boost thanks to the effects of the new tariff system made in 2006 while the revenues from the other non- aviation activities are strictly related to passenger traffic trends. Concerning the rail station business, this is a fast growing and low risky activity due to the fact that the quality of the service currently offered to the customers is very bad. Same studies forecasts increases in rents for outlets and offices, as well as in average revenue per traveler10 . The F&B is comparable with the Autogrill or the Compass and, as is possible to see in the graph, it generated revenues for the 28% of the commercial. This last one is the natural diversification for a business who manages airports and railways stations. Key and drivers of competition Industry is growing: the airports industry is influenced by some external and internal factor: looking the external side, we can understand how the globalization, the privatization, the security problem and the growth of demand caused a tremendous transformation over the past decade11 . From an internal point of view, we have to take into consideration the increasing in rivalry due to the new entrants (like financial investors and property developers) and the price-war between the existing competitors (low-cost airports, hub airports, urban and regional airports). As a result, airport companies try to diversified their portfolio (shift to non-airline revenue sources), do same specialization (focus on serving particular clients) and corporatization. 10 For further information, consult the Citigroup global market research 11 The airport industry growth by 10% between 2000 and 2005 and the current current capacity utilization is less o 60% of the total capacity in traffic peak. For further information, consult the group work on airport management industry made during the groupwork experience.
  7. 7. 7 Companies peer comparison: even though that the biggest airports are in USA, the biggest airport companies are in the Europe. With the leading company British Airport Authority, which for instance has more than 8% global market share, the biggest companies hold around 35% of all market share. Based on the these consideration, we can understand that Save Spa is relatively small compared with the international competitors but, at the same time, the EBITDA growth more respect with the other airport companies: Analysts show us a optimist future for the Save Spa12 that will take the second position in the growth after the BAA. In the short term, the key growth driver should be the revision of airport tariffs, which have been frozen from the 1999 in Italy. Another important key driver is air traffic growth. Passenger traffic at Venice airport system growth higher then the Italian airport average thanks to: 1) new infrastructure 2) strong catchment area 3) the growth of low-cost carriers (and also thanks to the beauty of the city). This, linked with other factors like the despite of Volare in 2003 and the difficult financial situation of Alitalia right now (that still lose market share) should determine a positive impact over the business performance of Save Spa for the next year. Speaking about the capabilities of this firm, we can notice that Save have sufficient economic and financial resources. The economic capital of the company is estimated in 639 million of Euro13 , more than the majority of the Italian airports but not so much to be competitive in a globalization environment (the BAA have over 9400 millions of Euro). However, by maintaining a high equity level, the Save is not considering a high-risky company. There is a good and improving synergy between the 12 Source: www.borsaitaliana.it – report by Citigroup, 2006 13 www.borsaitaliana.it Peer comparison 2006 EBITDA BAA 1562 Fraport 574 Wien Airport 165 Copenaghen Airport 205 Save Airport 44 Peer comparison EBITDA Growth prevision 2007 BAA 11,3% Fraport 6,0% Wien Airport 6,6% Copenaghen Airport 2,6% Save Airport 8,1%
  8. 8. 8 three department of Save: air traffic growth should fuel the top line performance for the F&B retail outlets located in airports, while Centostazioni should give Save greater access to desirable locations for new outlets. Business strategy By their recent acquisitions and the entrance in the Milan exchange market, Save group try to shift the revenues to the non-airlines services diversifying into complementary business with low risk: the food and beverage and retail activities. The margins and cash flow of the last year were depressed by the acquisitions of AIREST, the leading provider of airline and terminal catering in Austria. The acquisition of the 10,4% of Gemina have the aim of controlling Areoporti di Roma, the main Italian hub and it might have a bigger influence on Save valuation in the future. The success drivers are the traffic growth, the increases of tariffs and the limited capacity for the airport. The railway stations dreadful quality of services currently offered across the stations a large potential for improvement. F&B should increase the number of outlets matched with an increase in spending per passenger and limited capacity. To develop and extend its management activities in the transport infrastructure, the Save Spa business strategy already have four different points and four key success factors14 : Business strategy Strategy objectives Maximizing the potential of existing ventures Selective acquisition of other airport concessionaries Progressive acquisition of additional Food and beverage and retail concession through tenders, direct negotiations or acquisitions of competitors Acquisitions of companies active in the transport infrastructure management Key success factors a strategic long-term vision aimed at identifying and meeting new needs of its key customer portfolio excellence in the range of services it offers, made possible by ongoing focus on process and on the customers sophisticated skills and expertise that SAVE Group employees have developed in managing and providing services 14 Source: SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006.
  9. 9. 9 SWOT analysis Weaknesses The Treviso airport concession expires in 2012 Still not the main hub for any airline Excessive geographic concentration Opportunities General growth of the airport industry, specially in Eastern Europe Tax efficency could improve Synergies between the department of Save Group (well-diversified portfolio) Threats The new tariff system could work below expectations Difficult to differentiate the services (due to the intense competition) Airlines financial could affect the profitability Strengths Source of international traffic for foreign airlines The Venice airport concession expires in 2041 The revenue-mix is well diversified Future outlook: investment opportunities and recommendations • To increase the demand the save spa is actively developing links with airlines outside of the European market. A recent example of this is Emirates, the first international airline that will offer non-stop services to and from Venice from the Middle East, satisfying existing demand and helping to generate future demand. • Save could invest on acquire new airport concessions in Italy and eastern Europe, leveraging on the Venice Treviso pole, and try to create other local hubs for passenger heading for international destinations via the Venice airport (with agreement with other Italian airport structure). • Save Spa may focus more on the operational efficiency, due to the fact that the company is too small to taking the economy of scale as an advantage (compared with the leader of the market BAA and the main followers). This is stringy related with a costumer related management strategy capable to satisfy the customers. This is probably one of the main challenges facing by Save: we already seen that the differentiation in the airport industry is very difficult to take, but starting a price war in this environment can became very risky for the company thanks to the increasing competition, specially for the regional airports.
  10. 10. 10 Bibliography SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006 Citigroup Global Markets, country research Mediobanca Securities report Axia report research 2006 Ing Bank London Branch Research Policy Report www.borsaitaliana.it www.bloomberg.com www.veniceairport.it http://save.irelations.it
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