TOP 10 AIRPORTS: SHANGHAI PUDONG 4


Shanghai Pudong Airport’s ‘untimely’ expansion boosts long-term growth


The new Shanghai Pudong International Airport satellite terminal may mean additional retail space and increased capacity, but it also throws up some significant challenges, including increased costs. Andrew Pentol reports.


amid the Covid-19 travel shock.” The opening of the new satellite


terminal may almost double total commercial space at the airport, but Wong predicts only a ‘moderate boost’ to concession revenue. In research published last year,


Above: Sunrise Duty Free Shop at Shanghai Pudong Airport Terminal 1. Source: Shanghai Airport Authority.


T


he opening of the new satellite terminal at Shanghai Pudong International


Airport in September 2019 was a major highlight for Shanghai Airport Authority. New facilities in the 622,000sq


m terminal (known as S1 and S2) will lift overall airport capacity by 33% (from 60 million to 80 million passengers) in anticipation of China’s greater demand for airport travel. But the payback period could be extended, as the coronavirus (Covid-19) crisis and economic slowdown have hampered passenger growth. The satellite terminal cost


RMB20.4bn ($2.9bn) to build and will initially handle around 38 million passengers annually. Commercial space totals 28,000sq m, including 9,062sq m dedicated to duty free. Total commercial and duty


“A more material revenue increase may arrive in 2022, when higher minimum guaranteed revenue and commission rates apply to T2, which serves more long-haul international flights.”


Denise Wong, Equity Analyst,


Bloomberg Intelligence 30 TRBUSINESS free space across the entire


airport has increased by 93% and 115% respectively. TRBusiness estimates


that total


DF&TR sales rose by around 10% to reach approximately $1.23bn in 2019, while the airport served 76,153,500 passengers.


‘Moderate boost’ in revenue Lagardère Travel Retail extended its impressive Chinese airport portfolio with the capture of the seven-year multi-category retail and food and beverage satellite terminal contract. According to recent research


undertaken by Denise Wong, Equity Analyst, Bloomberg Intelligence, the untimely expansion of Shanghai Pudong may boost the airport’s long-term growth potential,


but


ultimately compromise its earnings resilience against the impact of Covid-19. She tells TRBusiness: “The untimely


expansion left fewer options for cost savings. The additional retail space, however, may blunt declines in commercial rental income.” Aside the additional retail space,


the new satellite terminal could boost annual operating and depreciation expenses by 20%, indicates Wong. “The airport needs robust


international traffic growth and traveller spending to cover those costs. This looks unlikely in 2020


Wong revealed that Shanghai International Airport Company was projecting guaranteed revenue from Sunrise Duty Free [which signed a seven-year contract to operate the duty free stores at Shanghai Pudong and Hongqiao Airports in 2018 - Ed] to rise 18% to RMB4.2bn ($600m) in 2019/2020. The guaranteed revenue figure


of RMB4.2bn was expected to be below the commission received by the airport in 2019. “Further gains may have to be


driven by passenger growth or spending increases,”


according to


Wong. That said, Shanghai Pudong Airport’s duty free sales in 2019 were boosted by the weaker yuan and introduction of Chinese e-commerce laws to drive domestic consumption. Commercial rental income ultimately rose by 37% to RMB5.46bn last year. Looking ahead, sales may be


challenged further by anxiety associated with Covid-19 and the slow-down of the Chinese economy. With the boost


from


higher commission rates also fading this year, Wong predicts: “A more material revenue increase may arrive in 2022, when higher minimum guaranteed revenue and commission rates apply to Terminal 2, which serves more long-haul international flights.”


New duty free contracts Reflecting on 2019, Wong said robust outbound travel demand during the Lunar New Year Holiday season most likely drove Shanghai Airport’s EBIT growth in Q1. “China also trial


launched late- AUGUST 2020

Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54