The life of the abandoned Shanghai Airport

“Tax-free shares” are about to become “delivery shares”

In A-shares, there are only two ways for listed companies with non-sexy businesses to “get out of the circle”: one is that the stock price soars and rises to the sky; the other is to step on the thunder and fall into Xiangli.

Typical representatives of the former are CATL and Longji. These two companies are located in the midstream of the boring and boring manufacturing industry. They should not have much C-end visibility, but because of the ten-fold or even a hundred-fold increase, at least tens of millions of shareholders now worship them.

There are many examples of the latter. For example, Chongqing Beer’s 9 consecutive lower limits in 2011 brought about a “propaganda” effect comparable to advertising placement in the Spring Festival Gala; after the scallops roamed, people who knew the company on Zhangzidao would definitely be better than those who often eat sea cucumber 100 times more.

And those companies that skyrocketed and then stepped on thunder have earned the “Double Kill” out-of-circle effect. For example, if Baofengyingyin didn’t jump up and down on a roller coaster, it would be difficult for a company whose products have gradually become three-tiered to make headlines and popular searches.

The Shanghai Airport in 2021 seems to be enjoying this kind of “out of the circle” treatment.

Before the epidemic, Shanghai Airport was a top student with big eyebrows and big eyes. It was the most favorite core asset of foreign investors. In 2015, it even became the first Shanghai-Hong Kong Stock Connect stock to suspend buying due to foreign holdings exceeding 28%. E Fund Zhang Kun also listed Shanghai Airport as his most successful investment.

However, the unexpected epidemic has dealt a double blow to Shanghai Airport: Due to the sharp reduction in international air passenger flow, Shanghai Airport has dropped from 10.9 billion in revenue in 2019 to 4.3 billion in 2020, and its profit has also increased from 5 billion. Fall into the pit of a loss of 1.4 billion.

The leakage of the house happened to rain overnight. While the passenger flow did not know when to recover, the tax-free business, which was originally profitable, also encountered a crisis. On January 30 this year, Shanghai Airport renewed the agreement with Rishang Duty Free Shop. The content was seriously unfavorable to Shanghai Airport. The market was rude and immediately rewarded 2 lower limits.

This completely shaken the market’s belief in Shanghai Airport. We must know that in 2020, when the epidemic is the most serious, Shanghai Airport has fallen by only 2.94% throughout the year. However, after the tax exemption agreement is adjusted, the share price has been cut straight. Foreign investors have cut their positions. Zhang Kun, who was firmly optimistic about Shanghai Airport that year, also sharply reduced his holdings. .

The life of the abandoned Shanghai Airport

From top students to repeaters, there are those who cut the flesh and leave, those who resolutely hunt down the bottom, and those who hold currency observers. Some people think that this is a golden pit caused by a major non-operational crisis. Others think that the company’s growth logic has changed, and that in the future, it may change from a “tax-free stock” to a “delivery stock”.

Churchill once said: “Never waste a crisis.” Will the abandoned Shanghai Airport contain opportunities?

The life of the abandoned Shanghai Airport

In the airport industry, there are two facts that are not known to outsiders: one is the airport with the largest market value in the world, which is the airport in Thailand; the other is the United States, which has the strongest aviation industry, and almost no airports are publicly listed.

What determines these two facts is that different countries have different positioning of airports. In the United States, the airport is a thorough public utility, the property rights are usually owned by the locality, and the government authorizes independent operation, emphasizing non-corporate and non-profit nature, and business innovation lacks motivation and is full of regulation.

For example, the Atlanta Airport in the United States is located between the east, west, north and south cities of the United States. It is a nine-province thoroughfare similar to Wuhan. It has 5 runways, 2 terminals, 7 satellite halls, and 200 parking spaces. This allows Atlanta Airport to occupy the world for a long time. The throne of the airport with the largest passenger traffic.

However, Atlanta Airport is a hub airport (Hub Airport), with short stay time and low income and profits. The annual revenue before the epidemic was about 3 billion yuan, which was basically not profitable. The biggest part of its non-aeronautical business is actually the parking lot outside the airport (note that it is parking cars, not airplanes).

The life of the abandoned Shanghai Airport

Huge parking lot outside Atlanta Airport, 2019

In other words, Atlanta Airport is an interchange station, and half of the revenue depends on parking fees.

To systematically understand the business model of the airport , we must first understand what the airport relies on to make money: one is aviation revenue (landing and landing fees, parking fees, passenger bridge fees, passenger service fees, security fees, etc.), and the other is non-aviation revenue ( Commercial leasing, tax-free commercial, parking lot fees, etc.).

The life of the abandoned Shanghai Airport

Aviation revenue is directly linearly linked to the number of takeoffs and landings, passenger throughput, cargo and mail throughput, etc. However, due to the public welfare nature of airports, various fees are usually controlled and airports cannot set their own prices. Airports that only rely on aviation revenue must have limited commercial value, and Atlanta Airport is one of them.

In contrast, non-aeronautical income can play a lot of tricks, especially all kinds of businesses in the airport. The driving factor is the consumption ability of passengers to continue to increase with the CPI. To put it simply: the higher the degree of internationalization of the flight, the longer the passenger stays at the airport, and the greater the airport’s non-aeronautical commercial potential.

Take Heathrow Airport, the world’s most expensive airport for travelers, as an example. It “intelligently” designs the locations of security checks, shops, and boarding gates to “guide” customers to spend. For example, in the route design, after passing the security check, passengers need to pass through a large area of ​​duty-free shops to arrive at the boarding gate.

The life of the abandoned Shanghai Airport

Heathrow Airport Route Design, Source: Wendover Productions[6]

For example, in terms of time design, Heathrow Airport will announce flight information only 45-90 minutes before the plane takes off. When passengers cannot see the itinerary information, they will not have a sense of urgency to board the plane. People lingered between the duty-free shops more relaxedly, wandering around, and the money was gone.

In other words, the essence of Heathrow Airport is a gate hidden in a shopping mall, and every square meter reveals the scheming of capitalists.

Another example is Singapore’s Changi Airport, which itself has many sightseeing and leisure facilities, such as TheSlide, HSBC Rain Whirlpool, Star Garden, Sky Hanging Bridge and so on. Although it is a free program, it can enhance the experience of passengers at the airport: check in and take pictures, and live broadcast by internet celebrities.

The life of the abandoned Shanghai Airport

Interior scene of Singapore Changi Airport

In order to fully tap the purchasing power of passengers, airport boarding gate will be assigned different for different visitors, like the high purchasing power of Chinese tourists, there are more often placed in duty-free shops, restaurants, entertainment facilities around the gate – who I can imagine that the boarding gate assigned to you is also full of routines.

Although the closedness of the airport is weaker than that of cruise ships, because of the huge internal space, more consumer formats can be arranged. More importantly: As long as the plane doesn’t fly, you can’t escape, you can only wander around in the airport. When encountering large-scale flight delays, passengers must be sad, and the airport may be ecstatic.

Therefore, the airport backed by the huge tourist market is essentially a closed shopping mall. There is a saying in “A Great Master” that says it well: “If a person lives for the whole life, ability is second. Some people have become face, some people have become inner sons-all because of the times.” This paragraph can be simply modified. Directly used in the airport industry:

In the airport industry, throughput is second. Some airports have become shopping malls, some have become runways, and some have become parking lots—all because of the model.

The life of the abandoned Shanghai Airport

The history of Shanghai Airport can be divided into two stages: the first is the era when you want to be a “shopping mall”; the second is the era when you temporarily stabilized the “shopping mall”.

Here is a historical event: when Shanghai Airport was listed on the A-share market in 1998, the underlying asset was actually Hongqiao Airport. However, since October 2002, Shanghai has transferred a large number of international flights to Pudong Airport for take-off and landing. Coupled with the impact of SARS in 2003, the profitability of Hongqiao Airport has plummeted.

Under pressure from all quarters, Shanghai Airport Group, the parent company of Shanghai Airport, put forward a plan at the end of 2003 to replace Hongqiao Airport under the listed company with Pudong International Airport, which has more international passenger flow, less development restrictions, and broader profit prospects. 40% equity of Aviation Fuel Company.

The life of the abandoned Shanghai Airport

Pudong Airport was completed and opened to air traffic in 1999

Since then, the “Shanghai Airport” company listed on the A-share market has only been equivalent to Pudong Airport. In the 2006 state-owned enterprise shareholding reform wave, Shanghai Airport originally planned to inject the revitalized Hongqiao Airport into a listed company to solve the problem of horizontal competition, but it was not until last month (June 2021) that there was substantive action.

If you want to become a “shopping mall”, you must first build a “runway”, which is inevitable for all airports in the world. When Pudong Airport was replaced by a listed company, there was actually only one terminal (T1) and one runway. Therefore, in the subsequent period from 2004 to 2015, Pudong Airport was basically an infrastructure stock.

Pudong development continued to accelerate after 2000, and Pudong Airport was also building new runways and new terminals in rounds. In the second year after the completion of the new facilities, due to the large amount of new depreciation and amortization, performance will inevitably usher in a low. Then, as the number of passengers on flights increases, revenue will gradually increase.

The life of the abandoned Shanghai Airport

Pudong T2 terminal under construction, 2005

Looking back at history, Pudong Airport’s historical performance was low in 2008-2009 : on the one hand, the third runway was just put into use, on the other hand, the financial crisis led to a decrease in international passenger flow and tax-free income, which together resulted in a net profit from 2007. 1.7 billion dropped to less than 1 billion from 2008 to 2009.

The life of the abandoned Shanghai Airport

But through years of continuous construction, Pudong International Airport now has huge basic assets: 5 runways (the most in the country), 2 terminals, 2 satellite halls (the world’s largest), and accumulated capital expenditures of more than 40 billion. The larger T3 terminal is already under construction.

A great city is worthy of a great airport. Before the epidemic, Pudong Airport had a designed throughput capacity of 80 million passengers. In 2019, the actual throughput reached 76.15 million passengers, ranking second in the country after the Capital International Airport. If Hongqiao is added, Shanghai Airport’s traffic Already proud of the whole country.

In addition, Pudong Airport has three unique advantages that cannot be matched:

First, there are many international tourists with strong spending power. From 2015 to mid-2019, the international passenger flow of Pudong Airport has been maintained at about 40% of the overall passenger flow, and there are many European and American travelers with strong spending power. In contrast, the international passenger flow of Guangzhou Baiyun Airport is only 20%.

Second, there is no rival in the Yangtze River Delta economic circle. Beijing Capital Airport has Daxing Airport diverted, and Guangzhou Baiyun Airport is divided by Hong Kong, Macau, and Shenzhen airports in the Pearl River Delta. Only Pudong Airport has formed an oligarch in the Yangtze River Delta. If the subsequent plan to merge Hongqiao is successful, this advantage will be further expanded.

The life of the abandoned Shanghai Airport

The third is the broad space for expansion. Pudong Airport is adjacent to the East China Sea, and the space can be expanded through continuous cofferdam reclamation. In fact, since the construction started in 1998, the area of ​​Pudong Airport has been extending into the East China Sea (as shown below), which is the envy of most domestic airports Unique advantages.

The life of the abandoned Shanghai Airport

Historical satellite images of Pudong Airport (1996-2019) Source: Google Earth

Various advantages have allowed Shanghai Airport to gather very high-quality “traffic” and have the infrastructure to become a “shopping mall”. In an interview with E Fund in 2019[10], Zhang Kun of E Fund compared Shanghai Airport to WeChat and summed up the business model behind Shanghai Airport in a simple and concise manner:

In 2016, I was studying the Internet, and I wanted to understand its business model. At that time, everyone still felt that it was a public utility stock. But I think that it is essentially a WeChat. After all the infrastructure and runway are built, it is a basic platform. All traffic on this platform can be monetized. The monetization form can be commercial or advertising.

First, its traffic is exclusive, and no one competes with it. Second, its traffic is zero cost, even negative cost. Third, its traffic value is huge, because its traffic has been screened, and it is in a closed space where passengers cannot go, and the single-passenger value realized by its traffic is very great. This kind of traffic value is extremely attractive to any monetization party.

Tencent’s traffic monetization method is mainly based on games. The Shanghai airport traffic monetization method is the tax-free business that later took it to the cloud and fell into the dirt.

The life of the abandoned Shanghai Airport

Airports are naturally suitable for duty-free business, and the essence of this business is: “tax-free” for passengers, and “tax-exempt” for airports.

What is tax-free shopping? Duty-free refers to the exemption of tariffs, value-added tax, and consumption tax on imported goods, and the price is naturally cheap. At present, there are three main domestic duty-free channels: airport, Hainan outlying island duty-free shops, and city duty-free shops. Among them, the airport and Hainan are currently the most important duty-free shopping channels.

Pudong Airport set a historical precedent when it introduced duty-free shops. Shortly after the completion of Pudong Airport in 1999, duty-free shops were introduced on a trial basis, and the Japanese duty-free bank with a solid background won the bid. After 2000, with the new policy prohibiting foreign companies from operating tax-free businesses, Japan’s tax-free banks became the only one.

The life of the abandoned Shanghai Airport

The source of the crowd lined up at the Duty Free Shop: Snowball user SevenSins

For the airport, it is only necessary to reserve enough space for the duty-free shop in the planning and design of the airport, and then lease it to the tax-free operator that has won the bid, and then you can “sit on the ground and collect rent” with peace of mind. Due to the scarcity of airports, the rent charged by the airport from duty-free operators is quite high, which is equivalent to levying another tax on duty-free goods.

Take the agreement signed between Shanghai Airport and Rishang in 2018 as an example: Rishang needs to pay a total of 41 billion tax-free guaranteed rent to Shanghai Airport during the seven years from 2019 to 2025, with a commission rate of 42.5%, and it also stipulates that if the actual sales commission is proportional to If the guarantee amount is high, then take the higher figure to pay.

Of course, such a high “tax collection rate” is not exclusive to Shanghai Airport. Before this epidemic, the guaranteed rent and comprehensive deduction rate of major airports were above 40% (as shown in the figure below), and the global duty-free brother Dufry cooperated with airports around the world, and the comprehensive deduction rate was basically at this level.

The life of the abandoned Shanghai Airport

Some readers may question: Can the duty-free shop make money with such a high rake? Let us disassemble the financial statements of daily duty-free shops.

Rishang has two operating entities in China, one is called Rishang (China) and the other is called Rishang (Shanghai). The former operates a duty-free shop at the Capital Airport and the latter operates a duty-free shop at the Shanghai Airport. They were exempted by central enterprises around 2018. Acquired 51% of the equity, so you can see its detailed financial data:

The life of the abandoned Shanghai Airport

The 2019 data before the epidemic showed that despite the large revenue scale of the tax-free business at the two airports in Japan, the net profit margin was only 4 to 6%, and a large part of the income (40%+) was paid to the airport. . This tells us: working for a landlord may be a destiny.

Duty-free business is the best way to realize “traffic”, so Pudong Airport has continuously expanded the area of ​​duty-free shops in the past few years. The total duty-free area of ​​T1-T2 and S1-S2 satellite halls has reached 16,900 square meters, surpassing the capital. 15,000 square meters of the airport. In contrast, Baiyun Airport is only 5944 square meters.

Regardless of the 2020 epidemic, since 2015, Pudong Airport’s tax-free business has expanded rapidly and reached its peak in 2019. Tax-free business alone accounted for 76% of Pudong Airport’s non-aeronautical business revenue that year, accounting for the total revenue. 47.6%, profits accounted for more than 90%.

This allows Shanghai Airport to completely get rid of its status as a “transport stock” and become a “consumer stock . ” For example, the fourth runway of Pudong Airport was put into use in 2015. This time, there was no drag on profits due to new depreciation as usual. On the contrary, Shanghai Airport’s performance in 2016 continued to grow.

The core reason is that the passenger flow of Pudong Airport is already large enough, exceeding 50 million passengers per year, and the non-aeronautical revenue driven by it has begun to exceed the aviation revenue, which can cover the huge infrastructure expenditure. The performance of Shanghai Airport has thus changed from being driven by infrastructure to being driven by consumption.

Until the arrival of the new crown epidemic, the logic of “flow + realization” at Shanghai Airport was broken one after another.

The decline in the “flow” of the airport during the epidemic is a sure thing, but the capital market was not anxious at the beginning, thinking that the flow would quickly recover with the end of the epidemic-although the impact is great, just bear it. Therefore, the share price of Shanghai Airport has fallen by only 3% in 2020.

But on January 30, 2021, Sunshang, which had a hard waist, renewed the agreement with Shanghai Airport. The new agreement is very complicated, as shown in the figure below (you can skip it):

The life of the abandoned Shanghai Airport

Compared with the old contract, the new contract not only greatly reduces the amount of the guarantee, it is only linked to the passenger flow, but also sets a ceiling for the “tax collection” of Shanghai Airport: even if the passenger flow exceeds expectations (of course this possibility is not very large ), the commission has also lost the “options” for upward calls.

It can be summed up simply as follows: If the old contract is “drought and flood guaranteed income + call option”, then the new contract is “only promises when the bottom is guaranteed, and a heavy blow when the top is capped.”

In addition, everyone is increasingly aware that the overseas epidemic may not end in two or three years, and the “flow + realization” has been hit hard. Therefore, the capital market resolutely voted with their feet. In the past, investors who were optimistic about Shanghai Airport left one after another. The point 88 yuan was cut to the current 44 yuan.

Zhang Kun of E Fund did not reduce the holdings of Shanghai Airport in 2020, but after the resignation of the agreement in the first quarter of 2021, he immediately cut the warehouse and fled. His colleague, Xiao Nan, another fund manager of E Fund, cleared the Shanghai Airport in the first half of 2020, and changed hands to buy the beneficiary of the new agreement-China Freedom Free Trade Co., Ltd., earning a lot of money.

In the long run, the value of Shanghai Airport has not been fatally affected, but the short-term “traffic loss + limited realization” problem does exist. Even if the contract can be re-signed in the future, it will require the end of the epidemic and the recovery of international passenger flow- this is a grand proposition that is more difficult to predict.

Therefore, the high EQ Shanghai Airport holders (tao) and (lao) people (zhe) can comfort themselves in this way: Whether the company’s stock price reverses is closely related to the fate of all mankind.

The life of the abandoned Shanghai Airport

From the perspective of investors, another identity of Shanghai Airport is actually more important: the core infrastructure of a super city.

During the epidemic, Pudong Airport, as the first line to prevent overseas imports, can be called “the most stressed airport in the world”. A large number of staff, doctors, and volunteers at the airport have made arduous efforts and sweat, and finally successfully completed the defense. The mission of the country.

Pudong Airport epidemic prevention personnel on night duty, 2020
Pudong Airport epidemic prevention personnel on night duty, 2020

These contributions cannot be reflected in the financial statements, and naturally they will not be included in the formula for investors to calculate profits. But in any case, Shanghai Airport is the kind of company that can perform its own public infrastructure role well on the one hand, and on the other hand can bring rich commercial returns to investors.

China has a large population and a booming economy. The airport and port transportation company is destined to be a thriving cash cow + tax-collecting company. In fact, there is no need to go public at all. Even Nanjing-Shanghai Expressway, which has no fancy business, can become a good company with high dividends and stable growth.

From the business point of view, in fact, a Shanghai airport never go out of the top commercial real estate – in this day and age, the country belongs to outdated Soviet Ning Yonghui commercial real estate, struggling; fast tremor Otomi group did not belong Outdated commercial real estate is still in full swing.

The scarce “mall” of Shanghai Airport is actually not the anxiety of Gome Suning Yonghui or even Wanda. The airport is here, and you can never get around it. After the merger with Hongqiao Airport, Shanghai Airport can directly reflect the economic development level of the Yangtze River Delta to some extent.

Therefore, Shanghai Airport is not only a “mall” that will never go out of fashion, but also a “ Yangtze River Delta Economic ETF ”. It has a day of being abandoned and one day of being sought after. As a super market with an area larger than Macau Compared with the calculations and sensitivity of the capital market, the project may be more concerned with the smooth departure of every passenger and the safe take-off and landing of every flight.

The full text is over. Thank you for your patience to read.

The life of the abandoned Shanghai Airport

[1] A traffic business of 100 million people: China’s first airport business research report, RET

[2] 100 billion Shanghai airport “speed down”, 21st Century Business Herald

[3] Signing a tax-free contract, disclosing details to reveal commercial value, China National Finance

[4] Domestic passenger flow is picking up, international routes are still to be restored, Oriental Fortune Securities

[5] Revise the tax-free operating agreement to increase short-term income, core assets still have allocation value, Everbright Securities

[6] How Airports Make Money,Wendover Productions

[7] Market status of China’s convenience store industry in 2021, forward-looking industry research institute

[8] Top 10Airports register $12.6bn sales in 2019,TRBusiness

[9] One article to understand the investment logic of airports, IASC Research Department

[10] Xiaoya’s in-depth interview | Yi Fangda Zhang Kun’s most complete investment idea: at least two or three times against the whole market, investors’ notes

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