UNCLAS SECTION 01 OF 02 FRANKFURT 000315

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: EAIR ECON ELTN GM
SUBJECT: The Other Frankfurt Airport -- Frankfurt-Hahn

Sensitive but unclassified; contains business-proprietary
information. Not for internet distribution.


1. (SBU) SUMMARY: Frankfurt-Hahn Airport, a former US
airbase, is now one of Germany's fastest growing regional
airports and its fourth-largest air-cargo center. A hub for
leading low-cost carrier RyanAir, Hahn managers see limited
future potential in the low-cost segment and are focused on
growing the airport's cargo business. Hahn's 24-hour cargo
operations make it a valuable asset to majority owner
Frankfurt Airport (where night-flights will end once a new
runway comes into operation later this decade). END SUMMARY.

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Ryanair Popularity Doesn't Necessarily Mean Profits for Hahn
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2. (SBU) A former U.S. airbase and Rheinland-Pfalz's only
international airport, Hahn Airport has recorded steady
growth since Frankfurt Airport assumed majority ownership in

1998. Fraport Senior Vice President for Global Investment
Management Andrea Pal told consulate representatives that
she views Hahn's future with guarded optimism, emphasizing
that the airport could not count on the continued growth of
the low-cost carrier market (specifically Ryanair). Unlike
Hannover and other airports that host a variety of carriers,
Hahn depends on Ryanair for 90% of its passenger load.
Hahn's fee structure for Ryanair is more generous than
comparable arrangements at other regional airports, meaning
less revenue per passenger. Pal noted that although Hahn
will process more than 3 million passengers this year (a 17%
increase over 2003), the airport needs at least five million
travelers to turn a profit on its passenger business (versus
three million for Hannover).


3. (SBU) In April 2005, Hungarian low-cost carrier Wizz Air
will begin flights from Hahn to Budapest and Katowicz
(Poland), but Hahn has had difficulty retaining other low-
cost carriers. Italian bargain airline Volare declared
bankruptcy in 2003, and Air Polonia announced in November
2004 that it would leave Hahn (and folded shortly
afterwards). As a result, Hahn is reluctant to re-negotiate
its fee agreement with tenant Ryanair for fear that the
airline could move operations to another airport in Germany.

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Cargo Operations Show Promise
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4. (SBU) Pal sees cargo growth as the key to Hahn's long-
term future. In 2004, Hahn has doubled its through-put of
air-to-air cargo this year, with an 11% increase in total
cargo handling (from 159,000 to 180,000 tons). British
Airways announced in September that it would double its
cargo flights to Hahn (while pulling out of Cologne). The
planned runway extension at Hahn will allow fully loaded
planes to serve transatlantic destinations. DHL considered
Hahn for its new European cargo hub but chose Leipzig
because of its generous subsidy package. Hahn's 24-hour
operations and the expected end to night flights in
Frankfurt (once that airport's expansion is complete) will
help make Hahn competitive as a regional cargo hub. NOTE:
Fraport management agreed to end nighttime flights at
Frankfurt (as a noise-abatement measure) once the planned
new runway comes into operation later this decade. Local
Green politicians have begun to lobby (so far
unsuccessfully) for similar noise-abatement measures at
Hahn. END NOTE.

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Successful Case of Defense Conversion
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5. (SBU) COMMENT: After a decade of civilian use, Hahn
stands as a successful case of defense conversion. Hahn is
now registered with the EU as part of the Frankfurt airport
system -- making it an integral part of Fraport operations -
- and the state of Hesse recently earmarked 20 million euros
to support expansion at Hahn (which is actually located
outside Hesse). Hahn's enduring problem is its remote
location and limited ground transportation. Driving time is
at least an hour from the Frankfurt area with no train
service (the region failed to convince German Rail to
reactivate a defunct rail connection). Until Hahn becomes
more convenient to the Rhein-Main/greater Frankfurt area, it
has limited ability to attract full-fare travelers. The
airport's low revenue per Ryanair passenger and concerns
about the viability of low-cost carriers have made
management look outside the passenger business for future
growth. Hahn's 24-hour operations and low cost structure
could give it a role in Frankfurt Airport's future and in
the economic viability of the Rhein-Main region. END
COMMENT.
BODDE