4 the Case 7 Introduction to Copenhagen Airport 8 Business Model and Strategy

Home , Case competition, Copenhagen Airport

The Case TABLE OF CONTENTS

4 THE CASE 7 INTRODUCTION TO COPENHAGEN AIRPORT 8 BUSINESS MODEL AND STRATEGY

8 BUSINESS MODEL

10 THE CIRCULAR BUSINESS MODEL OF COPENHAGEN AIRPORT

11 ARCHITECTS OF THE FUTURE AIRPORT 12 FINANCIALS AND SHAREHOLDER STRUCTURE 2018

14 KEY FINANCIAL FIGURES 16 PASSENGERS

16 PASSENGER TRENDS 20 AIRLINES 22 AVIATION TAX 22 TAX ON AIR TRAVEL IN SWEDEN

23 PRICE SENSITIVITY OF AIR TRAVEL DEMAND 26 THE SOCIOECONOMIC IMPACT OF AN AIRPORT

26 SOCIOECONOMIC IMPACT

28 FIGURES RELATED TO AIRPORT ACTIVITY

30 ALTERNATIVE IMPACT: THE AMSTERDAM CASE 32 DATA DESCRIPTION

32 DATA PACKAGE

33 ADDITIONAL DATA SOURCES 35 FINAL REMARKS 4 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

THE CASE

Copenhagen Airport connects Denmark to the world. For many years, routes and connectivity out of Copenhagen Airport have increased significantly, providing passengers greater opportunities in terms of destinations while enabling the exchange of knowledge and expansion of business across borders.

In these years, increasing environmental awareness challenges the aviation industry to the core of its purpose and value proposition: Demand for air travel is rising, but travelling by air has side effects, notably that flights amplify climate change by releasing CO2.

BRINGING AVIATION FORWARD Airports and airlines must adapt to the climate agenda. By 2050, Co- penhagen Airport expects to have zero carbon emissions for all activities, including flights. Airlines and airline manufacturers have started to invest in eco-friendly planes, striving to reach carbon neutrality sooner rather than later. Many call for changes now.

THE PROBLEM Political attention to aviation is higher than ever before. Many Euro- pean countries have levied taxes on flight travel. In 2018, our Swedish neighbours introduced a tax on both domestic and international flights departing from Sweden.

Senior management in Copenhagen Airport monitors this development closely and are increasingly interested in how political intervention and public sentiment will impact the airport. Copenhagen Airport feels a strong responsibility to contribute to society and are worried that both the public and politicians forget to weigh the negatives against the positives.

For the purpose of this case, assume that the Danish Government is expected to pass an aviation tax. Sources in central government have alluded to a tax identical to the Swedish one to be imposed in the spring next year. POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 5

CASE QUESTIONS Senior management at Copenhagen Airport wants you to investigate the impact of such an aviation tax. Your presentation is expected to answer the following questions:

How will an aviation tax affect Copenhagen Airport?

What are the societal impacts and trade-offs of a Danish aviation tax?

Which considerations and actions should Copenhagen Airport take in the event of an aviation tax? 6 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 7

INTRODUCTION TO COPENHAGEN AIRPORT

HISTORY Copenhagen Airport has 95 years of history and is one of the earliest commercial airports ever built. Owned and operated by the Danish State, the airport experienced impressive early growth, and in less than ten years, the airport was handling almost 10,000 flights each year.

By the mid-1950s, Copenhagen Airport had become a significant part of the local tourism industry, winning awards and serving more than one million passengers while doubling its capacity. At this time a second terminal and new control tower were built, with a third terminal added in 1998. Further improvements have been made in subsequent years, including the arrival of a train line, connecting Copenhagen Airport with the city centre and nearby Malmö, Sweden.

Copenhagen Airport: Key Facts • Copenhagen Airport is owned by Copenhagen Airports A/S which also owns Roskilde Airport. • Copenhagen Airport is one of the largest workplaces in Den- mark as more than 22,500 employees work in 1,300 different companies at the airport. • Copenhagen Airport takes up a total area of 12.4 km2, the equivalent of 2,000 football fields. • More than 30 million passengers are serviced by Copenhagen Airport per year, which makes the airport among Europe’s busiest. • Copenhagen Airport facilitates a daily average of 729 departures and arrivals. • 183 direct routes are connecting Copenhagen Airport to global destinations. 41 of these destinations are outside Europe. • 16.6 million suitcases were handled totally at Copenhagen Air- port in 2018. • On average, passengers spend 98 minutes in the airport before boarding after having completed the security control. • These passengers bought for DKK 1.8 billion in goods and services in 2018. 8 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

BUSINESS MODEL AND STRATEGY

BUSINESS MODEL Example of Aeronautical Copenhagen Airport has two broad segments of its core business: The Regulatory Framework: aeronautical and non-aeronautical. The Direct Financial Effect The aeronautical segment comprises the activities and services re- of New Routes quired for airlines to operate their flights, e.g. security, baggage and SAS recently moved their direct cargo handling, terminal services, buses, aircraft stands, and runways. Scandinavian routes to Los The airlines pay negotiated per passenger charges to use the aeronau- Angeles and Hong Kong from tical facilities of Copenhagen Airport. The Danish Transport, Building Arlanda, Sweden, to Copenhagen and Housing Authority must approve the framework for these charges. Airport. Due to the fixed per Negotiations between Copenhagen Airport and the government agency passenger charges set by the establish the underlying regulatory structure for the charges through regulations, this is expected to increase aeronautical revenue cost-based fixed-price contracts that typically last 2-5 years. in the short term. However, these new routes will not have The non-aeronautical segment includes all other activities related a significant long term effect on to the operation of an airport, e.g. parking, restaurants, shops, hotel aeronautical revenue when the operation, and leasing of premises and buildings at the airport. The charges are re-negotiated based commercial relations with the customer groups operating within the on cost-based principles. non-aeronautical segment, being passengers, concessionaires in the shopping centre, and tenants, are handled through traditional sales and marketing activities.

Copenhagen Airport collaborates closely with all 1,300 companies and 22,800 employees that do business and work at the airport.

Composition of Revenue 2018

Aeronautical segment Non-aeronautical segment

m DKK Traffic revenue Concession Car Rent Other Total revenue parking services Type of contract – Fixed price 2,574.8 106.4 418.5 181.0 328.3 3,609.0 – Revenue-based contracts - 835.8 - - - 835,8 Total on segments 2,574.8 942.2 418.5 181.0 328.3 4,444.8

Source: Copenhagen Airports A/S Annual Report POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 9

Maintaining good relations with stakeholders and ensuring the com- bined value creation in the two core business areas are essential. Infrastructural development and marketing of the airport ensure new routes, better connectivity and more departures, and thereby more passengers, all the while ensuring a return for Copenhagen Airport’s shareholders, including the Danish State.

Largest Airports in Europe

No. Airport m passengers 1 Heathrow Airport, London 80.0 2 Charles De Gaulle Airport, Paris 72.2 3 Schiphol Airport, Amsterdam 71.0 4 Frankfurt Airport 69.4 5 Ataturk Airport, Istanbul 68.4 6 Madrid-Barajas Airport 57.8 7 Barcelona Airport 50.1 8 Munich Airport 46.2 9 Gatwick Airport, London 46.1 10 Fiumicino Airport, Rome 42.9 16 Copenhagen Airport 30.3

Source: OECD – Airline Competition 10 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

THE CIRCULAR BUSINESS MODEL OF COPENHAGEN AIRPORT

CORE BUSINESS

Aeronautical usiness Non-aeronautical Business

Check-in Security Transfer Baggage Cargo Boarding Restaurants Real estate Shopping Parking Hotel and take-off and cafés

INVESTMENTS AND EXPANSION

VALUE CREATION

Dividend to International shareholders, incl. connectivity 475 m 2.6 bn to the Danish State 183 routes Aeronautical 1.9 bn revenue in 2018 paid in 2018 Non-aeronautical revenue in 2018

“Copenhagen Airport’s new, over- arching climate vision, therefore, is to become a ’zero emission airport’ by 2050, i.e. an airport whose activities are entirely free of carbon emissions.”

Source: Copenhagen Airports A/S Annual Report POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 11

ARCHITECTS OF THE FUTURE AIRPORT Copenhagen Airport aims to lead the way by creating a forward-looking and visionary airport. The new 2019 strategy departs in the airport’s most important societal role: To bring the world closer to Denmark with more direct routes, and sustainably adapt aviation for the future. The strategy is driven by three fundamental principles that aim to give the best possible experience for customers while urging innovation and simplicity in all activities.

Expand the Positive Role in Society and Contribute to Sustainable Travel Copenhagen Airport wants to contribute to job and welfare creation while increasing coherence between Denmark and the rest of the world. In 2019, Copenhagen Airport launched a collaboration on sustainable fuel and a shared climate foundation with the rest of the Danish aviation industry. The goal is to create an emission free airport in 2030 and an emission free aviation industry in 2050. Take the Passenger Journey and Retail to the Next Level Copenhagen Airport seeks to continually ensure the best possible passenger experience with improved new services and digital solutions. Travellers expect a smooth, relevant, and personal journey through the airport. Copenhagen Airport won the regional award “Best Food And Beverage offer of the year”, and will further meet these demands by improving security measures, efficiency at the check-in counter, and creating a new family friendly experience in close collaboration with e.g. LEGO. Build Copenhagen Airport for the Next Generation Copenhagen Airport will strive to continue to be one of the world’s most efficient and service-minded airports. In 2019, the first leg of the ambitious infrastructural development project in Terminal 2 and 3 was completed. The construction of new infrastructure is carried out on a demand-based principle. Build the Capabilities and Skills for the Future Technological and digital development has an increasingly large role to play in the airport of the future. Copenhagen Airport and its employees will enhance its focus on developing the organisation and skills of the future in close collaboration with partners including LO, Mærsk, and Netcompany. Create a Digital and Data Driven Airport Copenhagen Airport wants to be at the forefront of technological development in order to be an attractive and effective company. Intelligent use of data and development of digital solutions can enhance the passenger experience, optimize operations, and create relevant services for Copenhagen Airport’s passengers, partners, and customers. Build New Revenue Streams Based on Core Strengths Regulation of the aeronautical segment and increased expectations from passengers, customers, and partners mean that Copenhagen Airport must innovate to stay attractive and competitive. Copenhagen Airport will build upon its core competencies and strengthen its innovation to create new business areas. 12 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

FINANCIALS AND SHAREHOLDER STRUCTURE 2018

Shareholder Structure of Copenhagen Airport

Copenhagen Airports 1.4% 0.1% Denmark ApS (CAD) – Ontario Teacher's Pension Plan (OTPP) – The Danish Labour Market Supplementary Pension (ATP)

The Danish State

Danish private and institutional investors 39.2% 59.3%

International private and institutional investors

Source: Copenhagen Airports A/S Annual Report POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 13

Revenue Investments Profits Before Tax

4,444.8 m DKK 2,078.8 m DKK 1,417.3 m DKK

Revenue increased by 0.1% to In 2018, investments totalled Profits before tax were 1,417.3 4,444.8 m (2017: 4,439.4 m), pri- 2,078.8 m. Copenhagen Airport m. This represents a 13.3% marily driven by the passenger continued the high investment drop compared with 2017, pri- number increase and conces- level to develop infrastructure marily due to the reduction of sion and parking revenue. This further. charges as of 1 April 2018. was partially offset by the reduction of charges as of 1 April 2018, representing an average drop in charges levels of 10%, as well as a decrease in revenue from the hotel activities.

Total Dividend Following interim dividends at the midyear of 427.2 m, total dividends for the year 2018 are therefore 1,105.3 m, equivalent to 140.83 per share. 14 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

KEY FINANCIAL FIGURES

PAX (Passengers) 30,298,531 29,043,287 29,177,833 26,610,332 25,627,093 Passengers

Transfer 6,371,687 6,272,549 6,022,359 5,702,201 5,801,961

2014 2015 2016 2017 2018

OPEX 66.9 67.3 (Operating cost excluding 65.7 one-off items) 62.7 61.9 OPEX/PAX (DKK/PAX)

OPEX (m DKK) 1,908.2 1,900.4

1,714.5 1,792.0 1,805.2

2014 2015 2016 2017 2018

CAPEX 68.6 (Investments in non-current 52.0 assets) 44.8 37.1 36.9 CAPEX/PAX (DKK/PAX) 2,078.8

CAPEX (m DKK) 1,516.6 1,192.9 1,070.5 950.4

2014 2015 2016 2017 2018

Source: Copenhagen Airports Annual Report POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 15

Revenue 152.6 152.3 152.1 150.9 146.7

Revenue/PAX (DKK/PAX)

Revenue (m DKK) 4,421.9 4,439.4 4,444.8

4,061.9 3,867.6

2014 2015 2016 2017 2018

EBITDA (Excluding one-off items) 90.4 86.8 85.4 84.1 84.1 EBITDA/PAX (DKK/PAX)

EBITDA (m DKK) 2,637.1 2,519.9 2,546.6 2,154.8 2,273.0

2014 2015 2016 2017 2018

FCF (Free cash ﬂow) 42.4 37.9 32.3 25.0 FCF/PAX (DKK/PAX) 1,085.5 1,101.4 FCF (m DKK) 13.3 858.2 730.2 403.2

2014 2015 2016 2017 2018 16 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

PASSENGERS

PASSENGER TRENDS The increased public awareness of the effect of aviation on climate change has lead to movements that wants to reduce air traffic. In re- cent years, the term “flight shame” has been used in the public debate to describe the reluctance to fly due to climate concerns.

In 2019, Copenhagen Airport carried out a survey on climate change and travelling among more than 1,500 Danes in the age group +15. The survey yielded the following insights:

• Respondents see climate change as a real problem (72%)1 • Limiting travel by plane is of low importance (11%) to respondents compared to other CO2-combating initiatives – sustainable energy is of highest importance (53%) • Sorting waste (74%) and reducing food waste (67%) are the most mentioned areas individuals focus on in their daily life

• In connection with air travel, to offset their CO2-emissions, respondents say they will spend less on consumer goods (42%) while increasing use of public transportation to the airport as opposed to using the car (41%)

Which actions have the best effect on reducing climate changes on an overall level?

Sustainable energy Stop the cutting of the rainforest Reforestation Reducing plastic use Focus on technology and development Reducing population growth Reducing consumption Focus on recycling Promote electric vehicels Reduce food waste Limit travel by plane East less meat and more plant based Buying more organic Eco-labeled appliances None of the above

0 10 20 30 40 50 60 % Source: Copenhagen Airport 1 Parenthesis indicate the percentage of respondents that have answered in agreement with the statement in the given bullet POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 17

In 2018, KLM surveyed 1000 Danes in the age group 18 to 65 about their flight preferences. Even though price is still the most important factor when Danes buy a flight ticket, there is an increasing concern about the environmental and climate impact of air travel.

What is most important to you when you book a ﬂight ticket? Other: 10% The airline's sustainability strategy: 6%

Food on board: 1%

Price: 71% The airline's service: 13%

How will the environmental and climate impact of air travel affect how you travel in the future? I don't know: 12%

I'll not ﬂy at all: 4%

I'll not change how much I ﬂy: 63% I'll ﬂy less than today: 21%

Would you choose an airline that invests in reduced environmental impact of air travel? I don't know: 7%

Yes: 38%

Maybe: 47%

No: 7% Note: The figures contain rounded numbers. Source: KLM Survey (2018) 18 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

30 Million Passengers m passengers

15 2000 2003 2006 2009 2012 2015 2018

Passenger Growth Age (from 2017 to 2018) 15 – 29 31% 30 – 39 22% 40 – 49 19% 50 – 59 16% Total growth Domestic & Europe Intercontinental +3.8% +2.9% +11% 60+ 12%

Business Leisure Male Female 33% 67% 50% 50%

Note: The figures contain rounded numbers. Numbers are from 2018. Source: Copenhagen Airports A/S Annual Report POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 19

Passenger Nationalities Busiest Day Denmark 38% Europe EU 27% Sweden 13% Europe Non-EU 4% JUNE 2018 Norway 6% Non-Europe 13% 109,399 passengers

Number of days above 100,000: 25 49

Outbound Inbound Transfer 43% 37% 19%

Arrivals at CPH by... Overall Satisfaction Bus 3% 81% Taxi 15% Passengers rating overall satisfaction in top 2 Metro 25% scores. (4 or 5 ) ”very good” / ”excellent” Train 33% Car 24% Parkers 31%

Domestic International Average Number 5% 95% of Passengers per Day 83,010 20 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

AIRLINES

A COMPETITIVE INDUSTRY The airline industry is very competitive, especially amongst the low- cost carriers who engage in fierce price competition. Therefore, airlines carefully consider which airports to operate from to remain competitive.

Typically, airlines have routes to and from many different airports. Therefore, each airport must must make itself attractive to attract as many routes as possible. When airlines decide on which routes to operate, they first and foremost consider expected net profit. Factors that influence route attractiveness include, but are not limited to, the combination of cost per seat, optimal load factor, and incumbent com- petitors on the routes of interest.

The airline industry considers two seasons; summer and winter. Approximately a year before each season, every airline decides which routes they want to offer to its customers.

6 LARGEST AIRLINES IN COPENHAGEN AIRPORT

Number of passengers: 10,168,588 Number of passengers: 5,727,624 Number of passengers: 1,881,153

Yearly growth 0,9% Yearly growth 7,5% Yearly growth -4,3%

Share of total passengers: 34% Share of total passengers: 19% Share of total passengers: 6%

Fleet size (total): 158 Fleet size: 161 Fleet size: 419 Headquarters: Stockholm Headquarters: Oslo Headquarters: Dublin Established in: 1946 Established in: 1993 Established in: 1985 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 21

It is in the interest of Copenhagen Airport to attract as many routes and airlines as possible. Copenhagen Airport is competing with other Eu- Major Trends in the Airline ropean hub airports such as Amsterdam, Brussels, Zurich, Stockholm, Industry and Vienna to attract new routes and airlines. 1) The rapid rise of low-cost carriers challenges the business model of full-service carriers Passengers Flying With Low-Cost Carriers and increases price competition. 2) Consolidation through airline m passengers alliances. 20 3) Recurrent exposure to financial distress due to internal 15 (e.g. mismanagement) or external (e.g. oil prices) factors.

10 4) Advanced route planning and rapidly changing ticket prices with the use of advanced 5 algorithms and big data.

0 2000 2003 2006 2009 2012 2015 2018

Low-Cost Carriers Other

Note: The ﬁgure only includes outbound passengers. Source: Copenhagen Airports A/S

Number of passengers: 1,609,529 Number of passengers: 728,233 Number of passengers: 667,731

Yearly growth 17,6% Yearly growth 4,0% Yearly growth 9,0%

Share of total passengers: 5% Share of total passengers: 2% Share of total passengers: 2%

Fleet size: 167 Fleet size: 300 Fleet size: 120 Headquarters: London Headquarters: Cologne Headquarters: Amsterdam Established in: 1995 Established in: 1926 Established in: 1919

Note: Numbers are from 2018 Source: Websites of respective airlines and Copenhagen Airports A/S 22 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

AVIATION TAX

TAX ON AIR TRAVEL IN SWEDEN Since April 1st 2018, Sweden has had a tax on air travel for both domestic and international flights. The Swedish aviation tax is levied on passengers departing from a Swedish airport, and the tax rate depends on the final destination of the passenger.

Three different rates apply depending on the final destination (2019 prices). The tax rate applies to a particular country and its associated territories. For instance, a flight to the Canary Islands will have the same tax rate as a flight to Spain.

The country-specific tax rates have been calculated using the following rules1:

• 61 SEK for passengers travelling to an airport in Sweden or Europe • 255 SEK for passengers whose destination is within 6,000 km from Stockholm-Arlanda • 408 SEK for passengers whose destination is more than 6,000 km from Stockholm-Arlanda

Note that transit and transfer passengers who have landed at an airport in Sweden and are continuing their journey within 24 hours are not required to pay the tax. However, a return flight within Sweden will be taxed both for the outbound flight (e.g. from Stockholm to Malmö) and the return flight (Malmö to Stockholm) because both flights have a designated final destination in Sweden.

IMPACT In 2018, when the tax was imposed, Sweden experienced a drop in the number of annual domestic flights for the first time since the financial crisis. At the same time, the Swedish government changed its internal transportation policies such that government officials can fly only if the journey is longer than five hours by train, in contrast to the previous limit of three hours. Furthermore, the annual growth rate of international flights was also at its lowest since the crisis.

The Swedish Transport Agency estimates that there were 150,000 fewer air travel passengers in 2019 due to the aviation tax.

1 We provide a data set that shows the Swedish tax rate per country. Also, see the data description. POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 23

Million Passengers in Sweden

35 9.0

25 7.5

15 6.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

International ﬂights (left axis) Domestic ﬂights (right axis)

Source: Swedish Transport Agency

PRICE SENSITIVITY OF AIR TRAVEL DEMAND Many governments have introduced an aviation tax to reduce demand for air travel. A vast majority of studies have found a significant demand response to changes in ticket prices.

How much demand changes vary according to different situations and different passenger segments. According to research, business passengers are less price-sensitive than leisure passengers. Research also shows that price sensitivity is higher on short-haul routes than on long-haul routes. When the ticket prices increase, leisure passengers are more likely to look for alternative modes of transportation, e.g. trains and busses, which is easier for short-haul routes.

In the table below, we have collected several recognized demand elasticity estimates. The elasticities can be used to examine the Danish airline market in case of an aviation tax. Short- and Long-Haul Routes As a rule-of-thumb, you can assume that business passengers have a Routes are often categorized price elasticity half of that of leisure passengers2. as either short- or long-haul depending on the distance of the flight. There is no official DEMAND ELASTICITY FOR LEISURE PASSENGERS definition of short-haul and long- haul routes. Typically, airlines Domestic -1.4 and airports use geographic Intra Europe -1.2 boundaries to distinguish between the two. Copenhagen Europe – North America -1.1 Airport considers routes where the final destination is outside of Europe – Asia -0.8 Europe as long-haul.

2 Sources: IATA Economics Briefing no. 9 (2008) and COWI: Luftfartens vilkår i Skandinavien (2000) 24 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

PERSPECTIVE: AVIATION TAXES IN OTHER COUNTRIES

€0.00 Why Do Countries Introduce an Aviation Tax? The motivation behind aviation taxes in Europe are different. Here are the key arguments in favour of an aviation tax.

Reduce air traffic: Higher prices can change the behaviour of passengers such that they fly less and use other modes of transportation.

Compensation for CO2 emissions: The revenue from an aviation tax can be used to compensate for CO2 emissions due to air travel.

Raise revenue to fund research and development: The revenue from an aviation tax can be used to fund research that can UNITED KINGDOM: The British accelerate the transition towards a more climate-friendly and Aviation Tax was introduced sustainable future of air travel. in 1994 and applies on all passengers departing from a UK airport. The rate of duty varies Increase incentives to be more fuel-efficient:An aviation tax between 13 GBP and 515 GBP on fuel consumption can increase the incentives of airlines to according to passenger destination fly more efficiently. and the class of passenger travel.

The map shows the average aviation taxes per passenger in the EU and EFTA. Weighted average for domestic and international passengers.

Source: European Commission POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 25

NORWAY: Norway introduced an aviation tax 2016. The current tax rate is 75 NOK per passenger if the final destination is within Europe and 200 NOK per passengers for other final destinations.

SWEDEN: Sweden introduced an aviation tax in 2018. The tax is per passenger departing from a Swedish airport, and the tax rate varies between 61 SEK and 408 €0.00 SEK depending on the final destination. €14.48

€3.74

DENMARK: Denmark introduced an aviation tax in 1977. The tax changed several times until it was €19.98 abolished in 2007.

€0.00

€0.01

€0.00 €0.00

€0.00 €40.04 €0.00 €0.53 €18.12 €0.00

€0.03 FRANCE: The French €0.60 Civil Aviation Tax applies to passengers departing €5.64 €0.00 from a French airport. €15.41 €0.14 The tax rate is higher for €0.00 €2.40 destinations outside EEA. €22.82

€0.00

€0.19 €2.57 €9.72 26 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

THE SOCIOECONOMIC IMPACT OF AN AIRPORT

Can you think of other effects? SOCIOECONOMIC IMPACT There are several ways through which an airport impacts society. The table below illustrates just some of these channels3.

Carbon Emissions The aviation industry is estimated to contribute about 2-3% of total CO2-emissions worldwide. Land Usage There is a drag on land usage connected with extending operations, especially for airports situated close to urban centres. Noise Pollution Local noise pollution presents a persistent challenge for airports situated in urban areas. GDP The aggregate effect of a 10% increase in airport activity is estimated to be a 0.5% increase in GDP per capita. Employment Researchers estimate airport employment rise by 850 jobs for every increase of 1 million passengers in an airport with more than 10 million passengers per year. • Connecting passengers generate 3% less direct jobs than non-connecting passengers. • Low-cost carrier passengers generate 20% less direct jobs than passengers travelling with a network carrier. • The employment effect in supporting industries of airports is 2/3 of that of the direct employment effect. Business Airports facilitate economic development by lowering barriers to entry and stimu- lating trade, foreign direct investments and exchange of knowledge. Tourism Aviation access is an important factor in attracting tourists from abroad. • Nearly 70% of all incoming tourists in Copenhagen arrive by plane. The share is about 40% for Denmark in aggregate. • Tourism boom has prompted the Danish hotel and lodging industry to expand room capacity in Copenhagen by 40% towards 2022 to meet the steadily increasing demand.

3 Source: InterVistas (2015) POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 27

Measuring CO2 Emissions at an Airport Three different scopes measure carbon emissions at Copenhagen Airport. Scopes 1 and 2 include direct and indirect carbon emissions from Copenhagen Airport’s operational activities, e.g. power and heating consumption and operating the runway vehicles. Scope 3 includes indirect carbon emissions from activities in the airport not owned or directly controlled by Copenhagen Airport. These are emissions that Copenhagen Airport does not control, but can affect. Among other things, scope 3 includes passengers and airport employees’ transport to and from the airport and aircraft fuel consumption within 3000 feet of the airport’s vicinity.

Carbon Emissions in Copenhagen Airport Total carbon emissions in 2018: 386,573 tonnes

Scope 1 + 2 Total 28,970 tons

Direct carbon emissions (scope 1) and indirect carbon emissions CPH’s energy and fuel consumption from from CPH’s activities (scope 2). CPH buildings, runway system, and vehicles. 7%

Scope 3 9% Total 357,603 tons Partners’ energy and fuel consumption from buildings, equipment and vehicles. 10% Indirect carbon emissions from activities not owned or controlled by CPH. Passengers and airport employees’ transport to and from the airport.

74%

Aircraft fuel consumption from engine runups, APU and main engines (up to 3.000ft).

Source: Copenhagen Airports A/S Annual Report 28 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

FIGURES RELATED TO AIRPORT ACTIVITY

CO2 Emissions from Copenhagen Airport (1,000 ton)

370 32

360 31 350 30 340 330 29 320 28 310 27 300 290 26 280 25 2012 2013 2014 2015 2016 2017 2018

Scope 3 (left axis) Scope 1 + 2 (right axis)

Source: Copenhagen Airports

Average CO2 Emissions (g) pr. passenger km by means of transportation (EEA)

gram CO2-emissions passenger km 350 300 250 200 150 100 50 0 2000 2002 2004 2006 2008 2010 2012 2014

Air transport Rail transport Road transport

Source: EEA POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 29

World Air Travel Trafﬁc, millions

8,000,000 5,000 7,000,000 4,000 6,000,000

5,000,000 3,000 4,000,000 3,000,000 2,000 2,000,000 1,000 1,000,000 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Passenger kilometers (left axis) Passengers (right axis)

Source: Swedish Transport Agency

Number of Overnight Stays in Denmark, millions

22 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Statistics Denmark 30 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

ALTERNATIVE IMPACT: THE AMSTERDAM CASE The societal impact of airports can be measured in other ways than the purely economic one. As a leading European airport, Schiphol based in Amsterdam has been a frontrunner in formulating such a vision.

Schiphol first stated the mission of “Connecting the Netherlands”, both domestically and internationally, which should contribute to prosperity and well-being. The prosperity element was named ”connecting to compete”, framing the economic value, while the well-being element was dubbed ”connecting to complete”. Essentially, connecting to complete builds upon Schiphol’s mission to generate general and individual well-being amongst citizens.

At home, airports increase general well-being by making quick and fre- quent travel possible. Internationally, airports contribute to well-being because they enable people to travel to new places and experience new cultures, establish and nurture personal relations abroad and share knowledge.

China: Connecting to Compete and Connecting to Complete Schiphol has excellent air connections with China, with direct flights to eight destinations (in comparison, London Heathrow has five). In addition to delivering a direct economic impact, connectivity offers further advantages. For example, good accessibility is a factor which makes Dutch universities attractive to Chinese students. The tuition fees they pay are an important source of income for the universities and contribute to the universal affordability of higher education. Moreover, in the longer term, there is a good possibility that students who studied in the Netherlands end up in senior positions in a business or organisation in China. If they plan to do business in Europe, they will likely think of the Netherlands where they have already established a social network. Photo: Koen Smilde POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 31

Schiphol Airport: Key Facts • More than 71 million passengers travelled through Schiphol Airport in 2018, making it the third largest airport in Europe. • 36.6% of these were transfer passengers. • More than 1.7 million tons of cargo was processed by handlers at Schiphol Airport in 2018. • 104 airlines fly to 98 countries and 327 direct destinations. Air France-KLM is the largest airline at Schiphol. • Schiphol also serves as a hub for high speed train travel, as the high-speed train to Paris departs from Schiphol 9 times a day. • Around 67,000 people work at Schiphol. There are also around 500 other different companies located at the airport.

Source: Schiphol Airport 32 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S

DATA DESCRIPTION

DATA PACKAGE You can download this data package from politcasecompetition.com. The package contains the following data sets:

Data set Description Notes passengers_2018_all4 The data set contains all passengers departing from All variables have been Copenhagen Airport in 2018 where Copenhagen Airport calculated using many is the origin airport. The level of aggregation is routes. different data sources. If the route has one stop or more, “Connecting Airport1” The numbers in the data reports the first stop. “Avg. base fare” is the average set do not necessarily ticket price before taxes. “Avg. total fare” is the average reflect those in the case ticket price after taxes. as they are from SA- BRE, an external data source. tabellverk-luftfart-2018 The data set contains official statistics for Swedish and Data from trafa.se Global civil aviation. Top 20 airlines in CPH Number of passengers for the 20 largest airlines in Data from Copenhagen 2018 Copenhagen Airport in 2018. Airports A/S Swedish tax rate per In Sweden, the aviation tax rate differs according to Data from country country. skatteverket.se PAX and other figures This data set contains time series data regarding yearly Data from Copenhagen 2000-2018 passenger numbers, for instance total departing pas- Airports A/S sengers, total transfer passengers etc., in Copenhagen Airport Figures from annual Relevant tables and graphs etc. from the 2018 annual Data from Copenhagen report (2018) report are presented here. Airports A/S Annual Report 2018 Business & leisure dis- This data set contains passenger responses to question- Data from Copenhagen tribution of passengers naires regarding their purpose of travel. Note that not Airports A/S CPH all destinations are covered.

CO2 Scope 1-2-3 for CPH This time series data presents Copenhagen Airport’s Data from Copenhagen decomposed 2003-2018 calculations of their CO2-emissions within three scopes. Airports A/S Country Codes ISO3 This data set contains the standard ISO3 country codes. Data from UN Note: “PAX” in all aspects above refers to “passengers”.

4 This data set has been provided by SABRE. POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 33

ADDITIONAL DATA SOURCES In addition to the provided data material, you can also con- sult the following data sources:

• Eurostat (tip: search for airline or airport) • Statistics Denmark • Copenhagen Airports: cph.dk/en/about-cph/investor/traffic-statistics 34 POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S POLIT CASE COMPETITION 2020 – COPENHAGEN AIRPORTS A/S 35

FINAL REMARKS

Case Product

Your end product must consist of a presentation and an oral presentation. You are expected to:

• Make a maximum of 10 slides in widescreen (16:9) format. • Present your case solution in 8 minutes, followed by a Q&A session.

Deadlines and Presentations

You must solve the case within your group. You are not allowed to receive aid from outside the group or communicate with other teams. Please take note of the practicalities:

• Hand-in at 18:30 3rd of October latest by submitting your presentation in PDF-format on https://pcc.innoflow.io. You will not be able to submit after this time. • Preliminary presentations begin Sunday 4th of October. We will upload a timetable on politcasecompetition.com and on innoflow during Saturday evening where you can find your time slot.

Evaluation Criteria

To succeed in Polit Case Competition, you must demonstrate problem-solving skills, clear communication and creativity. The judges are looking for:

• The ability to structure the problem. • Analytical skills. • Clear and concise communication. • Creative solutions.

When presenting your recommendation(s) you are expected to explain the approach of your analysis and how you have come up with this recommendation. Remember to state relevant assumptions and calculations, which may have been needed for your analysis. Case Writers Bastian Emil Jørgensen Frederik Christian Münter Mads Højbjerg Pedersen

Thanks to Polit Case Competition wishes to thank the following people for their invaluable inputs throughout the case writing process:

Copenhagen Airports A/S Lene Holling, HR Development Director Linda Fetterlein, Business Analyst Jacob Stockmal Ditlevsen, Head of Strategy Jens Hundevad Bloch, Lead Analyst Thomas Thessen, Chief Traffic Forecaster

Mentoring Christoffer Nygaard, Associate, BCG Henrik Nielsen, Associate, BCG Kasper Skyum Madsen, Associate, BCG Simon Nielsen, Consultant, BCG

Case Testing Anna Emilie Lundegaard Jakob Jul Elben Johan Christensen Hasse Holm Thomsen Mikkel Bess Morten Reinert Hebsgaard Sebastian Skovgaard Naur

Disclaimer The information presented in this case material is the responsibility of Polit Case Com- petition alone. Copenhagen Airports A/S and Boston Consulting Group cannot be held responsible for any statement regarding its business put forward in this case. The material presented in this case cannot be used as supporting source outside Polit Case Competi- tion 2020 and may not be publicly quoted without written consent from the organisation behind Polit Case Competition. politcasecompetition.com