Strategic impacts and risks

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Risks relating to contestation of the ENAC-SEA Master Agreement and the re-establishment of the tariff parameters after the first regulatory period

From September 23, 2012 the ENAC-SEA Master Agreement became effective and therefore SEA applied the new airport tariffs. After approval a number of appeals have been undertaken, on the initiative of the Italian Board Airline Representatives (IBAR), Iberia LAE - S.A. Operadora, Saudi Arabian Airlines and Assaereo, for the voiding of the ENACSEA Master Agreement.

Risk related to the traffic volumes managed by SEA concerning the airlines Alitalia and easyJet

SEA’s operations are significantly based on relations with the leading airlines which operate at the Milan airports to which the Company offers its services.

Among these, we particularly highlight Alitalia and easyJet.

In 2012, the passenger traffic volumes relating to Alitalia and easyJet respectively totalled 61.1% at Linate and 32% at Malpensa.

As for the other sector operators, any reduction or stoppage of flights by one or both of these airlines or the stoppage or change to flights with other destinations with high passenger traffic volumes may have a significant impact on results.

Risks related to the agreement framework under which SEA operates

SEA manages the Milan Airports under Law 194/1962 and Law 449/1985 and according to the 2001 Agreement, which concludes in 2041.

On conclusion of the 2001 Agreement, the Italian State will fully resume ownership of the State assets within the airports and will freely acquire all works and infrastructure completed by SEA at these complexes.

Risks related to the European Commission proceedings on State aid in favour of SEA Handling

With decision of December 19, 2012 the European Commission ruled that the amount of approx. Euro 360 million granted between 2002 and 2010 by SEA to its subsidiary SEA Handling was incompatible with EU regulations concerning State aid.

According to the Commission, the capital payments by the public shareholders of SEA Handling may have conferred an unfair economic advantage to SEA Handling over the competition which operates without State subventions.

The Commission therefore ordered the recovery of the aid, whose impact on the equity and financial position of SEA Handling would be particularly significant. Where the judgment is confirmed on conclusion of the case, the Group strategy in the handling sector will be significantly impacted.

Risks related to air transport sector competitive dynamics and potential changes in the cost structure of airlines

In the near future, the industrial and/or commercial strategies undertaken by airlines as part of their competitive positioning may result in a decision by one or more of such airlines to utilise other airport structures which are in competition with those managed by SEA.

Although the Milan airports operate with a diversified mix of airlines, it is possible that such decisions may impact on group operations and on its results. In addition, the choices made by airlines may be impacted by changes to their cost structure, which are in turn affected by the price of oil and obligations under the CO2 emission limits established by applicable environmental regulations and in particular by the thresholds of the Kyoto Protocol and by Directives 2003/87/EC and 2008/101/EC.

Risks related to airport handling activities and heightened competition in the marketplace

The high level of competition for airport handlers involves a significant risk in alteration of market share held. In fact, the airport handling sector performance is generally impacted by the development and structure of the air transport market, similar to the risks related to airline strategic and commercial choices. Although SEA holds a leadership position in the handling sector within the Milan airports through its subsidiary SEA Handling, it still must be considered that on the one hand an increase in competitive pressures and on the other the low margins linked to such activities may impact or slow down in the near future the achievement of satisfying profitability levels.

Competitive risks related to air transport sector technological development and of alternative transport means

The continuous technical development within the air transport sector over the recent past has resulted in the use of improved aircraft which require the availability of adequate airport structures, in particular for the take-off and landing of aircraft. In this regard, Malpensa airport relies on a system of runways and airport infrastructure which is capable of accommodating some of the most advanced type of aircraft, including wide body aircraft (including the Airbus A380). However, it still must be considered that such continual technological development of the sector requires in the future further modernisation and expansion of the airport structures managed by the SEA Group. The allocation of the funds necessary for such may impact the economic, financial and equity position of the Group.

Risks related to the non-implementation of SEA Group programmes and strategies

The capacity of the SEA Group to increase revenues and improve earnings depends on, among other aspects, the implementation of its industrial and commercial strategies.

The SEA Group, in consideration of the differing characteristics of the business areas in which it operates, has drawn up specific strategies.

The non-realisation of all or part of the Group strategies, also due to the performance of variables not controllable by the Group, may have negative impacts.

Risks related to the non-completion or delayed completion of road and rail links with the SEA Group airports

The accessibility and geographical positioning of the Milan airports favours the growth of the businesses and traffic volumes managed. Currently improvement works on the road and rail networks are planned by third parties which would improve further the accessibility of the Milan airports, in addition to extending the Catchment Area. The noncompletion or delayed completion of such development actions may impede access to the airports and therefore impact the activities carried out by SEA.

 

Operating risks and impacts

Risks related to the drawing up and review of bilateral agreements which govern access to the non-European air transport market

The SEA Group over the years has adopted a growth strategy focused on, among other factors, the extension of routes and flight frequency departing from Malpensa, in order to develop passenger and cargo traffic both through airlines already operating out of the airport and through new airlines, in particular on routes to and from countries and regions with significant economic growth.

The bilateral agreements, as agreements signed between governments of two states concerning air traffic on non-EU routes, provide an opportunity to introduce new routes and to extend the number of frequencies and destinations. It must be considered that the failure to conclude new bilateral agreements and/or to review existing bilateral agreements may – where airlines do not utilise and/or increase their presence at Malpensa airport – limit SEA’s ability to effectively pursue new commercial opportunities.

Risks relating to environmental regulations

Although SEA:

  • considers that Group activities are carried out in compliance with applicable laws and regulations; 
  • avails of an Environmental Management System which establishes procedures to contain and/or resolve any damage which may occur following events which impact the environment, also accidental; 
  • has attained ISO 14001 Certification and Airport Carbon Accreditation; 
  • in relation to compliance with noise regulations, has established in the financial statements a provision to introduce noise containment and lowering actions

 it must be considered that in the future, also following violations, due to force majeure or any amendments to regulations, the Group may incur costs or require significant investments or may be subject to environmental actions in relation to activities carried out, with possible impacts on the economic, equity and/or financial situation.

Risks related to increased regulation of airport activities

The allocation to EU airlines of slots at the Milan airports, as “coordinated” airports, is carried out in accordance with the applicable EU regulation, by Assoclearance, without the involvement of SEA.

Assoclearance is also responsible for the management of slots, the control of their correct use by airlines, and in certain circumstances their revocation. In the case of the revocation or the voluntary return of a slot by an airline, Assoclearance reassigns the slot.

In such cases, it is not guaranteed that the slot will be reassigned to an airline capable of producing - also in consideration of aircraft transport capacity - traffic volumes matching that of the previous airline. The regulation to which the Group is subject is affected by future developments which may not be easily predicted, in addition, also due to its complexity, to interpretations and/or orientations which may have negative impacts on Group activities.

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