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Business

Mega Hub: Munich Doubles Airport Capacity With New Terminal

With the opening of a massive new terminal at its international airport, Munich wants to double passenger traffic, compete with Frankfurt head on and make Germany more attractive to travelers.

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Growing by leaps and bounds: Munich Airport gets a multi-million dollar new terminal.

The new €1.5 million Terminal Two opens at Munich Airport International on Friday -- an expansion that will double the airport's capacity from 23 to over 50 million passengers per year and make it more competitive than Frankfurt, which is Germany's largest airport with 48 million passengers per year.

But though Munich is creating the capacity to accommodate ever more passengers, it's questionable whether there's enough demand. Munich is unveiling the pricey terminal during one of the worst downturns in air-travel history. Many airlines are filing for bankruptcy or downsizing flights and staff, including the German stalwart Lufthansa.

According to the Association of European Airlines, travel to and from the Far East is down 23.4 percent (mostly due to SARS), and travel within the European market is down 2.3 percent. Overall, international traffic is down 8.6 percent compared to the same time last year.

Airlines are taking measures to reduce costs long enough to ride out the crisis -- cutting routes and staff. But the airports themselves are much less flexible. "Airlines are cutting capacity like crazy, but you can't downsize an airport," Paul Behnke, the Director of Economics and Security for the Airports Council International told Deutsche Welle. "There are too many fixed costs." Given the state of the industry, is expansion a good idea?

Planning for the future

Industry insiders say Munich Airport International is doing the right thing. "Moves like Munich's are not only necessary, but smart," says Behnke. "Over the long term, they are doing exactly what they should be doing -- building capacity."

Given the politics of airport construction and the necessity of long-term planning, airport executives need to look at the big picture. Though the current travel forecast may look gloomy, things will turn around once the economy picks up, says Behnke. When that happens, airports are going to need to increase capacity quickly or risk gridlock.

As it can take years to get the necessary permits and approval from local planning authorities, not to mention complete construction, airports need to start planning now for the -- much hoped for -- upswing.

"The fundamentals are there for aviation to grow and our members are planning for the future," maintains Behnke. "We've had a 50 year history of nothing but growth in the airline industry, with the exception of the last three years, which will prove to be a blip over the long-term."

Erica Gingerich, a spokeswoman for Munich Airport International concurs. "Is it risky? -- no," says Gingerich. She points to the fact that Munich Airport International is one of the fastest growing airports in Europe, and has the capacity to continue to grow faster than most of its competitors.

Since the airport opened in 1992, the number of passengers flying via Munich has doubled. What's more, the airport experienced 7 percent passenger growth this year, despite the troubled state of the airline industry.

Taking on the competition

By doubling its capacity, Munich may well replace Frankfurt as Germany's largest airport. Currently Munich is Germany's second largest airport and the ninth largest in all of Europe.

But it's not just the increased capacity alone that may have executives in Frankfurt worried. Munich has also lured away one of Frankfurt's biggest customers, Lufthansa. The German airline, in a first for the European airline industry, has co-financed the new terminal, shouldering 40 percent of the overall cost. Lufthansa and its partner airlines, therefore, have exclusive use of the terminal, which could translate into less Lufthansa-related business for Frankfurt.

For Wolfgang Mayruber, head of Lufthansa, however, it's not an either/or decision. He hopes air traffic will grow at both airports, and according to Gingerich, the airline is looking to build up both hubs in a complimentary way.

Why Split the costs?

The chance to invest in the Munich hub and build an entirely new terminal specifically tailored to their needs was a unique opportunity for Lufthansa -- enough to convince them to foot some of the cost. "We wanted to make the terminal a global aviation hub with the fastest transfers of any airport in the world," said Mayruber. Promotional literature for the new terminal boasts a minimum transit time of 30 minutes.

But the arrangement, whereby the airline covers 40 percent of the cost and the airport picks up the remaining 60 percent, also holds advantages for the airport, beyond the obvious savings. The airport now benefits from a binding agreement with its main hub carrier, and can be rest assured that Lufthansa won't abandon them (by cutting flights or taking thier business elsewhere to a less expensive airport) should the market face another downturn.

Frankfurt fights back

Despite the rivalry, Wilhelm Bender, the President of Frankfurt Airport, sent his best wishes. In an interview with the German daily newspaper the Süddeutsche Zeitung, Bender said, "The opening of the new terminal is a positive sign for the development of the airline industry in Europe."

Well wishes aside, Frankfurt still has some tricks up its sleeve. When the U.S. Air Base there closes in 2005, the airport will have the necessary room to construct a third terminal. A new landing strip is also planned.

Behnke, of the Airport Council International, thinks there's room for both and Germany is well positioned for the kind of aviation growth that will accommodate two large airports. "Germany is the wealthiest country in Europe, and with eastern Europe joining the EU, Germany is becoming more attractive as a hub," he says.