RUNWAYS, REBELLION AND RETIREMENT: DR MICHAEL KERKLOH REFLECTS ON HIS TIME IN THE INDUSTRY AS HE PREPARES TO RETIRE FROM HIS ILLUSTRIOUS CAREER. TOM ALLETT REPORTS.
Hailing from Ahlen, near Munster, in North Rhine-Westphalia he earned a doctorate in economics before joining Frankfurt Airport's operation planning department in 1987. From there he very quickly took over the management of ground handling. Then, aged 42, he was, in his words, "surprisingly" offered the MD's job at Hamburg Airport a move that "came for me quite early". After some thought, he decided to accept it... "Although I wondered what it would be like to be responsible for a whole airport, I fully respected what the job would require."
Seven years later, he was asked to become CEO of Munich Airport. "By then  Munich was already a rising star and there was no pressure on me because it was a new, innovative airport with a very good reputation, and I had already had experience of large-scale hub airports from my time at Frankfurt. And it was particularly interesting because I was moving from the north to the south of Germany and the special Bavarian cultural and political mix that you have here [at Munich], I already had a lot of respect for that."
Dr Kerkloh didn't take any of his Hamburg team down to Bavaria with him. He recalled: "I was totally alone but I did not feel alone. I was made very welcome, but I did not know anything about the specifics of the airport. I also had to work hard to understand the complexity of the political side of this airport. Step by step I began to understand that nearly half of my job was now political and not just operational."
The political element, he explained, comes from the fact that Munich Airport is still publicly owned, long after many of its rivals have been privatised. "The [privatisation] debate has taken place in many countries, not just here in Germany. It started in 1987 with BAA and that created a momentum in the 1990s that brought a lot of support for the privatisation of public assets.
"The old hypothesis was always that public airports are inefficient, so private capital was needed to transform them into efficient organisations. This [privatisation] was requested by the airlines. They thought the [handling / landing] fees they had to pay were too high because the airports were inefficient--and their view has never changed.
"We [airports] became very efficient, looking at numbers, creating margins that enabled us to finance our investment programme by ourselves. But that wasn't welcome either because, suddenly we became the greedy profit-making organisations that didn't give back the money earned from the airlines."
He described this situation as the "classic conflict between safeguarding long-term interests and infrastructures versus short-term market interests of the airlines." A dilemma he doubts will ever go away. As for other challenges--for instance political support for expansion--he noted: "Airports are always at the forefront of arguments between them, their neighbourhood, the media and the wider general public. We [rather than governments] have to explain why an airport expansion is a good thing--and create a relationship with our neighbourhoods that will then allow them to expand." Referring specifically to Munich, he added: "Some of our projects have yet to succeed. Our third runway development, which started in 2005, has yet to be built because of political interference and short-term decisions." More on that later.
Asked if he had always supported Munich being publicly rather than privately owned, he replied: "Only if it is run efficiently, but there's no doubt that our airport is efficient. We are the proof that you can be both financially very successful and efficiently organised, even in a public environment. We have had a lot of efficiency programmes, but our public ownership did not prevent us from achieving what we could have done in the private sector. Maybe that's one of the secrets of our success...?
"We are one of the most successful airports in terms of traffic and financial performance, but, with our public ownership, the pressure to pay dividends or returns on capital is different. I can go to my owners and say 'I can give you maybe [euro]60M out of my pocket, but I would like to keep half of it for an intermodal project to link the airport [with the city], or to improve the intramodality of our housing for staff, which is a major problem. So that's where public ownership makes things different - what do you do with the money you earn? There's no doubt that we have the same business agenda as any other airport far as the profitability of the company is concerned.
"I've never thought 'private is bad', but [during my time at] Hamburg Airport it already had a [public-private partnership] PPP model, so I know how that works. Maybe one day Munich will convert our limited company model into stock, but not a shareholding company. Whether that would also mean semi-privatisation, later, I don't know; that's a decision for the owners. For the moment at least, we don't need to change things; it would only happen if we didn't get enough money from our investment programmes.
"The interesting thing is that, despite being publicly owned, we can still invest in every project that we want to. We either already have the money or will earn the money [to complete a project], and this allows us to go ahead. We haven't [yet] needed a financing programme, which is sometimes why airports have chosen to privatise. So far, access to funding isn't a problem for us."
Looking ahead, he said the next stage in Munich's development might involve investing in other airports. Currently, its owner's governance rules dictate that the operating company, Flughafen Munchen, isn't allowed to invest in other airports, it can only undertake consulting management contracts.
Among the many highlights of his aviation career, Dr Kerkloh pointed to the recent research from the air travel intelligence specialists, OAG, which ranks Munich as the fifth best-connected airport in the world. "That's something we have achieved within the last 17 years," he said, before adding: "We have a highlight every year here at Munich, but sometimes they are negative ones, such as the runway referendum."
The airport's efforts to gain permission to build a third runway have run for years and, in 2011, the local Bavarian government granted permission for it to go ahead. However, because the facility is in public ownership, the City of Munich gave its residents a say in the matter--a local referendum was held in 2012 but resulted in 54.4% of participants voting against it.
Dr Kerkloh compared that result to his view of the ongoing Brexit saga by saying the runway referendum question: "...was also politically worded.
"How this decision was made is a bit like Brexit--people didn't know what they'd voted for; they were not really thinking about the consequences.
"We don't yet have the political support for the runway and that's of the utmost importance for the strategic future of this airport. But it is very, very difficult to get support for such analogue developments in Germany, and maybe anywhere in Europe nowadays.
"We have the money and we have the approval from the highest court in Germany, but politicians have to give us the final decision to start construction.
The 2018 Bavarian election delivered a coalition government shared between the Christian Social Union (CSU) and the much-smaller Freie Wahler (Free Voters of Bavaria) which had campaigned against building the runway. The two parties formed their alliance by agreeing that they would not revisit the runway question during their time in office. That means no progress is possible before 2023, and even then, it would depend on the next election result. Effectively, even if the go-ahead was given in three years' time, it means a third runway couldn't be operational before 2030.
Recognising that it isn't just Munich Airport or other aviation schemes that faces opposition, almost every big infrastructure project in the western world has to be justified on an environmental basis, he continued: "Citizen action groups get so much media coverage that you sometimes get the impression that the majority of public opinion is against these projects, which isn't true. But the silent majority is not organised and not expressing its view in public."
Reiterating his belief that the media-given impression of the runway debate--and other development issues--was "very unbalanced", he said the aviation industry urgently needed to improve its communication processes "against very emotional media influences" to "win support for something that the country desperately needs.
"That communication process is something that we [pro-airport development people] have to learn" adding that all stakeholders must to get involved in the persuasion process. "It's a big task that requires a lot of personal engagement. Everyone has to take part and, ultimately, you must be able to work in an atmosphere where people trust what you say. Even for building the runway, we must provide a kind of insurance; people have to know that the top management doesn't cheat.
"I think we have achieved that trust [with our neighbours, the industry and the media] but I don't think the politicians trust in the relationship we have with our neighbourhood, [even though] it is there." Dr Kerkloh argues that the local politicians feared such controversial issues but underlined that doing nothing was not an option.
"Not making a decision is not a solution; but politicians often have shorter time perspectives [than airport developers] so we have to continue to work towards getting their support. In my experience this kind of decision will only be made in a big crisis moment, either in an economic crisis, or because the system breaks down."
With a wry smile he quipped: "Now we have [teenage environmental campaigner] Greta [Thunberg] and also Extinction Rebellion, so, just for show, perhaps we should close the airport for four weeks and let everyone bear the consequences. Then everyone would see how necessary the infrastructure is. Sometimes it needs these kinds of shocks to get a new stage of consciousness."
He recalled how the airport had enjoyed political support "20 or 30 years ago--that's how the airport got built" but explained that "those times won't come back.
"Germany, not just Munich, expects its businesses to succeed and grow but, as Munich Airport is the only facility in the country with enough land to build another runway, its development is of the utmost importance when you consider the country's international profile; we have to propose the way ahead. Munich Airport would always be a very reliable partner on such projects: "We will not cheat the people... we deliver what we promise."
While the great frustration about the desire to build a third runway continues, Dr Kerkloh did of course acknowledge that Munich is now one of the main international hubs in Europe. He said: "It was big before I arrived. It was originally a German airport, but now we are a global one--and the only one in Europe that has a joint venture with an airline--Lufthansa. Our special relationship with them [to jointly develop MUC's Terminal 2 on a 60-40 basis]--was and still is--very innovative." He added that it had taken a long time make that airport / airline combination "really work" but concluded that: "it's very, very good now and has greatly contributed to the growth that we have achieved. So, that joint venture working so well is certainly one highlight, and the construction of Terminal 2 and the midfield terminal are others. T2 is still a world-class facility and the midfield building--a customer-focused transfer terminal--is too.
"We have always managed to get a good balance between regulated fees as an income source and other commercial charges. Our work to create our own retail and food & beverage [F&B] business made us the benchmark airport for this." In terms of its sales turnover, he noted that Munich ranks in the top ten worldwide despite having a business plan that he jokingly referred to as "a dinosaur model". This, he explained is because the airport gets operationally involved in so many different spheres, such as ground handling, security, F&B and retail. "These subsidiary companies are very big, so the whole airport group now has about 10,000 employees, and that's a lot."
Asked, what advice he could give his successor, Jost Lammers, he replied: "Start early! Change [be that] a new runway or getting greener, is only achieved by rational discussions and that takes so long because it is so complicated...it's good to start all your discussions as early as you can."
He noted that there will be other challenges too, not just environmental ones, but a digital agenda that is not yet fully understood."Digitisation adds complexity to airports, it doesn't reduce it. And you never substitute your analogue systems [for digital ones], digitisation comes in addition to what you already have.
"The generation gap also needs attention. Today [because of rapid technology advances] we perhaps have a bigger generational divide than ever before. If you are 45, to some you are already in the 'old' generation. I have spoken to people in our organisation who are in their 30s and they say that they don't understand 20-year-olds anymore. There needs to be a transfer of knowledge between the generations, and mine--unfortunately--needs to go back to school."
Underlining how he felt that the industry is much more complex, much more diverse, he added: "There are still ageing technology systems that need to be maintained and understood. I think that the digitisation of our media, customer sales, retail, duty free--and, how we finance those--poses essential questions.
"Others will need to be answered too. What is a good leader? What will the working environment--the workspace--look like? What about the work/life balance question? How will people want to work in the future? What will be their motivation?"
He then turned to the "Battle for talents--the challenge of the demography. That's going to be a real problem.
"We had a period when [a significant number of] East Germans came to work at the airport, but that's over now, they mainly went back." Today: "we recruit many staff from Croatia and Hungary but our growth [creates] about 1,000 jobs per year. We already recognise that in five to seven years' time we won't find enough people to fill them. So this means we will either need to move towards increasing automation; or increase wages to make the work more attractive." He recognised that this wasn't just a Munich-specific problem, it is a situation faced by all relatively affluent regions that have low unemployment.
Mr Lammers officially takes over from Dr Kerkloh on January 1,2020. Looking forward to his retirement, the current CEO said he may spend more time playing the piano, but concluded: [Airport development] "interests me and I want to stay engaged with that."
Looking back over his career he concluded: "You asked about highlights...well, I had 17 1/2 years at Munich and I wasn't fired, that has to be the highlight!"
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|Title Annotation:||COMMENT: DR MICHAEL KERKLOH|
|Date:||Dec 1, 2019|
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