Address to shareholders

Dear Shareholders,
Dear Sir or Madam

We look back on a successful financial year with stable flight operations and rising passenger volumes. Our commercial centres are successful. With THE CIRCLE and the targeted expansion of our foreign ventures, our plans for strategic growth are also on target. Our finance result for the reporting year is very positive: Flughafen Zürich AG generated profit of CHF 285.5 million, representing a year-on-year increase of 15.1%. The Board of Directors is proposing to the General Meeting of Shareholders the payment of an ordinary dividend of CHF 3.30 per share and payment of an additional dividend from reserves from capital contributions of CHF 3.20 per share.

PASSENGER VOLUMES AND KEY FINANCIAL DATA

In the past year, a total of 29.4 million passengers flew via Zurich Airport, representing a year-on-year increase of 6.3%. The number of local passengers rose by 5.3% to 21.0 million. The number of transfer passengers rose by 8.8% to 8.3 million, while the share of transfer passengers amounts to 28.3%. In 2017, there were 270,453 flight movements, up 0.5% compared with 2016, while air freight volumes grew 13.1% over the previous year. A total of 490,452 tonnes of freight were transported. Along with the general rise in overall passenger numbers, the increase in the number of peak days with over 100,000 passengers travelling per day also merits a mention. During the year under review, Zurich Airport saw 22 such days (previous year: 7).

In the 2017 financial year, Flughafen Zürich AGʼs revenue grew CHF 24.3 million to CHF 1,037.1 million (+2.4%). Of the total revenue, approximately 60% was attributable to aviation and 40% to non-aviation business. In particular, higher commercial and parking revenue contributed to this growth. After deducting operating expenses amounting to CHF 453.5 million and depreciation of CHF 243.7 million, earnings before interest and tax (EBIT) came to CHF 339.9 million (2016: CHF 337.4 million). Consolidated profit for the financial year just ended amounts to CHF 285.5 million, up CHF 37.5 million from the prior-year period. The result was positively impacted in particular by the sale of the remaining 5% stake in Bangalore International Airport Ltd. which delivered a gain of CHF 31.4 million.

In the year under review, Flughafen Zürich AG invested CHF 239.0 million in ongoing projects. In particular this included a close to 100% rise in investment in THE CIRCLE to CHF 92.1 million in 2017, representing more than a third of our total investments. Further significant investment projects included the upgrade and extension of the baggage sorting system in Zone A plus projects for expanding the aircraft stands on the western and southern sides of the airport.

In May, Flughafen Zürich AG successfully obtained refinancing. A debenture for CHF 250.0 million matured on 5 May 2017 (coupon of 2.25%). Three days later, the company issued a 12-year debenture for CHF 350.0 million, consequently benefiting from the prevailing low interest rates. The new debenture has a coupon of 0.625%. This refinancing will therefore have a positive impact on interest costs. Thanks to the companyʼs continuing extremely solid financial position, at the end of April Standard & Poorʼs confirmed its A+ rating, while at the same time underlining the favourable prospects by adjusting its outlook to “positive”.

FLIGHT OPERATIONS

Andreas Schmid
Chairman of the Board of Directors

“Zurich Airport is doing everything possible to satisfy mobility demand at the accustomed high level in future too.”

APPROVAL OF SECTORAL AVIATION INFRASTRUCTURE PLAN

The year under review saw the end of a process that has lasted over a decade. On 23 August 2017, the Federal Council approved the revised Zurich Airport Sectoral Aviation Infrastructure Plan (SAIP). The SAIP forms the basis for configuring future flight operations and infrastructure expansion. In particular, specification of new daytime take-off routes and the option of extending runways 28 and 32 represent important changes as they will enable better separation of take-offs and landings, thereby also improving safety and punctuality. Elements that did not require any amendments to the Cantonal Development Plan or changes to the existing infrastructure have already been sent to the Federal Office of Civil Aviation as part of the submission for new operating regulations. Approval for the remaining elements will gradually be sought over the next few years.

New airlines and destinations

During the year under review, new airlines and add new destinations for flights from Switzerlandʼs gateway to the world were welcomed. For instance, on 7 June 2017, Star Alliance member Air China returned to Zurich Airport. The airline offers four flights a week on the Zurich-Beijing route. Home carrier Swiss International Air Lines has introduced new services to Bergen, Wrocław (Breslau), Cork, Figari, Niš and Westerland. Edelweiss Air now flies twice a week to Cancún, San José and San Diego. Transavia has operated four flights a week to Amsterdam since 16 February 2017.

Although Air Berlin – for many years the second-largest airline by passenger numbers – finally ceased flying at the end of the 2017 summer timetable, by and large Zurich Airport did not suffer any negative impact. In particular, easyJet and Vueling further increased their presence at Zurich Airport during the year under review.

Awards and high quality

The high standards of quality again received recognition during the year under review. At the 2017 Airport Service Quality Awards, Zurich Airport was ranked third among European airports. These awards are presented annually by the leading international umbrella association of airport operators. The association carries out around 600,000 individual passenger surveys to measure customer satisfaction at more than 280 airports around the world. Also – for the 14th time in succession – Zurich Airport won the World Travel Award for “Europeʼs Leading Airport”.

The quality of the airport experience was further enhanced with various measures. New features at Zurich Airport include attractive outdoor rooms in the open air for passengers – in Dock E and also on the new Sports Bar terrace in the Airside Center.

Enlarging and modernising the passport control hall

The passport control hall is reaching the limits of its capacity at peak times. It is therefore currently being enlarged and upgraded with the latest technology. Along with additional counters and better configuration of the space, eight automated gates went into operation at the local immigration point on 27 September 2017. With automated passport control, passengers can pass through the Schengen border on their own as the system checks the biometric data in their passport. Use of the automated passport control gates is voluntary for passengers at Zurich Airport, and staffed passport counters can still be used with no restriction. Automated gates will also be installed for departing passengers in the spring of 2018.

Upgrading and expanding the baggage sorting system

It is not just passenger handling processes that are being continually optimised. Much optimisation also goes on behind the scenes. For instance, the baggage sorting system at the heart of the hub operation at Zurich Airport is gradually being upgraded and expanded in several phases at a cost of some CHF 500 million. During the reporting year, the area was cleared, and the structural work will commence in 2018. The fully upgraded system is scheduled to open in 2023.

Key investments in ground structures

Work on the new stands on the south side commenced in March 2017. Thanks to their proximity to the existing infrastructure, they will eventually cover the demand for aircraft handling stands. In total, ten stands for handling code C aircraft (e.g. Bombardier C Series) are being constructed on the southern side of the airport, and are scheduled to go into operation at the end of 2018. On the western side, two stands for aircraft up to code E (e.g. Boeing 777) were built and commenced operation in October 2017.

Preparations are also underway for renovating runway 28, the high-speed taxiways for runways 28 and 34, a new access taxiway for runway 16, and the taxiway around runway 28.

EASA certification

On 15 September 2017, the Director of the Federal Office of Civil Aviation presented Flughafen Zürich AG with an EASA certificate. This certificate from the European Aviation Safety Agency certifies that Zurich Airport complies with the regulations and operates safely.

Retail

Revenue growth and new commercial developments

The positive passenger trend meant that airside revenues were generally good, both in restaurants and high-end retail stores. The clothes shopping experience was enhanced by the opening of a Hanro boutique by this established Swiss lingerie brand in March 2017. Remodelling of the duty free outlets was completed on schedule before reopening. The finishing touches will be added during the first quarter of 2018.

Owing to the expansion of the baggage sorting system, one large landside staff restaurant closed its doors at the end of the year. This closure will be offset by various new offerings, in particular the new restaurant AIR in Terminal 2, which celebrated its launch at the beginning of 2018 and is open to both travellers and visitors. In the retail segment, home store Depot complemented the offering of everyday living accessories.

The work to expand car park 6 was completed in April 2017. The car park now has around 7,500 parking spaces and is equipped with the latest technology, including charging points for electric vehicles. There are now over 20,000 parking spaces available at the airport. The new car park also enables better product differentiation, supported by digital offerings with a flexible price structure. Thanks to active marketing and innovative partnerships with various airlines and lounge providers, travellers now have the choice of additional booking options. This also ensures better utilisation of parking spaces during off-peak times.

Destination Zurich Airport

Continuing its long tradition stretching back over sixty years of providing experiences for interested members of the public, since the end of April 2017 Zurich Airport has boasted yet a further attraction: the popular area for plane spotters in Zone West, one of the largest remaining development zones at Zurich Airport, has been enhanced by a viewing platform with an unimpeded view of the airfield.

THE CIRCLE

The foundation stone laying ceremony on 24 March 2017 marked an important milestone in the realisation of this major project. The above-ground construction work, including the facades, is proceeding apace. The project is becoming more and more tangible as it begins to fill with life. The transformation of the hill directly adjacent to THE CIRCLE which covers 80,000 square metres of wooded and green space is also being realised at the same time as the buildings are being constructed. By the time it opens, an attractive nature experience will be created here which will be open to everyone visiting THE CIRCLE and Zurich Airport.

Marketing of the various modules is making good progress. As part of the retail transformation, new concepts such as “Stores for Stories” are gaining in importance. The closer the completion date comes, the more interest is being shown in the rental units. Further key tenants were signed up during the last few months. These include Microsoft Switzerland, which will move its head office to the airport, and the Carlton catering company, which will operate the 1,200 m² rooftop restaurant above the conference centre. THE CIRCLE will play a key role in strengthening the airport as an important centre for Zurich and will also have positive benefits for the existing landside retail offering. The project is on schedule, with completion of most construction work, including handover to tenants, due by the end of 2019. THE CIRCLE is scheduled to open during the first half of 2020.

Stephan Widrig
Chief Executive Officer

“THE CIRCLE will strengthen the airport as a major centre in Zurich.”

INTERNATIONAL

New concessions and greater presence in Latin America

Flughafen Zürich AG was granted two new concessions in the first half of 2017. The first is for the expansion and operation of the international airport Hercílio Luz in the southern Brazilian city of Florianópolis until 2047. Floripa Airport is the first foreign airport to be acquired by Flughafen Zürich AG. Moreover, A-port Chile S.A., in which Flughafen Zürich AG has had a 100% stake since 2017 (previously: 49%), won the concession for the international airport Diego Aracena in Iquique. Being awarded the concession gives A-port Chile S.A. the right to expand and operate the airport beyond the end of the current operating licence. From 2018, the new concession will have a variable, traffic-dependent term, from the expected 18 years up to a maximum of 25 years.

In addition to Iquique, via A-port Chile S.A. Flughafen Zürich AG currently holds the concession to operate the international airport Cerro Moreno serving the city of Antofagasta, and it is also actively involved in the airports in Belo Horizonte, Bogotá and Curaçao. To support its activities there, Flughafen Zürich AG has boosted its management presence in Latin America with a select team of experts.

Bangalore

In March 2017, Flughafen Zürich AG completed the transaction to sell its remaining 5% stake in Bangalore International Airport Limited in India. The disposal resulted in a one-off gain of CHF 31.4 million.

MANAGEMENT AND BOARD OF DIRECTORS

Change of Chief Operation Officer

Since 1 October 2017, Stefan Conrad, previously our Chief Operation Officer, has been heading up our activities in Latin America. He was succeeded as a member of the Management Board and Airport Manager by Stefan Tschudin with effect from 1 October 2017. Stefan Tschudin has worked for the company since 2007, among other things with responsibility for all matters concerning Zurich Airportʼs operating regulations and for the aviation-related sections of the SAIP. Before taking up his new post, he was Head of the Regulatory Affairs & Noise department which, in addition to flight operation and infrastructure procedures, also covers the sound insulation programme and noise mitigation for local residents.

Changes on the Board of Directors

At the 2017 general meeting, the Board of Directors expressed its thanks for the tremendous commitment of two of its long-serving members: Kaspar Schiller, who is standing down for age reasons, and Ulrik Svensson, who had already resigned his seat on the board at the end of 2016.

Josef Felder and Stephan Gemkow were elected as new members of the Board of Directors. From 1998 to 2000 Josef Felder was CEO of Flughafen-Immobilien-Gesellschaft (FIG) and then designated general manager for the new company Flughafen Zürich AG. Following the merger and initial public offering, he was CEO of Flughafen Zürich AG from 2000 to 2008, and since then has served as a director on various boards. Stefan Gemkow held various management positions at Deutsche Lufthansa AG from 1990, latterly as a member of the management board and CFO. From 2012 he was Chairman of the Managing Board at Franz Haniel & Cie. GmbH in Duisburg, one of the largest family-owned investment holding companies in Europe.

OUTLOOK AND THANKS

Flughafen Zürich AG is operationally, financially and strategically well placed. As a high-quality air transport hub in the heart of Europe, we connect Switzerland to the worldʼs most important cities. With attractive commercial spaces and developing an ever more appealing cachet as a central focal point for Zurich, we are grasping the entrepreneurial opportunities offered. Through forward-looking growth abroad, we are also participating in attractive long-term aviation growth markets. We would like to thank everyone who works so tirelessly and with such dedication on behalf of the company and Zurich Airport.

Zurich Airport, 26 February 2018

Andreas Schmid
Chairman of the Board of Directors

Stephan Widrig
Chief Executive Officer