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Most important risks

The ten most important risks, according to the COSO-ERM guidelines, are divided into the four categories below:

  • Strategic
  • Operational
  • Financial
  • Compliance

As well as a description of the risk and the control measures, we indicate whether the risk has decreased or increased, or remained unchanged, relative to 2012. Four of the ten risks either increased or decreased in 2013:

  • B. Competitive risk in the area of transfer traffic has risen slightly owing to increased activity by airlines and airports in Turkey and the Middle East
  • D. Uncertainty in relation to future economic regulation has decreased as a result of the most recent proposals discussed in the Lower House
  • E. The sudden (re)emergence of the Air Passenger Tax as a national policy topic and the many regulatory developments at EU level in 2013 have led to an increased risk in the political context (previously 'changing laws and regulations')
  • F. With the start of construction work on two large projects, the new Hilton hotel and non-Schengen Central Security, the risk associated with large projects has increased. 

Most important risks

Developments in 2013

A > Changes in demand

B > Competition

C > Developments in the real estate market

D > Economic regulation

E > Political context

F > Major projects

G > International enterprise

H > Operational risks in aviation

I > Market risk, liquidity risk, counterparty risk

J > Violations of laws and regulations, and integrity violations

Strategic risk

A > Changes in demand

The risk of unexpected changes in demand, in our case especially the number of air transport movements, passenger numbers and cargo volumes, can lead to a shortage or excess of capacity. In such situations, profitability will increase or decrease proportionally.

The ongoing economic downturn poses a significant risk and may lead to a decline in passenger numbers, lower spending per passenger, decreased airline capacity and changing dynamics in the sector. Other factors that can influence demand can emerge from politics, laws and regulations, technology and competition. Schiphol is sensitive to fluctuations in demand, particularly because of its dependency on a limited number of major users and the fixed nature of its operations and assets.

Control measures

  • Short-term and long-term scenario planning
  • Monitoring of external trends and developments
  • Improved flexibility as a result of outsourcing activities
  • Adjustment of commercial supply to stimulate demand for retail, catering services and parking
  • A modular investment plan

B > Competition

Insufficient investment in quality and capacity increases our risk of being unable to maintain a healthy competitive position. As regards transfer traffic in particular, competition is increasing from other large hubs in Europe and new hubs in the Middle East, which have made substantial investments in new infrastructure and quality improvements. We are also facing increased competition in O&D traffic within our catchment area. Our non-aviation activities such as parking, retail and real estate, face competition from the area around Schiphol.

Control measures

  • Timely investments in infrastructure, in close consultation with airlines
  • Competition analyses
  • Client Relationship Management
  • Widening of retail spectrum, range and facilities

C > Developments in the real estate market

As market conditions change, occupancy levels in our real estate portfolio may fall, rents may drop and we may see an increase in rental incentives, all resulting in lower profits and values. This risk is increased by the high concentration of aviation-specific real estate and our dependence on a number of large customers.

Control measures

  • Monitoring of market conditions and current prospects
  • Valuations of the real estate portfolio conducted every six months using different surveyors
  • Develop projects solely on the basis of minimum pre-sale requirements
  • Timely renovation and redevelopment to keep the location and portfolio attractive

D > Economic regulation

Our aviation activities are subject to economic regulation, which means that there is a cap on our investment returns. The evaluation of the Aviation Act is expected to lead to an adjusted system of economic regulation. These changes may affect Schiphol's ability and/or flexibility to make investments in capacity and quality, which in turn would impact Schiphol’s competitive position and service levels.

Control measures  

  • Modular investment plans
  • Close contact with the Dutch Authority for Consumers and Markets, which monitors the implementation of aviation charges and terms and conditions at Amsterdam Airport Schiphol 
  • Participation in discussions with the government on the subject of regulation

E > Political context

Political developments, policy changes and European or national laws and regulations can significantly influence our business, affecting, for example, the sale of consumer products at the airport. Changes in security legislation are another telling example of developments in the political arena that can give rise to major operational changes and escalating security costs.

Control measures

  • Participation in various consultation bodies
  • Ongoing dialogue with all stakeholders
  • Monitoring of regulatory developments
  • Monitoring and influencing political and other decision-making processes

F > Major projects

A number of different major projects (Master Plan, Central Security non-Schengen, Departure Lounge 2, Hilton Hotel) are being carried out simultaneously. This involves significant project risks, including delays and budget overruns. The original project objectives might then become redundant, resulting in the project no longer adequately meeting our needs.

Control measures

  • Specialised project management department
  • External benchmarks for the execution of major projects
  • Standardised methods for executing major projects

G > International enterprise

International enterprise opens up opportunities and potential benefits, but also brings specific risks that would not arise in a domestic setting.

Control measures

  • Limit risks to local subsidiaries 
  • Bring in competent local management and expert local advisers 
  • Maintain good relationships with local airport authorities
  • Detailed attention to financial instruments and investment valuations

Operational risks

H > Operational risks in aviation

 

Safety and security

Inadequate safety and security measures increase the risk of disruptions to airport operations as well as incidents or accidents that could have serious consequences for passengers, local residents and the employees of companies located at Schiphol.

Control measures

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  • Safety management systems 
  • Training and drills
  • Investment in innovations such as the security scan, which uses millimetre wave technology
  • Random checks to assess the performance of security control 
  • Operational security training for staff

Unexpected business interruptions

Extreme weather events or natural phenomena, fire, pandemics, aircraft accidents, technical faults or power cuts can all lead to business interruptions. These can significantly impact business processes, results and prospects.

  • Company emergency plans and procedures 
  • Emergency measures 
  • Well-trained and prepared staff
  • Insurance policies

Dependence on third parties

As an airport, we are highly dependent on inputs and materials from third parties, such as governments, statutory bodies, the Dutch Border Police (Koninklijke Marechaussee), Customs and partners in the sector such as airlines and ground handlers. Any industrial action, business interruptions or unethical behaviour on the part of these external parties can disrupt our operations, damage our reputation and negatively affect results.

  • Ensure that covenants and agreements are in place, and maintain good relationships and contact with external parties
  • Screening of external contract parties
  • Proper coordination and contract management

Financial risks

I > Market risk, liquidity risk, counterparty risk 

Schiphol Group is exposed to a variety of financial risks, such as currency, price and interest rate risks, liquidity risks and counterparty risks. Maintaining creditworthiness is also of paramount importance: the loss of the A rating can result in reduced access to financing as well as higher financing costs.

Control measures

  • Maintain a large degree of liquidity in line with market conditions
  • Proactive refinancing strategy
  • Balanced distribution of loans and repayments
  • Monitor creditworthiness (Standard & Poor’s A rating) to ensure easy access to the capital market
  • Limit currency and interest rate risks
  • Monitor counterparty risk (Standard & Poor’s A rating or higher)

Compliance risks

J > Violations of laws and regulations, and integrity violations

Failure to comply with applicable laws and regulations, particularly in terms of noise and the environment, safety and security, environment, competition, tendering and privacy/information security, can damage our reputation and have negative financial and operational consequences.

Schiphol Regulations and procedures

A lack of integrity and corporate responsibility can damage our reputation and lead to regulatory violations.

Control measures

  • Compliance policy including organisational structure with Corporate Compliance Officer and line Compliance Officers
  • Compliance awareness training for staff
  • Internal compliance procedures and management systems to ensure regulatory compliance
  • Legal procedures and standards for contracts, documents management, procurement, power of attorney etc.
  • Risk management procedures including a reporting structure
  • Cooperation and lobbying with regulatory authorities and implementing bodies
  • Sanctions policy and committee, fraud committee and integrity committee
  • Mandatory reporting of transgressions, including option of anonymous reporting through an external body