Paris-Orly Airport

Paris-Orly Airport (Aéroport de Paris-Orly) is the second-largest international airport serving Paris, France, after Charles de Gaulle Airport. Located partially in Orly and partially in Villeneuve-le-Roi, it serves as a major hub for domestic and international flights. From a value investing perspective, you can't buy a share in the runway itself. Instead, investors analyze and can potentially invest in its parent company, Groupe ADP (Aéroports de Paris), which operates Orly, Charles de Gaulle, and Le Bourget airports under a long-term state concession. Viewing an airport like Orly is less about the planes and more about seeing it as a unique infrastructure asset: a vast, regulated toll bridge for people and goods with significant commercial real estate attached. Its value lies in its strategic location, high barriers to entry, and diverse revenue streams, making it a classic case study for investors interested in businesses with a strong economic moat.

Airports are often described as “cities within cities.” For an investor, they represent more than just transportation hubs; they are complex businesses with monopolistic characteristics. The core appeal is their durability. While airlines can go bankrupt, the physical airport, strategically located near a major metropolis, remains. It is an indispensable piece of infrastructure that is incredibly difficult to replicate, providing a long-term competitive advantage.

The economic moat surrounding a major airport like Orly is both wide and deep, protecting it from competition. This strength comes from several sources:

• High Barriers to Entry: Imagine trying to build a new international airport near Paris. You would need billions of euros, vast tracts of land, and political approval in the face of immense public opposition (the “Not In My Backyard” or NIMBY effect). This combination of massive capital expenditures (CapEx) and political hurdles makes direct competition virtually impossible.
• Regulatory Monopoly: Groupe ADP operates the Parisian airports under a long-term concession granted by the French government. This legal framework solidifies its market position, effectively creating a state-sanctioned duopoly for the Paris region alongside Charles de Gaulle.
• Network Effects: Airlines establish major hubs at airports like Orly, creating a dense network of routes. This attracts more passengers, which in turn encourages more airlines to fly there, creating a virtuous cycle that is difficult for a new entrant to break into.

An airport's business model is typically split into two main categories, each with different characteristics. Understanding this split is key to evaluating the investment.

• Aeronautical Revenue: This is the money made directly from airline operations. It's often the most stable and predictable stream but is typically regulated by a national authority to prevent the airport from abusing its monopoly power. Think of it as the “utility” part of the business.

1. Landing and takeoff fees charged to airlines.
2. Aircraft parking fees.
3. Passenger processing fees, often included in your ticket price.
4. Security and baggage handling charges.

• Non-Aeronautical (Commercial) Revenue: This is where things get interesting for growth-oriented investors. This revenue is generated from the millions of captive customers (passengers) passing through the terminals. It is less regulated and offers higher profit margins.

1. Retail and Shopping: The classic duty-free shops, but also high-end boutiques, bookstores, and electronics stores. This is a huge profit center.
2. Food and Beverage: Restaurants, cafés, and bars that cater to waiting passengers.
3. Car Parking and Rentals: A simple but highly profitable business line.
4. Real Estate: Developing and leasing property on airport land, such as hotels, offices, and logistics centers.
5. Advertising: Selling ad space throughout the terminals.

The goal of a well-run airport is to maximize the non-aeronautical revenue per passenger. The more time passengers spend in the terminal and the more appealing the commercial offerings are, the more money the airport makes. A healthy and growing commercial segment can produce significant free cash flow (FCF).

Despite their powerful moats, airports are not risk-free investments. A prudent investor must weigh the strengths against the potential vulnerabilities.

Airport traffic is highly correlated with global economic health. During a recession, both business and leisure travel decline, directly impacting all of an airport's revenue streams. Furthermore, airports are exposed to systemic risk and unforeseen shocks, often called black swan events. The 2010 eruption of the Eyjafjallajökull volcano in Iceland, which grounded European flights for days, and the COVID-19 pandemic, which brought global travel to a virtual standstill, are stark reminders of this vulnerability.

Because airports are essential, regulated monopolies, they are subject to government oversight. A regulator can cap the fees an airport charges airlines, limiting the profitability of the aeronautical business. This is often calculated based on a Regulated Asset Base (RAB). Additionally, political decisions regarding environmental taxes, security protocols, or night-flight restrictions can increase operating costs or limit growth. For an entity like Groupe ADP, in which the French state is a major shareholder, political objectives can sometimes take precedence over purely commercial ones.