Flughafen Zurich: The Beauty of a Natural Monopoly

"If you're going through hell, keep going."

– Winston Churchill

Irreplaceable assets.

They are part of one of the five economic moats: efficient scale.

As a Friday morning reminder, the other four are:

• Intangible assets (brands, patents, intellectual property)
• Network effects
• Switching costs
• Cost advantage

So why are we talking about irreplaceable assets right now? Because of the loud and persistent narrative that “AI eats everything.” It’s a story currently spooking global markets.

The first victims?

Software companies — particularly Software-as-a-Service (SaaS) businesses. Then came broader anxiety: could AI disrupt insurance? Real estate? Wealth management? Gaming? Brokers? And now even transportation stocks, which rely heavily on software for routing, logistics, and operations. These include the Swiss company Kuehne & Nagel and the Danish company DSV, among others (chart 1).

The problem?

We only know in hindsight what truly stands the test of time. For now, all this narrative creates is uncertainty — and uncertainty is the kryptonite of the stock market. It puts pressure on stock prices.

That’s where irreplaceable assets enter the picture.

AI cannot replace a physical asset that is essential to operations. And it certainly cannot replace a physical asset that operates as a natural monopoly due to efficient scale.

Enter a Swiss company with exactly that characteristic.

A natural monopoly.

Flughafen Zürich.

Chart 1: Trucking and logistics stocks are swept into the AI anxiety sell-off

Flughafen Zurich – Natural Monopoly

Irreplaceable assets are quite intuitive. But what exactly is a natural monopoly?

A natural monopoly exists when a single company can supply an entire market at lower cost than multiple competing firms. This typically happens because of extremely high infrastructure costs and powerful economies of scale. These businesses face enormous fixed costs, and their average costs decline the more they operate. Classic examples include water utilities, electricity grids, rail networks. Or our beloved waste management and landfills with the company Waste Management – a top holding at arvy since the beginning.

And of course — airports.

Airports are natural monopolies because the fixed capital requirements, land constraints, regulatory hurdles, and scale economics make it completely inefficient to have multiple competing airports in one city.

Let’s be blunt.

Does it make sense to build another airport next to the one in Kloten?

Does it make sense to open a new major hub in Zug — which, fun fact, was originally considered for Zurich Airport but rejected due to heavy fog, proximity to the financial center, terrain considerations, and transport infrastructure?

Of course not.

There will not be a second major airport serving Zurich.

And because competition is structurally limited, airports naturally possess significant market power. They can charge high fees — sometimes even abuse that power — which is why they are economically regulated.

The stage is now yours our beloved airport and business Flughafen Zürich AG.

Flughafen Zürich (Ticker FHZN, Airport abbreviation ZRH) is not just an airport — it’s a high-efficiency machine that regularly wins the “Best in Europe” crown. In fact, it has been named “Europe’s Leading Airport” for the 22nd consecutive year, ranking among the top 10 airports globally.

I must admit — that makes me a little proud.

Last year, the airport reached a historic milestone, fully surpassing pre-pandemic levels: 32.6 million passengers, up 4.5% year over year (chart 2).

These passengers were transported via 270,116 flights, with an average seat load factor of 79.8%.

Around 29% were transfer passengers — people simply connecting through Zurich thanks to its excellent geographic location.

And let’s be honest — how many airports allow you to reach the city center in 10 minutes?

So now we’ve covered the beginning of every “Good Story”: The moat.

Let’s move on to how they make money.

Chart 2: Passengers at the Flughafen Zurich airport since 1948

Flughafen Zurich’s Hybrid Till Approach – Regulated Aeronautical vs. Non-Regulated Commercial Activities

Let’s add another little Friday morning brain exercise to your obligatory coffee and arvy’s Weekly reading.

A business makes more money (growth) in two simple ways:

1. Sell more volume.
2. Raise prices.

Simple. Obvious. True.

Now, if you operate in a highly competitive market, doing both is hard.

Why?

1. Competitors want a piece of the cake.
2. Customers won’t buy your slice if it’s more expensive than the one next door.

That’s where a moat — barriers to entry — comes into play.

If you have one, you can fend off competition. And if you’re operating in a growing market — like global travel, expanding at roughly 5–7% annually — you can:

1. Sell more (in airport terms: more passengers, more flights).
2. Increase prices (because nobody else can grab your cake).

Now here’s the nuance.

This pricing power only fully applies to the unregulated part of an airport business.

Unregulated?

Yes.

Roughly 50% of Flughafen Zurich’s revenue is regulated.

It operates under Switzerland’s Ordinance on Airport Charges. This framework governs aeronautical charges — landing fees, passenger charges, aircraft parking, noise and emission fees, and infrastructure usage like baggage systems or de-icing.

This regulated segment covers the monopolized core infrastructure required for flight operations. In a typical year, these aeronautical revenues account for around 50–60% of total revenue.

The remaining 40–50% comes from non-regulated activities:

• Newer developments such as “The Circle”
• Parking (very profitable)
• International holdings
• Real estate rentals
• Food & beverage
• Advertising
• Services
• Retail

This structure is known as the hybrid till approach (chart 3).

As a side note, Flughafen Zurich (FHZN) also partially owns and operates around ten additional airports across five countries: India, Brazil, Chile, Colombia, and Curaçao.

The result of this business model?

High profitability.

Albeit cyclical.

FHZN delivers a net profit margin of around 25% — not bad at all.

Now, what’s the small catch in this otherwise “Good Story”?

Because of its natural monopoly characteristics and physical constraints, growth — while steady and attractive — is structurally limited. Long-term EPS growth currently stands at roughly 3.7%, with revenues compounding around 4.3% annually.

Which makes perfect sense.

An airport cannot grow 20–30% per year. Physically impossible.

So how does such a business behave in the stock market?

Let’s check the “Good Chart.”

Chart 3: Flughafen Zurich Milestones, Half Year 2025 (Earnings March 10, 2026)

Cup-With-Handle’s Cousin: Cup-Without-Handle

Unsurprisingly, Flughafen Zurich’s stock chart contains one massive dent: Covid.

There is hardly anything worse for global travel than a global pandemic.

It was hell.

But great businesses survive. And then they fight back.

They follow the resilient mantra of former British Prime Minister Winston Churchill: when facing extreme adversity, the only way out is to persevere — to keep going — until you reach calmer waters again.

And that is exactly what FHZN did.

Interestingly, it formed a chart pattern we have not yet discussed in our 139 editions of arvy’s Weekly — yes, 139 consecutive Fridays without missing a single one.

The arvy boys just keep going. Built with a mindset measured in decades — not weeks, not quarters.

Back to the pattern.

It’s called the Cup-Without-Handle.

One of the simplest bullish formations to identify — and one that has accompanied countless winning stocks over time.

Here’s how it works: After advancing for weeks or months, the stock gradually declines. It then bottoms out, forms a rounded U-shape, and begins to recover.

The key difference from its cousin, the cup-with-handle pattern?

There is no handle.

Instead of a final consolidation before breaking out, the cup-without-handle waits for nobody. The stock rises from its lows and marches straight into new highs.

And that’s exactly what FHZN has done.

It has reached a new all-time high — arguably the most bullish signal a stock can give.

Why?

We covered that recently when discussing Novartis.

Now, the stage belongs to you, Flughafen Zurich.

Ready for takeoff!

Chart 4: Flughafen Zurich’s Cup-Without-Handle, since initial public offering