Sydney Airport
Traffic performance May 2015
Company CEO and Managing Director Kerne Mather said that passenger numbers have Increased in May by 1.6% over the same month of the previous year and increases in the load factor both domestic and international have highlighted the increasing demand for air travel. Steady domestic market growth of 1.4% has come because of increases in load factors in both low-cost and full-service carriers. International passengers grew by 1.9% as a result of the 2.5% increase in load factor. The Asian markets continue to provide strong inbound passenger growth with the Philippines (33%), China (22.7%), Hong Kong (14%), Korea (11.7%) and India (7.4%) leading this growth.
May Trafiic For SYD (Source - Company Reports)
Direct American Airlines services will commence from December 2015 as part of an enhanced partnership with Qantas which will offer services from Sydney to Los Angeles and increase capacity by 301,000 every year which is a 33% increase on the current capacity. Sydney is now the number one destination for visitors from America and has captured 60% of the market and this partnership will support increased passenger growth. The USA is also the largest outbound destination. Business passengers make up around 20% of passenger traffic and they will save around 4 hours each way with direct flights from Sydney to San Francisco.
Distribution Growth (Source - Company Reports)
The key results for 2014 include a 4.3% growth in revenues to $ 1.16 billion, 6.1% growth in EBITDA to $948 million, 4.4% growth in distribution to 23.5 cents per share and 1.7% growth in passengers to 38.5 million. The distribution status has been growing in line with the cash flows and is more than 100% covered by the net operating receipts. The year saw continued growth and movement higher revenue and enhanced yields. Delivery on key targets include a duty-free retender with a 7.5 year contract with a new duty-free partner on improved terms. The 2033 master plan has been approved by the Australian government in February 2014 and investment continues to be in line with this plan. The draft major development plan covering ground parking, transport and hotel development has been submitted for the T2/T3 project. Progress has been made on infrastructure with $ 241.5 million with all projects being completed to plan and on budget. Finally there have been improvements in ground transport with an announcement from the NSW government for a joint investment of around $ 500 million to improve traffic in and around the airport. The first stages were launched on 11 December 2014 including the new Centre Road and the new free pickup and drop zones.
There is no doubt that there is something highly attractive about investment in a monopoly asset especially one that has the ability to charge a toll especially because there is negligible replacement cost and a steady flow of revenues depending on the circumstances.
Sydney airport has the good fortune to control the major gateways in and out of Australia and has a leading position in this category of asset. However, we believe that the stock is overvalued especially when you consider the projected dividend yield for 2016 of just under 5%.
Auckland Airport
The interim results for FY 2015 show a 3.8% increase in passenger movements to 7.9 million and a 5.4% growth in revenue to $ 251.4 million. Operating EBITDA was up 6.3% to $ 189.1 million and total profits was up by 8.1% to $ 92.8 million. Underlying profit grew by 1.3% to $ 87.8 million and the underlying EPS was up 12.5% to 7.38 cents per share. The interim dividend grew by 4.3% to 7.3 cents per share.
2015 Interim Results (source - Company Reports)
These robust results were the result of strong performances across all businesses with notably strong international passenger volumes particularly from Asia. The duty-free tender process has been completed and two new partners are now aligns to the objectives of providing value and choice to customers as well as growing multichannel retail. The property business has shown good momentum and the depth of the portfolio is illustrated by new deals with blue-chip customers from the manufacturing and technology sectors. The vision for the future has been advanced by the expansion of the international baggage hall measuring 2500 m² and planning is in the advanced stage for the new integrated terminal in the form of enhanced emigration capacity.
Financial Highlights (Source - Company Reports)
The retail market has been expanded and increased customer engagement has been instituted through click and collect online retailing and new marketing initiatives. Further commitment has been signalled by a world first for airports which is a new partnership with the most popular travel itinerary app provider Tripit. The Ibis budget hotel expansion was completed in December and the January occupancy of 94% provides confidence in planning a third hotel.
Passenger growth was lifted by the strength in summer with 4.4% growth in international arrivals to 2.05 million and 3.06% to 1.93 million in international departures making a total of 4% for international passengers excluding transits of 263,470. Domestic passengers grew 3.1% to 3.62 million making total passenger traffic grew by 3.8% to 7.88 million. January 2015 was a record month for 817,459 International passengers excluding transits up 6.2% over the same month of the previous year while growth in domestic passengers was 3.9%. The average airline load factor on total international seat capacity grew by 2.6% during the half year to 31 December 2014. Passenger growth in the second half of the quarter was significantly higher at 128,000 compared to 26,000 in the first half. Passenger growth from North Asia was up by 14% and direct capacity by 12%. Passenger growth from India was up by 30% because of the partnership with Tourism New Zealand focusing on high value long haul leisure traffic.
The growth in passenger traffic both domestic and international continues to be impressive as evidenced by the monthly traffic reports. The numbers from Queenstown airport in which this airport owns a stake are also impressive. However, we believe that any company such as this one would be subject to constant regulatory scrutiny and possibly interference which could affect the growth. Moreover, we believe that the stock is currently expensive because it is overvalued.
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