WEEKLY STOCK COMMENT: AUCKLAND INTERNATIONAL AIRPORT
Roy Davidson, 25 October 2018
Auckland International Airport (AIA) owns and operates Auckland International Airport, New Zealand’s largest airport. The airport’s facilities include the international terminal, domestic terminals, freight facilities, car parking, warehousing, offices and hotels. In addition, AIA owns more than 1,500 hectares of freehold land, with over 250 hectares available for future property development. AIA also has a 25% stake in Queenstown Airport.
As the gateway to New Zealand, AIA is well placed to benefit from the trends of New Zealand tourism, and increasing Asian travel. Asian tourism, especially China presents a major opportunity with NZ accounting for less than 1% of outbound Chinese tourism. Although we are a small country on the world scale, it’s worth putting AIA in some context. AIA is the third busiest international airport in Australasia. More than 75% of all international visitors to NZ arrive via Auckland (over 20 million passengers in FY18). Around $15bn worth of freight passes through the airport annually.
AIA is one of NZ’s key assets and is leveraged to ongoing global economic growth. It is important to note that AIA offers a broad range of income streams, beyond the expected revenue generated from airlines. The company a large portfolio of property assets around the airport (generating over $90m in rents), hotels, over 11,000 carparks and benefits from retail spend within the airport. With over 1,500 hectares of land (more than Heathrow Airport), there is plenty of scope for the Airport to grow over coming years. AIA also benefits from a number of broader drivers such as rising middle class (can afford to travel), more efficient aircraft, greater number of airlines servicing NZ and investment in the tourism sector.
Continuing on from a string of good results, AIA's FY18 result was solid, with net profit after tax increasing 6% year on year, helped by strong performance from the retail segment which more than offset a regulatory pricing headwind. We expect passenger growth to remain solid as airlines continue to add capacity, and as New Zealand tourism grows further – all of which should be positive for AIA. While the longer term drivers certainly remain intact for AIA, there are some short term challenges which may keep growth in check. Primarily, these include rising jet fuel prices, some local infrastructure challenges and geo-political and trade related protectionism.
AIA is a very high quality strategic asset, with exposure to our largest city and growth in tourism markets across Australia, Asia and further afield. The company is not just about airlines, as it has a substantial property portfolio, as well as car parking and retail revenues. Like many of our best companies, AIA rarely looks cheap.
Potential risks to AIA include:
- higher interest rates
- NZ becomes less attractive destination
- regulatory change