Roy Davidson, 6 June 2019



Sydney (Kingsford Smith) Airport (SYD) is located 8km from the Sydney city centre, has three runways, three passenger terminals, and is the busiest airport in Australasia.

Passenger numbers a key driver

SYD is a near monopoly asset with defensive qualities. With a high fixed cost base, it also has high leverage to increased passenger numbers. Passenger growth has been very strong over recent years as Australia has experienced a tourism boom and airlines have added significant capacity. This has seen SYD string together a number of superb results. We expect passenger growth to inevitably moderate in the coming years but still see SYD as well placed to steadily grow earnings.

Productivity Commission reviews regulatory regime

SYD operates under a relatively light-handed regulatory regime similar to Auckland Airport’s.The Productivity Commission recently reviewed these regulatory settings to ensure they are achieving desirable outcomes. As with previous reviews, the Productivity Commission found the regime to be working well overall with no evidence of excess returns being earned by SYD. These reviews are conducted every five years.

SYD decides against building second airport in Sydney

The Australian Government recently outlined the terms for SYD to develop and operate a second airport in Sydney. However, the key feature of this is that there would be no Government subsidy or procurement protection (protecting SYD from escalating costs). This decreased the attractiveness of the opportunity and ultimately saw SYD decide against building the airport, which will be built by the government. This has obvious competition implications for SYD and decreases its attraction as a near monopoly asset. However, the airport will be operational in the mid 2020’s, and primarily be used for domestic services, freeing up more slots at Kingsford Smith for higher yielding international flights.

Excellent complementary holding to Auckland Airport

SYD is an irreplaceable asset and we see considerable long-term investor value in this high quality infrastructure vehicle with excellent management. We see SYD as an attractive complement to Auckland Airport for investors looking for consistent cash flows and steady distribution growth. The growth in passenger numbers is expected to continue, albeit at moderated levels after several strong years.


  1. regulatory change
  2. slower than anticipated passenger growth
  3. rising Australian dollar