Sydney Airport’s continued international pax growth underpins strong 1H2018 performance; route development targets Asia

Sydney Kingsford Smith Airport continued to deliver robust financial and passenger figures in 1H2018.


Summary:

  • Sydney Airport’s international passenger growth stands out in 1H2018 results.
  • South and Southeast Asia identified as new growth opportunities.
  • Financial outlook points to more investment and the issue of a strong dividend.

The airport welcomed 21.6 million passengers, representing growth of 3.3%. But the real stand-out was the airport’s international passenger development, with an increase of 5.2%. Such figures have become typical of the facility in the international segment.

Data extrapolated from CAPA – Centre for Aviation shows Sydney Airport’s domestic traffic has increased 22.9% over the past 10 years. However, international traffic once again emerges as the stronger performer, with 52.84% growth in the past decade:

Sydney Airport to continue its ‘targeted’ marketing strategy and new growth opportunities await

Sydney Airport CEO Geoff Culbert attributed the airport’s international growth to partnerships with government and industry, ongoing benefits from the liberalisation of air rights, prudent investment in capacity and favourable global tourism and travel trends.

Mr Culbert however first cited the impact of Sydney Airport’s “targeted marketing” strategy as a key factor in international route development.

Recently, Sydney Airport’s international route development has focused on the Asia Pacific, particularly North Asia, and the Southwest Pacific. The Blue Swan Daily earlier reported that a new opportunity exists in India, particularly due to a new Australia-India air services agreement and the value of trade between the two countries.

See related report: Australia and India sign new air services agreement liberalising access to six cities on each side.

In its investor presentation, Sydney Airport has now named India and countries in South and Southeast Asia as new growth opportunities, most likely to be pursued in its targeted marketing. Sydney Airport notes that India has the fastest growing domestic market globally and a rapidly rising middle class, which naturally creates more demand for air travel. There was a 17% growth in Indian visitors to Sydney in 1H2018 but only Air India operates between the countries, as explored earlier by the Blue Swan.

Other opportunities listed by Sydney Airport in South Asia include Bangladesh and Nepal. Sydney has Australia’s largest Bangladeshi community and over 53,000 passengers have travelled between Sydney and Bangladesh in the past year – an increase of 18% year-on-year. In terms of Nepal, Kathmandu could be Sydney’s largest unserved market, with 93,000 annual passengers travelling.

In terms of Southeast Asia, Vietnam Airlines’ direct Sydney-Vietnam services, launched in 2017, have stimulated Vietnamese visitors into Australia by 40% in just one year. Australian passengers outbound to Vietnam increased 29%. The Philippines is also interesting to Sydney Airport, with LCCs such as Cebu Pacific able to add significant capacity with minimal movements due to very dense seat configurations. Filipino visitors to Sydney have increased 21% per annum over the past five years.

Financial outlook points to more investment, confidence in achieving growth strategy

Sydney Airport believes it is well positioned to deliver on its growth strategy, with significant investment in capacity, increasingly efficient operations and customer service initiatives on the horizon. The airport invested AUD180 million in 1H2018 and expects to invest AUD360-400 million in 2018. Following its results Sydney Airport also reaffirmed its capex guidance up to AUD1.3-1.5 billion from 2018 to 2021, which will be used to increase aeronautical capacity, to complete terminal works, to construct a new “fly over” road for better access, and expand other parts of the business.

Overall, the results emanate positivity by Sydney Airport, with it going so far as referencing its balance sheet and financial flexibility as “the strongest it has been since privatisation in 2002”.