UPDATE: Auckland Airport 1H profit boosted by retail spend

UPDATE: Auckland Airport 1H profit boosted by strong uplift in retail spend on increasing passengers

(Adds CEO comment and additional detail)

By Fiona Rotherham

Feb. 19 (BusinessDesk) - An increased number of passengers spending more on retail, and specialty retail in particular, helped boost first-half profit by 25 percent at Auckland International Airport, the country’s largest airport operator.

Net profit rose to $115 million in the six months ended Dec.31, from $92.8 million a year earlier while underlying profit, which strips out revaluations of investment property and financial derivatives, was up 19 percent to $104.1 million.

Revenue for the national gateway rose 12 percent to $280.6 million on the back of improvements across the board. Retail was the star performer contributing $78.6 million of the total, up 21 percent while investment property income rose 16 percent to $28 million.

Chief executive Adrian Littlewood said the strong lift in retail follows a two-year programme of increasing the retail footprint, re-leasing, product mix changes, and a duty free tender that saw LS Travel Retail Pacific and Aer Rianta International start operations in July. The duty free retailers had done a great job so far of bedding in their operations, he said, and had introduced new innovations such as a duty free collections robot and a Johnny Walker House, one of only six worldwide, that had proved successful.

He warned there will need to be careful planning to minimise disruption to retail during the $160 million to $180 million international terminal expansion project which will add around 65 percent to the primary retail footprint. That project’s being delivered in three phases with a configured farewell area and the first half of the two anchor duty free shops due for completion by December.

Auckland Airport's guidance for the full year in 2016 has gone up nearly 9 per cent to between $200 million and $206 million on the back of the strong performance. The board declared an interim dividend of 8.5 cents per share, with a March 24 record date, payable on April 7.

In October, the airport updated its forecast capital expenditure for the 2016 financial year to between $230 million and $260 million as a result of growth in the business, with construction due to start later this year on an international pier expansion to accommodate more aircraft gates. That includes $135 million of aeronautical capital expenditure, a meaty annual spend that is expected to be continued around that level for the next few years.

Littlewood said the strong results follow a 6.7 percent increase in total passenger movements to 8.4 million on back of New Zealand’s strong performance in tourism which is now the number one export earner with the dairy downturn. The growth was consistent across international, transit and domestic passengers and also by regions with Asia up 11 percent in the half.

“At half year we have achieved nearly 80 percent of entire FY15 domestic passenger growth,” he said.

The airport celebrated its 50th anniversary this year and passenger volumes have grown from 750,000 in the first year to more than 16 million during the past 12 months.The results was also underpinned by new routes, increased capacity, and six new airlines having commenced or announced services to Auckland in the past 12 months.

Littlewood said the airport was expecting passenger growth of around the same level in the next half, providing airlines, the trade, and airport were able to ensure load factors matched the new capacity.

Auckland Airport’s property continues to perform strongly with demand in Auckland for close and connected commercial space, and its speculative development is continuing with the construction of a $13 million warehouse unit and a 9,000 square metre office development, while work has begun on expanding a further 19 hectares of development land.

With inbound tourism pushing up hotel occupancy rates, Auckland Airport said it has selected a preferred partner, which it hasn't yet made public, for its third hotel. Based on market feedback, the hotel will now be a premium rather than mid-grade product with 250 rooms, and construction's likely to start later this year.

That leaves opportunity for the airport to consider developing a budget hotel in the next couple of years, Littlewood said. Its 20 per cent share in the Novotel with Tainui Holdings delivered an increased earnings share of $800,000, up 33 percent on a 1 percent rise in average occupancy during the half.

The airport company owns a 24.55 percent stake in North Queensland Airports which has airports in Cairns and Mackay and a 25 percent stake in Queenstown Airport. Total profit share from associates was down 24 percent to $4.1 million with Queenstown Airport performing well up 26 percent to $1.5 million on increases in both domestic and international passengers. The revenue share from its North Queensland Airports dropped by 50 percent to $1.8 million due to movements in financial instruments, but the underlying earnings were up 22 percent to $4.5 million.

Littlewood said the airport was always on the lookout to invest in other airports, but none of the opportunities that crossed his desk for airports in the region, including the Pacific Islands, met the company's criteria for a quality investment.

(BusinessDesk)

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