Outlook for retail operations important for Auckland airport

The outlook for Auckland International Airport's retail operations represented the most important company-specific issue for investors currently, Forsyth Barr broker Andrew Rooney said yesterday.

The retail operations were undergoing their biggest overhaul in many years.

The net lettable area for outbound retail in the international terminal would increase by up to 80% over the next two years.

New duty free concessions were due to start in July.

Mr Rooney said Auckland Airport would spend about $125 millon in expanding its international outbound retail and emigration areas.

The new emigration area was in part facilitated by the recent completion of the baggage hall extension on which it would be built.

''We anticipate the duty free operators to preside either side of a central walkway, which will act as the only passenger access to the remainder of the airside area following security clearance.''

The duty free operators would have about 50% more space than the two current concessions.

After passing through the duty free area, passengers would enter a large atrium encircled by specialty stores and food and beverage outlets.

Auckland Airport indicated a new 400sq m last-minute duty free store concession would also be offered to the duty free bidders adjacent to the upper level departure gates.

Management said the staged approach to the retail changes would minimise the level of disruption to retail operations.

However, some disruption would be inevitable, given the need to remove some retail floor space during the expansion, he said.

Duty free concessions were critical drivers of value for airports.

They provided high average passenger spend rates, targeted both outbound and inbound passengers, and offered attractive yields.

Forsyth Barr estimated duty free represented about 63% of retail income for the income company, Mr Rooney said.

That was much higher than Sydney Airport's 56% of duty free contribution to total retail income but he expected duty free income to fall to 60% after the completion of the retail expansion.

Industry consultants said passengers at airports around the world, on average, spent four times more on duty free products then they did on food and beverages.

The differential might reduce, given the global trend of tightening tobacco allowances.

Forsyth Barr had left its 2015 profit forecast unchanged but dropped its 2016 forecast by 1%.

The share price target range had been increased to $3.85 from $3.55 and the rating was unchanged at underperform.

 


Retail outlook

Retail expansion: Auckland International Airport is spending $125 million expanding its international outbound retail and emigration/security areas.

New duty free concessions: Auckland Airport will soon announce new duty free concessions. Bids closed on the tender process in October 2014, Five parties tabled offers, including incumbents JR Duty Free and DFS.

Implications: The proposed retail expansion at the airport will deliver incremental retail income. Passengers will probably spend more, given a greater range, but the retailers' sales may fall, given footprint saturation.

A premium valuation: The airport's current share price implies its broader retail operations (retail and car parking) are trading on a one-year forward multiple of 25 times enterprise value or 54 times price/earnings. These are lofty multiples.


Add a Comment