Auckland Airport has received a glowing report from Australian research firm Morningstar after again reporting an increase in its monthly traffic.
International passengers (excluding transit passengers) were up 11.3% in June on the previous corresponding period.
The company said strong growth was achieved across all regions. The Americas market was up by 21.1% and Asia-Middle East was up by 18.7%.
Excluding New Zealanders, international arrivals were up 21.2% in June 2017. The British and Irish Lions rugby tour was a key contributor to the growth. United Kingdom and Irish arrivals were up by 265.3%, the airport company said.
Morningstar analyst Adam Fleck said Auckland Airport was viewed as an ''airport city''.
Apart from owning the airport, the company was gradually building a large industrial, commercial and retail precinct around the airport on land it owned.
New Zealand continued to be viewed as a ''top notch'' tourist destination and Auckland was its gateway.
The outlook for tourism was positive and several international airlines had announced plans to start flying to Auckland.
The planned expansion and upgrading of the airport would require substantial capital outlays during the next five years but passenger growth and accelerating pricing were expected to drive a rebound in cash generation, he said.
Free cashflow was expected to grow at 18% a year, on average, for the next decade.
''The company's monopoly position justifies its wide moat [competitive advantage] and we believe the light-handed regulatory environment will enable the company to generate returns above its weighted average cost of capital.''
Morningstar had a $6.70 per share fair value estimate for Auckland Airport, Mr Fleck said. Shares last traded at $7.11.
In all, the airport's 19 million passengers during the financial year, up 10.2% from the pcp, mirrored his own projections.
The passenger mix was slightly better than anticipated and the slight skew towards more profitable international customers should drive near-term revenue and profit growth marginally higher than previously forecast.
Mr Fleck said among airports globally, Auckland enjoyed one of the highest profit margins, reflecting a light-handed regulatory environment and a greater mix of international passengers versus domestic passengers.
The aeronautical business could set prices in conjunction with airlines to cover its cost of capital and earn a ''reasonable'' rate of return for infrastructure upgrades.
International passengers made up 51% of overall passengers at Auckland Airport, compared with about 32% in Sydney and 21% in Melbourne.
On a per-passenger basis, the amount spent by international passengers far outstripped that spent by domestic passengers, resulting in significantly higher margins for the company, he said.
The company's operating profit margins had historically hovered near the 75% to 78% market and that was expected to continue for the next five years.
Among the risks identified by Morningstar was Auckland Airport being vulnerable to a slowdown in international passenger traffic following the outbreak of Sars or acts of terrorism.
Also, a strong New Zealand dollar might motivate tourists towards cheaper destinations.
An economic recession or slowdown in New Zealand would affect outbound and domestic travel, Mr Fleck said.
Higher fuel prices might be passed on to passengers in the form of a fuel surcharge, which might also dampen air travel.
Domestic retail and car park income would be affected if people cut back on domestic travel.
Property revenue was linked to rental demand which, in turn, could be affected by an economic recession.
