Disruption likely to affect airport growth

Auckland International Airport is expected to report its lowest level of earnings per share (EPS) growth in more than seven years when it reports its first-half results on Friday.

Forsyth Barr broker Suzanne Kinnaird said yesterday construction disruption would feature in passenger spend rates, as the expanded duty free and specialty store areas traded only from early December.

ARI, one of the duty free concessions, commented sales had climbed by about 30% since the store fully opened. The second half of the financial year was likely to show a marked improvement in retail income per passenger, she said.

Auckland Airports price reset assumptions implied international passenger growth of about 6% for the 2018 financial year. In the first half, international passenger numbers, excluding transit passengers, were up 5.8%.

In light of slowing growth through the second half of the year, given capacity withdrawals, Forsyth Barr now saw a risk to its 5% forecast for the full-year.

''Auckland Airport's business model is predominantly driven by international passengers, who are valuable, given their high level of spending on duty free retail from which the airport generates concession income.

''It is in the company's interest and its retail concessionaires', to optimise passenger spending.''

The current outbound retail expansion should support medium-term retail income growth but near-term disruption was expected, Ms Kinnaird said.

The lumpy nature of the upcoming capital expenditure and its commissioning meant there was an increased margin for error in forecasting both depreciation and interest costs. Both would increase materially over the next few years.

Management was likely to provide further details, timing and net cash proceeds, of the impending disposal of a 24.55% stake in North Queensland Airports. It might provide updated commentary on its funding needs, she said.

Auckland Airport also has a stake in Queenstown Airport.

Key risks included an economic downturn. Growth in the numbers of New Zealanders travelling offshore was closely correlated with domestic consumer confidence.

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