AIA's profit flies ahead of forecasts

Auckland International Airport Limited (Auckland Airport) today announced its annual results.

Auckland Airport Chairman, Tony Frankham, said “In reflecting on a better than expected year for Auckland Airport in 2010, two things stand out. First, the aviation sector, while still facing some uncertainty, is in a healthier position today than it was 12 months ago, with improvement in the global economic environment and a consequent increase in demand for travel.

Second, our transformation from a builder of infrastructure to a sales-led engine of economic growth has enabled genuine traction on key elements of the enterprise-wide growth strategy that has been underway since March 2009. The company is now positioned to turn travel demand growth into profit growth.”

These two factors helped Auckland Airport deliver, in tough operating conditions, a financial and operational result that is better than we initially expected and provides a firm foundation for an uplift in 2011.”

“Financially, our underlying net profit after tax (excluding fair value changes and other one-off items) was $105.05 million, substantially ahead of our original guidance of $93-$100 million. Operationally, the early results from implementation of the growth strategy are well ahead of our internal plans”, said Mr Frankham.

Auckland Airport chief executive, Simon Moutter, said “Progress on our growth strategy has been excellent. We have completely refocused the business, we are driving operational efficiencies, we have secured airline announcements for a large number of new or up-scaled air services, and we have embarked on one of New Zealand’s most active property development initiatives. We have also invested into two strategically located airport companies to help drive more passenger volume and increase our footprint in the Australasian market.”

Meanwhile, Auckland Airport has kept customer service at the heart of the business, being voted by passengers worldwide for the second year in a row as one of the world’s top 10 airports, in the annual Skytrax awards.

Revenue was down 1.4 percent to $363.1 million over the year. This marginal decline was less severe than initially expected given the soft operating environment and the anticipated impact from the reversion to a dual duty free operator model. Costs were tightly managed over the year, with operating expenses reduced to $86.8m down 2.3%, and capital expenditure $54.3m, substantially down 38.0%. Our operating cash-flow is $176.3 million, up 3.6 percent from 2009.

“With our strategic plan execution well underway, our underlying profit - while still relatively flat – is ahead of where we expected it to be, and with the business fundamentally restructured, Auckland Airport is well positioned to benefit in 2011 and beyond from the operating leverage we have been able to set up”, said Mr Moutter.

International passenger volumes, excluding transits, showed resilience during the worst of the recession growing 2.4% over the full year, predominantly driven by a relatively strong Australian economy, increased capacity on the trans-Tasman routes, airfare competition, as well as tactical promotional activity initiated by Auckland Airport. There was also pleasing growth in some key markets in recent months. Domestic passenger volumes showed consistent strength to grow 7.8% over the year, largely reflecting the impact of a full year of operations by Jetstar.

“Our additional investment in air services is really starting to pay off”, said Mr Moutter, “with announcements from airlines to introduce new international capacity to Auckland in excess of 850,000 more seats per annum by late 2011. These announcements include two major long-haul route developments, a new Auckland to Houston connection and a second airline servicing Auckland to Singapore.”

The success of Auckland Airport in growing air services is shared by New Zealand tourism. International passenger numbers benefit the airport and exponentially benefit the country, with each international visitor generating around $2500 for New Zealand tourism. Assuming an average load factor and proportion of inbound international visitors, conservative estimates are that these additional seats can deliver in excess of $400m per annum in direct economic benefits to the New Zealand tourism industry,

“Cairns and Mackay Airports have also seen a substantial increase in capacity with over 800,000 seats added or announced from March 2010. These include the entry of Pacific Blue, and the announcement of Jetstar on direct Auckland to Cairns services”, said Mr Moutter.

In line with the Auckland Airport growth strategy, the moves made to shift resources away from building infrastructure and on to developing opportunities (both within existing activities and in complementary businesses where value can be added) will enable faster earnings growth than would otherwise be the case.

“Our two investments in minority stakes in North Queensland Airports and Queenstown Airport are totally consistent with our strategy to add to shareholder value by shifting some resources into areas that will accelerate earnings”, said Mr Moutter, “results are already promising, with North Queensland recording excellent growth in June and July 2010 as it enters its peak season, and Queenstown continuing on its strong expansion path, with more air services capacity and passenger volumes than ever before.”

Growth in trade and tourism is critical to New Zealand. It will drive future global economic competitiveness and the high-value innovation and export sectors. Growth in aviation links has a catalytic impact on economies, enabling trade, tourism and productivity improvements and delivering $billions in direct economic benefit from international travellers. As a result, increased air-services linkages are now recognised as a key government priority to grow New Zealand tourism and to help stimulate economic growth.

Mr Moutter said, “It is important that, as new generation aircraft come into service, we get more of them flying to New Zealand, and that through new and existing airline connections we grab a stronger share of growth economy tourism - especially out of Asia. We also need to retain our share of traditional markets and maintain strong incumbent airlines as part of a sustainable and balanced mix of markets and airline customers. If we don’t succeed at these goals, as a country we risk falling behind our competitor destinations. By working with a range of airlines, Auckland Airport can play an important part in maximising New Zealand’s future economic growth.”

IATA is forecasting a more promising 2011 for the aviation sector but again recommends caution. This is combined with a global economic outlook that, while improving, remains fragile.

“As additional air service capacity comes on stream, supported by improving economic conditions and aviation industry fundamentals, we should benefit from a step-up in revenue”, said Mr Moutter, “Our retail and property businesses are set for a better year as first floor redevelopment is completed and duty free operators focus on sales execution, and our active portfolio of investment property development are completed and opened.”

The board is optimistic about the 2011 financial year and expects net profit after tax (excluding any fair value changes and other one-off items) to be in the range of $112 million to $118 million, assuming international passenger growth in the order of 5%, and capital expenditure to be around $85 million, excluding yet to be committed property development.

As always, this guidance is subject to any other material adverse events, significant one-off expenses, non-cash fair value changes to property, and further deterioration due to the global market conditions, or other unforeseeable circumstances.

Ends

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