Business

Auckland Airport downplays Chinese tourism pessimism

Auckland International Airport chief executive Adrian Littlewood isn't seeing any bigger decline in Chinese tourist numbers than what would be expected with a slowing economy. 

The country's primary international gateway has noted a moderation in the pace of growth from Chinese passengers during the final six months of 2018, but that was still up 7.2 percent from a year earlier. Littlewood told analysts there had been strong growth in passenger numbers travelling directly from China, replacing a drop-off in Chinese travellers entering New Zealand via Australia. 

He's still optimistic about the long-term outlook for New Zealand's tourism industry and he downplayed recent headlines suggesting strained government relations with China are taking their toll on visitor numbers. Littlewood puts more importance on the slowdown occurring in China's economy after an extended boom period helped boost tourist numbers. 

"The most important thing for New Zealand tourism is that we've got routes that are profitable and sustainable, rather than big movements with airlines coming in and out," Littlewood told BusinessDesk

"New Zealand as a destination is still attractive. There might be some bumps near-term, but the long-term prospects remain really good, which is why we remain overall positive rather than jumping at the last headline."

Auckland Airport is spending $1.8 billion through to 2022 upgrading infrastructure, adding contact gates for international aircraft, building a new domestic jet terminal, improving roads and passenger areas, and ultimately building a second runway. 

It had planned to spend $450-550 million in the year ending June 30, however, after reviewing the timing of some of those projects it now anticipates capital expenditure of only $280-330 million this year. 

Littlewood said the programme's cost is skewed to when construction begins, and that the airport operator has been heavily engaged in the design phase. 

The airport had hoped its new regulated pricing schedule would help fund that investment programme, but found itself at odds with the Commerce Commission.

Auckland Airport today said it would now cut fees for airlines, reducing its target return, effective from July. 

Chief financial officer Phil Neutze told analysts the decision would cut annual underlying profit by about $9.9 million in 2020 through 2022 financial year. He said the airport viewed the initial pricing schedule as a fair return given the investment programme and wider outlook, but that the regulator adopted a different starting point. 

"It would not be, in our view, a sustainable position for us to continue to have a reasonably large difference of opinion with the commission," Neutze said. "We believe our decision today somewhat lessens regulatory risk."

Auckland Airport reported a net profit of $147.2 million in the six months ended Dec. 31, from $165.9 million. That included a smaller property valuation gain of $11.1 million in the latest period, compared to a $41.5 million increase a year earlier. 

Underlying earnings increased 2.9 percent to $136.9 million, and it affirmed annual guidance for underlying earnings of $265-275 million. 

Revenue rose 12 percent to $370.6 million, with the retail unit reporting the biggest gain, up 25 percent at $110.8 million. It was the biggest contributor to income in the period. 

Passenger services charges rose 4.7 percent to $93.3 million and airfield income increased 7.3 percent to $64.3 million. Car park income was up 4.8 percent at $32.9 million while investment property rental income gained 11 percent at $43.3 million. 

Littlewood said the company will always face ups and downs, especially if the domestic economy slows, but that the airport has great fundamental assets, including 250 hectares of commercial land available for development. 

The shares rose 1.8 percent to $7.48, and are up 17 percent over the past year. 

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