Auckland Airport’s Chair, Joan Withers, said, “Despite the destructive natural events and the challenges that have buffeted travel and tourism this year, it has been an excellent twelve months for Auckland Airport. We have broken out of a period of relatively flat profitability, delivering for the 2011 financial year a 15.1% increase in underlying profit to $120.87 million.”
“This very good financial result is ahead of the guidance provided at the end of the 2010 financial year. Delivering a strong profit uplift, together with excellent passenger volume growth for the benefit of our shareholders, and ultimately for New Zealand’s economy, is a source of genuine pride for our Board and for all the people who work with us. This performance enables the Board to declare a final dividend of 4.7 cents per share, increasing the total dividend for the year to 8.7 cents per share, up from 8.2 cents per share,” said Mrs Withers.
Mrs Withers also announced that the Board intends to continue with the Company’s dividend reinvestment plan and to implement a share buy-back programme to match the number of shares issued under the dividend reinvestment plan.
Auckland Airport’s chief executive, Simon Moutter, said, “This result has been built on a foundation of service excellence. 2011 saw Auckland Airport complete a hat-trick in the global Skytrax awards, being recognised as one of the world’s ten best airports for the third year in a row (up to 8th from 9th last year).”
Much of the strength of the announced underlying profit has resulted from an increase in total income to $397.72 million, up 9.5% on last year. Two of the key drivers of this revenue growth have been better than expected retail results in the new departures area and a stronger yield in car parking, particularly through the new online booking channel. Operating costs increased by 14.6% to $99.49 million, largely flowing from higher promotional costs related to the successful launch of several new services including China Airlines, China Southern Airlines and Jetstar to Singapore.
For several years now Auckland Airport has reported underlying profits alongside reported results. Mrs Withers said, “We believe an underlying profit measurement helps investors to understand what is happening in a business, such as Auckland Airport, where revaluation changes can make financial results uneven between years or where one off transactions, both positive and negative, can make the comparisons of profits between years difficult. The underlying profit also provides the basis for our determination of the dividend payment.”
In the 2011 financial year Auckland Airport revalued the company’s property, plant and equipment, as well as the company’s investment property, for financial reporting purposes. Mrs Withers said, “It is important to note that the revaluations of these different asset classes are not treated the same in the financial statements. The different accounting treatment required by the accounting standards makes it difficult to easily see what has changed as a result of the impact of revaluations.”
In this latest revaluation exercise, the value of investment property was increased by $21.64 million, up 4.1%. The change in the property, plant and equipment asset values, last valued in 2006, has seen an overall increase of $519.23 million, with decreases recognised in the income statement, and increases recognised in other comprehensive income. This increase in valuation represents around 3.8% per annum over 5 years.
Key to the year’s performance has been a belief that Auckland Airport can grow passenger volumes faster than the organic growth of the market. Results in this area across all four airports have been pleasing. There has been particularly strong growth from Asia, and from outbound New Zealand and Australian travellers.
At Auckland, international passenger numbers grew 4.9% to 7.78 million and domestic passenger volumes held firm with 6.04 million. In North Queensland, published growth targets were surpassed with international passengers through Cairns rising 20.7% to 0.75 million and domestic passengers growing 6.1% to 3.18 million. Domestic traffic at Mackay increased over 14.3% to 1.04 million. At Queenstown, international passenger growth was an exceptional 49.7% to 0.16 million and domestic numbers grew 8.4% to 0.76 million.
Mr Moutter said that passenger numbers continue to reflect dramatic shifts in the global architecture of trade and economic relationships. “Asia and in particular China is now driving much of the growth in global travel demand. Other powerhouse economies such as India and Brazil are making their presence increasingly felt internationally.”
“The shifting global trade and tourism markets are also changing airline dynamics,” said Mr Moutter. “This means we need to focus on the key markets and the carriers with the available aircraft to connect us with them. Put simply, we need to ‘sell’ New Zealand as a route destination to those airline customers who are in a position to ‘buy’. The New Zealand Government understands these dynamics and is working positively with the industry to remove barriers to travel.”
For example, recent improvements to visa processing in China made by the Minister of Immigration, the Hon Jonathan Coleman, and the Immigration Service have successfully removed one of the barriers to visitor growth from this key market and are helping to support the new China Southern Airlines route and the increase in Air New Zealand’s services to China.
In addition, the Minister of Transport, the Hon Steven Joyce, has asked the Ministry of Transport to begin reviewing air services agreements with China, Brazil and up to eight other countries in East Asia and South America, with a view to removing impediments to growth. The Ministry of Transport is also undertaking a review of all air-service arrangements, which is expected to help uncap significantly more growth potential for the visitor industry. The particular importance of the China market was recognised with the Prime Minister, the Rt Hon John Key, personally welcoming the inaugural China Southern Airlines flight to Auckland.
Local government, especially His Worship Mayor Len Brown and the new Auckland City council have also been very supportive of initiatives to grow the visitor economy.
“That strong government support has been very influential in the growth of air-services with key markets over the financial year,” said Mr Moutter, “This is all great news for the industry and for the New Zealand economy.”
Mr Moutter said, “Our expanded airport footprint in Auckland, Queenstown, and Queensland also gives us more options when talking to airlines. We’re now seeing the results. Air-service capacity in all the airports in which we have an ownership interest has grown, with over 1.2 million additional international seats committed in the last two years. What’s more, our industry partnerships and promotional activities are helping to fill those additional seats and make routes more sustainable.”
One of the major challenges for Auckland Airport is getting the timing and solution right for an eventual new passenger terminal facility to be integrated with the international terminal and for the recommencement of the second runway construction.
“There are many variables at play,” said Mr Moutter. “The most pressing current challenge is to solve for demand-driven capacity constraints at the domestic terminal. The existing domestic terminal was built many decades ago, in a very different aviation environment. Today, growing demand, serviced by larger A320 aircraft and faster passenger processing capabilities mean the existing domestic terminal is reaching the end of its useful life.”
“We are working hard and constructively towards a solution with our airline partners. The key is to balance shorter term operational and passenger service requirements with a longer-term plan for a new integrated terminal,” said Mr Moutter.
Mrs Withers said, “The board is striving to achieve a successful 2012 financial year and expects net profit after tax (excluding any fair value changes and other one-off items) to be in the $130 million’s. We note with particular caution, any potential long-term implications from the existing volatility in global financial markets. As always therefore, this guidance is subject to any 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.”