AUCKLAND INTERNATIONAL AIRPORT LIMITED (AIA)

Business Description:
Auckland International Airport Limited (AIA) is a New Zealand-based company providing airport facilities and supporting infrastructure in Auckland, New Zealand. AIA’s core operations are aeronautical activities, on airport retail concessions and car parking facilities, standalone investment properties and other charges and rents associated with operating an airport. AIA also holds investments in companies operating in airport and related businesses located in New Zealand and Australia.

Strategy Analysis:
The strategic growth priority for airport is to grow its aeronautical and retail income through meaningful passenger growth over the longer term. Management is actively engaging with aircrafts and is looking at ways and means to increase passenger capacity out of Auckland in a significant manner. It has been quite successful of late in enticing major Trans-Tasman and some long haul carriers to Auckland. We estimate capacity out of Auckland will rise by approximately 1.3m as a result. This is likely to spur international passenger growth over the next 2-3 years. Queenstown and NQA have delivered good results and are ahead of managements target in terms of passenger numbers. The goal is to extract meaningful returns out of those acquisitions through route development and other strategic initiatives. We don´t see the company making any further acquisitions for the foreseeable future. In the medium term management is intent on giving a thrust to its property business and has planned major property related capital expenditure over the next few years to capitalize on its massive land bank. Management sees immense opportunities to lift revenues in this business and has set itself a target of doubling revenues by FY14. On the aeronautical front, the company is thinking about investing in the domestic terminal to increase capacity and alleviate traffic congestion. It proposes to invest $100-150m in phase 1 to build a new integrated domestic terminal and taxiway alongside the international terminal. This will take 3 years to build. In the interim the firm is considering making minor investments of $15-20m to tide over near term capacity issues. AIA intends to recover this cost by passing it on to passengers. Phase 2 of the plan will be implemented after 3 years and involves the second part of a new integrated terminal alongside the international terminal, a northern runway and taxiway system. The firm then proposes to close the existing domestic terminal. While the cost for the second phase wasn´t revealed we think it could be in the order of $100-150m as well. Auckland Airport reported NPAT up 11.3% to NZ$76.91m for the half-year ended 31 December 2012. Revenue from ordinary activities were NZ$223.55m, up 3.6% from last year. Basic and Diluted EPS were 5.82 cents compared to 5.22 cents last year. Net operating cash flow was NZ$93.22m compared to $94.23m last year. The interim dividend declared was 5.75 cents, compared with 4.4 cents last year.