The research also shows the Chinese are spending less money on airport duty-free goods, and are instead spending their cash at shopping malls, own-brand stores and discount stores. Chinese travellers typically spend about three times as much as other travellers on duty free goods in Australia.
Sydney Airport has reaped financial rewards from 7 per cent annual growth in international passengers over the past three years, with more than two-thirds of the airport’s annual revenues derived from its international passengers.
Although the airport caters for some 28 million domestic travellers each year, compared with 16.6 million international travellers, the international passengers are more profitable because airports charge higher fees for international arrivals and departures.
Analysts believe Sydney Airport’s dependence on international passengers could increase further when the Western Sydney Airport opens in 2026, with the new airport expected to take away some of Sydney Airport’s domestic traffic, particularly low-cost airlines.
The numbers of Chinese tourists passing through Sydney Airport, which account for about 9 per cent of the airport’s international travellers according to UBS, rose 4.6 per cent between January and November 2018, a slowdown compared with the previous two years, when numbers grew about 18 per cent.
Sydney Airport declined to specify exactly how many Chinese came through its immigration gates over the past year, with more detail expected at the airport’s annual results on February 21.
The number of Chinese visiting Australia overall rose 8 per cent to 1.3 million in the year to September, according to Tourism Research Australia.
UBS is still positive on Sydney Airport’s near-term outlook, forecasting 7 per cent annual growth in cash flow per share between 2018 and 2020 due to stable domestic passenger traffic, higher aeronautical charges and new growth initiatives, such as hotel development.
But the bank has dropped its 12-month price target on the company’s stock to $7 from $7.30 previously. Sydney Airport’s shares closed at $6.61 on Friday, flat on a year earlier compared with a 4.8 per cent drop in the S&P/ASX 200 over the same period.
Macquarie Wealth Management, which has lowered its price target to $6.85 from $7.13 previously, has also expressed fears the airport’s previously strong trend in international passenger traffic growth is “turning”, noting that growth over the September quarter was just 1.7 per cent, down from growth of 5 per cent growth in previous quarters.
A further concern for Macquarie is that airlines flying into Sydney are reducing the number of seats available on planes.
Seat capacity in and out of Sydney has been rising at about 6 per cent since 2015 as Asian and Middle Eastern airlines added routes to Australia, as well as bigger planes.
Sydney airport caters for 28 million domestic travellers each year, compared with 16.6 million international travellers, but international passengers are more profitable because airports charge higher fees for international arrivals and departures. Peter Braig
But Macquarie forecasts that capacity growth at Sydney Airport will drop from about 4 per cent in the final quarter of 2018 to just 0.5 per cent in the third quarter of 2019 as Asian and Middle Eastern carriers reduce available seats.
It argues the airport’s capacity growth would be negative if Virgin and Air New Zealand had not ended their trans-Tasman alliance, which has led to both airlines adding more seats on routes between Australia and New Zealand. Australia’s domestic airlines have also been reducing capacity, putting on smaller planes to save money on fuel and pushing up airfares.
In addition to slowing international passenger growth, Sydney Airport must tackle the consequences from the Productivity Commission’s review of airport regulation.
A draft report is due in February and analysts have cautioned investors that airlines may succeed in their push for easier access to arbitration when there are disputes over frees and charges, potentially hurting airport earnings if arbitrators rule in the airlines’ favour.
Analysts are concerned that airlines flying into Sydney are reducing the number of seats available on planes. Wolter Peeters
Qantas is trying to convince the commission that Australian airports are exploiting their market power, arguing that consumers are paying the price of constantly increasing airport charges.
Qantas claims that charges paid to airports by the Qantas Group have grown 6.5 per cent above the rate of inflation since 2014-15, and that Australian airports are more expensive than comparable airports in the US and New Zealand.
Sydney Airport has rejected Qantas’ arguments, saying that on average, its published charges represent less than 6 per cent of the cost of international airfares, less than 9 per cent of the cost of domestic airfares and less than 4 per cent of the cost of regional airfares. It also says that many airlines receive discounts on these charges as part of negotiated agreements.
The commission has received 87 submissions and will hold public hearings in March and April, with a final report due later this year.
Previous reviews of airport regulation have not led to significant changes to the current system of “light-handed” regulation but airports have been agitating more aggressively for changes than in the past, forming a lobbying group known as A4ANZ. Tensions between the airports and airlines have also been inflamed by Perth Airport’s decision to sue Qantas in the West Australian Supreme Court over alleged underpayment of aeronautical fees.
Perth Airport, which negotiates individual aeronautical service agreements with airlines that last for seven years, says it charged Qantas (and its group airlines such as Jetstar) $27.8 million to use its services between July and October 2018 but claims Qantas has only paid it $16.5 million.
Qantas has hit back at the lawsuit, telling the commission that Perth Airport was abusing its position as a monopoly by trying to increase Qantas’ cost of using the airport by around 38 per cent over the next seven years, and charging “well above” its cost of capital and building facilities.
“The unilateral price increases proposed by Perth Airport are representative of the monopolistic mindset of airports charging customers whatever they can get away with,” Qantas said in a submission to the commission in late December. “In the last 10 years, Perth Airport has increased revenue per passenger by 59 per cent – which means the commission’s inquiry is timelier than ever.”
Qantas argues that if the airlines had access to “independent arbitration”, airports would deliver more competitive prices and be more efficient.
The majority of Sydney Airport’s international aeronautical commercial agreements are due to be renewed in mid-2020, and will have to take into account any changes in regulation recommended by the commission.
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