Business Description:
Auckland International Airport Limited (AIA) owns and operates the Auckland International Airport. It is New Zealand's largest airport and handles approximately 70% of all the country's international visitors - over 13m passengers annually. AIA also owns and operates various retail, commercial and industrial properties. AIA aims to develop its capacity and services to cope with an anticipated 24m passengers a year by 2025.

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. AIA held its AGM yesterday. There was nothing new that was announced in the meeting from what we already know. First quarter has gotten off to a relatively good start. International passenger movements rose 4.6% (excluding transits) to 1.6m. Domestic was up 4.1% to 1.55m. Total aircraft movements were up 1.3% for the quarter The management said" at this point AIA remains broadly on track with all of its main forecasted value drivers for FY11. Given that airlines are operating at high load factors we could see a significant increase in MCTOW as well. In the previous year MCTOW lagged passenger growth as airlines reduced the size of their aircraft.Management reaffirmed its full year guidance for NZ$112-118m assuming 5% growth in international passenger movements. It expects capital expenditure to increase to NZ$85m due to new property developments. The main driver of growth will be higher passenger movements driven by new seats committed and announced by airlines over the next 12-18 months. Increase in landing charges coupled with a lift in retail revenues following the completion of capital expenditure on the departure side will also aid earnings. We are keeping our FY11 NPAT forecast of NZ$117m intact. This is at the top end of management´s guidance. Our FY12 forecast of NZ$136m assumes strong growth in international passenger volumes on the back of the Rugby World Cup.Auckland International Airport reported NPAT of NZ$54.0m for the half-year ended 31 December 2009. Revenues from ordinary activities were NZ$182.9m, down 0.6% from the same period last year. This decrease was largely as a result of a modest reduction in retail revenue. Diluted EPS was 4.40 NZ cents compared to 0.80 NZ cents last year. Net operating cash flow was NZ$85.52m compared to NZ$81.04m last year. The interim dividend declared was 3.75 cents in line with 3.75 cents last year. Looking ahead, in the longer term, the aspirational goal is to grow international passengers at a rate significantly higher than the historical average. In the shorter term, passenger volume expectations are improving but still hard to forecast accurately.