Sydney Airport investor day

Andrew Legget shares his thoughts from the recent investor day, with fingers crossed for further price falls.

‘Excuse me sir, we are going to test you for explosive material’. These words have become a familiar experience in Australian airports. This time, however, I wasn’t about to board a plane, although there were a lot of those, too. Rather, I was among a group of analysts being led around Sydney’s international terminal by Sydney Airport management.

It would take another dollar or so before Sydney Airport rejoined our Buy List. But as one of the country’s top businesses and a longstanding favourite of your analytical team, we like to keep a close eye on it. That’s what Sydney Airport’s investor day was all about – seeing this business up close and personal.

Key Points

  • Asia key growth region

  • Improved retail precinct almost completed

  • Future efficiency through technology

Major themes of the management presentations were the growth and importance of the Asian region and how the company will use technology to improve airport efficiency and passenger experience.

Asia has been the fastest-growing destination for Sydney Airport, especially China, where total passengers increased 14% in the past 12 months to almost 1.5m. Compared to four airlines and three cities six years ago, Sydney Airport now receives direct flights from seven different airlines and 13 cities in mainland China.

The company has been active in advertising to this growing market. Sydney Airport has created a website that sits behind the Chinese firewall, allowing potential visitors to plan for their upcoming trip and advertise its range of retail stores. It’s also heavily followed on Chinese social media platforms such as WeChat, where it was the first Australian airport to launch a channel. With Asian passengers spending more at the airport than any other group this is smart marketing.

Australia’s best mall?

Head of retail, Glyn Williams, gave us a guided tour of the revamped retail precinct of the international terminal where he hopes the new changes will allow the airport to garner more of that spending.

Williams grasp of the numbers and the importance of consumer psychology and experiences in retail was impressive. ‘Passengers are less likely to spend if they are stressed’, said Williams, so a lot of effort has been spent on making the retail precinct a relaxing place to be. With the highest spending per square metre of any retail precinct in Australia he appears to be doing a good job.

The company also uses technology and predictive analytics to work with customers in reducing the time it takes to get through security. Once cleared, they now walk into a completely renovated retail precinct with a straight path through the facility replacing the former winding road of consumerism.

According to Williams, whilst this has reduced customer engagement points, it led to a rapid change in the pace of passengers moving through the terminal. More time is now spent wandering the aisles of duty-free stores, new specialty retailers and enjoying the premium dining options. The result is more spending and greater leverage in lease negotiations with specialty retailers.

Going high-tech

The theme of reducing passenger stress extends to new smart gates that allow passengers to check in and clear customs more quickly. The company is also exploring new technology including augmented reality that could allow passengers to use their smartphone cameras to show the way to their gates. Passenger tracking, wi-fi and push notifications could also permit the company to send promotions directly to passenger phones and boost retail spending.

The recent legalisation of ride-sharing in NSW has also led to increased usage of its new parking facilities, helping to increase revenue. And the company is in negotiations with the NSW government to add new roads to reduce the airport’s famous congestion (of which the analyst was a victim on the way home).

As for the future second Sydney airport, the company said little, other than it feels well placed to operate the facility but would only do so if it made sound financial sense.

Last reviewed on 18 Aug 16 (Hold - $7.36), Sydney Airport’s share price has fallen 11% since. There was no guidance or information stemming from Monday’s investor day that would lead us to change that view but management’s grasp of detail was impressive and this remains one of Australia’s best assets. Unfortunately, until the price nears $6 we won’t be upgrading the stock to Buy, but we have our fingers crossed for further price falls. For now, HOLD.

Note: The Intelligent Investor Growth and Equity Income portfolios own shares in Sydney Airport. You can find out about investing directly in Intelligent Investor portfolios by clicking here.