The share price for Sydney Airport Holdings Pty Ltd [ASX:SYD] unexpectedly dropped 2.73% today after the release of their performance results for both the December period and 2018 season.
At time of writing, the 2.73% fall has resulted in a price of $6.42 a share.
As Australia’s largest airport, Sydney Airport is the busiest airport in Australia by passenger movement, with a heavy reliance on international traffic.
A ‘mostly’ good result
As CEO Geoff Cuthbert pointed out:
‘2018 was another record year for Sydney Airport with 44.4 million passengers travelling through our three terminals, an increase of 2.5% compared to 2017. Our strong growth has been underpinned by international capacity increases representing 1.2 million additional seats.’
However, while international travel continues to be the main driver of strong growth, this growth pattern for 2018 was also undermined by a drop in domestic travel, with a 2.6% decline domestically.
The total full-year results were much more encouraging, with positive growth in both domestic and international traffic — as opposed to the December period, which had a 0.1% decline compared to the 2.5% result for December 2017.
The upswing in international travel last year was largely driven by China — Australia’s main source of overseas visitors — as well as a 13.8% increase in Indian travellers last year, thanks in large part to India’s growing middle class.
What’s the outlook for Sydney Airport?
The reaction from investors is partially driven by the drop in December, as well as general fears that Australia is becoming less popular with China as a preferred holiday destination as a result of the slowdown.
There is also speculation that this slowed growth could be due to domestic airlines reducing capacity and pushing fares higher.
In spite of this, the emergence of the Indian market may well mean that international traffic will remain steady. During the last three years, international passengers have contributed to two-thirds of the airports annual revenue even though they only make up 38% of the total market.
And with the Western Sydney Airport due to open in 2026, the long-term outlook for the airport remains positive — with UBS forecasting a 7% annual growth between 2018 and 2020.
For Money Morning
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