Shares of Sydney Airport Holdings Pty Ltd [ASX:SYD] have started trading in the green today, up 0.25% within the first half hour of trading.
The airport released a traffic performance update for July and August before the market opened this morning.
The report revealed a slight decline in domestic passengers compared to this time last year.
However, this ‘weakness’ was offset by the 1.4% year to date growth in international passengers.
What is of particular interest is the 9.3% growth in passengers from China, placing them second in the top 10 nationalities travelling through Sydney Airport, beaten only by Aussie passengers.
Figures like this point to a steadfast, strong relationship between Australia and China — at least from an economic standpoint.
That being said, if Australia does end up being dragged into the US–China trade tensions — putting pressure on China-Australia ties — Sydney Airport could be caught in the crossfire with a decline in one of their best international passengers.
But it’s not all over for your portfolio if this does happen. Find out three ways you could potentially profit from the trade war here.
Airlines have had enough of airport profits
Sydney Airport have recently been copping backlash from major Australian airlines, who believe the monopolisation privatised airports have on the skies are damaging both airlines and consumers.
Qantas Airways Ltd [ASX:QAN] CEO Alan Joyce has been reported saying:
‘Fees and charges from monopoly airports are excessive and damaging the economy, and airports continue to reap super profits because there is no real threat of intervention to moderate their behaviour.’
And John Thomas, the head of domestic and international airline operations at Virgin Australia Holdings Ltd [ASX:VAH], noted how Sydney Airport’s operating margin ‘is something like 20 to 30 per cent higher than Heathrow’.
‘The premise around the privatisation of Australian airports – and that was a very successful privatisation – was there’s a certain return shareholders want on those assets.
‘We just think that it’s got out of kilter now.’
Sydney Airport is operating at a 46.7% profit margin, and has the highest charges per passenger to airlines, with an average of $17.27 a head, according to an ACCC report.
Major ANZ airlines including those mentioned above as well as Air New Zealand Ltd [ASX:AIZ] have announced the formation of an industry group called A4ANZ (Airlines for Australia and New Zealand).
They plan on lobbying governments and regulators to crackdown on areas that are issuing these high-flying profits for privatised airports.
Whether or not it’s out of kilter will remain to be debated, with airlines like Qantas managing to hit new 52-year highs and bank in their profits, despite this ‘ripping off’ by the airports.
But what can be confirmed is that Sydney Airport is in fact bringing lucrative returns to their shareholders.
The two dividend payouts for FY19 at 19 cents and 19.5 cents a share give a 4.72% yield at the current share price.
Income investors would consider this a reasonable payout.
Moreover, infrastructure stocks, like Sydney Airport and Transurban, are considered defensive plays in portfolios.
While they’re bound to get hurt in a downturn, it’s not likely people will stop flying to Sydney anytime soon.
And they certainly appear to be a stronger dividend play than our major banks post-royal commission.
For Money Morning
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