Sydney Airport seeks more low-cost carriers

Sydney Airport hopes to lure more low-cost Asian airlines in a bid to continue passenger growth.

A China Southern Airlines A380 gets a water cannon welcome at Sydney Airport.

Sydney Airport is looking to lure more low-cost Asian airlines to its operations in a bid to continue passenger growth at the nation’s premier airport.

China — and its burgeoning and travel-hungry middle class — remain a key driver of growth for Sydney Airport, but at an investor update in Sydney yesterday the airport said it wanted more Asian low-cost carriers to use the airport.

Sydney commands a 45 per cent share of the 3.3 million passenger movements between China and Australia, with some 13 mainland cities being served direct by 7 airlines. But the airport believes there is more opportunity to increase the number of airlines flying into Sydney through the introduction of low-cost carriers.

“Despite strong market growth, Sydney Airport is still significantly underepresented by low-cost-carriers,” the airport said.

Some 32 per cent of the airport’s slots remain unused, but Sydney Airport (SYD) is hoping these could be picked up by Asian carriers looking to cash in on Australia’s unique tourism proposition.

The airport said that since the year 2000, passenger growth had outstripped growth in aircraft movements by a factor of five.

“These unused slots are primarily in the early morning and afternoon/evening periods, which are ideal for the Asian and Middle Eastern growth regions,” the airport said.

Analysts continue to be attracted to the long-term demographic advantages of Sydney Airport, with Deutsche Bank analyst Cameron McDonald maintaining a “buy” on the stock.

But Mr McDonald cautioned that current growth rates experienced at Sydney Airport are expected to moderate into FY17.

“Sydney currently enjoys a 38 per cent international premium passenger share due to its status as an economic and corporate hub. However with Melbourne and Brisbane adding new runways to cater to growing international demand, Sydney Airport’s market share could be impacted once these new runways commence operations,” he said.

Sydney Airport reiterated its expectation that the contract to build and operate the proposed Badgerys Creek airport in Western Sydney will be handed over by the end of the year.

Sydney Airport has a right of first refusal, which gives the company the opportunity to develop and operate a second major airport within 100 kilometres of Sydney’s CBD.

The airport is still conducting its internal evaluation of the Badgerys Creek opportunity, with the airport saying its decision to take up the offer to operate the new airport would depend on hurdle rates of return, cash flow yield, growth potential and impacts on Sydney’s Kingsford Smith Airport.

Mr McDonald said the Western Sydney Airport opportunity would help Sydney Airport protect its capital structure.

“However our previous research indicates that Western Sydney Airport will need $1 billion worth of subsidies to generate an appropriate return,” he said.