Auckland Airport's interim profit tipped to fall, plea to avoid 'third world' tag for runway

Chinese carriers have slashed capacity into Auckland. Photo / Greg Bowker

Auckland Airport's interim profit is forecast to be flat and worse to come is expected as the company faces the impact of the coronavirus outbreak for the rest of the year.

The airport this year also faces fallout from its deteriorating runway now the subject of a global alert for pilots and at risk of making Auckland look ''third world'', according to one tourism boss.

Although results for the six months to December 31 are unaffected by the virus, Forsyth Barr analyst Andy Bowley said growth will be hit in the second half.

The firm sees downside risk to the company's net profit guidance band ($265 million - $275m), which is already pressured by softer than anticipated passenger growth through the first half of the financial year.

Bowley said that period was characterised by a slowdown in revenue growth given weaker international passenger growth and lower aeronautical charges.

Underlying net profit could fall by 0.8 per cent to $135.9m in the result announced tomorrow.

The company experienced a 0.5 per cent decline in international passengers (excluding transits) for the five months to November.

December traffic statistics will be reported today and Forsyth Barr expected they would show ''a mild improvement'' in light of robust Air New Zealand international performance.

However, the outlook for 2H20 will be depressed. A reduction in Chinese capacity will bite — each month that capacity is cut to all Chinese airports impacts the half-yearly total international seat capacity by around 1.3 per cent, said Bowley.

A second Auckland runway won't be built until the end of the decade if it is green-lighted. Photo / Dean Purcell

Although the airport has not yet released details of withdrawn services, flights by Chinese mainland carriers have been slashed and Air New Zealand has cut its Shanghai service until the end of March.

The airport has said flights to China account for about 8 per cent of capacity and Morningstar has noted Chinese travellers tend to spend more at retail outlets.

Bowley said that in light of slower earnings growth, he expected management has applied greater cost control across its operational expenditure, in particular marketing, promotions and professional costs.

''Staff cost pressure should also ease given the share price hiatus.''

The company is due to update investors on its capital expenditure development pipeline in light of more subdued passenger growth and the withdrawal of Jetstar from the regional market.

The company may update the market at its next investor day rather than at its interim results announcement on Thursday. A scheduled investor day was deferred from November.

Bowley doesn't touch on the runway problems - which led to two short notice closures within a fortnight recently and chaos for passengers - but there remains disquiet among airport operators and some of the company's critics at how it has been handled.

Pilots blew the whistle on problems with concrete slabs breaking down and posing a potential risk to aircraft using the airport's sole runway. Global aviation bulletin boards have picked up on the warning to pilots to carry extra fuel in case of diversions.

Coronavirus advice for visitors at Auckland Airport. Photo / Supplied.

The airport has not responded to the pilots' claims or a series of questions about the cause of the problem, with a spokeswoman saying only that a three-week-long review of the closures is "progressing well".

The company did not say who is conducting the review. The head of Auckland Tourism Events and Economic Development, Nick Hill, this week said before a ceremony to launch a partnership with New York that runway problems were ''not great''.

''Auckland Airport is a hugely important piece of infrastructure economically for Auckland and as New Zealand's gateway city. Anything that suggests that it's ropey or third world, not available or risky is not good for the city,'' he said.

While the airport was doing a lot of work in other areas, Hill said the runway needed to be the priority.

''It's an airport first and foremost and it needs to function.''

The company is also today copping more fire from lobby group Airlines for Australia and NZ (A4ANZ) chairman Graeme Samuels, who chaired the Australian Competition and Consumer Commission between 2003 and 2011.

AucklandAirport

While the Commerce Commission here can take electricity lines companies to court for shabby service, that option is not available for airports.

''Amazingly, because the law states explicitly that airports can charge whatever they like, there are no consequential obligations to meet service standards,'' he said.

The privatisation of airports was ''done in the usual manner - obtain maximum price by imposing minimum requirements and virtually no effective regulatory oversight''.

Changes to the Civil Aviation Act planned for this year propose doing away with wording in law that allows airports to charge as they see fit.