Budget carriers crucial to $166m Queensland deal

Cairns Airport makes up 75 per cent of the Auckland International Airport deal despite a drop in the number of international passengers flying into the Queensland city. Photo / Supplied

Auckland International Airport is confident the growth of low-cost carriers will be key to the success of its $166 million investment in two airports in Queensland.

The company also says its 24.55 per cent stake in Cairns and Mackay airports will boost passenger numbers through Auckland Airport by 100,000 a year within the next five years.

While the deal was welcomed by analysts, airlines and the travel industry, the company's shares closed down 6c at $2.02 after being 8c down at one stage yesterday.

Auckland Airport expects to settle the deal to buy into North Queensland Airports tomorrow. It would be funded initially from existing debt facilities and subsequently a mix of equity and debt "consistent with Auckland Airport's current capital structure".

Standard & Poors said yesterday the airport company's A-/A-2 ratings and stable outlook were unaffected, reflecting the agency's view it would maintain adequate liquidity after the purchase.

Auckland Airport said the price was slightly above that paid to the state of Queensland a year ago but that was in the depths of the global financial crisis and since then a A$200 million ($251 million) terminal upgrade at Cairns had been largely completed and a new strategic agreement with Jetstar announced.

Auckland Airport has been interested in a stake in the airports for more than a year and is bullish about prospects for Cairns - which makes up 75 per cent of the deal - in spite of a plunge in the number of international passengers. During the past year numbers had halved from more than one million in 2007.

Auckland Airport's chief executive Simon Moutter said Qantas' withdrawal from unprofitable international services had hurt the airport but the growing number of low-cost services to Asia augured well.

"Low-cost carriers who can put fares in that can be attractive to leisure travellers and still make a dollar are the reason why we're backing the turnaround story."

Australia's push for Asian tourists was also important. Its target for Asian visitors was 7 per cent a year, compared with New Zealand's target of 3.8.

The company is forecasting rates of return on its investment in mid-teen percentages but Moutter said the company's primary motive was to boost passenger numbers in Auckland, particularly from Asia, through applying its expertise in air service development.

Sixteen airlines which fly to eastern Australia do not fly on to New Zealand.

"You've got to present to big airlines a beefed up proposition - if you can offer them more than one market it's going to help."

Airlines considering flying new routes were nervous but not so concerned about discounts on landing fees or marketing subsidies. Airports could be more useful by producing detailed business plans and market intelligence. "They want to know the market potential, who the passengers are and what they will pay," said Moutter.

Outbound travel could also be boosted.

The Auckland-Cairns route is served only by Air New Zealand, although Pacific Blue will start services in March. There were just 60,000 seats a year on the route, compared to 1.3 million between Auckland and Brisbane.

Jetstar is expanding its services to Japan out of Cairns and said yesterday it has not ruled out links to New Zealand from the far north of Queensland.

"This is a strong platform for growth with both Cairns and Auckland Airports and we welcome the new arrangements," a spokeswoman said.

Auckland Airport will own North Queensland Airports alongside two infrastructure investors and a West Australian investment business, which Moutter said would look to his company for guidance on most issues.

"I don't see our management team running this airport under any scenario - what I see is elements of our larger scale business being able to be ... used for the benefit for Cairns."

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* Auckland Airport is buying a 24.55 per cent stake in Cairns and Mackay airports in Queensland.
* AIA says the purchase will not affect the company's profit forecast of between $93 million to $100 million and will have no material impact on dividend.
* The investment represents 5 per cent of AIA's total assets.
* Other shareholders include JP Morgan Infrastructure Investment Fund, the Infrastructure Fund (managed by airports fund manager, Hastings Fund Management) and Perron Investments