Coronavirus: Morningstar and S&P analyse impact on Auckland Airport

Screening stations have been set up at Auckland Airport. Photo / Supplied

Analysts say the coronavirus outbreak will weigh on Auckland Airport's share price, but see no signs of any long-term impact.

Direct flights between Auckland and mainland China account for 8 per cent of total international seat capacity at Auckland Airport, but much of this is disappearing as airlines including Air New Zealand and the biggest operator, China Southern, suspend flying until the end of next month.

Although an airport spokeswoman was not able to detail schedule changes in the past week, she said that during the summer peak there were normally 45 return non-stop flights between the city and China every week.

Auckland Airport's share price recovered some ground on Wednesday but has slid 7.7 per cent in the past month to $8.50. That compares with a 3 per cent dip at Sydney Airport, which is also scrutinised in the Morningstar analysis.

China, excluding Hong Kong and Taiwan, is the most substantial source of air traffic outside of Australasia, the firm says.

Underscoring this growing reliance on the Chinese market are Stats NZ figures which show the number of visitors from China through Auckland Airport has soared from 105,000 a year a decade ago to 388,000 in the year to September 2019.

Morningstar's regional director Adam Fleck said the travel limitations resulting from the fast spreading virus would almost certainly have a negative short-term impact.

''But we don't see substantial long-term ramifications from the virus,'' said Fleck.
He said the Sars outbreak of 2003 presented a comparable case, showing a strong near-term traffic decline but quick recovery.

Screening stations were set up nearly two seeks ago at Auckland Airport. Photo / Supplied

During the six months from December 2002 to June 2003 — the height of the Sars epidemic — Sydney Airport saw international passenger traffic fall 7.7 per cent from the previous corresponding period, while Auckland's overseas movements slipped to just 0.6 per cent growth, compared with a 7.3 per cent gain in the six months from June to December 2002.

However, at both airports results rebounded in subsequent periods, with international traffic for June to December 2003 growing versus the prior comparable period - up 3.1 per cent for Sydney and 9.2 per cent for Auckland.

For both airports, growth was spectacular in the next six months - up by 17.6 per cent in the period ended June 2004 for Sydney Airport and 18.8 per cent for Auckland.

Fleck warns of the potential for greater downside risk than from Sars - which had a higher mortality rate and infected just a third as many people as the number suffering from the new strain of coronavirus. This could be felt in a hit to retail revenue.

''If the coronavirus outbreak or any related travel restrictions last past July 2020, however, there could be greater downside to traffic than for the Sars virus.''

While this shortfall was expected to be recaptured in regulated revenue by price-resetting with airline customers, the impact on non-regulated retail revenue could be larger. That is because Chinese travellers have historically had a propensity to spend more at the airport than other passengers.

''We estimate that for every 1 per cent decrease in our long-term international passenger forecasts - which would result from a roughly 10 per cent decrease in Chinese traffic projections - retail spending per international passenger would fall about 2 per cent."

S&P Global Ratings has also analysed the impact of coronavirus on airports on both sides of the Tasman, and says they are set to face harder times.

In its report, S&P says other factors including sluggish economic growth across the Asia-Pacific region, and the impact of the Australian bushfires will dent growth in passenger traffic to Australasian airports.

S&P credit analyst Parvathy Iyer said airports in this region had the financial buffer to withstand the impact over the next six to 18 months.

Passenger traffic at Australasian airports would dip over the next six to 12 months with the coronavirus crisis.

Information boards at Auckland Airport. Photo / Supplied

A sharp drop in China's international travel will significantly hurt passenger traffic to Australia and New Zealand, she said.

Iyer said a recovery in passenger numbers to historical growth rates of 3 to 5 per cent in the 12-24 months after this fiscal year was expected, although it was likely to be slower compared to six to nine months after the Sars crisis in 2003.

Auckland Airport is in the middle of a $2 billion capital programme and has big decisions looming on its new domestic jet terminal and proposed second runway.

Iyer said airports can control operating costs, as well as adjust the timing of their uncommitted capital investments and planned dividends over the next year as the situation evolves.

''Any risk of a very slow recovery or prolonged impact will call for further reviews by airports over the next few years," she said.

Auckland Airport, 22.4 per cent owned by Auckland Council, will report its interim result on February 20, when an update on the coronavirus impact is expected.

At the time of its annual result announcement last year, it said underlying profit after tax was to be between $265 million and $275m, in the same region as last year's $274.7m.

That guidance was subject to any material adverse events, significant one-off expenses, non-cash fair value changes to property and deterioration as a result of global market conditions, or other ''unforeseeable circumstances".