New Zealand’s elimination approach to COVID has been extremely costly for the country’s main international gateway, Auckland International Airport.
The domestic travel industry is spluttering along at 30% of pre- COVID levels, but international traffic has been limited to freight and a sparse amount of repatriation traffic. International passenger traffic in 1H22 was 5% of 1H20 traffic but fortunately, international aircraft movements was at 30% indicating the level of freight movement.
The blink on the radar is the New Zealand Government’s belated easing of its international border, yet even this remains a cautious and staggered approach.
The Managed Isolation Quarantine system has finally been dismantled so that fully vaccinated travellers can now enter the country without a self-isolation requirement. This is still a barrier for most travellers. Its removal will be the key catalyst to allowing relatively free travel to recommence to and from New Zealand.
The big question now is how quickly airlines and passengers respond to the restoration of normal travel once isolation requirements are removed.
New CEO Carrie Hurihanganui said: “As we look to the rest of the year, we expect international travel numbers to remain low with overseas experience showing the self-isolation requirements for vaccinated travellers seriously denting demand.”
AIA has used the extended quiet period to selectively accelerate capital spending on much needed roadworks around the airport and airfield projects.
Most of AIA’s retail tenants have been given substantial rent abatements to keep these businesses ready for the big restart. The company has frozen aeronautical charges for the 2023 year to support the airlines that use the airport.
AIA’s balance sheet is being nurtured through the pandemic along with softened EBITDA-based interest coverage agreements with lenders that have been extended to June 2024.
AIA is expecting an underlying loss before tax of NZ$25-50 million in FY22f.
Investment view
Before the Omicron variant emerged, the domestic travel network had been recovering strongly to nearly 80% of pre-COVID levels. This shows the demand for travel has not disappeared but is waiting for restrictions to be removed.
The same principal applies to international travel although this is complicated by each country’s settings. Prior to the pandemic there were 29 international airlines visiting New Zealand, but this has dwindled to just 14 at the latest count. This will pick up but illuminates the depth to which international travel has receded and from which it must recover.
Risks to investment view
A recurrence of COVID-19 might reintroduce strict border controls and affect international travel to and from New Zealand. Travel demand patterns might permanently alter, or airline services might be reduced to New Zealand as a consequence.
Recommendation
We have retained our Hold recommendation.
