UPDATE: Auckland Airport 'optimistic' on Chinese travel despite questions about economic growth

UPDATED: Auckland International Airport [NZX: AIA], the country's biggest gateway, says it's optimistic about demand from China, its fastest-growing source of passengers, even after weak manufacturing data sparked a global selloff in stocks and raised questions about growth in that economy.

Passenger numbers from China soared 41% to 545,494 in the airport company's latest year, while capacity on routes to China rose 38 percent. Among other regions, only South America recorded growth of more than 10%, with a 15% gain to 189,009. Total international passengers rose 5.7% to 8.6 million.

China is a key source of the airport's international growth with Beijing added as a new route, China Eastern and Air China adding flights and bigger aircraft being operated from Guangzhou and Shanghai. More Chinese visitors are travelling on their own, known as 'free independent travellers,' rather than on tours, based on data about visas, boosting average trip spend, the airport said.

"We remain optimistic about China," chief executive Adrian Littlewood said on a conference call. "There will always be fluctuations but the fundamentals for China remain quite strong." They included urbanisation and growth in China's middle class, increasing capacity on routes to New Zealand and the relatively weaker kiwi dollar.

Shares on Wall Street tumbled on Friday after figures showed Chinese manufacturing fell to a six-year low, stoking concern slowing economic growth will be a brake on global growth. In New Zealand, the S&P/NZX 50 Index dropped 2% and Auckland Airport's shares fell 3.7% to $5.02. The airport's stock has climbed 34% in the past 12 months, outpacing the NZX 50's 8.8% gain.

The company reported today that underlying profit, which excludes some revaluations of property and derivatives, rose 3.8% to $176.4 million in the 12 months ended June 30. Profit on that measure may rise as much as 8.3% to $191 million in 2016, it said today.

Growth in international passenger volumes helped drive a 7.1% gain in passenger service charges to $140.9 million, its biggest source of revenue, while retail income, mainly from the stores in its terminals, rose 3.9% to $132 million. Airfield income rose 6.5% to $93.3 million. Car-parking revenue rose 8.9% to $46.6 million and rental income from investment property rose about 1% to $50.1 million.

Total capital spending for 2016 is forecast at $190 million to $205 million, up from about $148 million in 2015, which was itself a 21% gain on the previous year. Of capex in 2016, about $100 million is for aeronautical projects to meet higher-than-expected demand and the requirements of emerging airlines for Pier B, the international terminal expansion that has gates capable of handling Airbus A380 aircraft.

The airport company has identified its preferred site for a third hotel, while the Ibis budget hotel added 73 rooms, a 50% expansion, in December. The company is also expanding its range of retail stores within the terminals and adding car-parking capacity and capacity in its valet service, which it extended to international flights in December.

It had $162 million of development projects under construction in the fourth quarter, a record level of activity, and future projects include Stage 3 of its 9.5 hectare Landing commercial development site, and new builds at Timberley Road and at its Quad 7 office development.

Underlying earnings from Queenstown Airport rose 9.2%, as domestic passenger volumes topped one million for the first time, while at North Queensland Airports, earnings rose 2.9%.

Auckland Airport's operating expenses rose 6.6% to $128.5 and included an 8.9% increase in staff costs, partly reflecting a lift in bonuses under a new scheme of short-term incentives. Its interest expense climbed 26% to $86 million, reflecting the previous year's debt-funded return of $450 million of capital. The company will pay a final dividend of 7.3c a share.

(BusinessDesk)