Moody's: Australian airports outlook stable; some divergence amongst airports

Moody's Investors Service says that its outlook for the Australian airports sector is stable, reflecting its expectations that the operating environment will remain stable and that revenues will grow at low to mid-single digit levels.

Moody's says that the main driver of revenue growth will be inbound international passengers, which will offset the more challenging conditions in the domestic sector.

"Over the next 12-18 months, we expect international passenger numbers through Australian airports to grow by around 3-4%, whilst domestic passenger numbers will remain broadly flat, which will be down on 2014 growth rates of around 5.5% and 1.5% respectively," says Spencer Ng, a Moody's Vice President and Senior Analyst.

Moody's conclusions were contained in its just-published outlook for Australian airports, "Stable Environment But Performance Will Diverge Across Airports".

"Our expectation for ongoing revenue growth reflects i) solid international passenger growth, particularly from China, ii) passenger tariff escalation, and iii) increases in non-aeronautical revenue, particularly from car parks and retail," says Ng. "Whilst the domestic market accounts for around 70% of total passengers, the impact of its softness is muted by the lower contribution per domestic passenger compared with international passengers."

A further theme in the Moody's report is an increasing divergence in the expected operating conditions for the airports, with east coast airports benefiting from a higher exposure to international markets. In contrast, airports which previously benefitted from growth in traffic generated by the mining industry will experience more challenging conditions as resource-lead investment unwinds.

Moody's also expects airport project execution risk to remain manageable. The solid track records of Australian airports in executing on capital programs suggest that the cost overrun risks associated with current expansion plans are manageable.

However, Brisbane and Melbourne have less capacity to defer capex to protect their financial profiles, if necessary, once they commit to their respective major multi-year expansion programs, particularly given these include new runways.

Moody's expects demand for air travel in Australia to remain resilient, supported by population growth, limited intermodal competition and the long distances between major capital cities and overseas destinations.