Invest
What Sydney Airport investors can learn from Gatwick
Badgerys Creek Airport will begin construction next year and the new airport could be a good thing for income investors, an equities strategist has said.
What Sydney Airport investors can learn from Gatwick
Badgerys Creek Airport will begin construction next year and the new airport could be a good thing for income investors, an equities strategist has said.
The controversial project – most recently reported as forcing families to re-bury loved ones to make way for the airport – is due to begin construction in February 2018.
While it could be assumed that as Sydney Airport’s monopoly is threatened, income investors should also be worried, Julia Lee from Bell Direct has argued that that isn’t necessarily the case.
Noting that Sydney Airport stocks are attractive to income investors due to their higher distribution and attractive earnings, Ms Lee said such investors should consider what happened in London when Gatwick Airport began expanding.
“If you have a look at the example in London with Heathrow Airport versus Gatwick Airport, when we saw Gatwick opening up, it actually turned out to be a positive for the owners of Heathrow,” the equities strategist told Nest Egg.
“That's because the higher margin airlines tended to stay with the main one [Heathrow airport], whereas the cheaper airlines and the lower margin ones tended to go to more of the regional level airports, so it's not necessarily a negative.”
Recognising that competition is usually thought of as a negative, Ms Lee said that in markets large enough to accommodate more competitors, such competition can be a positive thing in the longer term.
“If Sydney airport is attracting more of those premium, higher-margin type flights, then Badgerys Creek might take some of those cheaper, lower margin, lower profitability type businesses.”
However, Ms Lee advised caution: “Maybe we will see margins increasing at Sydney Airport over time but certainly there's a bit of uncertainty related to that and that's probably what investors do need to be aware of and just keep their eye on.”
The project’s history
In May this year, Sydney Airport declined the offer to own and run the Western Sydney Airport (WSA) at Badgerys Creek.
Kerrie Mather, Sydney Airport’s boss explained at the time: “Sydney Airport’s decision not to accept the WSA NOI on the terms provided is in the best interests of our investors who represent millions of Australians through their superannuation funds.
“Despite the opportunities that WSA will present, the risks associated with the development and operation of WSA are considerable and endure for many decades without commensurate returns for our investors.”
The decision seems to be working out well for investors. Earlier this month, Ms Lee pinpointed Sydney Airport stocks as one to watch, noting its “attractive income” and its earnings increase of 8 per cent, which the company revealed during reporting season.
“They also flagged higher distribution for the coming year which is the type of thing you want to see from an income stock,” she continued.
It doesn’t hurt that the company knows how to turn a profit. The company made $167 million in FY17.
According to the Australian Competition and Consumer Commission (ACCC), Sydney Airport made $100 million on parking alone in the 2015/16 financial year. That’s because for every $1 received in parking, a staggering 73.1 per cent was profit.
At the time of the report, ACCC chairman Rod Sims called for more competition in the sector.
He said: “They [Sydney Airport] are in the delightful position from their point of view where they've got the car park monopoly and they get the ability to levy charges on the competitors, so they can levy fees on taxis for entering the airport, they can levy fees on the shuttle buses for the off-airport parking.
"They are in a very strong position."
RELATED ARTICLES
Property
Australia’s rental choke point: why record-low vacancies are now a boardroom issue
A tightening rental market is no longer just a housing story—it’s a macro risk, a labour challenge and a strategic opening for capital. With vacancies near historic lows and rents still rising, ...Read more
Property
Rents are rewriting the inflation playbook: what record‑low vacancies mean for Australian business
Australia’s rental market is so tight that housing costs are now a primary transmission channel for inflation and interest rates. This isn’t just a property story; it’s a business risk story—affecting ...Read more
Property
Off-market real estate is going mainstream — and changing the rules of dealmaking
With public listings tight and sales still climbing, Australia’s investors are shifting to off-market channels that reward speed, networks and data advantage. The playbook is closer to private equity ...Read more
Property
Australia’s rental squeeze is now a business problem: inflation, capacity and the new growth calculus
Record-low rental vacancies are no longer just a social headline – they’re reshaping cost structures, wage dynamics and capital allocation across corporate Australia. With economists warning of a ...Read more
Property
Rents Are Repricing Australia Inc: What record‑low vacancies mean for inflation, talent and strategy
Australia’s rental market has slipped into a vacancy desert, and it’s not just tenants feeling the heat. Persistently tight supply is pushing up rents, embedding services inflation and complicating ...Read more
Property
Young buyers poised for a comeback as 5% First Home Guarantee takes effect
In a move set to reshape the Australian property landscape, the government’s revamped First Home Guarantee is poised to open the doors of homeownership to a new generation of young AustraliansRead more
Property
AFG Securities waives settlement fees for first-home buyers, signalling strategic shift
In a strategic move aimed at easing the financial burden on first-home buyers, AFG Securities has announced the elimination of settlement fees on select loans, potentially saving customers up to $699Read more
Property
From trust woes to wealth: Australian agencies' secret to boosting prices
In Australia’s residential market, trust is no longer a nice-to-have—it’s a pricing variable. Persistent distrust of real estate agents is depressing vendor outcomes and inviting regulatory heat, but ...Read more
Property
Australia’s rental choke point: why record-low vacancies are now a boardroom issue
A tightening rental market is no longer just a housing story—it’s a macro risk, a labour challenge and a strategic opening for capital. With vacancies near historic lows and rents still rising, ...Read more
Property
Rents are rewriting the inflation playbook: what record‑low vacancies mean for Australian business
Australia’s rental market is so tight that housing costs are now a primary transmission channel for inflation and interest rates. This isn’t just a property story; it’s a business risk story—affecting ...Read more
Property
Off-market real estate is going mainstream — and changing the rules of dealmaking
With public listings tight and sales still climbing, Australia’s investors are shifting to off-market channels that reward speed, networks and data advantage. The playbook is closer to private equity ...Read more
Property
Australia’s rental squeeze is now a business problem: inflation, capacity and the new growth calculus
Record-low rental vacancies are no longer just a social headline – they’re reshaping cost structures, wage dynamics and capital allocation across corporate Australia. With economists warning of a ...Read more
Property
Rents Are Repricing Australia Inc: What record‑low vacancies mean for inflation, talent and strategy
Australia’s rental market has slipped into a vacancy desert, and it’s not just tenants feeling the heat. Persistently tight supply is pushing up rents, embedding services inflation and complicating ...Read more
Property
Young buyers poised for a comeback as 5% First Home Guarantee takes effect
In a move set to reshape the Australian property landscape, the government’s revamped First Home Guarantee is poised to open the doors of homeownership to a new generation of young AustraliansRead more
Property
AFG Securities waives settlement fees for first-home buyers, signalling strategic shift
In a strategic move aimed at easing the financial burden on first-home buyers, AFG Securities has announced the elimination of settlement fees on select loans, potentially saving customers up to $699Read more
Property
From trust woes to wealth: Australian agencies' secret to boosting prices
In Australia’s residential market, trust is no longer a nice-to-have—it’s a pricing variable. Persistent distrust of real estate agents is depressing vendor outcomes and inviting regulatory heat, but ...Read more
