Responding to the most recent Productivity Commission inquiry into Australia’s airports, the federal government has sided with the nation’s airports and rejected a campaign by airlines to regulate what they say are monopolies.
This is good news for investors in airports – and those looking for more defensive investments.
This, coupled with mounting uncertainty surrounding the outlook for the global economy and investment markets, is highlighting the benefits of holding resilient real, infrastructure assets, such as airports, in a portfolio.
According to specialist unlisted infrastructure manager, Infrastructure Partners Investment Fund Management Pty Ltd (IPIF), airports have proven to be highly resilient infrastructure assets for Australian investors.
“Investors like airports as they provide numerous sources of revenue from a diversity of stakeholders such as airlines, passengers, visitors, retail tenants and government agencies,” says Jonathan van Rooyen, chief investment officer at IPIF.
“We believe that in the current low interest rate environment, these unlisted assets are presenting significant opportunities for investors seeking consistent yields with the potential for capital upside.”
Mr van Rooyen said airports should be considered as two separate businesses – airside and landside.
The airside operations include the management of the runways of the airport. Revenue is generated by either a charge levied per passenger or a charge levied on the weight of the plane or a combination of both. This side of the operations therefore behaves similar to a regulated utility.
The landside operations involve the non-air aspects of the airport such as retail shops, car parking and property development and maintenance.
“Airports have been a strong driver of returns for unlisted infrastructure portfolios,” Mr van Rooyen said.
“The airport sector in Australia has a strong track record of long-term growth, with only two years of negative passenger growth over the last 30 years. This compares to six years of negative growth for Australian equities over the same period.
“The airport sector performed well, recovering resiliently through multiple macro and industry shocks such as the global financial crisis, with airlines managing the down cycle through a range of initiatives including discounted ticket prices and reduced services for example.”