Comparative Financial Analysis of Sydney and Auckland Airports

This report undertakes a comprehensive financial analysis of Sydney Airport and Auckland Airport, evaluating their performance through both qualitative and quantitative methods. The analysis begins with an executive summary and an overview of the global airline industry, including a PESTLE analysis to understand the external factors influencing the sector. It then delves into the specifics of each airport, including stock price movements, SWOT analyses, and detailed financial analyses. The quantitative analysis employs financial ratios to assess operating efficiency, cash conversion cycles, profitability, liquidity, and solvency. The report includes a comparison of both companies, examining retention ratios and interpreting the financial data to provide insights into their investment potential and overall financial health. The report concludes with references to the sources used.

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FINANCE

Contents
Executive Summary...............................................................................................................................2
Overview of the industry.......................................................................................................................2
Pestle analysis of the industry................................................................................................................3
Sydney Airport......................................................................................................................................4
Stock price movement.......................................................................................................................6
Sydney Airport..................................................................................................................................6
Auckland airport....................................................................................................................................7
Vision of the company.......................................................................................................................9
Stock price movement.......................................................................................................................9
SWOT Analysis...............................................................................................................................10
Financial analysis................................................................................................................................11
Operating efficiency........................................................................................................................11
Cash conversion cycle.....................................................................................................................11
Profitability ratio.............................................................................................................................13
Return on Assets..............................................................................................................................14
Return on equity..............................................................................................................................15
DuPont model......................................................................................................................................15
Comparison of both companies.......................................................................................................18
Retention ratio.................................................................................................................................18
Liquidity ratios................................................................................................................................19
Solvency ratios................................................................................................................................19
Interpretation.......................................................................................................................................20
References...........................................................................................................................................21
AUCKLAND AIRPORT.....................................................................................................................23
AUCKLAND AIRPORT.....................................................................................................................23

Executive Summary
This report will undertake the analysis of two companies named as Auckland airport and
Sydney Airport. This analysis is based on both qualitative and quantitative verdict. With the
quantitative data, the report uses the calculation of financial ratio in order to evaluate the
financial performance. This report will finally give an overview of where to invest or which
is the best-suited company for future investment. Both the companies operate in global
aviation industry. Apart from this, each company have used its own different business
strategies to achieve the market goals in the overseas market in order to achieve growth in the
sales (Sydney Airport, 2018).
Overview of the industry
The global airline industry provides service to each corner in the globe and plays an
important role in integrating several parts of the world and the economy. IATA predicts that
the industry will grow by averagely 3.7 % in regards to air passenger that differs from region
to region. It is estimated that there will be an increase in the number of air passengers in 2035
as compared to 2017 nearly 1.9 times. To view the industry with a more close view, it is seen
that 2019 will be marked as a fourth consecutive year of the sustainable profits. The
improvement in the net margin will be approximately 4.7 %. It has improved in the overall
revenue to nearly $824 billion. Rise in the overall passenger will be nearly 4.3 million
(Sydney Airport, 2015).

(Source: Airline industry, 2018)
Pestle analysis of the industry
Political- the political conditions of this industry is highly regulated by passengers. This is the
reason why global aviation operates in the location, which is distant from the residential area
as passenger safety, is paramount. Previous tendencies towards the monopolistic attitude in
the airlines might tighten the operations of the airlines. This industry is exposed to several
risks such as tighter regulation and the high competition has made some more amenities
compulsory.
Economic- the international airline industry is being affected by fluctuations in the rates of oil
as second Iraq world war had a subsequent hike in the oil prices before the great recession.
The last aspect of ongoing global economic slowdown has led that current struggling airlines
have to be contend with the reducing passenger traffic, high aviation fuel prices, soaring
maintenance, labour demands, and the operating cost. All the previous factors are prone to
bankruptcies as airlines cannot afford it in the profitability of the operation.
Social- the increasing millennial generation in the consumer base of the airlines reflects that
there has to be many modern changes made to the interior and ambience. Social changes of

the generation will be entitled to instant gratification and increasing demand of the services
that has resulted in the airlines in order to balance the cost with the increasing demand of
millennial generation. The passenger has changed with sufficient economic mind seats and
less business class people because they prefer to take advantage of the improved
communication so that they can conduct meeting rather than flying down just to meet the
business partners.
Technological- undoubtedly, airlines uses extensive technology in the operations. These are
limited to aircraft if the technological operation excludes the ticketing and distribution
aspects. This has encouraged several aspects to call to the airline so that they can make use of
advance in technology in the front office and also the customers facing functions as well.
Legal- huge number of lawsuits in regards to airlines from both workers and customers has
been increasing. The regulators are stricter for the airlines that means increasing mistrustful
of their business strategies have been leading to lawsuits. Increased regulations in regards to
“Double whammy” and their expensiveness lawsuit except the legal system that have become
intolerable issues, delays, and other aspects that has become fear for the airlines.
Environmental- while evaluating the climate changes, social consciousness have become
more significant as customers have started counting the carbon footprint that indicates that
customers are more conscious.
Sydney Airport
Sydney Airport is one of the busiest airports in Australia. This airport is also known as
kingsford smith airport that receives several travellers and tourist bound in Australia that host
regional, domestic, and international airlines. An average of 97400 passengers uses this place
every day. It is one of the world`s longest operating commercial airports that handles 348904
aircraft movements in 2017 (Sydney Airport, 2018). Airport`s terminal underwent two large

expansions that included additional high-rise office block, expansion of both domestic and
international terminals, and construction of multi-level car parking.
(Source: Sydney Airport, 2018)
Recently, the company has undertaken master plan, 2039 that outlines the strategic direction
for the development of Sydney Airport for the next 20 years. This Airport has a vital
infrastructure, which generates $ 38 billion from the economic activity for Australia and
NSW. At the same time, it generates employment of nearly 30900 jobs and 338500 full time
jobs. The key feature of Master plan is to accommodate the forecasted 51 % that will
increased the number of passengers to 65.6 million in the planning period (Sydney Airport,
2018).

(Source: Sydney Airport, 2018)
Stock price movement
(Source: Richard, 2017)
Sydney Airport is an annuity-style infrastructure stock being traded on an aggressive
distribution that yields 4.75 % geared into the eyeballs with cash flows and several growth
drivers and debt. The directors of the company say that stock is moving into a long-term sells
territory. Sooner or later, the company may think that the market is worrying about the

potential competition risk that reflects that this is not at all cheap stock. The market price of
the Sydney Airport is nearly $7.05 with a forecast distribution of 33.5c for the financial year
2017; this keeps the Sydney Airport on the distribution yielding of 4.7 % p.a. on a serious
note, it can be said that Sydney Airport is able to point out the strong tracking record
especially of their growing distributions. For the last five years, it is reported that annual
growth rate is 9.8 % (CAGR) compound annual growth rate (Richard, 2017).
Sydney Airport
Strengths
 Highly skilled workers because of
successful training and development
programs
 Sydney Airport is successful in
executing new projects
 This Airport has a strong free cash
flows which will provide working
capital
 Strong distribution network
Opportunities
 Reduction in cost of transportation
due to lower shipping prices
 Government has opened the
opportunity for the company for the
green drive to procure the Sydney
Airport products
 Lower inflation brings more stability
in the market to get credit at a lower
interest
Weaknesses
 Inventory days as compared to other
competitors is higher that makes the
company to increase the capital.
 The profitability and the net
contribution of the company is
relatively low
 The company is not much able to
Threats
 As it operates in several countries, it
is exposed to currency fluctuations
especially due to volatile political
conditions
 The company faces lawsuits in
different markets due to continuous
fluctuations and different laws in

handle the challenges as presented
by new entrants
regards to product offerings
Auckland airport
Auckland airport is one of the largest and busiest airports that has one terminal building for
the international flights and another for the domestic flights. Every major airline that serves
New Zealand customers flies and operates under the Auckland Airport. It is well connected to
rest of the country through domestic flights. The main vision to create a great New Zealand
business that is being recognised as world leader by creating value from modern airports. The
mission of the company is to accomplish five-year growth and development of 30-year vision
for airport. The company claims that New Zealand wants it to grow and become focused in
order to competitive advantage in regards to property developments that has to be
strengthened (Auckland Airport, 2015).
(Source: Gale, 2017)

While seeing at the growth strategies, it aims to create a healthier environment, increase the
focus in addition it improves the discipline of capital productivity, and cost efficiency.
Currently, the company serves 14.5 million passengers and operates nearly 150000 flights
each year. The company is publically listed on both Australian as well as New Zealand stock
exchanges that has more than 50000 shareholders. Auckland Airport plays a significant role
in tourism industry of New Zealand where 92 % of the international passengers travel on long
flights and 75 % of all the international arrivals. In 2013, the company and its neighbouring
business has added $3.5 billion to the Auckland`s economy and further it helped to lift the
household incomes by $1.9 billion (Richard, 2017).
Vision of the company
` (Source: Auckland, 2014)

Stock price movement
(Source: National business review, 2018)
The company accounts for 24 % market share while evaluating the financial statements of
2012-2017. Shares of the Auckland has risen after the country`s biggest beat earning as
estimated the dividend payment. The stock rose as $3.30 and recently it was traded on the
price as $3.28 today. It is reported in the reports as per the listing that it is a good performer
as twice in the market. The company lifted net profit to $178 million or it can be 13.5
precents per share, which was previously $142.3 million or the 10.8 % in previous 12
months. The board declared a final dividend of 6.25 % per share (National business review,
2018).
SWOT Analysis
Auckland airport
Strengths
 Top level management is committed
to the CR strategies. (Gale, 2017)
 Strategic partners who supplies good
Opportunities
 Local and central government
supports them by funding their
capital projects

are committed to waste minimisation
with dedicated management resource
 Total zone waste quality will enable
to give creative and investment
solution
 SBC green zone as a vehicle so that
it can collaborate with the
problematic waste stream
 Developing the local processing
capability for high costing
problematic waste streams (Gale,
2017)
Weaknesses
 Lack of leadership skills in the
functional areas
 Lack of formal compliances
framework for managing the waste
(quality monitoring and controls)
Threats
 Tourism will increase proportionally
the waste and company`s disposable
cost
 Potential regulation of material and
waste and that will block the in-
terminal movement (Gale, 2017)
Financial analysis
Ratio analysis is an analytical tool used by the companies to evaluate their performances but
it`s usage is not limited to companies whereas, it usage is extended to investors, stakeholders,
customers and suppliers in order to know the performance of the company.
Operating efficiency
The concept of operational efficiency is closely related to efficiency ratios. These ratios are
used as a metric to measure the efficiency of the profit earned in relations to operational
costs. Operational efficiency in the market is compared to general business practises such as
how a company executes its transactions in regards to receive or make payment. It is affected
by various factors such as transactional costs, administration fees, and the management fees.