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An analysis on the performance of Australia’s busiest airport

  • Major airports in the Asia-Pacific
  • A comparison of significant airports in the region
  • Parameters of success for Sydney Airport

 

In 2017, Sydney Airport with 3 terminals handled 43.3 million passengers and is the busiest airport in Australia, which is followed by Melbourne and Brisbane airports. According to statistics revealed by OAG Aviation Worldwide Limited (early 2018), Melbourne-Sydney has become the world’s second busiest air route. Moreover, as many as 54,519 flights cater to this route on a yearly basis, second only to Seoul-Jeju route (South Korea) with 64,991 flights. In addition, the air network between Sydney-Brisbane with 33,765 flights ranked 8th on the list of the busiest routes. The reason for such a high frequency of flights between Sydney-Melbourne can be attributed to the following facts:

  • Both the cities are business hubs and locals travel frequently on this route
  • In the past few years, the Australian government has taken the agenda of promoting tourism earnestly and thus, foreign nationals crowd these two cities
  • The lack of high-speed rail network between Sydney and Melbourne

 

In the past 5 years, there has been a continuous upward growth in the number of passengers for Sydney Airport. Further, during 2014-17, the number of passengers increased at CAGR of 4%. In 2017, there was a significant spike in the number of passengers to 2.6 million with maximum travellers originating from China and India. In 2016-17, international passengers’ growth rate for the Sydney Airport was at a whopping 7.2%, whereas, it was 1.3% for domestic passengers during the same period. The demand from China further increased after 2016 as both the countries (Australia and China) signed an Open Skies Agreement under which China-based carriers operated their airlines in Australia and capacity restrictions between the two countries were reduced. There have been further capacity additions on the routes flying to Asia, Middle East and the USA with an addition of over a million new seats. In order to lure more passengers, airlines are also introducing newer routes. Vietnam Airlines started the Hanoi-Sydney route and Samoa Airways started the Apia-Sydney route.

In the present blog, Televisory compared the performance of Sydney Airport with few of its regional peers. The below table represents passengers travelling from 5 different airports in Asia-Pacific region.

Sydney Airport handles fewer passengers as compared to its peers mainly due to a stark difference in the population of these countries. Addedly, unlike Malaysia Airports Holdings and Airports of Thailand that operates 39 and 6 airports respectively, Sydney Airport merely operates a single airport.

In addition, the rise in the number of passengers handled is directly proportional to the revenue earned by an airport. Hence, the total revenue was the highest for the Airports of Thailand as it operates 6 airports currently. It is followed by Beijing Capital International Airport due to a substantial number of passengers travelling through the airport it owns.

The revenue for Sydney Airport increased by 8.4% CAGR during 2014-17. Furthermore, the revenue for airport streams is derived from two areas namely; aeronautical services and non-aeronautical revenue. The non-aeronautical revenue include retail, property and car rental, parking and ground transport. Aeronautical revenue arises from charges per passenger that the airport levies on airlines for the use of a terminal, landing charges, aircraft parking charges, bridge services and charges for other minor commercial activities imposed on airlines. Malaysia Airport Holdings operates 39 airports, but only 2 of these are international airports. Its revenue was lower than its peers owing to low retail facilities available at the airports and the waiver on landing fees for airlines.

The aeronautical and non-aeronautical revenue for Sydney Airport has shown an upward trend during 2014-17. Presently, Sydney Airport leads its peers in both the aeronautical and non-aeronautical revenue per passenger. Auckland Airport was at the top in terms of aeronautical revenue per passenger up to 2015, but Sydney Airport overtook it in 2016. The non-aeronautical revenue per passenger for Sydney Airport is almost twice of Beijing Capital International Airport. This is due to the fact that Sydney Airport operates in an advanced economy and the passengers arriving at the airport have a high willingness to spend. The average revenue per passenger for Sydney Airport Holdings was $26.03 (2017), whereas, for Beijing Capital International Airport, the average revenue per passenger was $16. Sydney Airport Holdings was also able to fetch a higher revenue per passenger as Australia’s Consumer Price Index (CPI) is more than that of China and the ticket prices are accordingly pegged.

Additionally, Australia is a popular tourist destination with beautiful landscapes and tourism has a potential to grow further and add to the revenue. Sydney Airport Holdings has also taken certain significant steps to achieve this position. It focused on services such as hotel and retail segment. The retail revenue for the airport grew at a mammoth rate of 12.7% from the previous fiscal (2016). The luxury brands like Gucci and Rolex completed their precinct and dining space was refurbished with a premium view of the city through an arena in the international terminal 1. Further, casual dining space in terminal 2 was broadened with more food and beverages. Hence, all these factors added in achieving a high retail revenue. The airport acquired two hotel properties in the vicinity namely Ibis Budget and Mantra Hotel for the benefit of passengers visiting the country on a short or business trips. In 2017, it invested $428.5 million in airfield and terminal capacity and acquisitions. The company also has plans to invest further $1.5 billion in the upcoming 4 years, this will increase the capacity and provide superior customer experience to passengers and airlines. 

Similarly, Sydney Airport has also implemented superior technology and processes to improve operational efficiencies, thereby, reducing operating costs. A comparison of Sydney Airport’s performance with other airports shows that Sydney Airport has the lowest cost margins as seen in the below charts. Sydney Airport has a low employee count of 441 for 1 airport with 43 million annual passengers due to high use of automation, whereas, Beijing Airport has a fourfold employee count of 1,623 for an airport with 96 million annual passengers. This is the reason for the lowest staff cost margin of 4% for Sydney Airport. Further, Sydney Airport operates at the highest EBITDA margin of 81% among its peers. Beijing Capital International Airport handles around 94 million passengers every year, which is more than twice the passengers handled by Sydney Airport. This reduces the average EBITDA per passenger for Beijing Capital International Airport to $8.55 as compared to the average EBITDA per passenger for Sydney Airport Holdings at $21.01.

According to a forecast by analysts, Sydney Airport is expected to reach its full capacity by 2025. The airport is set to take major steps such as the expansion of the terminal 1, opening of new gates to cater to the exponential growth of passengers, expansion of baggage handling mechanisms. It is already in negotiations with various airlines to expand terminal 1 and introduce international flights in terminal 2 and 3 with a prospect of opening terminal 4. Although Beijing Airport is considered to have the best capacity utilisation rate of 99%, the full utilisation of the airport has led to many cases of flight delays. The airport rescheduled the time slots and reduced the number of flights flying per day. Although to bring in punctuality, the airport improved its runway and taxiway systems. According to the Civil Aviation Administration of China, national flight punctuality rate in July 2017 was 50.7%, meaning nearly half of all the flights were delayed or cancelled. The passengers handled by the Airports of Thailand company far exceeded its capacity and it currently operates at 128% utilisation.

On automation front, Sydney Airport is expected to take major leaps with the introduction of advanced automation for operations. The airport is expected to launch biometric rollout at its airports. This will help passengers to navigate through airport processes using facial recognition and will do away with the need of passport at each and every processing point. The airport is going to introduce automated check-ins and baggage drop zones at T1 international in 2018. The airport is currently working with government partners to try the next-generation technology for inbound SmartGates. Dubai International Airport, which is also considered as one of the busiest airports has already opened SmartGates in 2017 for its passengers, this helped in the quick immigration process. The immigration process becomes speedier and the time came down to five seconds with the help of a face recognition facility. This started in the USA, in the wake of 9/11 attacks.

Beijing Airport has already reached its maximum utilisation as stated above and the financial parameters such as EBITDA margin and revenue per passenger for Sydney Airport Holdings are relatively higher than the Beijing Airport. Sydney Airport Holdings is thus in a better position to manage the huge expected rush of passengers owing to advanced technology at its disposal. It is at an advantage because its revenue generation is higher and it has invested in vast avenues to make non-aeronautical revenue from the passengers. The airport can easily manage humongous traffic by introducing the latest technology in the day-to-day operations. The investment in innovative technologies cost billions to an airport, but it also provides a certain competitive edge as its cost margins are not as high as peers. 

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