Monday, April 20, 2009

Auckland Airport needs main focus on its core business

Auckland International Airport [AIA.NZ] looks like they are using a downturn in passenger numbers and therefore revenue to move away from their core business of airport services.

The downturn in passenger arrivals coincided with the release of a new strategy plan for Auckland Airport by Moutter, himself newly appointed to the job.

The previous management team had responded to the drivers of the day, which was strong and continuing passenger growth, said Moutter. But the dynamic had shifted, and there was huge uncertainty as to when that growth might return. "But if we hunker down and drop everything to the lowest cost base, then we won't be able to capitalise when growth triggers return," he said.

His new strategy concentrates far more on developing the substantial land holdings held by the company. Property, he says, is one area where the airport company had the highest hopes and greatest opportunity of surviving, and even thriving through the recession. Full Story ( Doc attachment)

Investors need to beware that when a company with a core business changes tack there can be problems with that change and all the associated financial fallout that entails-increased capital expenditure being just one of those fallout's.

Auckland Airport have done well in the past from operating an airport and that is where their business expertise principally lies.

Granted they are landlords for retail outlets that operate inside and outside their main airport buildings and revenue also comes from their large car parking facility. These areas of their business comprise 55% of their income but management need to keep in mind why those facilities are there and are successful in the first place - the foot traffic that comes from airport user and visitor foot traffic.

New Zealand listed businesses are littered with the failure of management moving outside their sphere of business experience. Recent examples include The Warehouse Group [WHS.NZ], Restaurant Brands [RBD.NZ], Telecom NZ [TEL.NZ] and Hallenstein Glasson [HLG.NZ] making moves into markets they didn't know well and their shareholders were materially affected by these poor decisions.

Don't get me wrong, you have to adapt to changing markets. Auckland Airport passenger numbers are currently falling, but this will not last and management simply cannot take their eye off the golden goose lest they be caught unaware when traffic numbers climb again.

The focus for the long term must be on planning for increases in airport facilities, for passengers, planes etc and driving demand for more airline business.

The other bolt on revenue streams, while clearly important, need to come second to the main business and driver of those other revenue streams, core airport facilities.

Disclosure I own AIA, WHS, and HLG shares

Auckland International Airport @ Share Investor

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As at 2:16 pm, 20 Apr (20 min delay)

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