Sydney Airport's $97m interim loss keeps hostile bid on the radar

Sydney Airport's $97m interim loss keeps hostile bid on the radar

Sydney Airport (ASX: SYD) has deepened its losses by almost 82 per cent to $97.4 million in June half, highlighting the challenge it faces in fending off an opportunistic takeover bid.

The six-month result edges perilously close to the company’s full-year loss of $107.5 million in 2020, driven by a 31 per cent slide in group revenue that has not been matched by an equivalent reining in of expenses.

Sydney Airport, which delivered a $215 million net profit in 2019, is subject to an indicative takeover bid of $8.45 per share from the Sydney Airport Alliance that values the company at almost $23 billion.

The offer was lifted by 20c a share earlier this week, but the Sydney Airport board remains unmoved, unanimously concluding that it undervalues the business and that is not in the best interests of securityholders.

The impact of ongoing travel restrictions on the business have been laid bare with the airport revealing international and domestic passengers were 96.2 per cent and 57.5 per cent lower respectively in the first half of 2021 compared with the same period in 2019.

Some six million passengers passed through the airport in the first half of this year, down 36.4 per cent from the same time last year. While international passenger numbers dropped off a cliff, down 91 per cent a year earlier, domestic passenger numbers were only 3.1 per cent lower.

“It was a challenging six months, but we were encouraged to see passenger traffic rebound strongly every time borders were open,” says Sydney Airport CEO Geoff Culbert.

“From January to April, we recovered to 65 per cent of our pre-COVID domestic passengers and in just over two months between late April and June, trans-Tasman traffic recovered to more than 40 per cent of pre-COVID levels.

“We’re optimistic that this trend will repeat itself as the vaccine program gains momentum and we see a sustained easing of restrictions.”  

Sydney Airport’s revenue slumped from $511 million to $351 million. Retail tenancy receipts fell 73.4 per cent to $27.5 million.

However, that hasn’t stymied Sydney Airport’s plans for an expanded luxury retail offering with 12 new luxury retailers have committed to the airport’s T1 international terminal, including a stand-alone store for Louis Vuitton, the brand’s largest, in 2022.

“The commitment of these brands demonstrates faith in the future of international travel and confidence that Sydney Airport will remain at the heart of Australia’s international aviation network,” says Culbert.

Sydney Airport continues to negotiate short-term agreements with airlines as travel disruptions continue. Jetstar and Qantas agreements are in place until 30 June 2022, while discussions with Virgin are continuing. International airline agreements also have been extended by 12 months to 30 June 2022.

In light of ongoing disruptions to travel into Sydney, no guidance has been provided for the full year.

However, Culbert says the airport is well prepared for the return of more normalised conditions.

“The pathway to the recovery is clear,” he says.

“Governments at all levels are highly motivated to roll out the vaccine, which has now been tied to the lifting of restrictions. As border restrictions are eased, international and domestic travel will be back, and Sydney Airport will be ready to go.

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