Sydney Airport may suffer in the short term from Virgin Australia: Morgan Stanley

By Sarah Turner in AFR

Morgan Stanley took a look at what Virgin Australia's decision to enter voluntary administration could mean for Sydney Airport.

"We estimate that in 2019, Virgin Australia carried 6 per cent of Sydney Airport's international passengers and 36 per cent of Sydney Airport's domestic passengers, contributing 15 per cent of Sydney Airport's overall revenues, including indirect retail revenues.

"Historically, the 2002 withdrawal of Ansett had a short-term (< 1 year) negative impact on Sydney Airport's domestic passenger growth, until new and incumbent airlines picked up the abandoned routes.

"Our Sydney Airport base case passenger recovery estimate incorporates a slow recovery from virtually no passengers currently, towards 2009 levels over financial years 2020-2022," the broker said.

"Should Virgin Australia leave the Australian market, we see modest downside risk to the near-term recovery pace, but not to the medium-term recovery."

To paraphrase an article in the AFR, which refers to a UBS report:

Chinese tourists represent a significant part of the international passenger mix, and has been growing strongly in recent years. However, Sydney is becoming less desirable for Chinese tourists (according to a recent survey), and in fact Chinese toursists are increasingly chooisng to travel more locally due to more economic uncertainty at home.

International tourists accound for a disproportionate amount of revenues, with the Chinese in particular spending ~3x as much as other tourists.

Despite this, UBS is still calling for 7% pa growth in cash flow for next couple years and is valuing SYD at $7 per share