Strong duty free and speciality retail performance buoys Sydney Airport in 2018

AUSTRALIA. Sydney Airport retail revenue climbed by 7.2% year-on-year in 2018, hitting A$357 million (US$254 million). The airport company highlighted the performance of the Heinemann Tax & Duty Free business as well as speciality stores in T1, plus the impact of new T2 leasing deals.

The commercial offer deepened during 2018, said the airport, aiding non-aeronautical revenue growth. Major developments in 2018 and planned for 2019 include enhanced T2 speciality retail, with JB Hi-Fi, Relay and Lego store openings; a T1 landside arrivals lounge and sleeping pods; a 78-room expansion of the Ibis Budget hotel, due for completion in mid-2019; and the addition of a new 430 room hotel delivering additional capacity.

Heinemann Tax & Duty Free: Strong performance helped retail growth outstrip increases in traffic in the year.

In T3 (Qantas) the airport pledged to deliver “an upgraded premium retail offer” after June 2019, once the airport takes over the operating lease from the airline. CEO Geoff Culbert said in a webcast to investors: “T3 currently has the lowest spend per passenger among our three terminals. That is surprising given the passenger demographic. We have plans to develop this.”

Commenting on the outlook for commercial, Culbert said: “It’s important to note that our non-aeronautical business represents 51% of our total revenue today. This provides significant resilience in the business model. We have a diversified revenue stream across retail, property and car parking.

“95% of our retail leases are underpinned by minimum guarantees; 98% of available property sites are leased. All of our retail and property leases have contracted escalations built in. The average tenure of our retail leases is five years and there is high demand among tenants to gain access to the airport.

“We also have opportunities to expand the retail footprint and are confident that there is demand to absorb that expansion, especially as we are growing by one million passengers a year.

“We negotiated 30 new retail leases in 2018 on superior terms, as well as 19 property leases, at an average of 4.5%. We opened eight new retail sites and nine more to come, which will deliver added revenue.”

Commercial investment in recent years was led by the highly respected General Manager, Retail Glyn Williams, who left on 31 January following a corporate reorganisation that sees the retail, property and landside operations and transport teams combined. The company created two P&L lines (from four), one each for aeronautical and non-aeronautical.

Leading the latter division (including retail, property and landside operations) is Vanessa Orth, who joined the company as Chief Commercial Officer Non-Aeronautical at the end of last year.

Picture of growth: The major revenue streams at Sydney Airport and their 2018 performance (above) and the key financials (below). (Source for all charts: Sydney Airport; click to enlarge).

Total revenue at Sydney Airport grew by 6.8% to A$1,584.9 million (US$1,127 million) in the year, with EBITDA up by 7.2% to A$1,282.6 million (US$912 million).

Sydney Airport handled a record 44.4 million passengers, up 2.5% on the previous year, with international passenger numbers growing 4.7% to 16.7 million.

Passenger profile: The fastest-growing passenger nationalities (left) and top ten by volume (right).

Sydney Airport CEO Geoff Culbert said: “Sydney Airport today announced a record result for the full year 2018, underpinned by another year of strong passenger numbers, an excellent performance across our non-aeronautical businesses, efficient capital investment and tightly controlled costs.

“Sydney Airport welcomed an additional 1.1 million passengers in 2018, with a strong performance from a diverse range of major markets, including the USA, China, India, Taiwan and Japan. This growth reflects our increasing diversity in airlines, routes, destinations and nationalities.

“EBITDA grew 7.2% on passenger growth of 2.5%. The key drivers were international passenger growth and a strong contribution from Retail and Property reflecting new leasing deals, strong duty free and speciality store performance, and a full trading year from our Mantra and Ibis Budget hotels.”

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