This morning, Sydney Airport [ASX:SYD] announced that it’s made an important deal with BARA. BARA is the Board of Airline Representatives Australia. They represent most of the international airlines flying to and from Sydney. That includes nearly 30 different members, from Air Canada and Cathay Pacific to Emirates and Singapore Airlines.
The deal covers the price of services that Sydney Airport provides to airlines. The per-passenger charge will go down from $24.18 to $24.00 for a one-year period, between tomorrow and the end of June next year. After that, all charges will go up by an average of 3.8% per year for four more years.
That’s a big deal, seeing as they get 42% of their revenue from these services. It’s their biggest single source of revenue. Next are; retail (22%), property and car rental (17%) and car parking and ground transport (12%).
Sydney Airport CEO and managing director Kerrie Mather announced that the extra money would partly go towards upgrades. She commented that ‘The new commercial agreement provides the framework for a closer working relationship with our airline partners to deliver an improved experience for passengers, our common customer.’
She was upbeat about the relationship the airport has with BARA, saying ‘This negotiation also demonstrates the benefits of commercial airport agreements that prioritise passengers, airline operating requirements and efficiencies, airport capacity and a service quality culture. We look forward to continuing to work with BARA and its members to improve the services and facilities at Sydney Airport for our airline partners and passengers.’
What they’re investing in
This morning’s announcement was brief. They only mentioned ‘world class passenger experience improvements…terminal presentation standards and implementation of the latest technology.’ That includes ‘aeronautical infrastructure’.
So what does that mean? Well, it’s going to start with capacity. Some elements of the system at Sydney Airport need upgrading to deal with more passengers. Specifically, they’re looking at the baggage handling system. Last year, they started work on two new A380 capable carousels, and some more sorting facilities.
They’re also looking into a more efficient way for planes to be parked near the gates. Last year, they started work on expansions of several bays and gate lounges to accommodate A380s.
Last year, they also started a major do-over of the international terminal. Their aim is to ‘improve passenger experience, seating and retail offerings in Departures and Arrivals.’ These works are due to be completed by the end of next year.
In an investor presentation at the end of February, they went into more detail about what that will mean. The initiatives include (but are not limited to) better car parks, new hotels, more spacious expanded check-in, bag storage, and a better T1 food court.
Sydney Airport has also partnered with Heinemann, a German company based in Frankfurt that specialises in duty-free shopping experiences. Heinemann is redeveloping the duty-free shopping area, providing clear lines of sight and a variety of over 400 new luxury brands and ‘value’ brands. The area will have a central boulevard and wider paths for better foot traffic flow. In addition to shops, there will be more seating and ‘an improved dining offer with commanding views of the city and airfield.’ It will look something like this:
Source: asx.com.au
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It kind of reminds me of Hong Kong airport, with its naturally lit retail concourse under that iconic glass and steel dome. Or Singapore airport, where the retail concourses are so wide that some of them have got trees.
Left: Hong Kong, Right: Singapore
Source: Wikimedia
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World-class airport inspiration
Of course, ‘world class’ can mean a lot of things. Especially when it comes to different countries’ takes on what constitutes good dining and retail experiences.
International peak body Skytrax runs the World Airport Awards every year. The results are based on customer surveys. This year’s winner of Best Airport Shopping was London’s Heathrow Airport. In addition to a massive array of retail and dining outlets, they’ve introduced shopping services. You can get free advice and help from a personal shopper, and free transfers between terminals. Shoppers can also make purchases, then collect them on their return journey to save on luggage space.
Singapore and Hong Kong were close behind. Dubai and Paris, shopping destinations in and of themselves, rounded out the top five.
When it came to dining, Hong Kong, Singapore and London were winners too. They were followed by Munich Airport, and Kansai International Airport in Osaka. Munich Airport features a 24-hour market style eatery, a branch of the famous Hofbrauhaus, an organic eatery, and hotel restaurants. Kansai offers hungry passengers an array that includes both casual and high-end Japanese dining, as well as other Asian and Western restaurants.
Another interesting category in the Awards was ‘leisure amenities’. In addition to airports already mentioned, Incheon Airport in Seoul made the list. They’ve got an incredible range of attractions, including traditional Korean cultural experiences, a Korean cultural museum, indoor gardens, musical performances, day spas, a skating rink, a movie theatre, and even a golf course.
It will be very interesting indeed to see what Sydney Airport does to compete with the top rated international airports.
How the market reacted
It seems that investors approve of the deal. At the time of writing, shares in Sydney Airport were trading up 1.23% at $4.92.
Source: Google Finance
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The next step for Sydney Airport will be to hold talks with Australian based carriers including Qantas [ASX:QAN] and Virgin Australia [ASX:VAH]. By the way, if you’re looking for an airline stock to add to your portfolio, don’t miss Kris Sayce’s report ‘The Five Best ASX Stocks for 2015’. In this report, Kris discusses why he thinks Qantas will perform well throughout 2015. And so far, he’s been right: Qantas stocks have gained over 30% so far this year. Read the report and you’ll learn about four other Aussie stocks that Kris believes will do particularly well — and why. Click here to find out how to download your free copy.
Eva Mellors,
Contributor, Money Morning
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The post How Sydney Airport Will Make More from International Airlines — and What They’ll Do With The Money appeared first on Stock Market News, Finance and Investments | Money Morning Australia.