Auckland International Airport' check-in area has been almost deserted. Photo / Dean Purcell.
Auckland Airport believes a full recovery in air travel is more than three years away, but chief executive Adrian Littlewood says work must continuously be done to be ready to expand if it is safe in the meantime.
"I think we should be using every day we can to keep improving as we learn more about virus management," he said following the release of his company's result — in which after-tax profit fell 63 per cent.
Littlewood said the aviation system had many layers of risk management built into it already, which could be put in place around Covid -19, and it was up to business to come up with a plan for the Government.
"As we learn more about protocols to take away the risk, keep refining what we know so that we can propose a safe system."
It would then be up to the Government to make a decision on opening up travel to some countries if the health safety threshold was met.
Work on the transtasman and possible Pacific Islands quarantine-free travel bubbles had not been wasted, despite re-emergence of the virus here and in Australia, putting the brakes on implementing those ideas.
Auckland Airport has led work by a safe border group of 40 businesses and government agencies since the start of the Covid crisis.
Littlewood said planning for the transtasman bubble had provided the foundation work for officials.
Physical work to separate passengers with different risk levels had been done at Auckland and other airports.
"None of that effort has been wasted and that will prescribe a methodology for how we go about the future safe travel zones to other countries again when health conditions allow," he said.
"I think that's a good example of the private sector putting a shoulder to the wheel to try to help Government and figure out the answers because I don't think we can expect Government to solve these problems."
Littlewood said it was important for the Government to clearly outline the triggers it would look at to make decisions about opening up international travel.
"Businesses can start to plan because they are quite capable of adjusting quickly if they've got the information they need to know."
In the meantime, Covid has wiped out 50 years of near-continuous growth at the airport, and although there was a strong resurgence of domestic flying under alert level 1, this had been dealt a painful blow during the past week of level 3 restrictions, which allow only essential workers to fly through.
"That was very tough for the retailers, for everyone. We were bringing people back into jobs, which was great. We had passenger travel back up to 60 per cent and airlines were looking at more."
Littlewood said the recovery in domestic flying could take longer because of public nervousness following the community transmission setback in Auckland, but it was encouraging the Government was sending signals it wanted to move down the alert levels as soon as safely possible.
Taiwan's smart contact tracing and tracking system and other measures were a good example to follow, he said.
"I think the wrong comparison is to keep looking across at Victoria to say that's what will happen. I think a better example is to look at those who are successfully dealing with it: Taiwan."
That country had the experience of going through Sars, which forced it to rebuild its domestic health security system.
"I think that's what we should be doing and we should be saying, right, every day matters, what do we need to be putting in place, every day, to learn from what we're seeing around the world. How are we measuring ourselves to those who are the gold standard, and I believe that's Taiwan.''
On border testing here, Littlewood said all the airport company's frontline staff and contractors had been tested for Covid and 90 per cent of "prioritised" staff.
He had undergone a test himself and, like the rest of the staff, had come back negative.
Unlike border agency staff, there was little contact between airport workers and passengers.
"Very few have much interaction with passengers but perception as well as reality is important."
As for international flying, the airport company doesn't expect a full resumption for three years or more.
With so much uncertainty, the company says it is "prudent" to adopt more conservative planning assumptions than either the International Air Travel Association (Iata) or Standard & Poor's, which are forecasting a full recovery of international travel in about three years.
"Because of the high uncertainty around the recovery of international passengers and its strong impact on our commercial performance, combined with the return of nationwide restrictions on people movement due to Covid-19, the company has suspended underlying earnings guidance for the 2021 financial year."
It will reassess that decision at the October annual meeting and again at interim results in February next year.
The airport's after-tax profit has plunged 63 per cent to $193.9 million on a 53 per cent fall in operating earnings.
The company's chairman Patrick Strange said the past six months had been the most challenging of Auckland Airport's 54-year history.
"The global pandemic and the extremely difficult aviation and tourism operating conditions we have seen over the past six months are far from over.
Total number of passengers decreased to 15.5 million, down 26.5 per cent on the previous year. International passenger numbers (including transits) were 8.5 million, while domestic passenger numbers were 7 million.
Strange said the company had worked quickly to respond and had its sights set firmly on the future.
Key performance data for the full year includes:
Underlying profit after tax was down 31.4 per cent to $188.5m while earnings per share was down 64.5 per cent to 15.2 cents per share and underlying earnings per share was also down 34.7 per cent to 14.7 cents per share.
Revenue was down 23.7 per cent to $567m and in accordance with an agreement with lenders no final dividend will be paid.
Before release of the result, consensus average revenue forecasts were in the region of $574m, Ebit $282m and after tax profit $170m.
Littlewood said the 2020 financial year had been dramatically split in two.
"The first half of the year saw Auckland Airport embark upon a series of ambitious infrastructure projects which were transforming our precinct into an airport of the future. The second half of the financial year brought a global pandemic and international tourism in New Zealand to a virtual halt."
He said because of the significant fall in passenger numbers and the scaling back of the organisation's infrastructure development programme, Auckland Airport had made the difficult decision to reduce the size of its workforce.
As at June 30, those changes had resulted in a 25 per cent reduction in the number of staff and contractors employed by Auckland Airport. It now employs about 500 people.
Littlewood said the airport had played a critical role in keeping New Zealand connected to the world, as the pandemic took hold.
There had been 115 repatriation flights and airlines had kept trade links alive, ensuring the ongoing flow of critical cargo supplies and the export of high-value New Zealand goods.
In contrast to its travel-linked businesses, Auckland Airport's investment property
business performed strongly throughout the 2020 financial year.
This resulted in the investment property annual rent roll increasing 4 per cent to $104m and the portfolio value rising 17 per cent to $2.04 billion during the period.
"As we look to the 2021 financial year, we continue to face significant uncertainty on the timing of Auckland Airport's recovery. Our financial performance is strongly linked to international arrivals and departures, and while there is no doubt international travel will recover, there is not yet any consensus how and when that will unfold.''
A full recovery of both the Australian and Pacific Island markets would occur before long-haul international travel returned to normal.
Capital expenditure for the 2021 financial year is expected to be between $250m and $300m.
In April, the airport strengthened its balance sheet and raised $1b, fully underwritten, share placement as well as a $200m share purchase plan.
The airport had a policy of paying 100 per cent of underlying net profit after tax but these will be suspended until 2023 under an agreement with its lenders. The company has more than 44,000 small shareholders with less than 10,000 shares who are attracted to its generous dividend policy.
Forsyth Barr analysts said last month it could be the 2025 financial year before international passenger numbers return to 2019 levels.
The airport typically generates 4.5 times the income from an international passenger than domestic passengers.
The analysis found the company's enterprise value had fallen by about 40 per cent from its peak in mid-2019, and about 30 per cent at the start of this year before the pandemic hit aviation.
Auckland Airport shares were trading up 1c at $6.40 this afternoon. Shares started the year at $9.18 before hitting a low of $4.26 in late March when the impact of border closures became clear.
In June, Auckland Airport total passenger volumes decreased by 84.9 per cent compared to last year. International passengers were down 97 per cent and domestic passengers were down by 70.9 per cent.
All of Israel’s commercial aircraft were sent outside of the country.