The uncertainty confronting aviation has been laid bare by the latest research into Auckland International Airport.
Airports normally have some of the most dependable income streams and highest levels of certainty of all companies but six months since the coronavirus outbreak began paralysing air travel, analysis of the company paints a mixed picture.
Forsyth Barr analysts Andy Bowley and Scott Anderson say it could be the 2025 financial year before international passenger numbers return to 2019 levels but they say there is a "high margin for error in this forecast".
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There was a wide range of potential cashflow outcomes over the near, medium and long term, given the high margin for error in forecasting passenger numbers.
"There are more unknowns than knowns. Consequently, there are few aspects of the AIA investment case that we currently have a strong degree of certainty over."
Attitudes to travel, border closures, medical solutions, and the economic implications of Covid-19 will all influence the timing and slope of the recovery in international passengers.
They say the rising number of domestic passengers represents the first recovery steps, which is positive for business momentum but they generate much less profitability than international passengers.
The airport typically generates 4.5 times the income from an international passenger than domestic passengers.
That strength of domestic travel recovery was underlined further on Friday with Air New Zealand announcing it would maintain school holiday capacity levels.
The airline says it had planned for 55 per cent of capacity compared to last year throughout August but had decided to operate at 70 per cent with more flights and bigger aircraft.
The Forsyth Barr analysis says that through the pandemic AIA's share price has closely tracked those of its international airport peers.
''We expect it to continue to be influenced by aviation recovery sentiment in the absence of any certainty around the cashflow outlook. We raise our target price to $5.70 to reflect a marginally more positive view on medium term retail concession yields and retain a Neutral rating.''
Auckland Airport was trading at $6.23 around lunchtime on Friday, down 1.2 per cent on Thursday's close.
Bowley and Anderson said airport share prices appeared to be ''performing as a pack'' given the inherent difficulty in valuing them currently.
Asset bases provide a valuation benchmark for some airport assets but in AIA's case were of limited use, given the valuation of its 'second till' (non-aeronautical) commercial assets were linked to forward earnings potential.
''Earnings multiples and dividend yields have little relevance given the lack of earnings generation with reduced passenger flows.''
The analysts said the current share price showed the mid-point nature of a discounted cash flow or sum-of-the-parts valuation calculation provided a degree of accuracy, ''which is impossible to have any conviction over currently.''
While they retain these approaches to drive the target price, they cautioned investors from taking them too definitively as to what valuation is currently appropriate for AIA.
Reverse engineering the current share price the analysts broke down enterprise value (market cap plus net debt) since 2011, split between its three core segments — aeronautical, investment property and commercial.
Aeronautical and investment property were both asset-backed and therefore relatively easy to compute. Retail was core to the company's commercial activities and had generated high margins and ''super returns'' in recent years.
But it has been hard-hit by Covid, as despite retailers being subject to minimum annual guarantees these have been largely removed by the company to ensure retail tenants remain solvent. These would remain in place for the foreseeable future.
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.
In April the airport strengthened its balance sheet and raised $1 billion, fully underwritten, share placement as well as a $200 million share purchase plan.
The analysts say Covid-19 has turned into the worst event to hit the aviation sector since the Second World War with the impact on passengers threefold: the propensity to fly during the pandemic as a result of the virus, border restrictions in place globally, and the economic impact of the pandemic on disposable incomes and affordability of travel.
They said they had no playbook to fall back on for their forecasts but the owner of airports in Paris, Groupe ADP, said recently that traffic recovery to would be very gradual with 2019 levels not expected until between 2024 and 2027.
The company is due to report its full-year results on August 20.