Owais Crawford
Sydney Airport Holdings Ltd (ASX: SYD) has experienced significant fluctuations in its share price over the years, with the COVID-19 pandemic causing a notable impact. In 2020, the airport reported a decline in both international and domestic passenger traffic, affecting its revenue streams. However, the worst day for Sydney Airport's share price occurred in 2011, when a 'simplification scheme' led to a 22.25% drop in a single session. More recently, a consortium of superannuation funds, including IFM Investors and Global Infrastructure Management, offered $8.25 per share in 2021, aiming to take the airport private. Despite the challenges, Sydney Airport remains a crucial asset, and its recovery and profitability prospects continue to be a topic of interest for investors.
| Characteristics | Values |
|---|---|
| Sydney Airport Holdings Ltd (ASX: SYD) share price's worst day | 6 December 2011 |
| Sydney Airport Holdings Ltd (ASX: SYD) share price's worst day fall | 22.25% |
| Sydney Airport Holdings Ltd (ASX: SYD) share price in December 2020 | 26% lower |
| Sydney Airport Holdings Ltd (ASX: SYD) share price in October 2020 | 94.3% lower |
| Sydney Airport Holdings Ltd (ASX: SYD) share price in August 2021 | $97 million loss |
| Sydney Airport Holdings Ltd (ASX: SYD) share price in December 2021 | $267 million loss |
| Sydney Airport Holdings Ltd (ASX: SYD) share price in 2021/22 | AUD32 billion |
| Sydney Airport Holdings Ltd (ASX: SYD) share price in 2023-24 | AUD2.6 billion |
| Sydney Airport Holdings Ltd (ASX: SYD) share price in 2020/21 | 62.1% |
| Sydney Airport Holdings Ltd (ASX: SYD) share price in July 2021 | $8.25 per share |
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What You'll Learn
Sydney Airport Holdings Ltd's worst day
Prior to its rebranding as Sydney Airport Holdings, the company was a part of the listed MAp Group. On 6 December 2011, the MAp Group began a 'simplification scheme' that involved offloading its holdings in the Brussels and Copenhagen airports and increasing its holding in Sydney Airport to 85%. After the scheme, MAp changed its listed name to Sydney Airport Holdings.
Following the simplification, investors in the new Sydney Airport held the same number of stapled securities as before. However, each security now comprised one unit in Sydney Airport Trust 1 and one unit in Sydney Airport Trust 2. Previously, each stapled security also included one share in MAIL. The scheme also included an 80-cent cash consideration for each stapled security.
The COVID-19 pandemic has also negatively impacted Sydney Airport's share price. In October 2020, international passenger traffic was down 97.4% compared to the previous year, and domestic travel was down by 92.6%. The share price was 26% lower than it was on 27 December 2020. However, by July 2021, the share price had risen 34% to a 17-month high.
In November 2021, Sydney Airport accepted an $8.75 per share takeover offer from the Sydney Aviation Alliance, a consortium of infrastructure investors. The share price rose 2.8% following the acceptance. By the end of November, the share price was 29% higher than it had been at the start of 2021.
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COVID-19's impact on air travel
The COVID-19 pandemic has had a profound impact on the airline industry, with air travel demand plummeting worldwide. In the United States, air travel declined drastically in 2020, with a significant drop in both domestic and international flights. Similarly, Sydney Airport in Australia witnessed a drastic decline in passenger traffic in October 2020, with international passenger traffic down 97.4% and domestic travel down by 92.6% compared to the previous year. This drastic reduction in passengers had a direct impact on the airport's revenue, as passenger traffic is integral to their profit equation.
The pandemic has altered travel behaviour and passenger confidence has been shaken. People are not merely afraid of travelling, but they are concerned about the risk of infection and the possibility of being stranded away from home. As a result, the entire airline industry has had to adapt and reinvent the flying experience to restore confidence. This includes implementing social distancing, contactless interactions, and enhanced sanitization measures. Automation, robotics, and biometrics are driving this digital transformation.
The dynamic nature of the pandemic, with its waves of infections and varying restrictions, has made predicting future air travel trends challenging. Even when the pandemic subsides, it will take several years for air travel to return to pre-pandemic levels. The industry is facing an uncertain future, with many operators suffering financial losses and struggling to stay afloat.
However, there is a glimmer of hope. Sydney Airport Holdings Pty Ltd (ASX: SYD) shares showed signs of recovery in 2021, with a 29% increase in share price by the end of November 2021 compared to the start of the year. The acceptance of a takeover offer by the Sydney Aviation Alliance in November 2021 contributed to a 2.8% rise in the share price. Additionally, the Sydney to Melbourne route, one of the world's busiest, could facilitate a strong recovery in domestic passengers, positively impacting earnings and share prices.
The private aviation sector experienced a surge in bookings during the early stages of the pandemic, driven by repatriation demands and perceived lower health risks due to fewer touchpoints. Business demand for commercial aviation is also expected to rebound swiftly as companies resume operations. These factors could accelerate the recovery of the aviation industry and boost investor confidence in airport shares.
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2021/22 takeover by consortium
In 2000, the Australian Government announced its intention to privatise the Sydney basin airports, with Sydney (Kingsford Smith) Airport to be sold separately. The following year, the government entered into an arrangement with Macquarie Bank to lease and operate the airport as Sydney Airport Holdings for 99 years via its ownership of Sydney Airport Corporation Limited (SACL). SACL was incorporated in 1998 as the long-term lessee of Sydney Airports and commenced operations in 1998.
In 2002, Macquarie Bank won the bid for the 99-year lease through the consortium Southern Cross Airports Corporation Holdings Limited. The consortium funded the bid through the IPO of the managed airport fund – Macquarie Airports (MAP) ASX: MAP. In 2009, MAP was spun off to form MAp Airports (MAp), which owned shareholdings in Brussels and Copenhagen Airports, as well as an 84.8% stake in Sydney Airport.
In 2021, Sydney Airport was one of the hardest-hit ASX 200 shares by the coronavirus pandemic. The company reported a total revenue of $803.7 million in 2020, a significant drop from the $1,639.6 million it brought in during 2019. In terms of earnings before interest, tax, depreciation, and amortisation (EBITDA), Sydney Airport reported $627.8 million for 2020, a decrease from the $1,145.5 million in 2019. Despite these earnings being positive, the company reported a statutory loss after tax of $107.5 million for 2020, compared to a profit of $215 million in 2019.
During this time, the board of Sydney Airport allowed a consortium of infrastructure investors to conduct due diligence on a non-exclusive basis. To access the company's books, the consortium offered $8.75 per share. However, it is unclear if this consortium intended to acquire Sydney Airport Holdings or simply acquire a substantial stake in the company.
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Domestic vs international passengers
Sydney Airport, also known as Kingsford Smith Airport or Mascot Airport, is Australia's busiest airport, with more than 40 million passengers passing through each year. The airport has three terminals: T1 for international flights and T2 and T3 for domestic flights.
In October 2020, the COVID-19 pandemic significantly impacted air travel, causing a 97.4% decrease in international passenger traffic and a 92.6% decrease in domestic travel at Sydney Airport. The Sydney to Melbourne route, one of the busiest in the world, was particularly affected. However, by November 2021, the Sydney Airport share price had recovered. It ended 11 cents higher than it started the month, trading at $8.30, a 1.34% increase.
The airport's long-discussed takeover by the Sydney Aviation Alliance, a consortium of infrastructure investors, was accepted in November 2021, with a share price of $8.75. This acceptance caused the share price to rise by 2.8%. However, the purchase faced scrutiny by local and global watchdogs, and it is unclear whether it was finalised.
By the end of November 2021, the Sydney Airport share price was 29% higher than it was at the start of the year, indicating a promising recovery. The share price could be a good recovery option, especially with low-interest rates.
In April 2022, Sydney Airport experienced high passenger numbers, with 82,000 passengers expected through the domestic terminal. This caused significant delays and long queues, with passengers reporting waiting times of up to two and a half hours for check-in.
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Sydney Airport's earnings multiple
Sydney Airport Holdings Ltd (ASX: SYD) has seen its share price fluctuate over the years, with its worst day being recorded nearly a decade ago on 6 December 2011. On that day, the share price fell 22.25% due to a 'simplification scheme' implemented by the MAp Group, which involved offloading holdings in other airports and increasing its stake in Sydney Airport.
In 2020, the COVID-19 pandemic significantly impacted air travel, causing a decline in passenger traffic and affecting Sydney Airport's profits. However, the airport has seen a resurgence in recent years, with aeronautical and non-aeronautical revenues reaching their highest levels in 2023-24.
Regarding Sydney Airport's earnings multiple, there are a few different metrics to consider:
- The P/Earnings NTM (Price to Earnings) multiple, which compares the current share price with market expectations in terms of Earnings Per Share. Sydney Airport's P/Earnings NTM ratio is around 19.00, higher than the median of its peer group and its sector average. This suggests that the company may be overvalued.
- The N/A ratio (also known as the EBITDA multiple or enterprise multiple), which compares a company's overall value to its operational earning power. Sydney Airport's N/A ratio is around 10.00, significantly lower than the median of its peer group, indicating that it may be undervalued.
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Frequently asked questions
On 6 December 2011, the MAp Group, of which Sydney Airport was a part, began a simplification scheme which saw its holdings in the Brussels and Copenhagen Airports sold and its holding in Sydney Airport increased to 85%. This scheme caused the Sydney Airport share price to plummet by 22.25% in a single session, making it the worst day ever for the share price.
The COVID-19 pandemic severely impacted air travel, causing Sydney Airport's international passenger traffic to drop by 97.4% and domestic travel by 92.6% in October 2020. This led to a significant decline in revenue and share prices.
In 2021, a consortium of mainly Australian and US investment and pension funds acquired Sydney Airport for approximately AUD32 billion, representing a premium of $8.25 per share. This was a 42% premium compared to the airport's closing price before the acquisition and was considered a fair value by some analysts.
The acquisition resulted in a significant windfall for Sydney Airport shareholders, who received $8.75 per share, higher than the $7.50 initially offered. 96% of shareholders voted in favour of the deal, demonstrating their support and belief in the transaction's value.
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