Auckland International Airport’s (ASX: AIA) share price is flying high on travel boom

Marc Kennis Marc Kennis, October 20, 2022

Auckland International Airport (ASX: AIA) share’s price is once more reversing from the bottom of its two-year range of A$6.30 to A$8.00. The catalyst for the reversal this time was an earnings guidance upgrade. The company noted a stronger-than-expected rebound in the aviation market and revised its previously announced FY23 underlying profit after tax of between NZ$50m and NZ$100m to a higher range of now between NZ$100m and NZ$130m. 

This upgrade, however, doesn’t take us by surprise here at Stocks Down Under. We’ve been betting on the travel industry’s recovery recently with Stocks Down Under Concierge, our buy and sell signals service. Several of the Concierge BUY calls have been in this industry and they have performed well. 


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Who is Auckland International Airport? 

Auckland International Airport is New Zealand’s biggest airport and one of the biggest stocks listed on the NZX. The airport facilitates passenger and cargo flights to and from domestic and international destinations. It is located 21 kilometres south of the Auckland city centre and is one of New Zealand’s most important infrastructure assets, providing thousands of jobs for the region. 

According to Skytrax’s certified ratings, Auckland International Airport is certified with a 4-star airport rating for facilities, comfort, cleanliness, shopping, food and staff service. It had 21 million passengers in the pre-pandemic year of 2019, including 11.5 million international passengers. 


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A strong recovery in the number of passenger flights 

The company mentioned strong demand for flights within New Zealand as well as internationally. The recovery was significant in the regions with more relaxed border controls, such as Europe and the Americas. It said that from early November five airlines will be flying between Auckland and North America during the peak season, offering up to 60 flights per week and direct flights to 8 major cities in the region, including Los Angeles, New York and Vancouver. 


North Asian markets are slowly reopening

Flights to and from North Asia, including Korea, are also recovering stronger than forecast, but the reopening pathway for the Chinese market remains uncertain. 

Auckland International Airport estimates a FY23 recovery in the number of international passengers to 60-70% of pre-pandemic levels and to 85-90% for domestic passenger numbers, which is in line with the International Air Travel Association’s expectation that the global aviation industry will fully recover to pre-pandemic levels by the end of 2024. 


New Zealand remains a touristy destination

New Zealand is internationally regarded as a top holiday destination. The number of international visitors to New Zealand grew from 2.5 million in 2009 to 3.9 million in 2019, with the majority of them coming into the country through Auckland International Airport. About 40% of New Zealand’s international travellers come from Australia, with the next largest groups coming from China, the US and the UK. 


The number of international visitors to New Zealand is set to grow  

The availability of air travel is a big contributing factor to Auckland International Airport’s business growth. After Air New Zealand launched non-stop flights from Auckland to Buenos Aires in December 2015, the number of Argentinian visitors tripled in the next year. 

Air New Zealand launched a non-stop service to New York in September 2022. With Americans being the third largest group of visitors to New Zealand, we think the direct flights to New York will materially increase the number of passengers to Auckland International Airport. 


Auckland International Airport

Auckland International Airport, Daily Chart in Semi-log Scale (Source: Metastock)


How to play Auckland International Airport’s stock? Target price of $8.00 

Auckland International Airport’s stock traded in a range of $6.30 to $8.00 in the last couple of years (the two blue lines on the chart). We think that given the expected continuation of a strong rebound in the aviation industry and the company’s improving financial performance, Auckland International Airport’s share price can reach the top of the range once more in the next 6 to 12 months for an approximate 20% return. 


Stoploss of $6.20 

A confirmed break below $6.20 would mean the share price has broken below the bottom of the range at $6.30, which would be an indicator of bearish sentiment on the stock and fundamental issues with the underlying business that can open the way down to lower levels. 


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