Summary
Whilst airport traffic volumes have mostly returned, we believe some international airports still offer value for investors. Lazard Asset Management’s global listed infrastructure team has shared its approach to selecting stocks, using airports in Sydney, Auckland and Europe as examples.
In the listed infrastructure universe, airport concessions are an attractive asset; given a distinctive entry barrier and good regulation, we believe that they can offer stable, long-term returns.
While traffic volumes can be more variable for airports than for toll roads, airports have high barriers to entry, which make many assets monopolies. Pricing is set by regulation.
Lazard’s view, however, is that not all airports present the same buying or holding opportunities. In fact, recently, we’ve found greater value in pockets overseas than in stocks locally.
Recent sector headwinds
To understand our approach, it’s worth revisiting the recent, unusual context. The airport sector has faced some notable headwinds in the past few years. Most people will remember those images of grounded planes and empty terminals in 2020-21. The COVID-19 pandemic dropped airport traffic to historic lows and it has only recently bounced back to 2019 levels in some regions.
Similarly, the cost-of-living crisis has the potential to hit airports harder than other listed infrastructure assets; business and tourism levels may drop. For this reason, we believe a nuanced approach is required.
Why we’re not looking locally
As retail investors may know, Sydney Airport went off-market in 2022, but faced a traffic decline prior to that. As we mentioned, COVID-19 dealt a crushing blow to the travel industry and, like some of its peers, Sydney Airport had a sluggish recovery in the lead-up to privatisation. It also faced an unusual competitive proposition, with Western Sydney Airport on the horizon.
We also do not see value at this point in one of the closest listed international sites, Auckland Airport.
Auckland Airport appears expensive on EV/EBITDA
Source: Auckland Airport
Looking farther afield for opportunities
While traffic at many European airports has now returned to pre-Covid levels, we believe that some still offer value.
Spanish and Portuguese airports have bounced back particularly quickly, due to their exposure to low-cost airlines and tourist traffic. Our portfolio has exposure to many airports through holdings of Vinci, Ferrovial, Aena and Zurich airport.
Notwithstanding the risks we’ve mentioned, the long-term outlook for traffic at European airports remains strong.
AENA Spain Portfolio
Source: AENA Spain
While not all European airports are attractively priced, we are closely monitoring the sector.
Our role at Lazard is to capitalise on mispricing opportunities, which we’ve pursued for more than 20 years. Currently, we are discovering unique ways to achieve this within the airport sector.
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