In 2016, we continued to drive strong aviation and tourism growth, as we strengthened our business for the benefit of security holders. Our outstanding financial performance was underpinned by strong international passenger growth, and a focus on working together with our partners to deliver value. This led to EBITDA growth of 10.3%1.
In 2016, we’ve worked hard to implement improvements across our airport to support this growing demand and enhance the customer experience. We’re now delivering more capital works projects than at the time of the Sydney Olympics, as we implement our plan to cement Sydney Airport’s position as Australia’s gateway. Importantly for our security holders, we’ve delivered consistent operating margins despite a step up in costs as a result of increased service standards, and the first full year following the T3 transaction.
Sydney Airport remained a strong investment proposition for our security holders, with a five-year investor return of 196%, compared to the ASX100 Accumulation Index of just 78%. This outstanding result highlighted the significant security holder value being realised by our strategy.
The year also saw security distribution growth of 21.6% to 31.0 cents per stapled security. As we look to continue to build our business in a competitive market in the future, these results highlight our strong foundations and the successful implementation of our strategy in 2016.
1 Excluding Western Sydney Airport (WSA) project costs expensed.
“Our outstanding financial performance was underpinned by strong international passenger growth, and a focus on working together with our partners to deliver value.”
Investing in our future as the gateway to Australia
Our significant investment program is driving a step change in our operations and transforming the end-to-end passenger journey, with 200 active construction projects currently underway at our airport.
We were pleased to see the outcomes of this work start to take shape during the year, as terminal improvements were delivered, and key ground transport projects were completed. Importantly, we’ve also implemented a detailed review of our plan for continued investment in our airport over the next 15 years. Our expansion plans will ensure we remain focused on driving aviation and tourism growth for the benefit of the Sydney, NSW and Australian economies as we meet the needs of increasing passenger demand. This will ensure we continue to increase gate, apron and support infrastructure capacity to deliver a world-class airport experience.
Meeting record passenger demand
Total passenger numbers continued to grow from the previous year’s record numbers, with 41.9 million passengers passing through our terminals in 2016. We saw our strongest international passenger growth in 12 years, with an additional two million international seats entering the Sydney market. This was driven by high load factors, increased seat capacity as airlines introduced bigger aircraft, and new routes from existing and new carriers.
We continued to build a diverse passenger base, seeing double digit passenger growth across many of our major markets, including China, the United States, India, Korea, Japan and Indonesia. South East Asia represented the region with the highest number of international passengers, with five million passengers during the year. With no one nationality representing more than 8% of our inbound passenger numbers, our growth across many markets is providing resilience for the future.
The China market also continued to perform well, with another six routes to Chinese cities announced during the year. By January 2017, Sydney Airport had seven airlines flying to 14 mainland Chinese cities, confirming our position as a world leader for long haul Chinese routes. The growth of this market saw 1.3 million passengers travel to and from China during the year.
Importantly, passengers are benefiting from more choice and value through these new and existing routes. The additional capacity introduced this year reflected our airline partners’ confidence in the Sydney and NSW markets, and will continue to drive future tourism growth.
Working closely with our airlines
We introduced new Key Performance Indicators (KPIs) to help our airlines drive On Time Performance (OTP) and achieve operational efficiencies following the implementation of our new international airline agreements in 2015. Our work this year saw a step up in service standards across our business to better respond to changing customer and passenger needs.
Our investment in improving service standards was reflected in an increase in aeronautical charges and saw us work closely with our airline partners to meet growing passenger demand. This included ongoing collaboration to identify efficiencies across all aspects of our airport’s operations, and particularly check-in and baggage outcomes, to improve overall performance. We’re pleased to see the results of this work as we continue to foster productive relationships with our airlines.
We implemented a range of measures to leverage technology to improve the passenger experience. We’ve delivered improvements, such as additional SmartGates and wayfinding, to make it easier for passengers to navigate every stage of their journey, from the couch to the gate. This has not only improved customer satisfaction, but has also provided passengers with greater ownership of their experience within our airport.
Our improvements also extended beyond our terminals, with the introduction of new and improved parking and ground transport facilities. Our continued investment is providing a better passenger experience, with the ultimate goal of making it easier for all of our visitors to travel to and from the airport. We are two years into our five-year ground access improvement plan, which we’re rolling out in partnership with the NSW Government to improve the customer journey.
Driving a high performance culture
We invested in our people during the year to foster a culture of excellence and build capability across our organisation. We were delighted to be named an Employer of Choice as part of the Australian Business Awards, reflecting our commitment to ensure Sydney Airport is a great place to work.
We’d like to thank our people for their outstanding work during the year. Their dedication has played an important role in our growth, and we look forward to working together in 2017 as we continue to strive for excellence in the future.
Our Executive Director Aviation Services, Shelley Roberts, left the business after more than five years at the end of 2016. Shelley helped to deliver significant growth during her time at Sydney Airport, fostering strong relationships with our airlines to meet increasing passenger demand. We thank Shelley for her contribution.
Chief Financial Officer Hugh Wehby was appointed as our new Chief Operating Officer, taking responsibility for all areas of the business previously managed by Shelley from January. Hugh has delivered excellent results for Sydney Airport as CFO, and this experience provides a strong foundation for his new role. We were delighted to announce the appointment of Greg Botham as our new CFO post year end, and look forward to welcoming him to Sydney Airport in May 2017.
Outlook and priorities
Having achieved strong growth and implemented a range of new projects and investments in 2016, we’ll seek to further build on this work in the year ahead. Sydney Airport’s strong balance sheet and significant liquidity supports financial flexibility, and strongly positions Sydney Airport for future growth and investment.
We remain focused on a detailed review of our short and medium term expansion plans for the benefit of our passengers, airlines and security holders – and to continue to support the growth of the Sydney, NSW and national economies. We remain committed to expanding the capacity of the airport, improving the passenger experience and increasing operational efficiencies.
In 2016, we’ve undertaken deeper analysis of the medium-term demand for our industry, to further inform our planning for Sydney Airport’s continued expansion in the future.
We’re looking forward to confirming the next phase of our investment program at Sydney Airport in the year ahead.
The Board will carefully consider the Western Sydney Airport (WSA) Notice of Intention (NOI) in 2017, and advise the Commonwealth Government of its decision during the year. While the development of a greenfield airport is an opportunity, there are many risks associated with the project. We will apply our rigorous investment criteria as we consider the NOI to ensure our decision is in the best interests of our security holders.
We’re also pleased to announce distribution guidance of 33.5 cents per stapled security for 2017, representing 8.1% growth and a three-year compounded annual growth rate of 12.5%. We expect the 2017 distribution to be fully covered by net operating receipts, reflecting our positive outlook for 2017.
At Sydney Airport, our success relies on close collaboration with our people, as well as the many airport stakeholders with whom we work alongside every day. We’d like to sincerely thank our stakeholders for working with us in 2016, and look forward to another successful year ahead.
MANAGING DIRECTOR AND
CHIEF EXECUTIVE OFFICER