The Sydney Airport (ASX: SYD) share price has fallen another 8% today for a couple of obvious reasons.
What is Sydney Airport?
Sydney Airport is the company that operates the Kingsford Smith Airport, it currently has a 99-year lease on the airport but it will revert back to government ownership at the end of this century. According to Sydney Airport, as of 2019, it generates around $31 billion in economic activity for Australia each year. That’s equivalent to more than 6% of the NSW economy.
Why does it keep falling?
The Sydney Airport share price has fallen over 40% since the middle of January. There are two obvious reasons why it keeps dropping:
Passenger numbers are down..duh
Sydney Airport is an integral part of the NSW and national economy. It’s where tons of tourists fly in. It’s where lots of domestic flights go in and out of. Lots of connecting flights. At least, that’s what normally happens.
COVID-19 has caused air passenger numbers to plummet. Partly because of governments and partly because airlines like Qantas Airways Limited (ASX: QAN) have cancelled a large amount of flights.
If people aren’t going through the airport they aren’t indirectly paying their air passenger fare, they aren’t paying car parking fees and so on.
In February alone the airport saw passenger numbers were down 9.3%. March is going to be a much bigger decline.
As each week goes by it becomes clearer that this isn’t going to be a quick fix.
Debt
Sydney Airport has a large amount of debt on its balance sheet. The company said that its average debt maturity has a tenor of over 6 years and that management are confident in the balance sheet’s strength and liquidity. Debt can ruin a business in bad times.
However, the airport operator said it had unrestricted cash of $370 million and $1 billion of available undrawn bank facilities.
It said its funding can over the $1.3 billion of expiring debt over the next 12 months. After that the next debt due is $200 million in November 2021.
Summary
I think it’s too early to call Sydney Airport a buy when we don’t know how long the pandemic will cause problems. I’d rather invest in these tech shares which are cheaper:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
