Asia’s airports fly far higher than its carriers

Travellers rarely enjoy airports, but investors just might. Airlines operating in Asia’s crowded skies are under pressure, with many running up losses. The companies behind the region’s terminals and runways, by contrast, are weathering economic storms. That highlights the power of near-monopolies.
Take Thailand. Loss-making Thai Airways has shrunk to a market value of less than $600 million, down almost 90 per cent from a 2003 peak, and the airline’s boss told executives last month that it was running out of time. The crisis is a result of years of government meddling, plus a strong baht and weaker tourism.
Yet $38 billion Airports of Thailand (AOT), the world’s most valuable listed operator, has still seen its shares rise by a quarter this year.
Thailand is an extreme example. Deep-pocketed local investors support a pricey market that exacerbates AOT’s outperformance; rivals with a similar grip on their market, say Malaysia Airports, trade at less lofty multiples. Plus the flag carrier has been punished by low-cost rivals who have quadrupled seat capacity in Southeast Asia over the past decade.
The contrast matters, though. A number of Asian airlines are targeting a listing, from India’s GoAir to Vietnam’s Bamboo Airways, which is seeking a $1 billion valuation. Lion Air is contemplating a debut in 2020. All pitch growth.
But there may be a better investor flight path. The region’s governments need private capital for infrastructure to accommodate growth: more than half Asia’s largest airports are already at or near capacity. DBS estimated last year that the cost of expanding Asia’s airports could hit more than $500 billion.
Monopolies are not straightforward. Vietnam, for example, wants to reverse the tentative privatisation of its operator. Going back to full state control may hurt a country with plenty of military options but overcrowded civilian terminals.
Still, with steady revenue from landing and parking fees, plus retail rents, airports look shiny compared to Asia’s hangar of loss-making airlines. The problem for investors will be to find an opportunity, as cashed-up pension funds crowd in. Operators will keep flying high. — Reuters