MAp Group back in growth mode. Q&A with CEO, Kerrie Mather

Last week you published the first results since MAp gained its independence from Macquarie. What were the highlights for you?

2009 was a very significant year for MAp. We achieved a solid financial performance in what was an extremely challenging environment for the industry - and certainly the most challenging environment since we listed in 2002. Also significant in the year was the fact that we successfully transitioned to become a stand-alone entity and so, as a result, we have significantly lowered our operating expenses and therefore we have a greater level of operating leverage to the recovery.

The key highlights from the 2009 results were while traffic declined by 5% we've delivered a 2% increase in proportionate EBITDA and a 3% increase in proportionate earnings per security over 2008, which would have been greater had it not been for the impact of a strong Australian dollar on the earnings of our European airports.

Our ability to deliver such stable earnings despite the challenges of the external environment is a very strong testament to the resilience of our airports and also MAp's active management model. The airports' strong market position - the fact that we've acquired airports that are well located, they are major gateway airports, significant airports, generally the capital city of their country, with very strong population catchment areas - means we're both retaining existing air services and attracting new carriers through these conditions.

We've also continued to deliver financial results that have outperformed traffic conditions, driven by revenue growth and excellent cost discipline.

What are the key drivers for MAp's earnings for 2010?

2010 is expected to be a year of continued recovery in the aviation sector. There is traffic growth evident across all of our airports. And we have a fantastic launch platform now that we're independent and we can build on the strong foundation we've already created for the business. Obviously we've come through an extremely challenging period in excellent shape and we've got substantial cash reserves that also gives us a very strong balance sheet.

So I think we're in a very strong position to capitalise on the significant opportunities that are driving growth in the aviation market. Our airports are going to benefit from these trends - and combined with economic factors, these are going to have an ongoing and positive effect from which our airports will be beneficiaries.

Is the worst now over for MAp's investment airports?

Traffic recovery is certainly under way at each of the airports. Sydney was able to attract a record number of new entrant international airlines during the period, with the entry of V Australia, Air Austral, Delta and of course Tiger Airways on domestic routes.

In Europe we've seen a gradual restoration of capacity with increased low cost competition and also new international services driving the performance of Copenhagen and Brussels.

Do you have some lingering concerns about Copenhagen in particular, with the troubles SAS and Cimber Sterling are facing?

The strategic partnership agreement that we announced with SAS, as well as the construction of a low cost facility, means we are in a good position to benefit from a continued recovery in traffic growth.

There are a range of initiatives that are being developed between the airline (SAS) and the airport working together to improve, for example, SAS's transfer product.

The other major initiative during the year, following the untimely collapse of Sterling Airlines, the second largest carrier at Copenhagen with around a 9% market share, is capacity replacement by a number of airlines, in particular, Transavia and Norwegian.

Norwegian now has a market share that equates to Sterling's when they were at their peak, but we have now also got Transavia and Cimber Sterling and easyJet all growing strongly and so the market share of those combined carriers has now come up to around 18-19%, which is significantly higher than the 9% Sterling had.

The other major development at Copenhagen is the increase in long-haul services, with the entry of some new carriers like Qatar Airways and Delta, which have recently announced new services from the airport. The combination of those will actually bring Copenhagen's long-haul destinations to 18, which is the highest it has ever been.

So I think the prospects for Copenhagen look very bright, as a result of a number of initiatives in a range of areas across all traffic segments.

You're quite bullish on LCC prospects in the European market, you see up to 50% penetration over the medium term. That's going to potentially make for some rapid growth at Copenhagen and Brussels. Do you have the infrastructure to meet that level of growth in demand?

One of the interesting developments to come out of the global financial crisis is that LCC market share has continued to increase. The industry forecast of an LCC share of European short haul markets of 50% by 2015, from the previous forecast of around 2020 - so it's an important opportunity at both Copenhagen and Brussels.

Copenhagen is developing a low cost pier that will be completed by the end of this year, and Brussels is developing low cost facilities that will come on line in 2011. So we are seeing good growth in low fare carriers at all our airports and the establishment of low cost facilities will improve Copenhagen's competitiveness to ensure that it continues to expand its market share in low fare services.

The global airport privatisation and investment pipeline narrowed during the GFC. How does the pipeline look generally, do you see much coming to market in the next few years, and where?

There are no privatisation processes that are under way at the moment and these things generally take a while to develop.

Our focus at the MAp level is very much on the very significant organic growth we see coming out of our existing airports. That's where our time and attention is going, at least in the short run, so that we benefit from the combination of recovery in traffic and also the acceleration in growth that is likely to come from the industry developments like the low fare carrier growth, continued liberalisation of air rights across the globe, and also the potential for new generation aircraft which is providing more seat capacity per movement. This is where the major developments are, driving growth across our portfolio.

Ultimately, privatisation is still at an embryonic stage across the globe. There has been relatively little in the way of privatisation to date.

I would expect that governments, which have stepped up to support their economies through the financial crisis, will be looking at ways of raising money in the future to retire debt and [airport] privatisation has got to be a significant opportunity. I would see more airport privatisation opportunities down the track, and, provided there are opportunities that are a strategic fit for our investment criteria and there are opportunities at the right prices, we'd be interested.

Can you see MAp being a five or a ten-airport portfolio by 2020?

I think it's too early to say. Airports as an investment, particularly high quality opportunities, are a scarce resource, so it's difficult to say. We don't have any particular number of investments in mind. We do see the portfolio growing by acquisition, in addition to the organic growth, over time.

So it is more about finding acquisitions that fit our very strict investment criteria and also represent good value and where we can actually make a difference to their growth.

Have the investment criteria changed under an independent MAp?

No, there has been no change. They are investment criteria and a strategy that have stood us in good stead, so there is no reason to change that.

But if we decide that a change in strategy was appropriate in future, then we are free to determine that as we see fit.

Do you think the market fully appreciates and/or understands airports as an investment class? Do you see any re-rating of the sector upcoming?

We've only been listed since 2002, so it's still a relatively young asset class. This contrasts with airlines which are well understood by the market, given they've been around a lot longer.

Airports have very different investment priorities, reflecting their long term capital intensive nature. They have all the upside exposure to the positive developments in the aviation sector, but also highly resilient qualities.

Our recent results demonstrate that recovery is coming through and we'll get the benefits of accelerated growth from LCC expansion, new bilateral rights and new generation aircraft. We are about to embark on a major communications programme to convey the investment merits of the asset class and MAp.

You've been involved in airport finance and management for over 20 years now. What part of the job do you enjoy most, and what's next for you?

Well, there is a lot to do! We feel very fortunate to have a fantastic portfolio with some of the best and highest quality airports in the world in private ownership, and with growth potential.

We've got a fantastic team of people at MAp based between Sydney and London. We have lots of expertise across all dimensions of airports that allow us to develop strategies that are going to grow and add value to our airports over time.

We're very well positioned to capitalise on the recovery in traffic and the growth opportunities across the aviation sector. The strong foundation and launch platform for future growth is very exciting.

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