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Here’s Why I Think The Sydney Airport (ASX:SYD) Share Price Is Too Expensive

I think the Sydney Airport Holdings Pty Ltd (ASX: SYD) share price could be too high after it released its passenger numbers for March 2019.

Sydney Airport Holdings 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, it generates $30.8 billion in economic activity a year, which is equivalent to 6.4% of the NSW economy.

Sydney Airport’s March 2019 Passenger Update

Sydney Airport reported that domestic passengers for the month fell 3.4% to 2.33 million and international passengers declined 3.8% to 1.32 million. This meant that total passengers decreased by 3.5% to 3.65 million.

Management explained that international passenger numbers were impacted by a shift in timing of both Easter and the Lunar New Year, driving decreases in both seat capacity and load factors. However, strong load factors on North American routes helped boost US traveller growth to 11%.

Sydney Airport CEO Geoff Culbert also commented on the domestic passenger decline, “Domestically, the trends for March were similar to the year to date, where a decrease in frequencies, aircraft downgauging and subdued load factors drove a reduction in domestic passengers for the month.”

The only route highlight Sydney Airport referred to was Qantas Airways Limited (ASX: QAN) commencing a Sydney – Nadi route that will operate four times a week with a 737-800 aircraft that has 174 seats.

Looking at the passengers from individual countries, China passengers were 12.7% lower, New Zealand passengers were 0.2% lower and UK passengers were down 10.6%.

On the positive side, USA passengers rose 11%, South Korean passengers increased by 7.3%, Japanese passengers went up by 4% and Indian passengers rose by 1.7%.

Is Sydney Airport A Buy?

It will be hard for Sydney Airport to grow its revenue, profit and distribution if passenger numbers continue to fall. A significant amount of its earnings comes from passenger fares, car parking and other volume-related factors.

With the dividend yield currently sitting just over 5%, I don’t think it looks particularly attractive for potential total returns. Over the longer term, the new Sydney Airport could steal some of the air traffic growth too. I’d rather think about investing in one of the proven ASX shares revealed in the FREE report below.

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