Could Sydney Airport Holdings Pty Ltd (ASX: SYD) shares be worthwhile jumping on now?
Why could Sydney Airport shares be an opportunity?
The Sydney Airport share price is still 26% lower than where it was on 27 December 2020, which is less than a year ago.
Obviously a lot has happened since then. The COVID-19 pandemic has absolutely smashed air travel both locally and globally. We can see that with the monthly numbers that Sydney Airport is reporting.
In the latest update for October 2020, the airport business said that its international passenger traffic was down 97.4% to 38,000 compared to a year ago. Domestic travel was also down by 92.6% to 187,000 that month, leading to total passengers being down by 94.3%.
For Sydney Airport, the amount of passengers going through the doors is an integral part of the profit equation. It’s the passengers that generate airfares. They pay for the parking, shop at the retail outlets (which generates rental income for the company) and so on. There were still some cargo flights going through the airport, but it doesn’t remotely cover the lost revenue.
However, things are now looking up.
Local state borders opening up
For several months of 2020 it was a story of multiple states being cut off from each other. But many of those barriers have been brought down. Victorians are now open to travel to many other states. Assuming there isn’t an outbreak in Sydney from a hotel worker, Queensland may soon be open to Sydney.
The Sydney to Melbourne route used to be one of the busiest in the world. If it remains open then Sydney Airport could see a strong recovery in domestic passengers in the early months of 2021. This would be good for the earnings and good for the share price.
It could take a while longer before international passengers are welcomed back into Australia, though New Zealanders have been the first to be let back in.
A COVID-19 vaccine could dramatically improve the likelihood of citizens from other low risk countries being let into Australia such as Japan, South Korea and Taiwan. These countries had some of the highest number of passengers before COVID-19. This could be a good start and could happen as early as the first half of 2021.
It’s too early to say exactly when Sydney Airport’s earnings will materially recover. But it seems to be getting closer. With interest rates so low, I think the Sydney Airport share price could be a recovery option for 2021.