SYD offers temporary relief to retail partners; reflects on Covid-19 response

By Andrew Pentol |

Sydney-AirportSydney Airport (SYD) has revealed it is assisting retail and property partners during the coronavirus (Covid-19) pandemic during its Annual General Meeting today (22 May).

SYD also outlined its response to the pandemic and assessed its impact on aeronautical and non-aeronautical revenue.

Gebr. Heinemann is the long-standing incumbent at SYD. Earlier this year, the airport extended its contract for a further eight years. The new contract runs from 2022 to 2029.

Last year, SYD, which celebrated its centenary and welcomed its billionth passenger, generated revenue of A$1.6bn ($1,04bn), an increase of 3.5% on 2018. Passengers numbers reached 44.4m%, growing just 0.1% from 2018 and retail revenue rose 5% from 2018 to A$374.9m.

Year-to-date, international traffic is down 38.9% and 97.9% May month-to-date. Domestic traffic is down 37.4% year-to-date and 97.4% so far for the month of May.

RENTAL DEFERRALS OFFERED

Geoff Culbert, CEO, Sydney Airport said: “When we announced our full year results in February, the only proxy we had for Covid-19 was the SARS outbreak in 2002. We estimated that if Covid-19 followed SARS we would see a 25% decrease in total passenger traffic over a four-month period and then a quick recovery after that.

“I think what Covid-19 has shown, and why the word ‘unprecedented’ is used so much, is that this crisis has gone deeper and will persist for longer than anyone thought.”

Heinemann-Sydney-for-web

Sydney Airport renewed Gebr. Heinemann’s duty free concession at the start of 2020 for eight more years.

In terms of the airport’s non-aeronautical partners, SYD has offered temporary relief to retail and property partners in the form of rental deferrals or holidays. Culbert explained: “For our small operators, we have been guided by the National Cabinet’s Code of Conduct. The process of review and negotiation with tenants is well underway.

“We are working through these conversations on a case-by-case basis, but they will take some time to conclude.”

Culbert declined to provide details on the specifics of these negotiations, but commented: “What I can say, is that we are taking a position that any outcome on measures affecting rent should be temporary and reflective of the overall impact on the individual tenant.

“We also remain in constructive and positive negotiations with the luxury retailers who are poised to take up leases on the newly returned retail space in the international terminal.

“They share our optimistic view about the future success of retail at Sydney Airport. The last few months haven’t been easy. The impact of Covid-19 and the travel bans has been decimating for the aviation industry, but we have taken a fair and constructive approach with our airline and commercial partners to give everyone in the industry the best chance to get through this.

“It is important to note that we have also had to respond to the impact that the pandemic has had on our people and operations.”

Sydney Airport 2019 retail highlights

As part of its response to Covid-19, the airport has also divided its capital project pipeline into three categories —critical projects, deferrable projects and opportunistic projects. The Terminal 2 Pier A retail development falls into the deferrable projects segment.

Reflecting on the airport’s early response to Covid-19, Culbert says increasing the frequency of cleaning, switching to hospital grade disinfectants and rolling out hand sanitising stations across the terminals were the main focuses.

“We also put significant effort into communicating the government’s public health messaging about good hygiene and social distancing, both in terms of digital and physical signage, and through our social media channels.

“In order to keep the airport operational, we split our operating teams into separate shifts to prevent any crossover or contact between them. We also instituted a system of contactless handovers — previously these were done face-to-face.”

LOW NUMBER OF CONFIRMED CASES

Culbert, who emphasises that no Sydney Airport employees have contracted Covid-19 and that there have been just 12 confirmed across the airport’s 33,000-strong workforce who are based there added: “I am pleased to say our approach has worked,” he remarked.

Regarding the low level of confirmed cases he added: “It’s a pretty remarkable statistic when you consider that workers at the airport are at the front line. I think it also reinforces the fact that airports are relatively safe places, which will be important as we start to talk about the recovery and give travellers the confidence that it is safe to fly.”

The purpose of the airport’s swift response to the pandemic was to position the business strongly and prepare for the recovery. As the pandemic unfolded, SYD reviewed its capital structure and applied ‘significant downside scenarios’.Sydney Airport AGM for web

Trevor Gerber, Chairman, Sydney Airport explained: “While not strictly necessary, we ultimately made the call to raise an additional A$850m of bank debt. Since the emergence of the crisis we have been encouraged by the support we have received from our banks in relation to raising new debt.

“I emphasise that, at this point in time, we do not foresee the need to raise equity. We will however continue to reflect on our capital structure and test our assumptions as we work through the recovery phase.”

SYD has also reviewed its cash flow management to ensure it is maintaining prudent levels of liquidity, given the uncertain operating environment. “Acknowledging the financial impact that Covid-19 has had on all stakeholders in the travel and aviation industry, we have reduced our Board and CEO remuneration until 30 June 2020.

“The Board will review the appropriateness of extending these remuneration reductions in the second half and, if necessary, will back-date any announcement to make it effective until 1 July 2020.”

 

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