Sydney Airport says Victorian outbreak pushes NZ ‘travel bubble’ to end of year

Sydney Airport chief executive Geoff Culbert says a travel "bubble" between Australia and New Zealand probably won't be possible until November or December because of the second wave of COVID-19 infections in Victoria.

Mr Culbert, speaking after announcing a $2 billion equity raising to help his airport through the pandemic, said that the Victorian outbreak had put quarantine-free trans-Tasman travel on the backburner after a decision came close to being announced in May.

Sydney Airport’s traffic has plunged due to the pandemic. Credit:Edwina Pickles

"Our hope would be that the New Zealand travel bubble could open up before the end of the year," he said. "We still hold out hope for the October school holidays, but I think more realistically is the end of the year."

New Zealand Prime Minister Jacinta Ardern said last week that her government would only open quarantine free travel to areas that had been free from community transmission of COVID-19 for 28 days.

Mr Culbert said Sydney Airport was also working with airports in Japan, Canada, Korea, Hong Kong and Singapore to establish protocols for safe flying when the government decides to open the border.

"If we have the process on the shelf, we can activate it as soon as we get the green light so we don’t miss a day of flying," he said.

Sydney Airport CEO Geoff Culbert says there needs to be clearer rules around state border closures. Credit:Renee Nowytarger

Around 172,000 passengers passed through Sydney Airport's gates in June, down 95 per cent compared to the same month last year. On Tuesday, the $12 billion ASX-listed airport revealed it had swung to a $53 million half-year loss compared to a $17.3 million profit in the same period last year.

Mr Culbert said the Victorian outbreak, which prompted several state borders to close again, showed how uncertain the recovery for aviation would be and called for better co-ordination between states, clearer rules on border closures and a plan to restore air travel.

"We need to know what the triggers are for border closures and border openings; we need consistency across states and we need to map out a pathway for the recovery which includes various scenarios – with a vaccine, without a vaccine," he said.

The International Air Transport Association, an airline industry trade body, expects that global passenger numbers will not return to 2019 levels until 2024.

However, Sydney Airport highlighted in a presentation to investors that domestic air travel had bounced back sharply in several countries when travel restrictions lifted, showing there was "pent up demand".

Sydney Airport said the $2 billion of capital raised from shareholders will reduce its net debt from $9.1 billion to $7.1 billion, with its leverage falling from 6.8 times and 5.3 times; support its investment grade credit rating and increase liquidity.

The airport's revenue for the six months to June 30 fell 36 per cent to $511 million, while it wrote off $41 million in bad debts owed by bankrupt carrier Virgin Australia, $59 million in rental abatements and deferrals from retail and property tenants and $22 million against delayed capital projects.

RBC Markets analyst James Nevin said the question of whether the airport needed to raise equity had been the key uncertainty over the stock. On his estimates, $2 billion provided enough liquidity for it to last until the end of 2022, even in the unlikely scenario of zero revenue.

"We think this provides ample liquidity to remove doubts on liquidity, even in an uncertain recovery," Mr Nevin said.

Sydney Airport said it would preserve its cash by aiming to cut operating costs by 35 per cent for the 12 months from April 1, 2020, including cutting jobs from its 5000-strong workforce.

Institutional and retail shareholders will be entitled to buy one new share for every 5.15 shares they own as of August 14 for $4.56, which is a 13.2 per cent discount to the theoretical ex-entitlement price of $5.26. Mr Culbert said the structure of the raising was the fairest available for all investors and that shareholders who participate will not be diluted.

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