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Wellington International Airport unaudited interim results for the six months ended 30 Sept 2010
19 Nov 2010
The emerging economic recovery was reflected in the growth of traffic at Wellington International Airport and a solid financial result in the first six months of the year. The ratings agency Standard & Poors re-affirmed the airport’s BBB+/Stable/A-2 credit standing.
With additional capacity announced by Air New Zealand (Air NZ) and Qantas/Jetstar and the completion of the Rock, our new terminal development, in October 2010, Wellington International Airport is well placed for continued growth.
Aeronautical and commercial activities
Total revenue was $56.3m an increase of $7.3m from the prior period with aeronautical revenue up $1.6m and retail, property and trading activities up by $5.7m primarily due to an increase in iSite advertising revenue of $3.6m.
For the 6 months to 30 September 2010, total passenger numbers increased by 1.8% to 2,559,691 compared to the prior corresponding period.
Pacific Blue ceased operating domestically in New Zealand in October 2010. However, both Air NZ and Jetstar have announced additional flights to and from Wellington phased in over the next 6 months.
Capacity increases on international services have also been announced by Qantas and Air NZ. Qantas has confirmed that it will be introducing three new B737-800s to their fleet from February 2011, with two of these aircraft based in Wellington, flying on the Sydney and Melbourne routes, adding 15% to aircraft seat capacity. Air NZ’s ‘seats to suit’ product and cabin reconfiguration of its A320s will also provide an increase of 12.5% to aircraft seat capacity.
The proposed alliance between Air NZ and the Virgin Blue Group remains under consideration by regulators. Wellington International Airport is not opposing the alliance on the basis that the airlines have proposed capacity commitments for Wellington’s Trans Tasman routes.
For the 6 months to 30 September 2010, earnings before interest, tax, depreciation, amortisation and fair value adjustments (EBITDAF) was $9.6m, an increase of $0.6m from the prior period. Excluding subvention payments, EBITDAF was $35.1m, an increase of $2.5m from the prior period.
The change in value of financial instruments designated as fair value is reported in the statement of comprehensive income. This represents interest rate contracts which are marked to market and has resulted in a non cash unrealised loss of $9.7 million for the period ended 30 September 2010 (30 September 2009: unrealised gain $3.1 million.)
The change in tax legislation, announced by the Government in May 2010, to remove tax depreciation on buildings with a life equal to or greater than 50 years, together with compliance with the accounting standard IAS12 Income Taxes, has resulted in a $19m non cash deferred taxation expense in the statement of comprehensive income.
An exposure draft ED/2010/11 Deferred Tax: Recovery of Underlying Assets - with Proposed amendments to IAS 12 Income Taxes (the 2010 ED), was published on 10 September 2010 by the International Accounting Standards Board (IASB). The measurement of deferred tax assets and liabilities under IAS 12 Income Taxes is currently based on the expected manner of recovery or settlement of the underlying asset or liability. The 2010 ED proposes an exception to this measurement principle in respect of investment property, property, plant and equipment, and intangible assets measured using a fair value model or a revaluation model in accordance with the relevant IFRS. The exception proposed in the 2010 ED could reduce the deferred tax liability balance, which may affect the assessment of the recoverability of deferred tax assets. The 2010 ED proposes that the exception be applied retrospectively; it does not include any further proposals on effective date, transition or first time adoption.
The Directors believe that there is uncertainty as to whether New Zealand entities will still be required to record a deferred tax liability on buildings. This uncertainty stems from the proposed requirement that the entity must meet a rebuttable presumption that the carrying amount will be recovered entirely by sale as opposed to using the asset. It is also not clear what parameters might be applied in order to meet this test. The consolidated financial statements show a deferred tax liability at 30 September 2010, reflecting the removal of tax depreciation on buildings, and the full provision for deferred tax as required by the existing accounting standard IAS 12 Income Taxes.
The airport’s new terminal development opened in October 2010. The Rock was the last project of an extensive five year two-stage development to increase capacity to meet existing demand and prepare for future growth at the capital city airport. The addition has more than doubled the space in the Northern Pier departure area and will allow the airport to process up to 1,000 international passengers per hour.
All gates in the new facility are capable of being used for international and domestic services, creating a flexible space which is vitally important at Wellington International Airport, which annually handles 47,700 passengers per hectare of land, more than five times that of the other large airports in NZ.
We continue to work with the Commerce Commission on its determination of the most appropriate methodology to regulate New Zealand’s major airports as required by the amended Commerce Act. The Commission has issued a draft determination in May 2010 which, while representing positive progress from its original position, does not yet remove all uncertainty, in particular in relation to the valuation of land. The Commission’s final determinations are expected by the end of December 2010.