Sydney Airport continues to fly high

A monopoly can be a wonderful investment

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Monthly passenger figures released yesterday confirmed that Sydney Airport (ASX: SYD) had its best July ever with growth in both domestic and international passenger numbers. The share price has outperformed the index so far in 2012 and is a good reminder that investing in monopolies can be a great way to grow your wealth.

There was positive news on two fronts for investors. Firstly, Sydney Airport benefited from more airlines (such as Emirates) flying more routes into and out of Sydney and secondly, traffic growth from Singapore, Malaysia and China grew substantially.

Just like a utility business such as AGL Energy (ASX: AGK), Sydney Airport has a high fixed cost base. As a result it enjoys substantial leverage to growth in passenger volume, so understandably investors pay close attention to these numbers. For further evidence of solid industry wide demand, a recent update from Australian Infrastructure Fund (ASX: AIX) confirms growth at most of Australia's airports.

With decent industry-wide growth and monopoly attributes, airports can be a good hunting ground for quality companies. The beauty of monopolies is that they generally enjoy pricing power and limited competition which creates a 'moat' around a business. (Like a medieval castle, a business' 'moat' refers to an attribute which gives a business a competitive advantage, and therefore some protection.) In Sydney Airport's case, it enjoys a substantial 'moat' from competition and also a reasonable 'moat' from inflation.

In contrast to the 'moats' enjoyed by airports, their primary customers, namely airlines, rarely fare as well. Later this week we will see just how tough Qantas Airways (ASX: QAN) is finding the competition from new entrants having already provided market guidance of a substantial loss.  Meanwhile Virgin Australia (ASX: VAH) is not expected to report until the end of the month but with its share price near a 52 week high while Qantas is closer to its 52 week low, the market appears to be thinking things are better in Virgin's hangar.

The Foolish bottom line

Buying a quality company at a reasonable price is a proven formula for above average investor returns. Airports are one such industry to keep an eye on for opportunities to purchase quality companies. On the flip side while a low share price, such as Qantas at $1.17, may look appealing, it is worth remembering Warren Buffett's sage advice to never invest in an airline.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool contributor Tim McArthur owns shares in Australian Infrastructure Fund. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »