Should you buy Sydney Airport?

Sydney Airport plans to double capacity by 2033 — will that also double returns for shareholders?

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Australia’s major international gateway and its busiest airports with over 37 million passengers a year, Sydney Airport (ASX: SYD) has released its ‘Master Plan’ for the next 20 years.

It is quite a read! The monopoly provider in NSW for major airlines plans to double capacity to 74.3 million passengers per year by 2033. Having already spent $2 billion since 2002 on improvements to passenger facilities and capacity, the Master Plan aims to undertake “significant investments to improve traffic flow in and around the passenger terminal precincts”. Amazingly the Master Plan assumes no change to curfews, no change in aircraft movement cap, no change to noise sharing arrangements, no change to access arrangements for regional airlines and no new flight paths or runways.

The target of doubling capacity seems to be based primarily on improving ground transport solutions and other efficiencies and not undertaking any major capital works to runways. It goes to show the incredible leverage this asset has, and must also make taxpayers wonder about the ongoing call for a second airport. The fact that the Master Plan outlines a plan to double the capacity while utilising essentially the same asset should get investors excited.

That monopolies can make great investments and provide above normal profits to owners is obvious. However the opportunity to own monopolies is few and far between. For the few that are listed on the ASX, the gains to shareholders have been tremendous. Over the past five years, while the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has declined nearly 13%, Sydney Airports has flown up 22.4%. Over the same time period, toll road operators Transurban Group (ASX: TCL) and Macquarie Atlas Roads (ASX: MQA) have seen their share prices driven 29% and 101% higher respectively.

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Source: Google Finance

Foolish takeaway

Because everyone knows monopolies make great investments, they nearly always trade at lofty prices but occasionally alert investors get the opportunity to buy them cheaply. So stay alert!

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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