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Auckland International Airport Ltd shows why it’s one share to buy and hold forever

What: This airport business in our corner of the world enjoys a surprising number of advantages, including geographic isolation, a lack of competition and strong growth from neighbouring countries.

Auckland International Airport Ltd (ASX: AIA) proved just how great these advantages are, with its ‘Faster, Higher, Stronger’ strategy delivering another set of strong results to the market this morning.

Highlights:

  • Statutory Profit After Tax up 21.3% to $215.9 million
  • Underlying Profit After Tax up 10.5% to $169.9 million
  • Final dividend up 12% to 7 cents per share
  • $454 million capital return to shareholders earlier in the year
  • Total passengers rose 3.8% to 15.1 million
  • International passengers up 5.1% to 8.2 million, and domestic up 2.2% to 6.9 million
  • Strong growth across all business lines
  • Outlook for FY2015: earnings to increase 2%-9% (subject to any adverse conditions, one-off expenses, etc)

So What?

While these results can stand on their own merit, it was pleasing to see growth in all constituent lines of business, with Aeronautical rising 8.6%, property rising 7%, and car parking up 6.1%.

Expenses also rose 2.6% mainly thanks to outsourcing expenses, and staff costs due to the accrual of long-term incentives.

Profit from associated businesses also rose a total of 17.2% to $11.6 million, with North Queensland Airports (up 15.2%), Queenstown Airport (up 25.7%) and the Novotel hotel (up 19.2%) all performing strongly.

Much of this growth is expected to continue at a moderate level for several decades thanks to increasing Asian tourism, and Auckland Airport is continually expanding its facilities to meet demand.

Now What?

While I doubt if Auckland will be able to maintain profit growth of 10% every year, the company does have very strong competitive advantages thanks both to its monopoly status and favourable tourism tailwinds.

Auckland Airport is a steady, reliable earner, and has a transparent and easily understandable business model which is a big plus for investor comfort over the long term.

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Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.

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