The Motley Fool

Should you buy Auckland International Airport Ltd?

What: Coming on the back of a strong annual report and recent capacity expansions, Auckland International Airport Ltd (ASX: AIA) recently reported an additional capacity increase by its chief airline and I expect more to come.

In a strange coincidence given that I’m heading to Fiji for three months on Friday, Air New Zealand announced a further 16,000 seats – an increase of 12% – would be available between Auckland and Nadi airports beginning in May 2015.

So What?
Well, Auckland Airport is in the middle of an ambitious 30-year plan that will see major facility expansions timed to take advantage of rising tourism and bustling economies in South-East Asia.

Just over a month ago, China and Singapore Airlines announced another 115,000 seats would be available between Singapore-Auckland and Taipei-Brisbane-Auckland beginning this year.

While the increases so far are modest, they are expected to happen at a continuous rate over the next few decades, delivering an impressive stream of growth to Auckland Airport investors.

Investors can also rest comfortably knowing that the management is top-notch and is able to write annual reports in plain speech without resorting to jargon.

Better yet, Auckland Airport is rated by World Airport Awards as the second best airport in the world in the 10-20 million passenger category for 2014; beaten only by Canada’s Vancouver.

Now What?

While breaking into the top 10 airports in larger categories will be very difficult thanks to the entrenched position and quality of competitors, Auckland Airport is nevertheless a high-quality asset with a long future ahead.

The company has thankfully dropped from its ridiculous over-valuations earlier in the year to a more modest $3.46, a price I would be perfectly happy to buy at because Auckland enjoys a perfect combination of internal expansion and external growth. This combined with long-term macroeconomic tailwinds make it a very appealing long-term buy.

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Motley Fool contributor Sean O'Neill doesn't own shares in Auckland International Airport Ltd.

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