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Is the Sydney Airport Holdings Ltd share price a buy on today’s update?

The Sydney Airport Holdings Ltd (ASX: SYD) share price is down by 0.74% on news of its December passenger update.

Every month the airport operator updates the market with how many domestic and international passengers have travelled through the airport.

In its update for December 2017 it revealed that domestic passengers had increased by 2.1% compared to December 2016. International passengers increased by 5.6% and total passengers were up 3.5%.

For the year to date in 2017 international passengers had increased by 7.2% compared to the prior corresponding period and total passengers were up 3.6%.

At a country level, the number Chinese passengers was up 9.9% in December 2017 compared to December 2016, Indian passengers grew by 18% and South Korean passengers saw a whopping 30% growth.

Sydney Airport holdings is experiencing solid growth because Australia is such an attractive destination for Asians due to good weather, good tourist destinations and some of the world’s most liveable cities.

There could be a lot more growth in store because of some pleasing airline developments:

  • Tianjin Airlines announced the Tianjin-Zhengzhou-Sydney route will operate year-round commencing 30 January 2018. The annual seat addition is 36,920 above the previously announced service.
  • Hainan Airlines announced the Haikou-Sydney route will now operate twice weekly year-round, commencing 31 January 2018. This will add an extra 39,416 annual seats.
  • Malaysian Airlines has confirmed they will change to using an A380 between March and July for the Kuala Lumpur-Sydney route. This will add an extra 8,320 seats.

Sydney Airport CEO, Geoff Culbert, said “2017 was another record year for Sydney Airport facilitating 43.3 million passengers through our three terminals, an increase of 3.6% compared to 2016.”

“Our strong growth has been underpinned by capacity development predominantly on the Middle Eastern, Asian and US routes. The capacity additions have totalled well over one million new international seats for the second consecutive year and the pipeline of capacity announcements continues to be strong for the coming season.”

Foolish takeaway

Sydney Airport’s impressive passenger growth means more passenger fees, car parking fees and so on. However, the market seems to have already priced this in with the shares currently changing hands at 42x FY18’s estimated earnings.

It could be a decent income option at this level with the trailing dividend yield at 5.13% and the dividend likely to grow at double digits for a few years.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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