Growth and yield are a wonderful thing - Sydney Airport (SYD)

We caught up with Kerrie Mather (CEO) on 13 April and came away upbeat. The bi-lateral air rights agreement between China and Australia (finalized early-2015) will be a 5 year growth phenomenon. In 2014, Chinese inbound traffic grew 16.5% based on increasing load factor from Chinese carriers. There was not one extra seat, but following the air services agreement the number of seats between China and Australia will rise by 3x by October 2016. Carriers won't reach this capacity immediately but it will be a long term driver of passenger numbers. The other big positive is that Chinese visitors spend 4x the average on duty free. We believe SYD is currently seeing passenger growth of 3-4% which translates to 6-8% growth in distribution yield for a number of years. If SYD holds its current yield of 4.6% we see an internal rate of return of ~13% pa over the next 3 years. Growth and yield are a wonderful thing. Happy to buy.