I’ve previously explored Auckland International Airport (ASX: AIA)‚after it formed part of a podcast episode with Morningstar’s Mark LaMonica and James Gruber where they discussed ASX shares to buy and hold forever. Here is James’ updated 2025 list of 16 ASX stocks to buy and hold forever.

Let’s look into how the company has fared after its earnings release.

Auckland Airport AIA

  • Moat Rating: Wide
  • Share Price: AUD 6.74 (03/09/25)
  • Fair Value: AUD 8.45
  • Price to Fair Value: 0.80 (Undervalued)
  • Uncertainty Rating: Low

Annual results

In the past financial year, Auckland International Airport’s underlying net profit increased 12% to NZD 310 million, driven by a material uptick in aeronautical charges and a slight increase in passenger numbers. However, net profit figures came in around 3% below our forecast, thus we’ve lowered our fiscal 2026 net profit forecast by 7%.

Overall passenger numbers are still below pre-covid levels, now around 89% after increasing just 1%. This was the result of a decrease in domestic passenger numbers, despite international growing. Morningstar analyst Angus Hewitt now expects a delayed return to pre-covid passenger numbers, previously set for fiscal 2026 now pushed to fiscal 2028.

Hewitt notes several factors that have contributed to AIA’s recent results. Namely, slower domestic growth, persistent engine maintenance issues at Air New Zealand weighing on capacity, as well as cost-of-living pressures weighing on domestic travel and discretionary spending.

Despite this, shares still trade at an attractive discount to our unchanged fair value estimate of AUD 8.45 per share. We think the market is unjustifiably pricing in either lower returns on regulated expenditure or weakness in unregulated businesses (retail and car parks).

The company has a mountain of capital expenditure to work through, but we expect this to drive a step-up in aeronautical charges which support the regulated business. Additionally, recovering passenger numbers should underpin growth in the unregulated business.

Dominant position in stable environment

As the largest airport in New Zealand, the business has carved itself a wide moat rating due to its near-monopoly position in a stable regulatory environment. We don’t believe a second airport is likely to emerge anytime soon. Given AIA’s expansion potential to accommodate continued growth, its position will be protected for decades to come.

The aeronautical business (around half of revenue) is regulated, which means the business is allowed to earn a suitable return on its “regulated asset base”. Landing fees and per passenger charges are set with airlines every five years and independently reviewed. This presents some near-term earnings risk as lower-than-expected traffic could weigh on returns on invested capital. But capital investments are usually structured with some flexibility to reduce the risk of extended overcapacity. Unsurprisingly, the non-aeronautical business line (retail and property) profits are typically higher, although are still principally driven by passenger traffic.

What we think

Given the sizeable capital projects underway, return on invested capital is set to lag weighted average cost of capital (“WACC”) over the medium term. But we do expect returns to exceed WACC by the end of the next decade and beyond was these projects come online.

Our fair value estimate for Auckland International Airport is AUD 8.45 per share. The current investment program is extremely long dated. We forecast NZD 1.3 billion in capital expenditure in fiscal 2026 and NZD 5.5 billion over the next five years.

Underpinned by a recovery in passenger numbers by fiscal 2028, we expect average annual revenue growth of 11% over the next five years to fiscal 2030 and operating margins averaging about 50% over the same period.

Auckland Airport is set to benefit from rising air travel to New Zealand, boasting ~75% of the country’s international arrivals and departures. Given the lack of competitors, Auckland Airport is likely to enjoy steady cash flows as the primary gateway to New Zealand.

It is important to note that any asset class should be considered as part of a well-defined investment strategy. For a step-by-step guide to defining your investing strategy, read this article by Mark LaMonica.

Bulls say

  • Auckland Airport provides exposure to rising incomes in the region, and population growth in New Zealand.
  • There are a wide range of attractive developments projects on the horizon, with undeveloped land providing optionality.
  • The company should enjoy a meaningful increase in regulated passenger fees, to compensate the firm for its likely sizable capital spending over the next decade.

Bears say

  • A slowdown in the global economy, a deterioration in international relations, or climate challenges could affect tourist inflow to New Zealand, limiting passenger fees and retail spending at the airport.
  • A more onerous regulatory environment could curtail the ability to generate economic profit from the aeronautical business.
  • The firm’s bottom line and expansion plans are sensitive to interest rates, which have increased substantially from their all-time lows during the pandemic.

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