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Airports Fiji Posts Record-Breaking $46m Profit

  Airports Fiji Limited has posted a record-breaking $46.04 million operating profit before tax for the 2015 financial year. This is a whopping 155 per cent increase when compared to
04 Jun 2016 10:37
Airports Fiji Posts Record-Breaking $46m Profit
Airports Fiji executive chairman, Faiz Khan.

 

Airports Fiji Limited has posted a record-breaking $46.04 million operating profit before tax for the 2015 financial year.

This is a whopping 155 per cent increase when compared to profit for the 2014 financial year which was only $18.02 million.

The results include interest income of $1.02 million from term deposits compared to interest expense of $0.63 million.

AFL executive chairman, Faiz Khan, said this meteoric turnaround in profits was made possible through a successful restructure of our revenues and expenditure.

“2015 was a year in which we recorded highest operating revenues and lowest operating expenses over the past five year period,” he said.

“The full effect of the revenue restructure will be seen in 2016 and beyond. Our EBITDA (earnings before interest taxation depreciation and amortisation) in 2015 was $44 million.”

With the 2016 EBITDA forecasted at around $80 million, this marks a big achievement given 10 years ago, AFL was a state-owned enterprises breaking even or making losses.

“Having strong fundamentals is critical if we are to successfully build our airport infrastructure to world class standards,” Mr Khan said.

“Government’s vision is to improve our airport facilities; our network connectivity throughout Fiji and globally; and improve our service standards.

“Thus we are carrying out the multi-million dollar upgrades at Nadi International Airport. We hope all Fijians will be proud of this iconic landmark once completed.

“We are also spending millions in improving our air traffic surveillance capabilities; lengthening Rotuma runway; planning a new terminal and longer runway at Nausori.

“We are also exploring the possibility of a new airport in Vanua Levu; extending Matei runway; building new terminals in Koro and Vanuabalavu that were destroyed after TC Winston; etc. We have a busy schedule over the next few years,” Mr Khan said.

Mr Khan thanked the great effort and team work by AFL’s entire staff.

 

Ideas and team effort

Mr Khan emphasised that infrastructure cannot be built with money alone.

“We need people for their ideas, contributions, hard work, dedication and vision in order to build. AFL has a great team that believes in effective communication and delivery,” he said.

“We believe in continual improvement and growth. We believe in the ability to make courageous decisions and overcome challenges. We believe in the value of time.

“We believe in humility and respect. Without our team we will neither achieve these meteoric profitability turnarounds nor be able to build infrastructure to world class standards.”

“AFL is going through a human resource evolution. We have managers in 30s who contribute exceptionally. We also have managers in their 60s who perform remarkably.

“Age is no barrier. We are really excited about the many future leaders we see all around us.”

 

Profits

Having strong fundamentals no doubt allowed Airports Fiji to carry out important infrastructure upgrades.

Mr Khan said they have many other responsibilities such as ensuring they provide dividend returns to Government in line with its significant century old investments into our airports.

“We declared $15 million dividends last year. We are looking at declaring another healthy dividend at the next annual general meeting that is likely to be held in July,” he said.

 

Revenue streams

Airports Fiji classifies its revenues into aeronautical and non-aeronautical (commercial) streams.

Mr Khan said a few years ago, they identified they were highly subsidising both revenue streams.

Mr Khan said their greatest cue in understanding the level of imbalance in commercial rentals was through looking at the amounts our tenants were spending in advertising at the airport.

He said this was in addition to appreciating we were charging much lower rentals for prime retail spaces at Nadi Airport compared to nearby Namaka.

“International airports have a massive power of ‘branding’,” he said.

“Many international brands will choose international airports worldwide to launch themselves or a new product.

“If a million people are coming into Fiji through Nadi that is possibly one million people (two million if a tenant has an outlet in both departures and arrivals) that a retail outlet at Nadi international airport is able to brand itself to.

“The benefit of branding goes far beyond the sales figures derived from the retail commercial shop at the airport. It benefits all the other outlets that a tenant has throughout Fiji or globally.”

Mr Khan said thanks to their astute advertising concessionaire, they did not have to look far.

“We had outsourced advertising functions for Nadi Airport to a private business, Media Metro on a revenue share basis,” he said.

“Tenants who were paying AFL $18,000 per annum for a 45 square meters commercial space but were paying our advertising concessionaire $30,000 per annum for a three metres by two metres billboard.

“The Airports (Development and Modernization) Decree 2012 allowed us to go back out to the market and attract competition for our commercial spaces through a tender process. We ran the tender process in 2014.

“During the tender tenants who were paying $18,000 an annum offered to pay $250,000 per annum for the same space to get priority.

“There were many such examples that justified the Airport Decree.”

 

Understanding the game

Mr Khan said they succeeded because of the manner in which they dug deep to try to understand the various commercial factors at play and then promoted competition.

“We have a few new players at Nadi airport that struggled for years to get an entry. Passengers now have a greater choice,” he said.

“Through the developments we are focused on increasing passenger dwell times.

“If our facilities are attractive the departing passengers will be going to the airport an hour early to check-in and spend time and money at the retail outlets.

“Furthermore, the Nadi international airport is the first and last impression of Fiji to our tourists.

“If we are able to get a percentage of tourists wanting to come back to Fiji due to the experiences we are creating everyone benefits.”

 

Incentives

In order to bring high spending tourists, Airports Fiji has subsidised one year’s landing fees for Fiji Airways’ Singapore route.

These initiatives are expected to in turn benefit their tenants and the entire tourism industry.

“For aeronautical fees and charges we carried out a study in 2014 that showed we had the cheapest aero fees and charges when compared to the airports in Australia, New Zealand and South Pacific region,” Mr Khan said.

“This again was restricting our ability to improve our infrastructure, or effectively maintain and upgrade obsolete air traffic technologies.

“With the Fijian economy relying 35% on tourism for its GDP and 99% of tourist arriving through our airports we cannot take risks of having systems that are obsolete with the airport authority struggling to replace them because of lack of funds.

“Historically we were relying on Government and taxpayers to continue to fund major capital projects. This was an anomaly that needed to be fixed.

“So we successfully made submissions to the Commerce Commission for increase in international aeronautical fees and charges from March last year.

“We received helpful submissions from airlines and other key stakeholders for the Commerce Commission’s deliberation and decision.

“The key point is that we need equity and balances if we are to develop our airports to world class standards.

“With proper balances and a long term view to relationships, everyone benefits:- our tenants, the airlines, the tourism industry, our Government, other stakeholders and all Fijians.”

Feedback:  rachnal@fijisun.com.fj



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