Auckland International Airport Limited (AIA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Auckland Airport's Annual Results 2024 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chief Executive Officer, Carrie Hurihanganui. Please go ahead.

Welcome, and good morning to everyone joining the call. With me today, I'd like to welcome Chief Financial Officer, Stewart Reynolds, and we are pleased to be able to share the financial results for the 12 months to 30 June 2024. Well, it's certainly been a year marked by the strong return of international travel with the reestablishment of many airlines and routes that previously operated into Auckland, along with several new ones. Auckland Airport investment property portfolio has maintained its resilience with the completion of key projects in the year and continued developments in the pipeline, and FY '24 has seen us gain positive momentum with the most significant infrastructure upgrade in the airport's history with a record year in capital investment and over 1,000 people already working on site across the precinct. As New Zealand's main gateway with over 18 million travelers and a $26 billion in high-value air freight each year, our infrastructure program reflects this responsibility and is necessary to deliver those critical assets that will have decades of ongoing use. The recent release of the Commerce Commission's draft conclusions on the Price Setting Event 4 confirmed Auckland Airport's infrastructure program was on the right track. Now there's certainly quite a bit for us to cover today before we open to Q&A, which I know you will be keen to do. So let's jump to Slide 3 to kick things off. Number of highlights. It has been a year of momentum. Total passenger movements were up 17% on the prior year to 18.5 million, primarily driven by that reference I just had before of strong return of international. We've got 27 international airlines flying to 42 destinations, and those international travelers are up 29% to $10.1 million, including transit, whereas domestic was up by 5% to 8.5 million. Full year revenue increased by 43% from the prior year to just under $896 million, reflecting the return of the international capacity, the first year of the new aeronautical prices for PSE4 and the combined lifts across retail, commercial and property revenue lines. Operating EBITDAFI of $614 million is up 55% on the prior year and net season EBITDAFI margin of 68.6%, up from 63.4% in the prior year. Now this financial year sees a reported profit after tax of $5.5 million, that is down 87% and a key contributor being the tax expense significantly up in the year, reflecting the recent change in the government policy of depreciation of building structures. The net underlying profit after tax sees an uplift of 87% from prior year to $276.6 million and net underlying profit per share of $0.1875. The final dividend of $0.065 per share will be paid on the 4th of October. Now one of the things this year we've been very focused on is improving our customers' experience through key initiatives such as the domestic terminal refresh and the new undercover curbside pickup and drop-off in the new transport hub. Alongside that, we've had significant improvement in the arrival experience in the international terminal with the introduction of the express lane. When we turn our mind to capital expenditure, it was up 79% on the prior year at $1.159 billion, reflecting a record year of capital investment across the precinct, seeing aeronautical capital up 74%, and 35% of the terminal integration projects well underway. In July, we welcomed the Commerce Commission's PSE4 draft conclusion that Auckland Airport had carried out extensive consultation with airlines with rigor applied to the planning and costing of the investment, which benchmarked well internationally. Now in its draft report, the commission acknowledged that Auckland Airport had legitimate reasons to update the weighted average cost of capital to include pandemic risk but suggested a lower value may be appropriate. And we'll come back to a deeper dive on regulatory landscape a little bit later. On the next slide, please. One of the things is we are continuing with our purpose, which is to connect people in place and to deliver to our strategy to build a better future with customer, commercial and capacity initiatives well underway. But what I'm going to do now is hand over to Stewart to take us through some of the numbers in more detail before coming back to expand further on how we are executing to our strategy. Stewart?

Thank you, Carrie, and good morning, everyone. It is a pleasure to be sitting here today and presenting Auckland Airport's financial results for the year to June 2024. Turning to Page 6 of the presentation. We will summarize a number of the key financial metrics for the year. As you can see from the contents on the page, 2024 has been a positive year for the company with a strong recovery in aviation activity flowing into improved financial performance right across a range of financial metrics. Higher passenger movements, combined with improved performance across all our commercial lines of business, drove a significant lift in revenue for the year. The increase in revenue flowed through to a lift in EBITDAFI, and with that, the EBITDAFI margin. And as Carrie mentioned, whilst the net profit for the year was down to $5.5 million, largely as a result of a one-off adjustment relating to the changes in the government tax policy, which I'll touch on shortly, underlying profit for the year rose to $276 million once this tax adjustment and the unrealized movements associated with revaluations and derivatives are removed. Capital expenditure in the year rose to almost $1.159 billion as the business made significant headway on its investment program with funding for this program coming from a combination of strong operating cash flows and $840 million of net new borrowings in the year. Now turning to Page 7, where we've outlined a summary profit and loss. With greater aeronautical activity, revenue in the year rose significantly up $270 million or 43% to $895 million. It was pleasing to see the growth in revenue flow through to the EBITDAFI, up 55% to $614 million for the year as the benefits of operating leverage flowed through into a higher EBITDAFI margin of 69% compared to 63% in the prior year. Looking below the line, Auckland Airport's total share of loss from associates in the '24 year was $4.5 million, down from a profit of $11.1 million in the prior year. This loss arose primarily as a result of a net $8.8 million revaluation loss relating to our investments in the Novotel Hotel and the Pullman Hotel and the airport share of loss arising from the newly opened Pullman Hotel in its first year of trading. On an underlying basis, Auckland Airport's loss from associates reverses to a profit from associates of $5.3 million in the year, a $2.2 million decrease on the prior year, largely reflecting the loss in its first year of operations from the Pullman Hotel. Depreciation expense in the year increased 16% to $168 million, reflecting new assets commissioned in the year and the accelerated depreciation for demolished assets, whilst net interest expense rose to a net $72 million for the year, reflecting our increased level of borrowings and the increase in the average interest rate incurred by the company in the year. Reported profit for the year dropped to $5.5 million, reflecting, as I mentioned earlier, a significant one-off adjustment to deferred tax arising from the recent change in government policy relating to depreciation on building structures. This change resulted in the company booking a one-off adjustment of $293 million in the year, which like the $89 million adjustment previously booked by the company back in 2010, represents a noncash adjustment between deferred tax and tax expense. Excluding this tax adjustment as well as reversing out the impact of revaluations on investment property, fixed asset write-offs and fair value movements and derivatives, underlying profit in the year rose to $276 million, up 87% on the $148 million we saw in the prior year. Now if you turn the page to Page 8. We set out the breakdown of revenue across our different lines of business. As can be seen on the page, the increase in aeronautical activity mentioned earlier and the first year of our new aeronautical charges associated with PSE4 have resulted in total aeronautical revenue up 79% in the year to $392 million. Total aircraft movements rose 10% in the year to 158,000 with international aircraft movements up 25%, reflecting the increase in connectivity, whilst domestic aircraft movements rose only 3% in the year given the capacity-constrained environment. The increase in international activity and the first year of higher aeronautical charges in PSE4 drove a lift in airfield income, up 74% to $150 million, and this included $9.3 million of aircraft parking charges. In a similar manner to aircraft movements, passenger movements rose 17% in the year to 18.5 million, with international passenger activity up 29% and domestic movements up 5%. The significant rise in international travelers combined with the uplift in aeronautical charges resulted in the passenger service charge income increasing 82% to $241 million in the year. This increase in passenger activity also was a key driver to the improved performance we saw right across our commercial lines of business with retail and car parking income up 41% and 15%, respectively. Retail income rose in the year to almost $185 million as the increase in international travelers, combined with improvements in the retail offering in the international terminal, resulted in increased shopping engagement in the year. We saw improvements in retail performance across a range of categories, including duty free, food and beverage, Strata Lounge and also in our TCP offering. The lift in sales across all categories resulted in a lift in PSR and a 21% lift in income per passenger to $10.16, up from the $8.41 we saw this time last year. In car parking, we continue to see parking products resonate with travelers with the number of paying exits up 9% on the prior year led by international services and valet offering. This also resulted in our ARPS just under -- ARPS, I should say, just under 20% on the prior period. Property and other related income from investment property rose by $10 million or 6% in the year, driven by a combination of newly completed developments, which resulted in almost $4 million of new contribution in the year, a full period contribution from new leases of $1.2 million and improved trading from the ibis hotel. And finally, as noted on the page, Auckland Airport booked $19 million of other income in the year associated with insurance proceeds from our January '23 flooding event. Now turning to Page 9. Reflecting the increase in aviation activity over the year, operating expenses also rose 23% in the year to $200 million -- or almost $282 million as the continued growth in aeronautical activity and the investment in the airport precinct necessitated higher staff numbers and an increase in asset management maintenance and cost to support airport operations. Staff costs increased $14.4 million or 23% in the year as employees at Auckland Airport rose to 655 at 30 June. This increase reflects additional staff to accommodate the ongoing recovery in aviation activity and also the resourcing to manage the airport operations during the ongoing investment program. Asset management, maintenance and airport operation expenses increased by $29 million or 32% in the year. This increase similarly reflects the scaling up of activity based on an increased number of outsourced operations, higher service levels, but also included additional activities associated with baggage handling and bus services, et cetera. In addition to the asset management, maintenance and airport operations, expense category also included $6 million of a provision for PFAS that was booked in the year to provide for costs associated with remediating some of the contamination levels that we found out on the airfield. Rates and insurance expense increased by $3.8 million or 12% in 2024, reflecting higher counsel and insurance costs, as well as marketing and promotional activity increased in the year as the airport supported airline establishing new connections into Auckland, and we also supported our commercial lines of business. As mentioned earlier, depreciation rose $23 million or 16% in the year, reflecting new assets commissioned, the full year effect of assets commissioned in prior years and the increase in book value of assets as a result of some of the revaluations taken in the prior year. In addition, during the year, we included accelerated depreciation of $15.5 million associated with the write-down or accelerated depreciation of useful lives that are decommissioned as part of our investment program. And finally, gross interest expense rose in the year to $127 million, an increase of $45 million or 55% on the prior year, reflecting the combined effects of higher average debt levels and Auckland Airport continuing in its investment program with the average cost of debt increasing to almost 5.8% in the year compared to just over 5% in the prior year. Offsetting this increase in gross interest, the level of capitalized interest also rose to $54 million in the year. As a result, the net interest expense for the year to June was $72 million, up only 9.7% on the prior year. Now turning the page to Page 10. As you'll see from the chart in the middle of the page, 2024 marked a pivotal year in Auckland Airport's investment program with the investment in the year almost double the record levels seen in the prior years. This investment occurred across a wide range of areas of the precinct with significant work on terminal integration, airfield works and the substantial expansion going on to the north of Pier B, a series of related infrastructure projects, including utility and roading upgrades, to a range of investments across our commercial property portfolio and our retail and transport sectors, which will bring some exciting new developments to the airport precinct. I won't touch on these. Carrie will touch on these very shortly when I hand back to her. Now turning to Page 11. As outlined on the page, you will see an increase in aeronautical activity alongside the commercial growth in the business drove an improvement in operating cash flows, up $117 million or 53% to $496 million in the year. This significant investment in infrastructure and commercial lines of business Carrie and I have mentioned earlier was funded by this uplift in operating cash flow alongside $141 million of net new borrowings in the year. Now turning to Page 12. Despite the significant capital expenditure, Auckland Airport's balance sheet remains strong with total assets at 30 June of $12.4 billion and shareholders' equity of $8.6 billion. Driving this increase in assets, work in progress or WIP rose to $1.1 billion at 30 June, up from the $660 million we saw at this time last year, reflecting the substantial works underway right across the precinct. The increase in borrowings I mentioned earlier can be seen in term borrowings reaching $2.4 billion at 30 June, up from the $1.4 billion we saw this time last year. And finally, before I hand back to Carrie, on Page 13, we outline our key credit metrics. On this page, you see that despite the significant capital expenditure in the period, Auckland Airport maintains a strong liquidity position and robust credit metrics. Total drawn debt at 30 June amounts to $2.7 billion with undrawn bank facility headroom of close to $1 billion. During the year, Auckland Airport successfully completed 4 public bond issues, including reentering the Australian medium-term note market, and we were very pleased with the outcomes of these issues with investors continuing to recognize and value the strength and nature of the Auckland Airport credit. At 30 June, Auckland Airport's key credit metrics remained strong with its FFO interest cover and FFO to net debt on a spot basis remaining well above their respective tests of 2.5x and 11%, respectively. With that, I'll now hand back to Carrie, who will take us through how we're building a better future.

Fantastic. Thank you, Stewart, and we'll jump to Slide 15, if we could, please. In FY '24, we've grown our connections to the world and are looking to build on that further with continued strength across international. The 27 airlines that are now flying to 42 destinations to and from Auckland Airport actually are just shy of the 29 airlines and 43 destinations we had in 2019. And we've worked really hard to bring back international airlines, supporting them to grow and relaunch services, and that has delivered more choice and competitive fares for customers. But we realize we have more work to do there because what we have seen is there is less capacity and competition on routes and airfares remain stubbornly high. Now when you couple the higher cost of flying with increased competition from other tourism destinations and the economic climate globally, we've seen the flow-on impacts of recovery of some of the key inbound markets. Those are the markets, particularly, Australia being a little bit lower than we would have liked. The ongoing global backlog of replacement fleet orders have seen airlines prioritizing their available fleet on higher-yielding routes rather than returning necessarily to all the previous long-haul destinations that they operated to. And as a result, we are anticipating a longer time frame for achieving a full capacity recovery to pre-2019 levels. Now moving to Slide 16. When we talk about international recovery, there has been a positive return of that capacity, and that includes several new carriers and routes with seat capacity to international destinations at 91% of 2019 levels and passenger movements sitting at 87%. Now the lift in capacity, particularly on North American routes, saw a 48% increase in available seats and has been great for Kiwis actually as it's delivered a 40% growth in American visitors, which is vital to supporting New Zealand's tourism recovery. Our connectivity with Mainland China has also been very positive, and we've seen the return most recently of Sichuan Airlines in April for the financial year, seeing 6 airlines now connecting to Auckland Airport to 7 destinations in China with seat capacity surpassing 2019 levels by 2% for the year. And if you look specifically at quarter 4, it was a 13% increase. However, it is worth noting that the pace of international recovery in FY '24 for New Zealand has been slower than Australian counterparts. Now that's due to stalling inbound Australian visitation and lower demand from certain segments within that. What has been good, however, is to see the stabilization in the long-term fundamentals with inbound traveler mix and reasons for travel largely in line with historic profiles across VFR, leisure and business, albeit that VFR is slightly up comparatively to 2019. Moving to the next slide. Domestic has been more challenging in regards to its capacity recovery. Now due to a variety of constraints, overall domestic seat capacity is 13% below 2019. And when you step back and have a look, that makes it in line with numbers last seen pre-COVID at a 2016, 2017 level. Now this saw Auckland's FY '24 domestic capacity recovery lagging when you look at our major peers across New Zealand and Australia. However, when there is lower capacity, it has also resulted in elevated load factors at or above 2019 levels. Moving to the next slide, please. We remain committed to delivering a smoother and more efficient customer experience. That is vital and one of our key pillars of our strategy. Now we opened the first stage of the new transport hub and its undercover pickup and drop-off zone on the ground floor in April this year, along with Park & Ride South, both of which provide more options for our customers. Now a large portion of our planned improvements to the domestic terminal were actually delivered in the financial year, seeing new dwell areas, refreshed regional and domestic bathrooms, improved WiFi and more intuitive entry portals and wayfinding signage. Now the nature of airport operations also see significant variability in activity across the day. So we have also added what we see as temporary and casual staff members that helps us with those peaks and valleys that we see through a hub-and-spoke type model. And finally, in technology, new tech is helping us to improve the ease of the customers' experience, and we are seeing things like the new scanners at Aviation Security starting to roll out, the expansion of eGate availability and the electronic New Zealand Travellers Declaration, all of which were making that experience for customers a little bit easier. If we move to the next slide, please, and we look at the 10-year road map. It really lays out the transformation journey of the aviation system at Auckland. Investment in that important capacity resilience and customer experience I was just talking to is well underway and in earnest, and we know that we are investing around $6.7 billion in that road map over the next 10 years. Key projects in that include the integrated terminal to replace the domestic terminal, and I'll talk about that in a little more detail shortly, the domestic airfield expansion to support the new terminal, a contingent runway, refresh of the current domestic terminal, upgraded roads and wider transport system, the transport hub that I referred to, Stage 1 arrivals gate upgrade, the new cargo precinct and the Northern stands and stormwater upgrades. So just a couple of things to go, you might say. The international arrivals expansion Stage 2 and Northern runway remain on hold at this stage, and that's why you don't see them on the road map. Moving to the next slide. Now on the integrated terminal, we've been really pleased with the significant progress during the financial year. Detailed design was completed, and the project is now proceeding at pace with the project over 20% complete. The external structure of a major building block, and we've come to call it the Stitch, which is the new 3-storey connection point between the existing international terminal and the new domestic jet terminal once built. Now that's almost complete with 75% of the concrete floor slabs poured and the baggage hall on the ground floor already operating and in play. A number of key enabling projects were also completed in the year such as the relocation of key Eastern airfield operations, including livestock facilities, ULDs, the airside waste facility and Checkpoint Charlie. In other areas, construction continues on enabling projects, including the Northern stands and taxiways, which -- an expanse of about 250,000 square meters, or for those sports fans out there, 23 rugby fields in size, stormwater upgrades that go along with that, West terminal enabling and international arrivals capacity and the new Western truck dock. So lots happening there. And when we look -- deeper dive on the next slide, please, in regard to the integrated terminal and what that means for a customer. The intention is that we'll transform that experience. Not only will it add much needed new seat capacity and be the modern airport that Kiwis have been asking for. It will also enable seamless connections under the same roof between domestic and international flights. Green line is an area that many of you on the call I'm sure have walked, but it will also allow airlines to be more competitive in attracting connecting traffic outside of Auckland to international destinations by having shorter connecting times between flights. Now it's set to open between 2028 and 2029, and it's a cost-efficient design that focuses on doing the basics really well, including enabling efficient airline operations. We've talked before it's got a 26% uplift in domestic seat capacity along with a further 10% seat capacity in dedicated bus lounges, and that is good for travelers because more capacity puts downward pressure on airfares. It also has the ability to handle 44% more departing passengers per hour than the current terminal due to increased space for security screening, and again, good for travelers in terms of less time spent in queues. If we move to the next slide, please. From a retail perspective, we leaned in. We refreshed the airport retail proposition as a key priority in the year to deliver the experience our customers are looking for. And along with the continued recovery in those international PAX numbers, it resulted in an uplift in retail income versus the prior year of 41% at just under $185 million. Income per PAX lifted 21% to $10.16. Both the refreshing of and the addition of product ranges, brand and luxury and premium retail stores helped to drive that income growth. Our omnichannel offering as well as the off-airport duty and tax free service by the collection point are both performing well, seeing a 46% increase in the year. Now the return of international passengers also saw Strata income increased 73% on the prior year. And finally, after moving to a transitional single duty-free operator last year, the full duty-free tender process is now underway, and the expectation is that we'll be in situ and operating from FY '26. Moving to the next slide, please. If we take a moment to look at parking, that continues again to grow in line with international passenger recovery as well as customers continuing to have a higher propensity to drive. They're staying longer and they are trading up to premium products. Revenue was up 15% on the prior period to $66.4 million. And also, we saw exits lift 9%. And what we saw is with the international terminal parking constrained currently because of the transport hub construction, that did see valet demand strong as people choosing that as an alternative for their parking options. Now in terms of development activity to create smoother transport connections, we've got plenty underway in that space. We continue to upgrade and improve public transport and high occupancy vehicle options for easy access to the airport such as the new road Te Ara Korako drive, which helped to improve precinct traffic flows. Park & Ride South just opened in June this year with an additional 3,000 plus car parks to ease congestion for Southern travelers. Stage 1 of the new transport hub and office development that I mentioned earlier opened in April with that multi-mode undercover ground for pickup and drop-off area. And the remainder of the facility is taking shape nicely, and it will transform how travelers arrive into the heart of our precinct with almost 1,900 parking days with the remaining floors due to open later this calendar year. Moving to the next slide, please. Now you will have seen our commercial property portfolio has maintained its resilience and its focus on delivering high-quality sustainable builds for tenants at The Landing business park. This year saw the completion of projects totaling 45,000 square meters, including expansions for both Hobbs and Hellmann Logistics. Rental income was up 6% to $151 million, and there was a 10% increase in the commercial property rent roll to just over $162 million with the portfolio value now sitting at $3.1 billion. Our occupancy levels are at 99%, and the weighted average lease term currently sits at 8 years. Both of those are a solid result relative to the New Zealand listed property sector. Two further industrial developments are underway, and that will add a further 43,000 square meters to net lettable area and is expected to be completed in the first half of this financial year. If we turn to the hotels and the joint venture with Tainui Group Holdings. The Te Arikinu Pullman Auckland Airport Hotel opened in December last year and has landed very well with guests who have ranked in the top 10 of Accor hotels in New Zealand and Australia portfolio. Now the Mercure remains on hold in the short term. However, fit-out is ready to reactivate as and when demand picks up. And finally, construction is well underway on the Manawa Bay premium retail outlet center with strong interest from major international brands for the 100-plus store center with more than 93% net lettable space now leased, and the opening is on track for next month. Next slide, please. Now we've talked a lot about the performance and the upgrade of Auckland Airport, but as that gets underway in earnest, we're also taking a long-term approach to our investments to progress climate change goals and create a sustainable airport. Now we've developed a clear pathway that we've talked to you about previously to reduce our Scope 1 and 2 emissions to reach net 0 by 2030 from the 2019 baseline, and we have achieved a 25% reduction to date through HVAC efficiencies and commencement of our program to phase out gas and heating and cooling from the terminals with the first units now having been replaced. When that is complete, it will reduce carbon emissions by 1,500 tonnes per annum. We also crushed and reused 108,000 tonnes of end-of-life runway slabs for backfill on our airfield expansion. That means we've avoided 6,000 truck trips to dispose of it and have reduced the need for new material. And we've also achieved Level 4 Airport Carbon accreditation in FY '24, along with about 15% to 20% of global airports achieving that level. We've taken significant steps to remediate PFAS contamination on the precinct, particularly on Kohia Island and lodging consent application for the remediation of the former hot fire training ground. Now our investment in infrastructure will support the deployment of new lower emission aircraft technology and increase our resilience. We have a range of initiatives in play to reduce fuel burn from nonflying activities from predictive technology to manage pushback timing to ground power units being available to plug in at the gate as well as installing 24 EV chargers on the airfield. And from a resilience perspective, we're well progressed with the installation of 3.5 kilometers of stormwater pipes, of which over half are 1.8 meter in diameter. So they are sizable. That, along with the new Wetland Biofilter stormwater catchment pond, will significantly improve our resilience and capture about 106 hectares of flow, and particularly important is we face into the increasing frequency of extreme weather events. Now if we could jump to the next slide. The Price Setting Event 4 prices were set in June 2023, you might recall. And on 17th of July this year, we received the Commerce Commission's draft report into our pricing decision. Now we welcome the commission's draft conclusion that Auckland Airport has carried out extensive consultation with airlines and that the rigor applied to planning and cost -- costing the investment benchmarked well internationally and also that the planned capital expenditure, including the new domestic jet terminal, appeared reasonable. The commission also acknowledges the importance of timely investment to ensure that Auckland Airport remains resilient, efficient and well functioning as an airfield and international gateway for New Zealand. Now in its draft report, the commission question the weighted average cost of capital used to set prices, suggesting a lower value may be appropriate. In particular, the commission shared a different interpretation of how the effects of the pandemic should be accounted for. Now we're fully committed to engaging with the next round of submissions and have been engaging with the commission on its draft report, and we will be providing further context as to how we consider the impact of the pandemic. If the final report continues to say that WACC is too high, we will adjust pricing with any changes taking place from the 1st of July 2025 for the remainder of the pricing period, and the final report is due out quarter 1 next calendar year. Just briefly on the 2023 input methodology, the Commerce Commission released its final determination in December last year. And after carefully reviewing the final decision, Auckland Airport, along with other New Zealand airports, filed for a merit review of the final determination, and the work on that process continues. And jumping to the final slide. As we look ahead to the 2025 financial year, we continue to see some positive signs in the international market for increased connectivity. Comparatively, the domestic environment remains uncertain in its recovery with its constrained economic conditions. Some airlines are also impacted by the ongoing global supply chain constraints for airframes and engines. So reflecting this, we remain cautious for the year ahead and have provided guidance of underlying profit after tax of between $280 million and $320 million for the year, and that is based on anticipated domestic passenger numbers of 8.6 million and international passenger numbers of 10.5 million. Now with the ongoing significant investment in the infrastructure and capital investment across the present, we are providing guidance on capital expenditure of between $1 billion and $1.3 billion for the year. And as always, this guidance is subject to any material adverse events and other criteria called out on the slide in front of you. So thank you for listening at this stage. I say let's open it up for any questions you might have.

[Operator Instructions] Our question comes from the line of Andy Bowley from Forsyth Barr.

Stewart, a couple of questions from me, the first of which is just around that last slide, the guidance predicated on the PAX growth assumptions of 4% to 5%, I think, for international and 1% to 2% for domestic over the course of the next 12 months. Can you talk to your assumptions behind those estimates in the context of capacity and loads in particular? And I guess a sub-question is, do you think the gap to your pricing assumptions widens from here? Or does the broader backdrop around capacity help close to where your pricing assumptions were set a year or so back?

I might kick off, Andy. Nice to hear from you. And I'm sure Stewart will have elements that he'd like to add as well. In regards to international, in particular, I mean what we have seen is the positive recovery. We have seen growth in year. We still anticipate to see some into next year, as is shown. I guess one of the things that we are aware of in regards to things like the shortage of aircraft supply and some of the global supply chain issues, New Zealand is a long skinny route. It is asset hungry, and we are finding from our earlier comments that airlines are making some choices of where they are deploying the assets they have until some of those new orders come through. So that has been -- we're cognizant of that. We have also looked at the airlines that we have been engaging with that we know will be flying in those areas where we think we will have conversion. But there is the balance of how we are looking at those elements. And also there has been New Zealand's overall capacity recovery internationally has slowed against some of its peers when you look across the likes of U.S., Canada, Great Britain and Australia, et cetera. So there's a balance of those things in mind as we've set that. But as far as the remainder of your question, Stewart, you may want to add in regards to how we're thinking about that more broadly with pricing and other things.

Yes. Thank you, Carrie. So Andy, to your point, yes, we see the gap to our pricing event forecast effectively widening through the next financial year. But then as the return of some of that capacity into both the New Zealand market but also outbound internationally occurs over the subsequent 12 to sort of 18 months, our expectation, and it might just be my personal slight optimism bias, is that gap to the Pricing Setting Event 4 forecast would close. Now the rate of that closure was still to be obviously determined, but we'd like to think that those airframes and the engines would sort themselves out over that time period.

Sure. And maybe just specifically on the next 12 months, that 4% to 5% international PAX. Can you talk to what the assumptions are between capacity and loads? I guess slightly loaded on the basis that the capacity backdrop for the next 12 months on a seat basis doesn't look like it's growing.

No, that's right, Andy. So we expect a measured addition in capacity but primarily from offshore carriers there. And then in addition to that, a strengthening in load factors over that period will really be the key determinant to driving that growth in passenger numbers.

Great. Second question and somewhat linked. One of the concerns we see around the shape of the international PAX recovery is that outbound Kiwis is recovering faster than inbound. Now given the mix of the 2 is pretty even, that's not necessarily a train smash, but that's despite the domestic economic environment being pretty constrained. Now the question here is, what are your airline customers telling you about demand for New Zealand? Is it just a function of capacity and airfares? Or is there a broader issue with New Zealand as a destination?

It's a great question, Andy. And a little -- I'll say it's a little bit of both. So obviously, you do have capacity and airfares being one of the contributing elements, but we're also hearing New Zealand as a total destination as far as total package and coming here is being seen as quite expensive, and that's air as well as ground. And so you take the Australian that I referred to earlier in the presentation, and you've got a huge uptick in the amount of them going to the likes of Vietnam, Bali, et cetera, versus New Zealand. And when you look at the total package, you might pay a comparable airfare, but then, of course, once you get to Bali, the on-ground costs are considerably lower. So those are having an influence of some of those inbound travelers and what they're doing to compare destinational choices.

And you don't see an issue around broader marketing of New Zealand as a destination in key offshore markets?

Listen, Andy, I could probably go on for quite some time around the opportunities, I think, and it's part of the reason you've probably seen -- you've probably seen the change in some of the tourism response to things like the cost of visas being increased by 64% and the discussion around the IVL being increased because the total cost to travel here as well as things like turnaround time to get visas, there's a number of -- there's what I would describe as friction in the system. There's a change in segment. You're seeing things like less or lower levels between the 20s to 50s traveling. And so there's a number of contributing factors that are coming into that. As far as your question of promotion, the reality is funding for TNZ is going to reduce in 2026 and has an increase in real terms for a number of years. In New Zealand, it's a competitive market out there. You've got destinations that are working incredibly hard to get the high-value travelers to come to their destinations. So there is work to do. We're engaging strongly with Minister of Tourism and the industry to say what can we do to help dial that up.

Next question, we have Amit Kanwatia from Jefferies.

Maybe just continuing on this passenger expectations. I think in the past, when I look at the comments, you're expecting passengers back to pre-COVID levels by fiscal '26. And obviously, things have changed since then. You're highlighting some challenges from higher airfares, capacity and those things. How do you see those passengers returning back to pre-COVID levels? Is it delayed by 12 months or more? What -- if you can just talk to some of that, please.

Yes, certainly. And it's a great question. One of the things I've learned since 2020 in aviation is forward forecasts have been wrong, is probably the most consistent element for airlines and airports. So yes, that kind of calendar year '25 or for fiscal '26, that split shifted out to the right for us. At a guess, we're saying 12 to 18 months. But again, what I have -- what we've all found is things aren't necessarily as predictable as what we're seeing. But based on the forwards, based on the economic landscape that we're seeing domestically and those global challenges around aircraft and supply chain, that feels like a more realistic assumption of what that recovery might look like.

Sure. And I mean obviously, it's a lower-than-expected passenger environment. And if I look at the Commerce Commission, they've made the draft, which is, again, they are saying based on their draft decision that has been excessive over earn by 7% to 9% for Auckland Airport. I mean the question is, I mean whatever the allowed final returns are in this lower passenger environment, how -- is there a way you can offset and still be closer to those final returns?

Amit, the commission will obviously work through a process at the moment in reviewing the submissions and then the cross submissions from people in relation to our Price Setting Event 4 pricing. Only following a review of both of those will it then sort of finalize its report and form a view effectively on an acceptable return for Auckland Airport. Once we take a view on that final report, we will assess what the commission is saying and the relevant factors of the business at the time and only then make a decision as to the nature of any changes to our charging.

And I'd probably just add again, the shape of that recovery, if that's where you're going with that and the impact, therefore, in passenger numbers and returns, things haven't -- aren't returning in an equal shape. We will continue with the strong demand out of China, strong demand out of North America. We will continue to build on those. For Andy's question, we'll lean in to [ NR ] actually. We've got an MOU with Aotearoa and other tourism organizations on how do we stimulate demand out of the Australian market. And so they're not all coming back at an even keel. But yes, there's the process with the Commerce Commission that will run through to its conclusion, and that will certainly get us informed. We will continue to stimulate and chase to help stimulate the return of that travel and also the broader question of how are we thinking about diversification of our broader revenue lines, and that remains a key priority for us as well.

Sure. Just a final one, maybe moving to retail. And obviously, a strong increase in retail revenues, up 41%. I think you did $185 million in fiscal '24. When I look at pre-COVID, fiscal '19 was $225 million. Obviously, a new duty-free operator is expected to be signed this year. But when -- I mean how are you thinking of this retail revenues again getting back to pre-COVID levels after, post the sign of new duty-free operator?

Yes, Amit, that's a good question. So look, naturally, we set ourselves aspirational targets to forget about COVID and get past all those sort of benchmarks as soon as practical. And the next sort of gating item in retail is not only the reinvigoration of some of the terminal offering but as part of that, the tender for the duty-free contract. So we've set ourselves a target effectively to go through that FY '19 retail number. We'd like to, but it will ultimately only be determined by the nature of that duty-free tender process. And so the timing of that will very much depend on how the market looks at Auckland and looks at effectively the returns and the risks that effectively you get from operating here at Auckland relative to other ports. And we like to think that the good conduct that the business evidenced during COVID by effectively rebating some of those contracts will then go to a good positive contractual outcome that provides the right sort of returns not only for us as a business but the retailer and also for the traveling public as well. So back to your point, we would like to get through that number, but I couldn't be specific as to the year we'll get there.

Our next question comes from the line of Owen Birrell from RBC.

Just, I guess, first question is just looking at the incoming Comm Comm final report and I guess your comments that once you've seen that report, you will, I guess, look to adjust your rates accordingly. I just wanted to get a sense. You may say a token downgrade to your rate of return. How beholden are you to that Comm Comm report going forward? Is there a second right of review for bringing that rate down even further?

So in as much as the process, I guess, as far as what we've done, the regime has been in place now since '22. I don't know. Whatever it was. This process is very [ variable]. In PSE3, obviously, we also had Commerce Commission feedback and adjusted. So it's a normal process and the regime, working from our perspective. I guess what you're saying is there -- if you're asking, once the final report is issued, is there another go around? No, as far as current process, there isn't in terms of that will be the final PSE4 report. What is separate from that, if I've gotten the elk of your question, Owen, please correct me if I haven't, the only other change that would come is if there was a broader review of the regulatory regime. But no, there isn't another go around. Once a final report comes out from the commission and we respond, that is that process concluded. Did I understand...

Yes. So just to confirm, you ultimately have control of your rate card, and you can make an adjustment, but the adjustment -- the magnitude of that adjustment is ultimately in your control?

Yes, it is. But there's the broader regime, obviously, ensuring that, that maintaining of balance that it is getting the right outcome because should we not take on board feedback from the Commerce Commission then you get into that other territory of broader reviews and things coming under way. And that's the purpose of the regime, is to ensure that balance and the right outcome for the consumers.

That's excellent. Just a second question for me, just looking at the, I guess, the debt and liquidity position. Acknowledging the fact that you've still got some quite significant CapEx to come. Just wondering, in the context of more subdued PAX growth and lower potential returns on the [indiscernible], are you guys still comfortable that you can debt fund the proposed CapEx? And in the event that conditions get worse, just wondering what levers you can pull to manage your leverage or the credit rating outlook.

Yes. Well, certainly, I have no doubt. Stewart would like to comment on this one. It's a great question because there are a number of moving levers, and we've talked about them previously around you kind of have future business performance. You have where does PSE4 land, and then ultimately, the kind of the scope and rate of spend for the infrastructure program. So those are the 3 levers we constantly monitor in terms of how they come together. To date, our capital program has been largely funded from new borrowings, and our intention is for that to continue to be the case. But again, those 3 variables, and as they continue to move and shift, will be a constant watch for us on that front. But do you want to add as far as what you were seeing or any other considerations, Stewart?

All I would add to that is you've seen previously, Owen, that the business has taken a very proactive stance to capital management. And so coming out of COVID, we looked at our dividend policy. We looked at the existence of the dividend reinvestment plan. And also, we're very careful around what debt that the organization took on and which markets that was in. And so you should expect as we continue to progress through the infrastructure program that we will maintain a very active and measured response to the credit metrics to ensure that the business has sufficient liquidity and manages that risk in an appropriate way.

That's great. Just, I guess, one of the questions sort of around the rate of the CapEx spend, how much flex do you have to manage that capital outflow essentially over the coming 2, 3 to 4 years?

Yes. Well, ultimately, a number of things we've got. Over the last couple of years, we've seen kind of the run rate. And I recall, I think it was 2 years ago, having conversations with our shareholders and investors around the run rate and kind of hitting -- the aspiration of hitting levels that the airport has never hit before. And I think we've demonstrated in the last 2 years we are delivering a good run rate. Probably there's a big key variable for us, which ultimately is finalizing the contract as you get to the domestic processor, is probably one of the big anchors for us that will feature as part of that review.

And assuming the timing of all that is somewhat dependent on the result of the Comm Comm outcome and finalizing that rate card?

Well, you've got -- I guess they're interlinked from a [indiscernible] perspective but also quite separate. There's an element in terms of any landing on ultimately kind of the domestic process of contract is specific and unique to itself. So that will be happening, which will be separate, obviously, to timing of the finalization of PSE4. But yes, those -- the interplay of those 3 things and our view of how that performance is looking back to Stewart's comment of us being kind of prudent in that space. We will continue to monitor those and ensure that we've got the right balance.

Our next question comes from Wade Gardiner from Craigs Investment Partners.

A couple of questions from me. Just quickly following up on earlier questions around the repricing next year and the passengers relative to what was assumed in the pricing decision. I mean normally, passenger risk relative to the assumptions of something that the airport wears. Is there an opportunity here? Or do you think that when -- if you were to reprice, you could adjust the assumptions at the same time given the pretty unusual circumstances that have occurred in the last couple of years and how different you are to those passenger assumptions?

So Wade, why don't I sort of start with that? And then I'm sure Carrie will add. You're right. Essentially, one of the principles of the regime is effectively the airport bears volume risk but also the reward of outperformance relative to that. And that's why, as an organization, you see us very focused on driving volume into the system. Because with that, I think we benefit. In terms of your question around changing some of the assumptions, really to do that, what it requires the airport to do effectively is to reconsult with our substantial customers and recognizing that, that process from where to go, even at the shortest end, can be quite extensive. And it's typically sort of 18 months. It's not something that we just do very lightly. Naturally, we can do on what I would describe as more tactical things. But typically, the consultation process is sort of one and done for a 5-year period. Carrie, is there anything else you wanted to add?

No, I think it's a fair summary. And again, if we're getting to a final, let's say, quarter 1, which is what the commission has indicated next year, you kind of -- you're 3 years in at that point in time. And I think you're absolutely right to the point of reconsulting or going through that process, you'll be at the tail end of the pricing period as part of that.

Okay. Just in terms of your guidance, can you give a bit of color on what you're expecting in regards to depreciation and capitalized interest in that?

Sure, Wade. So look, in relation to the guidance, we effectively have formed a view around, obviously, interest rate curves, et cetera, but we're seeing that the environment is moving relatively quickly at the moment. But I think it would be fair to say if you think about depreciation and interest together for FY '25, that could be between $270 million and $290 million in aggregate.

Okay. That's helpful. And finally for me, can you give a bit of color on sort of what stage you're at with the retail retender and when we will likely get a decision?

Yes, absolutely, Wade, that's in flight, so to speak. Pardon the pun. That is underway and our expectation. We'd like to be in a position March next year to be able to announce and then with a view that they would be -- the new operator would be in operation from beginning of FY '26 onwards.

Right. And within that, I mean, how long does the reset usually take? And does that create a disruption for your revenue in that period? Or is it all sort of built into the contract and smoothed?

Yes. The team -- we have a gun team, so to speak, in that retail space, and they absolutely understand the interplay between disruption and flow and the impact to revenue. So similarly, they executed very well the move from the 2 operators to the single transitional operator, but that's all built into the planning announcement and transition pace. So our desire is to set up the new operator to kind of hit the ground running from day 1. And the team is planning to -- as part of their planning is looking to mitigate any disruption as much as possible through that.

Our next question comes from the line of Grant Lowe from Jarden.

Just around the OpEx side of things. So obviously, there's been some flood-related costs in there and potentially another one-off or so in there. Can you just -- so if I've got the numbers right, I estimate sort of $145 million for second half, excluding flood-related costs. Is that kind of the exit run rate that we should expect going into the next couple of halves? Or have there been some other sort of one-off costs and remediation costs you've called out, for example?

So Grant, yes, that's probably about right. So in that period in the second half, we had a PFAS provision that we booked and some flood costs as well. But what we are still seeing is, like a lot of businesses in New Zealand at the moment, there's a lot of inflationary pressure still coming through the system. So what we're doing is obviously a lot of active management to ensure that can manage those costs. But I think that exit run rate, as you call it, would be a fair assumption.

And then just around -- you mentioned previously an equity raise subject to -- I appreciate the pricing review and it's been CapEx spend rates, et cetera, et cetera. Do you have any sort of -- I might be hopeful at this one. Do you have any sort of updated expectations on when that might be? I think at the original PSE4 you might have called out sort of middle of the PSE period. So anything on timing? And then also secondly, you've obviously got the DRP in place, which on some very rough numbers kind of gets you possibly $500 million over the PSE4 and 5. How do you think about the balance between doing a one-off equity raise or size or the development between relying a bit more on the DRP?

Well, I'll talk to the timing, and then I'll let Stewart talk to DRP and otherwise. Grant, I think as far as I mentioned before, those 3 levers I was referring to around business performance, PSE4 outcomes and the net scope and rate around the investment program and particularly kind of the large domestic processor contract, those are -- the confluence of those things that we'll continue to monitor being key. I think there's probably -- as far as if your question is how are we firming up our view on that, we've talked a little bit today about a little bit of a softening or flattening of growth in regards to performance. PSE4, we've had the draft report, but we haven't had the final. And then ultimately, as I said, the key big contracts with the investment program. So unfortunately, some of those -- we are a passenger on that train in terms of the delivery of some of those things reaching conclusion. So I couldn't give you a firm time frame on anything on that front. And in fact, the need for it ultimately will be driven by those coming together. So I'm sorry, that's not really giving, I'm sure, a more firm answer on that front. But those -- that does share kind of what's on our mind as Stewart and I are talking about that. But as far as DRP, Stewart?

Yes. Look, Grant, you're obviously very familiar with, obviously, DRPs, particularly in the New Zealand retail context, where a lot of investors do value the opportunity to very efficiently reinvest their dividends back into the company. And we recognized this back in -- gosh, it was almost 6 years ago effectively as the company was entering into a new phase that as a prudent measure, we would turn on the DRP effectively just to create more optionality when it came to the capital structure. And whilst it wasn't, at the time, envisaged to make a material difference to the overall funding ask, what we're seeing is the take up from the very first year when we turned it on, I think, in 2018 being sort of 12% to almost 36% at the recent interim results. So it's starting to look quite material from a not only investor participation perspective but also from the contribution that it makes to any capital structure or funding decision. So in terms of how -- sort of how do we think about it going forward, we continue to see it as a very valuable tool and is one of the levers that we will use to manage the capital structure over the remainder of PSE4 and PSE5. And the Board regularly looks at whether the DRPs turned on and the terms at each result cycle.

Our next question comes from the line of Rob Koh of Morgan Stanley.

First question is in relation to your PAX spend rate, which pleasingly increased in FY '24. Could I maybe just trouble you for some color on the spread of PSR, either by travel purpose or by nationality of arrival? Traditionally, I guess your Aussie inbound were not that spendy, but the Americans and the Chinese were good. Are those patterns still holding up?

Yes. Rob, look, we don't have a lot of the specific figures to hand. But more generally, what we've seen, and this is consistent, I think, with other ports across the region, is you saw with the resurgence in sort of Chinese travel is that multiplier of spend of a Chinese traveler relative to -- let's just take the New Zealand travelers still being quite high, and we talk about it between 2 and 2.5x. And then below that effectively is much less, is the likes of the U.S. travelers, and that just reflects the nature of the availability of a lot of products that you can get in duty free in their domestic market and the price competitiveness of it. But really, the biggest spenders are still Kiwis and Aussies. They make up sort of 60% of our passenger numbers. And they know what they like, and they know the price points of it, and they shop to effectively avail themselves of those products as they travel, whether it's through to the Pacific Islands or further afield.

Okay. Great. And so those kind of relativities that we used to see back in the 2019 days, are they -- they're still holding up in your FY '24 type numbers?

Yes, there's still holding up, but I think if anything, the top end has come in. So I think people we've previously talked about, very wealthy Chinese travelers coming in and buying watches and whiskey, and I would say that's a lot less prevalent right across the airport retail sector.

Yes. No, they're all going through now, I guess. Next question is, I guess, I just wanted to -- I think someone else asked this, but I wanted to double check, that I understood it. Within your capitalized interest, which is, I guess, not part of your NPAT guidance, that's obviously gone up with the CapEx spend. I think you've capitalized about $54 million, $55 million in the year. We should anticipate that going up again with the CapEx spend. Is there any numbers you could help us with there, Mr. Reynolds?

Yes. I think I would just grow that at the same rate effectively that we're growing effectively the debt book.

Okay. Makes sense. Because you're debt funding the CapEx, so that works.

Yes. So the overall mix should stay the same. And naturally, you see the flip between capitalization and the P&L interest really only occurs once the assets are commissioned.

Yes. Okay. That's clear. All right. Now I just wanted to drill a little bit into your PFAS provisioning in the half. And this may be something you want to get a technical person back to us later. But to what standard of PFAS are you guys provisioning for? I guess my understanding is New Zealand has a drinking water standard at 70 parts per trillion, but the U.S. has just gone to 0 or effectively 0. And so I'm just wanting to get a sense of how you're thinking about that, please.

I think -- it's a really good question. I think we will look back to you if we can on that just because, like I said, our -- I don't have off the top of my head as far as how we're planning and look at things is in line with kind of New Zealand's requirements, but I don't know what those are comparatively. But obviously, there's the PFAS standard. But we can loop back post this call, if that's all right so we can give you the answer -- the appropriate answer.

Yes. All right. Maybe if I can sneak in one more. I think this year, you've also given us some greenhouse gas inventory data, which is very welcome, and you need to be applauded for all of your initiatives on Scope 1 and Scope 2. Scope 3, I guess, is the elephant in the room. And it looks like you've gone with Category 11. So the -- measuring the fuel that gets pumped into the planes. And I just want to get your thoughts on if the measurement of contrail would be a big change versus the way you're disclosing it currently.

Rob, I think we might take that one away as well. That might be 2 from 2 that we'll owe a response back to you on. I think -- just thinking off the top of my head, I think the answer is yes, but we want to come back to you on it.

Yes, yes. No, that's absolutely fine.

Thanks, Rob. I think we only had a 50% hit rate. I think you stuck in 4 questions, and we can only answer 2 of them. So we'll revert.

Our next question comes from the line of Marcus Curley from UBS.

I just wondered if I could start with just a point of clarification, if I can. So we've obviously seen the draft, PSE4 report, which provides a range of revenue over earning. If we imagine that, that draft report is unchanged, I know that you wanted to set through to the final, but if it is unchanged, is the right assumption that the airport charges would be lowered consistent with the Commerce Commission's level of over-earning?

I don't want -- that's one of those questions that really -- it's very difficult for us to comment on that. Hypothesizing isn't helpful for us in -- when we're in the middle of a process of a draft and final on that basis. What we will do is absolutely take on board. We'll provide the feedback of our treatment, for example, of the pandemic risk versus how they think it should be accounted for. And we'll engage fully on that to see ultimately where the final report comes out. We will then consider that and respond accordingly. So I don't think we're in a position that you should be that we can guide you on any assumptions on that until we see what that final report says.

What you can do, Marcus, is have a look at that, which is available next week.

Sure. But it wasn't really necessarily about the number. It was more about the response. So I suppose we've seen this before with all the airports in New Zealand that have over-earned. They've adjusted their charges to be consistent with where the Commerce Commission comes out. There was an earlier question that was alluding to the fact that you guys could ignore the Commerce Commission. I just wanted to make sure that there was an opportunity just to clarify how you currently think about the response to the final report.

Yes. And I think, again, if we take that earlier question you're referring to in this one, it is the view of -- and over history, you'll see varying degrees for the regulated airports of what the Commerce Commission outcome was versus the consideration in that of the decision, and there's been variability across it. And that's probably why I was saying that until we see what that is, kind of understanding how all of those things come together and on the basis of them. But they -- it's a process that we certainly think is incredibly important, and as I said earlier, are fully engaging in. But yes, ultimately, where it lands will be once we've seen that report, and we consider it and run through all elements of that so that we can land on a decision and communicate that.

Okay. Just secondly, when you're talking to airlines at the moment, do they -- when they talk -- when you talk to them about the fact that New Zealand hasn't recovered as fast as some of our peers, did they raise the issues around relative route profitability? Or is it more around the lack of confidence in future demand if they added new services?

It's probably slightly different than that. I said we have -- what I would say as far as what's going into the hopper, so to speak, there's quite a bit of interest and the discussions of the opportunity, obviously, we have a business development team that helps provide all the information of the potential size of the market from residents to students and otherwise. It's probably more linked to -- in many conversations, that does link back to that global supply chain challenge. Any number of conversations where they're saying, listen, you kind of -- once we get our next round of fleet, and we see that as the next destination. But many airlines haven't got their -- the full capacity or how they're thinking about it. So it's less about what they believe to be the opportunity in New Zealand or the commerciality in many cases. And quite often it comes down to having the right fleet type or the availability fleet against their prioritization of those high-yielding routes as any network planning team kind of looks at. So that tends to be the most consistent element, and we've seen as growth has continued that as airlines are reviewing their networks and getting more fleet. But it is slower, I think, than any of them anticipated it to be coming out of COVID.

So your conversations would suggest that New Zealand's bubbled up towards the top of these lists now?

Yes, yes. I mean I said the conversation of the opportunity, the market, how they -- the stimulation of the market with obviously -- and it's been demonstrated point-to-point traffic, is correlated to stimulation of the market. So those things are positive, and we certainly are on the radar. And our job is to try and convince some why instead of being #5 or 6, we should be #1 or 2. But -- so that's a work in progress.

Okay. And then just finally, it looks like the full year dividend was struck at a payout of about 70%. Would that be the right sort of starting point for the next few years?

Yes, it would be, Marcus.

Our last question comes from the line of Shane Solly from Harbour Asset Management.

Congrats on a really solid result given the challenges you're facing and the massive infrastructure works. I've got one question, just building on the operating expenses piece. And I guess you've ramped up in the heat of work and so forth to really improve passenger outcome. As you go forward, what do you see the OpEx increase relative to revenue growth? What's that sort of general trend in terms of efficiency gains?

Yes. So Shane, why don't I sort of kick it off? And I'll sort of hand to Carrie. As you've correctly outlined, we've effectively held a lot of shape in the business as we've come out of COVID and ramped up effectively, whether it's staffing numbers or the provision of services to improve the passenger amenity on the precinct, and in particular, to help manage the passenger journey through what is now an operating environment alongside a construction environment at times. And so what we're anticipating over the next few years is effectively that, that investment has -- really will moderate, and we're able to effectively leverage that investment and grow the margin over the next few years. So whilst from a percentage perspective you may see some sort of odd numbers coming through, what I'm effectively being tasked with as CFO is effectively to drive improved financial performance from the business and efficiency out of our cost base. And that efficiency and effectiveness will come through in the ways that we effectively deliver the products and services at the precinct. So Carrie, is there anything else you wanted to add?

No, I think you've done beautifully.

Okay. So Shane, I think one of the things we saw from a margin perspective pre-COVID was we were close to sort of 75% on an EBITDAFI basis. As Carrie mentioned earlier, we're just north of 70% now. And so naturally, we are looking to sort of close that gap, but the rate of that closure will depend heavily on the success of this organization improving its efficiency and effectiveness.

Thank you for the questions. This concludes the Q&A session. I will now turn the conference back to Carrie.

Thank you. Well, in summary, Auckland Airport has seen a strong recovery in FY '24, and we are certainly focused on continuing the aeronautical and commercial growth into FY '25 and beyond. And we are focused on delivering a much needed upgrade and renewal of the infrastructure and the customer experience that reflects that gateway role. So thank you for your time today. We look forward to connecting with many of you over the coming weeks of the investor meetings we'll be having both in New Zealand and Aus. So have a wonderful afternoon. Thanks, everyone.