Sydney Airport is considering developing a portfolio of hotels at its international and domestic terminals to boost earnings as it prepares to open its first company-owned hotel in mid-July.
Chief executive Kerrie Mather told The Australian Financial Review the company was optimistic about the potential to build a hotel business, noting that existing hotels at the airport owned by other companies "performed extremely well".
"We can see that there's really strong demand that isn't being met and there's a requirement for more 2 to 3-star hotels in the precinct," she said.
The airport believes there is enough demand to support 100 hotel rooms for every 1 million passengers that pass through the airport. Nearly 42 million domestic and international passengers used the airport last year.
Two hotels owned by other companies operate at the airport, the 318-room Rydges hotel at the international terminal and the 199-room Ibis Budget Hotel at the domestic terminals.
The airport is building its 136-room hotel near the domestic terminals and has appointed Mantra Group to operate it.
The hotel, which is being fitted out before opening mid-year, will be marked as a mid-range hotel. It is expected to increase the airport's operating expenses by about $5 million this year but Ms Mather said the company would receive income in return.
"We will have a revenue stream from the new hotel that will come directly to our P&L; [profit and loss statement]," she said.
Further sites under consideration
The company is understood to be considering additional hotel sites in the domestic and international precincts in the short to medium term, and will consider the structure and ownership of each subsequent hotel on a case-by-case basis.
The airport's annual property and car rental revenues, which rose 1.5 per cent to $204.2 million over 2016, are the third biggest contributor to group revenues, accounting for 15 per cent of total revenues. They include leases on airline lounges and offices as well as aircraft hangers.
Aeronautical revenues are the biggest contributor, adding $614 million to account for 45 per cent of group revenues in 2016, while retail revenues are the second biggest contributor, adding $296 million to account for 22 per cent of group revenues.
Sydney Airport's executives outlined alternative growth options last week after reporting a 13 per cent rise in annual net profit to $320.9 million amid uncertainty over whether the company will take up an option to develop a $5 billion second airport at Badgerys Creek.
It is also keen to develop "aviation support infrastructure" such as catering services and office accommodation for people working at the airport, and is examining opportunities to develop other commercial facilities in under-used areas.
Citigroup analyst Anthony Moulder said the airport's 2017 property revenues would be "underpinned" by the new hotel development, as well as developments in aviation support facilities.
The company expects to invest some $1.3 billion in capital spending over the next five years, including $450 million this year.
It is considering spending an additional $500 million on major projects, including expanding a pier and baggage facilities at the international airport, and has started discussions with airlines but has not made a final decision.
