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Good day, and thank you for standing by and welcome to the Auckland Airport Interim Results 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded.
I will now hand the conference over to your speaker, Carrie Hurihanganui, Chief Executive of Auckland Airports. Please go ahead, ma’am.
[Foreign Language] Welcome, and good morning to everyone joining the call for the interim results for financial year 2023. I am Carrie Hurihanganui, CE of Auckland Airport. And I am joined today by Chief Financial Officer, Phil Neutze.
It’s pleasing to see Auckland Airports delivered its first underlying profit in 2.5 years through the return of the international airlines increasing travel demand and record high load factors. However, similar to the industry globally it has not been without its challenges such as labor shortages, lost luggage, queues, which we have unfortunately have been felt by our customers as the system has went up to meet the increased demand. We are working hard across the airport ecosystem to address these issues, but it will take time.
I also want to take a moment to acknowledge the recent severe weather events impacting Auckland and regions across the north island. Our thanks go to travelers to their underlying patience and the team here at Auckland airport who continue to work incredibly hard to support the recovery of the business.
And finally, our hearts go out to those around New Zealand who continue to navigate the impacts to their homes and communities.
Now that there we have quite a bit to cover with you before we get to the Q&A. So let’s jump into Slide 4 to kick things off. Now the happy results do reflect the uptick in travel with almost a full six months period without any travel restrictions for New Zealand. Passenger movements increased substantially 341% on the previous comparable period to 7.6 million and if you look at that in first half ’19 comparison that’s 71% of what it was.
Now this is primarily driven by the increase in domestic PAXs to 4.1 million and the increase in international passengers including transit to 3.5 million. First half 2022 revenue increased 128% to 287.8 million, which lifts across all revenue lines.
Operating EBITDAFI lifted 289 million, which saw first half 2023 EBITDAFI margin of 65.7%. Now that’s resulted in underlying profit after tax of 67.9 million and the total reported profit after tax of 4.8 million impacted by the 94 million non-cash investment property valuation decrease.
As agreed with our banks following fresh interest covenant accommodations in February last year, no dividend has been declared for the first half. In line with the increased passenger movement in international airlines returning you see that in the aircraft movement which rose up 117%, driven by both domestic and international.
Capital expenditures 261.6 million was up 124% on first half 2022 and that’s a reflection of increased core aeronautical investment in – field renewals which includes the purchase of the air field ground liaising the design and enabling works to support the future development of the integrated international and domestic terminal building and that also includes the Transport Hub, as well as ongoing key property development such as Mānawa Bay, and the five pre-leased warehouse and office developments underway.
If you go to Slide 5, what we are seeing is the continued recovering is driving improvements across all key business lines. Aeronautical revenue lifted significantly to 101.5 million driven by the growth in international airlines and passengers and that subsequently flowed through to higher air field and passenger revenues.
Retail revenue was up on the prior year to 59.4 million as a result of the increased passengers with 95% of domestic and 87% of international retailers trading daily. Car parking income also increased to 27.5 million, that’s not only reflected in the increased passengers that we talked about, but also the demand for self-drive, the fact that we have availability of all parking products and the recovery in those numbers.
Property has been and continues to be resilient with revenue up 31% to 72 million. The property rental income was driven by rental growth in the existing portfolio, new leases and a positive contribution from new developments.
Hotels again in line with the increase of strong demand is up to 22.4 million. That’s an increase of 173% from the comparable period and that strong demand is driving rate growth ahead of occupancy for the period of 61% average across [Indiscernible] hotel. Although also noted that the ongoing staff shortages has constrained or been the threshold to a certain extent on the recovery to the number of available loans.
Switching to Queenstown, performance was impacted by both the international and domestic travel restrictions and so their domestic passenger numbers decreased by 29% compared to the same period last year. Underlying hotel performance was supported by Novotel's continued use of Ministry of Health quarantine facilities throughout the period.
Occupancy at the Novotel was 62.3%, and that was a reduced reduction on last year primarily due to a change in the cohort cycle of the quarantine from 16 days to 11. Although we look at property that remains resilient. Rental income, excluding aeronautical and retail was NZD 54.8 million, an increase of 16.6%. Net income growth in the year was primarily due to new properties leased this year, rental growth from the existing portfolio and the full 6-month effect of properties leased last year.
Let's move to Slide 7, please. Now while passenger numbers have remained impacted in the first half of '22 due to the COVID restrictions, there were brief signals of when the restrictions were lifted that desire to travel. Prior to the COVID Delta variant outbreak that commenced in August, domestic passenger demand during FY '22 was robust at 87.4% of FY '19 levels. With often being put into literal form and the introduction of the Auckland regional border, passenger demand dropped to just 3.9% of FY '19 volume.
If we look at the second half of December and after the regional border was lifted, the country entered into the new COVID-19 protection framework, domestic passenger demand did recover to 63.5% in the final two weeks of December from the September 30 figures. The government's 5-stage border reopening should enable a gradual recovery of international travel, but ultimately, the removal of the isolation requirements will be the unlock of a more significant recovery.
Let's move to Slide 8, please. Now we continue to proactively manage the short-term volatility and what is under our control, be it from safe operations at the airport, to measure core infrastructure investment and building on a strong commercial business. Now I'll talk to this a little further later in the presentation.
But now I'd like to hand over to Phil to take us through the financial performance. Phil?
Thanks, Carrie, and welcome aboard.
I'm looking forward to you presiding over a strong regrowth period over the next two to three years. I can't wait in fact. But we're on to Slide 10 now and the first half of FY '22 turned out to be pretty hard to echo, but a very promising, but short-lived surge in international packs in July, which reflected quarantine-free travel across the Tasman and to the Cook Islands, then Delta followed by Omicron both paid for that.
So this slide tells the story, and I don't have all that much to add albeit interesting to see that we had 36% more international arrivals than departures in the first half of this financial year. And again, that's for obvious reasons. It will be interesting to see how that dynamic changes going forward. I suspect we'll have another surge of arrivals over the next couple of months as clearly start coming home and that trend may reverse later this calendar year.
So on to Slide 11. Aircraft movements and make tie showed the same directional movements as PAX in the half year, but there were some interesting contrast. So the drop-off in domestic PAX and aircraft movements that is domestic on one hand are broadly similar in percentage terms implying as you expect that airlines responded to Auckland's lockdown by dropping flights. On the other hand, the short-lived surge in international PAX at the start of the financial year only required a modest increase in international aircraft movements and
Carrie's touched on this before. Earlier, I should say, we had a 2/3 or the reason for that. We had a 2/3 increase in international PAX in the first half, but only a circa 20% increase in aircraft movements and make tie. And this, of course, is because airlines have been running international services to work on with low load factors, but carrying valuable air cargo. and this has been supported by the government's MIAC or Maintaining International Air Connectivity scheme, which will remain in place until the 31st of March this year.
Moving now to the summary P&L on Slide 12. So we expect that the big picture financial outturn for the first half won't hold many, if any, surprises for the market. In short, revenue was down modestly versus PCP, and that was due to Auckland's extended lockdown between late August and mid-December last year. And underlying profit loss of NZD 11.5 million for the half, that was slightly worse than PCP of NZD 9.5 million.
But there's a bit of noise in this page, which reflects, first, the reported OpEx this period didn't benefit from around NZD 19 million of prior-period reversals like the first half of FY '21. And the reported share of profit from associates was hit by Auckland Airport's half share of the NZD 41 million revaluation loss on the Te Arikinui Pullman Hotel.
And this loss was entirely due to the increased hotel fit-out costs after this component of the build was repriced in November last year after being canceled in mid-2020. And as a reminder, that was when we terminated well over NZD 2 billion of live construction contracts to protect our balance sheet when COVID first took hold.
So more on OpEx on Slide 14 shortly. But let's take a look first at revenue on Slide 13. Aeronautical revenue was down by about 14% versus the first half of FY '21. And this is less than the drop in PAX. And I will reflect a couple of things. Capital was set out on this slide. First, we introduced a NZD 2-plus GST passenger charge per our requested regulatory mechanism to recover the cost of the green zone red zone segregation of quarantine free PAX from MIQ PAX.
Now there was also a small scheduled increase in PAX charges in FY '21. And another important reason is the higher-yielding international PAX actually increased versus PCP, and this slightly offset the big reduction in more yielding domestic PAX. As Carrie touched on retail income was broadly flat for the half as we continue to rebate over 90% of contracted internal retail REITs to support our retailers. And yet again, investment property was a standout performer for us. We have IP rental income up 17% to just under NZD 55 million for the half. And a full 6 months contribution from the big food stuffs distribution center drove this result plus portfolio-wide retail increases.
So moving now to operating costs on Slide 14. At a high level, it looks like a big increase versus PCP, but most of this NZD 22 million increase was driven by the nonrecurrence of the nearly NZD 19 million of fixed asset termination and expected credit loss reversals that benefited the prior year. So included normalized OpEx analysis on the next slide to provide some more color on this. So I'll come to that shortly. But before that, I wanted to touch on depreciation and interest expense possibly strangely, both of which reduced in this half versus PCP.
Starting first with depreciation, even though the CapEx program remained active since December 2020, most of that was still work in progress as of December last year. So it wasn't incurring depreciation and some old assets on the fixed asset register were fully depreciated and rolled off. But we are expecting higher depreciation in the second half since we commissioned the Northern Roading Network CapEx in December last year. So full year depreciation should be somewhere between NZD 115 million and NZD 120 million.
Interest expense also fell versus PCP, and that reflected mainly that we repaid USPP borrowings in June last year as well as some bank debt. So we're expecting full year interest expense to fall somewhere between NZD 55 million to NZD 60 million.
So on to Slide 15. And apologies if you feel you need to put a [COVID flag] on your forehead to figure this one out. But quickly, the way it works is to show the pluses and minuses in H1 FY '22 OpEx versus H1 FY '21.
And this provides a bridge to this half's reported OpEx, so you can see the fixed asset termination and expected credit loss reversals on the left-hand side of the chart, and that resulted in the NZD 61.1 million normalized OpEx result for the prior corresponding period. Then we show the NZD 8.3 million OpEx increases in the current half, and that's before the benefits of increased capitalized salaries, which by the way, reduces P&L salary cost and the increased wage subs versus the prior corresponding period, and that arrives at this half's reported OpEx, and this is up just NZD 4.8 million or 8% versus normalized PCP.
We actually signaled an increase in OpEx back at the full year results and again at the annual results. And in fact, in July last year, we first indicated that. So these were planned OpEx increases as we begin to ramp up operational staff in preparation for the expected growth of international PAX that's coming, plus an increase in outsourced bus operations, baggage services and car parking activities. We also took advantage of continuing to have less PAX in the terminals, and that allowed us to accelerate some R&M activity. It appears the moment, by the way.
So moving now to CapEx on Slide 16. As we spoke about at the full year results announcement in August, we had a range of important CapEx that we needed to get on with this financial year. So our guided CapEx of NZD 250 million to NZD 300 million for the year was effectively locked and loaded, and that was independent of the pace of the COVID recovery this financial year.
And this slide summarizes our spend for the half year. It's a healthy mix of roading, fuel network, airfield slabs, terminal and transport hub design and ongoing property developments. And we still expect to land within the original CapEx guidance for FY '22.
So I've just got a couple more slides to speak to you, and then I'll hand back to Carrie to cover our future plans. So we're now on Slide 17. And the great news is that our [eight] bank syndicate remains very supportive of Auckland Airport and optimistic for the future. And while the top end of our FY '22 earnings guidance range would see us comfortably comply with the 2x EBITDA interest coverage covenant that we agreed with our banks back in August last year, we've reached it at the bottom end, and we thought, therefore, prudent to take that risk off the table.
So I'm pleased to announce that the new interest coverage ratio track for the 12-month measurement period between June this year and June 2024, this starts off at 1.25x, and that's a 75 basis point reduction from the previously agreed covenants. And also I want to make a quick call out of our NZD 950 million plus available liquidity. This is dominated by undrawn banking lines, but we've also got circa NZD 34 million of cash.
And then Slide 18, that's really just an FYI on our balance sheet numbers. There's not a lot I need to say about this one, but perhaps I'll call out the 6.1% less than investment property values over the first half. This was supported by the circa NZD 130 million upwards IP revaluation as at 31st of December that Carrie touched on earlier. And that reval pretty much explains 1.8% less than book value of equity as of 31st of December.
So back to Carrie.
Thank you, Phil.
I'd like to take just a few minutes as we think about kind of the way or two from here, how we're setting ourselves up for the future. So if we could jump to Slide 20, please. Keeping Auckland Airport staff, the traveling public and the wider community safe has been and will continue to be a priority. If we reflect throughout the pandemic, Auckland Airport has ensured that we've adhered to the highest standards of protection through mass and PPA that's cleaning protocols we've had in the terminals, physical distancing and testing to ensure that we are proactive in our support of border requirements.
Now this continued focus on safety has seen safe operations for over 630,000 arrivals over the past two years and no often airport employee has contracted COVID while at work. Now clearly, Omicron certainly has changed the rules of the game a little bit and has meant a need for further measures to ensure business continuity.
And so we did introduce the concept of work bubbles that were separate that ensure that if there was an outbreak of Omicron that we were still able to deliver to our operation of the aerodrome with no concerns. We've also introduced high-frequency rapid antigen testing for selected frontline groups to support alongside the PCR surveillance testing that they have been having as border workers.
If we move to Slide 21, please. And even against the tough backdrop over the last couple of years, but in particular, 6 months has shown us, we have continued to invest in core infrastructure. The impacts of the pandemic means that we've been very prudent about the amount of strategic aeronautical infrastructure and property development across the business.
However, lower passenger and aircraft volumes have allowed us to pursue an accelerated NZD 28 million program of airfield-related fuel system compliance and upgrade activity, including slab and apron renewals. In addition, we delivered the majority of the Northern network roading upgrade, including a new terminal exit road. This project actually was the largest stand-alone roading project delivered by Auckland Airport to date. Another NZD 30-plus million investment has also seen new and widened roading, high-occupancy vehicle lanes and pedestrian in-cycle pathways introduced.
On Slide 22, please. Now domestic activity is key in supporting the recovery in our retail and transport businesses, and we've been proud to continue to offer support. It has been an incredibly tough couple of years, particularly within retail in regards to the reduced passenger numbers going through the terminal. And so during the travel restrictions, there has been a 92% of internal retail rental income abated.
As we move on to Slide 23. We look at commercial property, and that has remained resilient and continues to provide income growth. With solid development pipelines from both new and existing tenants, including the completion of the Geodis Wilson and Hellmann facilities. Now with a weighted average lease term of 9.4 years and an occupancy rate of 98.5%, it continues to be a solid performer. Design and predevelopment works are well underway for the retail outlet center with enabling works commencing in the short term.
We've been really excited to see significant interest coming in, including major international brands for that development. November last year, and Phil touched on this in conjunction with Tainui Group Holdings, we recommenced the fit-out construction in the Te Arikinui Pullman Auckland Airport Hotel with an expected completion date in the first half '24.
We'll move on to Slide 24. Now work continues and is underway to deliver to our sustainability agenda, including the issuing of our second modern flavor statement, the definition of the pathway to achieve our net zero carbon objectives. The incorporation of sustainability principles into infrastructure design standards and supporting the New Zealand vaccination drive. We converted park and ride into park and vac center and saw 155,000 vaccinations delivered to the South Auckland community with that.
We also worked with local health providers around the mobile vaccination health clinics with the sharp growing sharp co buses that allowed another 50-odd thousand vaccinations to be delivered. So we were really proud to be able to support that vaccination drive for New Zealand.
And moving on to Slide 25. Now open, we remain focused and well positioned for the long-term recovery. We are -- while it is still uncertain, we are optimistic against the backdrop of high vaccination rates. The government's five days border reopening plan, indications that health restrictions will fall away once Omicron picks and clearly, if you look across the Tasman to Australia and their border openings and what they are seeing and the early signs of demand puts us in that positive space.
Now our priorities are going to be the ongoing safe operations of the airport and ongoing engagement with airline partners to ensure that New Zealand remains part of their network plans both in the short term and long term. What we do know is that airlines are focused on improved certainty before committing their assets and network and removal of key health restrictions like self-isolation will be key to building their confidence and their commitment.
But in summary, we're ready to go and positive about the year ahead. Now speaking of the year ahead, I will hand back to Phil to walk through the outlook. Phil?
Thanks, Carrie.
As Carrie touched on, I think that we're focused on what we can control, but there still is considerable uncertainty regarding the timing and shape of the eventual COVID recovery. So we're on Slide 27. And in recognition of that uncertainty as well as the difficult trading environment being faced not only by Auckland Airport, but also by our airline partners, in the first half of this financial year, we consulted the airlines on delaying the first price rises to take place in PSE4.
So PSE4 is the period of FY '23 to '27, we've delayed that first price rise by around 12 months, and we'll conduct the standard full-blown aeronautical pricing consultation during FY '23. And by the end of that year, we're hopeful that the forecast COVID recovery and the timing of our key aero CapEx projects will be far more certain than they are today. And this concession has been well received by our airlines and commission.
So finally, on to guidance on Slide 28, and then we'll go straight into the Q&A. We've decided to reinstate earnings guidance for FY '22, notwithstanding considerable uncertainty regarding the government's border settings and how they will evolve over the coming months and uncertainty regarding how deep and how long the inevitable Omicron travel shyness will play out. But there's only just over four months to go in the financial year.
So we're pretty confident that our FY '22 underlying profit result will fall as a loss somewhere between NZD 25 million and NZD 50 million. And we've set out some of the key assumptions underpinning that range on Slide 28. You can make your own assessments of how valid those assumptions are. Unfortunately, none of us have a crystal ball that we can refer to here. As I mentioned before, CapEx guidance remains at NZD 250 million to NZD 300 million for FY '22.
So Carrie and I are now happy to open up to Q&A.
[Operator Instructions] Our first question comes from the line of Andy Bowley with Forsyth Barr. Your line is open. Please go ahead.
I've got a couple of questions to kick things off here, first of which is around the retail business. keen to get a sense of how many retailers are operating currently, how many hibernating and how many have walked away? And then kind of the follow-on in relation to that is, can you give us a sense of - or insight into the process for the duty-free retender and thoughts with regards to potential single duty-free model in future?
Certainly. And Andy, can I start by saying I'm delighted that you've asked the first question. I had high expectations, and he's delivered...
Thanks, Carrie.
In regards to - and please, I'll hand to you Phil to add to it as well. In regards to occupancy, we've been very pleased. We've had high levels of occupancy remaining in the retail business. It's been a tough couple of years for the tenants. And so we have been offering support to them to help them navigate through this period and as we head into initial recovery. So in regards to specifics, is there anything you want to add on that first part of the question?
Yes. So we - of course, the uncertainty that we have regarding the recovery trajectory doesn't just apply to aeronautical activities and applies to territory as well and what the prospects are for our internal retailers. So we are thinking about the timing of that retender process. Normally, we'll be kicking that off towards the end of this calendar year. There's a possibility that we might seek to defer that.
Go ahead, Carrie.
Well, I was going to say the long-term goal, and we've continued to always have the aspiration of high-quality retail customer experience. Now the last couple of years, it has been pretty challenging, and therefore, the support really stability is what's on our mind and creating a level of stability before we start to think about what does our future operating model look like. And so in the short term, stability is a key focus.
So if we deferred the duty-free retender, that's to say that we just carry on with the kind of the twin operator model at the moment? Or would there be scope to combine the two prior to retender to have a period of time to understand how the new model may work?
We need to work that through with the existing operators exactly how that would work. Clearly, there need to be a transitional arrangement if we were to defer that retender. I guess we should also touch on your question around single operator. We have had discussions with the Commerce Commission, we are confident that there won't be obstacles for us move into a single operator model, and there's been considerable interest, not just from our existing operators, but also potentially new ones around that single operator model. So that's something that we're considering seriously too.
And maybe just to clarify. So we haven't started the retender process yet - just launched it because it's not evident publicly, but haven't started the process.
No. No, we'll be kicking off those discussions this month.
Yes. Okay. Great. The second question around dividends and broader capital management. What are kind of the expectations in terms of recommencement of dividends. I recognize the covenant waiver suspension has been in place, and that's prohibited dividends up until now. Perhaps you can talk to the Board's current thinking around dividend recommencement and maybe potential broader capital management initiatives over the next few years as well, given the relative strength of the balance sheet.
Yes, sorry, Carrie, you direct the questions. I think you're about to refer to me. So I'll continue on this one. Yes, on dividends as part of the arrangement with the banks on the relax and discovers dividend for the next couple of years, we have agreed to extend the dividend blocker. So it's an absolute dividend blocker and that's in place until 31st of December this year now, it was previously 31st of December last year.
And so that means we won't be able to pay any dividends in relation to FY '22. The interim dividend that will normally get part in March this year and the final dividend normally get paid in October, maybe those can go ahead. That's really not a material constraint because we're not expecting to have any underlying profit from which we would pay a dividend, and our dividend policy relates directly to underlying profit. And Andy, go ahead.
No, you carry on, Phil. Sorry.
No, I was just going to ask about the second part of your question, actually, if you can just...
Maybe just clarify on the dividend. So the first dividend that you could pay is effectively March '23.
Yes, that's right.
Great. And then look, just the second part of the question was around broader capital management initiatives over the next few years. We've talked about it before in terms of the potential for a capital return. Any update in terms of your straight board thinking in relation to the balance sheet over the medium term?
Yes. Over the medium term, it all hangs off how strong is the recovery from COVID. So we would need to see things back on track on the pre-COVID growth trajectory in three or four years' time before there will be any possibility of contemplating something like a capital return. And we do have a significant aeronautical infrastructure program ahead of us.
So yes, that would be - I think it would be fair to say that our capital return over the next five years will be a pretty slim prospect based on how we see things today.
And our next question comes from the line of Robert Koh with MS. Your line is open. Please go ahead.
Good morning. So can I ask a question about the updated OPEX guidance? I guess that kind of implies a bit of an uplift in spending in the second half, which I presume is kind of preparatory for recovery. And Phil, you could maybe give us some color on some items in there, please.
Yes, we'll do Rob. So yes, it's largely on staff, and it's largely [indiscernible] operations team. So we've been running on the bare minimum pretty much for the last couple of years. And we do need to start to recruit those people and get them on Board and train them and anticipation of the eventual recovery and international pecks. And we need to get that underway, in the second half of this financial year.
So that that is the main driver. Those also as we increase activity, there are certain elements of the business that outsourced like bus operations, that's both aeronautical. Also related to our parking operations, we've got baggage services, we've got car parking operations, as activity bills, those costs will start to build too. And finally, we do intend to up the cadence a bit on repairs and maintenance. That will be the main contributors.
And then thinking to the PSE4 process. I guess that's pretty challenging at the moment, but hopefully, you'll be able to have some passenger forecast visibility by the time you get into that. Are you thinking about any other kind of flex mechanisms or catch up provisions within that that process this time around?
Carrie perhaps I'll jump in there as well. So in terms of catch up, no. So we -- the way Auckland Airport has always set your local prices has been that we take demand risk and OpEx risk and CapEx risk during the price of impairment so there isn't a formal wash up mechanism. So we will not be able to, or have no intention, in fact of seeking to recover losses due to COVID over the periods, FY '18 to '22. And so that that's a couple of years of COVID losses in the - going forward, you've probably picked up that whilst we're freezing prices for the first year of FY '23 we, as on the basis that will set charges over the remaining four years so as to forecast our target return for that period. So there will be an annual return in the first year of PSE4 that we expect to make up in the remaining four years.
So can you maybe remind a surveyors inflation risk under the kind of agreements?
Again, the airport does, because it's all based on forecasts that you put together, preceding prices on under the building blocks model. Effectively, you forecast your OpEx. You forecast your capital base, and you recover OpEx plus return on that capital base plus depreciation and stay tuned out differently to what you forecast that's at the risk of the airport, and it swings and roundabouts. You can win on that basis or lose. And we've done both in my time here.
And our next question comes from the line of Alex Prineas with Morningstar. Your line is open. Please go ahead.
Just good to see the renegotiation of the covenant tests, particularly on the longer term, just question about the more sort of shorter term situation. So would I be right in assuming, you know, based on the guidance for a loss, that you still unlikely to meet that June 22, lower interest coverage test?
Phil, for you.
Again, this is -- yes, thank you, Carrie. No, we are expecting to comply with that. That's why we renegotiate and covenants for the banks, so as to ensure compliance going forward.
Okay, thanks. And if, let's say, you know, in a scenario where the passenger recoveries slower than expected, what's the sort of, any sort of comment on the appetite and the letters to, you know, either further renegotiation of those covenants or further waivers in the short term.
Yes, it's fair to say both and lenders in Auckland Airport, a bit tired of negotiating cabinet waivers or accommodations. We think we've set in place a covenant track, that's going to cover us going forward. You know, if you look at the 1.25 times that we've agreed for this calendar year, we would still meet that if all we had was in IQ travel. So we didn't have arrivals under self-isolation or any [indiscernible]. And we had domestic packs, only running less than 20% on pre carbon.
So we're well and truly protected. this financial year will be a step up. So this calendar year, I should say, there will be a step up to two times next calendar year. But it's, again, based on realistic recovery assumptions now that the borders are starting to open. It's hard to see that being challenged next year.
And just for a bit of context, in terms of EBITDA, interest coverage, historically, we've run more like eight or nine times coverage when we're in normal times. So we'll be lightyears away from breaches until COVID strike.
[Operator Instructions] And our next question comes from the line of Marcus Curley with UBS. Your line is open. Please go ahead.
Good morning. I've got three unfortunately. I just wanted Phil or Carrie if you could talk to what the current New Zealand winter schedule looks like for sea capacity.
Phil?
So my understanding is that it's starting to build it, you have had recent positive engagement with a bunch of airlines. And, you know, we're encouraged by what we're seeing from the New Zealand's both domestically and internationally, particularly the Tasman. So what we understand about capacity that's been laid on is, is quite a bit stronger than say, the midpoint of our guidance range, quite a bit stronger. But of course, remains to be seen as those aircraft are fall and they stay on.
And I think I could add to that, sorry, Marcus, I'd just add that last, those plans are in place for the earlier comments, you know, clarity on things like isolation, some of those restrictions, I think is ultimately going to be the final kind of commitment piece from airlines. That's certainly a question we are getting regularly as we are engaging about potential network opportunity.
Okay. But I can push you further, in terms of what you know, the level, for example, on the Tasman and international long haulers relative to pre-COVID as you see it today in the schedule.
I don't have that at my fingertips yet, Marcus.
Okay, maybe we can circle back. Secondly, just on OpEx, can you talk to you know, what you think, you know, I suppose the new normal will be for the business. One would assume probably looking into FY '23. Do you think your return to sort of, you know, FY '19 levels? Or we're about do you think you'll land?
I will start.
Sorry, go ahead Carrie.
The joys of remotes calls, I'll reply to them and keen for you to add to it. From a planning perspective we are operating with the assumption that we'll just go back to the way that it was we're engaging deeply on, what are the key learnings? What are the opportunities for efficiency out of that, but it does remain uncertain a little bit until we understand what FY '23 looks like from a scheduling network perspective. Phil you were going to add something to that?
Yes, thank you. So exactly the situation, we do have to understand how things pan out over the next six months and prepare our budget for FY '23 and going forward. But big picture gut feel I would expect the OpEx in FY '23 would continue to be below pre-COVID levels. But looking further afield, that, you know there are likely to be some additional operational requirements around health at the border, and a need for more staff, more space, other costs.
So we've -- as we've answered this question for the last couple of years, it's probably fair to assume that we head back to that 75% EBITDA margin. And that's a good basis, I think for long term modelling.
Okay, and then and finally, Phil, can you just give us a little bit of color when you think you need to determine your passenger forecasts for the next pricing reset? And, you know, is there a reason why you just don't defer this further to avoid estimation error?
Yes, so that's a big reason why we the deferred is because you have to have golden block forecasts in order to set prices. And you really, it's ideal to reach broad agreement with your airline customers around those and there is so much on Serbia at the moment, that would be very, very difficult. And of course, we wanted to provide such support to be aligned at the moment when we've got an extra mile passengers going through the terminal, certainly internationally.
When would we need more clarity? So it would be March/April next year. That would starting to lock in on those passenger forecasts. And so there should be a lot more clarity by then. But they'll probably still be more an inherent uncertainty on those longer term forecast. And what we've dealt with in previous pricing range around. But we'll have to work that through.
March, April, still gives you time to consult. Yes, if you're going to implement charges, yes three months later.
Yes. That's about the time that we're consulting on a Pricing Proposal round about then. And working through the final parts of that. Yes.
Okay. And then maybe I can just open one really quick one for you. So again, is there any requirement for non-bank lending waivers?
No, there are some covenants. But they, even in the depths of COVID, we were absolutely miles away from challenging those. The things like secured liabilities, or the proportion of total liabilities, and other minor things. But what you should also know though is all in those, in effect benefit from the banking covenants because if we default on those, then that triggers what's called a cross default. And then all lenders are able to take action, which in simple terms, means requires to repay the loans if they want us to do that. So that's why it's so important that we avoid banking covenant breaches.
And our next question comes from the line of Amit Kanwatia with Jefferies. Your line is open. Please go ahead.
Just continuing on the theme of passenger recovery. Now, I understand under the staged reopening plan for international borders, I mean, they will be opened completely by October. So the question is, I mean, what is your expectation for when the full recovery of international passenger occurs, I mean, what I'm trying to get is once all of the travel rules are relaxed, saying October, under the current plan, how many months you think, for international passengers to reach pre-COVID levels, right kinds of discussions, you'd also be having with the airlines similar discussions, so just any views there for us.
And so I'd like to start and I'm sure you'll have a view on this as well. It is quite very prospective down there whether that be quite aggressive views by some forms of FY '23, or calendar year 2023, right through the 2025. You know, if the restrictions fall away, so that is largely kind of open travel, the trajectory of that recovery would be far faster than if things remain in place, such as, you know, isolation, reducing from seven days to three, or two.
So, unfortunately, that's not giving you a clear answer from my perspective, but it will be dependent on any restrictions that remain in place once borders open as such, but film as Phil as your perspective of timeframes.
Thanks, Carrie. So you've touched on the main point Carrie that under the current we don't really plan, self-isolation is still an integral part of that. And, you know, we won't see a significant recovery long, we have self-isolation. So it will only be once that's removed, that we get a strong recovery. And actually, we don't have any better information than anybody else on the planet on how things might pan out after that. So yes, there is a range of years of full recovery, I think somewhere between 2024 and 2026, and can probably take that to our financial years. And we agreed that it will be somewhere in that range that we're likely to get back to pre-COVID levels.
I mean, the other question is again, on the PSE4, now I understand there is a pricing freeze, you've agreed for fiscal '23 passenger volumes, as you say, uncertain, but there is some better clarity, if you say. I mean, the question is the CapEx on the new domestic terminal, around a billion dollars, as well as ground hub. I think the construction for this infrastructure currently some works have started, but is there any expectation or is there any color some clarity you can give whether this domestic terminal and the other CapEx would be included during the -- would be delivered in the PSE4 time period before the PSE4 ends? And would that be included in the PSE4 that? And would you be earning any returns from that or too early at this stage?
So certainly from my perspective, we've got enabling works. You're absolutely correct. Enabling work commenced at the International Terminal to make way for that future integrated terminal. But you know, the pace of recovery will be a key pacing item, as we think about the return of the likes of trans-Tasman and earlier Phil commented about kind of getting back close to pre-COVID volume and demand. And we purposely set up the infrastructure program to be stable so that we could make key decision engaging along the way. But Phil, in regards to PSE4 specifically anything on that.
Yes, so PSE4 finishes in June 2028. So delivering the new domestic travel by then would be an absolutely outstanding outcome. And it's more likely, when we trigger that it would get delivered and commissioned fairly in PSE5. And the point is that it's commissioned that we start to price return on that.
Just final question just on the PSE4 then. I mean, if I think about the PSE4 target returns, and obviously, the current pandemic has shown sort of higher risk for airports, they're significant under recovery in PSE3, so if I mean, if any, what do you think - what's the view, if you can improve the asset beta and corresponding whack returns so that you can discard your returns in the future from any similar description - disruption going forward?
Carrie I'll jump in there again? Yes, so good question and definitely something I think you'll find regulated airports around the world are looking at. If you take a look at the data set that the commerce commission used to establish asset beta for its view of airport sector work, those clear evidence that asset beta has been tracking up a little before COVID and some more after COVID. So then it begs the question is that sort of systematic risk, something that is likely to be robust for a long time as their ongoing risk once, however, it's done and dusted, that there might be something somewhere in the future.
And I think we'd be pretty brave to bet against that being your risk. So we will be presenting really solid quantitative analysis for an office to the Commission around these issues, particularly on asset beta. And I can't share with you what sort of increment that could result in in terms of an uplift in asset beta, but there's definitely some room to move in my view.
[Operator Instructions] And we have a follow up question from Rob Koh with MS. Your line is open. Please go ahead.
Thank you for letting me come back. I guess if I can ask a question with my ESG head on. Can I ask a question of Carrie, how you're assessing and thinking about employee engagement in these particularly troubling times for the aviation industry?
Yes, thank you, Rob. You look at a backdrop. It's been a tough couple of years. And certainly, the airport team has done an outstanding job of navigating through that but you know, creating a pathway that we've got the strategy, which we do, the Master Plan largely holds true. There's certainly a desire from the team who are incredibly committed to want to get the -- can I -- the thing that we continue to focus on around culturally it's about creating opportunities for employees in regards to career development, but probably most importantly, is actually seeing progress across things from the infrastructure program to the return of travel, the increasing of demand.
We have a pretty engaged group. I'm certainly spending time in and out about where I can in the current Omicron environment to understand what's on their mind. So that as we are creating those plans, we are catering for the most important things for the workforce.
Thank you. And I'm showing no further questions at this time, and I would like to have the conference back over to the company for any further remarks.
Well, many thanks. I appreciate everyone joining us today. And I guess if we can leave you with one element is that our Auckland Airport remains focused on not only managing the short term volatility, but positioning ourselves for that long term recovery. So thank you, everyone. Appreciate your time and have a great afternoon. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.