With nearly 40 million passengers trooping through its terminals every year, Sydney Airport is Australia’s largest airport and the main gateway for international travelers, who make up 41% of its traffic. It’s also an increasingly vital link both within the Australasian regional economy and to the rest of the world.

These days, Sydney Airport is seeing a lot more arrivals from China.

Trade Deal Will Boost Traffic

More than 400,000 Chinese residents visited Sydney during fiscal 2014, and Chinese passengers are consistently the airport’s fastest-growing passenger group, with annual growth averaging almost 14% over the past four years.

As a result, they now make up the airport’s second-largest international passenger group, trailing only close neighbor New Zealand.

Four Chinese carriers—China Southern, China Eastern, Air China and Sichuan Airlines—compete on the China-Australia route, offering a combined 19,540 one-way seats a week. The route has been steadily growing and will reach a new capacity record of 25,189 this month, driven largely by China Southern adding 3,491 seats.

And those seats looks like they’ll be in higher demand thanks to the recently ratified China Australia Free Trade Agreement (ChAFTA), which will further deepen links between the two countries.

A work and holiday arrangement concluded alongside the deal will allow 5,000 Chinese work and holiday makers into Australia every year, increasing demand for tourism services and boosting the sector’s development.

Soaring Through Turbulence

In recent years—including the global financial crisis—Sydney Airport has showed its resilience by posting sharply rising passenger numbers, largely driven by Chinese tourism.

That continued in the first half of 2014, when its earnings before interest, taxation, depreciation and amortization (EBITDA) rose 6.1%, as revenue gained 5.6% on 2.3% more passengers.

Key reasons behind the gains were 4.7% more international passengers, mainly from Asia, the UK and the US, facility improvements—including the ability to handle more planes—new business initiatives and a continued lid on costs.

Passenger numbers kept rising in October, with 3.3% growth domestically and 1.7% internationally. Total traffic was up 2.6%.

Year-to-date, domestic traffic is up 1.4%, international traffic 2.9% and total traffic 1.8%. The number of flyers from China, Malaysia and the Philippines grew 24.2%, 17.2% and 14.6%, respectively.

Dividend on the Rise

Sydney Airport is also a consistent dividend grower. Management recently declared a AUD0.12-per-share dividend for 2014, a 4.3% year-over-year increase. The AUD0.115-per-share interim dividend was 100% covered by net operating receipts.

A continued rise in traffic numbers, along with management’s plan to invest AUD1.2 billion over the next five years, should keep the airport’s payout rising.

One key project, the transformation of the airport’s Terminal 1 landside departures area, includes expanded check-in capacity and a new food court. The first phase will open early next year as part of a broader redevelopment throughout 2015 and 2016. Close to 13 million passengers travel through Terminal 1 annually.

Management is also catering to its changing passenger profile, including by boosting the number of Asian dining options.

Meantime, the airport continues to enjoy other advantages: unlike some large airports in Europe and the US, for example, its pricing is subject to a less rigorous regulatory framework, as it directly negotiates agreements with airlines. There is, however, some revenue risk based on most airline carriers’ weak financial profiles.

Still, in recent years, Sydney Airport has taken advantage of favorable market conditions to extend maturities and reduce interest costs on its large debt burden.

Blue Skies Ahead

The airport will continue to benefit from a number of positives, including rising numbers of Chinese passengers traveling to Australia (helped by growing economic co-operation with China, including the new free trade agreement).

Sydney’s proximity to Asia’s growing middle class—and its growing appetite for travel—along with increased airline capacity also put the airport in prime position for long-term growth.

Sydney Airport is a buy up to USD4 on the ASX using the symbol SYD and on the US over-the-counter (OTC) market using the symbol SYDDF.

The stock closed at AUD4.66 on the ASX (USD3.85 based on the prevailing Australian dollar-US dollar exchange rate) and USD3.78 on the US OTC market on Dec. 11.

Among the analysts who cover the stock, six rate it a buy according to Bloomberg’s standardization of brokerage house recommendation terminology, while nine rate it a hold. One analyst rates the stock a sell.