ASR - Economic And Political Uncertainties Make Grupo Aeroportuario del Pacifico A Harder Call Today

2024-04-14 11:15:02 ET

Summary

• Mexican airport operators, including Grupo Aeroportuario del Pacifico, have experienced a strong recovery in the tourism sector post-pandemic.
• GAP's recent traffic reports show a slowdown in activity, and multiple headwinds, including weaker business activity and airline capacity constraints, could further impact traffic in 2024.
• The Mexican government pushed through a surprise hike on concession taxes for airport operators in October of 2023, hurting their profitability further amidst significant labor cost inflation.
• GAP offers good leverage to future business travel growth in Mexico (tied to expanded manufacturing activity in the country), but a so-so valuation and concerns about 2024 expectations leave me cautious now.

Mexico saw a stronger post-pandemic recovery than many expected, particularly in its tourism sector, and that has been good news for all of the major publicly-traded airport operators. More recently, though, the sector has been hit by a significant increase to the concession rate demanded by the Mexican government and growing concerns about the impact of a weaker economy and stronger peso on air travel demand....

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