Mexico's three airport operators are starting to suffer from the global airline crisis amid skyrocketing jet fuel prices, and investors have already dumped their stocks.
But some analysts believe the shares of Asur, GAP and OMA have been whipped too hard as passenger growth has remained largely positive to date and the fallout from one grounded carrier has been minimal.
Shares of Asur, GAP and OMA have dropped more than 20% so far this year while global valuations for airport operators have only slipped about half that amount.
Santander Investment, which has a buy rating on all three operators, estimates there is an upside price potential of 35%for Asur, 34% for OMA and 40% for GAP.
"Even though we still see some weakness in the sector near term from lower-than-expected traffic growth, we continue to see value due to high margins and strong cash flow generation," said Santander analyst Gonzalo Fernandez.
"We think the market has overly punished Mexican airport stocks," BBVA-Bancomer said in a note.
Yet passenger traffic growth has started to wane as airlines cancel flights and dump higher costs onto ticket prices with jet fuel prices up 46% from the start of 2008 as world crude oil prices have doubled in a year.
GAP, which runs 12 airports in Mexico's Pacific region, had a 0.5% decline in total passenger numbers in May.
Asur, which runs nine airports in southern Mexico, and OMA reported positive passenger traffic growth in May, up 13.2% and 5.8% respectively, largely because air travel is in its infancy in Mexico and airlines fight with long-distance buses for travelers.
But still, investors have started to cut outlooks for the entire sector given the uncertain times.
SCALING BACK ROUTES
Santander has reduced its 2008 passenger growth for all three operators to an average of 6.8% from a previous level of 10.7% after years of high double-digit growth.
"We believe that airlines, particularly low-cost carriers, will continue to scale back their routes and frequency and delay their expansion plans," said BBVA-Bancomer.
"We also believe passengers, particularly tourists, may fly less because of rising ticket prices," it added.
Other analysts say that there could be further turbulence in the future for Mexican airport operators if other airlines stumble like Magnicharters, whose 16 domestic routes were suspended on 10 June on safety grounds.
Mexico has 14 airlines, two traditional large carriers Aeromexico and Mexicana, which are privately owned but unlisted, six low-cost operators and a handful of regional players. All are fighting to survive in a highly competitive field and with major cost pressures.
The impact of the Magnicharters grounding was minimal. OMA said the airline accounted for only 1.8% of its total passenger traffic. But if more or larger airlines get suspended that could increase the impact on airport operators.
That is weighing on the minds of some investors alongside the question of fuel.
"We believe the outlook for fuel prices remains highly uncertain, as does their final impact on the Mexican airline industry and the airport groups' passenger traffic," said Credit Suisse analyst Vanessa Quiroga. "Negative news flow is also expected to continue."
But Asur, GAP and OMA, which operates 13 airports in northern and central Mexico, are looking like sweet picks in pure value terms. BBVA-Bancomer, Mexico's largest banking group, has a "buy" recommendation on all three operators.
"Still, the current oil price climate being what it is, we do not expect a swift revaluation," BBVA-Bancomer said.
By Veronica Gomez Sparrowe, Reuters
