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Morningstar | Grupo Aeroportuario Sureste Domestic Traffic Strong, but U.S. Traffic to and from Mexico Still Weak

Wide-moat Grupo Aeroportuario del Sureste reported a second-quarter 2019 that featured an EPS beat and results that give us no reason to alter our thesis. Total revenue grew 4.7% year over year supported by aeronautical and non-aeronautical growth of 7.3% and 7.2%, respectively. Total passenger traffic grew by 6.9% year over year, with nearly 5% growth in Mexican passenger traffic (makes up 62% of Sureste’s total traffic). Mexican domestic traffic growth continues to outpace international volumes as U.S. passenger traffic to and from Mexico continues to be weak. Management expects U.S. traffic growth to remain weak through the end of 2019.

Sureste showed strong passenger traffic growth outside of Mexico, with Puerto Rico increasing 6.1% year over year. Domestic traffic in Puerto Rico grew 5.5% and 11.4% internationally. We expect Puerto Rico to post strong revenue growth on the back of weak comps in 2018 related to disruptions from Hurricane Maria. In Colombia, passenger traffic grew by 14.9% underpinned by 14.3% domestic traffic growth and solid international traffic growth of 18.5%. Medellin proved to be Colombia’s strongest traffic region with 18.1% growth in domestic traffic and 18.5% growth in international traffic. Colombia has benefited from current economic conditions and new routes from both Mexico City and Cancun to Medellin. Furthermore, passenger traffic in Medellin was bolstered by congestion at the Bogota airport causing operations to be diverted to Medellin.

We are putting our fair value estimate under review at this time as we transition coverage to a new analyst. We anticipate resuming coverage in about one month.