Morningstar | Sureste Looks to Capitalize on Resilient Mexican Air Travel Market
Following Mexican airport privatization in 1998, Sureste emerged with concessions to 12 airports located in the Southeast region of the country, and Cancun's airport served as its anchor location. Vacation and leisure travel underpin Cancun’s robust presence in Mexican travel markets, and the airport accounted for about half of Sureste’s total passenger traffic, but roughly 70% of total operator revenues. Thanks mostly to Cancun’s ability to draw international traffic, well above peers, and international travelers’ higher propensity for airport spend, the operator boasts leading commercial revenue per passenger. The airport concessions Mexico’s government administers employ a dual-till tariff system that regulates aeronautical revenues but allows the operators to dictate terms for non-aeronautical or commercial revenues. Through its aeronautical activity, Sureste assigns charges to airlines and passengers in exchange for facility use and landing at its airports. Conversely, through nonaeronautical or commercial activity, the operator reaps benefits from highly lucrative commercial contracts. In 2013, the company established a 50/50 joint venture with Oaktree Capital, allowing it to operate Luis Munoz Marin Airport, or LMM, in Puerto Rico. A concession arrangement for the airport lasts 40 years, and more than 9 million passengers traveled through the airport in its most recent fiscal year. Recently, Sureste increased its stake in the airport to 60%; one of Canada’s largest pension investment managers owns the remaining 40%. LMM is Puerto Rico’s main airport, with roughly 90% of its passengers traveling to the U.S., and it utilizes two commercial runways. In addition, Sureste acquired a majority interest in two Colombian airport operators in 2017. We believe these acquisitions will help diversify revenue and lessens dependence on Cancun. The Colombian operators have concessions in place for a 15-year minimum. In total, the two operators serve roughly 15 million passengers per year.Grupo Aeroportuario del Sureste holds concessions to operate, maintain and develop nine airports in the southeast region of Mexico. As operators of these airports, Co. charges airlines, passengers and other users fees for the use of the airports' facilities. Co. also derives rental and other income from commercial activities conducted at its airports, such as the leasing of space to restaurants and retailers. Co.'s concessions include the concession for Cancun International Airport, the airports in Cozumel, Huatulco, Merida, Minatitlan, Oaxaca, Tapachula, Veracruz and Villahermosa.
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