5th of October, The main airport groups in the country suffered major collapses in the Mexican Stock Exchange (BMV). The Centro Norte Airport Group (OMA) registered a drop of 26.80 percent; For its part, Grupo Aeroportuario del Sureste (ASUR) plummeted 16.73 percent; while the Grupo Aeroportuario del Pacífico (GAP) fell 22.28 percent.
The historic drop, not seen in decades, was recorded after it was reported prior to the opening that the local aviation authority modified the tariff regulation bases, a measure that, analysts fear, could severely hit the income of companies in the sector.
The airport groups reported on October 4, 2023 that they received a notification from the Federal Civil Aviation Agency (AFAC), a decentralized body of the Ministry of Infrastructure, Communications and Transportation (SICT), informing that it decided to modify, with immediate effect, the terms of the tariff regulation bases established in Annex 7 of the concession titles.
Risk at heights
The news was immediately considered totally negative for the industry. Analysts see that the eventual reduction in airport use fees (TUA), in addition to non-aeronautical revenues, will have a negative impact on the profitability and free cash flow generation of airport groups; That is, it will necessarily impact your liquidity.
For such a situationthis Thursday’s adjustments could not be the only ones, the same analysts considered that there could be sudden variations in the prices of the airport groups during the next few weeks.
Grupo Financiero Monex explained in an analysis that before the measure, the current rate schemes for the concessions of the Airport Groups were determined using a discounted cash flow formula, taking as reference the projected Ebitda, discount rates, as well as future investments. in these complexes. In the short term, it will be important to evaluate whether these modifications to the rates only contemplate changes at the TUA (Airport Use Rate) level or could be extended to other Rates such as Aircraft parking.the transfer of passengers from the aircraft to the airport and leasing of spaces for third parties.
However, Banco Base opined that the increase in fares would result in less demand for flights, lower margins for airlines and a disincentive to tourism in Mexico, which has lacked promotion.
The above is also due to the fact that the Mexican government has increased its intervention in the aviation sector, which generates risks in the country, “which is consistent with a higher exchange rate and volatility. Given that more specific details of the modifications to airport services and rates have not been given, greater uncertainty is generated in the sector.”
From joy to well
Just last September 14, that is, a little more than 20 days ago, the Federal Aviation Administration (FAA) reported that it returned category 1 in air safety to Mexico, after more than two years of work close relationship between the civil aviation authorities of both countries.
The return to category 1 will allow Mexico to add new services and routes to the United States, and US airlines can resume the marketing and sale of tickets with their names and designation codes on flights operated by Mexican airlines.
But, in practice, Mexico’s two years out of category 1 had an impact on the sector, since a multitude of routes were previously covered by foreign airlines, leaving Mexican companies at a disadvantage, ironically within its own market. An additional factor is the upcoming entry into operation of the state airline Mexicana de Aviaciónwhich upon its return will be operated by the Mexican Army from the Felipe Ángeles International Airport (AIFA) and will make its first flights in December.
The joy of Mexico’s return to category 1 really lasted very little, the news for the sector is not very favorable at the moment and the notice in the tariff modification is a return to reality. This Thursday’s stock fall can clearly be repeated or converted in a chronic situation for a while.
Diversification, an alternative
Grupo Monex deepens its analysis by pointing out that, with this Thursday’s news, the local and international diversification of the country’s Airport Groups becomes relevant, and points out the current conditions of each group, which includes the potential for diversification:
1. Ashur, which has the concession to operate 9 airports in the southeast of Mexico (Cancún stands out with one of the lowest TUA in the sector), it also has operations in the San Juan complex, Puerto Rico, as well as the operation of 6 airports in the Center – North of Colombia.
2. Gapwhich operates 12 airports in the Central and Pacific region of the country (Guadalajara stands out) and additionally has a presence in the Kingston and Montego Bay complexes in Jamaica.
3. OMAIn this case, it is important to mention that it only has a presence at the local level, which includes the administration and operation of 13 airports in the Center-North region of the country.
Monex concludes by pointing out that the news is negative for the sector, generating a significant period of volatility in the share price. However, it will be important to know the details of the rate revisions to evaluate the possible impact at the level of Aeronautical Revenues, flow generation, as well as the operating margins of the sector. Based on the above, both Monex and Vector Casa de Bolsa put the sector under review.
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