I've pointed out many times that I love the travel industry, but I couldn't for the life of me find an investment idea I liked in that space. OK, I missed out on Continental Airlines (NYSE:CAL) by taking too hard a line against airlines, but given the hard times that fuel costs have put on strong carriers like Southwest Airlines (NYSE:LUV) and JetBlue (NASDAQ:JBLU), I'm sure you can understand my nerves. I'm similarly down on the relentless competition experienced by online bookers like Expedia (NASDAQ:EXPE) and Priceline.com (NASDAQ:PCLN).
But I'll tell you what doesn't make me nervous: the 41% earnings drop in my one play in the travel space these days, GrupoAeroportuario Del Sureste (NYSE:ASR), the Mexican airport group commonly known as ASUR.
Not concerned with a quarter in which there was a 41% earnings drop on a 17% dip in revenues? "Is you crazy?" as colleague Bill Mann might ask. Well, he likes to say that, but he wouldn't say that about this particular company, and once you hear the story, you'll see why.
The story at ASUR continues to be last fall's hurricanes. They beat the heck out of Cancun and Cozumel, the top tourist destinations for the airport group. Cancun and Cozumel have been working on the rebuild, but as of yet, there's still reportedly construction debris all over, and the pace of completion is behind what officials originally thought possible. Currently, tourism authorities estimate that 64% of the pre-hurricane hotel rooms in Cancun are in operation, and 92% of the Cozumel rooms are ready.
That means travelers are still hesitant to get their fun in the sun in Cancun, with the result that international traffic at Cancun dropped 26% from the prior-year first quarter and 63% at Cozumel. That led to a 17% drop in total passenger traffic, and when you are an airport, fewer passengers means less revenue to cover fixed costs, and profits get smaller. Last year, each American Depositary Share earned $0.68 in the first quarter; this year that fell to $0.40.
There is some good news here. New airline service to Veracruz and Minatitlan boosted domestic traffic so that it put up a 4% increase. And ASUR has begun work on a brand new modern terminal at Cancun that will increase capacity for the booming Mayan Riviera -- hopefully in time for a rebound in travel to the area.
Of course, no one knows when that will happen, and ASUR management admits it believes the hurricane cleanup will continue to dim full-year 2006 results, to an unknown extent. But I believe the rebound is inevitable, which is one of the main reasons I recommended this stock for our recent international report, Around the World in 80 Minutes. Apparently, Mr. Market agrees, as the stock has already run up 15%. Though the easiest money's been taken off the table (the stock traded down to $30 a share not too long ago), I think ASUR still has more to offer. Any Fool interested in a toll bridge in the travel space ought to take a good look. And if you'd like to read my reasoning, you can get a peek at that report right here.
Seth Jayson will take all the bargain toll bridges he can get, thanks. At the time of publication, he had shares of ASUR, but no positions in any other company mentioned. View his stock holdings and Fool profile here. JetBlue and Priceline.com are Motley Fool Stock Advisor recommendations. Fool rules are here.
