Once again Groupo Aeroportuario del Sureste (NYSE:ASR), or ASUR, reported strong third quarter results late Thursday evening, largely on the strength of traffic growth at its key Cancun airport. While Cancun was a key story line, it wasn't the only contributor to the company's growing profitability. ASUR's results soared due to the combination of double digit growth in both passenger traffic and commercial revenue per passenger.
Traffic flies higher
While total passenger traffic increased by 15.2%, domestic passenger traffic across the company's nine airports increased by only 13.8%. Driving that increase was strong double digit year-over year traffic growth at eight of ASUR's nine airports. Oddly enough the only laggard was Cancun, which only grew its passenger traffic by 9.4% year over year. Because traffic at Cancun represents 55% of total domestic traffic it weighed down the domestic growth number.
Having said that, Cancun really shines internationally where its traffic grew 17.5% year over year to 3.1 million passengers. That's crucial to the company because it accounts for 94% of international traffic, which is virtually half of overall traffic. Just for perspective, rival Mexican airport operator Grupo Aeroportuario del Pacífico's (NYSE:PAC) international traffic was just 2.2 million in the third quarter, which is 31% of total its traffic. Moreover, Groupo Pacifico's key international airport, Guadalajara, contributes less than half of its international traffic. What this suggests is that if international passengers begin to fly somewhere other than Cancun, ASUR's financial results could really suffer.
Cashing in traffic
That caution aside, it's also worth pointing out that ASUR didn't just ride that tailwind of higher international traffic at Cancun this quarter to grow its financial results. It also grew commercial revenue per passenger, which jumped 15.9% to Ps.82.79 in the quarter. In other words, not only is the company benefiting from more passengers at its airports, but it is capturing more value on each of those passengers, providing dual fuels for revenue and income growth.
As a result of this combination the company was able to increase aeronautical revenue by 20.2% and non-aeronautical revenue by 32.3%. By growing passenger traffic the company is able to increase the amount it earns on commercial services such as at retail operations, duty fee shops, car rental services, and other airport services. Further, by growing the services offered, such as by adding additional retail, banking, and food service options to its airports, ASUR can capture more revenue on each passenger as they pass through the company's airports and spend money at these venues. Incidentally, this is something that rival Groupo Pacifico is doing as well, with its non-aeronautical revenue in particular soaring more than 50% last quarter.
This focus on earning more per passenger is growing ASUR's bottom line at a much faster clip than traffic is growing, which is evident by the 33.9% increase in operating profit. Though, operating profit growth could have been even better, but it was affected after the company's EBITDA margin slipped from 59.9% in last year's third-quarter to 52.6% this quarter. The reason the company's margin is slipping is partially due to a 9.7% increase in cost of services, somewhat due to the fact that it is seeing an increase in cost of sales from the convenience stores that it directly operates. In addition to that it saw a 25.2% increase in concession fees paid to the Mexican government due to an increase in regulated revenues.
Despite those higher costs and fees, earnings still grew strongly. On a U.S. dollar basis, earnings were up 21.4% to $1.39 per share.
ASUR is benefiting from two key trends. First, passenger traffic continues to soar, especially at its crown jewel Cancun airport. Further, it is capturing more revenue on each passenger, which is further boosting its bottom line. Both are exceptional tailwinds that the company hopes to keep riding for the foreseeable future.