Mexico remains a popular, relatively low-cost place where Americans can enjoy some sand and sun and get away from snow and dreary skies. Yet Mexicans themselves travel to many of the same cities, and it's the domestic traffic that fueled the 9.5% growth in revenues for the fourth quarter at Motley Fool Hidden Gems recommendation Grupo Aeroportuario del Pacifico (NYSE:PAC) -- we'll call it GAP -- the airport operator that services many of the country's most popular destinations.
The airports make the bulk of their money through passenger charges included in each plane ticket. The airports collect the fees and pay GAP the money. Capped by regulation, GAP has tended to charge near the maximum amount, and that has brought a steady rise in revenues over the years.
Fellow Fool Seth Jayson has admired that "toll gate" as a reason to invest in the newly privatized Mexican airports. His favorite is Grupo Aeroportuario del Sureste (NYSE:ASR), if for no other reason than it has a longer track record as a public company and maybe because it services the popular destination spot Cancun.
GAP has its own destinations -- Los Cabos, La Paz, and Puerto Vallarta -- but services the cities that Mexicans themselves want and need to get to, including Guadalajara and Tijuana. Those two cities experienced some of the biggest spikes in domestic passenger traffic last quarter, rising 30% and 20%, respectively. They also represent the most popular destinations in absolute terms, with more than 1 million passengers each.
International passenger traffic fell off 6% at GAP-run airports almost across the board last quarter, though for the year such travel rose more than 5% from 2005. The one bright spot was Tijuana, where traffic increased 36%. Part of the problem with the international traffic was that flights were suspended between two of the airports and Los Angeles as one of Mexico's airlines experienced operational difficulties. Troubled airlines aren't unique to the U.S. Delta Airlines has picked up one of the routes, though the other is still suspended.
The Mexican government privatized GAP last year when there was an IPO for the remaining 85% of the company it owned. This was followed late last year by the privatization of Grupo Aeroportuario del Centro Norte (NASDAQ:OMAB). When that company was selected for Motley Fool Global Gains, Fool chief investment analyst Bill Mann said a rule he liked to follow was "What the king sells, I buy." Basically the thinking is that governments underprice assets when they sell them off, and this seems to have proven true with GAP, whose share price has risen more than 32% since last May.
GAP expects domestic air travel to continue to outpace historic levels and provide a boost to revenues. With passenger charge increases recently approved and good through the end of 2009, investors should be able to bask in the warmth of steady growth.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
