Sector Analysis: Mexican Airports

There are few things I like better than a physical moat that I can see and touch.

My portfolio is stuffed full of those businesses. Pipelines. Railroads. Real estate. And the list goes on.

Today I want to talk about another physical moat that doesn’t get the attention it should because there are no Canadian or U.S. companies in the space. These businesses are a key cog to today’s society, they cater to a captive market, and inspire all sorts of grumbling — yet we collectively can’t do anything about it. Fees — and profits — march relentlessly higher.

Yeah kids, that’s right. I’m talking about the airport space. Specifically, Mexican airports, which offer a whole lot of what we dividend investors are looking for.

I’ll take a closer look at just how these businesses work, why shares are attractive today, and a breakdown of the three companies in the space. I’ll also share how I think about these in my portfolio.

We’ll go over the sector in a nutshell, why I think it’s an excellent place for my capital, why the opportunity exists today, and then a quick look at each company in the space. Finally, I’ll tell y’all how I play the sector and which ones I own. This is going to be a long one, so let’s get started.

(For even more on the Mexican airports, follow friend of the newsletter Ian Bezek. He knows more about the space than I do.)

Let’s start with the obvious question:

Why can we buy shares in Mexican airports and not Canadian and U.S. airports?

To answer this question, we have to go back to the 1990s. In 1994, then-President Carlos Salinas spent aggressively in the lead-up to that year’s Presidential elections. The government financed the spending by issuing bonds in Pesos, but with guaranteed payments in USD.

Not only did the strategy not work — the opposition party won — but Salinas’ hand-picked successor was assassinated on the campaign trail.

Whoops.

After months of trying to hold up the value of the Peso versus the U.S. Dollar, Mexico’s central bank threw in the towel and devalued the currency. Foreign investors — who were the primary buyers of the debt — then required an even higher interest rate to compensate them for their risk. Things quickly spiralled out of control, and nobody wanted to lend the Mexicans a dime.

Led by the United States, the IMF stepped in and came up with a $50B bailout for Mexico. One condition of this loan was the government would have to commit to a period of austerity.

The government looked for both ways to cut spending and to grow revenue. One area that looked promising was tourism. Affluent Canadians and Americans would come down, spend their foreign currency, and the government would use it to help pay interest.

If Mexico was to become a major tourist destination, the nation would need to invest in its airports. But the government just didn’t have the cash to do so, plus no ability to borrow. So the decision was made to privatize the airports. The government would retain long-term ownership, but the right to operate the airports would be transferred to private managers. This raised precious capital needed by the government, plus it transferred the upcoming upgrade investment to investors.

Three separate airport groups emerged in 1999, including:

They were listed in both Mexico and the United States in an attempt to attract the largest base of investors.

Airports were divided by geography. Sureste got airports along the Caribbean Sea. Pacifico got airports along the Pacific coast, as well as the second-largest airport, Guadalajara. Finally, Norte got the airports in the northern part of the country, which gave it less of a tourism focus and more of a domestic/manufacturing traffic base.

The government retained ownership of Mexico City’s airport.

Here’s the way the privatization worked. Each of the airport operators got the concession to operate its group of assets for 50 years, with contracts running through the 2040s. Each concession came with a 50-year renewal provided the operators did what they said they’d do, specifically:

Mexico’s model worked so well that other countries joined the party. Argentina privatized its airports at around the same time as Mexico. Chile, Colombia, and Brazil also did similar deals, but with slightly different revenue sharing models. Certain Caribbean airports also did concession deals. The Mexican airport operators ended up buying some of these assets, as did Corporacion America Airports (NYSE:CAAP). CAAP is the largest owner of airport assets in the world, and it very recently started paying a dividend.

( haven’t done a huge amount of work on CAAP, so we’ll ignore it. The Argentina exposure made me nervous.

There’s one big issue with the model. The government has a tremendous amount of power over the operators, and could easily use that power to either extract higher fees or make the operators chase projects with terrible returns. Even though each of the operators have done exactly what they’ve been asked, the government wields a big ol’ veto over the whole thing. Some influential politician gets his knickers in a knot, and suddenly the rules get changed.

This happened in 2023. Outgoing President Antonio Manuel Lopez Obrador (referred to by his initials, AMLO) decided to increase the government’s share of fees collected. Operators were paying 5% of revenues back to the Mexican government. The new deal called for a 9% royalty. The government also forced the operators to slash their fees by 10%. The operators were left with little choice and ended up accepting the deal as proposed.

Shares plummeted on the news the deals would be changed, as investors hated the uncertainty of knowing the contract would be changed, but not by how much. They immediately assumed the worst.

Shares were only down for a few weeks until the new deal was announced. Investors analyzed the adjusted terms, and concluded the modified agreement wasn’t so bad. The airports would still generate healthy profits, and they’d continue to get generous dividends. Shares quickly made up their losses.

I won’t sugarcoat it; there’s always the risk the government decides to change the rules again. 2023’s episode worked out pretty well for the government; it got a nice little chunk of extra revenue each year, investor confidence and share prices bounced back quickly, and the operators continue to invest in their assets.

Let’s pivot to what these companies have been doing recently, and why shares have sold off lately.

(Note: these trade in both Mexico and on the NYSE. All currency amounts have been converted to USD for the reader’s convenience.)

Mexican airport operator 52-week charts don’t look very happy. Two of the three major players are trading close to 52-week lows, and even the better performing one isn’t exactly shooting the lights out.

There are a few issues that are combining to cause the selloff, including:

Valuations are excellent across the board. Two of the three major players are trading for around 12x forward earnings, which is among their lowest valuations in the last few years. More typical valuations are somewhere in the 14-17x earnings range, with a top range of around 20x earnings. Normally I’d post a 10-year chart here, but COVID made 2020-21 valuations quite messy. So we’ll make due with the five year valuation chart.

(We’ll note that PAC trades at a consistently higher valuation because of its premium tourist locations, and also it has higher upcoming capex requirements over its peers.Higher capex cuts into earnings temporarily, but should increase the bottom line over the long-term.)

Next I’ll take a look at each operator individually.

(I’ll refer to each by either their ticker or by the terms Pacifico, Norte, or Sureste from here on out)

Let’s start with Pacifico, which has the concession to operate airports along the Pacific coast of Mexico, including Tijuana and Puerto Vallarta. It also has the concession to operate Guadalajara, which is the nation’s second-largest airport. The city’s surrounding areas (namely the Lake Chapala area) are popular with expat retirees. These folks fly through Guadalajara to get to their winter homes.

Finally, PAC has also secured the concession for the two largest airports in Jamaica, Montego Bay and Kingston.

It also boasts the largest market share of each group, along with the best long-term growth. This growth has been largely driven by tourism, a trend I see continuing over the long-term. Yes, Mexico has gotten expensive compared to other LATAM destinations, but it has the massive advantage of location. Travellers from Canada and the United States can get to Mexico in just a few hours, compared to 6-12 hours to get to destinations deeper into Central America or the Caribbean.

In short, Mexico deserves the premium valuation, and PAC deserves credit for being the best way to play this trend. That’s why it persistently trades at a premium valuation to its peers.

One thing each of the Mexican airport operators is doing is focusing on increasing non-aeronautical revenues — things like revenue from both renting out space in the airport and from operating these spaces themselves. These sources have grown significantly since 2019, and now represent 30% of total revenue for Pacifico. Its peers have similar results. Expect these ancillary revenues to grow over time, too.

One reason PAC trades at a higher valuation than its peers is because it’s investing more in capex. It started the construction of a new terminal in Puerto Vallarta in 2022, with completion expected at some point next year. It also has plans for new terminals in Guadalajara and Tijuana, as well as a terminal expansion in Los Cabos.

PAC also spent $2.2B to acquire Cross Border Express (CBX), which is the pedestrian bridge linking the Tijuana airport with the U.S/Mexican border. Folks fly to Tijuana, cross the bridge, get into the U.S., and then go on from there. It paid a generous price for the asset, which does about $100M in free cash flow each year, but it’s growing by about 15% per year, and this isn’t a concession. This is an important piece of real estate it’ll own forever.

Put it all together, and PAC is projected to grow at a higher pace than peers. But you’re paying a premium for that growth, with the stock trading hands at about 20x earnings.

Del Centro Norte owns airports in the northern and central part of Mexico, which doesn’t attract a lot of tourist traffic. Its marquee asset is the Monterrey airport; in July approximately 1.5M passengers went through Monterrey, or about half the group’s total traffic. The company’s other 12 airports combined for the other half of traffic.

Norte is the airport group that benefits the most from nearshoring. It’ll also benefit the most from domestic traffic increasing. In July, 82% of traffic came from other Mexican airports. Conversely, it was also the most impacted by the aforementioned engine recall, since it affected Mexican airlines at a higher rate than others.

We’ll note that Norte also owns airport hotel assets, including a 287 room property attached to the airport in Mexico City, and a 134 room Hilton right between terminals A and B in Monterrey. I like the diversification, and I would like the company to acquire more of these assets.

As the relationship between the U.S. and China continues to weaken, Mexico has been the beneficiary. U.S. companies are moving manufacturing out of China as transportation costs, higher wages, and potential tariffs eat into profits.

Once companies crunched the numbers, they began to realize that production in Mexico was in many cases cheaper than overseas. Mexico is also much closer, meaning product doesn’t have to spend weeks in transit to get to U.S. ports. And U.S. execs can easily go down to Mexico and see how things are going at the plant. It’s just a short flight away. These factors should combine into further growth, when then benefits OMAB.

Like PAC, OMAB is investing in its airports. It recently told investors its plan to invest about $1B in improvements over the next four years, including things like upgrading its cargo capabilities, and technology to get folks through its airports faster. The big investment is expanding a terminal in Monterrey, a move that’s expected to add to the bottom line in 2028.

OMAB has grown the top line by about 10% annually over the last decade, with the bottom line growing by about 13% per year. Growth might not be that robust going forward, but double-digit earnings increases are still very possible over the long-term.

Sureste might be the most interesting of its peers, partly because of its outside Mexico exposure, and partially because of its new growth avenue.

Let’s begin with a snapshot of the company. It has the concession to operate airports on the Gulf of Mexico side of the country. Its marquee asset is Cancun, which is the country’s second-busiest airport. Only Mexico City is busier.

It also owns various other concessions in Latin America and the Caribbean, including Medellin in Colombia (among other airports in the country), and San Juan, Puerto Rico. San Juan is the busiest airport in the Caribbean, while Medellin has grown rapidly as the city has become a preferred destination for the digital nomad crowd. My view is the rest of the Colombian assets will also grow as more Colombians are able to afford flights. The same tailwinds that make Mexico interesting also make Colombia interesting.

ASR isn’t just a Cancun story, but I can see why y’all might think so. Cancun’s growth hasn’t been super impressively lately, with traffic falling 3.6% in 2025, and then 7.8% in the most recent quarter. The rest of the portfolio has grown, which resulted in revenues creeping slightly higher in the first half of the year.

There is a new airport in Talum that is siphoning off some traffic that was going through Cancun, but I think the bigger issues are airlines cutting routes to the city, and a weaker U.S. consumer. The bankruptcy of Spirit Airlines didn’t help much here either.

I’ll also mention San Juan, which is also experiencing its own set of problems. It reported a spike in traffic during COVID as a budget travel destination, and since it’s a U.S. territory, it’s a domestic flight for most of its visitors. Now the boom is over and traffic has fallen off a bit, likely for most of the same reasons as Cancun.

Put the two together, and no wonder the stock is down so much. It has fallen more than its peers.

I think the decline presents a buying opportunity. ASR trades for under 12x forward earnings, which is flirting with its lowest valuation in years. I still think Cancun is an excellent long-term asset, and the extra diversification away from Mexico is a positive.

Additionally, ASR has an interesting new diversification initiative. The company recently acquired ASUR, which manages retail operations in large U.S. airports like JFK, LAX, and Chicago’s O’Hare airport. The new part of the company isn’t quite profitable yet, but that’s because of large one-time acquisition costs. They should start adding to the bottom line soon. There’s plenty of additional room to expand in this space if Sureste can figure this out.

This week’s edition is a longer one. Thanks for making it all the way to the end with me.

Rather than summarize what I wrote above, I’ll cut to the chase. You’re probably curious which of the airport stocks I own, and how I incorporate them into my portfolio.

I own all three I wrote about today. I bought Pacifico years ago (I believe it was 2016 or so, but it’s been so long I don’t really remember). I added OMAB to the portfolio when it sold off in 2022, and recently added ASR amid its current weakness.

Rather than viewing them as separate portfolio positions, I view them as one collective Mexican airport position. I keep the position fairly small (under 2% of my portfolio currently) because even though I am a long-term bull, I recognize the risks here.

The big risk is further government intervention, but I’m comfortable with it. So I’m more worried about specific Mexican markets. Will Cancun continue to be a massive tourism draw? Or will it be replaced by somewhere sexier and cheaper? I don’t know enough about Mexico to have an informed opinion on that, so I hedge my bets.

I view Mexican airports like Canadian banks. I think they’re good assets that deliver attractive returns on capital, good long-term growth, increasing dividends, and about seven other things I’m looking for. My only question is when to buy. So I embrace the same rule, and add when they’re trading at 52-week lows. Both ASR and OMAB check off that box, so I’m most interested in those today.

Author owns shares in all three Mexican airport operators mentioned. Nothing written above is investment advice. It is for research and educational purposes only. Consult a qualified financial advisor before making any investment decisions.