Danny Goode: Among the Mexican airport companies we cover, we believe wide-moat Pacifico is the best positioned and most ready to take advantage of several tailwinds, including a demographic boom in Mexico and an aging U.S. population. A healthy balance between domestic and international passengers and a lack of reliance on a particular airport also puts Pacifico in a unique position compared with its domestic peers.
In the interim, we expect economic headwinds and AMLO's recent referendum to cancel construction at Mexico City's international airport to slow passenger traffic growth through 2021. Denying expansion at Mexico City's primary station will crimp growth at a major artery within Mexico's network and consequently lower air travel’s growth trajectory through lower connectivity. We think AMLO’s administration will refrain from meddling with airport concessions, and we see more uncertainty emanating from potential economic policies.
Pacifico remains our top choice because of the diverse set of airports it operates and the upside we expect from those stations. Guadalajara and Tijuana, good for business travel, and Los Cabos and Puerto Vallarta, good for tourist travel, offer Pacifico access to Mexico’s budding middle class but also ever-growing international markets. Guadalajara and Tijuana are also among the top five busiest airports in the country and unlikely to cede these positions in the coming years thanks to growing urbanization in Mexico’s metropolitan areas. Pacifico’s nonaeronautical revenue represents only about a quarter of overall sales, below about 35% for Sureste, so we expect stronger revenue growth for Pacifico exiting a slowdown in passenger traffic through 2021.
We think Mexican air travel markets sit at the edge of a decade-long demographic tailwind and growth in Mexico's working-age population will drive airport traffic. While air travel remains quite cyclical, a growing Mexican working-age population coupled with this group's higher propensity to travel generates a secular demand driver for domestic and cross-border air travel to the U.S. For international travel, the weakened peso compared with historical levels and a growing retirement population in the U.S. should continue to support tourism flows to Pacifico's Puerto Vallarta and Los Cabos airports.