Last week, Grupo Aeroportuario del Pacifico S.A.B. de C.V. or GAP (PAC) announced preliminary terminal passenger traffic figures for August. Total terminal passengers fell 7.7% from the comparable period last year. Domestic passenger traffic decreased 3.8%, while international passenger traffic shrank 15.8% compared to August 2008.

Airlines all over the world are facing difficulties, primarily due to the collapse of the global economy. Declining business and leisure travel is affecting airlines’ business to a larger extent.

Moreover, the Mexican economy should face a more challenging period in the coming quarters as the Bank of Mexico recently lowered its benchmark interest rate by just 25 basis points to 4.5%, reducing the scope for aggressive rate cuts. The Mexican economy is rapidly slowing down and the trend is likely to continue in the short term. Thus, it certainly would be a difficult year for PAC, Grupo Aeroportuario del Sureste S.A. de C.V. (ASR) and Grupo Aeroportuario del Centro Norte S.A.B. de C.V. (OMAB).

Guadalajara remains one of the important airports maintained by GAP. During August, Volaris initiated flights to the U.S., operating routes from Guadalajara – Los Angeles and Guadalajara – Oakland. Mexicana Link also began serving new routes from the airport, with destinations like Acapulco, Mazatlan, Oaxaca and Tuxtla Gutierrez. At the same time, it opened routes from La Paz and Los Mochis, with Guadalajara International Airport as the principal destination.

We believe that recent devaluation of the Mexican peso will make Puerto Vallarta and Los Cabos a more attractive place for international tourists, mainly from the U.S. The crisis will be a major concern in the short term. However, lower oil prices compared to 2008 levels will help the company to lower operating costs to a greater extent.

Zacks Investment Research
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