Airports: The Mexican investment case (Part 2)

“Airlines come and go, but airports are here to stay.”

This adage lies at the heart of my investment thesis for airports, and it has only grown more relevant with time. In Part 1 of this deep dive, I laid out four foundational pillars that underpin my long-term appeal for airport investments:

• Test of time: Airports have weathered economic shocks, shifting political climates, and structural upheavals while remaining broadly unaffected at their core

• High barriers to entry: The regulatory complexity and enormous capital costs make it prohibitively difficult to build competing airports, shielding incumbents from direct competition.

• Strong business economics: With EBIT margins averaging around 30% and an average return on capital of 10%, airports rank among the most robust and cash-generative infrastructure assets.

• Value creation to society: Airports are mission-critical infrastructure for tourism, trade, and economic mobility — indispensable to local economies and national ambitions.

In Part 1, I also spotlighted three global airport operators I consider best-in-class: Spain's Aena, Austria's Flughafen Wien, and Airports of Thailand. These airports are government-owned and own the airport assets, rather than serving as concessionaires under a limited contract. But quality is only half the equation. A compelling investment case also requires attractive growth and value, weighing 25% each in my framework. After extensive primary research, I have concluded that two airports in Mexico have an attractive investment case - Grupo Aeroportuario del Sureste (ASUR) and Grupo Aeroportuario Centro Norte (OMA).

While most airports share a similar cost structure, their business models diverge meaningfully depending on geography, customer mix, regulatory regime, and management approach. ASUR, for instance, earns 25% of its revenue outside Mexico, with operations in Puerto Rico and Colombia. OMA, by contrast, is entirely domestic. ASUR's flagship airport in Cancún serves primarily international leisure travellers, while OMA's primary hub in Monterrey caters to domestic business travel and cargo. There are governance distinctions too: ASUR has been entrepreneur-led under Fernando Chico Pardo since the mid-2000s, while OMA underwent a strategic shift when Vinci, the French infrastructure giant, took a controlling stake in the 2022.

These differences matter. To unpack the investment case, I’ve structured this report into seven segments:

• Mexican airport privatisation: When and why Mexico privatised its airports, how politics and regulation impact airports and the geographical landscape of Mexico.

• Business model: Here, I break down how airports generate revenue and manage costs, with a close look at ASUR and OMA's aeronautical and non-aeronautical income streams. I also examine their capital spending patterns, Master Development Programs (MDPs), and the broader airport supply chain ecosystem.

• Unit economics: I explore the unit economics and profitability for both airport groups, how much they make on each passenger and how ASUR differs between its Mexican airports and international.

• Key hubs - Cancún and Monterrey: As key cities for ASUR and OMA, respectively, I explore their economic growth and broader activity and potential challenges they pose for their respective airport operators.

• Growth, challenges and risks: I evaluate current growth initiatives at both airport groups, including expansion projects and strategic developments, alongside the regulatory, political, and operational challenges that could impact their investment profile.

• Valuation: Based on my proprietary financial modelling, I outline expected financial performance over the next five years, discuss dividend yield and multiple expansion, and illustrate how these factors underpin a compelling total return thesis

• Beyond airports: Finally, I share how these positions fit within my broader Mexican and global equities exposure and reflect on how I'm positioning the portfolio in the current macroeconomic climate.

A review of Mexican airport privatisation

The late 1990s saw a wave of privatisation efforts, and Mexico was among the key countries that privatised their airports. In fact, Mexico was the most active country in the world in terms of airport privatisation, as it privatised most airports among emerging and developed countries. The North American country had just experienced an economic crisis after miscalculations in its currency management and required a $50 billion bailout from the United States in January 1995. The government initiated a report on the benefits of allowing private investments in airports as a method of raising finances, and by December 1995, the Airports Law was published by the Mexican Congress, spending the following years outlining the initial public-private joint ventures for airports.

The government decided to split the airport industry into five administrative entities. Four of these five were set to have some degree of private participation, while the final subset group formed was not available for private participation, and would be managed by Airports and Auxiliary Services (ASA), an agency that had been managing all airports for the prior 30 years. The main factor in the airport split was their geography:

• Pacific Airports Group (Listed as Grupo Aeroportuario del Pacifico or GAP): Airports are mainly located near the North and South Pacific regions of Mexico

• Central and Northern Airports Group (Listed as Grupo Aeroportuario del Centro Norte or OMA): Airports are mainly in the Central and Northern regions of Mexico

• South Eastern Airports Group (Aeroportuario del Sureste de Mexico or ASUR)

• Mexico City International Airport: Managed by Aeropuerto Internacional de la Ciudad de México or AICM)

• Aeropuertos y Servicios Auxiliares ASA (Airports and Auxiliary Services)

After formalising the group structures for privatisation, the government split 34 airports among GAP, ASUR and OMA and each of these groups opened up to private operators, both Mexican operators and international partners. ASUR, for example, had Fernando Chico Pardo, a Mexican entrepreneur who had sold his stock brokerage platform to Carlos Slim's Grupo Inbursa. From an international lens, Københavns Lufthavne, Denmark's airport company, initially held a stake in ASUR before selling it in 2010.

In the table above, I map out the key partners and attributes of the five airport groups after the Mexican airport reformation. By the start of the 2000s, the government had completed its privatisation program after selling additional stakes in OMA, but also pulled back its decision to privatise its largest airport, Mexico City International Airport, due to political and social obstacles. Today, the airport is the third largest in Latin America and the largest in Mexico, with 48 million annual passengers (2024).

Table: Mexico’s largest airports by passenger volume

Latin America is among the regions in the world with the most airports per million people. Among the top 10 countries with the most airports, three are from the area, with Mexico ranking fourth globally with 1,485. Of these airports, 80 are recognised as public airports, similarly ranking among the highest in the world and there are structural reasons for their reliance on air transport.

The concentration of airports is due to three factors; the tourism economy, fragmented road transport system and security challenges.

• Tourism and decentralised cities: Unlike other EM economies that revolve around one or two hubs, Mexico’s network spans tourism (Cancún, Los Cabos), business centres (Monterrey, Guadalajara), and industrial cities, necessitating regional airport coverage.

• Geography and infrastructure gaps: With deserts, mountains, and sprawling coastlines, building efficient rail or road networks is both costly and slow. A drive from Tijuana to Mexico City takes 32 hours and costs more than a flight, not including tolls.

• Security concerns: Nighttime road travel in some regions remains risky due to cartel activity and road blockades. As a result, air travel is often safer, faster, and cheaper—particularly with the rise of low-cost carriers like Volaris and VivaAerobus, which now comprise 70% of the domestic airline market.

In the table above, I share the journey from Mexico City to Monterrey and Cancún by car, bus, flight, and train. As you can see, air travel is significantly cheaper and faster than alternatives. A flight from Mexico City to Monterrey will take an hour and a half, while costing 930 Mexican pesos, but 6 hours by coach, which costs 70% more than a flight with VivaAerobus.

Beyond Mexico: ASUR’s International Expansion (Puerto Rico and Colombia)

Being an early player in the Latin American region gave Mexico some leadership and first mover advantage in the region's airport industry, and the mid to late 2010s saw two of the three Mexican airport groups make investments in the Caribbean market. In 2009, Puerto Rico initiated its Request for Qualification (RFQ) for its main airport, Luis Munoz Marin International Airport (LMM) and after its review, two bids were shortlisted: Macquarie/Ferrovial and Highstar Capital/ASUR. Later in 2012, ASUR's joint bid was selected, and they were awarded a 40-year concession agreement, lasting till 2053, with ASUR holding a 60% stake in the joint venture. OMA was also among the initial bidders but didn't make it past the first round of bidders.

Later in 2017, to further diversify across the rest of Latin America, ASUR acquired a 92.4% and 97.3% controlling stake in Colombia's airport concessionaires, Airplan and Oriente. These concessionaires manage a combined 12 airports, the largest of which is Medellin Airport, Colombia's second-largest airport.

These international operations now represent 25% of ASUR’s total revenues, with Puerto Rico contributing 15% and Colombia 10%. Their inclusion diversifies their currency and regulatory risks, passenger-mix diversity, and long-term strategic optionality for ASUR.

The airport business model: Four key levers

From a passenger’s perspective, an airport is fairly simple — arrive, check in, clear security, grab a snack, and board. But from an investor’s view, airports are multi-revenue, capital-intensive infrastructure governed by regulation, real estate, and throughput economics. I break the airport business model into four fundamental building blocks:

• Aeronautical revenue - landing fees, passenger fees, security and usage.

• Non-aeronautical revenue - retail, food & beverage, duty-free, car parks, advertising and rental income.

• Operating costs - labour, security, maintenance, utilities and regulatory compliance.

• Capital expenditure - long term investments governed by Master Development Programs (MDPs) and approved by regulators.

These components differ subtly between operators but are critical to understanding how airports create shareholder value. In the next section, I will unpack how OMA and ASUR each execute across these four levers and how their financial strategies position them for future growth.

Aeronautical revenue

Airport revenues are typically divided into aeronautical and non-aeronautical income streams, or alternatively, regulated versus non-regulated categories. I focus on the aeronautical vs non-aeronautical distinction, as it provides a clearer, standardised basis for comparing airports globally.

Aeronautical revenue refers to the income airports generate directly from airline activity, such as the passenger charges (TUA), landing fees and airline parking fees. Historically, aeronautical revenue has been the more significant segment for airports, representing over 90% of an airport's revenue in the 1990s, but today, this has fallen to 50-60% of their revenue; aeronautical revenue is 62% of OMA's revenue and 69% for ASUR. Aeronautical revenue is further broken down into passenger charges (75-80% of aeronautical revenue) and airline fees (20-25% of aeronautical revenue).

Passenger charges

Passenger charges are levied per departing passenger, excluding diplomats, infants, and connecting passengers. Although included in the airfare, the airport only receives the payment directly from the airline, typically within 60 days of invoicing. These fees are regulated and differ based on Flight type (domestic in MXN; international in USD) and Airport Master Development Programs (MDPs) guidelines.

Because these charges are capped by regulation, operators face severe penalties — including fines or concession termination — if they exceed approved limits. As a result, pricing flexibility is heavily constrained.

OMA and ASUR’s passenger fees

In the two charts above, I first map out how OMA and ASUR's total passenger fee revenue has advanced over the past ten years. Both companies have grown their passenger fees by mid-double digits, with ASUR growing slightly faster at a 17% CAGR versus OMA's 15.5% CAGR. In my view, these are pretty impressive rates and digging deeper, I noticed from the growth drivers lens, it's nearly equally split between fees per passenger (7 - 7.5% CAGR, see table above) and the overall volume growth in passengers (7.5% - 9% CAGR).

Note, ASUR's significantly lower per-passenger fees are due to its exposure to Puerto Rico and Colombia, both of which have much lower passenger fee charges than Mexican airports at the domestic level. In the table below, I have compared ASUR's Cancún and Cozumel airports' fees to its airports in Colombia and Puerto Rico, and as you see, its much lower than Mexico's; its main airport in Colombia has its domestic passenger fees at less than half of Cancún's domestic passenger fees.

The second component of aeronautical revenue is airline fees—charges paid by airlines for access to airport infrastructure and operational services. These mainly comprise of landing and parking fees, although other service charges (e.g., use of jet bridges or passenger walkways) are also included. Unlike passenger charges, these fees are often regulated by government authorities, with maximum price ceilings typically tied to factors such as aircraft takeoff weight (for landing fees), time spent on the apron (for parking fees), and volume of departing passengers.

The charts below compare the breakdown of airline fee revenue for ASUR in 2013 versus 2023. Over the past decade, there's been a notable shift in the composition of this revenue stream. While parking and security charges have declined in relative contribution, landing fees and passenger walkway charges have grown significantly, from a combined 37% in 2013 to 61% in 2023.

A few key trends have driven this shift. First, ASUR's ongoing investments in infrastructure, particularly jet bridges and boarding counters, have enhanced the monetisation of passenger movement through airports. At Cancún International Airport, for instance, the number of gates served by passenger walkways has doubled—from 20 in 2013 to 40 in 2023—improving operational efficiency and revenue potential. As with landing fees, revenues from passenger walkways scale directly with flight volume, which has increased markedly across ASUR's network over the past decade.

In contrast, parking fees, though still growing at a healthy 12.6% CAGR, have not kept pace with landing fees, which grew at 22.2% CAGR over the same period. One structural reason for this divergence is the rising dominance of low-cost carriers (LCCs) at ASUR's airports. These carriers prioritise quick turnaround times and operate on lean schedules, reducing their reliance on long-term parking and thus diminishing associated revenues. As of 2023, airline fees now represent 22.6% of ASUR's total revenue and 12.3% of OMA's aeronautical revenue, with both segments growing—but at a slower pace than overall top-line growth. This dynamic underscores a broader trend in the airport industry: while essential and recurring, airline fees are increasingly complemented by higher-growth, passenger-focused revenue streams, which I explore next in the non-aeronautical segment.

While airports were historically designed as transit hubs primarily focused on enabling air travel, their role has expanded over the past few decades into something far more commercially diverse. Airports realised they had a unique asset—highly trafficked real estates—and began leveraging this to generate non-aeronautical revenue through services like retail, food and beverage, car rental, advertising, VIP lounges, and hotels.

By the 1990s, this shift toward commercialisation and revenue diversification had become a defining strategy, especially for privatised and publicly traded airport operators. Today, non-aeronautical revenue typically accounts for around 40% of total revenue for many global airports, and this share will continue to grow given its stronger margin profile, more flexible pricing mechanisms and benefits they offer airports.

Importantly, the composition of non-aeronautical revenue varies significantly between airport groups, reflecting differences in passenger profiles, city economics, and commercial strategy. For instance, ASUR and OMA present two starkly different models

• ASUR, operating airports in high-tourism areas like Cancún, leans heavily into duty-free, retail, and food and beverage offerings, collectively represent 45% of its non-aeronautical revenue.

• OMA, whose airports serve more business-heavy destinations such as Monterrey, derives a much larger share from car parking, hotel operations, and logistics services, with retail and duty-free accounting for just 5.8% of its non-aeronautical mix.

OMA’s non-aeronautical revenue breakdown

I illustrate OMA's non-aeronautical revenue by segment in the charts above, comparing 2013 to 2023. Over the decade, a few clear trends have emerged:

• Hotel services have declined from 22% to 14% of non-aeronautical revenue

• OMA Carga, its cargo warehousing division, has grown from 5% to 13%

Diversification - Hotel services and OMA Carga

This shift reflects OMA's broader strategic pivot. In the mid-2000s, the company identified hospitality and logistics as high-potential areas for diversification. It began with the acquisition of the 287-room NH Terminal 2 Hotel at Mexico City International Airport in 2008 (which OMA doesn't operate). It followed up with a 134-room hotel adjacent to Monterrey Airport's Terminal B in 2015 in partnership with Santa Fe Grupo Hotelero. While profitable, boasting operating margins between 28% and 30%, these hotels offer limited growth upside due to their capacity constraints and dependence on pricing.

In contrast, OMA Carga has emerged as a scalable and strategically valuable asset. Its bonded warehouses near key manufacturing hubs like Monterrey, Chihuahua, and Ciudad Juárez allow exporters to store goods duty-free until shipment, making them attractive to Northern Mexico's industrial base. The growing relevance of nearshoring has amplified demand for such infrastructure, turning OMA Carga into a meaningful contributor to non-aeronautical revenue.\

Source: OMA’s website.

ASUR’s non-aeronautical revenue breakdown

ASUR's approach to non-aeronautical revenue is shaped by its core strength: tourists traffic. Unlike OMA, ASUR's airports cater more to leisure travellers, who are likely to engage with commercial offerings such as shopping, dining, and car rentals. The company has aggressively executed this front. Over the past decade, its non-aeronautical revenue has grown at a 19.2% CAGR, one of the highest growth rates among publicly listed airport groups globally.

As shown in the charts above, while duty-free and retail shrank slightly from 50% in 2013 to 45% in 2023 as a share of total non-aero revenue, they remain the dominant contributors. Growth in food and beverage and car rentals has been robust, reflecting rising passenger volumes and improved commercial infrastructure across ASUR's airports. ASUR operates most of its non-aeronautical divisions through third-party concessionaires.

Companies like Dufry (duty-free) and other retail and F&B partners manage day-to-day operations, with ASUR collecting a fixed fee or a revenue share. While this limits the per-transaction margin for ASUR, it allows for more efficient operations, greater scale, and faster rollout of new offerings. This model has proven successful at high-traffic airports like Cancún International, where retail brands such as MAC (cosmetics) and Victoria's Secret have maintained long-term presences due to strong footfall and brand exposure opportunities.

This treatment means that construction services revenue is non-cash and driven by the size and timing of CapEx rather than economic demand. Investors often strip it out when evaluating profitability margins, though it can still be helpful as a proxy for future capacity expansion, regulatory compliance, or strategic reinvestment. In 2023, OMA recognised MXN 5.1 billion in Construction Services revenue, up from MXN 1.8 billion in 2022, primarily due to the expansion of Monterrey Airport's Terminal C and runway upgrades in Culiacán and Chihuahua. Similarly, ASUR recorded MXN 4.2 billion in 2023, with significant works including a new terminal at Mérida Airport and enhancements to Cancún's Terminal 3.

Importantly, these investments are not discretionary. They are dictated in part by each airport's Master Development Plan (MDP)—a regulatory agreement negotiated every five years with AFAC (Mexico's civil aviation authority). The MDP outlines required capital projects, timing, and investment thresholds. Failure to meet these obligations can result in penalties or non-renewal of concessions.

Thus, while Construction Services revenue may not directly reflect operating performance or shareholder returns, it is central to understanding an airport's Capex cycle, regulatory compliance, and future capacity growth.

Supply chain

One of the most significant structural limitations of the airport business model, discussed earlier in part 1, is the lack of control over the broader value chain. Airports operate as infrastructure providers — they facilitate, but don't dictate — which becomes evident when we examine their supply chains. At their core, airports are not demand creators; passengers don't travel to Monterrey or Cancún for the airport itself. They travel because of what the city or region offers. This means that an airport's performance is tightly linked to its surrounding area's economic, social, and geographic strengths. In this sense, airports are reflections of their cities, and their supply chains are shaped more by external forces than internal decisions.

Despite this limitation, understanding the supply chain helps assess where risks lie and how external shocks could ripple into airport operations. For this analysis, I focus on two key external actors: airlines and airport cities.

Airports

A key strength of airports is the consistency of their earnings, driven by the relative stability of their top assets. OMA's five largest airports have accounted for ~71% of its total revenue over the past five years (see table), while ASUR's top five have increased their modestly by ~2.5%, primarily due to tourist growth at Cancún. Importantly, ASUR’s revenue concentration has fallen meaningfully over time due to its expansion into Puerto Rico and Colombia — before these investments, Cancún represented 75% of total revenue.

Source: Company filings.

Both companies still heavily rely on a single anchor airport: Monterrey for OMA and Cancún for ASUR. The following section dives into the structural dynamics of these cities—the true drivers behind each airport's performance.

Monterrey

Monterrey, OMA’s core airport asset location, is the capital of Nuevo León and Mexico’s second-largest metro area. It's one of the country’s most industrialised and business-driven cities. With a GDP of nearly $190 billion and per capita income of $37,000 (almost double the national average), Monterrey is a magnet for foreign direct investment, particularly from North American and Asian multinationals.

Its proximity to the U.S. border positions it as a strategic hub for exports and nearshoring, particularly in steel, automotive, and electronics. Major Mexican companies like FEMSA (Coca-Cola Latin America), Cemex (cement), and Banorte (banking) are headquartered here. More recently, the city has seen a wave of investment from Korean and Chinese firms, including Lenovo, Hisense, Hyundai, and Kia, as part of broader nearshoring trends.

The scale of Monterrey's business activity has supported its airport's growth and shaped OMA's airport investments over the years. Over the past two decades, the Monterrey Airport has grown its revenue by 13.6% CAGR, driven by a mix of pricing growth (7.4% CAGR) and its growth in the number of passengers (5.6%). On average, 85-87% of Monterrey's passengers are domestic travellers, and it's estimated that the majority are business passengers with 55 direct destinations, 38 domestic and 17 international (mainly the U.S.).

Operationally, Monterrey is the fourth largest airport in Mexico and is located 21 km from the city centre. It operates 24 hours a day with two runways and a current airport capacity of 28 air traffic movements per hour across three key terminal buildings. For the future, Monterrey's airport will remain highly correlated with the business climate in Monterrey and potentially US-Mexico trade relations, and this is a risk I'm willing to accept.

Cancún

One of the key reasons I’ve combined an investment in both companies is due to the sheer difference in makeup of both airport groups key airports. Cancún, unlike Monterrey, is a reflection of Mexico’s tourist economy, rather than its industrial and business capacity. Mexico is the most popular tourist destination for US residents and its estimated nearly 40 million Americans visit Mexico yearly, more than the combined number of travellers of the remaining top 10 tourist destination countries and twice as much as Canada. Within Mexico, Cancún is its most important tourist destination and has experienced exponential growth since its tourist project was launched in the late 1960s. Cancún benefits from several unique climate and geographical conditions. Its the most populous city in Quintana Roo, situated on the Caribbean Sea, north of the Caribbean coast resort area of Riviera Maya and accounts for 97% of arrivals into the state. Its climate is generally hot through the year with annual mean temperature of 27 degrees celsius, which helps maintain the flow of tourists all year round.

From a growth lens, tourism generally has more potential for growth than business travel. Surprisingly, Cancún Airport revenues have grown slightly slower than Monterrey over the past two decades at 12.4% CAGR, primarily due to slower pricing growth. Cancún has, however, achieved faster growth in passengers at 6.4% CAGR over the past two decades.

Despite the impressive growth, I see more challenges for Cancún airport versus Monterrey for several reasons. First, as mentioned, Cancún's airports account for nearly all arrivals into the Quintana Roo region, which is a concentration risk for the area. The Tulum International Airport opened in December 2023, and the Cancún Airport has since experienced a decline in passengers. Also, climate change and adverse weather can materially impact international passengers. In 2019, the presence of gulfweed on beaches in Cancún reduced beach tourism by 30% in peak months.

Key Cancún stats

• There are 36,716 hotel rooms in Cancún

• The Cancún airport has 70 gates with 659 retail outlets

• Cancún’s airport has two runways of 3.5 km and 2.8 km in length

• Cancún’s air traffic is approximately 223,300, growing 4% per year, in past five years

• Its most important points of origin and destination are Mexico City, Monterrey, Houston, Dallas and Toronto

Overall, there are early indications that Cancún's growth is slowing and may be approaching its terminal capacity for tourists, which poses growth challenges for ASUR in the future. You will see this reflected in my earnings estimates for the future. The concentration of international travellers provides a natural currency hedge, which was vital in years like 2024 when the Mexican peso depreciated against the dollar and remains a key factor when I assess my investment case for ASUR.

Airlines

While cities drive demand, airlines control the means of access, and that makes them a critical supply chain risk. In Mexico, the market has consolidated around three players: Volaris, VivaAerobus, and Aeroméxico, who collectively control 99% of the domestic and international market. The rise of low-cost carriers (LCCs) has had a dual impact on airports:

• Positive: More volume, as lower fares increase passenger flow and aeronautical revenues (passenger fees are the largest revenue source).

• Negative: Lower airline-related revenue, as LCCs demand discounts on parking, landing, and terminal services.

Although airlines have less of a significant impact, they are a key supply chain risk for airports, beyond their cities. Generally, Mexico has experienced a shift towards low cost carriers led by Volaris and VivaAerobus. These two airlines and Aeroméxico control 99% of the domestic and International Mexican airline market, and their cheaper prices and leaner operational models have impacted the revenues for Mexican airports. On one hand, it's increased volumes as the financial barriers to travel have reduced due to their growth, leading to higher passenger charges, but on the flip side, their leaner models have led to less revenue in airline fees, such as parking charges, among others. That said, it's been net positive for airports because passenger fees represent a much larger proportion of revenue.

The oligopolistic nature of Mexico's airline market from a value chain control lens is more challenging for smaller or regional airports due to the leverage these airlines sometimes have over smaller airports and could lead to lower landing fees and terminal rental prices. For larger airports like Cancún and Monterrey, they have to provide incentives to airlines to encourage new domestic routes or engage in co-marketing support with airlines when a terminal is dominated by a single airline, such as Monterrey's (OMA) terminal C, which is exclusively designed for VivaAerobus.

OMA

While these don't materially impact the business drivers in the long term, in the tables below, I present the revenue breakdown by airlines in 2018 and 2023. The big three represented 98% of OMA's passenger traffic and 51.6% of its total revenue. Interjet was a low-cost Mexican airline and once a major player in the airline industry until its bankruptcy after the COVID-19 pandemic exposed its debt load.

Source: Company filings

ASUR

Compared to OMA, ASUR's major airlines represent a smaller percentage of total revenue due to the larger proportion of revenue from non-aeronautical and commercial revenue, such as retail and duty-free, for ASUR. ASUR also has a larger share of U.S. airlines like United Airlines and American Airlines (16% of total revenue) due to its exposure to international travel from the U.S. (51% of its Mexican airport's passenger traffic).

I have also included the revenue share for ASUR's Puerto Rico and Colombian operations in the tables above and here, I notice a slightly higher concentration for the industry leaders, Avianca and COPA airlines in Colombia and JetBlue Airways and Spirit Airlines in Puerto Rico when compared to Mexico's industry leader, VivaAerobus. This steeper concentration in major airlines partially explains why the rates in Puerto Rico and Colombia are smaller compared to Mexico's, as the major airlines have more value control given their market share proportion.

Source: Company filings

Cost structure

Having explored the revenue and supply chain dynamics, I now turn to the cost structure of airports. For both ASUR and OMA, costs can be broken down into four main components:

• Cost of providing airport services

• General costs

• Depreciation and amortisation

• Construction costs

Cost of services

This category captures the direct operating costs tied to running the airports — essentially, the “cost to keep the airport open.” These typically fall into the following buckets:

• Wages and salaries (25-30% of the cost of services)

• Maintenance (15-20% of cost of the services)

• Security and insurance (13-18% of the cost of services)

• Utilities (10-20% of the cost of services)

• Equipment leases, fees and others (10-20% of the cost of services)

• Cost of hotel service (OMA only)

Before diving into these numbers, its important to note comparing the cost of services between companies can prove inaccurate due to differing accounting and business practices. A good example of this would be wages. With their reported wage costs and number of employees, ASUR reportedly spends MX$ 898,983, while OMA spends MX$ 250,913 per employee, which seems too large a difference, and a reason is likely that ASUR outsources a lot more staff when compared to OMA. To portray a more accurate analysis of their costs, I considered the cost per square metre and costs per million passengers, and the challenges with calculating the former have led me to conclude to use the latter.

From the charts above, we can see the cost efficiency as the cost segments are divided by the number of passengers in 2019 versus 2023 and from the table, only wages have seen a material increase over the four-year period, which was primarily driven by the national minimum wage increase in Mexico during the AMLO government. Wage increases were also higher in the Northern Border Free Zone, which impacts OMA more than ASUR, thus explaining the higher wage increase as shown in the left chart.

Airports also have to spend a considerable amount on maintaining equipment and facilities and on security equipment such as screening equipment and computer tomography systems in compliance with FAA directives. Given that ASUR's passengers are more skewed towards international travellers, their expenses are materially higher than OMA's, nearly twice as much in 2023, and regulation requires them to spend this much.

General costs

Beyond costs dedicated to providing services to passengers and airlines, airlines have other costs to support existing infrastructure and support their value chain. These are further broken down into three main types:

• General and administration

• Technical assistance fee

• Government concession fee

As the table shows, both companies have very different general cost structures, particularly due to the accounting of administrative expenses. It seems OMA bundles up some costs paid to consultants and professional services that are handled in-house in ASUR and thus accounted for in wages and salaries, explaining OMA's materially higher administrative costs. The other two, technical assistance fees and concession fees, are clearly defined cost lines and can be compared across companies. Given that concession fees account for the bulk of these costs, I will dive a bit more here.

Concession fees

Concession fee formats differ across countries, from flat fees to variable fees as a percentage of revenue or income. In Mexico, the government charges a fee of 9% of the airport operator's revenue, which increased from 5% in late 2023. This fee change has been the most discussed topic among Mexican investors, leading to sharp drawdowns in their share prices in 2023. The changes can be seen in their 2024 income statements as OMA's concession fee rose by 81% while ASUR's fees increased by 71%. ASUR's slightly smaller increase is due to its operations in Puerto Rico and Colombia which have their concession fees, 5% and 19% respectively.

A challenge for the future is whether the Mexican government decides to raise these fees again without consulting the operators. This could be a significant risk for investing in airports. That said, even at 9%, the fees are still significantly smaller than those in other emerging markets that use a variable fee format, such as Colombia and India.

Technical assistance fee

The technical assistance fee represents the fee paid to the airport's parent company for providing the know-how and expertise to the group. ASUR's parent, ITA, was initially Copenhagen Airports, but they sold their stake to ASUR's current chairman, Fernando Chico Pardo, in 2010, and in 2024, ASUR's fee was reduced to the greater of either 2.5% of its annual EBITDA or $3.8 million. OMA has a similar model with its parent, SETA, and they pay a greater of either 3% of their EBITDA or $3.5 million.

Unit economics

The single most important financial question I ask when evaluating investments is how much the company makes on a single customer. I've attempted to answer this question for both OMA and ASUR. In the tables below, I've broken down how much both potentially earn from each passenger and the respective costs attributed to each passenger. Here are my key unit economics assumptions:

• Equal split between departing and landing passengers

• 40% of passengers make purchases in duty-free or retail stores

• 60% of security costs are attributable to passengers (X-ray machine depreciation, customs and immigration)

• 40% of utility costs are passenger-focused, 50% are airport infrastructure, and 10% are aeroplane support

• 40% of staff costs are attributable to passengers (check-in agents, gate agents, cleaning staff and security personnel)

• 40% of OMA's customers use car parking and rental, while 20% of ASUR's customers use both services

• ASUR has a larger share of international travellers, leading to higher costs in security, customs, immigration and others

• ASUR is estimated to collect 30% of revenue as rent fee from its duty-free partner, i.e Dufry

• Exchange rates USD : MXN of 20.84

Revenue

My calculations point to OMA earning 18% more than ASUR per each passenger which contradicts previous analysis on Cancún's airport profitability. There are two key reasons for this. First, 36% of ASUR's passengers are from its Colombian and Puerto Rican airports, with domestic travellers at 85% of their total passenger base. These international passengers are charged much less on mandatory aeronautical fees than Mexican passengers, leading to lower per-passenger revenue for the average ASUR passenger.

On a per-passenger basis, ASUR earns 85% of OMA's per-passenger revenue, which contradicts my initial thesis for Cancún Airports. There are two reasons for this, despite Cancún's exposure towards high-revenue international passengers. First, 36% of ASUR's passengers are Puerto Rican or Colombian airport passengers; among these passengers, 85% are domestic passengers who pay much less compared to OMA's domestic passengers. Second, within Mexico, OMA's airport regions charge more in regulated passenger fees when compared to ASUR's. For example, ASUR's Mérida earns an aeronautical revenue per passenger of Ps 332, less than OMA's tourist airports (Mazatlán, Zihuatanejo and Acapulco) average of Ps 403.

In the non-aeronautical revenue segment, ASUR earns much more than OMA on a per-passenger basis. I estimate 40% of all international passengers spend at duty-free, while 60% spend on food and beverages, which leads to substantially higher non-aeronautical revenue for ASUR compared to OMA.

Overall, this brought ASUR's revenue per passenger to Ps 294.2 while OMA at Ps 347.5.

Costs

I estimated a similar model for most items, excluding security and insurance, from a cost lens. Government concession fees and technical assistance are pretty straight forward given there's a clear fee as a percentage of revenue and EBITDA respectively. In security, given that ASUR's airports are more likely to be equipped with equipment catered towards international travel and larger customer baggage, I estimate a higher fee per passenger for ASUR, nearly twice as much. Overall, ASUR has a slightly higher fee per customer, mainly driven by its Colombian concession fee, which is 15% of revenue.

After weighing up the revenue and costs, ASUR is estimated to earn Ps 240.6 per passenger at an 81.8% profit margin while OMA is estimated to earn Ps 300 per passenger at a profit margin of 86.3%. (see tables above)

As a business, OMA earns a lower margin than ASUR and I attribute this to its diversification activities such as cargo and hotel services which I don’t account for in the unit economics above.

Master Development Program and growth initiatives

Having mapped out OMA and ASUR's key business segments and financial structures, I now turn to an equally critical component of the investment thesis: growth. Airports are regulated businesses given the social costs and how mission-critical they are to society. Governments don't want airport operators to under or over invest or charge customers, and in Mexico, operators are under strict guidelines called Master Development Programs (MDPs) - government-mandated strategic frameworks that define operators' investment, capital expenditure, and operational priorities over 15 years, reviewed every five years.

ASUR commenced its latest five-year MDP cycle in 2024, which will run through 2028. OMA is in the final year of its current plan (2021–2025) and is expected to release updated capital expenditure guidance by the end of 2025. Revised passenger traffic forecasts and emerging infrastructure demands will shape these plans. Given the capital-intensive nature of airport expansion—whether it be new terminals, runways, or apron extensions—MDPs are rarely deviated from. They demand long-term thinking and coordination across multiple stakeholders, making them reliable indicators of future investment activity and revenue growth. Before exploring upcoming initiatives, it is worth reflecting on the outcomes of the past decade to understand the correlation between planned investments and actual performance.

2014 - 2024 of MDPs

Over the past ten years, OMA and ASUR have compounded their revenue by 15% and 18% respectively and have grown passenger volumes by 7% and 9% respectively. These achievements were possible due to investments in several infrastructure and equipment to support additional passenger flows.

OMA past investments

OMA has made several investments across its airports, but its most significant has been in the Monterrey International Airport. In 2015, OMA's biggest airport, Monterrey terminal C, which VivaAerobus operate, had an operating capacity utilisation of 111.8% (920 passengers per hour versus a capacity of 823 passengers per hour), which was unsustainable over the long term. Over the years, OMA invested in building four additional boarding gates, nine additional aircraft positions, increasing the building's total area from 9,878 square meters to 18,242 square meters and has seen its terminal capacity per hour increase by 121% (4.5% per year) during the eight years. Its current capacity utilisation rate is 98.7%, meaning additional investment potential exists.

In the table below, I've added additional investments made over the years by OMA at its major airports, and I can directly attribute these investments to the growth achieved in passenger traffic and thus revenue.

OMA has made several investments across its airports, but its most significant has been in the Monterrey International Airport. In 2015, OMA's biggest airport, Monterrey terminal C, which VivaAerobus operate, had an operating capacity utilisation of 111.8% (920 passengers per hour versus a capacity of 823 passengers per hour), which was unsustainable over the long term. Over the years, OMA invested in building four additional boarding gates, nine additional aircraft positions, increasing the building's total area from 9,878 square meters to 18,242 square meters and has seen its terminal capacity per hour increase by 121% (4.5% per year) during the eight years. Its current capacity utilisation rate is 98.7%, meaning additional investment potential exists.

In the table below, I've added additional investments made over the years by OMA at its major airports, and I can directly attribute these investments to the growth achieved in passenger traffic and thus revenue.

ASUR’s past investments

ASUR has been more aggressive with building its capacity over the past decade due to its ever-growing demand from American tourists to the Quintana Roo region of Mexico. Although more aggressive, ASUR is less debt-reliant to fund future investments and has a stronger reinvestment model, supporting its airport expansion.

The most significant investment over the past decade has been the construction of Terminal 4 in Cancún Airport, completed in 2017, which added 80,000 square meters of terminal space to the overall airport, with a current capacity of 9 million passengers per year. More recently, ASUR launched phase 2 of the Terminal 4 program, which is expected to double its annual passengers to meet its growing demand. In the table below, I've included key investments in its Cancún, LMM Airport in Puerto Rico and its flagship airport in Colombia. 

Having reviewed the performance and impact of the MDPs from 2014 to 2024, it's clear that both ASUR and OMA follow their own growth initiatives. 

Having reviewed the performance and impact of the MDPs from 2014 to 2024, it's clear that both ASUR and OMA follow their growth initiatives.

• Terminal expansion: As mentioned earlier, ASUR and OMA are expected to expand their existing terminal capacity to grow their revenue streams. ASUR has already commenced constructing its Terminal 4, which is expected to double its capacity. Committed investments in Cancún are expected to grow by 90% from Ps 2.8 billion to Ps 5.3 billion. For OMA, 2025 is its final year of its current MDP so we don't have as much clarity on future investments but I can expect its future investments to be in line with passenger contribution and for half of its investments focused on terminal expansion and refurbishments. The Monterrey terminal A is scheduled to complete its phase 2 in early 2026 and will add 11% to its total area and 14% to its passenger capacity. Culiacán airport, the second largest, is expected to commence a major upgrade in late 2025 that will double its total area, raising its passenger capacity by 90%.

• Modernisation: Within Mexico, ASUR's Oaxaca is expected to receive an investment boost to modernise its airport and improve its efficiency. Its renovation includes improved jet bridges, waiting areas and additional customs inspection lines and aircraft parking positions. ASUR has also allocated $170 million into modernising its San Juan airport with additional investment in its non-aeronautical revenue with convenience stores, car rental facilities and new concession concepts.

• Diversification strategies: OMA is particularly aggressive with its strategy, particularly its OMA Carga logistics solutions. These activities is just 10% of its total revenue excluding construction services so it wouldn't make a sizeable change to its overall revenue but the increasing demand for near shoring between US and Mexico border will be positive for OMA logistics and industrial parks solutions. ASUR's diversification within non-aeronautical revenue is mainly concentrated in duty-free, car rental and food & beverage operations, representing 21% of revenue excluding construction services. ASUR has established a successful relationship with Dufry Mexico (Avolta AG), and I expect them to continue building on this partnership, which is a win-win for both. The reopening of Cancún's terminal 1 will be immediately accretive for commercial revenue and is expected to be completed in the second quarter of 2026.

Based on current trends and upcoming MDPs, I estimate that revenue (excluding construction services) will grow at a compound annual rate of 9% for ASUR and 10% for OMA over the next five years.

Management and incentives

Management execution and alignment with shareholders are pivotal for airport groups. Although airport models don't change much due to strict regulatory oversight and their necessity to society, management teams can influence capital allocation, profitability, investments in existing and new airports, concessions, balance sheet, and shareholder alignment. In the tables below, I highlight key board and management people for both ASUR and OMA, their positions, year joined, and previous roles within the group.

ASUR and OMA management makeup is strikingly different - ASUR's board members have been there for over two decades, while the majority of OMA's management and staff arrived after internal changes in 2018 and then with Vinci's investment in OMA in 2022. I prefer situations like ASUR where management has skin in the game with a sizeable ownership and long-term track record within the business, but that shouldn't discount the strategic and cultural transformation underway at OMA since 2018 — especially under Vinci's stewardship since 2022.

The Vinci effect - OMA

From my broader research, the arrival of Vinci has made OMA more ambitious with its growth targets and overall culture. While OMA was well self-sufficient before their investment, there was less of a growth and ambitious culture than there is today. Management often talks about its clearer goals today for the future, such as its existing goal to grow Monterrey's passenger capacity by 50% over the next five years while also modernising various parts of OMA's existing airports. The Vinci team is led by Nicolas Notebart, the current OMA board chairman, who joined Vinci in 2002 and has been CEO of Vinci Concessions since 2016. Operationally, OMA's operations team, led by its CEO Ricardo Espriu, have more resources than ever to utilise due to the partnership with Vinci and has already flagged the iterations made to its current MDP, which will be announced at the end of 2025.

Skin in the game - ASUR

ASUR's management has a lot more skin in the game due to its chairman, Fernando Chico Pardo's majority controlling shareholding in the group for nearly two decades. This is evident in their business decisions in several ways, such as long-term investments in airports beyond Mexico, a leaner balance sheet with much less debt than GAP and OMA, which has proved well during periods of economic challenges, and supporting existing airport terminal expansion plans.

Both OMA and ASUR aren't dependent on stock options, and from the annual sustainability reports, it's unclear what the actual management pay setup and incentives are. In these situations, I tend to fall back on the track record, and in my view, ASUR has among the finest track records when I consider capital allocation, achieving goals shared with shareholders, among other things.

Challenges and risks

• Revocation of concessions: The single most material risk of investing in Mexican airports is that they lose their concessions to operate their airports without compensation from the government. While this is a very extreme situation, there's still a possibility, making them a risk worth exploring. Mexican airports are under 50-year concession agreements, from 1998 to 2048, and it's expected these companies have good earnings visibility until then, but a revocation would eliminate any earnings for the airport groups. So far, no listed company has experienced this situation recently, but there was some tension in 2023 with the AMLO government, which led to the market sell-off and an increase in concession fees from 5% to 9%. Under normal circumstances, the Mexican government can legally terminate their concessions if there's a clear breach of contract and both OMA and ASUR have clear procedures to ensure they obey the rules and regulations. To account for this, it's essential to ensure two things. First, airports under concessions are only purchased at the right price, i.e below <16x earnings versus <20x for groups who own the airports. Second, only invest in airports with at least 15 years of contract length remaining. OMA and ASUR tick these, which gives me some confidence when accounting for this risk. It's also important to watch the broader economic landscape. The government would reconsider the concession agreement terms if Mexico faced deep economic challenges.

• Over-reliance on passenger fee increases: Before digging into ASUR, I had assumed most of its growth might have come from non-aeronautical revenue streams, which are unregulated, but as we identified earlier, a significant portion of its growth has actually come from its aeronautical revenue. This isn't a problem if it's predominantly passenger volume, but for both companies, it's an equal split between fee increases and passenger volume, which is a challenge worth highlighting. To justify 6-7% fee increases each year for the next few years without a push back from airlines, customers and the broader aerospace industry, these airports need to justify their fee increases with investments that support both airlines and customers. So far, I estimate the existing fee increases experienced over the past decade is 75% justified; OMA and ASUR have invested aggressively in supporting airlines with terminal renovations and expansionary investments, customer experiences have improved from my research on Monterrey and Cancún airports over the past decades but I don't think this can continue at its current rate for the rest of the future. In my estimates you'll see in the valuation, I have decreased this annual rate closer to 4% per year over the long term for both airports.

• Exposure to cyclical markets: As a business model, airports are pretty stable, but the end users and drivers of demand can be quite cyclical and exposed to economic shocks, especially in ASUR's case. Nearly half of ASUR's demand comes from American tourists exposed to economic cycles and recessions. When customers get squeezed, the summer getaway trip to Cancún becomes more of a luxury than a necessity, while OMA, which is more exposed to business travel, is exposed to the business cycle, where slower economic periods might lead to lower business travel (sales meetings, conferences). This is best explored by examining their performance during the financial crisis.

Case study - Financial crisis

Source: S&P Capital IQ

Both OMA and ASUR saw sharp share price declines during the depths of the financial crisis, but surprisingly, more so for OMA. From a fundamentals lens, ASUR grew its EBIT by 15% between 2007 and 2009 while OMA experienced an EBIT fall of -23% during the two years, before recovering back to peak pre-financial crisis earnings in the following year, in 2010 (MXN 720 million).

At the trough of the financial crisis, OMA's key airports, like Monterrey and Ciudad Juárez, saw earnings decline by 21% and 30%, respectively, while ASUR saw its overall passenger traffic decline by 27%. Cancún and Cozumel airports led the declines by 28% and 33%, respectively.

In the image below, I share an overview from ASUR's Q2 report, which shows how brutal the second quarter of 2009was for the group from an earnings and revenue perspective for its key airports. As you can see, these airports aren't immune to economic challenges, but they are much better than alternative investments in the travel supply chain. For example, several Mexican airlines, such as Aladia Airlines and Mexicana de Aviación, went bankrupt during that period, proving how superior airports are relative to airlines. For the future, given how much these airports have grown as a share of the Mexican overall travel market, I expect them to be even more exposed to economic shocks, which poses a risk to my valuations and earnings projections.

Source: Company presentation, H1 2029

• Reliance on the US: Both ASUR and OMA are reliant on the US economic activity but in different ways and to varying degrees. ASUR mainly caters towards American tourists which in most economic scenarios, is better given the foreign currency in international passenger fees, but in the situation the relationship between the US and Mexico turns sour, this could be pretty detrimental for ASUR, Cancún more specifically and could also cause scrutiny into its ownership of its Puerto Rican airport. For Cancún, Houston, Chicago, and Dallas are important points of origin for Cancún's passengers, and if their relationship turns sour, the US government could place Mexico and Cancún on its grey list for safety reasons, which would lead to a sharp decline in tourist passenger volumes for ASUR. While I think this would be an extreme move by the US, the possibility of this happening in the future is there so its important to closely watch this relationship under the Trump and Sheinbaum Pardo era.

• New airport competition: One key reason I have made for the airport investment case is the high barrier to entry. While this is broadly true, the barrier to entry isn't impossible, especially in discretionary tourist markets and when done by the government. One of the biggest challenges for ASUR has been the arrival of the Tulum airport. The newly built Tulum airport, which is 130km south of Cancún airport, was inaugurated in December 2023 and commenced international flights in late March 2024 and captured around 12 million passengers from Cancún and is expected to win another 1.7 million passengers from Cancún in 2025. This is a growth challenge for ASUR and there isn't much it can do here given the congestion difficulties its airport faces during peak periods. I also account for this in my passenger growth estimates over the period.

While these are strong businesses, ASUR and OMA have challenges and risks. The next section will explain how I weigh the opportunities and risks in my earnings and valuation models for the next five years.

Valuations

To value both OMA and ASUR, I have opted for an earnings multiple approach due to their fairly constant earnings and cash flow profiles and the presence of listed comparable companies in both geographic and industry exposure. From our Alphabet deep dive, I established factors that determine the multiple I assign companies, which are mainly categorised into two key factors: growth and quality. The faster the earnings growth and the stronger the business quality, the higher the earnings multiple I'm willing to assign to a business.

The average listed company is priced at 15x earnings through the economic cycle, so to justify an earnings multiple above 15x, we have to answer two key questions:

• Quality: Are OMA and ASUR of higher quality when compared to the average business? (Jenga IP quality rating above 65, return on capital above 10%, EBIT margin of 13% and qualitatively, more substantial barriers to entry, low degree of earnings cyclicality, etc.

• Growth: Are OMA and ASUR expected to grow their net earnings and cash flow above 6% through the economic cycle?

Source: S&P Capital IQ

In my view, the answer to both questions is yes. But before I detail my valuations for both companies, let's first consider the earnings multiple for globally listed airports.

Valuations relative to the industry

From the table below, both OMA and ASUR are valued below the median P/E multiple of 16.8, which I don't think is justified, given that both are higher quality than the average airport group. ASUR, for example, is ahead of most airports regarding profitability while also being the airport group with the second-best balance sheet. OMA, on the other hand, has the highest return on capital among all airport groups and is among the top airports in EBIT margin. While I find the average P/E multiple of 16.8x high, I believe OMA and ASUR deserve earnings multiples slightly above their industry. Next, given their nearly two-decade track record in public markets, let's examine their past.

Valuations relative to their past

Source: S&P Capital IQ

From the table above, OMA and ASUR are currently valued well below their average P/E multiple for the past ten years and since going public. For example, OMA has averaged a P/E multiple of 19.15x since going public and 17.95x over the past ten years, while currently being valued at 14.22x earnings.

I don't believe this valuation gap versus the past is justified for both companies. While growth rates have dropped for both companies due to their airports' current scale and the sheer size of the passenger flow today, these airports are still high-quality businesses, just as they were a decade ago. This leaves me with the conclusion that both companies deserve some earnings multiple revaluation, and I have concluded on 17x for ASUR and 18.5x for OMA. Next, let's deep dive into their respective valuation models.

You can access the model spreadsheet for the OMA valuations model here and ASUR's valuation model here.

OMA Key Assumptions

Revenue

• Passenger fees: I expect a 5-6% growth in departing passenger volume and a 4-5% growth in charges per passenger, leading to a 9.8% growth in domestic and international passenger fees over the next five years.

• Airline fees: Due to the continued efficiencies gained by low-cost airlines, I expect landing charges and platforms for embarking and disembarking to grow at a slower pace than passenger charges between 2024 and 2029.

• Commercial activities: Investments across all airports with particular growth focus in VIP lounges, car parking charges and food and beverages. Monterrey airport to expand its existing capacity

• Diversification activities: OMA Carga is expected to continue benefiting from nearshoring activities, additional investments in bonded warehouses, and partnerships with DHL, FedEx, and others.

• Master development program: Their MDP is expected to be renewed in 2025 with some fee hikes seeing effects from 2027, hence the slightly faster growth in 2027 relative to 2026. Monterrey Terminal A growth initiatives expected to increase overall passenger volumes.

Costs

• Cost of services: Wages and maintenance are expected to grow more slowly than airport passenger flow capacity, while security costs are expected to increase marginally faster due to machinery and personnel investments and outsourcing

• Other costs: Concession taxes expected to remain at 9% of revenue, technical assistance fees expected to average 1.9% - 2% of total revenue through the cycle

• Master development program: The MDP is expected to lead to new investments in the airport terminal, runway maintenance, and overall facility, leading to slightly faster growth in depreciation, amortisation, and maintenance fees.

• Cost of construction: Expected to remain equal to its construction services revenue

Capital allocation

Dividends: I am projecting around 85% of OMA's net income to be paid out as dividends between 2025 and 2029

Share repurchases and share based compensation: No impact from either on shareholder returns.

OMA Key Facts

2029 Exit multiple: 18.5x

2024-2029 net earnings CAGR: 9.2%

Jenga IP Quality Score: 78 (High moat)

Dividend yield: 4.7%

2029 potential IRR estimate: 16.75%

I've attempted to make the OMA model as detailed as possible and from the image above, you can see revenue broken into four parts: aeronautical revenue, commercial revenue, diversification activities and construction services. I have also included the growth estimates for each revenue line for the next five years, and overall, I expect revenues to compound at 10.4% over the next five years (excluding construction revenue). This is largely driven by current expansion plans for Monterrey's Terminal A and Culiacán Airport and recovery from Pratt & Whitney jet engines for VivaAerobus and Volaris. I also expect additional investments in OMA Carga and its industrial park investments, VIP lounges and other commercial activities.

Next, I breakdown the cost structure in two parts, cost of services and operating costs with their cost lines and include the EBIT margin. I expect investments in security and safety to remain elevated, and other key cost lines based on revenue, like concession taxes, to stay at existing rates (9%). I expect EBIT to compound at 9.7% over the next five years. Below EBIT, interest expenses are roughly 2/3rds with fixed rates. I account for these in my interest expenses calculations through 2029, assuming that OMA will take on more long-term debt in line with past financial management. At a current net debt/EBITDA of 1x, I don't see potential financial strains occurring here.

At an exit multiple of 18.5x, I estimate the IRR on OMA to be 16.75%, or an upside of 116.9%, exceeding my investment hurdle of 15%, which results in my starting 4.5% investment position.

ASUR

Revenue

• Passenger fees: I expect a 5% growth in ASUR's total passenger volume and a 4-5% growth in passenger charges per departing traveller, leading to a 9.7% growth in passenger fees.

• Airline fees: Increased share of domestic LCCs will lead to increased efficiencies and slower growth in airline fees, such as landing charges and aircraft charges, between 2024 and 2029.

• Commercial revenue: Growth in commercial revenue is expected to be propelled by car rental and duty-free shops between 2024 and 2029. Consistent rates with operator partners, but overall growth will be slightly slower than passenger fees.

• Master development program (MDP): Cancún terminal 4 expansion expected to drive passenger volume with minor upgrades in other Mexican airports.

Costs

• Cost of services: In line with my expectations with investment goals, I expect a consistent expansion in utilities, employment, security and maintenance expenses, with security and safety expenses seeing the sharpest growth during the five years.

• Other cost of services: New Mexican concession taxes reflected in fees for 2024 and 2029. I expect Puerto Rico and Colombia's government concession fees to remain at similar rates, 5% and 19%, respectively. Depreciation estimates in line with MDP goals

• Interest expenses and income: I expect ASUR to retain nearly half. of its net profits on its balance sheets, which increases interest income over the long term. I have also accounted for potential rate cut impacts here as a margin of safety.

Capital allocation

• Dividends: I estimate that 50% of ASUR's net income will be paid out as dividends, with the remaining cash retained on its balance sheet to support potential concession acquisitions.

• Share repurchases and share-based compensation: No impact from share repurchases and stock-based compensation on shareholder returns.

ASUR Key Facts

2029 Exit multiple: 17x

2024-2029 net earnings CAGR: 8.1%

Jenga IP Quality Score: 74 (Emerging moat)

Dividend yield: 3.3%

2029 potential IRR estimate: 17.36%

In the image above, I break down ASUR's revenue segments into four: aeronautical revenue, commercial, non-commercial, and construction services. Accounting changes in 2021 impacted the consistency of the non-commercial revenue for 2019 to 2021, hence the N/A figure in this segment. I expect aeronautical revenue to compound 9% over the next five years, while commercial revenue is expected to grow at 8.8%, led by duty-free shops and the car rental segment.

Next, I break down the cost structure into three parts: cost of services, other operating costs, and cost of construction. Both government and concession fees and technical assistance fees are based on revenue and EBITDA figures, while the other figures are my assumptions from per-unit economics calculations, with broader investment objectives over the next four years in mind.

Unlike OMA, ASUR earns more interest income than interest expenses, leading to a net gain, and I expect this to continue for years to come. You might notice many 0's in the EBIT section below. For some, such as currency exchange gains, I expect figures here in the future, but assigning any number will be a wild guess; thus, I have left it blank. In the final line, I conclude with an exit multiple of 17x by 2029 with net profits expected to compound at 8.1% till 2029, leading to an IRR of 17.36%.

Conclusion

The investment thesis for both OMA and ASUR hinges on two key fundamental questions:

• Can they grow earnings by 8-10% per year over the next five years?

• Will the market revalue their business quality to justify an earnings multiple of 17- 19x by 2029?

In my view, I believe both to be possible and I have attempted to share my thought process behind how both ASUR and OMA can achieve both over the next five years. I have also added both companies to the Jenga IP portfolio; initial weighting of OMA at 4.5%, while ASUR is at 3.5%. While the IRR is currently higher for ASUR, I also see more risks and a slightly lower business quality rating when compared to OMA, thus explaining the slightly lower portfolio weighting.

I have also selected various internal key performance indicators (KPI) to track their performance both financially and operationally. I will closely monitor the impacts of future investments and review the OMA 2025 Master Development Program once it is published at the end of this year.

Mexico beyond OMA and ASUR

I've lately been spending time on Mexican listed companies, driven by the presence of stable, high-quality businesses and their most recent market drop. After my deep dive, I've shortlisted six domestic listed companies I believe meet my quality hurdle, and I'm currently undergoing a deeper dive into their growth prospects and long-term valuation potential.

The Jenga IP Mexico Shortlist

• Grupo Aeroportuario del Pacifico

• Wal-Mart de Mexico

• Coca-Cola FEMSA

• Gruma

• Grupo Bimbo

• GMexico Transportes

Grupo Aeroportuario del Pacifico (GAP) is the other listed airport company but I decided against investing despite its higher quality and growth potential due to valuations. Should their valuations drop, I'm open to either replacing an existing holding between OMA and ASUR, or initiating a 2% position, bringing the overall Mexican airport exposure to 10%, the cap I have for Mexican exposure from a risk management lens.

Walmart de Mexico, FEMSA, Gruma and Grupo Bimbo are each high-quality consumer staple companies with different models and currently look attractive at multiples between 11- 14x and 16x for Walmex.

Finally, GMexico Transportes is a Mexican railroad business that, when examined from a quality lens, is on par with airports but with slightly less growth prospects. At 14x forward earnings and a dividend yield of 6%, the group looks attractive, but I will want to compare its investment case to the US railroad companies before concluding on my decision here.

Future research plans

Over the coming weeks, I plan to introduce another high-quality infrastructure-based emerging market business with a different model from airports and more global than OMA and ASUR. Hint, its shares have returned nearly 200-fold over the past 30 years, a 20% return per year, and I still think the market undervalues its growth prospects. I also want to introduce my first industry investment process research dive, which looks into how I examine industries before selecting investments.