Mexican Airlines in Trouble

Last week, Grupo Aeroportuario del Sureste, S.A.B. de C.V. (ASR - Analyst Report) announced a decrease of 10.7% in total passenger traffic for September 2009 versus September 2008.

Domestic passenger traffic decreased 11.0%, while international passenger traffic decreased 10.3% compared to September 2008.

The decline in domestic passenger traffic resulted mainly from declines of 17.3%, 3.8%, 8.8%, 18.8% and 18.8% at the Merida , Cancun , Veracruz , Villahermosa and Cozumel airports, respectively. The decline in international passenger traffic resulted mainly from a decline of 11.0% in international traffic at the Cancun airport, main tourist attraction.

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 could face a tight money period in the upcoming quarters as the Bank of Mexico recently lowered its benchmark interest rate by just 25 basis points to 4.5%, reducing the scope for further 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 ASR, Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (PAC - Analyst Report) and Grupo Aeroportuario del Centro Norte S.A. de C.V. (OMAB - Snapshot Report).

It seems that odds are against the Mexican tourism industry for the very short-term, mainly considering the difficult economic conditions in the U.S. All considered, we continue to keep our Hold rating on the shares of ASR.

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