Insolvency Petition Hurts Pacifico - Analyst Blog

Grupo Aeroportuario del Pacífico S.A.B. de C.V. (PAC), a top Mexican airport operator, recorded a 3.3% marginal increase in passenger traffic for October 2010 in comparison with the same period last year. Domestic traffic rose 3.2% while International traffic shot up by 3.6% year over year.

During the third quarter of fiscal 2010, passenger traffic increased 7.2% year over year with domestic traffic increasing 5.8% and International traffic rising 10.8% year over year.

Mexican airport operators, Aeroportuario del Sureste, S.A.B. de C.V. (ASR), Aeroportuario del Centro Norte S.A.B. de C.V. (OMAB) and Grupo Aeroportuario del Pacífico S.A.B. de C.V. have been experiencing an increase in passenger traffic since the second quarter of fiscal 2010 compared to the huge drop in traffic during the same period in fiscal 2009.

Due to the economic instability resulting in a difficult business environment since the second half of fiscal 2008 and the outbreak of H1N1 flu in April 2009, the company experienced a decline in passenger traffic from the second quarter of fiscal 2009 through March 2010.

However, markets are now gradually picking up and are expected to show some decent results in the coming years. Fuel prices have also reduced to their mid-70s from the peak of nearly $150 per barrel. The International Air Transport Association (IATA) expects the airline industry to make a profit of $2.5 billion in 2010.

Moreover, Grupo Aeroportuario del Pacífico's agreements with airlines like American Airlines, Delta Airlines, US Airways, Alaska Airlines and Continental Airlines, for increasing frequencies coupled with greater number of seats will further boosts its results in future.

However, an insolvency petition filed by Compañía Mexicana de Aviación, S.A. de C.V. (MXA) is matter of concern for Grupo Aeroportuario del Pacífico as Compañía Mexicana de Aviación represents 18.3% of the company's total passenger traffic in the first half of fiscal 2010.

Thus, we maintain our long-term Underperform recommendation on PAC. For the shorter term, the ADR currently retains its Zacks #5 Rank, equivalent to a “Strong Sell” rating.