ASUR reported EPS of $4.40 USD for the second quarter of 2022.
The figure surpassed street expectations by roughly 13% on the high and by 21% on average. The high analyst estimate for Q2, 2022 was $3.89 US per share, with an average street estimate of $3.64 per share. It should be pointed out that US coverage is largely absent. A handful of analysts do not typically provide a great deal of depth to revenue and expense estimates. That said, many analysts and investors are lazy; they are lulled into herding of estimates, a form of plagiarism off of other analytical work, so too little coverage or too much is not the issue for a long term investor. I don’t particularly give a hoot about the number of analysts following any particular business; what matters to me is the accuracy of their forecasts, the assumptions used to come up with said forecasts and the legwork required to get things right.
The Columbian airport business deserves more recognition from investors and today’s blog means to address that oversight.
Typically my periodic overviews opine in some detail on the Mexican operations of ASUR, specifically the Cancun International Airport and how that one airport benefits or hinders the overall corporation. Cancun represents one of the most visited airports globally and is the best known asset in the ASUR stable, but the importance lessens as other assets take up the slack.
Columbian airport EBITDA margins surpassed 57% in Q2 and have averaged 59%+ for the first half of 2022. The net purchase price for the entire Columbian airport concession, acquired in 2017 for just under $220 million USD, is now earning an effective annual return well above 36% on an annualized basis. Revenues in Columbia for 2022 look to offer the potential to grow by as much as 35% above the 2019 figures; the 2019 throughput represented the pre-pandemic high.
http://www.asur.com.mx/assets/files/en/investors/financial_information/quarter/2022/ASUR-Airport-Cancun-Mexico-Earnings-Release-2Q22.pdf
Bears will look to high fuel prices and argue that the current traffic volumes and profit margins should spell out a cyclical peak.
Their view is based upon a “pricing-out” of the budget travel market, given the cost of fuel, the cost of an airline ticket, the cost of hotel stays and incidentals. They may well be right.
My view conflicts with the bear thesis.
It is true that budget travel is traditionally hurt by high fuel prices. However, there appears ample pent up demand by those who still have not been able to get on a plane to visit their favorite destinations; many both within the US and elsewhere have not travelled internationally for several years due to lockdowns, edicts and paperwork hassles; if they were able to get on a plane, most were unable to travel with their accustomed frequency.
Congestion at many airports and lack of staff to operate scheduled flights among leading global airlines add to the problem. Airline travel is not just a matter of price, it is a question of hassle. Media coverage of congestion dissuades a number who would more readily get on a plane today, were they able to be convinced that travel to a destination could be accomplished in a timely fashion. It is my view that there is still a cushion of pent-up demand on the sidelines, waiting for airlines to get their act together.
Leisure and vacation travel could be considerably sticker than many other areas of discretionary spending.
Most people I know consider vacations to be a category of spending unto itself; one sufficiently important that other discretionary purchases are reduced or denied in order to be put towards a vacation package (flight and hotel). Is my anecdotal sample biased? Perhaps. I feel far more persons are taking the view “you only live once”; leisure travel to sun destinations may be far less a discretionary item and more of a “must-do”, which will render street analysts models moot.
Vacation marketing heartily promotes the fallacy of a flight to the tropics as an “escape” from the humdrum; how that holiday bill adds to the stress of life in the future isn’t the concern of vacation promotion. There are those currently having trouble paying their mobile phone bill, they may have increased difficulties servicing a mortgage with higher interest rates, and more have legitimate problems with overall budgeting. Without question, those persons shouldn’t be getting on a plane for a Mexican vacation, but sadly, given their financial position, far too many will still go on a junket to a sunny destination; in the view of those who are or will be overextended financially, spending money that they don’t have on a vacation is supposed to reduce the stress of their financial overextension. It is patently awful logic, but the reason that too many cannot escape their financial morass is entirely due to a societal informal logical fallacy, that people should “live their bliss“. A failure to be responsible, to live within one’s means and to overcome a seemingly irresistible urge to forego spending now, so as to have a stable future, has led to too much leisure travel by those who may only only be able to afford foreign destination holidays, at the margins, during periods of economic expansion, but that become completely unaffordable during economic pullbacks. Those persons refuse to differentiate their wants from their needs. This represents that potential oversight by analysts as firms that work through spending choices by consumers model based upon rational economic choice but cannot determine exactly how few consumers are logical when it comes to travel.
Money supply growth from 2020 through early 2022 was such that many of those in the middle and upper income brackets are more than ready to pick up any slack that might come about from a reduction in the budget vacation market.
It costs considerably more to travel, that’s inflation. But money supply growth is what has led to rampant inflation and much of that money supply growth went directly into the pockets of middle and upper class households, who tend not to spend all that they make. So, there is still considerably more liquidity for travel expenditures than in 2019; that’s what a printing press accomplishes, an illusion of prosperity.
Rest assured, we shall find out just how sticky airline travel spending is, in the months to come.
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