Investing in Airports

[Saluki]

Partly to learn, and partly to rub my nose in my mistakes I'll talk about a recent missed opportunity due to thumb sucking. I started looking at airports as a business.  I own Fairfax India and I like their airport, and I know that there are a couple of other ones out there like TAV, which Mohnish has talked about and I wanted to see if other good ones are around.  Ambani owns several, but the management there is questionable.  I looked at CAAP last month and read the 10k and it looked good but I  didn't pull the trigger, and it's up 30% since then.  Although, with the family curse, if I had bought it, it might be down 30% now.  I liked that in Argentina they get paid almost completely in US dollars, so they don't have currency risk, but I still couldn't get comfortable with it. Their other big airport, Brasilia, is the capital but it's no Sao Paulo or Rio.  But I don't think that's what bothered me.

 

I guess my issue is that, if you are operating someone else's airport, it's an asset light model, which can be very profitable, but it's not your asset.  If a stable, prosperous country like Chile can take away your mining concession when your contract is up and give it to someone else, how stable is your income in places like Brazil or Armenia or Argentina if the rulers decide to let someone else profit from your efforts for a while. 

 

Maybe more airports (even in the US) will start having private operators to handle the assets, but this isn't a moat like a patent. It's like operating a restaurant that you lease from a landlord who can hike the rent at renewal if you're doing well. Does anyone else here invest in airport operators?  Am I looking at this business the wrong way?  Any other good names out there? 

[gary17]

one i follow for years but never really pulled the trigger in a meaningful way is PAC - they operate airports in Mexico.

 

https://www.cnbc.com/quotes/PAC?qsearchterm=pac

 

stocks done well over the last 15 years + 4% yield at the moment.  Was higher yield before.

[Dinar]

@Saluki, GAAP is mostly concessions which are expiring soon if I remember correctly.  In general airports are great businesses, however:

 

a) Watch out for concessions versus owned outright

b) In Europe, Aena is a great business, however may be hurt by environmental movement of switching trips under a thousand miles to rail

c) Regulatory framework can be a blessing or a curse.  While you want dual till structure (Aena has it), if I am not mistaken, Spanish government forced Aena to cut contract prices during Covid, that's why I no longer own Aena, I do not trust the Spanish government.

d) Capital allocation is very important - the Mexican airports (concessions) historically paid very high dividends.  Aena is empire building.

[rogermunibond]

Mexican airports have been a home run.

[thowed]

Shanghai Airport was viewed favourably by some quality Asia funds I follow (& I believe Charlie Munger was also a fan).  I've seen Beijing pop up too.

 

Vietnam has some airport stocks, though arguably the most interesting are the ones doing freight, or duty free.

[Spekulatius]

Well a concession is a concession and not to extend a concession does not mean it's taken away. The Mexican airport operators on concessions. IN PAC case, the concession was granted in 1998 for 50 years, so it will expire in 2048. In  my opinion anyone buying PAC needs to take into account that the concession may not be extended.

 

One nice thing about European airports like FRA (Germany) or Aena (Spain) are fully owned assets, not concession. However even in these cases, the government / regulator has a lot of influence on fee rates and in FRA case a de facto controlling stake.

 

Owning an airport is very much like controlling a unique real estate asset.

Edited July 11, 2023 by Spekulatius

[Xerxes]

Another solid example is how House Corrino transferred the mining concessions of Arrakis from House Atreides to House Harkonnen. 
 

It was an asset-light business, with Arrakis itself belonging to the subjects of House Corrino (if not mistaken)

[ICUMD]

Fairfax India I think is a very good play on an excellent airport in BIAL.  It is still in the first innings.

 

My reasoning is that they get access to 30 million passengers per annum, growing to 90 million by 2030. When you factor in wealth effect and growing multiple streams of revenue within the airport grounds, of which they get up to 100% percent of non aero revenue, the potential is staggering.

 

In theory, this should be a strong play on Indian demographics and growing economy.  An ideal real estate investment.

[Gamecock-YT]

I think you are fooling yourself if you don’t think these are ultimately beholden to the local government in some capacity. If there was a way to invest in landing fees/port fees for ships or some type of revenue stream I’d be more interested than having to invest in an asset that most people hate or if they love it’s ran or operated by the state trying to advertise to the world. 
 

 

[D33pV4lue]

https://www.bloomberg.com/quote/FLU:AV

[Saluki]

 

I noticed that the airport in Athens may be privatized soon.

 

https://www.reuters.com/markets/deals/athens-airport-shareholders-clear-way-30-stake-sale-source-2023-06-01/

 

Don't know where else to put it since there aren't a lot of details, but this post seems as good a place as any. 

 

 

[glider3834]

On 8/31/2023 at 2:28 AM, Saluki said:

 

I noticed that the airport in Athens may be privatized soon.

 

https://www.reuters.com/markets/deals/athens-airport-shareholders-clear-way-30-stake-sale-source-2023-06-01/

 

Don't know where else to put it since there aren't a lot of details, but this post seems as good a place as any. 

 

 

https://www.routesonline.com/airports/2360/athens-international-airport-sa-eleftherios-venizelos/news/299661933/strong-first-half-of-2023-places-athens-airport-in-the-lead-in-europe-and-beyond/

[Dinar]

I was long both Aena and Auckland airports in the past.  In the former, government screwed the company during 2020-2021 on minimum guarantees, and I don't like capital allocation.  Auckland diluted at the bottom.  

 

On a going forward basis, I think Aena is going to be under major threat from long distance rail due to environmental issues, in addition, tourism to Spain may suffer if indeed the planet is warming.  Auckland's valuation is insane in my opinion.

Edited September 2, 2023 by Dinar

[Thelilyinvestor]

I own one of the 3 mexican airport groups, OMAB.

 

My understanding is that the concession expires in 2048 as some of you have pointed out.

 

In the case of no further concession after 2048, does anyone know what happens to the equity? Is it all paid as a special dividend? Does anyone know any past examples of not renewing the concession and what happened? Thank you

[LC]

2 hours ago, Thelilyinvestor said:

I own one of the 3 mexican airport groups, OMAB.

 

Curious what you like about OMAB relative to the other airports, ASUR in particular. I looked at ASUR and decided not to pull the trigger. 

[Thelilyinvestor]

I invested during the drawdown of covid in 2020, OMAB was 1 stock in a basket of stocks heavily affected by the pandemic, you could call it a "contrarian basket" which on average should work out.

 

OMAB´s business has been performing really well since then so I have not sold a single share. I do not have an opinion on ASUR. I guess OMAB is more a bet on Mexico´s economic growth, while ASUR is more a bet on touristic travel I understand.

[LC]

You're correct on the tourism factor. My take on ASUR was it was very dependent on travel to Cancun, and I didn't have any special insight as to whether tourism would be ebbing or flowing to Cancun more-than-expected over time. My gut was that other areas in Mexico would be developing for tourism, taking share from Cancun. 

[Dinar]

One of my biggest investing mistakes was selling my position in ASR in 2007.  One thing to remember about ASR is that it is very vulnerable to hurricanes.

[Spekulatius]

Mexican airports blowing up on tariff changes apparently:

FWIW - those Mexican airports are concessions so the assets are leased technically, not fully owned. I am not be correct as i recall from memory. They also charge very high fees comparatively speaking. Another compounder stock that became a confounder.

Edited October 5, 2023 by Spekulatius

[Saluki]

9 hours ago, Spekulatius said:

Mexican airports blowing up on tariff changes apparently:

FWIW - those Mexican airports are concessions so the assets are leased technically, not fully owned. I am not be correct as i recall from memory. They also charge very high fees comparatively speaking. Another compounder stock that became a confounder.

https://finance.yahoo.com/news/mexico-stocks-sink-government-alters-141758192.html 

 

Looks like all 3 Mexican airport operators got a surprise today.

 

 

[Spekulatius]

12 hours ago, Saluki said:

https://finance.yahoo.com/news/mexico-stocks-sink-government-alters-141758192.html 

 

Looks like all 3 Mexican airport operators got a surprise today.

 

 

OMAB bounced of ~30% from the lows (~$50). Daytrading bonanza.

 

FWIW, the fees that these airport charge should make mexican drug cartels  jealous.

Edited October 6, 2023 by Spekulatius

[backtothebeach]

18 hours ago, Spekulatius said:

OMAB bounced of ~30% from the lows (~$50). Daytrading bonanza.

 

FWIW, the fees that these airport charge should make mexican drug cartels  jealous.

A 0.5 liter bottle of water at Cancun airport is 6-7 dollars at every shop, and of course no water fountain. It”s a mafia.

 

Edited October 7, 2023 by backtothebeach

[Saluki]

On 10/6/2023 at 9:10 AM, backtothebeach said:

A 0.5 liter bottle of water at Cancun airport is 6-7 dollars at every shop, and of course no water fountain. It”s a mafia.

 

 

I’m in a Florida airport now. They have free water fountains (with paper cups to fight covid) and the .5 liter bottled water is $2.89 (generic)- $4.29 (Evian).  
 

charging twice that amount in a poor country is outrageous.

[jstore0122]

Has anyone here invested / looked at  in Vinci?

 

They have a diverse portfolio of airports which mitigates country-specific risks. And though I'm not a fan of the construction side of the business (low margins) I wonder if it helps them win bids for airports since they can probably undercut competitors on price, who have to subcontract out.

 

And stock is down >10% since the snap elections announcement by Macron

[jstore0122]

Wrote up some thoughts about the airport industry:

 

https://www.revelesresearch.com/p/the-business-of-airports-part-i