Only two airlines that serve Mexico are currently breaking even with $100 oil
At the beginning of the month, I wrote about how I strongly believed that the stock prices of the public Mexican airports were going to drop significantly (see article: Say Adios to Mexican Airport Stocks). I see that Goldman Sachs has hopped on board of my short Mexican airports trade. Today in its morning comments, Goldman said:
"We are turning more negative on Mexican airports as airlines struggle with higher oil prices. We believe things will get worse, before they get better. The Mexican airline market has 14 airlines and we believe only 2 are flying at break-even. The rest all lose money with oil greater than $100/bbl."
Along with this statement, Goldman downgraded PAC from "Buy" to "Neutral."
If oil stays above $100/barrel (which I strongly believe it will, even if it slips below that temporarily), one of three things can happen when only two of the airlines that serve Mexico are making money.
1) Some of these airlines will go bankrupt.
2) The larger airlines will stop flying to Mexico.
3) They will raise ticket prices significantly.
None of these things is good for the publically traded Mexican airports, OMAB, PAC, or ASR which depend upon passenger traffic to generate revenue.
ADRs in Focus: Mexican airports decline
Short OMAB and PAC in CAPS, but unfortunately no position in them in my real portfolio.