GAP's Domestic Momentum Outshines International Headwinds: A Bullish Case for Long-Term Growth

The May 2025 passenger traffic report from Grupo Aeroportuario del Pacífico (GAP) reveals a tale of two markets: domestic demand surging while international traffic falters. With total passenger growth of 2.9% year-over-year (YoY) to 5.17 million, the Mexican airport operator's resilience is rooted in strong regional connectivity and strategic route expansions—despite challenges in key international gateways like Montego Bay and Los Cabos. For investors, this bifurcation presents a compelling opportunity to capitalize on the secular trend of domestic tourism growth in Mexico, even as global headwinds persist.

Domestic Growth as the Engine of Resilience

The star of GAP's performance is its domestic segment, which grew 4.7% in May 2025, outpacing the 0.2% decline in international traffic. Year-to-date (YTD), domestic traffic soared 8.8%, driven by airports like Guadalajara (+9.8%), Puerto Vallarta (+14.4%), and Mexicali (+41.2%). These figures reflect a structural shift toward regional travel, amplified by Mexico's economic recovery and the rise of low-cost carriers like Viva Aerobus.

The Viva Effect: New Routes Fueling Connectivity

GAP's partnership with Viva Aerobus is a key differentiator. New routes launched in May—including Tijuana to Hermosillo, La Paz, and Veracruz—are not merely incremental; they're catalysts for broader economic activity. By expanding regional connectivity, Viva is turning secondary cities into hubs, reducing reliance on traditional international markets. This strategy is paying off: airports like Los Mochis (+19.4% YTD domestic) and La Paz (+13% YTD) now boast robust growth, indicating that Mexican travelers are embracing domestic destinations with renewed enthusiasm.

International Challenges, but Not Dealbreakers

While international traffic at GAP airports declined 0.2% in May, the YTD picture shows deeper divides. Tijuana and Guadalajara posted international gains of 8.3% and 1.8%, respectively, thanks to strong U.S. border traffic and business travel. However, Montego Bay (-5.7% YTD) and Los Cabos (-4.8% YTD) highlight vulnerabilities. Montego Bay's stagnation—its domestic traffic remains at zero—points to broader issues in Jamaica's tourism sector, while Los Cabos' slump reflects oversupply and shifting preferences among luxury travelers.

Yet these headwinds are cyclical. International travel is prone to volatility due to currency fluctuations, geopolitical risks, and seasonal demand. Domestic traffic, by contrast, is more stable, tied to Mexico's GDP growth and middle-class expansion.

Capacity Expansion vs. Load Factor: A Strategic Trade-Off

GAP's 4.8% YoY increase in seat capacity in May, outpacing passenger growth, led to a load factor decline to 81.1% from 82.8%. Critics may see this as overcapacity, but it's a calculated move. By prioritizing volume over margin in the short term, GAP is incentivizing airlines to expand routes, which will boost long-term revenue through higher passenger counts and ancillary fees. The trade-off is worth it if it accelerates the shift toward a more diversified, domestic-driven model.

Why Investors Should Look Past the Noise

The bull case for GAP hinges on three pillars:
1. Domestic Demand Resilience: Mexico's tourism infrastructure is maturing, with rising disposable incomes fueling regional travel.
2. Strategic Route Expansion: Viva's network growth reduces dependency on volatile international routes.
3. Long-Term Secular Trends: As Latin America's middle class expands, domestic air travel is a logical beneficiary.

While Montego Bay and Los Cabos face near-term hurdles, their combined traffic represents a small fraction of GAP's total operations. The company's focus on Mexico's fastest-growing regions—like Baja California and the Pacific coast—positions it to capture the lion's share of domestic demand.

The Investment Thesis

GAP (ticker: GAP) is a buy for investors with a 3–5 year horizon. The stock's valuation—currently trading at X times EBITDA (insert specific multiple via