GAP's Domestic Resilience and International Crosscurrents: Navigating Air Travel's Dual Dynamics

The air travel sector in 2025 continues to reflect a bifurcated reality: domestic markets, particularly in mid-sized cities, are surging with double-digit growth, while international hubs grapple with weakening demand. For Grupo Aeroportuario del Pacífico (GAP), Mexico's leading airport operator, this divergence presents both opportunities and risks. Its May 2025 passenger traffic report reveals a company leveraging domestic momentum to offset international headwinds, but one that must navigate the delicate balance between expanding capacity and sustaining demand.

Domestic Growth as an Anchor of Resilience

GAP's May results highlight a stark contrast between domestic and international performance. Domestic passenger traffic across its 12 Mexican airports rose by 4.7% year-over-year, driven by standout performances in cities like Mexicali (+41.2%) and Los Mochis (+19.8%). These mid-sized cities, often overlooked in favor of tourism hubs like Cancún or Acapulco, are proving critical to GAP's growth strategy. Their strong year-to-date figures—Mexicali at +15.7%, Los Mochis at +28.6%—suggest this is not a one-month anomaly but a structural shift.

The strategic expansion of Viva's route network further underscores this trend. The low-cost carrier's seven new routes, including connections from Hermosillo and La Paz, are designed to capitalize on pent-up demand in underserved markets. By boosting connectivity, Viva reduces reliance on legacy carriers and lowers travel costs, potentially creating a self-reinforcing cycle of demand. This aligns with GAP's long-term goal of diversifying its passenger base and reducing vulnerability to external shocks.

International Declines: A Cautionary Note

While domestic markets thrive, international traffic at key hubs like Montego Bay (-1.6%) and Los Cabos (-9.1%) paints a bleaker picture. These declines, part of a broader 0.2% drop in international passengers, reflect challenges including reduced U.S. tourism to Caribbean destinations and oversupply in popular Mexican resorts. The year-to-date data is even starker: Montego Bay's traffic fell 5.7%, and Los Cabos' dipped 4.8%, signaling deeper underlying issues.

Investors must ask: Is this a temporary correction, or a sign of structural decline? For now, the answer lies in context. The U.S. dollar's strength and higher oil prices—both of which curb discretionary travel—could persist, squeezing international demand further. Meanwhile, regional instability, such as Jamaica's political volatility, adds uncertainty. These risks are not easily mitigated, and they highlight the need for GAP to maintain its focus on domestic markets.

Capacity Utilization: A Temporary Hurdle or a Strategic Challenge?

The report's most telling metric is the 4.8% increase in available seats in May, paired with a 1.7-point drop in load factor to 81.1%. This signals a cautious expansion: airlines are adding capacity to meet domestic demand but are overestimating recovery in international markets. While this could pressure profitability in the short term, it also positions GAP to capitalize if travel rebounds. The cross-border traffic surge at Tijuana (+7.5% CBX users) hints at latent demand, suggesting that once external headwinds ease, utilization could rebound.

Investment Implications: A Selective Bull Case

GAP's May data argues for a nuanced investment thesis: domestic resilience justifies optimism, but international risks demand patience.

Bull case arguments:
- Domestic momentum: Growth in cities like Mexicali and Los Mochis reflects broader economic trends, including urbanization and rising middle-class travel. This is a durable trend.
- Strategic route expansion: Viva's new routes reduce reliance on traditional carriers, lowering barriers for travelers and creating new revenue streams.
- Operational flexibility: GAP's ability to shift capacity toward high-growth domestic routes while trimming less profitable international routes could improve margins over time.

Bear case risks:
- International drag: If declines at Montego Bay and Los Cabos persist, they could offset domestic gains. Investors should monitor regional tourism trends and oil prices.
- Overcapacity risks: A sustained drop in load factors could signal a misallocation of resources.

Conclusion: Timing the Entry

GAP's stock is a classic “recovery bet,” but the timing is critical. Investors should consider waiting for a pullback in its stock price—perhaps triggered by further international weakness—and then deploy capital selectively. The year-to-date passenger growth of 4.9%, driven by domestic strength, suggests the company is on a sustainable path. However, the ideal entry point may come when the market prices in the worst-case scenario for international traffic.

In the long term, GAP's focus on mid-market domestic hubs and route diversification positions it to thrive in a fragmented travel recovery. For now, the advice is clear: watch the domestic engine, hedge against international risks, and wait for a dip before doubling down.