GAP's Resilient Growth Strategy: Domestic Surge and Route Expansion Overcome International Headwinds

The global travel recovery has been uneven, yet Grupo Aeroportuario del Pacífico (GAP) continues to navigate mixed traffic trends with a disciplined focus on operational efficiency and strategic route expansion. While international demand faces headwinds, the company's domestic passenger traffic surged 8.8% year-to-date (YTD) through May 2025, driven by strong performance at key airports like Guadalajara (+10.4% YTD) and smaller markets such as Mexicali (+45.4% year-over-year). This domestic momentum, coupled with a bold network expansion via new Viva routes, positions GAP to capitalize on Mexico's growing travel market while mitigating risks from softer international demand.

Domestic Dominance: A Foundation for Long-Term Growth

The 8.8% YTD domestic traffic growth reflects GAP's success in tapping into Mexico's mid-sized cities, where air travel is increasingly accessible. Airports like Los Mochis (+33.2% in March 2025) and La Paz (+18.5% YTD) are exemplars of this trend, benefiting from rising tourism and business connectivity. The company's airports in Guanajuato, Hermosillo, and Tijuana also outperformed, showcasing the demand for reliable regional travel hubs.

This geographic diversification reduces reliance on any single market, a critical advantage as international traffic faces challenges. For instance, Montego Bay (Jamaica) saw a 1.6% decline in May 2025 due to ongoing tourism struggles, yet this localized weakness had minimal impact on overall performance. Domestic traffic's robustness acts as a stabilizer, ensuring GAP's revenue remains resilient even as international demand fluctuates.

Strategic Route Expansion: Fueling Connectivity and Demand

GAP's partnership with Viva, the low-cost carrier, has been a game-changer. The addition of seven new domestic routes in 2025—such as Guanajuato-Monterrey and Los Cabos-Nashville—has boosted connectivity and stimulated demand in underserved regions. These routes not only increase passenger volume but also improve load factors by spreading traffic across more airports.

The Tijuana hub, in particular, is a strategic linchpin. Its Cross Border Xpress (CBX) traffic rose 13.8% in May 2025, reflecting its role as a gateway to Mexico's northern economy. By expanding routes from Tijuana to cities like Puerto Vallarta and Guadalajara, Viva is creating a network effect that lowers costs and attracts price-sensitive travelers. This aligns with GAP's goal of maximizing airport utilization while reducing dependence on legacy carriers.

Capacity Utilization: A Short-Term Trade-Off for Long-Term Gains

While domestic traffic growth outpaces international demand, capacity utilization metrics reveal a near-term challenge. Seat availability grew 4.8% year-over-year in May 2025, outpacing passenger growth, causing load factors to dip to 81.1%—a 1.7 percentage point decline from 2024. This is a calculated trade-off: expanding capacity now prepares GAP to capture future demand as travel recovers fully.

Investors should view this dip as a temporary blip, not a structural issue. The company's 7% YTD total traffic growth (domestic + international) demonstrates its ability to balance capacity with demand. Meanwhile, the 9.1% April domestic traffic surge highlights the underlying strength of its network. Over time, higher passenger volumes will normalize load factors, and the expanded capacity will support sustained growth.

Managing International Headwinds with Precision

International traffic's 0.2% May decline is concerning but manageable. Montego Bay's struggles (e.g., a 13.7% drop in July 2024 due to Hurricane Beryl) are mitigated by stronger performance elsewhere, such as Tijuana's 7.9% international growth in May 2025. GAP's portfolio is geographically diversified enough to absorb localized downturns, and its focus on high-growth domestic routes limits vulnerability to external shocks like geopolitical instability or currency fluctuations.

Investment Thesis: A Buy on Dip, Hold for the Long Run

GAP's stock may face near-term pressure due to load factor concerns, but its fundamentals remain robust. The company's domestic dominance, strategic route expansion, and geographic diversification create a moat against competitors. Additionally, its airports are critical infrastructure assets with limited substitutes, ensuring stable cash flows even during cyclical downturns.

Recommendation:
- Buy on dips below $18 (as of June 2025 prices) to capitalize on undervaluation caused by short-term load factor fears.
- Hold for the long term as domestic traffic growth and Viva's network expansion drive revenue and EBITDA margins upward.

GAP's ability to balance near-term challenges with long-term strategic bets makes it a compelling investment in the airport sector. While international headwinds linger, the company's focus on operational excellence and market diversification ensures it will remain a key player in Mexico's travel renaissance.

Disclosure: This analysis is based on publicly available data and does not constitute personalized financial advice. Investors should conduct their own research.