Owais Crawford
Airports are a unique business model, often enjoying a monopolistic market power due to the fact that most cities can only support one airport. Airports have two types of revenue streams: aeronautical and non-aeronautical. Aeronautical revenue includes money generated from fees on each flight and passenger, while non-aeronautical revenue comes from sources such as retail concessions, duty-free shopping, car parking, food and beverage, and advertising. As global air travel continues to grow, airport stocks offer exposure to megatrends and high growth potential. Despite being typically expensive, airport stocks can be a lucrative investment opportunity, with some sources recommending specific airport stocks such as Corporacion America Airports Sa (NYSE:CAAP) and Central North Airport Group (NASDAQ:OMAB) as undervalued and offering high dividend yields, respectively.
| Characteristics | Values |
|---|---|
| Airport stocks offer exposure to global megatrends | Expected to grow at a rate of 5% per year over the next decade |
| Airport stocks offer relatively fixed costs compared to high growth potential | Depreciation is the main cost, which is not a cash cost |
| Airports make money from fees on each flight and passenger | Landing, parking, and transfer fees accounted for 56% of airports' income in 2017 |
| Airports make money from renting space to shops and businesses | Airports were becoming havens for high-end shopping before the pandemic |
| Airports are "moat" businesses with a monopolistic market power | Most cities and metropolitan areas can only support one airport |
| Airports have two types of revenue streams: aeronautical and non-aeronautical | Aeronautical revenue comes from carriers, while non-aeronautical revenue comes from passengers |
| Airport stocks can be expensive | Vienna International Airport stock traded with a dividend yield of 4.6% |
| Airport stocks can be a good investment during crises | Despite ups and downs, the number of passengers has been constantly rising |
| Examples of airport stocks include: | Corporacion America Airports Sa (NYSE:CAAP), Beijing Capital International Airport Co. Ltd., Aeroports de Paris SA, Grupo Aeroportuario del Sureste S.A.B. de C.V. |
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What You'll Learn
Airports as a monopolistic business model
Airports are often considered a monopolistic business model due to their ability to generate revenue through various means and their relatively fixed costs. Airports typically make money by charging fees for each flight and passenger, renting space to businesses, and providing aircraft maintenance services. As global airline travel continues to grow, with an expected rate of 5% per year over the next decade, airports will experience increased traffic and revenue.
Additionally, airports have relatively fixed or low costs compared to their high growth potential. The main cost for airports is depreciation, which is not a cash expense. As a result, as more people fly, airports can expect higher profits. This model can be seen as monopolistic as it relies on capturing a large portion of the market and benefiting from economies of scale.
However, it is important to note that airports are regulated monopolies, with governments controlling how much money they can make. Despite this, airports can still increase prices to deal with capacity issues or invest in infrastructure expansions, such as adding new runways.
Investing in airport stocks can be lucrative, especially during times of crisis when stock prices may be lower. For example, the Vienna International Airport stock traded at a dividend yield of 4.6% during a crisis, offering a potentially cheap investment opportunity. Airport stocks provide exposure to global megatrends, such as the growing middle class, which is projected to increase to 5.5 billion over the next decade, leading to higher demand for air travel.
Some of the top airport stocks include Corporacion America Airports Sa (NYSE: CAAP), offering a potential average return of +7.53% per year, and Central North Airport Group (NASDAQ: OMAB), with an annual dividend yield of 5.91%. These stocks provide investors with the opportunity to benefit from the monopolistic characteristics of the airport business model, including stable revenue streams and potential for high growth.
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Aeronautical and non-aeronautical revenue streams
Airports derive revenue from three main sources: aeronautical, non-aeronautical, and non-operating activities. Aeronautical revenue, which comes from fees charged to airlines and aviation-related activities, is the biggest source of income, accounting for almost half of total revenue at 47.80%. Key components of aeronautical revenue include airline terminal space rentals and airline landing and usage fees.
Airports lease space to airlines for ticket counters, offices, and operational areas within terminals. These rentals provide steady income while fostering strong partnerships with airline operators. Airline landing and usage fees are charges levied on airlines for the use of runways, taxiways, and aprons. Security charges are another aeronautical revenue stream, collected from airlines and other aviation service providers to cover the cost of security measures.
Non-aeronautical revenue is generated from activities unrelated to airlines and aircraft, such as retail sales, parking, and real estate rentals. This type of revenue contributes significantly to an airport's total income, making up 38.80% of total revenue. Retail concessions, car parking, and property and real estate leases are the main categories within this stream. Retail concessions involve leasing retail spaces at the airport, such as duty-free stores, restaurants, and cafes, and charging a rental fee based on sales. Car parking revenue is collected from passengers and visitors for parking their vehicles, either directly by the airport or through a third-party operator. Property and real estate revenue is obtained by leasing non-terminal facilities, such as office buildings, warehouses, and hangars, with rents determined by space size and lease duration.
Non-operating revenue, which includes investment income and government grants, accounts for 13.50% of total revenue. While it may not be the primary source of income, it still contributes significantly to the airport's overall financial performance.
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Airports as a moat investment
Airports are considered a moat investment due to their monopolistic nature. They are often the only airport in a specific geographical area, and it is difficult for competitors to enter the market due to the high costs and regulatory challenges of building a new airport. This results in limited competition and the ability to steadily increase prices. Airports have two main revenue streams: aeronautical and non-aeronautical. Aeronautical revenue includes fees associated with landing, parking, transfers, and charges per flight and passenger, while non-aeronautical revenue comes from retail concessions, duty-free shopping, car parking, food and beverage, advertising, and rental car concessions.
Before the pandemic, airports were becoming hubs for high-end shopping, attracting luxury goods companies and catering to captive high-net-worth individuals waiting for their flights. For every dollar spent, the airport receives a cut. Additionally, airport costs are relatively fixed or low, with depreciation being the main expense, which is not a cash cost. As a result, as more people fly, airports make more money.
Despite the impact of crises on the airline industry, such as pandemics, volcanic eruptions, or wars, the number of passengers travelling has been consistently increasing. This trend is expected to continue, with the growth of the global middle class leading to higher demand for air travel and increased traffic at airports. Therefore, airport stocks offer exposure to global megatrends that are likely to continue despite temporary interruptions.
However, airport stocks can be expensive, and investors should be cautious of capacity issues and regulatory limitations on profits. Nevertheless, if one can find the right airport stock at the right price, it can become a valuable addition to an investment portfolio. Examples of publicly traded airport stocks include Beijing Capital International Airport Co. Ltd., Aeroports de Paris SA, and Grupo Aeroportuario del Sureste S.A.B. de C.V., which operates airports in Mexico's southeastern states.
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Airport stocks in times of crisis
Airports are often regarded as a good investment, offering exposure to global megatrends that are likely to continue growing despite temporary interruptions. Even during the COVID-19 pandemic, the airport industry demonstrated its resilience, with the number of passengers steadily rising again. This is due to the increasing middle class in Asia-Pacific and Latin America, as well as improved infrastructure and connectivity.
However, airport stocks can be expensive, and in times of crisis, such as the pandemic, natural disasters, or political events, prices can become more affordable. For example, the Vienna International Airport stock was trading with a dividend yield of 4.6% during the pandemic, which could become a cheap stock if things return to normal.
Despite the risks, airports have a unique business model that makes them attractive to investors. They are often monopolies, as most cities can only support one airport, and they have two types of revenue streams: aeronautical and non-aeronautical. Aeronautical revenue comes from fees on each flight and passenger, while non-aeronautical income is derived from renting space to shops and businesses, car parking, food and beverage, and more.
Some of the top airport stocks to consider include:
- Central North Airport Group (NASDAQ:OMAB) with a high dividend yield of 5.91%.
- Corporacion America Airports Sa (NYSE:CAAP) is undervalued and has a strong due diligence score.
- Beijing Capital International Airport Co. Ltd.
- Aeroports de Paris SA, which operates Paris' main airports.
- Grupo Aeroportuario del Sureste, which operates several airports in Mexico.
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Airport stock investment opportunities
Airports make money from fees on each flight and passenger, renting space to businesses, and airplane maintenance. Airport stocks offer exposure to global megatrends, such as the expected growth in global airline travel, which was predicted to be at a rate of 5% per year over the next decade before the COVID-19 pandemic. Airports also have relatively fixed costs compared to high growth potential.
Despite the ups and downs in the airline industry, the number of passengers travelling has been constantly on the rise. Airports are wide-moat businesses with little competition and the ability to steadily increase prices. They also have a history of paying growing dividends, and there is potential for share price appreciation.
Some of the best airport stocks to buy now include:
- Corporacion America Airports Sa (NYSE: CAAP)
- Aersale (NASDAQ: ASLE)
- Southeast Airport Group (NYSE: ASR)
- Central North Airport Group (NASDAQ: OMAB)
However, airport stocks are usually expensive, and there are various risks to consider, such as liquidity problems, country and currency risks, and regulatory issues.
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Frequently asked questions
Airport stocks are tracked because they are a profitable investment opportunity. Airports have two types of revenue streams: aeronautical and non-aeronautical. Aeronautical includes revenue generated from the carriers that use their services, and non-aeronautical revenue is derived mostly from passengers and includes retail concessions, duty-free, car parking, food and beverage, advertising, etc.
Some well-known airport stocks include Beijing Capital International Airport Co. Ltd., Aeroports de Paris SA, and Grupo Aeroportuario del Sureste S.A.B. de C.V.
Airports are often protected by a "moat", meaning they have a competitive advantage that makes it difficult for competitors to enter the market and take away market share. Airports also have high growth potential with relatively fixed costs.
Airport stocks are usually expensive and can be affected by crises in the airline industry, such as pandemics, natural disasters, or wars.
