Grupo Aeroportuario del Sureste, S.A. de C.V. (ASR)

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Grupo Aeroportuario del Sureste, S.A. de C.V. (ASR) is a Mexican airport operator with concessions to operate, maintain, and develop the airports of Cancun, Merida, Cozumel, Villahermosa, Oaxaca, Veracruz, Huatulco, Tapachula, and Minatitlan. The company has two sources of revenue: aeronautical services and non-aeronautical services. Revenue from its aeronautical services is earned from passenger charges, landing charges, aircraft parking charges, charges for airport security services, and charges for the use of passenger walkways. The company's revenue from non-aeronautical services is earned from the leasing of space in its airports to airlines, retailers, and other commercial tenants access fees collected from third parties providing complementary services at its airports and related miscellaneous sources. The company's principal source of revenue remains passenger charges, which are collected from airlines for each passenger. Passenger charges are automatically included in the cost of a passenger's ticket and are generally collected twice monthly from each airline. During 2006, aeronautical services represented 67% of total revenues. As a result, the principal factor affecting ASR's earnings remains the number of passengers using its airports. Nevertheless, there was a continuous increase of commercial revenues per passenger since 2004, particularly from duty-free, food and beverage, retail, advertising, and revenue from banking and currency exchange services. Below we can see the passenger traffic per airport during the first half of 2007:

ASR has reported strong results from 2003 to the first half of 2005. However, during the third quarter of 2005, the company was affected by lower passenger traffic, due to weakness in the Cancun and Cozumel airports. Those airports were hurt by hurricane Emily in July 2005, which forced the closure of around 10% of the hotel rooms available in Cancun and 13.4% in Cozumel. Once more, in the fourth quarter of 2005, ASR shares were heavily affected by hurricane Wilma that struck the Yucatan peninsula on October 20, causing major damages in the Cancun and Cozumel airports, and in the tourist infrastructure in Cancun, the Mayan Riviera, and Cozumel. In fact, after hurricane Wilma, the number of available hotel rooms in Cancun declined 60% to just 10,918. In the Mayan Riviera, the situation was less dramatic, with a reduction of 9.3% to 22,836 rooms.

We found first quarter 2007 commercial revenues somewhat disappointing. It is true that commercial revenues increased 23.3% year-over-year during the first three months 2007, however, it was not fair to compare first quarter 2007 to first quarter 2006 due to the effect of the hurricanes last year. As we compared commercial revenues in the first quarter 2007 with the same period 2005 we found that it increased 18.4%. If we make the same comparison to the fourth quarter 2006 we found that commercial revenues were down 4.7% while total revenues were up 21.6% in the same period. Second quarter results showed a considerable improvement, since commercial revenues per passenger increased 15.1% year-over-year and commercial revenues as a whole increased 32.7% year-over-year. Even better, third quarter 2007 results were very encouraging. Total revenues rose 19.5%, mainly due to an increase of 53.8% in non-aeronautical revenues. In fact, commercial revenues per passenger increased 40% year-over-year reaching MXN$50.58 (US$4.62) per passenger. The opening of terminal 3 of Cancun airport on May 18, 2007 was the most important news behind those good numbers. In this new terminal it was opened three new restaurants, five new fast food stores, one ice cream shop, one coffee shop, a new duty free shop, Mexican handicraft store, one drugstore, four gift shops, one convenience store and one exchange shop. In fact the continued growth in non-aeronautical revenues has been the key point to the continued success of ASR for the past 3 years and after those great figures in the second and third quarter 2007, the outlook for commercial revenues in the very short-term is quite encouraging once more. Non-aeronautical revenues were great during the second and third quarters 2007. The company was able to post improved passenger traffic, higher revenues, a tight cost discipline, much better operating margin and a sound net income. For the very short-term, we continue to expect positive numbers, mainly commercial revenues due to the consolidation of the terminal 3 of Cancun airport and also the beginning of the winter season in Cancun and Cozumel. Additionally, passenger traffic was very positive during the fourth quarter 2007. In October 2007 passenger traffic increased 14.1% year-over-year, in November traffic increased 15.2% year-over-year and in December it increased 14.3% year-over-year. We believe that the continued growth in passeger traffic coupled with the consolidation of terminal 3 of Cancun airport will be the main points behind positive fourth quarter 2007 results.

Despite the good results, there are some concerns that should be considered. According to Mexican newspapers, the Mexican Government is expected to use a public bidding process for the award of the concession for the construction operation and management of an international airport in the Mayan Riviera in the state of Quintana Roo. We believe such a development could increase the competition for the Cancun and Cozumel airports in the medium term. It is important to remember that the Cancun and Cozumel airports together represent around 75% of the company's passenger traffic. This is not a short-term problem for sure, but remains a medium-term concern.

Even though those problems, we believe ASR has been performing great and that the continued increase of the commercial revenues will have a great impact over the company's short-term earnings. With the beginning of the winter season in the Northern hemisphere and the end of the hurricane season we believe it is moment remains positive view on ASR, despite the difficult economic environment in the U.S.

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