Mexican airport group may hit a jam in Jamaica – GAP takes over in Kingston while also operating Montego Bay’s airport

Mexico’s Grupo Aeroportuario del Pacifico (GAP), one of three major private sector airport operators in that country, and the second most prolific investor abroad after ASUR, finally commenced the operation of Jamaica’s Kingston Norman Manley International airport (KNMIA), effective 10-Oct-2019.

GAP was granted a 12-month transition period in Oct-2018, and made a USD7.1 million payment for the concession. The contract includes mandatory works that must be executed during the first 36 months from the initiation of operations, valued at USD60 million. GAP will also pay the government a concession fee of 62% over total aeronautical and commercial revenues. These terms, along with operating expenses, are included in the determination of passenger fees.

The entire exercise has been one of hard bargaining on the government’s part to divest itself of an airport which has not been able to compete with the one at Montego Bay, on the other side of the island, which was already privatised.

CHART –  Montego Bay (top) is home to the larger of Jamaica’s airports and where growth rates are exceeding the performance in Kingston (bottom)

Source: CAPA – Centre for Aviation and Montego Bay Sangster International airport and Airports Authority of Jamaica

In a previous article, The Blue Swan Daily highlighted that the government, having failed to attract interest in KNMIA in an initial privatisation procedure, had put a great deal of emphasis the second time around on how traffic could be won at KNMIA from Montego Bay when the Jamaican capital does not have anything like the same touristic attractions.

In other words they were being set up to compete against each other under the same management (GAP). A little like London Heathrow and Gatwick airports, or Madrid and Barcelona or Frankfurt and Munich, or even New York JFK and Boston Logan competing against each other but under the same foreign concessionaire.

Montego Bay has led Kingston in traffic growth in the last few years but it is reported that KNMIA handled 1.4 million passengers in the Jan/Sep-2019 period, an 8.4% year-on-year increase, and 1.3 ppts ahead of its ‘rival’.

When KNMIA came back on to the market for the second time a high upfront fee had been reduced to USD5 million and the mandatory CapEx requirement to USD110 million, of which USD50 million had to be spent in the first three years. It would appear there was some further negotiation there, which led to a higher initial fee and CapEx requirement and over a shorter period of time.

KNMIA does have some advantages, such as being operated 24/7 with no curfew (which is not the case at Montego Bay). The airport is located close to the country’s main sea port and handles mainly VFR traffic, since the majority of tourists use Sangster. Moreover, tourism in general to Jamaica continues to go up, by almost 10% in terms of foreign arrivals in Jan to Jul-2019.

The objective was made clear by KNMIA’s representatives and consultants, i.e. to claw back some of the traffic from Sangster on the western side of the island and perhaps to increase LCC penetration. There has already been some success here with LCC penetration rising, but still lower than at Montego Bay.

On the other hand utilisation is patchy at times. On some days there is a marked equilibrium between arriving and departing capacity with few blank hours but on others there are large and inefficient service gaps.

Whether or not this strangely and unusually competitive situation will ultimately be a win/win or lose/lose for GAP remains to be seen but for now the statistics look promising. GAP has revised guidance for 2019 as follows to include operations from KNMIA: passenger traffic: +8%; aeronautical revenue: +12%; non-aeronautical revenue: +20%; total revenue: +14%; EBITDA: 12% and an EBITDA margin of 68%, the latter well above average.

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