Bienvenidos a Cancun: Privatization stimulates expansion at Cancun International Airport

Privatization stimulates expansion at Cancun International Airport

CANCUN, MEXICO – Located on the Northeast tip of the Yucatan Peninsula in Quintana Roo, Mexico, Cancun International Airport (CUN) is the gateway to turquoise waters and white sandy beaches. A visitor less than five years ago might have been overwhelmed by the simplicity of the airport.

Today, despite the construction of the international terminal, visitors will find an extensive shopping area, stunning architecture, and decorating that reminds them they have reached paradise. Three years after the government turned over control of CUN to a private holding company through a privatization process, the airport has undergone millions in renovations, expansion, and technological improvements, and is ready to face continued growth.

Adolfo Castro, chief financial officer of ASUR (Grupo Aeroportuario del sureste, S.A. de C.V.), the private holding company that operates CUN, explains: "Cancun is a miracle. Believe it or not, 30 years ago, there was nothing at all. Not even ’old town.’ Today it has around $4.5 million just in hotel infrastructure."

ASUR has invested $70 million in
renovations at CUN, including this domestic gate area. Renovation costs at all nine airports are expected to total some $110 million.

In 1974 Quintana Roo was declared a state and Cancun opened for tourism. Visitors have been crowding the area ever since, helping to make tourism Cancun’s top industry.

Troublesome Tenants

Before the privatization process of some of Mexico’s
airports, a formal lease program for concessionaires at
airports did not exist. Adolfo Castro, CFO of ASUR, explains that when ASUR took over operations at Cancun, there were tenants that had not paid rent for more than five years.

"We received the airport pregnant with a lot of tenants, a lot of problems, tenants that were not paying rent, and tenants that were not complying with airport rules. So our first [project] was to change that."
The group was successful in evicting most of the tenants in the main terminal, but visitors through the airport can still see the remnants of one shopkeeper who refused to leave. "She’s asking 300,000 pesos for the ten square meters. We’re not going to pay that," Castro says.
ASUR has entered into litigation to have the tenants that are not paying rent evicted, including several in the international terminal.
In December 2001, ASUR decided it could not put off renovations in the international terminal any longer, and the construction work is now being done around the old tenants. Castro says that as soon as each is evicted, ASUR will complete the renovations.
Along with bringing new retailers to the airport, ASUR also redesigned the rent structure. "We cancelled the flat rent per square meter, and now have a royalty payment. At the end of the day we are partners in the same business. We have an alliance in objective. In this way we can better serve the passengers."

Cancun International Airport has seen passenger traffic grow at a rate of 7.4 percent each year for the last 12 years. And ASUR expects that the 7.7 million enplanements the airport is currently experiencing will increase substantially in the upcoming years.

PRIVATIZATION PROCESS

Three years ago the Mexican government made the decision to privatize 35 of the country’s 58 airports, which, according to Castro, was an effort to improve the airports.

Because of the structure of the government, money that was generated by airports was sent to the federal government and immediately became part of the national budget. If the airports needed money, they were often at the end of the receiving line. Castro explains that this left the airports badly in need of general maintenance and improvements.

The 35 privatized airports were divided into four regions. ASUR was granted concessions to operate, maintain, and develop the nine airports of the Southeastern region, including Cancun, Merida, Cozumel, Villaher-mosa, Veracruz, Oaxaca, Huatulco, Tapachula, and Minatitlan.

In accordance with the privatization agreement, 73.9 percent of ASUR’s stock is listed on the Mexican Stock Exchange and New York Stock Exchange. The Mexican government owns another 11.1 percent and the remaining 15 percent is owned by ASUR’s strategic partner, ITA (Inversiones y Tecnicas Aeroportuar-ias). ITA is an international association made up of four companies with extensive airport construction and operating experience: Copenhagen Airports, Cintra, Tribasa, and Vinci.

"So, from the 28th of September 2000, ASUR became the first real public company in Mexico and Latin America," Castro says.

ASUR has a board of directors comprised of seven members – two from ITA, one from the government, and four independents who represent investors who control at least 10 percent of the shares. ASUR was the 2001 recipient of Investor Relations magazine’s award for best corporate governance in Latin America.

ROUGH ROADS

According to Castro, when ASUR took over operations of the airport, many renovations and improvements to the infrastructure were required. "Three years ago, this airport was totally different," he says. In this case, "different" was not a good thing.

In the 18 months following the privatization, the majority of the improvements were made airside. "It’s the most important part of an airport," Castro says. "But the people were asking, ’What are you doing?’ because no one was seeing the money." He explains that taxiways, runways, and aprons were refurbished, along with installing new lighting systems.

General Aviation Services at CUN

ASUR operates one FBO at CUN for charter and general aviation. ICCS (International Corporate & Cargo Services) based in Mexico City, provides fueling and ground support services to business aircraft traveling in and out of the airport.

Emma D. Cruz, director of ground handling for ICCS, explains that the company has a chain of 13 FBOs and offices throughout Mexico, and is the only chain of FBOs in the country.
In Mexico, the only fuel provider is ASA, a government regulated company. Therefore, in order to sell fuel to general aviation, ICCS has a contract with ASA.
Cruz says that since the privatization of CUN, there have been more costs incurred by ICCS because of tighter restrictions set forth by ASUR. "We’re paying more because wherever we’re working, we have to pay a fee. Fifteen percent of whatever we make [at CUN] goes to ASUR."
But Cruz also adds that the infrastructure at the airports has improved, and the organization that ASUR brings to the airport helps ICCS as well. "We have to have contracts now," Cruz says. "In the past, there were a lot of people providing services who didn’t have any expertise. And, since they didn’t have to pay anything to the airport, they had no expenses and they weren’t responsible [for their actions]."
Cruz explains that ICCS has a relationship with U.S.-based Avfuel, which "allows the AvFuel credit card to be used under the umbrella of ICCS."

Then came the work on the terminal. The existing six gates became 22 and the domestic departure area was expanded by 8,000 square meters. A total of 40,000 square meters of terminal space was added to CUN, at a cost of $70 million.

GETTING WIRED

Castro explains the airport was without networking or cabling systems, flight information was provided on a very rudimentary basis – usually involving a megaphone. Counter capacity was restricted with 25 international and 15 national airlines competing for the same space that was manually assigned, along with boarding gates and baggage claim, "with no real mathematical basis or tools for the person who was doing the allocation of these resources," says Castro.

"A couple of years ago, I wrote what I call our letter to Santa Claus, to describe and set forth our wish list for what we wanted for a system."

ASUR realized that the way to run its operations effectively would be to find a solution that integrated all aspects of the airport, from billing to resource allocations. "We put the project out for open bid and SITA was the final winner."

SITA provides technological solutions to airports all over the world. Its technological integration system called Airport in a Box made SITA very attractive to ASUR.

This system allows for the integration of various airport operations into one central system – something that will eventually allow ASUR to manage all nine of its airports from the system installed at CUN.

Herve Muller, director of airport and desktop sales for SITA, explains that the first phase of improvements at CUN involved installing the cabling and networking infrastructure. "ASUR took an integrated approach," he says. "Instead of having different cables for each system, [there is] one infrastructure that serves all the different pieces."

As soon as a plane lands at CUN, the information for the flight is entered into a computer from the control tower. Based on guidelines and rules preassigned in the system, the flight is assigned an arrival gate and baggage area. All this information is then displayed on the FIDS monitors throughout the terminal, and billing is completed for the arriving airline. This system saves ASUR time and costly errors, and has reduced the amount of staff needed to perform daily operations, but Castro explains the airport has no way of measuring how much it is saving simply because of the lack of technology that existed previously.

"I can’t really tell you how much we would lose when we didn’t have the system, because precisely one of the problems we had was we were not able to measure that. But now we are able to measure things appropriately and we are billing, with 99.99 percent accuracy, things that are actually happening at the airport. Complaints about bills from the airlines have been reduced 30-fold."

The remaining eight airports will be integrated into the CUN system, but because each airport differs in size and requirements, the technology solutions will vary. ASUR invested more than $10 million for the hardware, software, and installation of the Airport in a Box system at CUN and expects to invest some $4 million more to complete the integration of airports into one central database by June 2003.

Common Use Terminal Equip-ment (CUTE) was also installed at CUN by SITA. The shared system is used by all airlines to check in and board their passengers. This allows ASUR to allocate counter space more effectively.

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