Grupo Aeroportuario del Pacífico Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2023

There are 12 speakers on the call.

Operator

Good morning, and welcome to GAAP's Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions. And at that time, instructions will be given if you would like to ask a question. It is now my pleasure to turn the call over to GAAP's Investor Relations team.

Operator

Please go ahead.

Speaker 1

Thank you, and welcome to Grupo Aroportadio del CECO's Q2 2023 Conference Call. Presenting from the company today, we welcome Mr. Raldo Vuelta, CECO's Chief Executive Officer And Mr. Saul Villarell, Chief Financial Officer. Please be advised that forward looking statements may be made during this conference call.

Speaker 1

They do not account for future economic circumstances, industry conditions, company performance or financial results. As such, statements made are based on several assumptions and factors that could change. This could cause actual results to materially differ from current For a complete note on forward looking statements, please refer to the quarterly report that was issued by the company. At this point, I'd like to turn the call over to Mr. Valveso Huerta for his opening remarks.

Speaker 1

Please begin, sir.

Speaker 2

Thank you, Maria. We appreciate everyone who joined our call today to review GAAP's 2nd quarter of 2023. During the period, GAAP transported nearly 16,000,000 travelers throughout our network of 14 airports. This represents a 12% increase compared to 2022, which added to the Q1, put us above Our original profit growth guidance for the year. Ed Wood's opened during the quarter for domestic and for international.

Speaker 2

Roscado led the way with 3 new routes, followed by Puerto Vallarta with 2, Guadalajara, Mexicali and Montego Bay with 1 inch. Guadalajara also worth mentioning was has accelerated profit growth during the quarter with a 18% increase. This was related to domestic market growth of 19%, mainly due to the new routes to Monterrey As well as higher load factors from Viva, Caribou and Volaris, international traffic benefited from Increasing frequencies in key U. S. Markets, such as New York and California routes to Los Angeles, San Jose and Oakland.

Speaker 2

As a result, international traffic grew by 17% during the second quarter. Iguara continues to be one of our main Traffic generators boosted by the cross border express, which has captured 32% of the airport's total traffic. The Binational Terminal continues to be a fundamental part of the airport's growth as well other factors such as the reassuring Effects at the beach destinations, we've left the performance of their focus in this traffic at this location. The growth trend at Puerto Vallarta and Los Cabos is very similar, given a strong domestic market, driven by the increasing load factor and frequency. In terms of international passengers in Los Cabos, we opened 2 new routes to Dallas and Houston as well as the seasonal Ibero Jet route to Madrid.

Speaker 2

We expect to share with you great news regarding in passenger development for the whole network. During the coming months, we anticipate more than 40 new domestic routes in July operated by Volaris Now moving on to our nautical revenues. Pure line item increased by 14% driven by passing the traffic to our gas network. In the case of our Mexican airports, The increase was offset by the new increase in the produce price index, excluding petroleum, which has led to noninflation increase Maximum tariff approved in our Mexican airports. As such, we were able to reach 99% compliance of our maximum tariff.

Speaker 2

In addition, the consolidation of our Jamaican airports have a negative impact due to the appreciation of the Mexican peso by almost 12 percent over the U. S. Dollar that has affected the revenue increase. Just to remind you, the 2 Jamaican airports represent 15% of the total aeronautical revenues. At this point, let's take a look at non aeronautical revenues, Which reflected our outstanding performance growing by 18%.

Speaker 2

This resulted in a 10% Increase in non aeronautical revenue per passenger. Most of the increase was attributable to the opening of newest spaces at the Guadalajara, Montego Bay and Uscavo The increase was also due to the passenger traffic recovery and the renegotiation of contracts condition with the tenants. It is worth mentioning that despite of nearly 12% appreciation of the pesos, which affected 20% of total revenues, Nanonautical revenues increased above the passenger traffic increase. In terms of business units, Food and beverage increased by 27%. This outstanding performance was mainly in Los Cabos, Puerto Vallarta, Guadalajara and Montego de Arcos.

Speaker 2

Presenting new spaces were incorporated at the Guadalajara and Montego Bay airports. Additionally, for the upcoming months, We are working on the opening of the tariffs at the Guadalajara airport and off the rooftop food and beverage space. Would you expect to be completed in November? At this point, that product is 80% above. Convenience stores revenue increased by 71%.

Speaker 2

To expand our business line, we opened 3 convenience stores during the last 6 months in Los Cabos, and we recovered 1 more in Guadalajara. George, the 3 stores in Los Cabos represent 20% of the total income from this business line. And it's worth mentioning that one of the stores The international terminal has the highest revenue for the network stores. This brings the total number of convenience store in our network to 29. Duty free increased by 9%.

Speaker 2

The increase below passenger traffic growth by mainly due to the Mexican peso operation As all the revenues from this business are in dollars, it was also affected by the temporary closing of the walk through beauty free store in Guadalajara Due to the construction projects that are in progress at the terminal. Other tax increased by 71%. New client catchment growth increased, Which put us on track to recovery following the COVID effect. VIP lounges increased by 14%, Mainly due to the launches at our tourist destination that continues to guide the business line. In addition, Guadalajara is currently remodeling the international VIP lounge, and we are also reconfiguring some expected international VIP lounge in Los Cabos Due to the higher than expected demand throughout 2023, we expect bulk construction projects to conclude next year.

Speaker 2

Moving on to the EBITDA results. Despite the 12% appreciation of the peso and the almost new inflation in the quarter, EBITDA reached ARS 4,500,000,000 for the quarter with an EBITDA margin of 70.4%. This was led by the passenger traffic recovery and solid commercial revenues and was partially offset by the 15% increase in the cost of service. As we have previously discussed, despite our best efforts to comply with our cost control policy, we have had to deal with Inflation, the hiring of additional personnel, changes in labor, low and minimum wage increases. This factor has affected not only salaries, but also the contracts that are linked to personnel such as janitorial, Security and maintenance.

Speaker 2

We expect higher costs further down the line due to the air side and terminal expansion in addition to the inflationary effects. Moving on to the CapEx. It continued to be carried out in accordance with the master development program along with commercial investment. During these 1st 6 months, we have deployed ARS 5,600,000,000, which was allocated mainly to the Guadalajara, Puerto Vallarta, Tijuana and Escalados. Just to remind you that GAAP paid the 2nd portion of this year dividend for ARS 3.71 on July 13, Further resolution made at our Annual Shareholders Meeting.

Speaker 2

Before I conclude my presentation, I would like to announce that the revised I said guidance we use for the 2023 versus 2022. For the traffic, we expect an increase for 10% to 12% for For the aeronautical revenue, an increase between 13% to 15%. For the non aeronautical revenue, We have started an increase between 16% to 18%, where our total revenue increased from 14% to 16%. EBITDA between 12% or 14% and EBITDA margin from 70% Close minus 1%. CapEx as we roll for all the year to MXN 11,900,000,000.

Speaker 2

Passenger traffic projection is based on the consolidation of routes developed to date. It also includes increasing load factors And airline's last frequencies and Tita by the means with the information that is currently public. Total revenues have been adjusted Based on expected changes in traffic performance, applicable passenger seats, a decrease in product price index excluding petroleum And a Mexican peso appreciation. This is in addition to the opening of new spaces as well as the negotiation of contract terms in commercial agreement as well as the development of other business lines operated directly by the company. Decrease in the cost of services reflects the operating Needed to meet airport services demand.

Speaker 2

In addition to that, it reflects infrastructure expansion and service Quality improvement added to higher inflation, minimum wage increases and additional personnel required for operations, Maintenance, Security and Training. CapEx reflects committed investments in GAAP Airports for the master development program And investment in commercial spaces. The process of acquiring land is moving really quickly. Hence, we are adding MXN 1,700,000,000 To the original guidance, amounting to a total of ARS 3,000,000,000 for land acquisition at the Guadalajara. At this point, that is for my remarks.

Speaker 2

I will ask the operator to open the floor for your questions.

Operator

We will take our first question from Karmani Mendez with JPMorgan. Your line is open.

Speaker 3

Good morning, everyone, and thank you for taking my question. First question is a follow-up to the comments on the guidance. If I may just provide a little bit more color of what is behind the traffic Update, I understand the loss factors and the additional capacity from the airlines. Just wanted to pick your brains on which regions are performing better, if domestic, If international or maybe some surprise on Jamaica going forward? And on the CapEx, if it's Only related to the land acquisition in Guadalajara or something else just to make it clear.

Speaker 3

And the second question is related to the expected upgrades to category 1 of the Mexico Aviation So what is the latest on that and what is company's expectations in terms of the timing for it? Thank you.

Speaker 2

Thank you, Minerva. This is Raul. First, I will go into the traffic performance. We are seeing a really Interesting growth on traffic in some airports, some airlines as Volaris has announced some new routes as could be Mexicali or Guanajuato, Hi, Antiguana. We are seeing a really interesting moment or boosting on the domestic traffic, For instance, in the leisure destinations, Puerto Vallarta and Cal.

Speaker 2

For sure, in some regions that will be more, I will say affected or more in line with the new shoring as could be Tijuana, Mexicali or even Bahia or Guadalajara. We expect that begin to see more domestic traffic happening because If this trend continues, we are seeing better wages, better salaries, That kind of employment in the region that will bring more money to the pockets of the people around this area. So we're going to see more Traffic, for instance, on leisure, on domestic traffic flying from VanaHuerta to Los Cabos or to Vallarta, this kind of traffic, We expect to increase due to the fact of better employment in the area. That is With the first part, the other one that is not completely clear is how much of these additional How many of these additional frequities that Volaris or Beaver Rouge has opened in the last month We'll be fully operating in the future as soon as the category 1 could be recovered. In other words, in other way, both Volaris and Liberace have received New planes have increased their fleet, but they could not put a fly on international on U.

Speaker 2

S. Market that plane. So they are putting that capacity for the moment on domestic markets. But one of the things that we're going to It changed in some way is as soon as the category one is recovering for Mexico, We're going to have see some kind of shift from some specific domestic markets To international markets, due to the fact that the lines of the U. S.

Speaker 2

Could open or could use could add frequencies On the future for the U. S. Market. Going to the category, I will say that The last visit of the FAA and the U. S.

Speaker 2

Authorities to Mexico to review the All the progress on the different observations to the Mexican authority, I think that we are in the line and we are in the Last part of this long process, we expect that For the Q4 of this year, the category could be recovered. But Again, we are talking about public information and how the authorities have communicated All the progress in this process. For the last related to the CapEx in The general change on the CapEx, we are still just adding above our original plans Some acquisition of land for the Guadalajara airport, we are preparing the long term reserve of the airport That will allow us to have a possible terminal number 3 on the future. And even if the demand is there, The 3rd wrong way for the airport. What the specific or the most important part is that Our biggest asset, we are preserving the value for the future, acquiring reserves For a maximum capacity growth in the coming years and in the long term.

Speaker 3

That's super clear, Raul. Thank you very much. Have a great day.

Operator

We'll take our next question from Rodolfo Raimo with Rakeshoes BBI. Your line is open.

Speaker 4

Good morning. Thank you for taking my question. I have a couple, if I may. The first one is, when you think about this faster recovery in traffic That you've seen. How does this how do you think Of the main variables that you will be discussing with regulators, this and but mostly next year as part of your development And also having in mind the investment requirements that you'll need to accommodate that higher passenger growth.

Speaker 4

And then the second one is, you talked a little bit about the impacts of the Mexican peso appreciation on your commercial revenues. Can you talk us through your thought process on how it can impact your business side on the aeronautical revenues? Thank you. Thank

Speaker 2

you, Rodolfo. This is Raul. I mean, For sure, the increase of passengers when you put it on projections will be some additional pressure For a possible decrease on the maximum target. But in the other hand, when you bring this kind of boost of traffic, You will need at an airport additional CapEx and additional expenses for given the correct Quality service at the airport or to comply with the quality standards of our Concession. In that way, we are seeing the next negotiation of the master plan Completely based in the methodology and the regulatory framework that we have.

Speaker 2

We will see Important amount of CapEx just to catch up the needs that the airport had to face In terms of the new passenger growth, another important key factor that we must understand Is that the changes on the fleet, not only the number of planes that Volaris and Vibergos is bringing to the market, Will affect not just the total amount of traffic in the future, but also are affecting The peak hours of our terminal airports of our terminal buildings. This is important to understand because The airports on the terminal buildings are the same in terms of peak hours. And this peak hours are changing really fast, even faster than the growth of the total Or the absolute amount of passengers. And let me go a little deep on that. For instance, when we design An area for a gate for a plane, we say, okay, we would need 150 seats.

Speaker 2

We need a toilet area with This amount of places, we need this amount of square meters around the gate. In the past, for instance, with the 320s, we used to have an average of plane seats of 100 50, 170, even 180 seats per plane. What is happening with the new 321 of Viva And, Volaris, is that our peak hours changes really fast. So in the past, We used to receive in the same gate 150 plane seats of Interjet, and we are in the same route, In the same hour, in the same gate, today, we are receiving an A321 of 2045 fees So that is a complete change in how we design our terminals. For sure, for the coming years, we'll need to bring additional investments for Growing our terminals.

Speaker 2

So in general terms, I would say that, that is what we are expecting in terms of the MAP to plan. I know you about the impacts on commercial earnings. Yes. Thank you, Raul. Hi, Raul.

Speaker 2

This is Saul Guiardo. Well, the main effect in the commercial is the exchange rate. Absolutely. The appreciation of the peso is affecting only in our commercial revenues in Mexico is around 12%. With the consolidation of Jamaica and airports, the total effect is over the 20% of The total revenues, it means that we should be growing 12% more of the 20% of the revenue.

Speaker 2

So what we are expecting is that according to macroeconomics to have an of the exchange rate around 17, 17.50 and that will impact Our budget, that's why our guidance, our total revenue is not growing at the same pace of the traffic growth. That is in general how will be the effect in the commercial and the consolidation of the American efforts. Talking about Aeronautical revenues, Let me tell you that the produced price index in Mexico is almost flat. If we compare the last 12 months Of June 2022, the inflation was 9%. If we look at the inflation of The produced price index in last 12 months of June 23 is 0.9.

Speaker 2

So it's a big difference affecting also The effect of the in the Aero revenues, in general, just the effect of Exchange rate in the revenues is the consolidation of the Jamaican airports. In the other hand, for Mexican airports, We have a fulfillment of 99% of maximum tariff, which benefits in the total and offsets The decrease even due to the inflation and due to the change rate. That's it in a general view.

Speaker 4

Thank you, Simon.

Operator

We'll take our next question from Anton Martin Cotter with GBM. Your line is open.

Speaker 5

Hello, guys. Congratulations on your results and thank you for taking my question. I have just some follow ups on the CapEx front. Just to better understand the increase in the land acquisition, how much land was it? And is it is all of this related to the Well, Alhara Airport, so it falls under the MDP.

Speaker 5

Just trying to understand if it has been already talked with the authorities and will fall apart as an advance investment on the MDP Commitments or how it will be treated?

Speaker 2

Hi, Gaston. This is Raul. Yes, it was for sure it was previously We received the previous authorization of The authority, this goal will be an advance of the new master plan, We already received the authorizations. We are talking of an acquisition of the total The total acquisition is going to be close to 150

Speaker 6

hectares

Speaker 2

For the airport, we are just expecting to finalize The total acquisition of all these lands for the end of this year are nearly the 1st months of The coming year. But the most important part here is that all these land acquisition is part of the master plant. It's already we already have the authorization of the authority. And it's also important to say that these land acquisition ends with an historical Problem with the Hilo Esa Ponte around the airport That is remember, we were in the middle of Legal processes for the last 25 years without a single. So one of the points that is also important is that We are not only acquiring the reserve for the future, but also we are finalizing all It's legal matters and legal issues with the with El Sapote in Guadalajara.

Speaker 5

That's pretty useful. Thank you. And just another one on the if you could provide some breakdown on the CapEx deployed During the quarter, mostly on the conventional front.

Speaker 2

Well, hi, Anton, this is Saul. Well, as we have talked in previous conference calls, we have a very ambitious program of Commercial investment during the year, we will have the main investment in the construction of the mix just building In Guadalajara, which is a very important project with 180 rooms of a hotel, We have more than 5,000 square meters of offices. We have a commercial retail. We also have the expansion of the Parking dock in Guadalajara with more than 2,000 spaces just for in this phase. We have expansion in other airports in terms of parking lots.

Speaker 2

So we have also We are opening additional business lines or business spaces for convenience stores and we are in the Expansion of VIP launches. So all these amounts will be around ARS 2,300,000,000 During the year, including some activities in commercial areas in Motiva Bay that we are So I mean, space and we are also needing re adaptation of some commercial areas. So that's in general the commercial. And also just have in mind that the NBP in Mexico It will be around $5,600,000,000 during the year. It is the peak of our investment Our master development program, we will do investments in Jamaica for around MXN 1,000,000,000 and for Land will be around $3,000,000,000 if we consider the full project.

Speaker 2

If you remember in the beginning of the year, We're announcing the guidance, we have transitional plan for around MXN 1,200,000,000 and now we are in almost MXN 1.8 1,000,000,000 of additional land.

Speaker 5

That's really useful, Raul. Thanks a lot.

Speaker 2

Thank you, Ana.

Operator

We will take our next question from Pablo Montalves with Barclays. Your line is open.

Speaker 7

Hi. Thanks for taking my question. I'm sorry if I if you answered this already. But just wanted to have an update on the MDP agreement with Jamaica. Is there any update on that?

Speaker 7

Thank you.

Speaker 2

Hi, Pablo. This is Saul. Well, we have almost an agreement. We already received From the authorities and notification, we are in middle of the final conversation just to try to have of the changes in the concession agreement is not yet official, so we cannot announce it Yes, but as soon as we have the formal notification from the authorities, we will announce that. But we have almost The final stage of this process.

Speaker 2

Yes. And then in a couple of weeks, even 1.5 months, We'll have the official the final response for the Jamaica authority, and so we want to make it public. Yes, correct.

Speaker 7

Great. And if I can squeeze one more question. On the terminal processing facility, as of now, Can we I mean, our operations already normalized. I mean, The increase in fixed expenses are already diluted with additional passengers or there is still some Catch up process there. I mean, what is currently the normalization timeframe for this?

Speaker 7

Are we already there or we're still a few quarters away from that? Thank you.

Speaker 2

Thank you, Pablo. I mean, in terms of the of the quarter for the facilitator or processor building, We for instance, we I mean, we were announcing that a couple of months, coming back on November, We expect in November that German Airlines will begin again international operations at Tijuana, Well, it's a great news. One of the key parts that we need To begin to see some also additional international frequencies from which Happening in the terminal building on Tijuana, the new international terminal building on Tijuana is to have the category 1 From the U. S. Government to the Mexican government because some of the routes that we have That the market is there to begin operations and also on the near area of Of Tijuana, but in the U.

Speaker 2

S. Market, as could be Oakland, San Francisco, Las Vegas as the most important markets I'm not serviced from Tijuana. But the key point here is that the terminal is Completely ready for the operations of international flights. We are seeing the first Playing coming on international again in November. And as soon as we have the category, we're going to see a more dynamic of new routes On the international area of Tijuana.

Speaker 2

So I will say that For Tijuana, not only this process of building for the old area, we are really optimistic Because the area is growing in terms of economy, of employment. So the natural thing that we're going to see or the natural way to see Tijuana on coming in the midterm Would be with interesting growth because the population has more money in their pockets in this moment Just with a big impact happening already due to the fact Of the new shoring in the area. So I think that if there will come great news from Tijuana airport on the midterm and long term For sure.

Speaker 7

Great. Thank you, guys.

Operator

We will take our next question from Stephen Trent with Citi. Your line is now open.

Speaker 6

Good morning, gentlemen, and thanks for taking the question. Just two quick ones for me. The first question is about your domestic traffic flow. Have you seen any disruption at all in your domestic connectivity with Mexico City Metro Area Since authorities started pushing some traffic to Felipe Angeles Airport.

Speaker 2

Hi, Yousif. This is Raul. Not yet. We are seeing that the Flight today to Felipe Archelis is opening and it's in the process of the ramp up for More openings, but what we are seeing, if we see the complete market of The Mexico metropolitan area that is Felipe Agles plus the Mexico City Airport plus Toluca Airport, We put all together, I will say that increasing the traffic is really low digit, Around 3% to 4%. I will see that at least for the moment, we are seeing some kind of gradual Shifting from Mexico City Airport to Felipe Arjeles and even to Toluca.

Speaker 2

So In general terms, I will say that the area, We need to see it like a whole of the 3 airports, and we are seeing that it's aligned with this low digit growth in

Speaker 6

General terms. Okay. That's great. Thanks very much for that, Ro. And just one other very quick one.

Speaker 6

I mean, a little bit of a follow-up to Rodolfo Ramos' question earlier. When you think about the totality of the movements in the Mexican peso against the dollar, Sort of any high level sensitivity as to what's the impact on EBIT margin For every 1% or 5% move in the peso against the dollar? Thank you.

Speaker 2

I will go through this, Selim. First, in terms of the revenue, we are thinking we are talking about around 20% of our total revenue that in In general terms, I will say that in the expenses side that in some way could offset some part. The biggest part of the expenses in Mexico, taking out the Jamaica for sure, but at least For the case of the Mexican airports, these persons are mailing pesos. So we don't really have You know some kind of offset because one of the question that everybody say, okay, if you have Some kind of decrease on revenues due to the fixed rate or the appreciation of the pesos, but you've got in some way Compensated with some savings in the for imports or some kind of things On our services. But the truth is that the airports are mainly Business really hides on efforts of personnel, not only airport directly personnel cap, But also personal front, security, for maintenance, for cleaning.

Speaker 2

So I would say that we are in the middle of a moment where we have a big impact coming from the reviews of the minimum wage in Mexico With increase on some benefits on holidays, on the petroon Labor law. Labor law, these kind of things. So what we are seeing at least on the coming at least part of this year and maybe the coming year is some pressure Coming from the label market in our expenses in pesos, For sure, on the area of the revenues, it will depend a lot of what will happen With the Central Bank in Mexico and the rates, we will begin to see some kind of The appreciation on the test on the coming on coming months. But I will say that we are just In the middle of that sandwich, that will some way give us some pressure to the margins. I know.

Speaker 2

Well, no, exactly. We have 2 effects in revenues. 1 is the produced price index affecting aeronautical revenues in Mexico, that is offset by the fulfilling of the maximum tariff at 99%, which is good. But in the other hand, we have the acquisition of the peso of around 12%, affecting the 20% of our total revenues. And as Charles said, In terms of expenses, we don't have significant contracts being nominated in US dollars.

Speaker 2

I would say that around 99% of the total expenses in Mexico is denominated in peso. So we don't have any compensated effect.

Speaker 6

Okay. That's super helpful. I really appreciate that guys.

Operator

We will take our next question from Gabriel Himmelfarb with Scotiabank. Your line is open.

Speaker 8

Hi. Thanks for the call. Just a quick question about cargo. We saw that cargo units Decreased year over year. So can you give us a bit of color on why it was a decrease?

Speaker 8

And also can you provide us a bit of color on how much capacity will be added to the Guadalajara airport once the Planning investments are finished. Thank you.

Speaker 2

Thank you, Gabriel. And then coming to the cargo, As you like I said, the cargo is decreasing and it's mainly decreasing in Guadalajara airport. What is important to understand is what is really happening with the cargo is, in the cargo industry, it's like Two kinds of cargo, one that is called wet cargo and dry cargo. Dry cargo are mainly electronics And this kind of high value cargo that are increasing or growing A lot in Guadalajara due to the new shoring, what's happening in the electronic, the dynamic the industry dynamic on the area. But in the other hand, the wet cargo that are merely fruits, vegetables, flowers, meat, All this kind of production is decreasing, but the interesting here is that You could not mix wet and dry cargo in the same daily of a plane.

Speaker 2

So what is happening is that all the electronics have a much higher yield for the cargo airlines. Moving or changing the trend for Offer of additional offer for wet cargo. Saying another words, The total volume on the Guadalajara airport cargo is decreasing because the value of the cargo is increasing. So the planes are going fully with electronics and are not moving the same level of fruits and vegetables that you used It's just, I will say, a temporal move until the airport has Additional capacity and additional planes and additional fleet to absorb The wet cargo that could not be in the same plane that the dry car. I mean, it's like a general explain what is happening in Guadalajara.

Speaker 2

What is interesting is that when you receive or when you review the results of the yields of the cargo, It's increasing and it's in a historical point right now. I mean, the value of the cargo in the airport It's in the record, the value, not the volume. But I mean, a general explain of that. And in terms of the capacity, how much capacity will add to Guadalajara? I mean, the most important part of The adding capacity during this master plan is related with the air side because we are Putting on our operations the second runway that will give us around 65% to 70% additional Capacity per hour on the runway.

Speaker 2

We also expand our airports For commercial for general aviation, we also add all the big The area for hangars in the airport, all these movements of the general aviation and hangars To a new land in the airport, we'll give them the chance to begin the construction of the second terminal building On the coming year. The idea of the beginning of the construction come in coming year That new terminal will be on operation after 3 years before we after we begin with this construction. So we are thinking that around the end of 'twenty six, we're going to have the second Terminal building our operations. Another part that will bring additional capacity to the airport of Guadalajara right now Related with the parking lot. In December, we will open the first 2,000 additional spots for the parking lot.

Speaker 2

That will be a great relief to the area, to the experience of our passengers in the airport, But also to the commercial revenues specific on the parking lot. Today, we are 100% Load factors when we talk about the parking lot in the airport. So these additional 2,000 spots Would that give us the chance to capture additional demand that we are not getting right now. So in general terms, that are The main capacity that will be added to Alacay in the coming months.

Speaker 8

Okay. And once the capacity is added, that 55%, 70% is added, how much time will it Take to reach such capacity until you have to add even more capacity. For how much will That additional capacity be effective?

Speaker 2

Okay. I mean, on Peoria, Because again, it depends on the peak hour, the size of the plane. So there's many more variables to answer where that is not like a Plain or flat hands were for that specific point. But when we have the second runway on operations And we have the 2nd terminal number 2 also operating. We got both of these assets.

Speaker 2

We want to have around 37 To invent 40,000,000 passengers' capacity. That is an important Part to understand that we could depends on the demand and depends on how fast could growth in the coming year The traffic, but the idea is that we're going to be really close to the 40,000,000 passengers in terms of the capacity When we end with all the all our Guadalajara planning on the coming master plan. The other point interesting to understand because in some way always it's important to remember that When you have a bigger building or a bigger apron or bigger Everything wrong with everything. In the future, you will need to see in some moment Increases in cost because you have more areas to clean, more areas to maintain, but also on the CapEx because You're going to have bigger graphics, reposition of capacity on the coming years because The AC systems you could have in operation 7 to 10 years, you will need to change the Some of the for instance, the Airbridge that has normally operates only 10 years. So the thing is We are expanding our capacity, but that's never going to mean You will not have additional CapEx or additional CapEx requirement in the future.

Speaker 2

Just to have in mind For I will say everybody.

Speaker 8

Okay. Thank you very much.

Operator

We will take our next question from Andresia Villatto with U. S. Your line is open.

Speaker 9

Hi, good morning everyone. Thank you for taking my question. I have 2 on my side. The first one is if you could provide An update on how are the constructions of the mixed use states in Guadalajara going and when can we expect it to be operational? And my second question is on the international traffic in the leisure destination.

Speaker 9

So we are seeing Los Cabos and Puerto Vallarta in the last month more to Sliders to slightly dropping. So I was wondering what is your view and what's behind that? Thank you very much.

Speaker 2

Thank you, Andre. First in terms of Guadalajara, as far as you said, The second one in Coravin operations on the Q1 of the coming year. The hotel, the building office and the misuse building will be operating In January of the coming year, the packing the first stage of the packing lot expansion will be operations also in December of this year. The Perast, there is a big expansion in the food and beverage area of Baja Airport Going to be on full operations on November of this year. And that I will say the biggest and for sure The new hangar area will be fully operated on November of this year.

Speaker 2

And that Talking about the construction work in Guadalajara. For the second one, what is happening with Cabo and Bayarta, A slight increase on passengers. I will give a step back for 2019. When we compare, for instance, May of 2023 versus May of 2019, we have an increase of 37% on the amount of seats for the region, For Carlos and for Guadalajara. So that was a completely boost on the capacity That in some way put a lot of offer in an airport For one day to another.

Speaker 2

In that moment, it was merely Related for a strategic decision for the U. S. Airlines that was not operating to Europe and to the Caribbean In the middle of the COVID crisis. So they shift a lot of their seats To Mexican destination of Cargoes Cantu Norte, yes, that give us this big peak or increase on passengers. So I will say that it's not long to see some flat months until the destination completely All this big amount of seats.

Speaker 2

I will put it in other way. It's like the great news that all these additional capacity That the U. S. Carriers shifted from the Caribbean to the Mexico market is still in place today. That will be my first view.

Speaker 2

I will say we catch it for the long term. What in the first stage was a temporal shifting of capacity. So what we could expect is A couple of throughout the month and around 1 year, we expect to begin to see again An increase on seats capacity and is also related with the hotel And key capacities hotel room key capacity on the market. We will begin to see the opening of new The hotel development has got to be the CIRTLESOLAY hotel at the Q1 of 2025. That will bring to Vallarta a big amount of additional keys.

Speaker 2

All the new developments On Cabo, the way to Cabo Pulmo. I mean, the key point here is that the market at Cabos and Ipa Alfa It's really healthy in terms of yield of the airlines, yields of the hotels, and we will not see gradually Additional offer or hotels coming to the area that will bring us additional passengers in the meantime.

Speaker 9

Perfect. Thank you very much.

Operator

We'll take our next question from Alan Mathias with Bank of America, your line is now open.

Speaker 10

Hi, good morning and thank you for the call. Just one question On your guidance, on traffic guidance, I guess this implies that you're expecting single digit Year on year growth in the second half of this year. And I just wanted to understand the drivers behind this. Is it mainly more challenging comparison base, normalization of traffic? Or are you expecting also a decrease In GDP growth and also if you're seeing any other factor as a stronger peso Making Mexico less attractive for U.

Speaker 10

S. Tourists or any other factor? Thank you.

Speaker 2

Thank you, Alan. I mean, I will say that the first part In the second half or this second half of the year, we're going to have a most difficult, more tough comparison Versus 2022. It's important to remember that during the second half of twenty twenty two, for instance, We're in the 1st month that we begin to see positive numbers on Guadalajara, for instance. So what we're going to see on the second half of the year is a comparable and more tough comparables, Tough comps in traffic in general way. Also, for sure, we're going to have some pressure on the winter season, mainly in Related with that, Mexicans could begin to be a really Some kind of extension than other destinations in the Caribbean, for instance.

Speaker 2

So and the last part That we need to see happening is the additional fleet Coming from Viva, Viva, the regional place from Viva and Volaris Would have happened more to the end of the year than in the summer. Saying that, All the mix of this change of different variables You've given us some numbers closer to around 7%, 8% for the second an average of the second half of this year. I mean, John, there's that as the specific drivers of what's going to happen on traffic for the coming months. Yes. And in terms of this is Owen, Alan.

Speaker 2

In terms of the GDP growth, we do not expect This acceleration, on the contrary, we expect to maintain the performance of the GDP in the first half Of the year and but as Raul explained, the effect on the traffic is not because of the GDP, it is because the comps of the previous year. The Petro will be less attractive for Americans, yes, for sure, but we are sure that there is an effect The passenger traffic trends from international, not only because of the currency, but also because second home effect that we have seen In the last years, many Americans are having second homes. It's more attractive, the destinations for Americans We saw a boom of real estate in our beach destination. So We do not expect any narrative effect from the stronger peso.

Speaker 10

Thank you. And any what are the upside risks for traffic in your airports? Are you seeing the Mexico recovering Category 1 for the U. S. Authorities?

Speaker 10

Is that something that could happen this year or not? And is Guadalajara benefiting from near shoring? And if you're seeing that as a medium, long term driver for Guadalajara? Thank you.

Speaker 2

I think it's happening. The best way to see how the new shoring is happening, Guadalajara, is The back end view on the industrial park is almost you. I mean, everything that is On development in terms of industrial parts is already just by the market, It's a big part on development of industrial parks happening We are really close to the airport in the El Janto area. So we think that all the new shoring effect It's beginning and we can see it right now in Guadalajara happening, mainly in the electronics manufacturing. The factories and some of the plants that have been operating on Guadalajara for the last 10 or Production.

Speaker 2

So I think that we are seeing coming months or years of Interacting results for the economy of Jalisco. Well, regarding category 1, We're seeing a delay of the last quarter of this year in terms of the public information of Mexican authority that It could happen at the end of this year. Thank you.

Operator

And we will take web questions at this time.

Speaker 11

Hi. Thank you. We have two questions Related with the land acquisition in the webcast. The first one is from Bruno Morin from Goldman. He's asking if will this additional CapEx So planned acquisition be included in the MDP?

Speaker 2

Yes, it was included as an authorization in advance For the master plan coming. So we already received the authorization and will be count This amount of land acquisition will be count for the calculus of the new master plan

Speaker 11

Thank you, Raul. And the other one is from Raul De Samer from Brown Advisory. Unless the land purchase falls into 2024, has there been any changes to 2024 CapEx plans? Would you still expect a similar CapEx per passenger as you previously expected in 2023? Is it likely for the next MVP also?

Speaker 2

Yes. We I mean, the only main change on our CapEx plan was related with the line acquisition. We are still seeing for the coming master plan the certain level of CapEx The passenger that we have seen on this.

Speaker 11

Thank you, Raul. And I believe that this is the last question in the webcast. So I will turn back the call to the operator.

Operator

And we will take our final question on the line from Fernanda Ricotta with BTG. Your line is open.

Speaker 9

Hi, thank you for taking my question. Very quick here on my end. Just wanted to hear the latest update from Umwell's intention to reform the federal laws. We know that Congress is expected to resume activities in September. So just wanted to hear your updated thoughts on this topic and also if you expect this to Bring some impact on your next MDT revision.

Speaker 9

Thank you.

Speaker 2

Hi, Fernanda. We haven't heard nothing from the authorities regarding the initiative changes that were announced in last March. We will be looking forward any change in as soon as we have more information. In case it affects or has some potential affectations to our physicians, we will do some statement. But for now, we don't have any additional information.

Speaker 2

They said in April that for September, They will send it back to the Congress, but for now we don't have more information. In the case for the next NBP, we do not expect any change for the revision of the NBP For the maximum tariff determination, the formula is pretty clear. The regulatory framework is pretty clear. We have seen Our first numbers, we will continue with this process that takes around 2 years. So we do not expect any change on that regard.

Speaker 9

Great. Thank you.

Operator

We have no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks.

Speaker 2

Thank you, everyone, for joining us to join our 2nd quarter results conference. The team remains available to answer any question you may have. Please enjoy the rest of the day. Thank you very much.

Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

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Key Takeaways

  • Passenger traffic reached nearly 16 million in Q2, up 12% YoY (domestic +19%, international +17%), exceeding prior profit growth guidance.
  • Non‐aeronautical revenues rose 18% YoY (10% per passenger), driven by new retail spaces and renegotiated tenant contracts; F&B grew 27%, convenience stores 71%.
  • Revised 2023 outlook: traffic +10–12%, aeronautical revenue +13–15%, non‐aero revenue +16–18%, total revenue +14–16%, EBITDA +12–14%, and MXN 11.9 bn CapEx.
  • Despite 12% peso appreciation and record inflation, Q2 EBITDA was MXN 4.5 bn with a 70.4% margin, partly offset by a 15% rise in service costs from wage and labor increases.
  • Peso appreciation (12%) and FX impact on Jamaican airports (15% of aeronautical revenue) weighed on consolidated revenues, offsetting some growth in dollar‐denominated retail sales.
AI Generated. May Contain Errors.
Earnings Conference Call
Grupo Aeroportuario del Pacífico Q2 2023
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