Grupo Aeroportuario del Sureste SAB de CV
BMV:ASURB
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Grupo Aeroportuario del Sureste SAB de CV
Earnings Call Analysis
Q3-2023 Analysis
Grupo Aeroportuario del Sureste SAB de CV
ASUR has delivered another quarter of consistent performance, marked by a 3.4% growth in consolidated traffic, achieving a record high for the third quarter with 17.3 million passengers across its airports. Despite a strong Mexican peso impacting revenue and cost comparisons, total revenues rose by over 3% to MXN 6 billion, underpinned by growth in aeronautical and non-aeronautical revenues. The company's commercial revenues echoed this positive trend with a 3% increase driven mainly by Mexico and Puerto Rico, despite a slight decline in Colombia.
The company's financial health remains robust, supported by strong profitability and a solid balance sheet with over MXN 16.9 billion in cash and cash equivalents. EBITDA grew by 3% to MXN 4.2 billion, with Mexico contributing a 3% increase to MXN 3.3 billion, showcasing ASUR's ability to maintain operational efficiencies and control costs effectively. Shareholders were rewarded through a significant ordinary dividend payout of nearly MXN 3 billion, with an additional extraordinary cash dividend on the horizon.
ASUR is proactively navigating the recent regulatory changes from the Mexican Federal Civil Aviation Agency, with management transparently communicating adjustments in official documents and analyzing the potential impacts these changes may have on the company’s Master Development Plan (MDP). While the details of how the new regulations will address tariff adjustments are still unclear, management is in the process of updating their MDP documents to comply with the new guidelines. These developments are being closely monitored, given their potential to influence ASUR's strategic paths and decisions going forward.
ASUR is laying the groundwork for future expansion, as evidenced by the ongoing design work and the scheduled start of construction for projects in the Dominican Republic in the first half of next year. The company also revealed that a law adjustment has been made to accommodate the government's control over some airports and an airline in the same market, which may have strategic implications for ASUR. Additionally, the impending operation of Tulum Airport is a development that ASUR is prepared for, with expectations that it may affect ASUR’s traffic flows and revenue calculations.
The complex dynamics of the aviation market, including currency fluctuations and the specific case of Volaris' Pratt & Whitney engine issues, are being carefully incorporated into financial planning. ASUR is considering the debt and discount rate calculations solely for Mexican operations as per the recently filed guidelines. In addressing the new regulatory challenges, the company indicates the document is currently enforceable, and adjustments must be made without delay, demonstrating management’s commitment to compliance and forward planning.
ASUR's management concluded the earnings call by extending gratitude to participants and reaffirming the company's dedication to delivering shareholder value and driving sustainable growth. The company's proactive stance on evaluating regulatory changes and its strategic planning illustrate an agile approach to overcoming challenges while capitalizing on opportunities.
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Good day, ladies and gentlemen, and welcome to ASUR's Third Quarter 2023 Results Conference Call. My name is Ryan, and I will be your operator. [Operator Instructions] As a reminder, today's call is being recorded. I'd now turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.
Thank you, Ryan, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during this call may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to several risk and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control. As usual, additional details about our quarterly results can be found in our press release, which was issued yesterday after market closed, and is available on our website, Investor Relations sector.
Following my presentation, I will be available for Q&A. Before getting into a discussion of the quarterly results, let me start today's call with a recap of the recent developments in connection with the concession agreements of our Mexican operations as recently announced. On October 4, ASUR we received a notification from the Mexican Federal Civil Aviation Agency, that it has decided to amend with immediate effect that terms of the Tariff Base Regulation. These terms were laid out in exhibit 7 of the concession agreements established in 1998 and then amended in 1999. On October 19, ASUR receive a notification from the Mexican Federal civil aviation agency, which modified the document received on October 4. The full tax of the amended exhibit 7 was filed with the Mexican Bolsa and the Securities and Exchange Commission.
On October 18, the lower house of the Mexican Congress, approved the initiative to increase the concession fee from 5% to 9%, which is now under review by the senate. We do not know when this may be approved and when the change in the case will be effective. ASUR is currently evaluating the charges -- the changes implemented by the Mexican Federal Civil Aviation Agency and the potential impact that it may have on its business, including its financials.
Now moving on to ASUR's operating and financial performance for the quarter. Before starting, Note that all comparisons are year-on-year unless otherwise noted. Starting with traffic. On a consolidated basis, 17.3 million passengers traveled to our airports in the third quarter, a record high for the third quarter. We accomplished this even if the pro-rated is [ lowered ] to 3.4%. Additional traffic trends by country were mixed. As in the prior quarter, the suspension of 2 Colombian Airlines earlier in the year, together with increase in the value-added taxes resulted in a contraction of nearly 15% in total traffic in Colombia. By contrast, Puerto Rico again delivered the fastest growth of nearly 25%, driven by a solid performance in both domestic and international traffic.
Lastly, traffic in Mexico was up close to 6%, driven by domestic traffic that offset a 0.6% decline in the threshold traffic. This was primarily due to a slight year-over-year decrease in the passenger traffic to and from Europe, South America, offset by higher traffic from the U.S. and Canada. Moving into the P&L. As a reminder, all reference to revenue costs exclude construction and cost revenues. Also note that Puerto Rico, Colombia figures reflect the strong Mexican peso, which appreciated over 13% and 3% versus the U.S. dollar and the Colombian peso since the end of the third quarter 2022, through the end of the third quarter of this year, respectively. With this, revenues increased over 3% to just over MXN 6 billion in the third quarter mainly driven by growth in aeronautical and Non-aeronautical revenues in Mexico, while Puerto Rico and Colombia posted declines of nearly 1% and 16%, respectively.
However, measuring local currencies revenues increased 18.6% in Puerto Rico and 3.4% in Colombia. Overall, Mexico represented 73% of the total revenues, while Puerto Rico and Colombia accounted for nearly 16% and 11%, respectively. Commercial revenues were up 3%, in line with passenger traffic growth, driven by increases of 2% in Mexico, 8% in Puerto Rico partially offset by a 1% decline in Colombia. On a per passenger basis, commercial revenue remained flat at MXN 116.5 with Mexico and Puerto Rico contracting MXN 236 and MXN 139 per passenger, respectively, while Colombia posted a midterm increase to MXN 43.
In local currency, Puerto Rico, Colombia posted increases in commercial revenue per passenger, approximately 2.5% and 27.3%, respectively. These increases were partially driven by actions we have undertaken to further engage our passenger traffic experience. This includes 6 new commercial spaces open across all our airport network during the last 12 months. Of these, 16% of them in Mexico, 4% in Puerto Rico and [ 46% ] in Colombia. Consolidated EBITDA for the quarter increased year-over-year 3% to MXN 4.2 billion in Mexico, remain in the main contributor to profitability, posting a 3% increase to MXN 3.3 billion, followed by a recovery in Puerto Rico with EBITDA up 8% to just over MXN 500 million. Performance in Colombia also improved with EBITDA of MXN 411 million. Although this represented a decline of nearly 10%, it was better than the 20% decrease reported in the second quarter '23. In turn, consolidated adjusted EBITDA margin, which excludes construction remained relatively flat to 69.6% year-over-year. Our strong performance in Puerto Rico, which delivered a 400 basis points margin increase offset declines of 90 and [ 300 ] basis points in Mexico and Colombia, respectively.
In summary, we delivered another good quarter despite the strong peso good results in Mexico were further supported by a strong performance in Puerto Rico and improving profitability in Colombia, reflecting the suspension of operations of the Columbian airlines early in the year and higher value-added taxes. We remain a strong and healthy balance sheet with cash and cash equivalents over MXN 16.9 billion and a healthy debt profile. Our strong financial position enables to return cash to shareholders in the form of dividends. Specifically in May, we pay an ordinary dividend that amounted of nearly MXN 3 billion. And in November, we will be paying an extraordinary cash dividend of MXN 10 per share, equivalent to approximately another MXN 3 billion. Finally, capital expenditures in the quarter totaled MXN 367 million of which 64% was allocated to Mexico, 34% to Puerto Rico and the remainder in Colombia. This ends my presentation, Brian, please open the for the floor for questions.
[Operator Instructions] Our first question comes from Juan Ponce with Bradesco BBI.
Considering that the MDP negotiation is a long process, and the fact that you are now in the last stretch of the tariff negotiation. What are the implications from the regulatory changes on your MDP negotiating process? That's my first question. And my second question would be, do you agree that perhaps the initial tariff impact to be around 10%, which is what some members of the [ SCT ] I've mentioned. And if the impact -- if the financial impact is unknown or we get an even greater negative impact, are there any legal avenues you can take to criticize these measures?
In the case of the MDP process, as you have mentioned, this is almost 2 years process. We were almost at the end of the process, and now with these document, we will have to restart again in terms of the document that we will have to present to the authorities in the coming days, I would say. As we speak, we are adjusting the document in accordance with the new regulation that we have received last week. So we are now in the process to evaluate what the impact may be on this respect.
In terms of what you're saying of the 10% tariff reduction, et cetera, is not something that we are, at the moment, available to answer. We will have to see and wait until this new basis of regulations are applied in the numbers of the company. And that I believe is going to be towards the end of the year, probably the first week of January when we are going to be able to say what was the implication of this new base tariff regulation on the on the numbers of the company.
Okay. Adolfo, and regarding the any legal avenues you can take to curtail these measures is the possibility or not at all, not in the cards?
For the moment, we are not considering any legal action on this respect.
Our next question comes from the line of Guilherme Mendes with JPMorgan.
I have a follow-up on the MDP and the regulatory changes, which is related to the concession fees. On the old contract, there used to be a compensation on tariffs regarding any potential increase in concession fees. Just wondering how should we think about this going forward? So this increase from 9 -- 5% to 9% on tier concession fee should be fully incorporated by companies? Or there may be some kind of compensation on the new contract? And the second question is regarding to the investment on the Dominican Republic, if there's any updates on that front, if you could share any details in terms of timing or potentially the financials of the project.
In the case of the 5% to 9%, as I have mentioned you in the initial remarks. This has not been approved yet on the first place, is subject to senate approval and second, we can know when this is going to be applicable for us from one in the case senate approves. So in that sense, we don't know yet how the new document of the new types of regulations are going to treat these charts. In the case of your second question, could you repeat that again?
Yes, sure. It's regarding the investments on the Dominican Republic that you announced on the previous quarter, if there is any update on this project or if you could share something in terms of timing or the financials of the investment?
Yes, we are in the process today, as we speak, finalizing the design of the buildings. And we believe that we will initiate construction in the first half of next year.
Our next question comes from the line of Fernanda Recchia with BTG Pactual.
I have two. First, on the [indiscernible] issue that we saw that might impact the Volaris and Viva will face. Just wondering how are you expecting the impact on ASUR? I know it maybe could be early, but we know that Cancun has a great exposure to Volaris. So if you could give us your preliminary thoughts if you expect this capacity to be absorbed by other airlines or it could impact us? And second, on traffic evolution, as you mentioned in your remarks, Puerto Rico is doing very well. So just wondering your forecast for Puerto Rico going forward. In Colombia, they are down by more than 10%, more or less. I think the last time we spoke, you mention a 20% of fall that you were expecting. Just wondering if your is still projecting this number? And when should we start to see growth [ pressure ] normalize?
Well, in the case of your first question, that has to do with Pratt & Whitney engines. It is not just on the Volaris, this is all around the world. It's 3,000 engines that not be recalled that 1,500 airplanes. And that accounts for many other airlines. I know that JetBlue has some Spirit had some, American airlines, very few of them. So to be honest, today, we do not have enough information to say what the implication is going to be in the traffic of the world.
In the case of Viva, Volaris, Viva has said to us that they do not see a major implication with this situation. In the case of Volaris, what I understand is that around 60% of the fleet has this kind of engine. So we are expecting a major impact from Volaris. And I agree with you that, Cancun has a lot of flights with these airline. So the best way to evaluate this situation will be to hear Volaris and to see what they're going to say during their conference. But just we do expect some effects of this next year. And that will, of course, depend on how fast and how the manufacturer recalls the engines of Volaris that has to do with the cycles they have in their engines, and it's something that we don't know yet. In the case of Colombia, the 20% was what we have said that these 2 airlines meant 20% of our traffic last year.
So whatever number is better than the 20%. That means that the other 2 airlines and the income of them are recuperating from these 2 airlines that disappear or that's went in stop operations. So the number we have recently published, is my opinion, a good number because it's lower than the 20%. Remember that these airlines were out since February this year, so as from February next year, we will see the traffic to start growing again.
And just a follow-up on Puerto Rico. Do you expect to keep this double-digit growth rate going forward?
The growth -- the extraordinary growth we are seeing in Puerto Rico right now has to come with a new airline and ultra local carrier that started operations in Puerto Rico, and they have increased our traffic substantially. So this is good news for Puerto Rico. We don't know how much or how long is going to last. But for the moment, we are very happy to see these 20-something percent increase year-over-year.
Our next question comes from the line of Bruno Amorim with Goldman Sachs.
I have two. The first one, I just wanted to reconcile the big picture here. Directionally, the government is increasing the concession fee. They have stated that they want to lower tariff. So if you want to keep the contract balanced, meaning allowing for the private operators to earn the allowed return on invested capital, I guess, you could extend the life of the concession or eventually postpone CapEx. So the question is, are those the 2 levers still on the table?
And are you in talks with the government to eventually postpone CapEx or to extend the life of the concession. So that's the first question. And the follow-up on that is, if we get to a situation where it's not possible to square all those variables, if the contract is not balanced, if the concession is not earning the allowed return. Is it still an option to go to the court or not? How do you think about this trade-off going to the courts or not? What could trigger this decision?
In the case of your first question, extending the concession or diminishing CapEx. Well, first of all, I have to say that CapEx is not because we want, the CapEx is the mathematical relation in terms of the demand. So if demand increases, of course, CapEx increases. So we will have to construct whatever is necessary to support the level of service for the demand that is coming. We are not in talks about extending the concession contract.
And in terms of the balance, I don't agree with your question about how to reduce rates if you are increasing fees? It's something that we will have to see once we apply this new regulation document in our numbers or in our MDP towards the end of the year.
Thank you, Adolfo. And so if at the end of the day, there is no offset for the higher concession fee for the lower tariffs. Is it fair to say the returns would likely be lower than what they should be. And in that case, would the company go to the court?
Well, Bruno, in the case of the document, you already have the full text of the document. So in terms of discount rate, I do believe that you all have all the necessary information to calculate what is that number today. So -- it's now more than ever completely transparency for you to calculate this number.
Adolf. We can follow up offline if necessary. Thank you.
Our next question comes from the line of Alberto Valerio with UBS.
My first one, I would like to -- if you could provide us some details on Mexican traffic. We see a resilient, domestic demand and soften international, this is a trend. It's something that we should see recovering next quarter in next year? And my second one, if you could give you some color as well on Mexicana de Aviación. How should we treat it? Should we see, firstly, some increase in supply. And then you might see some companies struggling to follow the price what is your color on it.
In the case of the Mexican traffic, as I have said, yes, we do expect some negative effects next year due to the fact of this Pratt & Whitney engines in the case of Volaris. Of course, on the other side, as you have mentioned, the government has announced that they will initiate operations with Mexicana Airlines. This -- we have heard from them is that they will initiate with 10 aircrafts. Just to give you an idea today, the Mexican fleet is around 356 aircraft. So if we add 10, it is not an important effect on the whole scenario. In the case of Pratt & Whitney engines for Volaris that means more or less 60 aircraft that could be stopped for 200 or 250 days. So the negative effect is offsetting these new additional airlines of Mexicana de Aviación. What we say -- what we know is that they have not received as of today, the license to start operations, even though they were saying that they will be initiating flights December 1, this year. So that may be -- it will take more time.
Our next question comes from the line of Anton Mortenkotter with GBM.
Without getting much into details, I understand you're still evaluating the effects that the regulatory change will have. But thinking on a more strategical way and knowing the most relevant changes of these amendments, what would you say are the main ways that these modifications could affect your way of looking at the path and decisions taken by ASUR going forward?
Well, again, in that sense, Anton, we are transforming or updating or adjusting our documents to these new regulatory days that we have received last Thursday, so it's too early to tell. Once they apply this new regulatory regime we will be able to say what the effects were in the case of our MDP.
Okay. And also just a quick follow-up. I didn't get -- I'm not sure if I got it right. But given that this was just -- the adjusting were so quickly and you were already at the end of the MDP, is it possible for you to delay the final outcome of the MDP or it has to be ready for the beginning of the next year?
I do believe that it has to be ready by the end of the year unless they say that they are not ready. So we -- I do believe that we will deliver our document updated with this new regulatory days the coming days, and we will take it from there.
Our next question comes from the line of Stephen Trent with Citi.
The first is actually a follow-up from Alberto Valerio and AMLO's new airline. Are you hearing anything at all pushback wise with respect to the government arguably having control of some airports and an airline in the same market.
Well, as far as I understand, they have adjusted the law because in the past, it was not possible. There was no way that someone will have airports and airlines in both centers of more than 5% from one to the other. So I do believe that they are just at the law, that they can have this.
Wow. Okay. I appreciate that. That's awful. Just one other very quick one for me. I know that AMLO's also has this Tulum airport and that seems to be in the works. Do you have any high-level view with respect to whether the risk to charter traffic could impact your joint maximum tariff?
Well, in the case of Tulum Airport, and that's a good question. Our Mexico and Viva started to sell tickets as from December 1 from that airport. So it's something that you can see in the what page on there -- reservations page, they will start December 1. In the case of charter flights, I do believe that charter flights that have final destination, let's say, 10 kilometer south to [indiscernible], they should be using Tulum as airport because their final destination is closer to an airport. That, of course, will have an impact on Tulum and that has been considered in our MDP and that typically speaking, may be shorter in the case of -- the tariff of Cancun Airport.
Our next question comes from the line of Pablo Ricalde with Santander.
A question on the relation of [indiscernible] -- and now that you add up to discount, you see at what -- which level of that we have to use, the one that already you've on Mexico charter or the one that you have consolidated. That's my question.
Pablo, there is no way to understand what you're saying, your line is cutting in a very bad way.
I don't know if you can hear me better now.
Well, more or less.
I have a question on that debt to [indiscernible] WACC, on the new difficult rate -- do you have to use the one in Mexico or you use the one that you have consolidated.
Well, in the case of that, you can see a part of there in the document, we have filed last week that said that in terms of the debt, it should only be included the operations in Mexico, so if you are using consolidated in financial statements of Cancun you must exclude what is related to Puerto Rico, Colombia.
Our next question comes from the line of Pablo Monsivais with Barclays.
I just have two quick questions. The first one is on the commercial revenues per passenger in Mexico. On a dollar basis, it has increased a lot and you just mentioned the opening of new spaces. But if you have more detail will be good. Also on the expectation for year-end on international travel to Cancun. I mean, international travel has decreased over the last few months. How are you seeing the final stretch of the year.
Well, in the case of commercial revenues, we are having some effects, of course, from the Mexican strong peso. That is the case of duty free. Now that is the case of some of the activities that are related to foreign people. In the case of the traffic, as I have mentioned during the initial remarks, what we saw from the quarter on the third side, we have to understand that there should be a normalization of the numbers.
Normalization means that normal double-digit numbers, no more [indiscernible] growth, but in the case of the international, the decrease was related to the traffic, to one from Europe and to one from South America. In the case of the U.S. and Canada was a slight increase that offset the negatives. But the strong peso of course, is taking some point people have from this country. That's true.
Our next question comes from the line of Arthur Suelotto with APO Capital.
Adolfo. Just a quick follow-up, please, regarding the concessions. Are you in talks to extend the terms of your concession at this point? I know that someone asked this previously, but just I couldn't get your answer just to check if you are discussing this with the government at this point, considering all the changes that were announced recently. Thank you.
Well, we are exactly at the middle of the term. So the original term was 50 years where we have 25 in front. And as I have mentioned, we are not in talks at all about extension of the concession.
Our next question comes from the line of Luis Lama with BlackRock.
Adolfo. I'm just trying to clarify something that is a bit ambiguous in the new regulatory document. So are these changes to be applied at the end of this current MDP cycle or only for the next cycle?
This document is enforceable as we speak. In the case of [ rules ], the main implications, of course, are within next MDP, that is in process to show, I would say if everything is okay in terms of time from the authorities respect, this document will be applied as well, before the year is over with -- our rates are from the first day of next year.
[Operator Instructions] As there are no further questions, that concludes the question-and-answer portion of today's conference call. I would now like to turn the call back over to Mr. Castro for closing remarks.
Thank you, Ryan, and thank you, all of you, again, for participating in our third quarter results conference call. On behalf of ASUR, we wish you a good day and good bye. Now you may disconnect.
Ladies and gentlemen, that concludes ASUR's Third Quarter 2023 Results Conference Call. We would like to thank you again for your participation. You may now disconnect your lines.