Grupo Aeroportuario del Sureste SAB de CV
BMV:ASURB
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Grupo Aeroportuario del Sureste SAB de CV
Earnings Call Analysis
Q3-2024 Analysis
Grupo Aeroportuario del Sureste SAB de CV
In the third quarter of 2024, ASUR's passenger traffic saw a slight decline of 2% year-on-year, amounting to over 17 million passengers. Colombia stood out with a robust 16% increase in traffic, benefiting from the exit of two local operators last year. Domestic and international traffic in Colombia increased by 23% and 14%, respectively. In contrast, Puerto Rico experienced a nearly 5% increase in traffic, while Mexico faced a substantial 10% decline in passenger numbers, primarily due to capacity constraints and maintenance issues related to Pratt & Whitney engines.
ASUR reported total revenues of nearly MXN 7 billion, reflecting a 14% increase compared to the previous year. Colombia contributed significantly with a 30% growth in revenues, while Mexico's revenues increased by nearly 12%, primarily driven by a 19% rise in aeronautical revenues from recent tariff hikes. Overall, these results demonstrate the company's resilience amidst challenges, particularly in Mexico.
The company's consolidated EBITDA grew by 12% year-on-year, reaching MXN 4.7 billion. The adjusted EBITDA margin slightly decreased by 130 basis points, settling at 68.3%. Notably, Colombia led the performance with a 28% increase in EBITDA, while Mexico and Puerto Rico saw increases of nearly 11% and 7%, respectively. The robust profitability across all three regions reflects ASUR’s ability to capitalize on traffic recovery despite operational challenges.
ASUR encountered challenges due to the Pratt & Whitney engine issues, which are expected to impact domestic traffic until the second quarter of 2025. Moreover, capacity reductions at Mexico City Airport have also negatively affected operations. However, the company anticipates a recovery in traffic patterns toward the end of this year, with normalization expected by mid-Q1 next year.
During the quarter, ASUR invested over MXN 1 billion, totaling nearly MXN 1.9 billion for the first nine months of the year. Major projects include the expansion of Terminal 4 and the reconstruction of Terminal 1 at Cancun Airport. The company plans to continue with its capital investments to enhance operational capacity, despite a significant amount of cash that stands at over MXN 18 billion. ASUR remains committed to pursuing attractive opportunities for growth while ensuring shareholder value.
In a notable financial boost, ASUR recorded a foreign exchange gain of MXN 900 million, attributed to a 7.6% depreciation of the Mexican peso against the U.S. dollar. This benefit significantly contributed to the year-on-year increase in net majority income, which rose by 28% to MXN 3.4 billion.
Looking ahead, ASUR is optimistic about the winter season as it expects traffic to improve starting late November and continuing into April next year. The company aims to continue its positive trajectory, banking on recovering passenger numbers and ongoing expansions to bolster its financial health.
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Good day, ladies and gentlemen, and welcome to ASUR's Third Quarter 2024 Results Conference Call. My name is Sherry, and I will be your operator. [Operator Instructions] As a reminder, today's call is being recorded.
I would now like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.
Thank you, Sherry, and good morning, everyone.
Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to several risks and uncertainties that would cause actual results to differ materially, including factors that may be beyond our company's control. 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 in Investor Relations section.
Following my presentation, I will be available for Q&A. As you usual, all comparisons discussed will be year-on-year unless specified otherwise.
So starting with a review of ASUR's operational performance for the quarter, passenger traffic declined 2% year-to-year to slightly over 17 million passengers. The solid performance in Colombia and Puerto Rico nearly offset weaker traffic in Mexico.
Looking at traffic by geography, similar to past quarters, Colombia continued to post the strongest performance in passenger traffic, achieving a 16% year-on-year increase, benefiting from the easier comps following the suspension of 2 local operators in February of last year.
We saw positive travel dynamics in both domestic and international traffic, which were up 23% and 14%, respectively. And as mentioned in prior earnings call, this recovery trend is expected to continue in the remaining of the year as Avianca and LATAM Airlines regained some lost routes. Looking ahead, we expect to see a continued recovery towards the end of the year and then normalizing mid-first quarter of next year.
The next best-performing market was Puerto Rico, which was -- which reported a nearly 5% increase in traffic, driven by a low single-digit growth in domestic traffic, while international traffic was up in the low 20s. We expect traffic in Puerto Rico to continue to normalize as last year benefited from increased operations by Frontier Airlines.
As anticipated, passenger traffic in Mexico remained weak, declining 10% year-on-year, with international traffic declining in the low teens and domestic traffic in the high single digits. In terms of international traffic, we saw declines from all the regions in the quarter. Specifically, traffic from Europe and Canada declined 8%; the U.S., 9%; and South America, 20%.
Domestic traffic remains impacted by 2 key issues: first, the Pratt & Whitney engine problem experienced in the past few quarters, and we expect this to persist until the second quarter next year; and second, capacity reduction of air traffic movements at Mexico City Airport since early this year.
Now as we turn into the P&L, recall that all reference to revenues and costs are excluding construction. Total revenues in the quarter were up 14% to nearly MXN 7 billion, driven by a solid performance of all 3 countries of operation. Colombia again stood out with a strong top line growth of 30%, benefiting from the pickup in traffic in Mexico, and Puerto Rico delivered revenue growth in the low teens.
Mexico, which contributed 71% of total revenues, delivered a top line increase of nearly 12%. This positive performance was largely driven by a 19% increase in aeronautical revenues, resulting from the recent tariff adjustments. Non-aeronautical revenues remained relatively flat compared to previous years.
Puerto Rico accounted for nearly 16% of total revenues and reported a 13% increase in the top line, reflecting increases of nearly 12% and 15% in aeronautical and non-aeronautical revenues, benefiting from the FX conversion due to weaker peso in the period.
Colombia, which represented 13% of total revenues, achieved an impressive 30% increase in top line growth, driven by a robust performance in both aeronautical and non-aeronautical revenues, which were up in the high 20s and 30s, respectively. Both business segments benefited from growth in domestic and international traffic as well as the weaker peso.
Advancing on our strategy of expanding commercial offerings, we opened 54 new commercial spaces in the past 12 months. Of these, 18 were established in Mexico, 5 in Puerto Rico and 31 in Colombia. As a result, we achieved a 5% increase in commercial revenues, mainly reflecting increases of nearly 15% in Puerto Rico and an impressive growth of 38% in Colombia, which more than offset the close 2% decline in commercial revenues in Mexico.
On a per passenger basis, commercial revenues were up 7% year-on-year, reaching MXN 125 in the quarter. This good performance was mainly driven by solid growth across our 3 markets. Colombia saw a strong increase of nearly 20%, while Mexico and Puerto Rico delivered increases of nearly 10%, benefiting from a stronger U.S. dollar.
Moving down to the P&L, cost and expenses increased 18% year-on-year. By geography, costs in Mexico were up 15%. As seen in the prior quarters this year, the main drivers behind these were increases of 80% in concession fees established by the Mexican government and 20% in minimum wages, mainly in cleaning and security, both effective January 1 this year. This was partially offset by a 50% reduction in technical assistance fee. Puerto Rico reported 20% increase in cost, reflecting the weaker peso, while cost in Colombia increased 28%, below revenue growth.
Consolidated EBITDA was up 12% year-on-year to MXN 4.7 billion in the quarter. While the adjusted EBITDA margin, which excludes construction, declined 130 basis points to 68.3% from 69.6% in the third quarter '23. This good EBITDA growth performance was driven by solid profitability across the 3 regions. Colombia reported the strongest performance with EBITDA up 28%, followed by Mexico with EBITDA up nearly 11% and Puerto Rico which posted a 7% increase in EBITDA. Our balance sheet remains robust, closing the quarter with cash and cash equivalents of over MXN 18 billion and debt up to the last 12 months adjusted EBITDA at a negative of 0.3x.
Lastly, during the quarter, we made capital investments over MXN 1 billion of nearly MXN 1.9 billion in the first 9 months of the year. The main projects include expansion of Terminal 4 and the reconstruction and expansion of Terminal 1 at Cancun Airport as well as expansion in terminals in Oaxaca Airport. As a reminder, all construction work will take place outside the operational areas and will not affect the functioning of these airports.
In sum, we delivered a solid quarter even as we navigated through the challenges posed by the Pratt & Whitney engines problem and the reduction of capacity at Mexico City. Net majority income was up 28% year-on-year to MXN 3.4 billion. This good performance also benefited from a foreign exchange gain of MXN 900 million during the quarter, resulting from the 7.6% quarter-end depreciation of the Mexican peso against the U.S. dollar compared with the MXN 143 million FX gain reported in the third quarter '23.
This ends my presentation remarks. Sherry, please open the floor for questions.
[Operator Instructions] Our first question is from Alan Macias with Bank of America.
Just one question. Given the new administration in Mexico, I guess the continuity is it's very close to the last administration's policies. Any indication that you have seen that some policies toward Mexican airports might be changing? Or do you see things continue as the past administration?
Alan, thank you for your question. Well, I don't see any major change. I'd say more continuity of what the previous government was doing. What I do expect is some kind of positive effect, in the case of Mexico City, airport reduction in terms of the capacity. I hope that the reduction from 52 to 43 should be early next year because the reduction has been very strong and it's having an impact in the whole system.
Our next question is from Juan Ponce with Bradesco BBI.
So the share of Mexican tourist destinations in the U.S. travel market have been decreasing all year, which seems to be favoring Europe. So from your perspective, how much of this is related to airline capacity constraints in the U.S.? Or is it simply tough comps after the pandemic surge? That's my first question. I have a second one.
Well, what I'm seeing is exactly what we saw in 2018. 2018 was also an election year for the U.S. If you see our numbers, the comparison between 2019 and 2018, we lost 0.5 million U.S. traffic. And this is, in my opinion, the most important reason why we're seeing this decrease. Of course, the situation with Pratt & Whitney is not just in Mexico, it's also in the U.S. But the most important is what I already said.
Okay. That's clear. And you mentioned in your remarks that domestic traffic impacted by the Pratt & Whitney should continue until the second quarter of 2025. I just want to clarify, is -- do you mean that by the second quarter of 2025, you expect to be completely recovered? Or will the recovery begin in the second quarter and then it will take some time for you to completely normalize?
Okay. What I do expect is that this effect will end after the second quarter 2025.
Our next question is from Fernanda Recchia with BTG Pactual. We are not able to hear you. We will move on to the next question. Our next question is from Jens Spiess with Morgan Stanley.
Adolfo, I have a few questions. The situation in Cancun in particular, I mean, according to like flight schedule data we're tracking, it seems that the situation will remain challenging the rest of the year and slightly improve towards the beginning of next year. Are you seeing the same as we are?
And secondly, if you could give us just some indication of traffic versus what you assumed in the last MDP review? Is it tracking above or below the assumptions that you agreed with the government?
Jens, yes, I do agree with you that the winter season looks better than what we see now. Look, winter season starts basically with the flights leaving out the U.S., I would say, at the end of November, beginning of December and goes up to April next year. In terms of the traffic, so far, we are seeing a decreased traffic or a lower number in comparison to what we forecasted in the MDP.
Our next question is from Isabela Salazar with GBM.
I was wondering if you could provide some insights on capital allocation given the company's current high-cash position.
Isabela, in terms of that, nothing has changed. We continue with the same as in the past, which is we want to grow. As airport operator, we are looking for more opportunities and basically to try to find attractive investment opportunities for shareholders. The problem we have today is we don't have anything in front. So if we do not have anything in front, we will do as we have been doing to serve this money back to shareholders.
Our next question is from Stephen Trent with Citi.
I was just trying to get color around how we should think about full year CapEx spend. So the first 9 months of the year, your amount of CapEx is running well below what you have in the MDP by itself. And maybe how we should think about the fourth quarter?
Of course. Well, the first 9 months of the year is MXN 1.9 billion. We're expecting -- not just expecting, we have to comply with what we have committed with the government, which is MXN 3.7 billion. So expect the difference for the fourth quarter.
Appreciate it, Adolfo. And just as a quick follow-up, would you expect sort of the ratio of MDP CapEx to non-MDP CapEx for the full year to be around the same level as it was over the 9-months period?
Yes. Well, for the moment, we are not doing too much commercial investments.
Our next question is from João Frizo with Goldman Sachs.
I have just a quick follow-up. I'm sorry if I missed this in your initial remarks, but I just wanted to understand a bit more on the commercial -- or non-aeronautical revenues, sorry, in Mexico. If we look quarter-over-quarter, it was basically flat despite the currency having depreciated by roughly 10% sequentially. So I just wanted to understand what drove this weakness and whether we should expect this to continue into the fourth quarter? Or we should see a recovery back to the levels of commercial revenues in dollars per passenger rate we saw in the first half of this year?
Well, João, in terms of the commercial revenues, I mean I'll be careful of that. I'm not saying non-aeronautical because the piece of non-aeronautical is also regulated revenue. So first of all, I guess the price will be total revenues, excluding construction, minus commercial should be regulated.
So in the case of commercial, yes, we were benefited from the FX. But remember that this quarter, most of the traffic is domestic. And then the effect of duty free is not as it is in the first quarter of the year. So the commercial revenues per passenger increased even with the decrease in the traffic.
And remember also that we are losing opportunities to pay in the case of Terminal 2, basically, at Cancun Airport as a result of the congested terminal we have there that should be sold once we open the newly Terminal 1 that should occur in the second quarter '26. So, so far, we were still suffering in the gross of revenues even though that the gross of revenues increased on a per passenger basis.
Our next question is from Pablo Monsivais with Barclays.
Just kind of a follow-up question from Jens. Regarding your expectations on the MDP for Tulum, for example, the impact on Tulum to Cancun, how has been the traffic evolution of Tulum versus what you initially expected to be?
Pablo, thanks. Tulum Airport is in line of what I expected. And what I do expect for the full year is 1.35 million passengers. It's been ramping up, but it's so far in line with what we expect.
Okay. Perfect. And I have a follow-up, if I may. What is the conversation or the -- how is the dialogue that you have with U.S. carriers? It seems that, yes, they are pulling out capacity, and they have said so in their earnings call. What do you discuss with them? What's their plan for 2025?
Well, as you know, some of them are suffering from also lack of planes due to Pratt & Whitney, but the conversations with them are okay, and they are expecting a good winter season.
[Operator Instructions] Okay. With no further questions, this will conclude the question-and-answer portion of today's conference call. I would like to turn it back over to Mr. Castro for closing remarks.
Thank you, Sherry, and thank you all of you again for joining us today for this third quarter 2024 conference call. We wish you a good day, and goodbye. Now you may disconnect.
Ladies and gentlemen, that concludes ASUR's Third Quarter 2024 Results Conference Call. We would like to thank you again for your participation. You may now disconnect.