Grupo Aeroportuario del Pacifico SAB de CV
BMV:GAPB
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Grupo Aeroportuario del Pacifico SAB de CV
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Good morning, and welcome to GAP's First Quarter 2020 Conference Call. [Operator Instructions]
It is now my pleasure to turn the call over to Maria Barona of i-advize Corporate Communications. Please go ahead.
Thank you, and welcome to the Grupo Aeroportuario del Pacifico's First Quarter 2020 Conference Call. Today from the company we welcome Mr. Raul Revuelta, GAP's Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer.
Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's future performance or financial results. As such, statements made are based on several assumptions and factors that could change, causing actual results to materially differ from the current expectation. For a complete note on forward-looking statements, please refer to the quarterly report issued yesterday.
Please note that unless otherwise stated all comparisons in this call are versus GAAP results for the comparable period of 2019.
At this point I would like to turn the call over to Mr. Revuelta for his opening remarks.
Thank you, Maria, and thank you to everyone who took the time to join us on today's conference call. I hope you and your families are healthy and safe during these challenging times.
Today, I will start by addressing the impact of the COVID outbreak on our operation. After that, I will discuss some of the initiatives we are taking to protect both passengers and employees. I will also discuss the measures we have implemented to lessen the financial and operational impact of the pandemic on our business. And then I will briefly review financial highlights for the first quarter of the year.
As you all know, this pandemic is an extraordinary situation and one that is evolving rapidly each day. As such, we must remain flexible and open to making changes to our operations, taking on new measures and loosening others. Like any other health crisis in the past, the aviation industry is hard hit. In the past we have seen that it will take longer than other industries to recover due to the fear of traveling and being in large groups of people assembled together.
But at GAP we are committed to doing our part to not only lessen the spread and protect employees and passengers but, once operations re-initiate more normally, to ensure that we are following the appropriate protocols and guidelines per the appropriate health authorities.
As it stands now, as a company and as an industry we have no clear picture of the severity and the length of the pandemic. However, we are trying to mitigate the impact as much as we can. Potential scenarios from aviation consultants and financial experts seems to indicate for now that we are unlikely to re-initiate normal traffic operations before the third quarter of 2020. And while there is a lot of data and prediction in the market, there are specific factors that could delay air traffic recovery.
As a result of the effect of COVID, the International Monetary Fund estimates GDP reduction of minus 6.6% for Mexico and minus 5.9% for the U.S. in 2020, which is our main international destination. High unemployment will be one of the most detrimental variables affecting the medium- and long-term recovery of these economies.
According to the Mexican and Jamaican health authorities, the peak of infection will likely occur by early May. Thus, the restarting of operations will be delayed more than expected. Mobility restrictions are in place until the end of May in both countries.
These impacts may delay air travel spending for both VFR and leisure travelers based on 2 factors: disposable income and travel confidence. And while business travelers are expected to return more rapidly, they are not expected to come back at the same rates as before.
Airlines have significantly lowered capacity, some even scrapping older planes. They are also expected to slowly bring back some of their current grounded planes and either slowing down or rejecting the delivery of new aircraft they previously had on orders.
Prior to the pandemic, 2020 was shaping up to be one of the strongest years ever. If we take a look at the first quarter results you can still see the positive traffic trend that we had been experiencing until the 15 days before the quarter ended, when the pandemic really began to affect GAP.
Thus, for the first quarter we transferred 11.7 million passengers throughout our 14 airports. This amount represents a total decrease of minus 1.4% year-over-year. In terms of the performance at the individual airports, Guadalajara traffic decreased 3.1% during this quarter.
The most affected domestic routes were Monterrey and Tijuana, which both saw a decrease of more than 65%. The international routes, Guadalajara to -- for Los Angeles, Atlanta, San Francisco registered the most significant decrease.
Tijuana is of the few airports in our network that demonstrated growth during the first quarter, a 4.2% increase. CBX continues to be an essential component of our airport growth, with 32% market share and 5% growth during the first quarter of 2020. Routes such as Tijuana to Guadalajara, to Culiacan and to Mexico City experienced significant declines in terms of passengers and aviation moving during this quarter.
In Los Cabos and in Puerto Vallarta, international traffic led the decline due to their strong international passenger position, with minus 10.3% and minus 13.6%, respectively. It is not surprised that the U.S. and Canadian market made the most significant impact to this decline, especially as international travel bans were put in place. On the other hand, the domestic markets grew during the first quarter.
In Jamaica, Montego Bay was our most affected airport, reaching minus 15.3% passenger traffic as a result of flight cancellations by leading airlines, including American Airlines, Delta, WestJet, Jet Blue and Air Canada.
I want to talk a little about some of the initiatives we have developed in airports to provide for passenger and employee safety as well as preservation of the business. Regarding our first initiative, we have implemented additional protocols to protect the health and well-being of our passengers and employees. Most of our employees are working from home. However, for the essential staff that is still working on location, we have provided protective equipment. We have also put in place a specific measure to ensure isolations between shifts.
Our second initiative is on cost controls. Approximately 85% of our cost of service is fixed. Therefore, we are temporarily closing airport areas that are not being used in order to reduce utilities, maintenance, security and cleaning services, always offering quality standards to provide excellent service to our passengers.
We have also put in place a hiring freeze and have made significant cuts to noncritical activities and professional services. We expect that these measures will contribute to a decrease in the cost of service to around 40% for the months that our airports are operating at minimum passenger traffic levels.
Our third initiative is a preservation of liquidity. We concluded the first quarter with MXN 10.9 billion in cash and equivalents. In April, the company drew down a credit line from Scotiabank for MXN 1 billion that will be used for corporate purposes. GAP also has access to pre-approved credit lines for MXN 3.5 billion in the event it is needed. We are currently analyzing the best options to finance the company further if that becomes the case.
The monthly cash burn is around MXN 500 million, without considering capital expenditures.
Moving on to the balance sheet, at the end of 2019 short-term debt reached MXN 2.2 billion. This debt was already paid in this quarter. Additionally, in February we issued bond certificates in Mexico for MXN 3 billion. The total debt as of March 31 was MXN 18.3 billion, which represents a net debt-to-EBITDA ratio of 0.73x.
Now as I mentioned, in order to preserve liquidity we suspended all shareholder distributions.
We have also canceled all nonmandatory capital investments as we have begun discussions with the Mexican and Jamaican authorities in order to request deferrals for the investments committed under the Master Development Program for the year 2020, to the 6 months in 2021. At this time, we are at the beginning of this process and we will be providing updates as they become available. It is important to mention that around MXN 600 million were already invested during the first quarter of the year, including expansion works and maintenance CapEx.
It is worth noting that the Mexican concession agreements outlines that if the Mexican GDP were to decrease by 5% or more, GAP will have the option of reopening the entire MDP and tariff determination, thus reviewing 100% the assumptions considering the maximum tariff. Jamaica has [ another ] provision, and GAP may delay the investments in MDP wherever it deems necessary.
Let's move on to the airlines and how GAP is trying to help our most vulnerable clients. In order to give some relief, GAP waived payments for landing, parking and overnight aircraft charges, among others, for the months of April and May. Additionally, we will grant deferrals in payments to some of our clients and tenants in order to help them preserve liquidity until they reinitiate operational activities.
In order to support our tenants we have offered them discounts over the minimum rental fee. We believe that partnering with them during times of crisis will strengthen our relationships and build goodwill, thus help them through so they are better prepared to be up and running.
I just want to mention that we are confident in the underlying fundamentals of our business and we believe that once the operating environment returns to more stable levels we will be in a better position to return to the scenario we were operating in. We are confident in our diversified network that will help us to recover once all the restrictions are lifted.
Now to conclude with a brief recap of the first quarter results, EBITDA grew 13%, reaching MXN 2.8 billion, an EBITDA margin of 68.2%.
Total revenue rose by 17%, mostly driven by outstanding traffic performance in the first 2 months of the year and the application of the new tariff approved in December 2019 since January 1, 2020, as a result of the excellent performance of the commercial opening last year.
Cost of service increased by 12%, driven mainly by an increase in headcount, utility costs, security and maintenance expenses, mainly due to the additional square meters in terminal buildings and higher energy pricing schemes.
That concludes my remarks. I'll now ask the Operator to please open the floor for questions.
[Operator Instructions] And our first question comes from Mauricio Martinez with GBM.
My first question is on the cost front. I just wanted to confirm if the monthly burn rate that you said was MXN 500 million? I just want to confirm that number.
Mauricio, thank you for your call and the question. Yes, the amount is correct. It corresponds to the cost of operation for the 14 airports, including financial costs and taxes.
And this is already considering the costs, the initiatives put in place for cost containment?
Yes, it is including with the new vision of cost of operation.
Great. And also, regarding the rents and the minimum guaranteed rents, maybe if you can give us more color on the agreements that you have reached with your tenants and how much do you think these minimum guaranteed rents would be over the non-aeronautical revenues that we just saw this quarter.
Mauricio, this is Raul. In terms of the commercial revenues, we offered the tenants depending on the different business lines a discount for April and May that goes from the 50% discount and even to the 75% discount. It depends of the kind of business lines, some of them that are more affected with the lack of international passengers.
So in terms of how we are seeing the future today, it's really difficult in terms of all the volatility to have a clear view about what's going to happen and which is going to be the final impact on the coming years for the market. Saying that, we think that in some of the cases we should renegotiate some of the commercial revenues contracts because at the end of the day we will have probably a completely different market, at least for the coming year.
So to date we just offered these 2 months of discount, but for sure depending on how could be the performance of traffic for the coming months the discounts could take longer or even we should renegotiate some of the contracts.
And our next question comes from Alejandro Zamacona with Credit Suisse.
Two questions on our side. The first one is on the potential deferral of investments. So what has been the first reaction of the government? I know that the request only considers a detailed outlook, but we want to confirm that it will not be, they are not going to modify the investment plan. And also if there is any possibility to reopen the MDP negotiation. Do you see any chance to request a revision of the whole MDP terms? That's my first question.
Thank you, Alejandro. I will say that in terms of deferral investments, as you know, the Mexican government has a declaration of emergency that don't allow us to construct on this time. For the moment this emergency declaration goes until May 31. So in practical terms we will lose more than 80 days on the construction of our investments. So due to the fact that this is majeure force we are asking for the delaying of these investments for the coming year.
In terms of a possible review of our Master Plan, as you perfectly know, we have one of the clauses of our concession agreement says that in the case that the GDP of Mexico decreased for more than 5% in the last 12 months, we have the option for review the Master Plan. It means that we should review everything: the forecasting of passengers, the forecasting of OpEx, the forecasting of CapEx. So it would be a completely new review or a new Master Plan.
As we are seeing the market, it will be an important possibility that in the third quarter or even the fourth quarter of the year we will be in the assumption of the 5% deceleration of the GDP. So in that case we will be ready for file our asking for the review of the Master Plan.
Okay. Thank you. And my second question is regarding the discounts. So on the aeronautical discounts, I just want to confirm that these discounts does not apply for passenger fees or the [ tours ]. Right?
Yes, that's correct. It's only for aeronautical services, as the long-term parking. As you know, all around the places, not only Mexico, in the world there is a lot, all the fleet are stuck on land. So we give this special discount for all the long-term parking for the airplanes.
Okay. And on the non-aeronautical side, those 50% to 70% discounts that you just mentioned, so is it fair to say that the minimum annual guaranteed contracts are not being applying in this time for the commercial spaces located in the terminals that have been closed?
I think that this of course would happen for this April and May and maybe a part of June. But again, today it will be really difficult to say how it looks all the year, just seeing that it's a great probability that we will face a completely different market in the coming months.
So I will say that we will keep really flexible in our contracts, with the idea of give in some cases relief to our tenants. Because at the end of the day, as you know, part of the philosophy at GAP is that we want tenants that make business, because if those tenants make a correct business GAP will make a really correct business. So we think that it is the time to give some kind of relief and support and be ready for face the new reality.
And our next question comes from Pablo Monsivais with Barclays.
I have 2 quick questions. I know this is too early to tell, but regarding your terminal processing facility in Tijuana what are your initial views on that project? Are you delaying this process with U.S. authorities? Or how are you seeing this?
And my second question is, just considering 2019, what is the percentage of your non-aeronautical revenues that could be considered as fixed?
In terms of Tijuana project and the processing building, even saying that it is difficult to say how is going to be the new market. Taking account the past, I will say that the VFR market, the visit relatives and friends market, is always the first one that comes back. So we are seeing at the moment that the money that these VFRs could send to Mexico for sure will decrease in the coming months. But we expect some kind of recovery due to the fact that the financial support, fiscal support that the U.S. government put in the market in some way will help them for keeping them in their employment. In that case, we are seeing that the VFR market will be the first one that will recover. And we continue think in our main assumption that the Tijuana airport could continue taking advantage of the south California market, trying to use this catchment area of south California bringing passengers to all Mexico.
The second part of our assumption would be that the depreciation of peso give us some additional advantage in terms of price for Tijuana airport. So we really think that the performance of Tijuana will be really interesting as some of the airports that will have the best and quickest recovery.
In that way, we continue thinking that the processing building will happen. We think that it's a game-changer and that will give us the chance for attract new markets that today we don't have. So yes, for the case of Tijuana, at least in this first view and thinking on all the volatility that is having in this time, we think that this specific investment will continue in terms of the original plan.
And my second question on the aeronautical revenue share?
Again it's difficult in terms of the share, because even the aeronautical will also have a big decrease. But in general terms I will say that it will maintain as really close to what happened in the last 12 months, at the end of the day. It will be really similar to 1 year ago in terms of share between aeronautical and non-aeronautical revenues.
And the non-aeronautical, the part that is fixed, what percentage is, roughly?
On the last year, under the tariffs it was around 27%. So I will say that in a roughly way to see how could be the non-aeronautical.
And just to complement Raul, if you allow me, Pablo, about the 25%, 27% that Raul is talking about, the non-aero revenue, the percentage fixed is around 80%. So it means that with the minimum guarantee that we charge to the tenants could be guaranteed the 80% of the non-aero revenue. However, the circumstances and today the discounts that we will provide and that Raul already explained, probably we will have a decrease in this number. So it's something that we will have to analyze, because obviously with the different size of markets, the level of the minimal guarantee should be adjusted.
And we will take our next question from Rogerio Araujo with UBS.
A couple of follow-ups here. The first one is on the investments. So we noted that in the first Q 2020 about 10% of the MDP requirements for this year was concluded. So my question is even if there is no guarantee the government will accept the delay of the investments, does the imposed restrictions also imply that it's going to be very difficult to do the investments anyway this year? So regardless of the government decision, we should expect lower CapEx versus what was expected to be the mandatory CapEx in the MDP? That's my first question.
Thank you, Rogerio. Yes, you're right. We have almost 10% of the CapEx scheduled for this year. However, we are in the middle of these talks with both governments, Mexico and Jamaica. And we will try to defer some of the investments. But what is the problem and difficult to know now, how much will be deferred according to these mobility restrictions in both countries and how will end this situation. So what we can expect is a lower CapEx, absolutely. According to the informal communications with the governments they are very receptive and they are willing to provide this deferral.
The other thing is what we mentioned before, Raul explained at the beginning of the Q&A, is about the MDP negotiation, if that's different. We right now have in front of us a deferral of the investment which is pretty sure to have it.
So my second question is regarding a provision that was made of MXN 46 million for doubtful accounts. Is this related to a Mexican airline?
Yes, it is. It referred to a Mexican airline. Yes, it is. It's not Interjet, it's fair to say it. Interjet has been very committed with the payments and they don't have due dates with us. We are in the process of negotiating with the different airlines about the payment. But regarding the provision of this reserve, it's regarding another very small airline in Mexico, which is Calafia, which represents 1% of our passenger traffic, less than 1%, and some other tenants and commercial clients.
And we will take our next question from Gabriel Himelfarb with Scotiabank.
My question is related to the previous one. We saw in the balance sheet an increasing accounts receivable, for about 48.5%. Does it relate with carriers, like, for example, Interjet?
Thank you, Gabriel. Yes, it is regarding Interjet, regarding Volaris, regarding Viva, and regarding Aeromexico and all the U.S. airlines that we have in our portfolio according to the program -- of payments that we have with the airlines. They stopped doing payments in the last 15 days of March. Therefore, we saw a significant increase in the receivables. But it's all the airlines that are working in our network, in the 14 airports, had the same view: stop payments until to know how long or how deep is this situation.
Right now we are working with them about some specific arrangements and negotiating some deferral in payments. Fortunately, in the U.S. airlines they have some financing from the U.S. government. So they will be able to continue with the payments. Different case for the Mexican airlines if they don't have some credit lines or additional credit lines to support the coming payments.
And our next question comes from Ruben Lopez with Santander.
My question is on the debt profile. You clearly don't have any more amortizations this year, but in 2021 you have some relevant amortizations. So first I wanted to know if these amortizations are, most of them are at the beginning of the year? Or you still have 2021 to generate some cash to pay them towards the end of the year?
And you clearly have some space for leverage, but have you had any indication of potential demand for any issuance or if you have any Plan B in case the markets are not there?
Thank you, Ruben, for your questions. Regarding the first one, yes, indeed, we have some maturities in the beginning of 2021, which is from the debt that we have from the acquisition of Montego Bay airport in 2015. It is with Scotiabank and BBVA. We have been in talks with them about the refinancing of these 2 bank loans. In any case, we are expecting to have enough resources to do the payment in case we don't have or continue with this refinancing, but we don't foresight any problem in that line. But you are right: it's at the beginning of the year. We have another 2 maturities in July 2021, and we will try to do the same, to try to refinance that.
According to the level of leverage, we are trying to continue with our financial health according to the circumstances. And in case we have a deferral of debt [indiscernible] for 2021 and in case we have a negotiation of the MDP in Mexico and Jamaica, obviously the needs of investments will be lower. We expect to have lower commitment investments for the coming years. Therefore, the level of leverage will be lower also.
So for now it's what we have in mind. Obviously, we want to continue with our strategy about to finance 100% of the CapEx. We have also in the pipeline according to the new CapEx the issuance of a new bond in the debt market in Mexico.
Mr. Villarreal, we will now move on to the webcast questions.
Okay. Thank you. We have a question from Marcos Barreto from Citi. The question is, “What percentage of your Mexico traffic comes from Interjet?” The answer, it is around 80%, and it was decreasing during the first quarter of this year.
I don't know, Raul, if you want to complement something?
The only thing important to say is that, yes, in February, the flat number for February before the pandemic was 7% of our market. But what is important to know, there is no noncompetitive routes that have been operated by Interjet. Another way to say it, all the routes today have or that used to be operated by Interjet in the GAP's net was other airline competing there. So there was enough room in terms of load factors to absorb all the possible decrease on seats that could Interjet bring to the market.
Okay. Next question is, approximately how many different airlines have flights to our airports in Mexico and Jamaica? Well, I can tell you, Marcos, that the number of airlines that we have for commercial planes or commercial flights in Mexico is around 25 airlines, and cargo airlines are around 12. And in the case of Jamaica, there is around 12 airlines in commercial flights in regular season.
Next question is, “I know there has been a long time, but what is the role of Grupo Mexico in the board of the company?” I don't know, Raul, if you want to answer?
Yes. I will say that today Grupo Mexico has a board member. He is acting as all the rest of the board members in GAP, acting for the interests of the company. So I will say that is really a normal and a standard position of Grupo Mexico in our day-by-day on the board of directors.
Perfect. The next question is from Rodolfo Ramos, from Bradesco. And the question is, what is the level of monthly operating expenses that we are expecting after the cost control plan that is fully implemented? And I would say that we have different views. One is to operate at minimum levels during the months that we will have almost traffic zero. What is important is different view that the current operation of the airports in the first quarter of 2020, what will be the operation in the second quarter with these 2 months of almost zero passengers and what will be the new vision of the operation for the coming months.
And during these months of the zero passenger traffic it's around a 40% of decrease in the costs of operation, and we are expecting this in April, May and June. Obviously, we cannot assure that we will reach this amount. We are in the middle of the negotiation with the current suppliers, with the service providers, and it's complicated to have it. Obviously, we are closing some areas. The cost of energy will be decreasing. But we have to consider that it's complicated to assure, but our target is to reach this 40%.
After this situation and according to opening in different level of the airports and according to the increase in the demand, we are expecting that the cost of operation on a regular basis to have come to 15% decrease in the cost of operation. That is a very roughly number that we are having in mind, but we will have to see what is the level of recovery of the traffic in the following months.
And that's the final question from the webcast.
Operator?
And I would like to turn the program back to Mr. Revuelta for any closing remarks.
Thank you, everyone, for your time and interest in GAP. Please keep safe. Have a great weekend.
This does conclude today's conference. You may disconnect your line at any time. And have a good day.