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 Second Quarter 2018 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 Grupo Aeroportuario del Pacífico Second Quarter 2018 Conference Call. Today, from the company, we have Mr. Raul Revuelta, Chief Executive Officer; and Mr. Saúl 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, 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 expectations. For a complete note on forward-looking statements, please refer to the quarterly report we issued yesterday.
At this point, I'd like to turn the call over to Mr. Revuelta for opening remarks. Sir, please begin.
Good morning, and thank you all for joining us today. As always, we are [ pleased that you are here ]. In the essence of time and given that you already have the earnings report, I'm going to focus my comments on the traffic evolution, airport performance and the various airport projects underway.
Just a brief overview. During the second quarter, GAP experienced the strongest traffic in our history. This growth was mainly fueled by the outstanding performance of the Mexican low carriers throughout our [ efforts network ] with double-digit growth coming from Interjet, VivaAerobus and Volaris. During the quarter, GAP served 11 million passengers throughout our 13 airports. This represent an 11% increase of total number of passengers comparing to the 2017, which continues to make GAP the fastest-growing airport operator in Mexico so far this year.
At this point, we continue to see strong airlines activity, which represent important benefits in terms of both aeronautical and non-aeronautical services. In particular, we have seen a strong positive impact at our VIP lounge, advertising, food and beverage as well as recurrent revenue stream. I will go in these further in a few moments.
First, let me begin with traffic and operation. As I just mentioned, total quarter traffic increased by 11%. This was mainly driven by nearly 1 million additional seats by the Mexican low-cost carriers in our network during 2Q '18. On the other hand, Montego Bay Airport continues to show outstanding performance with 8% traffic increase during 2Q '18.
Domestically, traffic rose by 15%, represented over 828,000 new passengers during the quarter. They were Guadalajara-Tijuana, Mexicali and Guanajuato airports generally contribute 81% of the increase. Internationally, traffic rose by 6% or by over 2,054 additional passengers, at least a portion of this is stemming from Tijuana, which also considered cross-border users as well as Montego Bay and the partial recovery of international traffic at Guadalajara.
In terms of the new routes, we continue to serve network expansion with 4 new domestic and a few new international routes. Calafia Airlines, for example, launched the Los Cabos to Loreto route, which was currently unserved. TAR Airlines added the 2 new services, Guadalajara to Ciudad Obregon, Guadalajara to Torreon, Hermosillo to Mazatlan. Meanwhile, on the international flights, AeroMexico add a new route between Guanajuato and Detroit, and Sun Country began seasonal service from Los Cabos to San Diego.
Guadalajara continues to be the most substantial contributor to the essential solid performance. Together with Tijuana and Guanajuato, these 2 airports represent 66% of the total passengers increase. 90% of these figures, nearly the entire increase, was driven by the Mexican low-cost carriers. Volaris added 514,000 additional passengers, Interjet growth 242,000 passengers and VivaAerobus 237,000 passengers.
In terms of seats, it has reached 13 million on the second quarter, represented a 12% increase comparing 2Q '17. Commercial passenger load factors remained nearly flat with a slight decline from 84% in 2Q '17 to 83% in 2Q '18.
Moving on to individual airport performance. I will start with Guadalajara. With the 431,000 additional passengers during the second quarter, this are primarily gained due to the 17% higher domestic traffic in 2Q '17. One word I want to highlight is Guadalajara to Mexicali, which grew by 53,000 passengers or 95% compared to the last year to come in the most popular routes for this quarter under discussion. Other domestic routes that continue to experience solid performance are Guadalajara to Tijuana, to Cancun and to Monterrey. International traffic out of Guadalajara, total number of passengers rise by 6% comparing to the 2Q '17. This was a result of the traffic recovery of Los Angeles route, which grew by 26% during the past quarter.
Now on to Tijuana. Traffic growth for the quarter at this important airport was 10%, mainly due to the seats increase concluded by VivaAerobus and Volaris with 93,000 and 92,000 additional seats during the second quarter. Additionally, both airlines have already made public their intent of further expanding their presence in Tijuana. VivaAerobus expects to have a route to Morelia by the end of this year, and Volaris expects to have new routes to Huatulco, Zihuatanejo and Tuxtla Gutiérrez in the 4Q '18. And very important to mention, while we are discussing Tijuana is that the normal [indiscernible] at this airport continue to rise. 27% of Tijuana's total passengers [indiscernible] during the 3-month period and 13% increase comparing to the Q2 '17.
Moving on Los Cabos Airport. Domestic traffic continues driving the number of passengers with 12% growth during the quarter. Mexico City and Guadalajara were the main sources of additional domestic passengers for 2Q '18 with 26,000 and 22,000 new passengers respectively, comparing to the 2Q '17. We believe that increasing domestic traffic cost from [ attention travel preference ] by the Mexican travelers, who seek affordable option with Mexico versus extensive international [ transit ]. As such, international profit remain almost flat.
In Puerto Vallarta [ just until ] Los Cabos, domestic traffic was the main source of passenger with 10% growth during second quarter. The recently add daily route to Aguascalientes brought in the largest number of additional passengers for the quarter. Internationally, traffic remained flat for the period. It is worth mentioning that both Los Cabos and Puerto Vallarta are expected to have [ or renew ] more than 5,000 routes in the next 18 to 24 months, which, in the future, will favor our passengers' [ trust ].
Montego Bay reached outstanding 8% growth during this quarter. This airport continues to benefit from the wider presence of [ US ] low-cost carriers as well as Canadian traffic recovery. Also supporting this growth in Montego Bay were the additional [indiscernible] and the new daily service from Baltimore [indiscernible]. Frontier Airlines also recently announced that it will return to the airport by the end of 2018 with a new service from Raleigh.
Finally, as we mentioned in the previous conversation, Montego Bay has absorbed much of the [indiscernible] traffic that was reduced due to the further weather phenomena in the outer Caiman Islands. Thus, we expect the traffic to continue growing at these locations.
Now to
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revenues. This increased by a total of MXN 102 million or 15%. However, commercial revenue per passengers grew in 2Q '18 at 3.6% compared to the 2Q '17. We can assume that this was caused by the work in progress of the airports of Guadalajara, Hermosillo, Mexicali and Tijuana. Once they are finished, we expect to see considerable growth in the commercial [ routes ].
In terms of the business unit that performed [ the best ], duty-free currently represents 14% of non-aeronautical revenue compared to the 2Q '17. This business line increased by 8.4%. While [ the beat ] for duty-free contracts at Guadalajara-Los Cabos are both -- were finalized, the projects are still underway. Once the projects are complete, the new formats are expected to reconcile solid duty-free sales for the remainder of the year.
In Guanajuato, we are also expecting our revenue increase in 3Q '18 as soon as the work there concludes. Retail increased by 11% during 2Q '18. The works underway that we have mentioned are effective retail sales. However, while [ Guadalajara ] is almost done, and we expect that the status to be complete in the third quarter. In the meantime, and to support sales out there, we offer temporary retail spaces at the airport.
Additionally, Concourse D is successfully operating 1,500 square feet of the new retail space, including new bookshops, [indiscernible] store and cell phone accessory stores. Concourse E has successfully reopened. However, commercial areas in Concourse C and F will not be fully operating until the 3Q '18. This was also the case in Guanajuato in terms of the duty [ pages ], which are also expected to fully operated during the 3Q '18.
The Tijuana Airport terminal expansion also continues and will be completed during 4Q '18. As a result, commercial revenue growth at this airport is expected to remain relatively flat for the time being, at least until the works are complete and the new commercial area are launched. I just want to mention that the commercial lease for the food and beverage area are complete. We are expecting more solid retail figures by year end and when all the works are finalized.
Moving on to the CapEx in terms of the works underway on each of the airports. At the Guadalajara Airport, as we mentioned, we are expanding and refurbishing the terminal. In 2Q '18, we focused the works on the new food court area, which will take to open by this coming August. The rest of the terminals are aimed at remodeling existing areas and the expansion of the remote converging lounge, including 6 additional boarding gates. We expect to be complete at the end of the year.
At Los Cabos, during the 2Q '18, we made significant progress in the expansion of the international terminal building. The project that began in February will be complete by August of the next year, and we're mainly focused on enlarging the boarding lounge by 6,000 square meters installing 3 additional boarding gates and new passengers' commercial area.
In addition to this, we are also creating a new fire-run rescue building that will be operational by the end of the next year.
Tijuana, the terminal building expansion continues. Recently we have opened new boarding areas and new commercial options, which have had a very positive impact on our customers. We expect to complete this growth at the first quarter of the next year.
In Guanajuato, we have the remodeling expansion of the terminal building, which is 85 complete. Most of the areas are already in service. We expect to finish the construction work by October.
At La Paz, the works to expand our remodel with Terminal B are ongoing and should be completed by October. Just on completion, the boarding lounge will be 70% larger and the baggage claim area will be 35% bigger. There will also be 2 additional boarding gates and a brand-new commercial development.
To conclude, a quick review of the cost of service. The double-digit passenger growth of the last year is counting a pressure on the tariff and infrastructure that we need to have as a part of our strong commitment to service quality. This strong demand result in a higher cost of service, which increased by a significant 27% this quarter.
This was aimed at expansions, improvements on terminals as well as the related maintenance, salaries and security that comes along with that and which we believe are necessary in the short term. We believe that happy passengers spend more in our terminals. Thus a prominent service, quality and amenities will translate into higher commercial service revenues. As a result, we expect an EBITDA margin in the range of the 69% at the end of the year.
The Mexican airports increased MXN 150 million or 30%, driven mainly by: a 31% increase in maintaining costs during the 2Q '18, mainly aimed at improving runway and taxiway operating areas; terminal buildings and cleaning services, together, result in a cost increase of MXN 20 million or 31%; an increase in safety and security costs of MXN 30 million or 29% in 2Q '18, due to the additional personnel required to man the higher numbers of security checkpoints. This is important in order to improve access times, giving the passengers more time in the retail areas, therefore, raising consumption level. An employee cost rose by MXN 49 million or 34%, due to a onetime cost of MXN 25 million for our organizational restructuring and increasing headcount for 70 people for MXN 14 million and a MXN 10 million annual salary increase. We expect that this will be slightly mitigated during the second half of 2018 due to the comparisons with the 2 half of '18 -- of '17 sorry.
Before I move on the -- of the Q&A session, I just want to reiterate the guidance figures in the early report yesterday. In essence, the current expected scenario, coupled with solid performance for the remaining 6 months of the year, lead us to generate new and slightly higher potential for the [ full ] year half: traffic growth of around 10%; aero commercial and total revenue growth in the range of 15%; EBITDA growth of approximately 14% with an EBITDA margin of around 69%; and a CapEx of MXN 2.7 billion.
Thanks for your attention. We could now be pleased to take your questions. Operator?
[Operator Instructions] And our first question comes from Natalia Zamora with GBM.
Could you please give us an update on how you're doing with the occupation of commercial spaces in Guadalajara?
Yes. For the -- Natalia, this is Saúl. Thank you for your questions. Regarding the timing for the opening in the areas in the growth in Guadalajaria -- Guadalajara, we are expecting to have the food and beverage open in August. We have had several stages of opening of the commercials due to the works that are in progress. Retail will be open in October. So we are expecting at the end of the year a recovery in the commercial revenue. So for 2019, we have 100% operation in all the retails and the commercial areas in the Guadalajara Airport.
Our next question comes from Alberto Valerio with UBS.
Just I would like to have more color on the costs. We saw that the manageable cost increasing year-over-year, and I would like some insight to no recurring cost that you explained. If you -- we had another cost related to that, and if you should consider this for -- as a new normal for that.
Thank you, Alberto, for your question. Yes, we have some pressure in the quality service at our airports. We -- one, as Raul mentioned in the call and as we explained in our report, what we want to do is provide a better service at the airports. We are trying to spend more maintenance, more headcount in order to bring this quality services and to bring more comfort to the passengers to try to consume more and incentive the consumption in the airports. So we know that we have a good environment for the passengers, they will consume more in our terminal. That will represent additional commercial revenues. So regarding the onetime payment...
Alberto, as a part -- as you know, there have been different changes of the management of GAP in the last months. So we are reporting a MXN 20 million for organizational restructuring spend and will be just onetime cost, and we just show it on this quarter.
Perfect, perfect. So just one more question from my side. We saw a very strong growth -- traffic growth from GAP. I would like to know which airlines has most contributed for that and which airport has most exposure to those airlines.
Well, the highest growth come from Viva and Volaris, mainly, and honestly, the high exposure in our airports is with Volaris. As you know, they have above of 35% of our passenger traffic. So the exposure that we have -- it's important that we have seen a better, very good numbers in the -- at the end from Volaris in this quarter. So what we have seen is a recovery, in general, in the airport industry.
Our next question comes from Marcos Barreto with Citi.
First, how should investors think about GAP's master development plan? And what's your view regarding the competitors' rush to complete the MDP months ahead of schedule? That's my first question. And the second one is, is there any update on the Jamaica auction airport?
Marcos, this is Raul. Mainly, in terms of the master plan, we're adjusting in the time for develop all the projects that we should present to the authority on December. I mean, just we are adjusting the line with the times that the airport will give us. So we are expecting a master plan that will include important increase on terminal square meters for our biggest airport. Also, what we are seeing is that the last years of additional demand on passengers and all this double-digit growth on passengers have made a big pressure on our terminals. So we're going to see a master plan that will improve our terminal buildings, that will expand our terminal buildings. Also, that will be a great opportunity for the coming years to develop additional commercial revenues, for sure, but also to give the correct quality service for our passengers. In terms of the cycles of this possible master plan, it's really early to talk about that. For sure, we know that we will work with a new federal government, but we are pretty clear that our framework or regulatory framework is clear and transparent. So we expect a really standard renegotiation of the master plan. And in general terms, we are pretty sure that all the equation and now the regulatory framework will be completely respected by the new authority. In terms of how other airport groups develop their master plan, at the end of the day, the airport's laws say that you have the chance in the last year of your 5 year period, you must have to present and close the new master plan for the coming 5 years. So for instance, in the case of ASUR, they just, I mean, run for a couple of months. But at the end of the day, they were completely aligned of what the Mexican airport law says about the review of the master plan. The last about Jamaica and the Kingston bidding, we just present the -- our -- we present our point for the bidding of the last Friday. So we are expecting to have a response from the authority in Jamaica for the Jamaican government in October or the last week of September. That are the time lines for know who going to be the winner of this bidder -- bidding. On this process, we work with different groups that present the offers for this airport. So we are just waiting for who going to be the winner.
[Operator Instructions] Our next question comes from Raphael Frankel with Bradesco.
I have 3 but are related to the updated outlook. First of all, I'd like to understand which were the main factors that led to the guidance change, especially the forecast were raised? And more specifically, I like to know from where you expect the higher aeronautical revenues to come and what motivated the cut in the estimated non-aeronautical revenues growth?
In terms of the passengers or the change on passengers, what we are seeing for this second half of the year is additional expansion from these aero routes in mainly in Guadalajara and Tijuana, that when we run our original forecasting, we didn't have that information at that moment. But mainly, what we are seeing is a great performance on Tijuana on -- and Guadalajara and mainly due to the new seats from VivaAerobus and partially from Volaris. Also, in terms of the aeronautical, we are seeing, for sure, the increase of passengers, but also an inflation that is over the original one that we forecast. In terms of the non-aeronautical, what we are having is mainly the impact on some delays on the expansion of our terminal, mainly on Tijuana, Guadalajara, Hermosillo and [indiscernible]. At the end of the day, we felt that all the expansions will be complete for this -- for the first half of this year, but we have some kind of delays. So at the end of the year, we should, in some way, catch up the growth on commercial revenues, and we are seeing that in the full year of the coming -- on the coming year, we will have a full year impact of all the improvements that we have put in place in terms of the non-ae.
Our next question comes from Marco Montañez with VECTOR.
The first one regarding Montego Bay profitability. Excluding the improvements, the concessions, it shows a significant decrease versus prior year. Could you give us more color of what's driving this performance? And what could expect for the next quarters? And the second one, you mentioned in the release you register -- reserve for receivables. Is it related to some specific airline?
Thank you, Marcos (sic) [ Marco ], for the question. Regarding MBJ performance, what we have seen is increasing in costs of electricity. As you know, in Jamaica, the generation of electricity depends on the price of the oil. And the oil has been rising, the electricity that we have is higher. So we are trying to make some operational adjustments to decrease the consumption, but the price is higher now. So it's one of the main points. Other is the maintenance that we have done in the terminal, but -- it's something that we didn't expect, but it's not very, very significantly. We are -- we will see that we'll be normalizing in the coming months. It is not very relevant. And that is for the MBJ. I don't know. Did you have another question?
Yes, sure. Well, in terms of the release, you register a reserve for receivables, if I'm not wrong. Is it related to some specific airline?
Yes. Yes, it is. Well, it's fair to say that we have around 2 months of operation guaranteed from airlines. However, we have faced some problems with one of the small airlines in GAP that is Aero Calafia. Aero Calafia has been stronger than -- with its financial, and we have trying to help them to be on time and pay all the payments. However, it has been a complicated period for them. Aero Calafia represents 1% of our total passenger traffic. So it's not a huge risk for this quarter.
And we have guarantees.
And we have guarantees. However, we reserved around MXN 7 million for -- from this airline. So it's not important, but it's part of the increase in our other expenses.
Okay, perfect, very clear. And just to follow up in terms of the profitability of Montego Bay. What could we expect for the next quarters, Saúl?
We will see stronger performance in traffic. We will see a recovery in the commercial revenues, and we are expecting that the price of the electricity will continue. We are expecting that -- and it's higher than we expected due to the hurricanes in the last season -- last year -- that hit Puerto Rico and all the Caribbean. So what we expect in the range of 50s EBITDA margin.
[Operator Instructions] Our next question will come from [ Felipe Paul ] from Morgan Stanley.
This is actually Ricardo Alves speaking. I just have a very quick one. I'm sorry, I joined the call little bit late. I'm not sure if you comment on this already. But just want a little bit more color on the advertising VIP lounges revenues. We saw a very strong performance, a very big acceleration versus what we saw in the previous quarter. So just wondering if we could
[Audio Gap]
recurring numbers for the rest of the year. So just a little bit more color on those 2 lines on your non-aeronautical side.
In terms of the VIP lounges, yes, we will see even additional increase on the coming quarters due to the expansion that is happening today on the Tijuana airport for the VIP lounge. Also, we have the new -- the opening of the new lounge for Hermosillo. And for the end of the year, we will have also in operation 2 additional VIP lounges, one in La Paz, a new one, and a really big expansion on Puerto Vallarta. So yes, we will now see that VIP lounges should continue the trend on growing on the coming quarters. In terms of the advertising, we are seeing a really important increase in terms of these business lines, but also it's a business line really sometimes could be difficult to forecast additional growth because it depends, in a big way, from the budgeting of different services companies. So I would say that in this specific quarter, we have some additional aspects from the World Cup that brings different brands to the airport. So we saw this additional big -- I'm not pretty sure that this trend could continue on the coming quarters. We will have more in line to increase our double-digit or something more like 10% to 15% rather than the almost 40% of the last quarter.
Our next question comes from Ruben López with Santander.
Most of my questions were already answered, but just on concession taxes. We saw an increase here this quarter. Can you give us more color here? Is this a level we should expect for coming quarters?
Concession taxes. I think, yes, the increase comes from the performance of the revenue in Montego Bay. As you know that in Montego, we have to pay 2 different calculations: one is a fixed fee and the other is a 45% over the -- of the revenues established in the concession agreement. So it will be increasing according to the increase in the revenue. So what we have forecast for Montego Bay is a concession, a tax of around 28% over the total revenues. So that's normal. It's nothing -- it's not a surprise for us. It's something that we know -- that in a way we include the revenues, the total revenues in Montego, we will see this line increasing.
Our next question comes from Natalia Zamora with GBM.
Could you please give us some color on the reason behind aeronautical revenues for passenger in Mexico rising only 1.7%, even falling below inflation for the quarter? Also, what do you think might be the reason behind international traffic in Los Cabos being so weak in these last months? Is it due to the travel warnings? Or are there other reasons?
First, I will talk about Vallarta and Cabos international passengers. The acceleration, I would say that, first, it's important to remember that on the first half of the '17, in fact, we have a big increase of additional seats, mainly on Cabos and Vallarta airports. So in one hand, we have a really difficult comparison quarter in terms of international passengers, but also, for sure, we are seeing some kind of trend in terms of the -- mainly on the U.S. passengers due to the news about security in Mexico that are [ indiscernible ] or going in a negative trend on the last month. Today -- I mean, pretty early to talk about this trend will continue, but at least, what we're seeing in the last month was that some of the warnings that happened for Los Cabos, for instance, has an important impact on the results. And the great news is that, if you remember, at the beginning of this year, there was a big peak on the violence and murders in Los Cabos, I mean, the -- for many for the narcos and the narcotics world. But I would -- it's important to remember that after some actions on the federal government and [ local ] government on Los Cabos, there was a great decrease on the number of murders. So I will say that, today, Los Cabos is as secure as ever. I mean, this peak of problems with the security happened just for 2 weeks and was completely tackled by the government. But for sure, there was a lot of negative information that mainly happened on [ due to the daily news ], and we know that the federal government, to the Tourist Secretary of the local government are working pretty hard on the media to let them know all the great things that are happening in terms of the security for this destination. So I'm expecting that this negative trend will take us just a couple of months to recover the positive trend that we have on Los Cabos for the last years.
Okay, great. And regarding the aeronautical revenues for passenger in Mexico, we saw it was pretty low, even lower than inflation. Do you have a -- maybe you could give us some reason. Do you have any color on this?
So Natalia, I would try to answer your question because it has a different effect. The main one is inflation if you talk about aero revenue per passenger. And we have to consider that in this quarter, the CPI has decreased in the inflation, so [ what ] is likely increased during the quarter. So it is an expect that, at the end, you did not consider. Because what we are estimating for the end of the year, it was -- it will be a higher inflation that we estimate at the beginning of the year. So it is a temporary effect in this specific quarter.
Right. So it's going to be compensated. Perfect.
Yes.
Yes.
[Operator Instructions]
Thank you for your attention. I look forward to speaking with you in the near future. Have a good afternoon.
This does conclude today's program. You may disconnect your line at any time, and have a wonderful day.
Thank you.