Grupo Aeroportuario del Pacifico SAB de CV
BMV:GAPB
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Grupo Aeroportuario del Pacifico SAB de CV
Earnings Call Analysis
Q3-2024 Analysis
Grupo Aeroportuario del Pacifico SAB de CV
Grupo Aeroportuario del Pacifico (GAP) has shown remarkable resilience in navigating industry challenges, notably a 5.7% decline in passenger traffic due to ongoing inspections of Pratt & Whitney engines. These inspections commenced in late 2023 and are anticipated to affect operations until 2025. However, despite these headwinds, GAP's financial results have remained strong. Non-aeronautical revenue experienced an impressive 39% increase driven by strategic expansion and business acquisitions, demonstrating the effectiveness of their commercial strategy.
GAP's overall revenue grew by 6% as the company effectively diversified its revenue streams. The consolidation of a cargo and freight flight facility contributed approximately MXN 354 million to non-aeronautical revenue, highlighting successful ventures into new business segments. Furthermore, areas such as car rentals, retail, and food and beverage services have also shown significant growth, enhancing the company's commercial profile.
Operationally, GAP's expenses rose by 21%, primarily due to the integration of new facilities and inflationary pressures. However, when excluding the impact of the cargo business, operational costs increased by a more manageable 8.8%. The company remains committed to effectively controlling service costs to ensure sustainable growth, maintaining a solid EBITDA margin of 67% which, while a slight decline from the previous year, reflects ongoing strategic infrastructure investments.
Looking forward, GAP has a robust Capital Expenditure (CapEx) plan amounting to MXN 43.2 billion over the next five years, with 40% dedicated to expanding terminal buildings. These investments are aimed at increasing capacity and enhancing passenger experience across their airports. A significant project includes the development of a second terminal in Guadalajara, expected to be completed by the end of 2026.
GAP anticipates traffic growth of approximately 5% in the coming year, with new aircraft deliveries expected to help recover from current constraints. Additionally, the EBITDA margin for the cargo business is projected to improve, with expectations of reaching 50% to 55%. The full implementation of new tariff structures is planned gradually, with a target of full operational capacity by January 2026, which is expected to contribute to an overall healthier revenue landscape.
GAP maintains a strong financial position with cash and cash equivalents of MXN 15.8 billion as of September 2024. A net debt-to-EBITDA ratio of 1.8 indicates compliance with debt covenants, supporting the company’s capacity for future growth. The recent refinancing of credit facilities and issuance of long-term bonds further positions GAP to capitalize on upcoming growth opportunities.
In summary, GAP is strategically positioned for growth despite facing operational challenges. The combination of increased commercial revenues, disciplined cost management, and significant infrastructure investments lays the groundwork for long-term profitability and an enhanced competitive position in the airport management space. Investors can anticipate that GAP's strategic direction will continue to yield substantial value.
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Good morning, and welcome to GAP's Conference Call. [Operator Instructions]
It is now my pleasure to turn the call over to GAP's Investor Relations team. Please go ahead.
Thank you, and welcome to Grupo Aeroportuario del Pacifico's third quarter 2024 conference call.
Presenting from the company today, 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 cause actual results to materially differ from the current expectations.
For a complete note on forward-looking statements, please refer to the quarterly report.
At this point, I'd like to turn the call over to Mr. Revuelta for his opening remarks. Please begin, sir.
Thank you, Maria. Good morning, and thank you for joining us today. And I'm proud to share with you how we have been able to navigate the complex market environment, while closely [ stagnating ] GAP for sustainable growth via diversification and strategy.
Before discussing the quarterly results, let me start today's call with a recap of recent developments. First, was the approval of the 2025-2029 Master Development Plan for the 12 Mexican airports under maximum tariff, which occurred under the new tariff regulation.
Some key highlights of the new MDP include: a total CapEx commitment for the 5 years of MXN 43.2 billion, measured in pesos as of December 2022. That will be adjusted for the National Producer Price Index construction sector, keep on [indiscernible] execution.
Something important to remember is that in that amount, we have already made advanced payments of approximately MXN 5.5 billion during 2023 and 2024. This has been approved by the authority and are recognized during the new MDP mainly for Guadalajara land reserves.
Of this 5 years CapEx, almost 40% will be invested in terminal buildings. Therefore, by the end of the quinquennium, we'll have an additional 54% in square meters, meaning more capacity and space throughout our toll purpose, besides 37% of additional security checkpoints and 26% of additional airports. Importantly, 87% of total committed investments will being for of our airports.
Key projects included, in Guadalajara, the construction of a second terminal, additional aprons, taxiways, new vehicle access and the purchase of land reserves for future development. At the Tijuana airport, the development of a terminal facility for domestic departing passengers, aprons and the purchase of land. Besides and in Los Cabos, the expansion of apron and the international terminal building.
In addition, it is important to remember that we expect to finalize the second terminal building in Puerto Vallarta by the end of 2026. These investments are intended to support GAP's new growth phase for the upcoming years.
Regarding maximum tariff determination, please note that the new methodology for calculating discount rate is now based on weighted average cost of capital compared to the previously when it was based on the cost of equity. In this regard, the new tariff will be gradually implemented in the following 15 months.
Moving on to this quarter's performance. As you can see, our operational resilience at the strength of our commercial strategy are key drivers for our long-term success. During this quarter, we faced several industry-wide challenge. Most notably, the 5.7% decline in passengers' traffic during this quarter was driven by the ongoing inspections of the Pratt & Whitney's engines, which began in the late 2023 and are expected to continue throughout 2025.
Despite these headwinds, financial results have remained strong, and this was largely due to the dynamic commercial revenue growth, which I believe is central to GAP's future. Even with this setback, we have continued to expand our strength, our network. For example, during this third quarter, we opened 2 international routes, including the Guadalajara to Toronto route and resuming the operation of the Tijuana to Beijing route, closed 1 domestic route, bringing the total number of routes added to our network this year to 16. This effort are in the line with our air development strategy.
Allow me to highlight our commercial revenue, which were a standout success. During the third quarter, we experienced an exceptional 39% increase in non-aeronautical revenues, driven mainly by the strategic expansion across our airport network and business acquisitions. This is the result of GAP's ongoing deliberate and strategic effort to maximize commercial revenues wherever we see potential.
The cargo and freight flight facility consolidation contributed to MXN 354 million to non-aeronautical revenue and is a testament to the [indiscernible] of our strategy. Additionally, we have seen remarkable growth in terms of car rentals, retail, food and beverage, where new partnerships and expansions has yield significant returns. For instance, our car rental business and VIP lounges, particularly in Guadalajara and Los Cabos have performed exceptionally well. And the second VIP lounge in Guadalajara, which opened just this quarter has already helped meet growing demand at that airport.
Non-aeronautical revenues per passenger grew, reaching MXN 120 during the first 9 months, demonstrating how we are not only serving more passengers, but serving them better by offering them an enhanced and more valuable experience at every opportunity, despite lower overall traffic numbers.
And while commercial revenues have been a clear highlight. Aeronautical revenue declined by 3.8%. This was primarily due to the lower passengers' traffic and the fact that we have only reached around 94% of the maximum tariff. Nonetheless, our overall revenue increased by 6%, again reflecting the strength of our business in terms of revenue, service diversification.
On the expenses side, operational expenses increased by 21%, largely due to the consolidation of the cargo and freight flight facility in service costs, employee-related expenses and inflationary pressures. Without the new cargo business, the cost of service will increase by 8.8% only. However, we will continue to effectively control the cost of service wherever possible, thus ensuring that our growth is sustainable and even an elevated costs.
Our EBITDA margin, excluding IFRS 12 effect, remained at a solid 67%, which is a slight decline compared to last year, but reflects the importance of our strategic investments in infrastructure and services.
In terms of financial position, we maintain a healthy balance sheet with cash and cash equivalents totaling by MXN 15.8 billion at the end of September of 2024. We have also continued our CapEx investments with approximately MXN 5.2 billion allocated to infrastructure projects.
Our recent refinancing of credit facilities and the issuance of long-term bond certificates ensures that we remain well capitalized to pursue further growth opportunities as well to leverage our committed capital investments. Currently, we have a net debt-to-EBITDA ratio of 1.8x for the trailing 12 months, thereby complying with all our debt covenants.
In closing, this quarter has demonstrated that the future of airport management is not longer just about managing flights. It is increasingly about building diversified operating and commercial ecosystem that generates sustained growth and profitability. GAP is leading that transformation. And I have every -- very confident that our strategy will continue to deliver value for all our stakeholders.
Thank you for your time. And now I open the floor for your questions.
[Operator Instructions] And our first question comes from Fernanda Recchia of BTG Pactual.
Two questions on our side. The first regarding the initial remarks that you mentioned that the new tariff is expected to be gradually implemented. Could you provide more details on this? When do you expect it to fully implement the tariff? And how is the growth implementation?
And second, could you please comment on your traffic expectations for next year? How are you seeing the Pratt & Whitney issue? Do you think Q3 will be the peak? And how do you see it impacting for next year? That's it from my side.
Thank you, Fernanda. This is Raul. In terms of specific times, we see that we will gradually implement the changes. At the end of the day, in terms of the airport law, we could change our specific tariff each 6 months. So our plan would be to change one time in January, one time in July and one time in the next January.
As you can see, our fulfillment on tariff this year is around 95%. When we had inflation and the new -- the growth in terminals in real terms of the new tariff, we think that is better to the market to pass through all the tariffs in a gradual way in all these -- during 2025 mainly.
The second part related of what we are expecting in terms of traffic. I would say that we are working really closely with the -- we're really close with the airlines to understand [indiscernible] of all some new deliveries and the coming back of some of the planes that were grounded back for the Pratt & Whitney engine.
In that terms, with the information that we have today, we think that the new -- the next year is going to be with a growth close to the 5%. Again, we right now are working with all these laws and for -- to understand how would be the growth in the coming years. But with the data that we have already reviewed, we think that could be a 5% increase. That was mainly the 2 questions.
So just to clarify, the 25% will be fully implemented only by January 2026? Is that what you said?
Fernanda, this is Saul. Yes, that's the intention, to be fully implemented in 2026. Yes.
Our next question comes from Alan Macias of Bank of America.
Just 2 questions. The first, when do you expect the engine recall problem to be ended? Should this be during third quarter? Is that a good assumption?
And the second question is on the new cargo business. Do you expect similar revenue levels as the one observed in third quarter?
Thank you, Alan. This is Raul. Regarding the engine recall, I mean, one of -- some of the public information that, for example, Volaris made public. They saw that the complete effect of the grounding -- the grounded planes will be on December of 2026. But for sure, what we are expecting is on this summer on 2025, we will begin to see an increase of first start, the coming back of some of the planes, not the full planes that were grounded, but an important amount of planes that will be again flying.
Second, some new deliveries that Volaris and Viva Aerobus and even Aeromexico will add to their fleet. And third, for sure, we will have a good comparison or a more easy comps when we see the summer of 2025 versus the summer of 2024. So in general terms here, I will say that for the summer of 2025, we will begin to see a more important expansion on the number of passengers.
Yes. Alan, this is Saul. Regarding your second question. Yes, we do expect that same level of revenues. Indeed, probably will be a little bit better with an EBITDA margin close to 50%, 55%. So there are a lot of opportunities to improve cost of operation and to continue improving the level of revenues. At the end, it was a good transaction that provides more value to the company.
Our next question comes from Juan Ponce from Bradesco BBI.
I have a question on international traffic. Do you guys see any impact from the U.S. election? I mean, we have seen the leisure destinations take a hit in recent months. I mean, just to try to understand what is the main driver here? Is it the capacity? Is it demand? So just your thoughts here would be great.
Thank you, Juan. I mean, we are seeing mainly leisure destinations like Cabos, Vallarta and Montego Bay in the case of that for both -- for us also for other airports in the region in Caribbean as Cancun and other airports in the Caribbean, that [indiscernible] show an important decrease of number of seats. For sure, that impact us directly on the growth of passengers.
So as you can see, for instance, the third quarter of '23 versus '24, Los Cabos, Montego Bay and Puerto Vallarta, 3 of them decreased 11%. What mainly we saw is an important decrease in some specific routes on the offer of seats. We think or at least for the moment, we are seeing that demand is still there. The yields are still being super healthy. So we think that in the coming months and for the winter, we will begin to see the coming back of those seats.
I will say that for the moment, it's -- I would say, it's almost impossible to understand if this comes from some kind of impact related for -- of the U.S. elections. But what is in front and what is a fact is that in the last months, we have seen an important decrease n seats on leisure destinations mainly.
We are not seeing the same trend on traffic related with business or VFR, so visit friends and relatives. As you can see, for instance, Guadalajara is growing in double digit. What is really important when we talk about international markets because for GAP, for instance, the international market of Guadalajara is the highest one. So it's really relevant to see a double-digit growth in that specific market.
Our next question comes from Jay Singh of Citi.
Hello, do you hear me?
Please go ahead.
Do you guys hear me?
Yes.
Yes. So it's Jay dialing on for Stephen Trent. I guess the first one I have is, looking at the customs capacity that's required, do you guys see that there's room for any other acquisitions anytime soon?
I mean, I would say that today, we are, I mean, working on consolidation of all this business of cargo facilities and fiscal areas. Let me begin with Guadalajara. We are working on how we consolidate this business. We are working how to -- I would say, increase the margins and work on the cost.
But on the other hand, we are also beginning to review other different opportunities related with the same kind of business. At the end of the day, the best way to understand this movement on the cargo facility in business is related to have -- that GAP has like a platform to increase or to generate new business related with logistics.
So on this year, we will work really, I would say, really hard to try to bring some additional optimization of the cost on this new business. But also, we are working to the next movement through that acquisition, trying to build new terminal -- cargo terminal facilities on some of our airports.
I will say that we are reviewing for the moment some opportunity that could come from Bajio, for instance, related with the automotive market. Also, we are reviewing some kind of opportunities for Tijuana. Even for the case of Puerto Vallarta and Cabos, that is a really specific market related with the specific cargo related to hotels.
So we are working on that. I will say that we are reviewing all the possible new business and that has ever been the DNA of GAP, our discipline will be to bring additional value and to bring a creative value for our investors. So we are just on that way. We have now the chance to have a new complete unit with all the experts related on cargo. So rather, we will have, and we will bring new opportunities to the table to analyze.
Yes. I appreciate the thoughts. And I guess my final question is, considering the dip of the Mexican peso against the U.S. dollar, have you seen any changes in U.S. originated tourism or even business travel? Or is that a little bit early to say?
I would say that it's really soon to begin to see some kind of really a change in the trend related for the exchange rate. Because, I mean, at the end of the day, we have been only in the 3 months, we will begin to see some changes on the exchange rate. So I mean, we should wait a little more to see some kind of impact.
[Operator Instructions] And our next question comes from Isabela Salazar of GBM.
My question is regarding the GWTC platform. If I'm not mistaken, GWTC has margins of around 40%. And I wanted to know if now that it's fully incorporated, if they will generate synergies that could significantly impact GAP's margins? And if so, what specific synergies we should expect to drive these changes?
Isabela, this is Saul. Yes, the EBITDA margin in terms of GWTC is around 55%. Last year, 2023 was around 40%. It's part of the process and acquisition that we will have and implemented our cost control that Raul already mentioned. And the idea is to improve not only the side of the cost of operation, but also the revenues.
The revenues for this year will be very important, much better than previous year, around 25% more than previous year. So it will be an interesting year at the end of this last quarter, but we had a very good positive thoughts about the 2026. So it will be -- would represent a accretive transaction for GAP.
I have a quick just clarification. That 25% increase, is it for GAP or for GWTC specifically?
No. It is just for...
It's only for this cargo facility.
Okay. Perfect.
And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.
Thank you again, everyone, for joining us today our third quarter results conference. On GAP's behalf, we wish you a great day. Thank you.
Thank you. This does conclude GAP's conference call. Thank you for your participation. You may disconnect at any time.