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 Fourth 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 the Grupo Aeroportuario del Pacífico Fourth Quarter 2018 Conference Call. Today, from the company, we have Mr. Raul Revuelta, GAP's 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, 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 expectations. For a complete note on forward-looking statements, please refer to the quarterly report issued yesterday.
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. Thank you all of you for joining us today. We appreciate your interest in GAP. In the essence of time and given that you're already have the earnings report, we are going to focus today on the financial results, traffic evolution, airport performance, and the various airport projects as of the fourth quarter of 2018. Then we will open the call for your questions.
2018 was another year for the books, as we once again reached a record-high attendance on the top results of our history thus far. Our performance continue to demonstrate an interim track record of growth in line with our financial expectation and one of that reflects the progress we have made in our long-term strategy.
Financial results. Let me go through a few [ nonworking ] financial highlights for the fourth quarter. Then later in the call, I will briefly review our full year performance, along with the outlook to 2019.
In terms of the fourth quarter results, we saw a significant improvement compared to the third quarter. EBITDA grew by 19%, with an EBITDA margin of 68%. Total aero and non-total -- non-aero revenues increased by 18%, driven by outstanding profit performance as well as the strategies in place that [ we're at an ] increasing commercial revenues. As we were mentioning in the previous call, because of service increasing at lower pace, [ time to delivery ] would increase of 8%.
In terms of traffic and operations, during the fourth quarter, GAP served the 11 million passengers throughout the 13 airports, 11% and 9% increase in total number of passengers compared to the number with the same quarter of 2017, and 10% higher year-over-year. This traffic grows due to the -- during expansion of the Mexican low-cost carrier throughout our airport network. The LCCs alone added 1 million new seats during the fourth quarter. The rise in profit we experienced was mainly driven by strong growth at Guadalajara and Tijuana airports, both from domestic and international market as well from Guadalajara in terms of domestic traffic. We have also seen a steady increase at the Montego Bay airport, even the consistent and successful efforts of Jamaica's Minister of Tourist, to promote the destination and drive tourist traffic with the [ reservoirs of available ] offering.
Domestically, traffic grows by 10%. The Guadalajara, Tijuana and Guanajuato airports were a 65% of this increase. Internationally, traffic grows by 7%, apart from the outstanding performance of the Guadalajara, Tijuana, Montego Bay and
Los Cabos market. Morelia also added a 20% increase in the number of international passengers to the seasonal BFR flights.
In terms of the new routes for the quarter, GAP saw 35 new routes, 18 of them domestic and 17 of them International. Tijuana experienced new services from Volaris and Aeromexico, with 3 route each. Volaris also opened an 8 new routes to Guanajuato. Including the routes, 2 are from Mexico City, San José, California and Sacramento. Frontier Airlines began their Los Cabos flight to Las Vegas. That was mainly reserved at Copa, connected Puerto Vallarta to Central and South America with a service to Panama City. Those new routes represent over 100,000 new monthly seats. Additionally, Montego Bay welcomed Nordwind Airlines with a direct route to Moscow.
At December 2018, GAP had reached a total of [ 332 ] routes, 144 domestic and 148 international. That is 10% more than the number of 2017. At this point, we also have a total of 35 airlines that fly in our network. Guanajuato and Tijuana remained the top performers in terms of additional passengers for the quarter. Together, these 2 airports grew over 0.5 million of additional passengers, 56% of the total passengers increase. The Guadalajara, the growth share was 73% in terms of domestic and 27% for international.
Talking about destinations. Flights between Guadalajara and Cancún became the top generation -- generators of additional domestic passengers during the fourth quarter. International traffic growth was spearheaded by Los Angeles and Chicago O´Hare, which represents 81% of international traffic growth combined.
Moving on to Tijuana. The number of CBX users at this airport continues to rise. For those of you joining us for GAP Day 2019, which will take place at this airport, you'll be able to experience firsthand the improvement in our facilities, boosting the exciting increase in numbers of travelers that use this cross-border bridge. For the quarter, 32% of the Tijuana total passengers used this connector. This represent a 27% increase when compared to the same period of 2017. Terminal traffic at this airport rose by 12%.
Traffic at Los Cabos Airport continues growing at a steady pace. We saw renewed confidence in the destination at the beginning of the winter season, with [ routes opening at a 4% profit growth ]. This was following a stabilization in terms of travel warnings that have been issued for these destinations. In Puerto Vallarta, domestic traffic, less passengers growth, we had 10% decrease; international traffic remained flat for a total traffic rise of 6%.
Flights to and from Puerto Vallarta Mexico City, Tijuana-Guanajuato contributed to the most of domestic growth as well as flight to and from San Diego contributed to international traffic.
Montego Bay continues to grow at 5% rolling, with 48,000 additional passengers this quarter. Baltimore represents 50% of said increase. Throughout fourth quarter '18, Eurowings, [ experienced ] airlines, WestJet, [indiscernible], Azul besides the aforementioned Nordwind included the number of routes to the destinations.
Now let's continue with the non-aeronautical revenues, where we saw an outstanding performance, increasing by a total of MXN 186 million or 28%. We saw at the end of year an increase in commercial revenues for -- per passenger of 70%. This increase was mainly due to the expansion in the commercial area in the Guadalajara, Guanajuato, Mexicali and Tijuana airport. By the end of the year, the company commercial area have expand by approximately 70% or 3,900 square meters compared to the previous year 2017.
For the quarter, GAP's strongest performing business units were: duty-free, which increased by MXN 31 million or 33% compared to the same quarter last year. In Los Cabos and Guadalajara, additional store fronts located at the arrival zones began to operate at the end of the quarter. Additionally, Guadalajara continues undergoing renovation at various outlets located at the checkpoint areas. These are expected to be completed at the end of the first quarter. Car rental locations increased by MXN 32 million or 56%, mainly due to the results of the negotiations for the new contract in the Guadalajara, Guanajuato, Mexicali and Tijuana airports, with a higher minimum rental and higher revenue share.
Food and beverages increased by 49% or MXN 11 million -- MXN 19 million versus fourth quarter '17. This was mainly due to the opening of food and beverage areas in Guadalajara during the fourth quarter and the opening of the Tijuana airport food and beverage shop, which, as we have previously mentioned, have been closed for a large portion of 2018. There are still projects that are being worked and located at the food and beverage areas, and these are expected to be completed by the end of the first quarter of this year. Retail compared to the fourth quarter '17, this business line increased by 13%. The various construction projects at some of the GAP's airports are temporarily affecting retail sale. In order to offset some losses and support our clients, we have created temporary retail places for our tenant. So in that way, they may present souvenirs, jewelry, food and other goods to the travelers. These renovations are almost complete and should be operated by the end of the quarter that is on their way.
Now in terms of the construction at each of our airports. At the Guadalajara airport, we are almost done. We are in the final stage of the expansion of the remote boarding concourse, concourse E, which include 5 additional boarding gates. This expansion is expected to be completed by April. The rest of the works are aimed towards remodeling their existing areas. The remainder of the terminal expansions include new vertical transportation module, that is elevators and escalators, which are expected to be completed during 2 quarter '19.
At Los Cabos, we continue making progress in terms of the terminal building expansion. As we previously discussed, the [ ledger ] was broadly improved, focusing on commercial development, including an additional 4,500 square meters. The terminal building works will be executed in 2 phases. Phase 1 will increase the terminal surface by approximately 5,000 square meters and renew other by over 10,000 square meters with terminal boarding gates. This phase is expected to conclude at the end of 2019. Phase 2 will increase the terminal surface by nearly 5,000 square meters, with an additional boarding gate and new passengers boarding bridge. We expect to complete this phase by 2022.
Regarding expansion and refurbishment at Tijuana, these are almost complete and should also be finished by May. However, almost 85% of the commercial areas are in operations. At the La Paz airport, just as an update of the expansion and renovation of the terminal building which was completed December. As a result, the boarding lounge is 70% larger and the baggage claim area are 35% bigger. These expansions include a commercial development and a new VIP lounge. At Aguascalientes airport, we continue with expansion and refurbishment works on the terminal building that began during the third quarter of '18. Upon completion, the boarding lounge will be 30% larger and the commercial area will also be significantly bigger. We expect to complete this work by the end of 2019.
Finally, at the Morelia airport, we began the expansion and refurbishment of the terminal building during the first quarter '18. Due completion, the boarding lounge will be 30% larger and the commercial area will also be greatly enhanced. We expect to complete this growth by year-end 2019.
Now reviewing the financial results. In terms of the full year performance, results were in line with our expectations. EBITDA grew by 14%, reaching nearly MXN 8.8 billion and the EBITDA margin reached 69.5%. Total revenue rose by 14%, mainly driven by outstanding traffic performance and the opening of the new commercial area. Cost of services increased by 16%, driven mainly by a rising number of personnel, security, maintenance expenses that were part of the overhead required for those expansions we have been involved in throughout this year.
Despite the positive results, we believe that we will still have work to do. While this year, [ there is ] evidence that our strategy is working and that our [ announced ] guidance figure for 2019 are attainable. We realize that maintaining cost [indiscernible] and raising revenues wherever we can will be essential in our continued profitability.
For 2019, we have pegged another year of solid results, with our consolidated run rate growing in the double digits in the range of 13% to 15%. On the aeronautical side, we expect 13% to 15% growth based on the steady increase of passenger traffic and inflation. We also expect to see some of these benefits on the actions taken during [ 2018 ] to increase the profitability of the commercial space. As a result, we expect double-digit growth between 19% to 21% in commercial revenues, driven mostly by the new offering in terms of food and beverages, convenience store, car rentals, parking lots and VIP lounges.
In terms of profit, expect a steady growth during the first half of this year, and then we will all then complete projects during second half, growth at a more rapid rate. This is all assuming that other factors remain the same and based on the expected opening of new routes and the subsequent higher number of seats offering. This will give us growth between 6% to 8%. The EBITDA margin is expected at between 68% and 70% monthly basis on the strategy we have implemented to increase both our aeronautical and non-aeronautical revenue, growth and stabilized costs.
That concludes my remark. Thank you for attention. And I now ask the operator to please open the floor for your questions.
[Operator Instructions] We will take your questions from Alejandro Zamacona of Crédit Suisse.
Actually, I have 2 questions. The first one would be regarding the non-aeronautical revenues per passenger. What can we expect going forward? I mean, what would be the target in the medium term after finishing all the expansion works?
Thank you, Alejandro. In terms of the non-aeronautical for 2019, as we said, we expect a double-digit growth in terms of revenue. That means also a double-digit growth in terms of ratio. But talking about the medium term, I will say that in terms of the new developments of terminals that we could put in play -- put in or build in the coming 5 years will rapidly change the possibility of results in the -- on the commercial revenue. We expect to continue the growing pace and the strategy to put in place better layouts in our terminals. But it will be really important to see all the new terminals, for instance, the new terminal that we're expecting to begin in Guadalajara, for example, but for sure, it will depend on the new master plan.
Okay. And my second question would be regarding the M&A. Just to ask you, do you have any interest in the Brazilian airports' tender offers that were recently announced?
Alejandro, this is Saúl Villarreal. No, we're not [ interested ] in Brazilian market. We already analyzed that market in 2017, and we do not believe that is, in terms of GAP view, in terms of returns, in terms of risk also. Now there are groups of big airports, small airports, so it's complicated to go to explore another opportunity. We are not going to participate. We are looking for any other opportunities this year in Central America, and we will continue looking for opportunities in LATAM.
[Operator Instructions] We'll move next to Mauricio Martinez of GBM.
My question is on commercial revenues, kind of a follow-up question from the previous one. Now that Guadalajara is reflecting the benefits from the expansions, do you expect Tijuana to have non-aeronautical revenues per passenger growing at similar levels and those in -- that we saw in Guadalajara?
Mauricio, thank you for the question. Yes, completely. We expect that Tijuana will continue with the great performance in terms of commercial revenue, not only for the new offer and the new spaces and the new completely refurbished terminal, but also for the mix of passengers. Due to the opening of the cross-border express, we are seeing an important change of the profile of our passengers. In the past, Tijuana airport was mainly with a PFR market profile, and what we are beginning to say on -- to see in Tijuana airport is more leisure traffic coming from South California flying into Mexico, in the different Mexican beaches. That is helping us to improve the profile of passengers giving us an additional sales per passengers and in expansion and -- in our ticket per passenger. So yes, we will expect an increase for almost -- for 2019 between 20% to almost 30% increase in the rental per -- of revenue -- commercial revenue per passenger for Tijuana airport.
Great. Very helpful. And my second person would be regarding the cancellation of the Texcoco airport. Can you give us your thoughts on this? And if -- are you seeing now any change in capacity strategy for airlines that benefits you?
I will say that one of the things that we are seeing as a potential upside for GAP is related with Guadalajara airport. We really believe on the potential for being a hub. I mean, today, we could say that almost 8% of our totally -- total passengers are in connection. We know that we are -- we have a really well-served in terms of routes airports. We know that in terms of a scale, we're the almost -- more than 40 million passengers per year. We really expect that we could catch additional traffic that is some way we could take this possible upside for Guadalajara airport. In general terms, I will say that until it's -- all the possible new airport in Santa Lucía and the completed strategy of Toluca or other airports, we'll see a clear upside for Guadalajara airport in terms of being more a hub or a center of connection for different airlines in Mexico.
Our next question is from Ruben López of Santander.
I have 2 questions. The first one is just a follow-up on non-aeronautical revenues. I'm wondering how the strong growth in the quarter compares versus your initial expectations? I mean, this growth is in line with your initial estimates? Or do you think there is additional uptake here? And the second one is on MDP negotiations. Now you have been negotiating for almost 3 months, is the Director of the [indiscernible] changed? Can you give us color on the term of negotiations? What are your thoughts here?
In terms of the non-aero, for 2018, the results were a little bit behind our original expectations. This was mainly due to the -- some delay in the projects or the additional areas on Guadalajara and Tijuana. But in very general terms, I mean, I will say that was -- we were really close for our original expectation for the year. In terms of the master plan, as you know, we are just in the middle of the negotiations on the review of our master plan with the authority, and with the users, with the airlines. So we have all this year in front for -- going forward, for review the master plan. We know that going to be a master plan that will include an important amount of CapEx just thinking on expansion of terminals. And the possible construction of second runway, for instance, but we are just in the middle of this process with authority. So for the moment, we are ready and made the files for the different master plans for the airports and we are expecting the feedback.
Our next question is from Alberto Valerio of UBS.
This is actually Rogério Araújo. I have a couple of follow-up questions. One is from -- for the master development plan. You mentioned in the release that your expectation to sign them with this year-end. So my question is, does it mean that no anticipations could be made at this stage? Or there is a chance that it could come earlier than year-end as we saw with your -- one of your peers last year? This is my first question.
Thank you, Rogério. We are just following exactly the time line that the [ Los ] airports have. There is a period that concludes from December. For the moment, I'm using exactly the time that the [ Los Air ], we are on the same page of ending on December. For the moment, we are not foreseeing any acceleration in the process or something, like, let us think that the times could change.
Okay, sounds good. And my second question is on growth. So you have a guidance of growing between 6% and 8%. So my question is, since you released this guidance, was there any change in growth plans or any indications from the airlines that moves this target more to 6% or more to 8%? That is my question. If there is -- if you're seeing any movement towards that range?
Not for the moment, Rogério. I mean, our guidance of traffic always is built from the different solicitation of a slot. So it comes the real feed that the ready airlines are asking to the airports to be operated in the coming months. So for the moment, our view is just like that. We really don't see a change that in some way made us be -- stand on the 8% or in the 6%. We'll see that, that range would be really -- that reflects what the level of data that today we have.
[Operator Instructions] We'll move next to Marcos Barreto of Citi.
My questions have been answered.
[Operator Instructions]
[indiscernible] I just have a quick question about the aeronautical revenues. In the report, you said that the aeronautical revenue is having a benefit by an increase in tariffs due to the inflation. I don't know if you can give us some more color in the relationship between the increase in tariffs and the inflation because, well, in this year, inflation decreased.
Thank you, [ Andrez ]. This is Saúl. Just as you know, part of our concession agreement considers that the rates in the tariffs should be updated by inflation. The inflation that we consider in the tariffs in Mexico is the producer price index, less petroleum. And in the case of Montego Bay, we used a consumer price index from U.S. because it's in U.S. dollars. So in both cases, we have the benefit of inflation. It means that our aero revenue increases with the passenger traffic plus inflation. In the case in Mexico, we have to adjust by the efficiency factor that is already applied. This efficiency factor is decreasing the tariff in 70 basis points. So that's why we mentioned that the increase in the aero revenue comes from passenger traffic plus inflation.
And we have a follow-up question from Alejandro Zamacona of Crédit Suisse.
Just a follow-up question. On Jamaica, could you please give any update on the negotiation of the tariffs with the government? What would be your expectation for this negotiation? And any sense of the timing?
Alejandro, yes, we are working with the -- for this in Jamaica. We have to -- we are managing 2 different negotiations, one by -- one for MBJ and one for Kingston. In both, we have very good sense of the feedback from the authorities. We presented the first proposal in January 25. And we are expecting to have the feedback finish -- this process of back and forth will finish around April. And we are expecting to have the final tariff in the -- in June or probably in July. So for now, we are very positive. We already have the feedback from the stakeholders. It means Jeddah Airlines and the community of each airport. So we believe that the -- at the end, around June, July, we'll have new tariff for these 2 airports.
[Operator Instructions] And it appears that we have no further questions at this time. I'd be happy to return the call to our host for any concluding remarks.
Thank you so much for your attention. As I mentioned, GAP Day 2019 will take place this year at the Tijuana International Airport on Wednesday, March 20. We will be touring the various area of the airport that has contributed to the company's overall profitability in recent years with the opening of the new commercial areas, and we'll be visiting the cross-border facilities. We will also feature management presentation as well as a keynote speaker, who will address the topic of bilateral border relations between Mexico and U.S. We invite you to join us. Please contact our investment relation agency in New York for more information regarding GAP Day.
Thank you, again, and have a great day.
Thank you. This does conclude today's GAP's Fourth Quarter 2018 Conference Call. You may now disconnect your lines, and everyone, have a great day.