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 2019 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's Fourth Quarter 2019 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 any forward-looking statements may be made during this 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. Please note that unless stated otherwise, all comparisons in this call will be versus GAAP's results for the comparable period of 2018.
At this point, I would like to turn the call over to Mr. Revuelta for his opening remarks.
Thank you, Maria. Good morning, everyone, and thank you for joining us today. Let me begin by saying that 2019 was one of the most significant years of GAP's history, not only did we experience outstanding financial results once again, but also in the final quarter of the year, we began operations at the Kingston airport, our second Jamaican concession. Additionally, we successfully created the Master Development Program and passenger tariffs agreement for the airports in Mexico and Jamaica for the 2020-2024 period.
I'm going to start with the financial highlights for the fourth quarter, then I'll briefly review our full year performance. EBITDA grew around 7% for the fourth quarter reaching an EBITDA margin of 65% due to consolidation of the Kingston airport.
During 2020, we expect to begin optimizing the operation of this airport by charging the new tariffs. The consolidation is expected to generate an EBITDA margin in the range of 64% to 65% on a consolidated basis. Total aeronautical and non-aeronautical revenue increased around 30% driven by the traffic performance as well as the new available terminal area in addition to various strategies aimed at increased commercial revenues. In the fourth quarter, GAP transported over 12.7 million passengers throughout the 14 airports. This amount represents an 11% increase driven in part by the consolidation of the new routes opened in 2018 as well as the growth of the Mexican low-cost carriers in the key high-density markets.
If you look at the performance of the individual airports, Tijuana reached a top performance status in terms of additional traffic mainly due to the steady appetite of the Southern California market for travels in Mexican leisure destinations. As a result, Volaris and Viva Aerobus continue to grow at a rapid pace. These 2 airlines account for about [ 217,000 ] incremental departure seats, representing a [ 10% ] growth for Viva Aerobus and 22% for growth for Volaris. Accordingly, 3 new routes opened. These were Puerto Vallarta, Tapachula and Queretaro.
The Cross Border Xpress continues to be fundamental for the growth of the airport, reaching 34% market share of Tijuana's total traffic, which is growth of 18% compared to the fourth quarter of 2018.
Moving to Guadalajara. International traffic growth -- by the 4Q '19 increased by 11% compared to the same period of 2018. The Texas markets, mainly Dallas, Houston and San Antonio, significantly contributed to this growth with our extra frequencies by American Airlines and Volaris as well as the seasonal route operated by Viva Aerobus to Chicago O'hare aimed at the U.S.-based Mexicans who are visiting friends and family.
In Los Cabos and Puerto Vallarta, domestic traffic was the main catalyst for growth, rising by 23% and 15%, respectively. Los Cabos added frequencies to Mexico City by Interjet, Viva Aerobus and Volaris as well as new routes to Monterrey by Volaris. Puerto Vallarta experienced a sharp increase in the Mexico City route and Aeroméxico began to have daily flight to Monterrey. Additionally, certain international routes at both airports reported a slight decrease 737 MAX effect. However, the airlines remained confident about the popularity of Mexican leisure destination as well as their continued future potential as they continue to roll out new routes to both Los Cabos and Puerto Vallarta.
In Los Cabos, TUI Airways initiated flights to and from Londres - Gatwick Airport, making TUI the first European carrier to fly in and out of Los Cabos area.
In the Canadian market, West Jet added a flight to Victoria while low-cost Canadian airline, Swoop, kick off flights from Edmonton and Winnipeg. Sun Country also operated to and from Portland. In Puerto Vallarta, Edmonton and Winnipeg flights have also begun, both from Swoop.
And finally, in Montego Bay, traffic rose by 0.6%. With this market, we experienced lower passenger route for the European market, mainly due to the cancelation of the Dusseldorf route from Eurowings and Condor as well as the route to Munich also for Eurowings. However, the airport completed the year with a 5% growth at the launch of the new routes. The 3 new frequencies to Lima, Peru by LATAM and the daily New York JFK flight by American Airlines.
Now let's continue with the non-aeronautical revenue. We did see you an outstanding performance increasing by MXN 111 million or 13% during the fourth quarter. As a result, commercial revenues per passenger grew by 9% for the fourth quarter, mainly due to expansion in the commercial areas for the Guadalajara, Tijuana, Aguascalientes and Guanajuato.
For the quarter, GAP's strongest performing business units were food and beverage, which rose by MXN 34 million or 39% during 4Q '19. This strong performance was mainly due to Tijuana and Guadalajara airports where the newly expanded food and beverage spaces opened during the first half of the year. And in Los Cabos, we designed the new international terminal layout. We are already granted with contracts for the food and beverage and expect to begin operations in the last quarter of 2020.
Duty-free increased by MXN 14 million or 13% (sic) [ 11.5% ] This increase was mainly due to a continuous traffic growth in airports that have duty free: Guadalajara, Los Cabos, Puerto Vallarta, Tijuana and Guanajuato. I want to add that the redesign at the duty-free areas in Los Cabos and Montego Bay are currently underway.
Retail increased by MXN 13 million or 15%, mainly due to the operations of the most recently completed spaces in the Tijuana, Guadalajara, Guanajuato airports. Additionally, the bidding process for the new retail spaces at Montego Bay was launched in December. And Los Cabos, the new international terminal layout was designed, therefore, this bidding process will be given in the second quarter of this year.
Revenue from the Aeromarket stores, which are GAP-operated, growing by MXN 17 million or 58% as a result of the growth strategy in effect in 2019. As such, we opened 1 new store in Puerto Vallarta in the public area and also renovated international departure and arrival stores. At Aguascalientes airport, Aeromarket stores were also renovated.
VIP lounges, which also are operated directly by GAP, increased by MXN 4 million or 6% during the 4Q '19. The number of VIP lounges users rose as a result of higher market penetration, especially in international lounges of the Los Cabos airport. Additionally, we are currently working on the redesign and expansion of the VIP lounges projects at the airport of Guanajuato, Guadalajara, Los Cabos and Tijuana during January of 2020. The Mexicali airport opened a new VIP lounge.
Now moving on to CapEx. Last year, GAP successfully concluded the Master Development Program for the [ 2015-2019 ] period. Thus, in 2019, we increased the capacity of the departure areas at the Morelia, Aguascalientes, La Paz and Manzanillo airports, and we also concluded major refurbishment and expansion works at the Tijuana airport as per the MDP.
During 2020, we experienced certain challenges in the phase of construction as a result of our new MDP commitments. However, I should mention that the architectural design for the 3 main projects is already underway. This includes a new terminal building in Guadalajara, Puerto Vallarta as well the newly constructed building in Tijuana.
Our procurement process will be through our bidding with the major construction companies as well as domestic and international advisors, all with ample airport experience. After the termination of the construction work for the 3 new terminal buildings in 2024, we will see around 50% increase in terms of the square meters. Also, the time line in the construction of a hotel at the Guadalajara airport, the expansion of parking lots for Guadalajara, Tijuana, Puerto Vallarta as well as the other commercial projects.
The total investment amount for the 2020 at these 14 airports is approximately MXN 8.5 billion. In terms of sustainability, we concluded the technical and financial feasibility analysis for clean energy regeneration as well as the related bidding process. The company would implement 3 different strategies for the electricity consumption.
First, we will start with modality of supply and consumption of energy from a qualified solar technology player. Second, we will install solar panels over the carports in our parking lots in order to self-generate energy. And third, we will have 2 solar farms, 1 in Guadalajara, the other one in Los Cabos, so that will significantly reduce our carbon footprint. Our target is to generate most of our energy with these 3 strategies by the end of 2022.
Now reviewing the financial results, full year results were in line with our expectations. EBITDA grew by 11%, reaching about MXN 9.7 billion and EBITDA margin reached to [ 68.5% ]. Total revenue rose by [ 13% ] mainly driven by outstanding traffic performance and the opening of the new commercial areas. Cost of service increased by 12% driven mainly by rising number of personnel and related salaries as well as the maintenance expense and utility costs resulting from the larger size of the terminal building and the higher prices throughout the year and also due to the consolidation of the Kingston airport.
That concludes my remarks. I now ask the operator to please open the floor for a few questions.
[Operator Instructions] And your first question comes from Alan Macias with Bank of America.
Just one clarification. Did I understand correctly that you now expect that adjusted EBITDA margin will be around 64% to 65% with the consolidation of the Kingston airport? Is that correct?
Yes. Thank you for your question. Yes, you're right. Due to the consolidation of Kingston, as we previously mentioned in our report in the conference call, the new EBITDA margin of GAP will be around 64%, 65%. Obviously, our target is to try to improve to increase this percentage. But now the cost and the operation of Kingston will bring this adjustment. We are expecting an EBITDA margin of around 8% for Kingston, which provides this adjustment.
Finally, our target and our strategy with this airport is not the margin. It's more the position in the market and the consolidation of 100% of the passenger traffic in the island.
And your next question comes from Mauricio Martinez with GBM.
My first question is on commercial revenues. We saw a sharp deceleration in this quarter. And I would like to know your expectations going forward in Mexico, specifically in the commercial front. And if the decrease in Guadalajara's non-aeronautical revenues came from the problem with the parking business there with the hidden tariffs. That will be my first question.
Thank you, Mauricio. So first, what kind of see on the Mexico for sure is important patent on the commercial revenue. We think that we will continue to have at least double-digit growth on the commercial revenues. For sure, in the last quarter of 2019, we had the impact of nonrevenues for the parking lots of Guadalajara. But as you remember, it's our biggest parking lot in our book.
For the moment, we are already completing operating this parking lot. Again, I will say that we are in a really normal operations right now. But for sure, in the last quarter, we have an impact that comes from -- that came from that specific business line.
Perfect .And also, my second question would be on Mexico's margin, EBITDA margin. As you now with the Kingston with the other airports in Mexico, we cannot see anymore the EBITDA margin for Mexico. So maybe if you can give us a color on that, it would be very helpful. I mean just to understand what was the level in the fourth quarter in Mexico for EBITDA margin.
Yes. Thank you, Mauricio. This is Saúl. Yes, the EBITDA margin will be growing in Mexico. We have an average of around 72% -- 70%, 72%, and we will continue in that range. We are in the process of the adjustment in the cost of operation, in the cost of service because the new infrastructure that we have in the airports due in 2019. And we are preparing all the personnel that will be needed for the deployment of the new CapEx commitments in Mexico. So we are in a very good level of efficiency, and we do not expect to a higher margin than at that range, 70%, 72%. That's our view so far.
And your next question comes from Ruben Lopez with Santander.
My first question is on revenues in Kingston. Aeronautical revenues per passenger were close to $5. So can you get us your thoughts on the initiatives that you're working on to improve this? And where do you see this number in the medium to long term? That's my first one.
This is Raul. Thank you for your call. I mean, first, I would like to say that the review of the aeronautical tariff just began a couple of days around January, so that will give us a really important growth in terms of the aeronautical revenues from Kingston.
On the other side, we are right now working on the new contracts for the commercial revenues. We will -- we are expecting to review the layout for the summer of this year in Kingston. So gradually, in the 2020 year, you will see an important improvement in terms of revenue for Kingston in both lines, in aeronautical and non-aeronautical revenue.
Do you have the targets here in the medium to long term? Or any trend that we could see like -- yes, sequentially in the upcoming years?
Ruben, this is Saúl. Well, obviously, we have a target, and we will try to reach that target. We have to take the operation of the airport. There are some commercial contracts that are undergoing, and we will have to renegotiate with the tenants. So we are in the process. But this year, 2020, our main target is to establish a minimum return because we are expecting to have an around 8% of EBITDA margin. And we will look for the efficiencies in the cost of operation. And we'll try to improve the revenue per passenger in commercial revenues.
Okay. Perfect. And then just a follow-up on that same topic. I understand the play here is the top line growth in Kingston rather than the margin expansion. But can you give us any sense of the cost structure going forward? I mean you said 8% in 2020. But going forward, where could we see this number?
Well, I think you mean about the construction process in the works in the airport. Is that your question?
No. It's EBITDA margin for Kingston in the medium- to long-term horizon?
Well, for us, it's around -- just consider this, we will pay to the government 62% of concession fees. And with that, we only have 28 -- 38% of -- for the operation and for the return. So if we have an efficiency level, we consider that we could have and operate the airport with 20%. Then, we will be having in a long-term horizon an around 18% in the most efficiency level of EBITDA margin.
I would add a little bit more color on that. It's important to remember that, for instance, the Mexican concessions have upfront payment to the government at the very beginning of the concession, and the Kingston concession is a completely different concession with none or a minimal upfront payment to the government. And that made us that the biggest impact of the concession will be the concession fee that Saúl mentioned, 62%. So due to the fact that we have this upfront payment that they would be in all the life of the concession throughout is 62%. It's more treated like a rent rather than an acquisition. So for the starting Kingston concession -- or the Kingston airport, it will be more related to the cost control rather than the increase of the revenue. For sure, we will be starting to increase the revenues and also the costs. But in terms of the creation of additional value to the EBITDA, it will be more important to have the best possible cost control on that specific airport.
Your next question comes from Diego Gaxiola with Crédit Suisse.
My question is regarding the cost of services, which we saw organically flat year-over-year. We were wondering if we could expect that going forward into 2020.
Diego, this is Saúl. Well, the cost of service in this quarter increased around 11% due to the integration of Kingston airport mainly. But if we consider only in basically the operation of the 12 airports in Mexico towards Montego Bay, we have an increase in the cost of operation. We are trying to maintain cost control of this. Obviously, we need a period of implementation and take over the operation of Kingston. For 2020, we are expecting around a 12% to 13% increase in the cost of service in terms -- in consolidation basis, including Kingston.
So if we consider the results in 2019 yearly basis, the increase without the consolidation of Kingston, the cost-of-service increase was 8%. So we are in that line. We know that we have more infrastructure. We are looking for additional efficiencies, but we know also that we need to -- we require more people, more head count to -- for the deployment of the CapEx. And that will be a special increase for 2020 in terms of the cost of service. So you will see that in this year an adjustment in the cost of service, mainly because of the personnel and the new head count needed for the deployment of CapEx.
And the next question comes from Bruno Amorim with Goldman Sachs.
So I have follow-up question on non-aeronautical revenues. Sorry if you have comments on it, but the line is not great. So just wanted an update on your strategy for non-aeronautical revenues going forward. I remember, for the past couple of years, you have invested to a great extent on this, your costs grew because you were building the case for higher potential revenues on this front, which had materialized. It seems now that we are seeing some deceleration. But the question is, going forward, what should we expect both in terms of investments in commercial areas and the potential impact on the cost structure? And also, of course, the resulting positive impact on revenues on that front.
Thank you, Bruno. So In terms of the non-aeronautical revenues, we will continue all the efforts to create a unique experience for our passengers. One of the key parts of this that you will see in the coming years will be more personalized services, such as VIP lounges, for example. But I would say that, in general terms, we will have the growth opportunity with this new master plan and the expansion of the terminal building towards the commercial revenue.
So that on the next 5 years, we're going to see a substantial -- of almost 50% of the total square meter in our terminal. That will open up a great chance for increased spaces for commercial activity. For sure, we will continue in our strategy to be the best possible brand to the airport. We will continue to give to our passengers what they are expecting in terms of brand, which is a key part. And also the second part that we should continue seeing better revenue in this business line. And this new business line, as you already know, we are already working on the airport for Guadalajara, also for Tijuana on coming years. And maybe I will say that the coming years will give us the chance to expand in a really robust grow our commercial revenues.
And the next question comes from Marcos Barreto with Citi.
I have 2 questions. The first one is considering that your conversion of traffic growth into EBITDA growth was below 1x, could this improve via Kingston's margins improving or the Mexico operations somehow exceeding their high returns? That's my first question.
Marcos, thank you for your questions. The traffic growth will be in line with our view of 2019. We have to consider that this year was the first one with a single digit, 8.4% increase in traffic concerning Kingston. The EBITDA margin of the growth of EBITDA will be better for this year. We have to consider that the consolidation of Kingston, the new tariffs and the cost control that we will continue -- we will try to implement in our airports.
So the traffic growth will be different EBITDA for 2020 will be higher the growth of the EBITDA. And for traffic, we do not expect a double-digit growth. We are expecting a single-digit mix, and that's our target. But the EBITDA will be growing a faster way due to the new tariffs.
Okay. That was very clear. And for my second question, it's regarding the MDP. What was the urgency of doing so much CapEx in this 5-year period versus waiting to do some of this over the next 10 years and sparing the consumer the burden of high-traffic increase over this period?
I would say that, as you know, Marcos, our concession has a really important part in EBITDA that's related with the quality of standards. So for a key part of our concession is the improvement of that quality standards is our international standards for Vallarta, mainly for the design of airport that give us some of the sample x amount of scored deals per passenger, the x number of baggage per passenger, these kind of things.
So we do not quantify this as an important amount of CapEx -- is related with the needs of our own infrastructure. As you can see in the last 5 years, we almost doubled the size of -- the number of passengers in the mix. So we need to stand up for our traffic.
And I would add that -- to say that also this master plan is occurring different, I would say, onetime impact. For instance, so -- but we say that would be the only onetime concession-wise, we will build the new -- the second runway for Guadalajara airport. That will be really important to increase our capacity and be ready to continue with the continuous -- with the absorption of additional demand.
Also, for the case of Los Cabos, we are adding a strategic land for that could be the reserve for the second runway. As you know, in Mexico, it is really important to preserve the land for possible expansion due to the fact that in the case of Los Cabos, for instance, the city is growing and is really close to the airport. So it's really important to maintain our reserve of land to be prepared for the long term and the future for the case of Los Cabos for the second runway.
Also, we will develop the second terminal building for Guadalajara. That, for sure, is -- I mean we are doubling the number of acquired units on that terminal. And for sure, we are expecting that, that additional capacity will bring additional passengers, mainly passengers that today are in connection to Mexico City. So one of our strategies, an important strategy for the Guadalajara airport is that we foresee that Guadalajara will be an important hub for Mexico. So in the last [ 10 years ], we passed from less than 1% of connection passengers in Guadalajara to almost 11% of connection passengers in Guadalajara. So the potential of the half is already there. We need to take the correct infrastructure to bring those passengers to Guadalajara airport and make that airport really an important hub to Mexico. Clearly, the biggest strength will -- the site of our investments for the coming years.
[Operator Instructions] Your next question comes from Rodolfo Ramos with BBI.
My first question is a -- it's a follow-up to the cost question. Can you elaborate a little bit more on what additional efficiency you will be pursuing at your airports? And if you can give us a sense of what, let's say, like-to-like our cost growth could be in 2020.
I will begin to just, Rodolfo, with this main part that is important to understand. When you made an important expansion of the square meters that happened in the last 3 years from that, you also followed with the cost because you need to maintain an additional square meter. At the same time, you begin to receive the additional passengers. So in some way, always, you have like a jump in the cost per passenger and then in the coming periods as the evolution of the costs for the additional passengers that will arrive today in the terminal. So we are seeing additional efficiencies in the coming years. First, for evolution of our passenger -- cost per passengers. But second, we are also working for instance on all the energy programs that we just mentioned. We are trying to base our airports -- the total energy of our airports in the coming 3 years will come from renewable resources that are going to give us a chance for an important reduction of costs also.
My second question is regarding tariff implementation. I mean is this -- have you already implemented the full tariff that you were approving in your [ MDP ]? Or is this going to be a gradual process?
No. We already implemented 100% of the tariff from the third day of January.
And just if I may, a follow-up. When do you expect your addition to the CBX facility to be wholly operational?
The new terminal, the terminal processor will be in the end of 2022.
[Operator Instructions] And there are no further questions at this time. I'd like to turn the call back to management for their closing remarks.
Thank you, everyone, for your attention. A very important I'd like to mention is our GAP Day 2020, which will be held this year in New York City on Thursday, March 26. We hope you can join us for a morning on a management presentation and more information on our future projects and outlook. Please contact us or contact our Investor Relations agency in New York should you wish to participate.
Thank you, again, have a great day.
And this concludes today's call. Thank you for your participation. You may now disconnect.