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 2020 Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Maria Barona of i-advize Corporate Communications. Please go ahead.
Thank you, and welcome to the Grupo Aeroportuario del Pacífico's Fourth Quarter 2020 conference call. Today from the company, we have -- we welcome 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 on Wednesday.
Please note that unless stated otherwise, all comparisons in the call will be versus GAP's results for the comparable period of 2019.
At this point, I'd like to turn the call over to Mr. Revuelta for his opening remarks.
Thank you, Maria. Good morning, everyone, and welcome to today's call. I hope you and your family are safe and healthy. 2020 has surely been one of the toughest year, not only for GAP, but for the entire aviation and travel industry. Despite the unprecedented challenge this pandemic has represented over the past 10 months, GAP has remained focused on mitigating these effects. Throughout this process, our people have been vital to our efforts and have quickly taken the necessary action to ensure we reach our financial results for the year and to safeguard the safety and health of our employees and passengers.
Upholding high safety standards is a top priority for us, and our rapid response earned us various health recognitions, including the Safe Travel certification by the World Travel and Tourist Council (sic) [ World Travel and Tourism Council ]. GAP is also the first global airport group to obtain the health accreditation from Airport Council International, ACI, and Los Cabos became the second airport in the world to obtain this certification.
While traffic remained heavily impacted by the pandemic, there has been sequential improvement since May. At the very begin of the lockdown, GAP [ supported ] to airlines with 100% discounts for landing, parking and overnight aircraft charges for the months of April, May and June.
Additionally, we granted payment deferrals to some airlines for their outstanding balance [ as of ] March. Then beginning July, we launched a program ramping incentives according to the reopening of routes and additional frequencies. These actions helped raise traffic volumes throughout our network. At the same time, we supported liquidity of the airlines in order to restart their operations.
At the end of December, total traffic decreased by 43.9%, mainly carried out by Volaris with a passenger share of 46%, Viva Aerobus with 14% and Aeroméxico with 10% and American Airlines with 6%.
In 2020, GAP became the largest airport operator in the country, capturing around 32% of the Mexican market share for the year. It is important to note that the Tijuana Airport outperformed as the most resilient airports among the top Mexican airports, with a decrease of only 29% versus 2019.
And while traffic declined by 43.9%, aeronautical revenue decreased by only 31.5% compared to 2019 as a result of the traffic increase that was in place from the beginning of 2020.
One of our most innovative programs here at GAP was to help and support the tenants who represent a significant portion of GAP's future growth. For this, we established an incentive plan for tenants, which includes discounts over the minimal rental fees in accordance with passenger traffic declines at each airport. These discounts may continue throughout 2021 depending on passenger traffic performance.
There are many benefits to these key strategies. For one, we are able to hold onto a roster of solid tenants and building stronger business relationship with them. Second, we were able to provide incentive to these tenants so that they could adopt their offerings to new trends and consumer behaviors. And finally, this perhaps also represents considerably stronger overall collections for GAP. Due to these strategies and programs, commercial revenue decreased by only 35% despite a 43.9% traffic decrease during 2020.
While we have a large fixed cost base, our goal remained to control these as much as possible in the year. As much, we temporarily closed non-priority areas, helping us to lower energy consumption as well as maintaining security and cleaning costs. We expect to continue benefiting from these cost control actions in the coming quarters, but we also expect and look forward to the fact that certain costs will increase as the passengers flow increase once again. As a result, the cost of service in the Mexican airport decreased by 10%, 18% in Montego Bay and an increase in [ distance ] due to the consolidation of 12 months in 2020 versus the 3 months of 2019.
Considering the important passengers' traffic decreased during the year, the actions taken in terms of aeronautical and commercial revenues as well as higher efficiencies in the cost of operations, GAP was able to remain resilient and achieve stable results for the year despite the circumstance. This includes an EBITDA of MXN 5.8 billion and EBITDA margin of 60.2%.
In terms of the fourth quarter operational results, total passenger traffic reached 8.2 million, a decline of 36% comparing to 2019. Traffic performance improved versus the second and third quarter.
Aeronautical revenue decreased by 27%, driven by the lower passenger traffic, but was offset by the higher maximum tariff applicable to 2020. On the commercial side, revenue decreased 32%, with the largest impact from the time share and duty-free operations. The operating cost decreased 21% compared to the fourth quarter of 2019, with a decline of 16%, driven mainly by the Mexican airports, whereas the Montego Bay airport declined by 34% and the Kingston airport had a reduction of 6%. As a result, the EBITDA reached MXN 1.8 billion for the quarter with an EBITDA margin of 66.2%.
Moving on to the balance sheet, it remained strong. As you recall, during the year, we raised MXN 7.2 billion for the capital expenditure committed for 2020 and part of 2021 and repayment of 1 maturity for MXN 2.2 billion. Combined with the fund, we received 2 credit lines each for MXN 1 billion from Scotiabank and BBVA. And our cash preservation initiatives, GAP's cash position was MXN 14.5 billion at December 2020.
On the debt front, at the end of the year, we reached a total debt of MXN 24 billion. Maturity payment due in the first quarter of 2021 were $190 million, which were refinanced for an additional 36 months term. These actions give us the opportunity to preserve cash during one of the toughest years in our industry.
As many other companies did, we opted to suspend shareholders' distribution during 2020 due to the uncertainty of traffic revenues and funding available in the Mexican market to finance the Master Development Programs. We are happy to point out that this cash position on our result permitted us to meet all covenants at the end of 2020. As of December of 2020, the net debt/EBITDA ratio was 1.7x.
In terms of the MDP extraordinary review, we were able to, per the concession agreement, request and rebalance the MDP and tariff determination with the Mexican authorities through an extraordinary review process. This was possible due to the important traffic decrease I mentioned as well as more than 5% decrease in Mexican GDP in the last 12 months. This negotiation concluded in November with a decrease of 27% of the CapEx committed in the regional MDP and a deferral of some projects to a Mexican [indiscernible].
From the projects committed in the regional MDP, we will continue the construction of the terminal processing building in Tijuana, the second runway in Guadalajara, the new terminal building in Puerto Vallarta and a terminal expansion in Los Cabos. But we will delay the second terminal in Guadalajara starting in 2022 to conclude in 2026 instead of 2 years early.
The adjustment to the MDP sets ethical terms going forward that are aligned with the current economic environment. The launching process for our Jamaican airport was already filed in the fourth quarter and is currently under review by the authorities.
Finally, in terms of CapEx for 2020, the company deployed MXN 32 billion. The main works developed during the year were in Tijuana, Los Cabos and Guadalajara airport, our largest airports. This includes the [ renovation ], refurbishment and expansion of the airfields. We also began the construction of a new terminal processor building in Tijuana, expansion of international terminal building in Los Cabos and replacement of security equipment with new technology in all of the Mexican airports.
We began the generation of green energy through solar panels installed over the carports and [ level ] of our Mexican airport as well as in the Montego Bay airport. This system began generating cost savings during the first quarter of 2021.
In terms of commercial investments, the main projects were the renovation and redesign of 5 VIP lounges and parking lots' renovation and expansion.
Looking ahead to 2021, we remain optimistic about near-term international passenger traffic as we monitor outbreaks in Europe and the new travel restrictions imposed by the U.S. starting January 26, 2021, as well as travel bans from Canada and United Kingdom. So far, these restrictions have affected international passenger traffic throughout our network. We are hopeful that the combination of vaccines, new mass mandates and overall changes in hygiene measures will eventually lead us to a more secure travel conditions. During 2021, we will [ remain ] the cost control according to traffic level changes.
Additionally, we expect a challenging CapEx program in 2021 due to the MDP commitments as well as the commercial investments as in the new [ hotel ] in Guadalajara airport and [ added ] parking lots expansion. The company's leverage strategy will be to continue covering 100% of the CapEx needs and refinancing the maturity in 2021.
I also don't want to end the call without mentioning that we will start company's buyback program to purchase our own shares from time to time. We will keep the market informed about the progress of this program.
I would like to conclude by mentioning that even though the long term is difficult to predict given the circumstance, we, at GAP, remain confident that the underlying fundamentals of our business remains strong. We are also positive about the lifting of government's travel restrictions, the distribution of vaccines and the improvement of overall economic conditions, which will benefit our traffic levels. Thank you.
And now I will have the operator to please open the floor to questions.
[Operator Instructions] The first question comes from Mauricio Martinez with GBM.
Congratulations on the results and your recovery. I have 2 questions, if I may. The first one is, if you can give us any color on the shape of your tenants in the commercial business. What are your expectations in terms of the rent relief for this year? And if you have any change in the occupancy rate in your airports. That will be my first question.
And my second question is regarding the capacity from airlines in the cross-border market. Have you seen any change since the new requirements from the U.S. government regarding the COVID tests? And if you are seeing any change, if any, going forward in terms of capacity after these effects -- after this change. That would be my 2 questions.
Thank you, Mauricio. This is Raul. Talking about our commercial tenants, one of the few things that we are seeing. First, I will say that the passenger behaviors have completely changed in all this pandemic. I will say that the kind of passengers that we used to have [indiscernible] other kind of consumption behavior. So we are changing with the different tenants some of the layouts. We are trying to understand these new, I would say, behaviors for the consumption of our passengers. So for this 2021, what we are expecting is to continue to have this really flexible policy in terms of rents, of minimal rents to our tenants. Ordinarily, that will be what we are expecting.
The second part related with the COVID tests and the possible impact on the international traffic. As you know, in the last week of January, we -- the U.S. government began with these restrictions that asked for -- to apply to a COVID test before arriving to the U.S. I would say that in the first moment, we see a really important drop on passengers. But we expect that this gradually will begin to be like another procedure that all the passengers will adopt in the airports. They will -- we have -- in all of our airports, we have laboratories to help us to deploy all these tests. So I will think that in the midterm, these will not be, I would say, something that will affect more the traffic.
The other part that is important is, as soon as the vaccine programs are going forward in the U.S., we will begin, and we really hope to see an important recovery in terms of the international passengers to our net. We think that this summer will be a good time to see the size of the improvement, how the impact of the vaccine program could affect or could help to the recovery of our international passengers.
Alejandro Zamacona with Crédit Suisse.
Just 2 questions from our side. The first one on the airport tariffs. Just wanted to confirm that you have already implemented increase in all airports and the extraordinary MDP negotiations. And my second question is on the dividends. Do you expect to reinstate the dividend for this year?
Thank you, Alex. The first part related with all the airport tariffs. I mean, what we -- the review of maximum tariffs that we have from the -- our regulatory review of the MDP, we are already in place. We expect that in the coming months, we will see an important recovery in terms of tariffs in the coming months. For sure, it's important to review that not necessary we could transfer the 100% of the tariffs to the airlines in this moment, at least for the first quarter because we are also in the middle of a policy of discounts for new routes and recovery. So in general terms, I will say that from the third quarter and beyond, we will see a full transmit of the increase on the tariff to the revenues of GAP.
In terms of the dividends and the distributions to shareholders, I will pass the voice to Saul to give us some additional color.
Thank you, Raul. Well, in terms of dividends, we already analyzed and submitted a proposal to our Board of Directors. We already have the instruction and the approval from the Board of Directors. We will release these agreements in the agenda for the Shareholders Meeting that will be held in April. So in the first half of March, we will release the approval from the Board of Directors in terms of dividends or distributions to our shareholders.
And the next question comes from Luis Yance with Compass.
Can you hear me?
Yes.
Great. Two questions from my side. First is on the tariffs side. I know you already mentioned what you're doing in Mexico, but in terms of your negotiations with the Jamaican authorities, if you could give us some sense of what are you expecting in terms of potential CapEx reduction and how would that translate into any sort of adjustment in tariffs and the timing of it. And when do you expect that to apply? So that will be my first question.
And then the second one is related to cost and margins. I mean it was pretty impressive what we saw in terms of EBITDA margins this quarter despite a big drop in traffic. So when you put into account some of the costs, I'm guessing, are going to start coming up as traffic recovers, but maybe some of them will see permanent savings from the restructuring on the employees side, et cetera, et cetera. How should we translate that into -- and also, you're going to get the benefit once you fully transfer the authorized price increases in Mexico.
So when I put all that together, how should we think about EBITDA margins for the full year? We have, as a comparison, 2019 at 60%. But I know you were talking about, perhaps, going to the mid-60s, pre-COVID, obviously. So just wondering if it should be somewhere in between those 2. Or how should we think about that? And when do you expect to be back at pre-COVID levels, both on traffic as well as on margins?
Thank you, Luis. Well, in terms of the tariff process that we have with the Jamaican government, it is ongoing. We do not expect a soon answer from the government. They put in place a special team to review the proposals for the Kingston and Montego Bay airports. So we will wait probably at the end of the third quarter of this year to see what is the result. Obviously, we are asking for a CapEx reduction and maintain the same tariff and probably to adjust some of the main costs of operations in general terms because the shortfall in terms of passenger traffic is deeper in Jamaica than in Mexico. So we are in the middle of that process, and it could take several months.
The other point in terms of cost and margins, we will continue with our cost control in 2021. Obviously, it won't be at the same levels as 2020, where we have several months with almost 90% decrease in traffic. Now we will have some adjustments, obviously, but the margins will improve because we are expecting a better traffic in this year. And obviously, we continue with the same problem of cost control. And so the margins, you are right, will be probably in mid-60s. It will be in that range.
And in terms of the traffic in 2019, when we are seeing that the level of 2019 will come back, it's complicated to see due to the new regulations and the international traffic, which is very, very important for us in -- for our Jamaican airports and also for our Mexican airports, talking about Puerto Vallarta, Cabos, Guadalajara. And it's important to see that the passenger traffic will take some -- Raul, I don't know if you want to complement.
Yes. Thank you, Saul. So I would say that each airport will have a different pace of recovery. We are seeing that as a group, we could be at the same level of traffic of 2019, something around 2024 or the final part of 2023. But I mean, in general terms, the key part to understand is that each airport would recover in different pace. I would say that in terms of the [ ratio of ] market, it could be [ Puerto Vallarta ], Cabos or Montego Bay. One of the key parts that we are seeing is, for instance, all the pace of the vaccine program of the U.S. and Canada will bring or will recover the passenger traffic in a much better or higher pace, for instance.
We also see that Tijuana will continue this [indiscernible]. We hope that the recovery also in Tijuana will be faster than the rest of the airports due to the fact that the passengers that are using the Tijuana airport is a mix of passengers, as you know, of Mexico-American market, VFR market, but also leisure going to Mexican beaches, and for sure, Mexicans going to visit South California.
Today, there's a restriction on the crossing of many of any international passengers through the ground -- through the Cross Border Xpress. For the moment, only U.S. citizens or people that have green cards could cross through the CBX. So for instance, a key part that will give us an additional growth, really rapid growth on CBX, it will be as soon as the crossing restrictions today of the U.S. government will disappear, in that moment, we also will have a really huge recovery.
But again, a general point to understand how deep is [ this quarter ], and how we are expecting a recovery that will go more for the end of '23 to '24 is related with the number of seats in the national, in the Mexican fleet. For the moment, with the decrease on fleet on Aeroméxico and, for sure, with Interjet, today, the Mexican fleet has a reduction of more than 32% in number of available seats. So this recovery brings additional planes to the market. It's a huge effort for the airlines. Thinking on the financial moment, it looks difficult that we will have a really quick recovery in terms of the number of seats in the [indiscernible] or at least in the domestic market.
So that is why we are optimistic that we will see in some markets really important and fast recovery. But on the other hand, talking about the domestic airlines, we have seen a completely -- a huge reconfiguration of the market that includes a decrease of more than 32% of the total seats at the moment. So that is why we are seeing a full recovery more close to 2024.
Thanks a lot, Raul and Saul, for the detailed answer. Just to clarify, Saul, in terms of margins, you said you expect mid-60s in terms of EBITDA margins or mid-50s? Just didn't hear it correctly.
Mid-60s.
And the next question comes from Guilherme Mendes with JPMorgan.
Actually, it is more of a follow-up. If you are still applying some kind of discounts to the airlines as you were doing for the commercial tenants. And just in terms of your receivables, if you see any kind of short-term risks given all these discounts to the commercial tenants.
In terms of the discounts to the airlines, we have a program for any airline in terms of recovery of routes and frequency. So the big difference between this year versus 2020 is that our incentive policies in 2020 were to give 100% of discounts in aeronautical services for all the airlines. For this year, our policies and incentive program that is directly related with the new openings on the -- or the recovery of capacity in some routes.
So in size, the incentive program will be lower but going to be really specific for some routes, but we expect that there will be a recovery in terms of capacity. In terms of receivables, I mean, I don't see any specific risk for the moment, but I will let Saul give you some additional color.
Thank you, Raul. Yes. In terms of receivables, we did a very good job with the tenants and airlines together in order to help them to keep liquidity and continue with the payments. Indeed, it was a good year, even though the circumstances, and we don't see any extraordinary situation for 2021. We hope to continue with the support to the airlines, with the support to the tenants and do not affect significantly the account receivables.
The next question comes from Pablo Monsivais with Barclays.
Just kind of a follow-up question on the airlines and the commercial tenants. Is there any deadline in your mind to just sit again and think when your contracts will be back to normalcy for your partners? And specifically for your commercial partners, are you thinking that some of the change that -- in the way that the contracts are structured will remain for the near future?
I would say that in terms of the normality of the rents on the -- for our tenants, we think that 2021 will include also some discounts. As we said, these are flexible programs. So as soon as we begin seeing some recovery of passengers, automatically, the discounts will reduce. So one of the things that we are seeing, for instance, is the airports have specific business units, for instance, food and beverage in Tijuana. Yes, they are already in the same level of sales that used to have in 2019. So for these kind of contracts, for instance, we will not apply some additional discounts.
So my point is, for 2021, we will see -- continue some discounts, but it will be gradually disappearing. And what we expect is that for the next year, we will not apply any kind of discounts for our commercial tenants.
As I said, one of the key parts -- part of the past year and this year is to reconfigurate [ layout ] programs, [ products ]. We are introducing our app for asking for food, for the [ record ], date of the plane. These kind of things will really change the behavior of consumption in our passengers.
Other things that we are doing, for instance, on this summer of 2021, we are developing a new food and beverage area in Guadalajara airport that will be outside. In some way, we give the idea of -- give another experience to our passengers, these passengers that, today, in some way are afraid to consume or take out the masks to take some food. So we are -- for instance, in Guadalajara, we are developing an area that will be completely outside to give these passengers the chances to consume without -- being in a more safety environment or be outside.
So this is the kind of thing that we are doing today with our tenants. As always, the policy and the strategy of GAP is going together with the tenants because as soon as the tenant has a better result in terms of the structure of our contracts, we will receive more results.
So in general terms, as I said, I think, for the next year, we will not have additional discounts. And in general terms, the structure of our contracts will continue to be the same with a big part of the fixed rent and additional part for bilevel rent.
And the next question comes from Andressa Varotto with UBS.
If I see, you already kind of answered some of this. Just a follow-up on the commercial revenue and on passenger behaviors. What are you seeing in terms of impact to the commercial revenue per passenger ratio? And what do you expect going forward like in a more normalized world? Do you think there could be any behavior changes that could stay or impact the commercial revenue [ per passenger ]?
Thank you, Andressa. I mean some of the big points on the behavior of the passengers related, for instance, in the food and beverage. That is the key point. Everybody are really afraid to take out the mask. Also, we are seeing a change in terms of e-commerce. Let me explain on that. Again, on the day these -- the lockdown and the pandemic meant that a lot of people, in some way, are more digital and they, for the first time, will ask food from the supermarket or ask something on Amazon, for instance. So in some way are more digital. So the retail is, in some way, struggling also because there's, I would say, some kind of change on e-commerce.
So as an airport and all our partners are doing a huge effort to try to impose some e-commerce strategy in the airport, they're trying to help us to, for instance, help the retail market to recovery again.
Other change that we are seeing is related with the parking lots. We are seeing a real interesting increase in penetration of parking lots. That's why we are going to develop. We have started [ the work ] in 2020. We will continue therefore in 2021. But one of the things that we are seeing is that the passengers are preferring to arrive with their own car rather than use a taxi or Uber or any of these kind of transportation.
So we are seeing also this big change related with the transportation, and that will bring us a really positive impact on the parking lots for the coming years.
Also one of the major trends that we are seeing on the commercial revenue is related with the cargo services. We are seeing a real important growth in logistics. We are seeing an important growth in cargo movements. So we are, right now, working with the team of GAP, trying to figure out how we could participate on that specific market. But it's really important to, for instance, understand for the Guadalajara airport, for example, today that we are talking about a huge decrease in the number of passengers. The case of the cargo is that actually it grows. So we are figuring out at GAP how to, in some way, participate in this growing market of the logistics and cargo. We expect that for the half of this year, we will have [ an idea ] how we could develop that specific business unit on that.
[Operator Instructions] Next question comes from Roberta [indiscernible] with Citibank.
Sorry, if you already answered this, I had some connectivity issues here. But firstly, regarding the COVID testing. Is GAP getting directly involved in setting the COVID testing at the airport? Or is this something handled by the airlines and the hotels there? And secondly, thinking about future investments more longer term, I'd like to know if there are any thoughts about potential acquisition opportunities like maybe [ Barbados ] or [ Tulum ] or [ else air ] after COVID scene.
Thank you, Roberta. I mean, in terms of the involvement of the airport in this process of COVID or [ bringing the vaccines ] and these kind of things, I mean we -- as an airport, we are helping for the efficient operation of the planes, but these activities are more mainly on the side of the airline and the specific logistics of the airlines.
About other investments in the long term in other [ concession ] of [ Barbados ] or [ Tulum ] or other airports, I mean, as always, GAP would review all the possible opportunities. We will carefully review it. For sure, we are open for this kind of things. For the moment, for instance, [ Barbados ], the government of [ Barbados ] just delayed on this process. They will [ jump it ] for the next year. So we will certainly be really close to all these possible development. But at least for the moment, we are not seeing something in the near future that could happen.
Okay. Great. Very clear. At the beginning of the presentation, just another quick one, you mentioned the market share of Volaris and Viva, sorry, I missed that. What's their market? What's their share on your revenues for domestic passengers? If you can disclose that.
Roberta, market share in our network during 2020 was 46% from Volaris, 14% from Viva, 10% from Aeroméxico and American Airlines with 6%. That's the main airlines in 2020.
That domestic only or total?
Total, total.
And we do have one last question from the webcast.
Yes. This question is from [ Marc Montanes ]. Thank you, Marco. When do you think GAP's airports could reach pre-pandemic traffic levels?
Well, as Raul mentioned, we are starting to reach the 2019 levels at the end of 2023 or at the end of 2024. It is complicated to see a fast recovery due to the current situation, and we will wait with the new requirements from the government, the bans from Europe and Canada countries, and that's our view so far. So we will continue analyzing and look at the new seats availability in the market. And in that regard, we will be adjusting. But for now, that's our view.
And before to end, I just want to clarify one number. The CapEx deployed in 2020 was MXN 3.2 billion. Thank you, Raul.
Thank you, Saul.
And there are no further questions at this time. I will turn the call over to the company for any closing remarks.
Thank you, everyone, and again for joining us today in our fourth quarter results conference. We want to remind you that we are always open and available to answer any of your questions. On behalf of GAP, we wish you a great day. Goodbye.
And this concludes today's call. Thank you for your participation. You may now disconnect.