Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (GAPB) Earnings Call Transcript & Summary

Good morning, and welcome to GAP's Fourth Quarter 2024 Conference Call. [Operator Instructions] I am pleased to turn the call over to GAP's Investor Relations team. Please go ahead.

Thank you, and welcome to Grupo Aeroportuario del Pacífico's Fourth Quarter 2024 Conference Call. Presenting from the company today, we have 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, 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. At this time, I'd like to turn the call back over to Mr. Revuelta for his opening remarks. Please begin, sir.

Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2024 earnings conference. It is a pleasure to be with you here today to share GAP's financial and operational development. Let me begin with the financial highlights. This quarter has been a period of recovery. After various industry challenge, both revenues and profitability have remained positive. Total revenues without IFRIC-12 increased by 16.4% compared to the same quarter of the last year. The 32.7% increase in non-aeronautical revenue was the main driver for the growth we experienced. Overall, passenger traffic grew by 1.4% year-over-year, driven by the opening of 22 international and 11 domestic routes in addition to more capacity from Volaris and Viva fleet. The non-aeronautical revenue segment rose by 32.7%, being the top contributor to our revenue growth. Here, we saw a remarkable improvement to the consolidation of the cargo facility businesses, better performance on VIP lounges and the operation of the hotel. In addition to the good performance in the retail, duty-free and food and beverage divisions. The new businesses have contributed significantly to overall revenue diversification, which make it one of our main strategic growth pillars going forward. From expenses perspective, service costs have increased by 29%, largely driven by consolidation of the cargo facilities and the cost of operation of the hotel, besides additional headcount for airport operations and salary increases in Mexico derived from several changes in labor law. On the other hand, new operational areas have implied higher consumptions of energy, security and cleaning services, which are unavoidable despite the efforts for management to control costs. EBITDA increased by 14.9% year-over-year, reaching MXN 4.8 billion with an EBITDA margin of 66.9% excluding the effect of the IFRIC-12, slightly below our EBITDA margin in fourth quarter 2023, mainly due to the increase in the concession fee in our Mexican airports, which changes from 5% to 9% in 2024. Moving to a macroeconomic perspective, the 14.1% peso to dollar depreciation has played a dual role. While it has caused higher revenues generated in U.S. dollars, it has also led to higher financial costs, particularly in terms of debt servicing. Moreover, inflation in Mexico and U.S. CPI decreased in 2024, diminishing pressure to the future interest rates for loans denominated in pesos and U.S. dollars. We continue to carefully track and manage these impacts to ensure continued financial stability. If we look at full year financial results, 2024 was a year of strategic growth and one where GAP demonstrated resilience and once again, there were industry challenges such as the grounding of Volaris and Viva fleet and increase of the concession fee. However, revenue and profitability remained in a positive trend. As a result, full year results were in line with our expectations. Total revenue rose by 5.3%. This growth was primarily driven by the 24.4% decrease in commercial revenues, which more than offset the slight 0.8% decrease in aeronautical revenues. The significant growth was mainly due to the business line operated directly by us, which saw a 58.4% increase. It is essential to note that in 2024, we commenced operations with mixed-use building and acquired GWTC, both located in Guadalajara. Regarding the business lines operated by third parties, increased by 10.5%, mainly due to the food and beverage, car rentals, retail and leasing office space. Cost of service increased by 20.2%, mainly driven by increasing headcount and higher salaries, security and insurance, maintenance expenses and utility costs. The consolidation of the cargo facilities and the operation of the hotel contributed to a higher cost of operations and the additional square meters of the terminal buildings resulting from all the expansions as well as other personnel and minimum wage increases. EBITDA grew by 2.4%, reaching roughly MXN 18.1 billion, while EBITDA margin, excluding IFRIC-12, reached 67.6%. GAP's overall financial position remaining robust. As of December 31, 2024, we reported total asset increase of MXN 14.2 billion, an increase primarily driven by the improvements to concession assets, a stronger cash position and strategic investment. Total liabilities increased by MXN 10.5 billion, mainly due to the issuance of long-term debt securities and bank loans, thus reinforcing our capital structure for future growth. Moving on to the CapEx. We deployed MXN 7.9 billion during the year, thereby comparing the committed investment for 2020, 2024 period in additional to the commercial projects. In the next 5 years, we are planning unprecedented growth in our infrastructure and is reflecting many of our efforts. Just a few weeks ago, GAP presented its 2025-2029 Master Development Program for Guadalajara and Puerto Vallarta with a large event in Jalisco. The event titled Transforming for [ Good ] featured the upcoming investment plan for our major airports in Jalisco. We invite you to take a look at our social media accounts where we illustrate our commitment to the regional development and our strategic focus on infrastructure enhancement to meet the growing demand in the market. Most importantly, this investment reflects our confidence in the long-term growth potential of our main markets. The main projects include the second terminal at the airport of Guadalajara, which will add around 73% capacity as well as new vehicle access road, which will make easier for traffic to flow to this airport. In Puerto Vallarta, we will conclude the second terminal, increasing capacity by 134%. Please note that investment amounts disclosed at the end are the authorized figures by our regulator, but included annual projected inflation at a rate of 4% using the construction price index. Looking ahead, we are pleased to announce our growth guidance for the full year 2025 compared to 2024 reflected strategic development across our operations. In terms of passenger traffic, we expect to grow from 4% to 6%, driven by the consolidation of existing routes, increasing flight frequencies and additional seat capacity. Regarding aeronautical revenues, we expect to grow from 23% to 25%, supported by the implementation of new tariffs approved by the authority for our airports in Mexico, alongside positive traffic performance, inflation adjustments and expected exchange rates. We anticipate an increase of 24% to 26% on non-aeronautical revenues due to the improved contract conditions, the full year operations of our cargo facility, the hotel and corporate office as well as the development of the additional business lines managed directly by the company. In terms of EBITDA margin, we expect it to be 66%, plus/minus 1%. This is mainly due to the change in the concession fee, which has increased from 5% to 9% for our airports in Mexico. To finalize, CapEx will be around MXN 13 billion. This includes MXN 8.8 billion for committed investments at airports in Mexico on the Master Development programs, MXN 1.7 billion for the continued construction of the new terminal building in Puerto Vallarta, MXN 1.5 billion for the investment at airports in Jamaica and MXN 1 billion for the commercial investments. This new guidance reflects our commitment to strategic development and value creation, setting a solid foundation for the continued success in 2025. We are confident and excited about our strategic direction. We believe that diversifying revenue streams, enhancing commercial operations and leveraging the cargo facilities will be key to our continued growth, therefore, we are strongly focused on these areas and on their success. We know we must continue to strengthen our infrastructure as well as optimize operational efficiencies in order to deliver long-term value to our stakeholders. We appreciate your continued trust and support in GAP. Thank you for joining us today, and we now open the floor to your questions.

[Operator Instructions] And our first question today will come from Rodolfo Ramos with Bradesco BBI.

[Foreign Language] I have a couple, if I may. Could you just help us reconcile what seems to be a rather conservative traffic guidance in a year where a lot of the headwinds in terms of traffics will not be there anymore? So if you can elaborate a little bit on the drivers behind the guidance. And secondly, on the gradual rollout of your new tariffs -- maximum tariffs, can you just give us a little bit more detail on the schedule and magnitude that you're intending to follow and whether this was a commercially driven decision to postpone this?

Thank you, Rodolfo. This is Raul. In terms of the traffic, the 4% to 6% guidance is related to the number of seats already in the phases for commercialization and the slots that are already solicited by the airlines. In this line, for sure, if there are some other additional routes that has not been announced yet from the part of airlines, will be, for sure, an upside in our guidance. For the moment, the only thing that we are taking in account is that the specific routes already announced by the airlines or the ones that are already solicited by the airlines asking for specific slots. So in that way, our guidance only reflects this kind of data that come from database. The second part of the question related with -- in our strategy for the change on the specific tariffs for the coming years. On March 1, we will increase 15% of the passenger seats. For sure, that will give us the chance to have a fulfillment of the Master -- of the maximum tariff from 89% to 90%, depending on the exchange rate. And we will have 3 different moments from additional increase. So what we are expecting is to have in the 100% of fulfillment of the maximum tariff during the 2026.

Perfect. Just to clarify, so you will not have increased any -- in any amount the tariffs during this quarter. It will be until March 1, did I understand that correct?

That's correct. If you can see each 5 years -- I mean, it happens always in the same way. The law of airports made us some different steps until we get the authorization of the authority. Always it takes us like around 90 days. On this case, the authority give us the authorization for the release of the new tariff that will be applied from March 1.

Our next question will come from Pablo Monsivais with Barclays.

Just I have a question on the commercial revenues of Guadalajara. Last year, you opened a lot of new spaces and the commercial revenues are increasing. But are we, in 2025, in a more normalized environment? Or still there is some upside to the numbers that you are right now reporting?

Thank you, Pablo. I would say that it could be some kind of upside depending on the mix of traffic for Guadalajara Airport. For instance, if we begin to see a more strong trend of growing on the international side, always, for instance, the food and beverage business will grow in -- even at faster pace than we expected. So let me put it in this way. Today, we have all the new spaces already operating. We are seeing that the brands, the new brands, for instance, in food and beverage or retail, have been well accepted by the consumer, by the passengers in the airport. But for sure, we expect a better, I would say, knowledge of these new brands, and for sure, a possible increase on the -- possible sales on these business lines. But for sure, the mix of the passengers could make some upside for the revenues on the commercial side. The other part that is important to have in account is the cargo facility, JWC. As you remember, in July of last year, we began with the consolidation of the -- of this new business. So we will have, I would say, an easier comp. We will consolidate 6 months of revenue that we don't have in the past year. And the other part -- the other thing that's going to be interesting to see is the maturation of the hotel. The hotel in Guadalajara began operation on March -- the last week of March of last year. The pace of, I would say, how the load factors, the yield of each room begins to grow gradually. I mean, it begins like all the -- like all the new hotels, begin the development of that. We think that this year going to be an excellent year in terms of consolidation and a more, I would say, bigger growth on the hotels that we have on the last year. But that are mainly some of the additional colors for Guadalajara.

Perfect. And I have a second question, if I may, on the Turks and Caicos acquisition process. Are we still in the schedule that you provided last year? How are we doing in that project?

Thank you, Pablo. The government has changed again the final time for the results of the tender. So we are still waiting for that. We think that could be during March, but we really don't know if that's going to be the case, but we are waiting for the final results.

Our next question will come from Alberto Valerio with UBS.

My question -- I have 2 on my side. One is how about the negotiation with the airlines, mainly for the airports that you have the higher increase in tariffs that we started here [indiscernible] negotiated yet? And the second one about M&A as well, if you have any interest in assets outside -- another assets outside Mexico, in Caribbean and Brazil. As you may know, we have some players selling assets in South America and Central America at this time?

Thank you, Alberto. This is Raul. Just to remember, it's important to have in mind that the change on tariff, it would not be like some kind of direct negotiation in terms of the airports law, we could change it directly and it passes through a procedure to the authority. But each year, we have some different package of discounts on specific routes that we use to -- for supporting the ramp-up of some of the routes. On that area of, I would say, airport marketing and new routes, we used to have different packages for support the new routes and the new launches of routes from airlines. In that way, we negotiate several different discounts in our -- all our airports depending the amount of new routes that will happen. So on this year, we have, for sure, in one hand, a big increase in terms of the maximum tariff. But on the other hand, we have different or several package of discounts for airlines, with the idea of supporting their relaunching of some routes that will happen on the coming months. So that will be the -- I would say, the kind of negotiation that we have on a daily basis with the airlines. In terms of different M&A, we always are looking for opportunities in our sector. For sure, we are -- we have an important discipline trying to look for just or bring to the table only opportunities that will be accretive for our stakeholders. So in general terms, for sure, we will review each kind of opportunities that could be in the market for airports in our region, but always with the discipline of only participating in the ones that we think that could bring -- be accretive for the value of the company.

We'll move to our next question from Jens Spiess with Morgan Stanley.

Just along those same lines, I just want to understand the 15% increase you mentioned for March. So why not 20%? And what's the thought process there? You already mentioned some like marketing campaigns for your routes and stuff like that. But I guess -- I mean, how does the economics of it work? So if you increase it 20%, that would probably have a hit on your -- maybe on your traffic assumption, but wouldn't it offset it? Just if you could walk us through the thought process of choosing that 15%.

Jens, this is Saul. Well, the tariff increase is according to the trends and the market expectation. Obviously, there is some effect into the performance of the passenger traffic. If we increase more than supported by the market, will be more complicated to pass the traffic increase. So we made some analysis in those scenarios where about what kind of increase, it depends on the airport. It's not a 15% for each airport. It depends on the market or the type of airport. So -- but it's affecting general tariff increase considering that just to try to incentivize the market and not interrupt the future growth. Obviously, we have some consensus internally and with every stakeholder to try to see what is the best approach. So the 3x increase will be in the future. And as Raul said, our target is to raise the 100% of the maximum target in 2026. In terms of the -- sorry. No, just to complement, in terms of the marketing airport analysis that we do and all the -- our marketing team work that they do with the airlines, international and domestic airlines, to try to bring and expand more frequencies and bring more routes into our airports.

Understand. And just one follow-up. On your guidance for traffic for this year, you mentioned that it's basically based on the slots that you have been negotiating. So basically, capacity. But Volaris has been mentioning that basically like the Pratt & Whitney issue will extend for basically until 2027, also that they're seeing some VFR cross-border weakness in demand, which I guess of the 3 airport groups, maybe you're one of the most exposed. So do you see any risk of potentially like lower load factors that could put some risk to your traffic guidance? Or do you feel very comfortable with that level?

I will say that we are comfortable with the level of the traffic. And let me put it on this way, for sure, we are beginning to see a softer, I would say, growth on the economy of Mexico. The GDP data has already delivered by the government, and we are beginning to see a softer increase -- an increase of the economy of the GDP. And for sure, it will have some kind of direct impact on the demand for the passengers. But the other hand, we are still having a big decrease or lack of capacity just for the P&W engines in the market. So for our view, even if with a softer demand, there's so big lag on passengers on capacity that could be absorbed the demand that we have right now. So in other words, we are -- at the moment with the data that we have today, we are really comfortable with our guidance.

And we'll move next to Jorge Vargas with GBM.

I would like to know what are your views on the pace of domestic traffic recovery, especially considering capacity deployment from airlines? And a second question, if I may, what additional opportunities are you considering for expanding non-aeronautical revenue streams?

We have -- the first part of, what is more important, our forecasting and the guidance in terms of traffic is the capacity and the routes that we already know in database. But one of the key factors that we are expecting for this year is a gradual recovery that maybe will come from some additional capacity, additional fleet that will arrive for Volaris and Viva Aerobus. And we are expecting that some of the engines from P&W will come back in the coming months and will give us the additional capacity for -- that we need in our airports. So that is why we are expecting this 4% to 6% in terms of our guidance. For sure, this guidance is not considering any, I would say, change or critical change on the trend of the economics or the BFR trends of any other kind of possible topic that change in the main way -- the way that the passengers fly. But we are confident with our guidance. In the other hand, in terms of the investments to expand the commercial revenues, we need to end the expansion of the Guadalajara parking lot, is an important investment. We are in the first stage of increase. We will open additional spots -- parking spots on the -- for the summer. It's a really important investment for specific commercial revenues. We also have some additional investment for VIP lounges. We have some additional or the final investments for the opening -- for the full opening of the -- all our offer for rental space for offices in Guadalajara Airport. So that are mainly our key projects. And also, sorry, the expansion of commercial areas on Kingston Airport. That will be the main investments on the non-aeronautical side. It is important to remember that on all the 5-year period, we will have a huge expansion on the total square meters in our terminal buildings. We are saying that we will increase around 50% our total capacity for the end of the period, 2029. The biggest part of the expansion will begin to opening gradually [indiscernible] '26. At the end of 2026, we will have Puerto Vallarta. Around '28, Guadalajara. So gradually, during the next 4 years, we will have openings on big expansions in terms of terminal buildings that will give us the possibility for expand our commercial spaces and the commercial areas of the airport. So all these expansions will be gradually. So -- but the idea is trying to keep refreshing our layouts, refreshing the brands on the commercial side and bring the best possible offer on the commercial for our passengers. And that will be the idea for all the next 5 years.

We'll move next to Jay Singh with Citi.

It's Jay Singh dialing on from Stephen Trent's team. I guess the first question I want to ask is, on a longer-term basis, do you see any possibility that the Mexican government might extend the airport concessions expirations beyond 2048?

Thank you, Jay. I mean in terms of our contracts and in terms of the law of airports, there is a clause that will give us a chance for an extension of additional -- and a second period of 50 years, but it says that we will be in a direct negotiation with the federal government. It's not clear which could be the concessions -- the conditions for that negotiation. But let me say that in terms of our contract, there is a possible additional period of 50 years that is included in all the legislation and the contracts of the concession.

And as a follow-up, I know you spoke a bit before on Turks and Caicos. Maybe could you talk about where you stand regarding other potential investments, maybe in the Caribbean or some of the other regions?

For the moment, I would say that there's -- we are analyzing different projects. Some of them are not public yet, but we will still analyzing. And for sure, we're going to give you some -- we will make it public on the moment that we make the decision to participate on some of the -- of some of these projects. But I would say for the moment, we are analyzing different projects. None of them are public yet. So that will be -- I mean, the most important part, as I say is, that we will always trying to analyze different options that will give great value to our company. So that is a continuous effort on the company.

Our next question will come from Pablo Ricalde with Itaú.

I have 2 questions. And the first one, I don't know if you have already answered it. It's on the CapEx guidance. Just trying to double check that of the MXN 13 billion guided, you have already deployed MXN 4.5 billion related to the MDP CapEx? And the other one is on the second installment of the implementation. Do you think it's fair to assume something around September? Or do you think you can accelerate the second implementation?

Pablo, this is Saúl. Yes, we have some investments already made, basically the acquisition of the land in Guadalajara Airport. But we have a lot of things to do. You know that we have more than MXN 43 billion in terms of 2022. Current pesos will be more than that. We are expecting to deploy around MXN 52 billion during the following 5 years. So we will have a very strong CapEx. So we released and try to split the type of investment. And the way that we are trying to be more clear what are for MDP, what are for commercial purposes, what are for Jamaica and also the continuity of the terminal building in Puerto Vallarta, which was -- we had a waiver from the authority to conclude in the following 2 years. So in general terms, we try to split it and to be basically more clear on that. But you are correct. So there are some investments that we already made. And regarding the -- your second question.

Yes, I would take it, Pablo. This is Raul. The second tranche of the tariff increase, it will depend on the trends of traffic. I would say that we will follow really close the trends of the traffic. But our main plan or our original plan would be to change it on January on the coming year. And the last one of the changes on the mid, I would say, some moment on the summer of '26, with the idea of fulfillment of 100% of maximum tariff at the end of 2026.

Perfect, Raul. So just double checking, 100% maximum tariff by December 2026?

Basically, yes.

That's correct.

And we'll move next to Anton Mortenkotter with GBM.

It's just a quick one. To clarify, the 15% increase you mentioned is in real terms, right?

It's not real terms, it's nominal.

It's nominal? Okay.

Nominal over the current tariffs. Yes.

And we'll move next to Alan Macias with Bank of America.

Just 2 questions. First, if you could provide the GDP growth assumption for your traffic guidance? And the second question is on GAP's total EBITDA margin. Is the expansion limited by the consolidation of the cargo business, and we would be expecting a higher expansion due to the higher traffic and tariffs that you are guiding?

Thank you, Alan. In terms of the GDP growth, we are assuming from 1% to 1.3% of increase on GDP for 2025.

Yes. Alan, this is a -- sorry, this is Saúl. Well, EBITDA margin will be in that range. It will be very complicated to see the previous years' EBITDAs -- EBITDA margins, because the application from 5% to 9% from the concession fee is very relevant. Probably when we have 100% of the maximum tariff implemented, probably we could see 1% more than we are planning for this year, but it's complicated. The cargo facility has another -- a different EBITDA margin, close to 55% to 60% in the future, but it's not significant to the business, around 5% of the total revenues. But the main expectation comes from the concession fee in Mexico.

[Operator Instructions] And our next question will come from Guilherme Mendes with JPMorgan.

A quick one on Mexico City Airport. There is some news on the government potentially increasing the number of slots being operating on the airport. Do you guys have any views on the likelihood and timing for it to happen?

Thank you, Guilherme. I mean there's, I would say, some public information out there that the Mexican authority or the government is pretending to increase the capacity of the Mexico City Airport. I think that is a good news for all the environment of airports in Mexico. At the end of the day, it is the biggest airport in Mexico. So additional capacity or additional slots for Mexico City always converted in the possible of additional operations and more efficient turnarounds for the airlines operating in Mexico City that give us a chance to get some additional turnarounds in our airports. So I would say for the industry in the whole, it could be a good news to have the increase on capacity of Mexico City Airport.

[Operator Instructions]

Well, we have some questions from the webcast. The first one is from Edson Murguia from SummaCap. And he's asking regarding the 2025 growth guidance, Volaris mentioned in the fourth quarter '24 call that they are expecting to have 30 aircraft grounded during 2025. How will it impact your traffic guidance?

There will not be impacting our guidance. The guidance already considered that the number of ground planes for Volaris.

And the second question from Edson as well. What is the time line for Puerto Vallarta's new terminal to be finished?

December 2026.

Perfect. Then we have -- the last one is from Bernardo Malpica from Santander. If I'm making you repeat this, sorry, I didn't manage to hear well. Is the 15% tariff increase real or nominal? Does it include inflation and discount reversals?

It will be 15% nominal for the tariff that we have on December of '24. I would say in the most simple way, the tariff that we are -- the specific tariffs that we are applied right now in our airports will increase 15% from March 1.

Perfect. Thank you, Raul. There is no further questions on the webcast.

And there are no further questions over the phone either. I'd now like to turn the conference back to our presenters for closing remarks.

Thank you again, everyone, for joining us today at our fourth quarter results conference. On GAP's behalf, we wish you a great day.

Thank you. This does conclude GAP's conference call. Thank you for your participation. You may disconnect.