Earnings Transcript for PAC - Q3 Fiscal Year 2024

Operator: Good morning, and welcome to GAP's conference call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions, and at that time, instructions will be given if you would like to ask a question. [Operator Instructions] It is now my pleasure to turn the call over to GAP's Investor Relations team. Please go ahead.

Maria Barona: Thank you, and welcome to Grupo Aeroportuario del Pacífico’s Third Quarter 2024 Conference Call. Presenting from the company today, we welcome Mr. Raul Revuelta, GAP's Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer. Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's future performance or financial results. As such statements made are based on several assumptions and factors that could cause actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the quarterly report. At this point, I would like to turn the call over to Mr. Revuelta for his opening remarks. Please begin, sir.

Raul Revuelta: Thank you Maria. Good morning, and thank you for joining us today. And I'm proud to share with you how we have been able to navigate the complex market environment, while [positively] (ph) GAP for sustainable growth via diversification and strategy. Before discussing the quarterly results, let me start today's call with a recap of recent developments. First, what approval of the 2025-2029 Master Development PLAN for the 12-Mexican airports under maximum tariff, which occurred under the new tariff regulation. Some key highlights of the new MDP include

Operator: At this time we will open the question-and-answer session. [Operator Instructions] And our first question comes from Fernanda Recchia of BTG Pactual. Your line is open.

Fernanda Recchia: Hello. Thank you for taking my question. Two questions on our side. The first regarding the initial remarks that you mentioned that the new tariff is expected to be gradually implemented. Could you provide more details on this? When do you expect it to fully implement the tariff? And how is the growth implementation? And second, could you please comment on your traffic expectations for next year? How are you seeing the [indiscernible] issue? Do you think Q3 will be the peak? And how do you see it impacting for next year? That's it from my side. Thank you.

Raul Revuelta: Thank you, Fernanda. This is Raul. In terms of specific times, we see that we will gradually implement the changes. At the end of the day, in terms of the Air Force load, we could change our specific tariff each six months. So our plan would be to change one time in January, one time in July and one time in the next January. As you can see, our fulfillment on tariff this year is around 95% when we had inflation. And the new -- the growth in terminals in real terms of the new tariff, we think that is better to the market to pass-through all the tariffs in a gradual way in all this -- during 2025 mainly. The second part related of what we are expecting in terms of traffic, I would say that we are working really close with the airlines to understand first of all some new deliveries and the coming back of some of the claims that were grounded back for the [product we made] (ph). In down terms, with the information that we have today, we think that the next year is going to be with a growth close to the 5%. Again, we right now are working with all the slots and -- to understand how would be the growth in the coming years. But with the data that we have already reviewed, we think that could be a 5% increase. That was mainly the two questions.

Fernanda Recchia: Thank you. So just to clarify, the 25% will be fully implemented only by January 2026? Is that what you're at?

Saul Villarreal: Hi, Fernanda, this is Saul. Yes, that's the intention, to be fully implemented in 2026. Yes.

Fernanda Recchia: Okay, thank you.

Operator: Thank you. Our next question comes from Alan Macias of Bank of America. Your line is open.

Alan Macias: Hi, good morning and thank you for the call. Just two questions. The first, when do you expect the engine recall problem to be ended? Should this be during third quarter? Is that a good assumption? And the second question is on the new cargo business. Do you expect similar revenue levels as the one observed in third quarter? Thank you.

Raul Revuelta: Thank you, Alan. This is Raul. Regarding the engine recall, I mean, one of -- some of the public information that, for example, Volaris made public, they saw that the complete effect of the grounding -- the grounded planes will be on December of 2026. But for sure, what we are expecting is on this summer on 2025, we will begin to see an increase of first part, the coming back of some of the planes, not the full planes that were grounded, but an important amount of planes that will be again, flying. Second, some new deliveries that Volaris and VivaAerobus and even AeroMexico will add to their fleet. And third, for sure, we will have a good comparison or a more easy comps when we see the summer of 2025 versus the summer of 2024. So in general, in terms of -- I will say that for the summer of 2025, we will begin to see a more important expansion on the number of passengers.

Saul Villarreal: Hi Alan, this is Saul. Regarding your second question, yes, we do expect that same level of revenues indeed, probably will be a little bit better with an EBITDA margin close to 50%, 55%. So there are a lot of opportunities to improve cost of operation and to continue improving the level of revenues. Again, it was a good transaction that provides more value to the company.

Operator: Our next question comes from Juan Ponce from Bradesco BBI. Your line is open.

Juan Ponce: Hi Raul, Saul. Thank you for taking my question. I have a question on international traffic. Do you guys see any impact from the U.S. election? I mean, we have seen the leisure destinations take a hit in recent months. I mean, just to try to understand what is the main driver here? Is it the capacity? Is it demand? So just your thoughts here would be great. Thank you.

Raul Revuelta: Thank you, Juan. I mean, we are seeing mainly leisure destinations like Cabos, Vallarta and Montego Bay in the case of GAP. For both for us -- also for other airports in the region in Caribbean as Cancun and other facilities in the Caribbean, that September show an important decrease of number of seats. For sure, that impact us directly on the growth of passengers. So as you can see, for instance, the third quarter of '23 versus '24, Los Cabos, Montego Bay and Puerto Vallarta, three of them decreased 11%. What mainly we saw is an important decrease in some specific routes on the offer of seats. We think or at least for the moment, we are seeing that demand is still there. The yields are still being super healthy. So we think that in the coming months and for the winter, we will begin to see the coming back of those fees. I will say that for the moment, it's -- I would say, it's almost impossible to understand if this comes from some kind of impact related of the US election. But what is in front of -- what is a fact is that in the last months, we have seen an important increase on seats on leisure destinations mainly. We are not seeing the same trend on traffic related with business or VFR, so visit friends and relative. As you can see, for instance Guadalajara is growing in double digit. What is really important when we talk about international markets because for GAP, for instance the international market of Guadalajara is the highest one. So it is really relevant to see a double-digit growth in that and that specific market.

Operator: Our next question comes from Jay Singh of Citi.

Jay Singh: Hello, do you hear me?

Operator: Please go ahead.

Jay Singh: Thanks for taking my questions. Do you guys hear me?

Raul Revuelta: Yes.

Jay Singh: Yes. So it's Jay dialing on for Stephen Trent. I guess the first one I have is, looking at the customs capacity that's required, do you guys see that there's room for any other acquisitions anytime soon?

Raul Revuelta: I mean, I would say that today, we are I mean, working on consolidation of all this business of cargo facilities and fiscal areas. Let me begin with Guadalajara. We are working on how we consolidate this business. We are working how to -- I would say, increase the margins and work on the cost. But on the other hand, we are also beginning to review other different opportunities related with the same kind of business. The best way to understand this movement on the cargo facility in business is related to how that GAP has like a platform to increase or to generate new business related with logistics. So on this year, we will work really, I would say, really hard to try to bring some additional optimization of the cost on this new business, but also we are working to the next movement through that acquisition, trying to build new terminal -- cargo terminal facilities on some of our airports. I will say that we are reviewing for the moment some opportunity that could come from -- [indiscernible] for instance, related with the automotive market. Also, we are reviewing some kind of opportunities for Tijuana. Even for the case of Puerto Vallarta and Cabos, that is a really specific market related with specific cargo related to hotels. So we are working on that. I will say that we are reviewing all the possible new business. And as has ever been the DNA of GAP, our discipline will be to bring additional value and to bring a creative value for our investors. So we are just on that way. We have now the chance to have a new complete unit with all the experts related to cargo. So rather, we will have and we will bring new opportunities to the table to analyze.

Jay Singh: Yes. I appreciate the thoughts. And I guess my final question is, considering the dip of the Mexican peso against the US dollar, have you seen any changes in US originated tourism or even business travel? Or is that a little bit early to say?

Raul Revuelta: I would say that this is really soon to begin to see some kind of really a change in the trend related for the exchange rate. Because I mean, at the end of the day, we have been only in the three months, we will begin to see some changes on the exchange rate. So I mean, we should wait a little more to see some kind of impact.

Jay Singh: Okay, thanks for that. Have a great day.

Raul Revuelta: Thank you.

Operator: [Operator Instructions] And our next question comes from Isabela Salazar of GBM. Your line is open.

Isabela Salazar: Hello. Thank you for taking my question. My question is regarding the GWTC platform. If I'm not mistaken, GWTC has margins of around 40%. And I wanted to know if now that it's fully incorporated, if they will generate synergies that could significantly impact GAP's margins? And if so, what specific synergies we should expect to drive these changes? Thank you.

Saul Villarreal: Hi, Isabela, this is Saul. Yes, the EBITDA margin in terms of GWTC is around 55%. Last year, 2023 was around 40%. It's part of the process and acquisition that we will have and implemented our cost control that Raul already mentioned. And the idea is to improve not only the side of the cost of operation, but also the revenues. The revenues for this year will be very important, much better than previous year, around 25% more than previous year. So it will be an adjusting year at the end of this last quarter, but we had a very good positive thoughts about the 2026. So it will be – [represent a creative] (ph) transaction for GAP.

Isabela Salazar: I have a quick just clarification. Is that 25% increase, is it for GAP or for GWTC specifically?

Saul Villarreal: It's only for this cargo facility.

Isabela Salazar: Okay. Perfect. Thank you.

Saul Villarreal: You’re welcome.

Operator: And it appears that we have no further questions at this time. I will now turn the program back to our presenters for closing remarks.

Raul Revuelta: Thank you again, everyone, for joining us today our third quarter results conference. On GAP behalf, we wish you a great day. Thank you.

Operator: Thank you. This does conclude GAP's conference call. Thank you for your participation. You may disconnect at any time.