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Good morning, and welcome to GAP's First quarter 2021 conference call. [Operator Instructions] It is now my pleasure to turn the call over to GAP's Investor Relations team. Please go ahead.
Thank you, and welcome to the Grupo Aeroportuario del Pacifico's First Quarter 2021 conference call. Presenting for the company today, we welcome Mr. Raul Revuelta, GAP's Chief Executive Officer; and Mr. Saul Villarreal, the Chief Financial Officer. Please be advised that 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 are made based on several assumptions and factors that could change, causing actual results to materially differ from current expectations. For a complete note on forward-looking statements, please refer to the quarterly report issued Wednesday. Please note that unless stated otherwise, all comparisons in this call will be versus GAP's results for the comparable period of 2020.
At this point, I'd like to turn the call over to Mr. Raul Revuelta for his opening remarks. Please go ahead, Raul.
Thank you. Good morning, everyone, and welcome to GAP's first quarter 2021 conference call. In today's call, I will be briefly reviewing operational financial figures for the first quarter of 2021 prior to taking your questions. Cash results remain impacted by the pandemic. However, there are important changes in the landscape that I will discuss. During the first 3 months of 2021, we did see a continued recovery of traffic with a 37% decline year-over-year or a 38% decline versus 2019. Keep in mind that on March 31, 2020, the Mexican government suspend all nonessential travel for 2 full months. Therefore, the main effect of the pandemic will not be fully reflect until the second quarter of 2021. The recovery trends we saw in the first quarter 21 was driven mainly by stronger domestic traffic. As an example, the airport of Tijuana experienced extraordinary recovery following a negative 9% in the first quarter of 2021 versus the third quarter of 2019. However, in the case of Guadalajara, the recovery was at a slower pace with a 36% decrease versus the first quarter of 2019.
On a consolidated basis, we believe that the recovery of Guadalajara is a key element to bring us back to 2019 figures. On the other hand, international passengers traffic continued to be impacted by the U.S. in post travel restriction that were implemented on the 25th of January. There were also bans of travel to Mexico and Caribbean, imposed by the governments of Canada and United Kingdom in an effort to reduce the spread of COVID. Looking ahead, however, we fully expect a continued recovery of domestic traffic, and we are also optimistic on international recovery as we see decline in COVID cases, together with the [ rational ] vaccination rates. It is important to mention that this summer will be a great indicator on the recovery we helped to achieve, not only in terms of the ratio destination but also of the metropolitan airports such as Guadalajara.
It is important to mention that Volaris and Aeromexico recently announced the addition of 8 and 28 new planes in the near future, respectively. In addition, JetBlue just announced the start of operation in Los Cabos this summer, adding Puerto Vallarta during the first quarter of 2022, with the opening of Los Angeles and JFK New York routes. Also [indiscernible] moved their operation with [indiscernible] Puerto Vallarta route. In the case of Volaris, they also announced the route of Bajio-Las Vegas, Morelia-Sacramento and Morelia-Portland, which is a good sign of the airline market and it's also signal us a faster than expected recovery.
Moving on to financial performance. I would like to highlight that ability to maintain a strong balance sheet in the current situation, which has enabled us to maintain flexible throughout this crisis. Cash and cash activities increased by 34% or MXN 3.7 billion versus the first quarter of 2020, reaching a total of MXN 14.7 billion. During the first quarter of 2021, we generate positive cash flow from operating activities of MXN 1.8 billion. As a reminder, we will restart the repurchase of our own shares on March 1 of this year and as of today, we have repurchased 24 million shares for a total of MXN 531 million.
On the debt front, total debt reach MXN 24.5 billion. Maturity payments during the first quarter of 2021 were $119 million, which were refinanced for an additional 36 months term. In the first week of May, we expect to issue another tranche of debt bonds in the Mexican market for MXN 3 billion, with a ratio of 50% and a mix format of variable and fixed rate depending on market demand. We will be using these proceeds for CapEx and refinancing the July 2021 maturity. It is important to mention that S&P and Moody's both ratified the AAA rating in the local scale due to the solid results and ratios that the company has.
Moving on to P&L. Aeronautical revenue decreased by 32%, driven by overall lower traffic through GAP's network, even though the increasing maximum tariff recently approved was not reached in this quarter. We expect it will be reached by the end of 2021. This was mainly due to the international passenger traffic decrease of 46.9%, mostly Guadalajara, Puerta Vallarta, Los Cabos airports which have passenger charges denominated in U.S. dollars. The company says that the vaccine vaccination rate on the U.S. population will help create international traffic in the coming quarters. While we see more activity from these passengers' profile, we believe that we will be closer to the cap of the maximum tariff.
Commercial revenues decreased by 37% and most of this impact was from the time shares and duty-free operations. However, in an effort to incentivize consumer spending at the airports, GAP will be launching a model form application that passengers can use to order food and have things delivered to the plane gates and improve the overall experience of the convenience -- and the convenience at the airport. Additionally, we share the construction of a new commercial complex at the Guadalajara airport, which will include a new hotel, corporate office and commercial spaces. We are expecting that this complex will be ready at the beginning of 2023, adding new business lines and commercial revenues. Regarding cost reductions, we achieved 9% lower operating costs compared to the first quarter of 2021, driven by an 18% decline in maintenance and 15% decline in utility expenses as a result of green energy generation through solar patents at 11 of our Mexican airports as well as in the [indiscernible] airport. As a result of various airport marketing strategies, and an increased passenger traffic, improving commercial revenues and our cost control policies, EBITDA was MXN 1.8 billion for the quarter, with an EBITDA margin of 65%. Moving on to the CapEx to inquiry, GAP execute capital expenditures for approximately MXN 830 million. This positions us well in order to comply with a challenging master development program that we have in place. We have started the second walkway in the Guadalajara airport. We continue with the construction of the processor building in Tijuana with more than 60% executed as well as the expansion of Los Cabos terminal building. These 2 last 4 years will be ready at the end of 2021. To conclude, I want to mention that our ordinary and extraordinary shareholders' meeting took place early this week, and all the proposals in the agenda were successfully approved with a quorum of 87.2% for the ordinary shareholders' meeting and 90.2% for the extraordinary shareholders' meeting.
Now I have the operator to please open the floor for your questions.
[Operator Instructions] We will take our first question from Alejandro Zamacona with Crédit Suisse.
Thank you. Raul, I have 2 questions actually. The first 1 is on the traffic recovery. Can you remind us what was the traffic recovery period assumption in the last MVP? I guess for the competitors, last 3 years, give or take. But I just want to confirm what was the traffic recovery for you? And from the recent data that we have seen regarding traffic, if you believe that there is some upside to this scenario by means of short-term recovery.
Thank you, Alex. First, in terms of what we originally expect for the recovery. We saw that we will have the same amount of passengers that we used to have in 2019 for the 2024, for the end of this period of 5 years. Today, with all the news, the great news of additional fleets on the Mexican companies and also the new openings, the new announcements of openings that we are seeing in the last months, we are expecting to have a recovery really more in the 2023. It is important to mention that it will depend of the airports. I will say, for instance, that we are seeing that, for instance, Tijuana, going to be the first of our airports that will have a fully recovery of traffic. Even it could happen at the first quarter of the coming of the coming year.
So we're going to see various different of pace of recovery. For sure, we have really -- we are optimistic about the recovery of airports as Los Cabos, leisure airports because at least on the coming months, we are seeing a great opportunity for capture passengers that used to make leisure on long hauls. That in some way, we'll feel more comfortable or safe to fly to, for instance, Cabos, that is really a short flight from South California, for instance. So in general terms, I will say that we are more optimistic about the pace of recovery, and we think there is some room for offset of the original projections of the master plan.
Okay. It was really clear. And my second question, Raul, if I may. It's on the domestic airlines. So I mean Interjet was a relevant airline for GAP in some way. But the airline has stated now that they are intending to restart operations by year-end, although they are starting a formal chapter 11 process. So have you had any discussions with them to restart operations between GAP's airports?
I will say that, first, just for everybody in the peak time of operation of Interjet that used to have around 10% of the total share of passengers on GAP. Really important to mention that all the routes that Interjet used to operate where routes were more than 1 competitor operates also. So Interjet didn't have any exclusive route in GAP's network. That is really important to mention because at the end of the day, the rest of the capacity of the rest of the companies in Mexico has covered, in some way, the space that Interjet left in our network. About this Chapter 11, we -- I mean, we are still in communications with the legal team of Interjet, but I really don't have any additional information about a possible restart of operation of them.
We'll take our next question from Pablo Monsivais with Barclays.
I have 2 quick questions. And kind of a follow-up to what Raul was saying in your remarks. My first question is on -- my first question, sorry, is on the target strategy that you have for this year. Are you already planning to be very close to the maximum tariff or what's the pace of the increase that we might see in the next couple of years -- in this year, for instance? And my second question is kind of a follow-up to Alejandro's questions on the Mexican airlines. We know that Volaris, Aeromexico, they announced a new -- they are increasing its fleet. Have you talked to these guys in terms of the potential opening of new routes or increasing frequencies. How has the conversation has been with Volaris and Aeromexico in order for you to have more traffic in your network?
Thank you, Pablo. The first part related with the maximum tariff, we expect that in this year, quarter-by-quarter and somewhere gradually, we will be closer to the fulfillment, the 100% fulfillment of the tariff. We expect that on the last quarter of the year, as soon as the international traffic begins to have a more clear recovery, we expect to be really close to the -- at least 98% of fulfillment. And for the coming year will be 100%. But so that is related to maximum tariff for the next or the coming years, we expect that we're going to be 100% fulfillment. In terms of Aeromexico and Volaris, for sure, we also are in really important contact with them, talking with the planning department, I'm talking about specifically these new planes. As you know, Volaris has 2 of the most important base of operations in Guadalajara, Tijuana airport. Also for GAP, on this year, for instance, they are more also almost 50% of our participation in terms of passengers. So one of the things that we are beginning to see for the case, for instance, of Volaris. They already have different announcements for beginning operations in November. And I told Morelia to Sacramento, to Seattle and to Portland, or Bajio to Las Vegas, so at the end of the day, what we are seeing is they will normally recovery operations in the route that they used to operate until they get the 100% of the seats that they used to have. And for sure, there will be really great change opportunities to begin operations on Europe. So I will say that in general terms, for sure, we expect that we could capture part of this additional capacity in our airports.
Perfect. And just -- do you have a sense of like those additional passengers will be more leisure driven or BFR driven? Just to get a sense of the potential commercial revenues increase there?
I will say that we have -- one of the things that we are seeing clearly is an important peak in terms of the leisure market. I believe what we are seeing in Cabos from Southern California -- South California and Texas is really very interesting. Also, we have some new routes for -- for Los Cabos airport coming from New York with JetBlue and with American Airlines also. So we are seeing a really interesting increase of passengers on the leisure, but also in the BFR market, for sure, we are expecting an additional increase of patterns driven by the -- some of the fiscal support that the U.S. government will be -- will bring to the economy in some way. One of the things that we are seeing in the past is that as soon as the U.S. economy recovery, we will begin to see more BFR markets coming back and forward to Mexico and the different destinations that they have in the country. So I would say that at least is what we are seeing today with, in some way, more possible lower pace of recovery is the routes that are more related to business as could be the Mexico Guadalajara, for instance, that -- I mean, we are seeing, for sure, recovery, but it's still far away from what would -- used to be the standard size. So in general, I would say that we will see a real important recovery of passengers on leisure market. In the case of Vallarta, we need to expect the opening of the Canadian border that, at the end of the day, talking about seasonality, if we could capture the winter season on November for Puerto Vallarta and Montego Bay airports for Canadian markets will be great. For the case of ratio of BFR, as I say, we expect a real important recovery. Also remember that the BFR market was really resilient in some way during the peak part of the pandemic. So for sure, we will see an important recovery, but it will be faster in terms of percent as what is going to happen on the ratio.
We'll take our next question from Guilherme Mendes with JPMorgan.
I have 2 questions. The first 1 is regarding the potential rebalance in Jamaica. Just wondering if there are any updates regarding the timing and the potential outcome of that negotiation? And the second 1 is related to the discount programs that have been implementing to the commercial tenants and to the airlines. Just wondering until when these programs should last. And what's the average level of discounts that have been implementing in the case of the airlines?
This is Saul. Well, regarding the negotiation of rebalancing with the Jamaican government, we are working. They decide to have a team to analyze our proposal. There are 2 different proposals. 1 for MJ and another for Kingston. And the idea of this is the final outcome will be at the end of this year because we will have to have conversations with this new committee if not already integrated. So it could take around 6 months of conversations. So we will have to wait. The potential of our request is an adjustment in Capex, some review the time line of the concession period and some other adjustments in terms of expenses. We are not adjusting tariffs. We believe that the tariffs are just enough to recover the level of investments. Raul?
And related to the discount policies, I will say first, related with the airlines as we talked on the last conference call, we will continue a policy that incentivize through discounts the opening of new routes and the recovery of frequencies. So it will not be a general applied of general discounts on [ other ] rates of [indiscernible] rates. It's just related to the specific goods that are -- that will begin operations again or that will bring additional frequencies again. The second part related to the commercial revenues, we will continue, at least for this year, with the discounts. As you know, our Polish discount is related -- is a discount on the minimal rent for the -- when we compare the result of traffic of 2019. So the size of the discount is the difference of passengers between [ 2019 ] -- the same month on 2019 versus the same month on 2021. So we are seeing in different airports. And for sure, the variable part of the rent is still in the same level. So 1 of the things that we are seeing is gradually, these discounts will be the [ mission ] until these discounts will almost fully disappear on this year. So 1 of the things that we are seeing in different airports is for the next quarter, some of the specific business lines will be, at least in sales, going to be in the same level that used to be before COVID. And this is going to happen in airports as Tijuana, for example.
We'll move next with Rodolfo Ramos with Bradesco BBI.
Thank you, I have 2 questions. My first one is on your perspectives for traffic in Guadalajara. You mentioned the strong perspectives for traffic in Tijuana on the BFR market, much more dynamic, serving Southern California and also your leisure destinations, which I also agreed that they'll perform much better once the vaccination improves. But what are you seeing in Guadalajara? What are you expecting Guadalajara, considering it's a tougher airport to put it into a bucket as far as leisure or business, et cetera. So what do you see the drivers there? That's my first question.
Perfect. In general terms, [indiscernible] that -- as you say, have really an important mix of leisure, BFR and business. In some way, the BFRs, for instance, the routes to South California, [indiscernible] Sacramento or Oakland, we are seeing a continued recovery on that. And for sure, it will be really related of how the economy of California is performing. In that way, we are really confident that it will recover in some way fast. The second part, I will say that Guadalajara as the second biggest airport city in Mexico, we are seeing an important recovery also of leisure of people around Guadalajara going, for instance, to Cancun or to Cabos. One of the things that we saw on the last month is that at the end of the day, that some Mexican that used to make leisure for [indiscernible] in the U.S. on this year, we made leisure on Mexican beaches. So we are seeing an interesting recovery of -- on the routes to Cancun, to Los Cabos, for instance.
I will say that the part that today are more -- I will say that we are not pretty clear on how fast to be the recovery. Is the routes that are more related with business? We are talking about Guadalajara, Mexico route or the Guadalajara Monterrey route. But on the other hand, we had some positive yields in that because, as you know, Mexico City policy for the reopening of [ first ] office -- of corporate office already happened. So we are really reviewing closely how going to be the performance of the route. After these announcements in the Mexico City that it will be allowed to the come back to the office. So I will say that this is going to be the first part of a more clear trend of what's going to happen with the business with in our net.
And just a follow-up on that. How much is Monterrey and Mexico City out of the Guadalajara traffic?
Do you have that number handy?
Yes. In general terms, as we said before, the pandemic, these 2 routes used to have between 2 of them less than 18%, 17% of the total domestic passengers. But this number has changed dramatically after the COVID. We are seeing more and more seats to leisure destination, to domestic leisure destinations, for instance, and which you don't used to have from the airport. So at the end of the day, I'm seeing that we're going to see a reconfiguration of the market that clearly will be in some way on this year, at least, incentivize, first by the U.S. economy to the BFR and second to the leisure destination, domestic leisure destinations that population around Guadalajara will go to vacations on Mexican beach [indiscernible].
But I mean, that -- the big part to understand how we're going to be in the business market.
And my second question was on the potential impact that you could see from the outsourcing bill. I mean, you might have some of the parts of your labor that qualify as specialized. I mean, I don't know what has been your exercise or the impact that we could see from there on higher labor costs.
Rodolfo, this is Saul. Well, we have done some analysis about this potential effect. Obviously, it is a new rule about the net profit sharing for the employees. The amount that could be affecting our resources is around MXN 60 million, MXN 70 million. We are in the process of analyze this, and the effect is not very relevant. We -- in terms of our about our EBITDA of this year will be around less than 1%. So it's important to have in mind that this could have a higher effect in other companies. But without accruing to the structure, we already have is 1 impact significantly.
I'll take our next question from Stephen Trent with Citigroup.
It's actually Brian Roberts on for Steve. Just a quick one here on growth planning into the recovery. Aside from the airport there in Barbados, are you considering any other acquisitions? And any thoughts on specific regions, perhaps, that look most attractive? Thank you.
Brian. No, we don't have any opportunity right now that we are reviewing. Only, as you say, we are expecting about what happened with Barbados. But for sure, I think that in the coming months or even years, we're going to have some additional clarity about the reason that we will like to continue exploring is related mainly on the Caribbean and Central America, mainly.
And we will move next with Andressa Varotto with UBS.
I just have a few questions on the MDP investment. So how is the construction of the second runway of Guadalajara? When should this be ready? And how does this couple with your expectation of traffic recovery? And also, if there will be an EDP investment channels to commercial spaces? And this could be a potential trigger of a higher commercial revenue per tax ratio in the future. Thank you.
In terms of the runway, the second runway Guadalajara, we just began the work -- the work on that area to develop the second runway, we expect to have ready this infrastructure for 2023. It's really harder construction because it's just outside of the runway of Guadalajara airport. So we have just small windows of operations for the construction, but we're going to be ready for opening that infrastructure in 2023. Regarding the -- regarding commercial revenues, I would say that we will still working in a new business line that will increase our wages. It will be, for instance, the case of the hotels in the -- right now, Guadalajara, but also in the future, we expect to develop a hotel in Tijuana. Also, we are working to increase our cargo facilities business. We are completing -- or in this moment, we are reviewing what's going to be the model of operations. But mainly what we clearly see is a great opportunity in the Guadalajara airport to get some additional revenues that will come from all the additional cargo that is happening right now at the airport, mainly imposed by the e-commerce. So and the last part related with the traffic, for sure, any forecast today is in some way difficult due to the fact that everything is in some way, changing really, really fast. But if we are talking that everything is still in the same way, there's not some kind of additional surprises or lockdowns of these kind of things. What we're expecting is that the traffic 2021 will grow between 27% and 30%. And it means we could be something around the tariff as between 33 million and 35 million passengers. I would say that we have -- the part that we are not completely clear what's going to happen in terms of the operations from Canada to Jamaica and from Canada to Vallarta. If everything goes good, and in the last quarter of the year, we could catch the winter season, we think that these numbers could be also better.
[Operator Instructions] We will move next with Iñaki Irurita with GBM.
Thank you for the call but all my questions have been already answered.
We will now move to the webcast questions. [ Melanie ], please go ahead.
Thank you, Nikki. We had a question for Saul. Can you just comment and clarify the number of shares that you've repurchased to date?
Yes, we have repurchased around 2.4 million shares until this report.
Excellent. So I believe we have a question from the webcast.
Yes. Thank you, [ Melanie ]. This question is from [Indiscernible] from Bradesco. The first one is about the bill already passed the government about outsourcing and insourcing. We already answered that question. And the second question is, what do you think the impact on GAP's operating expenses could be? It's answered already? Could you talk about your outlook on the recovery of passenger traffic in Calexico? Raul, do you want to answer?
Yes. It was related about what we are seeing Guadalajara airport, that we already talked that we saw a robust recovery on the BFRs and leisure, and we are expecting what could happen with the business market on Guadalajara. But in general terms, as we are seeing an important recovery from the beginning of the summer. And for sure, in the last quarter with the winter season, we're going to see much better numbers.
There appear to be no further questions over the phone at this time. I would like to turn the call over to Mr. Revuelta for any closing remarks.
Thank you, everyone, again for joining us today in our first quarter results conference. We want to remind you that we are always open and available to answer any and all of your questions. On behalf of GAP, we wish you a great day. Thank you.
This does conclude today's conference. Thank you for your participation, and you may disconnect at any time.