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Good morning and welcome to GAP's Third Quarter 2022 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 Pacífico's Third Quarter 2022 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 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 would like to turn the call over to Mr. Revuelta for his opening remarks. Please go ahead sir.
Thank you, Maria, and thanks to everyone, who took the time to join us here today. I will start with a brief review of GAP operational performance and financial results for the third quarter of 2022. Prior to taking your questions, passenger traffic across our airports continued to performance positively, reaching 41 million passengers for the first 9 months of the year, an increase of almost 15% compared to 2019. This put us on solid footing to surpass the annual growth objective that we established in our guidance. Tijuana, yet again, was the best performing airport in terms of traffic, growing by 42% during the quarter compared to the 2019. Tijuana's traffic increase was mainly fueled by the Cross Border Xpress, with a passenger traffic penetration of 34%. Tijuana has also gained market share from the Los Angeles area, mainly on the routes to Guadalajara, Mexico City, Morelia and Mexican beaches destinations such as Los Cabos, Cancun, Puerto Vallarta et cetera. Puerto Vallarta and Los Cabos, which are our main beach airports, continues to benefit from higher traffic, mainly driven by the domestic market with our respective 42% and 32% increase during this quarter. Also during this period, we opened the roots from Los Cabos to Madrid, Los Cabos to Toluca and Los Cabos to Santa Lucia as well as the Puerto Vallarta to Toluca and Puerto Vallarta to Santa Lucia. We expect to develop additional routes to these 3 destinations and during the upcoming winter season, we will see the Canadian market actively increase as is typical for the season. There has been a less positive performance at the Guadalajara Airport, mainly reflecting the slow recovery of the business travel market. However, during this quarter, we saw a positive trend comparing to 2019. We continue our efforts to make Guadalajara a hub. As such geographically, we initiated the routes from Guadalajara to Bogotá, Colombia, operated by deliverables. With this addition, Guadalajara now has 3 international routes outside of the U.S., these being Madrid, Panama Bogotá. Moving onto Montego Bay, this surplus continued low but still recovering. In third quarter, reaching the first positive quarter following the impact from the pandemic with a 3.2% increase compared to 2019. In total, during the quarter, 15 new routes and 1 international route were added. Looking ahead for the quarter, in addition to the new Guadalajara-Bogota route, we expect to open 2 other international routes from Puerto Vallarta to Edmonton and to Vancouver, operated by 3 airlines. As a result of the passengers traffic performance, a higher passenger fee, aeronautical revenue increased by almost MXN 2 billion or about 74% during the quarter compared to 2019. For the 9 months period, aeronautical revenues increased by almost MXN 5 billion or about 62% compared to 2019. Non-aeronautical revenue rose by 14% this quarter compared to 2019. For the 9 months period, the revenues increased by 36%, most of it from food and beverage, retail operations as well as Duty Free. I just want to mention that the best-performing non-aeronautical revenues were food and beverage and retail operations particularly in Guadalajara, Los Cabos and Tijuana airports, while Duty Free was the highest-performing segment in the Los Cabos and Montego Bay airport. This revenue performance was partially offset by a 46% increase in the cost of service during the quarter by 2019 and accumulative increase of 34%. Personnel expenses increased by 74% during the quarter, mainly due to the hiring of additional staff required for the new areas as well as the change in labor law, now GAP directly hires personnel for the VIP lounges and the convenience stores, when formally these were subcontracted. Safety security and insurance increased by 38% for the quarter, mainly due to more security staff related to the opening of the new terminal processor building and other new operational areas as well as due to the salary increases. With new openings have also impacted energy and water consumptions, thus leading to 31% increase higher utility cost for the quarter. Even on our 14 airports have solar panels as we are currently generating 13% of total energy consumption. The price per kilowatt was recent silicate compared to 2019. Looking ahead, we do expect higher cost given the terminal expansion and inflationary effect. As a result, EBITA reached MXN 4 billion for the quarter with an EBITDA margin of around 71%. For the 9-month period, EBITDA reached almost MXN 12 billion, with an EBITDA margin of around 72%. Moving on to the balance sheet, cash and cash equivalents increased by 77% compared to September 2019, reaching a total of MXN 16 billion. On September 26, we issued a MXN 2.8 billion in sustainability-linked bond to refinance the bond certificates under the ticker symbol GAP '17 during November of this year and to fund investments committed under the Master Development Program for 2022. This issuance is GAP first sustainability-linked bond certificate further evidence of our commitment to sustainability and specially our goal for reducing gas emissions. We look forward to updating you on these initiatives and to continue integrating sustainability into our operational infrastructure. With this issuance, we reached almost MXN 34 billion in debt and we continue to be a healthy leverage levels, which is a net debt to EBITDA ratio for the trailing 12 months of 1.2x comparing with all our debt covenants. CapEx continue in accordance with the committed Master Development Program, the deployment has been and will be our biggest challenge this year because of the size of investment and inflation levels. We began the construction of the second terminal in Puerto Vallarta, which is expected to be finalized at the end of 2024. Additionally, the second Guadalajara runway is still in progress as well as the mixed use building and other commercial areas, which at this point has reached a 70% probable rate with has an expected conclusion date in 2023. In Tijuana, we are currently expanding and readily dictating the plans, which would allow us to serve more flights. The temporary is undergoing in the Los Cabos center. In Montego Bay, we completed the commercial air expansion, adding new food and beverage areas and expanding duty free. Before I conclude, I want to remind you that we will hold our infrastructure site visit from November 8 to November 10. We will tour the Guadalajara, Los Cabos and Tijuana airports to showcase the constructions that are currently in progress as well as the future growth expectations. We hope that you can join us. Please contact our Investor Relations team for more information. And with that, I conclude my comments, and I ask the operator to please open the call for your questions.
[Operator Instructions] We'll take our first question from Rodolfo Ramos with Bradesco BBI.
A couple of questions. My first one is on your expectations for Tijuana, the long-term drivers continue to be there, I just wanted to see if you foresee growth moderating, perhaps in the short to medium term, especially as airlines continue to try to pass through some of the cost pressures that they're seeing. And the second part of this question, what are the next milestones for your international handling passenger facility in Tijuana.
Thank you, Rodolfo. This is Raul. I will say like the main drivers of Tijuana is still there. I mean, the first one, for sure, the Mexico American market has been really fully observed from CVX. The second part is the Mexican going for somewhat business on nature to South California area. In that part, we are beginning a after the pandemic we saw in some way, a decrease of that market because, as you remember, the cross-border were closed for Mexican or in other words, it was only open up for citizens or during the pandemic. So we are beginning to see a really interesting recovery in markets as in Mexico to Tijuana or Guadalajara to Tijuana. And the third part, related with the market but we're seeing some way positive that Tijuana area will have some additional - term in the near shoring continues to grow on that area. For the second question, in the case of the facilities of Tijuana, is the next milestone really importantly is to be fully operating the international area of the terminal building.
Today, we are working in what we call the Phase II that was related of an expansion of the international area arriving international area that we do really to operate in May of the coming year. And from that moment, we expect to bring some international routes to the airport. As we have mentioned in the past, we are seeing that the first international operations in Cabos in Tijuana will be the coming back of the route of Shanghai to Tijuana, we have an airline. And also, we are seeing the markets of Central America that will be for the next summer operating on that new facility.
And just a follow-up, if I may. On the category rating, so you would expect if Mexico does recover category 1, as it is expected now with the new AFAC leadership and the updated budget to happen in the first quarter of next year. I don't know if you agree with that. But is it safe to assume that once we have Category 1, you will start serving other U.S. domestic destinations. I don't know if commercially, that's complicated. Or is this a market that you're, perhaps are not Phoenix, people that want to go to Southern California, from Texas or other states in the U.S.
For sure. I mean, Tijuana will be a clear opportunity as soon as we have, we recover the category will be for instance, the Tijuana-Auckland. As you remember, when you see the Mexican-Americans or the [ any types ] of Mexicans in South California and California in general terms, we have really successfully covered the South California area. But the second part or the second area with most Mexican Heritage is the one of the North area of California, mainly the area of Auckland and even Fresno and that area. So one of the points that we for sure feel like a great opportunity to have the air flight from Tijuana to Auckland and rating to Tijuana to have using all these 39 estimate domestic destination to, in some way, fit all the different domestic markets. So we really see that in the long term or the medium term, we will see Tijuana as in more like a hub for some different opportunities in the market that, for sure, is also related to the biggest U.S. market hubs Dallas or Phoenix. But also at operations could be Auckland that will fit the Mexican markets from Tijuana and the rest of the country.
We will take our next question from Alejandro Zamacona with Crédit Suisse.
My first question is on the guidance for 2022. So looking at the results year-to-date, it seems that the expectations in the guidelines will be somewhat conservative. So we have any thoughts for the fourth quarter or any updated estimates for those, for that initial guidance?
Alex, this is Raul. Thank you for your question. You are correct. We are looking that we will be in the highest of our numbers, provide according to the guidance submitted. But we do not expect to update it. It will be in the range that we are going to provide.
Okay. And then my second question, if I may, on the cost of service, do you have any expectations going forward? I mean, I'm probably talking about 2023, but any expectations for well be inflationary environment? Or to what extent we can see the cost of service on a unitary basis increasing considering all these expansions that we are planning.
Okay. Alex well, everybody is concerned about the inflation effect in all in our cost. We have to consider that we have another kind of issues in addition to the inflation effect. We do expect a pressure to our margins for 2023. Not only because the inflation, also because we will have full operation of the new terminal processor building in Tijuana. For instance, we will have another expansion open and operating in Los Cabos. We will continue opening in different additional expansions in Guadalajara and another airport, for instance, in the case of Montero vein that we did a full expansion of the food and beverage area, we will have an additional area to maintain the cost related to all the suspension and besides the head count, we will have a significant increase. So we have another effect related to the cost. But what we can tell is that the EBITDA margins will continue in the rate historically from that from 69%, 70%, 71%. So what we can expect is to maintain the same the margins.
Our next question from Pablo Monsivais with Barclays.
I have a quick one on Jamaica. Can you provide some outlook on the -- what is your expectation of traffic for 2023, considering that perhaps travelers from Europe is going to be on the soft side? And also if you can provide some update on the price.
In the case of Jamaica, personally, with Montego Bay just in tester begin to see a really positive trend. So developers will see that the U.S. and the Canadian market will continue their expansion or their recovery for the coming year. For sure, we are seeing in some way with some cushion mainly the market of the Europe market that could be the British market from Montego Bay that could be maybe not recovering as we originally expect. But in general terms, I will say that Canadian market will have a great recovery or we are expecting that at least for the first quarter of the year, we want to have a really positive trend on that specific market. So in year terms, we will see that the next year, we're going to have a full recovery in terms of the absolute number of passengers. And for sure, I expect that we want to be pretty close to a double-digit growth on that on end digit. For the case of Kingston, the main market of Kingston is Aspera, mainly from routes in Miami and New York, we are expecting that the -- all the full offer of SIP that we used to have prior to the panic period. We expect that in the coming year will be completely recovering in terms of that those specific markets.
For sure, we want to have some kind of pullback from British markets but also we are seeing some kind of a slow performance for the coming year. But internally, in general terms, we see that Kingston will be really close to recovery the passengers clearly to 2019 at the end of 2023. That will be my general view. And in term on the tariff, we continue with our review with the government of Jamaica. They have the schedule for finished the renegotiation of tariff, and we expect that for March of the coming years, we're going to have news about the new tariffs on those airports.
We'll take our next question from Filipe Nielsen with Citi.
So I have 2 questions on my side. The first one is a follow-up on the Category 1 upgrade on the Mexican market. So I just wanted to have your thoughts regarding how do you expect this time line for this upgrade to happen? And the second question would be if you foresee any opportunities for expanding through acquisitions and new auctions and not only expanding your current airports, those agreements to questions.
Thank you, Filipe. For the first question, in terms of the category 1, I mean, the Mexican government just have a change in the leadership of the Civil Aviation Authority, it just happened last week. And one of the main goals is trying to recover as fast as possible the category, at least what the Mexican government is saying that we expect to recover in the first quarter of the coming year. We see that just taking account that the new budget includes the new further government budget includes increases in expenses for the Federal Aviation authority and also with this change of the leadership, we see that, that bank could be -- could happen at least in our view, the latest time for the recovery of the category would be the summer of '23 for the plans of the Mexico woven happens. But at least in our personal view, the latter stand will be on the summer of '23. But if everything, all the plans of the open happens in the time that they are expected will happen in the first quarter of the coming year. I would ask -- for the second question, I will pass to Saul.
Thanks, Raul. Thank you, Filipe. Yes, we are analyzing some opportunities for acquisitions. As we have mentioned before that we were in the process of the pre-qualification for the Barbados airport. However, the government suspends the process for now, even now if they are going to continue to dice in the following months or years. So we are open to see any kind of opportunities. In a couple of weeks, we will participate in the global airport development where they are -- it is a volume where there are some opportunities to invest in expanding in all over the world for airports. So after this Congress, we won't see if there is any other opportunity for now. We are only waiting or for that Congress.
We'll take our next question from Gabriel Himelfarb with Scotiabank.
Just a quick question. Can you give us a bit of color about maximum tariffs? Are you going to be able to reach our maximum tariff this year? And do you think that next year, maybe this inflation to increase tariffs for 2022.
It is complicated in terms of the maximum tariff, we have reached a level of 97% of the maximum tariff. So far, we are expecting trying to reach the 100% at the end of the year in the fourth quarter, but it is complicated as you know, we increased in key signs the specific tariffs during the year in the way that the equation is have we have a gap to the current tariff of the specific tariffs versus the maximum tariff updated. So it depends on the level of inflation for this year. And obviously, for next year, we will try to adjust the specific targets with the objective to reach the 100% of the maximum tariff. So it's a fact that we have inflation to the tariff that we are expecting that because it's part of our -- our CapEx, our MVP, the investments committed should be updated inflation also the effects that we are suffering in terms of OpEx, we affect also the profitability of the company. So we have to go through the inflation to the tariffs absolutely.
Okay. Do you expect that for next year about, for example, on the first half or second half that patients could materialize in tariff.
Yes. What we do is the adjusted tariffs at the beginning of the year. And then we analyzed, we have an expectation of inflation inspection of exchange rate for international tariffs. So what we do is update the tariffs at the beginning of the year, then we look at the trend of the market in terms of this -- of these effects. And once we have more visibility, we are able to make another adjustment according to the law, we have only echo the tariff. So we will be at the beginning of the year, and then we will look in the second half, probably August, September, October, it depends on the trend of the inflation and exchange rate.
[Operator Instructions] We will move next with Alan Macias with Bank of America.
Just a follow-up question on the Canada traffic. Can you remind us your exposure to this traffic.
This is Raul. I mean it for the case of Canadian traffic, for first Vallarta is really close to the 20%, the case of Montego Bay is really close to 18% and for the case of Cabos is around 12%, mainly our position. But in those markets as those specific beach market, we have not - on these - all these 2022, we just have received on the last month the first planes coming back to the market. So what we are expecting from 2023 is that we're going to again have all the effect of the feedback we used to have in those markets and we will have a great increase. Talking about the comparison of 2022, where or the first half of 2022, where we did have seats under Canadian markets.
And we will take our next question from Guilherme Mendes with JPMorgan.
A quick follow-up question in terms of traffic. You mentioned about Jamaica for next year, but do you have initial consolidated view of foot traffic starting '23 year-over-year basis?
Guilherme, this is Saul. Well, what we're expecting for Jamaica in terms of traffic at the end of this year, 2022, that traffic is -- will be recovering almost at the level of 2019, we have a lot to recover in the aggregate for 2019 level. For 2022, what we do expect is for Montero Bay to reach the level of in the overall, we will have -- we will be above of the level of 2019. In the growth for 2 is it's complicated to see how will be the trend in the overall for GAP for traffic. We cannot for now announce how will be the growth. But we can tell you that we are not expecting a double digit. It will be counted as a longer explain the effects on the -- of the fuel with the effects of the global economy could affect in general terms. So what we are foreseeing right now is single digit is probably -- but it will depend on the last quarter and the first quarter of 2022 will be very important. So for now, is the visibility that we have.
Will now take the webcast questions. I will turn the call over to management.
Thank you, Nicky. We have some questions from Pablo Coloma from MetLife. Are you planning to issue more debt since you didn't issue the full amount planned last month?
Thank you, Pablo, for your questions. We are not going to issue during this year. Probably in the first quarter next year, we will plan another bond issue. As you know, we have been leveraging the full CapEx of the strategy and maintain the level of leverage that we have. So we will look for a new issuance mix in the first quarter of 2023.
Well, the second question from Pablo is if we are going to have additional dividend payments or share buyback during 2022.
Yes, Pablo. We have another tranche of the dividend payment approved by the shareholders' meeting. We are planning to make the second chance of the dividend in this quarter. We are deciding in November or December. As soon as we decide, we will make the payment of MXN 7.20 per share, the 2% of around 7 -- sorry, MXN 2.6 billion as a full payment. So we have to fulfill with the instruction from the shareholders' meeting. And regarding the share buyback program, we will conclude the program instructed by the shareholders' meeting. So we are not going to continue for now with this program.
And also on the expected net debt-to-EBITDA ratio for the end…
Well, so far, according to the debt that we can at the end of September, we have 1.2x of debt EBITDA ratio. But we are expecting once we make that we say main ones, we made the payment of the bond in GAAP '17, which will mature in the following weeks. The net debt to EBITDA will be in the range of 1.4, 1.5x... Thank you.
So that is all the questions we have.
And we show no further questions over the phone. I will turn the call over to Mr. Revuelta for any closing remarks.
Thank you, everyone, again, for joining us today in our third quarter results conference. On the health of GAAP team, we wish you a great day. Thank you.
This does conclude today's program. Thank you for your participation. You may now disconnect.