Grupo Aeroportuario del Pacifico SAB de CV

BMV:GAPB

Q1-2025 Earnings Call

[Operator]

Good morning, and welcome to GAP's conference call. [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 the Grupo Aeroportuario del Pacifico's First Quarter 2025 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 issued previously.

At this point, I'd like to turn the call over to Mr. Revuelta for his opening remarks. Please begin, sir.

[Raul Musalem, executive]

Thank you, Maria. Good morning, everyone, and thank you for joining our first quarter 2025 results call.

Let me start with highlighting our financial performance. Despite a challenging macroeconomic and travel demand environment, we delivered a strong first quarter with solid growth across all key financial and operational indicators. Total revenue grew by 26% year-over-year, reaching MXN 8.4 billion driven by a 20.9% increase in aeronautical revenues and 41.3% growth in non-aeronautical revenues. This was due to several positive factors that includes higher passenger traffic; the benefit of the new maximum tariff implemented on March 1 due to the last MDP revision; the peso depreciation of around 20% and incremental revenues from new commercial spaces, which include the mixed-use building that includes the hotel; and the consolidation of the cargo facilities, mainly in the Guadalajara Airport.

On the profitability front, EBITDA increased by 21%, reaching MXN 5.6 billion with an EBITDA margin of 67.1%. Margin slightly contracted compared to the first quarter '24, mainly due to recognition in the P&L of the increase in the concession fee from 5% to 9% in our Mexican airports. Although these changes was enacted in January '24, it is important to recall that under the new tariff regulation, any payment to the government exceeding those included in the last tariff review will be added to the reference value for the next maximum tariff review. As such, the additional 4% of aeronautical revenue paid to the government during fiscal year 2024 was recognized as an intangible asset under the IAS 38, with amortization beginning in January 2025 and continuing through the end of the concession period. The related payments were included in the reference value for the determination of the maximum tariff of 2025-2029. This quarter marks the first time the full 9% concession fee has been recognized in the P&L.

It's also important to highlight that the new commercial business improves our results but causes a slight dilution on the EBITDA margins. The reason is that while these business lines significantly contribute to the top line and EBITDA in nominal terms, the [ ATCO ] margin levels are lower than those of the core airport operations. For example, GWTC and the new hotel operated with an EBITDA margin of around 50%, which although healthy, is below our historical EBITDA margin profile. As we continue diversifying our revenue streams, we remain focused on balancing growth with profitability across all segments.

From a financial standpoint, the company remains strong. As of March 31, we have MXN 16.2 billion in cash, following a successfully MXN 6 billion bond issuance. We also extended and refinanced key credit lines in Mexico and Jamaica, providing financial flexibility to support upcoming investments. Following these figures, we maintain healthy leverage levels, reaching a net debt-to-EBITDA ratio of 1.7x for the trailing 12 months, thus complying with all our debt covenants.

Moving on to the CapEx. During the quarter, GAP executed approximately MXN 1.7 billion in capital expenditures. Just as a reminder, for the full year, the plan is to deploy around MXN 13 billion. This includes MXN 8.8 billion in committed investment across our Mexican airports under the master development program. And in addition to that figure, we have continued the construction of the new Puerto Vallarta terminal, which alone represents about MXN 1.7 billion, to MXN 1.35 billion of investment in our Jamaican airports and about MXN 1 billion dedicated to commercial development. These investments are central to our strategy of enhancing infrastructure, expanding our commercial footprint and strengthening the overall passenger experience, all of which are key pillars for supporting our long-term growth.

Let's now turn to the macroeconomic environment. We believe that for GAP, the risk of a U.S. recession, migration directives, and the possible tariff impact remain key concerns. We are also closely monitoring the potential effects of passenger traffic, particularly in the discretionary and leisure segments, and we'll keep the market posted going forward.

It is important to note that the Holy Week fell in April this year compared to March last year. So these months do not compare exactly with the last year. We will need a bit more time to fully assess the underlying trend for the leisure destination figures. That said, the data appears consistent with a broader economic slowdown in the United States, which quickly may manifest throughout reduced leisure travel and tourist spending. This is nothing that we have not seen before, and we are actively monitoring these changes so that we may adjust our assumptions accordingly.

Very interestingly, we have looked at Canadian travelers and their travel tendencies. Many Canadians are seeking new places to travel instead of the U.S., which could represent an opportunity to attract additional flights from Canada to our airports. I mentioned this because we believe that these disruptions represent a strategic opportunity for Mexico. As Canadian travelers distance themselves from the U.S. destinations such as Florida and California, for example, they might likely redirect their vacation plans toward Mexican beaches and the Caribbean. Thereby, the airlines will be inclined to rebalance their network. Most likely, GAP's leisure airports of Puerto Vallarta, Los Cabos and Montego Bay could be well positioned to benefit from this trend.

Expanding connectivity is an opportunity that we are focused on. This year, GAP plans to announce 15 new domestic routes and 19 international routes, further strengthening our network, and these are a key critical advantage in today's landscape.

Before I conclude, I'd like to highlight that our ordinary shareholders' meeting took place last week, during which a dividend payment of MXN 16.84 per outstanding share was approved. This dividend will be distributed over the course of the year, reflecting our continued commitment to delivering value to our shareholders.

Thank you, and we are now happy to open it for questions.

[Operator]

[Operator Instructions] Our first question comes from Stephen Trent from Citi.

[Stephen Trent, analyst]

I appreciate your comments about potential Canadian travel flow getting rerouted to potentially the Mexican beaches. Have you noticed anything from other regions or have maybe any observations that carriers in other regions may also be doing the same thing, rerouting to Mexico versus Disney World or something like that?

[Raul Musalem, executive]

Thank you, Stephen. This is Raul. I mean the first part that we are noting, in the case of the Canadians, is first, we see an important decrease of seats from Canadian markets to U.S. markets. And we are beginning to see some additional slots that are asking from mainly Canadian markets for the next winter and in some specific case, of Guadalajara, for instance, for the summer. So we are just seeing for the moment a change in the trend in some way for Canadian market.

For the U.S. market, I think that it's still being really early to think if all the economic environment will, in some way, change the rest of the route from the U.S. to Mexico or to Jamaica. But what we are seeing right now is just some kind of a slight change on trend of Canadian markets.

[Stephen Trent, analyst]

Great. And just one quick follow-up, if I may. When we think about the limitations on air traffic movements in Benito Juarez Airport and the government's push to move some traffic to Felipe Ángeles Airport, are there any expectations that we could see some adjustments in one or both assets in a positive manner that could affect the level of fee that GAP receives from either of those installations?

[Raul Musalem, executive]

I mean some kind of news and some kind of discussions, I mean, a public discussion about the possible increase of slots in Mexico City and, in some way, going back to the position that the airport has, I mean, 3 years ago in the number of slots per -- or operations per hour. For the moment, we have not seen any kind of, I mean, official, I would say, announcement about that possible change. What we are seeing is some specific companies such as Viva Aerobus, for instance, are acting, I would say, more aggressively, going to Santa Lucia as other options for the city.

But I mean, at the end of the day, as in airports, we always need to think that we operate as a net. So all kind of efficiency, all the efficiencies in any airport, is important, I would say, for the whole net and the connectivity for all the airports. So I mean, we are just really closely watching if there are some kind of changes on the policies in terms of slots on Mexico City Airport. But we are, I would say, seeing really closely also the increase of routes from Santa Lucia Airport, mainly from Viva Aerobus to other airports in Mexico.

[Operator]

And our next question comes from Guilherme Mendes from JPMorgan.

[Guilherme Mendes, analyst]

Two points. The first one on the guidance is, given all the escalations on the tariff discussions, risks of a U.S. recession, as you point out, Raul, how comfortable are you guys with the full year guidance? We saw Volaris reducing its guidance for the year in the beginning of the week. So how this might impact GAP's traffic going forward? And the second one is on the Turks and Caicos potential new bid. I recall on the last conference call that you mentioned that something could come up in the near term, just wondering if there's any news on that front.

[Raul Musalem, executive]

Thank you, Guilherme. The first part, I mean, in terms of our traffic guidance, we still feel comfortable about the number that we present. At the end of the day, always we prepare our guidance and all the numbers, the figures that are considered on our guidance, are factual routes that are already solicited for the different airlines for all the [ geos ]. So for the moment, at least, we are not seeing an important, I would say, decrease in terms of seats. The load factor is still being really strong.

And when we talk about the domestic market, the load factor still is really high, an historical high, because the lack of seats for the problem on the engines of the Airbuses. So in my point of view, still there will be, on the market, some kind of demand on the domestic market that has not been completely, I would say, attained for the lack of seats. So at least for the moment, we are not seeing a complete change on the trend of recovery that our airport has.

But at the end of the day, I would say that there's a lot of parts moving right now. I mean all the possible tariffs are changing day by day. I think that it's, I would say, really tough to try to understand what's going to be the final result in terms of the macroeconomics of these changes. But at least for the moment, we are not seeing any kind of change on our trends, and we continue to be comfortable about our guidance. And the official letter from the government of Turks and Caicos, they said that during May, they will make the final determination about this bidding process. So we are just waiting for the information.

[Operator]

And our next question comes from Fernanda Recchia from BTG.

[Fernanda Recchia, analyst]

Two questions here from our side as well. So the first, on the commercial revenues, looking at Q1 figures, the year-over-year growth was very strong, plus 40%. Of course, there is the GWTC impact in Q1. But just wondering what level of commercial growth for 2026 can we expect considering that for 2025, we already have your guidance?

And second, on capital allocation, you already provided an update on Turks and Caicos, but I'm wondering if you're also looking for other process such as CCR or other opportunity in cargo division as well such as GWTC. That's it.

[Raul Musalem, executive]

Thank you, Fernanda. This is Raul. As you say, this first quarter was pretty strong. I mean, more than 40% of increase in non-aeronautical revenues. For sure, a big part was also related with the acquisition of GWTC. But even with that, I will say that the increase on non-aeronautical revenues was above the 15% when we are not considering GWTC. That is really a robust result, just putting in the context of an increase of 4% of the passenger. So I mean, we are really happy. And for sure, we have the effect of some new commercial businesses that opened during the last year. For instance, the hotel, as you remember, began operations on April of 2024. So this first quarter, we've had, let me put it this way, an easier comp. But in general terms, we still feel comfortable with our non-aeronautical revenues guidance.

And talking about 2026, I would say that all the different terminal increases on capacity from our terminal buildings that we built on doing the master plan of 2020-2025 will be fully operating in 12 years. So I would say that 2023 is going to be the first year that all the different businesses will be fully operated. So we are expecting, I would say, something that will be, for sure, close to the double digit, but it's going to be more, I would say, normalized and, for sure, will depend on what could happen with the traffic on the coming years. But I mean, I will conclude that for the case of the non-aeronautical revenues, we still feel really positive because, I mean, all the different changes and the layouts, all the hard work at our commercial area to develop new experience for our passengers are doing pretty good. So we feel comfortable that our business model will work on coming years and we're going to be really resilient even with a possible downturn on the economy.

In terms of the capital allocation, Saul?

[Saúl García, executive]

Yes. Fernanda, this is Saul. Well, we will continue looking for opportunities. As Raul said, we are waiting for the final outcome of Turks and Caicos airport process. And related to CCR, as you were asking, we are analyzing the opportunity. We haven't decided yet to participate or not. This, as you may know, is in 4 different countries, 20 airports in the pool. So the time to dedicate to analyze this will be very important in order to decide to participate or not. So it's something that we are aware of that, but we haven't decided yet to participate.

And just, I mean, some additional idea on this. Remember, all our participants on the call, one of the key disciplines of GAP is the discipline for just accretive acquisitions. So we will continue in that same line. Always, we will analyze the opportunities that make sense for our company, but always look in the correct view of just accretive opportunities for our shareholders.

And just for the case of the cargo acquisitions, I mean, GWTC has really, I would say, great acquisitions with great results. And today, we are working really, really hard trying to get the best possible business plan for the long term in some other airports from GAP, taking like, I would say, platform of cargo growth to GWTC. So today, we are analyzing inside that company, which will be the next move of operations, cargo operation in other airports in GAP.

[Operator]

And our next question comes from Jens Spiess from Morgan Stanley.

[Jens Spiess, analyst]

I have a question regarding basically also like the capacity you're seeing, more specifically the traffic for this year and your guidance. So we saw, relative to the previous guidance you gave, what has changed is that local low-cost carriers have obviously retrenched a bit of capacity. Your numbers, like the capacity numbers, still look good, I think. But any conversations you're having with foreign airlines that might also reduce capacity down the road? Or what are you seeing in terms of like the mix going forward? I know you already said that you feel comfortable with the traffic guidance. But just any color on that would be much appreciated.

[Raul Musalem, executive]

I will say that in general terms, all the different discussion with airlines are, in some way, the same line. I mean the domestic airlines are struggling with the lack of capacity for the engine problems. So I mean, it is what it is and it's a problem that, in some way, still clinging in the industry. For the international companies, I will say the only market that we are seeing some kind of decrease in capacity and some change on planning and networks is in the case of Montego Bay. Specifically, American Airlines are changing some of the routes from Charlotte and Miami. I mean any change on the routes of Miami for American is, I would say, that is difficult for any airport in the Caribbean because, as you know, Miami is one of the biggest hubs that -- the hub and spoke of strategy for all the Caribbean. So any change of American Airlines in that market is difficult, and we are seeing an important decrease of passengers on the first quarter of the year for Montego Bay, that minus 8%.

But I would say that it is the only, I would say, decrease that today are, in some way, showing us, the airlines, the one that is happening in Montego. In the other hand, we have, I would say, interesting possible or potential routes and negotiation with different Canadian airlines. So I mean, that will be the main parts of our discussions today. Some, I would say, decrease on capacity on Montego that will still remain until the winter and a potential increase on capacities for different Canadian company mainly in Cabos, Puerto Vallarta and Guadalajara Airport. But I would say that are the most important, I would say, discussions with the airlines right now.

[Jens Spiess, analyst]

Okay. Perfect. And just one follow-up. Regarding your tariff implementation in Mexico, is the schedule that you gave last time, is it still valid? Or any change there on the expected implementation?

[Raul Musalem, executive]

No, still in the same way. I mean, as always, we try to look into the market to understand perfectly the moment for a change on tariff. As you know, we just changed on the 1st of March the tariff, and we already get something close to 90% of fulfillment of the maximum tariff. So I mean, we are still on the same page of make another change to the end of the year. But I mean, it will be something that we need to perfectly analyze at the moment.

[Operator]

Our next question comes from Pablo Monsivais from Barclays.

[Pablo Monsivais, analyst]

Just a little bit of a follow-up to Jens' question about the tariff. You just mentioned that you are 90% completion. What are your plans to increase tariffs throughout the year? I remember that you were expecting to increase a little bit during the summer and also early 2026. But can you please shed some light for modeling purposes on what should we expect for tariffs to evolve this year and next year?

[Raul Musalem, executive]

Pablo, I would say that for this year, we don't expect to have, I would say, additional changes on the tariff. We are expecting to begin the next change of tariff happening mainly -- we expect to happen in the first days of January of coming year. But as always, we need to perfectly understand the market at that moment. As you know, for instance, the exchange rate and the inflation, it plays a really important role on the fulfillment of the tariffs.

So I will say that we will be ready to make public what would be the change on tariff at the beginning of coming year as soon as we have the full information about what happened with the inflation, what is the trend of the dollar because all the passengers fee, international passengers fee, in Mexico are in dollars. So I mean, at that moment, we would have been ready to have the answer what would be the change on tariff. But in general terms, our plan continues to be to have another change on tariff until the first quarter of the coming year.

[Pablo Monsivais, analyst]

And just one follow-up, if I may. This tariff increase also is a reflection on the inflation and the discounts that you are not offering anymore. Is that correct?

[Raul Musalem, executive]

Yes. I mean in general terms, I mean, let me put it really in an easy way for everybody. We increased all our passenger fees 15% on March 1, when we compare with the one that we were applying on December of last year. That was the main number.

[Operator]

Our next question comes from Pablo Ricalde from Itaú.

[Pablo Ricalde Martinez, analyst]

I have two questions on traffic. The first one is on Montego Bay. When do you expect a turnaround in traffic in Montego Bay?

And the second one is more long term related to the World Cup in 2026. Have you quantified how much it can impact your traffic numbers in 2026?

[Raul Musalem, executive]

Okay. Thank you, Pablo. For the case of the World Cup, in the case of Guadalajara, we're going to have 5 games here. There's different forecasting that the FIFA Organization Committee has made, I would say, public. But today, it's difficult to understand how big could be this impact. I mean the numbers of possible attraction of tourists could be going from the 300,000 to around 600,000. I mean it depends on the repetition. I mean, one of the things that the FIFA committee told us is that as soon as we have the things that will be based on Guadalajara, it would be easy to understand which is going to be, I mean, the possible attractions for the airport.

We will depend -- or one of the things that, for instance, we are expecting is a really important use of the Tijuana airport crossing through CBX from markets, soccer markets, of South California coming to Guadalajara, for instance. But at the end of the day, one of the things that will give us a more, I would say, correct understanding of which could be the potential attraction of additional passengers would be at the moment that we know which teams are going to play the games in Guadalajara.

[Saúl García, executive]

Pablo, this is Saul. Related to traffic, passenger traffic in Montego Bay, we don't foresee right now when it will come back at the same level we had. We were discussing with different airlines, basically American Airlines, JetBlue and others. In order to attract more passengers from the tourists in Jamaica, they are promoting business travelers to Jamaica from U.S., U.K. and Canada. So we expect this to make and drive more passenger traffic to Montego Bay. It is complicated to see right now when it will come back because the Caribbean, in general, the passenger traffic is moving to another destination.

[Raul Musalem, executive]

Yes. It's a general trend, I would say. All the airports of the different destinations in the Caribbean are having an important decrease on passengers, mainly from the U.S. It's a trend happening right now in the Caribbean. But for sure, I will say, we still are working really close to airlines. And the government and the tourist authorities on Jamaica are trying to bring back some of the capacity to Jamaica.

But it is important also to remark that we also are working on a cost reduction program, cost reduction strategy, for MBJ to be, as always -- I mean, it's one of the characteristic of GAP, be prepared to be resilient for any kind of deeper decrease on passengers. So we are also working on the OpEx and an important plan for possible reductions on that and be prepared for even a possible deeper decrease on passengers.

[Operator]

And our next question comes from Alberto Valerio from UBS.

[Alberto Valerio, analyst]

One question on my side about CapEx, it called my attention that it's the same level of last year. I was expecting something higher because of the MDP. Do we expect this CapEx to go high for this year, increase quarter-over-quarter? And how is the labor force in Mexico at this moment, if you have everything hired or if you need to hire the workforce for doing the CapEx? If you could provide any details, it would be very helpful.

[Raul Musalem, executive]

Thank you, Alberto. This is Raul. I mean it's time when there's a new master plan. At the end of the day, all the -- let me put it in this way. All the clear authorizations of what's going to be the plans for the coming years happened in the last quarter of the last year. So always the first year of master plan, at the beginning of the first quarter, the first 6 months of the plan, I would say that we're struggling a little bit on beginning to move all our infrastructure department and to begin all the -- to move all of what is going to be the plan.

So for sure, we are still optimistic that we will completely fulfill our plans of CapEx during this year. We are really comfortable because some of the most important plans for this year right now are beginning just to run with constructors. I would say, we think that all our commitments of investment will be fulfilled for the end of the year. So I would say like a final remark on this is that always, it's 5 years. The first 6 months is, I would say, difficult to begin to move all the moving parts of the infrastructure, to begin to deploy all the plan. But we are optimistic that we will be on the target for ending with the commitment for this year.

[Operator]

At this time, there are no further phone questions.

[Alejandra Soto Ayech, executive]

Well, we have some questions from the webcast. So we are going to start with the one from Jorge Vargas from GBM. And he's asking, margins declined 280 basis points year-over-year to 67.1%, mainly due to higher cost and the full recognition of the 9% concession fee. Do you expect margins to stabilize at this level? Or is there potential for further compression in the next quarters?

[Raul Musalem, executive]

Jorge, this is Raul. Yes, this will be the levels of margin that we would see from now. As we explained during the call, we are paying already and recognizing in the P&L a concession fee full payment to the government, the 9% increase from 5% to 9%. So it is important to understand that talking about the 69%, the 70%, it will be complicated to return to those levels. So to be in the range of 66% to 67%, 67.5% in this year will be the right level. We do not expect any change in the following months.

[Alejandra Soto Ayech, executive]

And well, there is another one that says now that the cargo operations are fully consolidated, how should we think about their margin contribution going forward? Are there any efficiencies initiatives in place to improve profitability in this segment?

[Raul Musalem, executive]

Yes. I mean we are working with the new acquisitions. For sure, we are seeing different increases of margins on that and efficiencies on that specific acquisition. For sure, one of the key parts is GAP has a really important, let me put it this way, the technology and automatizations in some of the administrative concepts that we are bringing to GWTC and will bring us additional efficiencies for the operation of this business. So we are just on that. We are in this process of digesting all this new business. As soon as we could bring all these efficiencies to this new business, we're going to be ready looking for another possible developments in our airports. But I would say that right now for this year, we haven't used it for optimizing the operation of GWTC.

[Alejandra Soto Ayech, executive]

And then we have some questions from Edson Murguia from SummaCap that are like a follow-on question that says, regarding cargo and bundled warehouses, how sustainable is the revenue growth for the following quarters?

[Raul Musalem, executive]

It's a good question. I mean on the first quarter of this year, we experienced an important increase in terms of cargo, all the cargo, because with all the noise about the possible tariffs, some companies made or sent additional inventories to their warehouses. So it's not pretty clear how much time would be or how longer the increase of revenues from the cargo will continue. I mean we are really growing that great pace of almost 30% of the first cargo for that for GWTC. But I mean, we will wait and see what's going to happen in the coming months.

[Alejandra Soto Ayech, executive]

Well, from Edson as well, he's asking, regarding the employees cost, can we expect the same cost for the following quarters?

[Raul Musalem, executive]

Well, basically, yes. We will see the same level of cost of personnel and salaries. We have to consider that integration and consolidation of GWTC implies an additional cost. At the end, it's something that we have considered in our guidance. It's something that we plan into our budget. So it is the level of cost that we will see in the following quarters.

[Alejandra Soto Ayech, executive]

Yes. And it's the last one, they are asking about the CapEx for Puerto Vallarta Airport. Yes, it is going to be MXN 1.7 billion during 2025. That's correct. And well, this is the last question that we have in the webcast.

[Raul Musalem, executive]

Okay. So thank you once again for joining us today for our first quarter results conference. Our team is available to address any questions you may have. Have a great day. Thank you.

[Operator]

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