Grupo Aeroportuario del Sureste, S.A. de C.V.

Good day, ladies and gentlemen, and welcome to Assert's fourth quarter 2024 results conference call. My name is Melissa, and I'll be your operator. At this time, all participants are in a listen-only mode. We will conduct a question and answer session toward the end of today's conference. If you'd like to ask a question, please press star 1. If you'd like to withdraw your question at any time, please press star 2. If you're using a speakerphone, please lift the handset before making your selection. As a reminder, today's call is being recorded. And now, I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Thank you, Melissa, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward-looking statements which are based on current management expectations and beliefs and are subject to several risks and uncertainties that could cause adverse results to different material, including factors that we envision our companies control. Additional details about our quarterly and full 2024 year results can be found in our press release, which was issued yesterday after market closed. and it's available on our website in the Best of Relations section. Following my presentation, I will be available for Q&A. As usual, all comparisons discussed on this call will be year-on-year, and figures are expressed in Mexican pesos, unless specified otherwise. Let me start with a review of Azure's operational performance for the quarter. Passenger traffic was basically flat year-over-year, down 0.3% at 17.7 million passengers. This broke our full year to close 71 million passengers traveling to our airports in 2024. Sustained growth in Colombia and Puerto Rico largely offset weaker passenger traffic in Mexico. Taking a deeper look at our geography, Colombia remained our strongest performance market, with passenger traffic increasing in the new teams year-on-year, supported by the federal outcomes following the suspension of two local carriers in early 2023. Travel demand remained solid, with international traffic off 29%, and domestic traffic rising 7% as Avianca and LATAM Airlines continue to restell moods lost last year. Looking ahead, we expect traffic trends to be normalized in the first quarter of the year towards the more sustainable levels of 2023. Puerto Rico was the next best market and senior to past quarters, maintaining its positive trend with total traffic up nearly 10%. supported by strong growth in international traffic, up 29%, while domestic traffic was up 70%. We expect traffic in this market will normalize after benefiting from increasing operations by frontier airlines a year ago. Lastly, performance in Mexico remains soft as anticipated, declining 8% year-on-year. with both international and domestic traffic down in the high single digits. Moving next to more details on the performance, international traffic continues to experience year-on-year declines from all regions during the quarter. Specifically, traffic from Europe decreased 6.4%, from Canada 0.6%, from the U.S. 8.8%, and from South America by 11.1%. With respect to domestic traffic, the ongoing traffic and living engine restrictions, together with the air traffic capacity constraints at Mexico City Airport, in fact, since early 2024, are constraining traffic flows. In addition, Cancun Airport is being slightly impacted by the initial ramp-up phase of new Tulum Airport. Tulum Airport captured around 1.2 million passengers from Cancun last year, and is expected to capture another 1.7 million this year, compared to the 30.4 million passengers that traveled to Cancun Airport last year. Looking ahead, we expect to normalize in 2026 as Pratt & Whitney effect is reduced and Tulum initial ramp-up concludes. From that point, we anticipate passenger traffic at Cancun Airport and Tulum Airport to grow at a pace consistent with each region dynamics. Now, as we turn to the P&L, recall that all reference to revenue and cost figures are excluding construction. Total revenues for the quarter increased 19% year-on-year to 7.4 billion pesos, reflecting strong performance across all three regions. Colombia once again lead growth, posting a 30% increase in top-line revenue, supported by raising passenger traffic. Mexico and Puerto Rico also delivered solid results with revenue growth in the low teens. Mexico, which accounted for 72% of total revenues, posted a mid-team increase in top-line performance. Growth was primarily driven by a low 20% increase in analytical revenues following the recent tariff adjustments, while non-analytical revenues rose in the low single digits. Puerto Rico represented 15% of total revenues and delivered high 20% growth, supported by a strong increase in both aeronautical and non-aeronautical revenues, further boosted by the foreign exchange benefit from the weaker pesos. Colombia, contributing 12% of the total revenues, recorded a robust 31% increase in top line revenue. This growth was fueled by strong performance in both non-aeronautical segments. With revenues rising in the low 30s, both segments benefited from continuous recovery in the domestic and international traffic. Colombia, as part of the strategy, To expand commercial offerings, we opened 45 new commercial spaces over the last 12 months. This included 12 locations in Mexico, 5 in Puerto Rico, and 28 in Colombia. As a result, total commercial revenues grew in the high single digits. with Puerto Rico posting a 26% increase. Colombia is delivering a strong year-over-year growth of 31%. In Mexico, commercial revenues show a low single-digit increase, marking a positive shift from the previous trend. On a per-passenger basis, commercial revenues grew in the high single digits year-over-year, reaching 130 pesos in the quarter, the solid performance was supported by the growth across all three markets. In Puerto Rico and Colombia, commercial revenues per passenger rose in the mid-teens, with Puerto Rico benefiting from a stronger U.S. dollar and Colombia from new offerings. Mexico also posted solid growth in the low single digits to 158 pesos per passenger, also benefiting from the FX impact. On the cost front, total expenses increased 13% year-on-year. In Mexico, costs were up 12%, gradually reflecting the 80% increase in the concession fees mandated by the Mexican government and a 20% in minimum wages, mainly affecting cleaning and security services, both effective since January the first last year. These impacts were partially offset by a 50% reduction in terms of assistance fees. In Puerto Rico, cost increased in the high teens, driven mainly by the depreciation of the Mexican peso against the U.S. dollar, while Colombia cost rose, just 7% benefiting from the reversals in the provision for maintenance and conservation, which helped to mitigate overall cost pressures. Consolidated EVDA was up 23% year-on-year to over 5 billion pesos in the quarter, while the adjusted EVDA margin, which excludes construction, improved 200 basis points to 69.7%. Driven by solid profitability across the three regions, Colombia reported the strongest performance with EVDA up 61%, pulled by Puerto Rico with a 39% increase, while Mexico posted an increase of 70% in UDA. Our balance sheet remains robust, closing the quarter with cash and cash equivalent of $1 billion, with a debt to last 12 months at just UDA remaining at the negative of 0.3 times. During the quarter, capital expenditure accelerated, reaching $2.5 billion and accounting for half of the full year of total $4.4 billion in 2024. Main projects during the quarter included the reconstruction and expansion of Terminal 1 at Cancun Airport, as well as the expansion of Terminal Oaxaca Airport. In Puerto Rico, expansion was at Terminal D, and runway remodeling remained on track. As a reminder, all the construction activities will take place outside the operational areas to ensure no disruption to airport operations. We expect investments to gradually ramp up capex through this year as we advance in the key infrastructure projects. Those projects include the construction and expansion of Telangana-Trencun Airport, with estimated completion in 2026, while Terminal 4 is scheduled for completion by 2028. Terminal 2 is expected to see operational improvements once Terminal 1 is completed, helping to alleviate bottlenecks on the non-aeronautical side of the business. This enhancement will also optimize the processing of traffic to and from South America further supporting revenue generation opportunities. Wrapping up, we closed 2024 with another strong quarter, a solid full-year performance despite the navigating industry challenges such as prep and winning engine issues and capacity reductions in Mexico City. Net majority income for the year rose 33% year-on-year to $13.6 billion. supported by a resilient operation of performance and a disciplined execution. Our results also benefited from a $2 billion foreign exchange gain, driven by the depreciation of the Mexican peso against the U.S. dollar, compared to the FX gain, nearly of $840 million in 2023. We remain focused on strengthening our airport network through strategic infrastructure investments that enhance the passenger experience, expand commercial opportunities, support long-term traffic growth, and create value for shareholders. We achieved substantial progress on our strategic objectives and have a solid foundation in place, which positions us for continued success in 2025 and beyond. And since my presentation remarks, Melissa, please open the floor for questions.

Thank you. Again, ladies and gentlemen, it is star then one for questions. And again, please make sure your mute function is turned off or the handset is picked up before pressing the corresponding digits. Our first question comes from the line of Rodolfo Ramos with Varesco VBI. Please proceed with your questions.

Thank you. Good morning. Thanks a lot for taking my question. I have a couple if I may. Can you share with us your traffic growth expectation for this year and whether you're seeing any pickup in route openings or network development by airlines specifically on the Mexico side? And then the second question is on the commercial revenue per passenger. I mean, the Mexican peso depreciation certainly helps on that front. But all else constant, do you expect the traffic to loom these 3 million passengers that you expect now this year on a full annualized basis to cannibalize your commercial revenue per passenger? I know if you see a higher spend per passenger on that particular passenger that was cannibalized from Tulum. Thank you.

Thank you, Roberto. Good morning. In the case of the Mexican traffic, We will continue suffering from the restriction in capacity of Mexico City and the problem of Pratt & Whitney. I'm sure that you have heard what Bolaños has said yesterday and basically they are expecting to have or to continue with the Pratt & Whitney engine problem during next year. Of course, they have been receiving airplanes in accordance with the requested airplanes they have done in the past. So it's true that we will suffer from some aircrafts to be on ground as a result of Prata-Winnie, but the situation is improving. I would say, yes, we will be affected, but not as we were affected last year. I hope that by the third the end of the third quarter situation will improve in that front, as well in the case of the restriction of Mexico City Airport. In terms of commercial revenues, as I said during the initial remarks, we're still suffering in the case of Terminal 2. We know that we are losing some commercial opportunities there, and we are expecting those to improve once we open Terminal 1. We expect to open Terminal 1 at the end of the second quarter, 2026. So for the moment, we don't see a decrease, but we know that we are losing commercial opportunities.

Thank you.

Thank you. Our next question comes from the line of Pablo Recalde with ITAO. Please proceed with your question.

Hey, hi, good morning. Also, I have two questions. Wanted to follow up to all folks and we have seen some press that the capacity of the Mexico City airport should increase this year. I don't know if you heard something on that front and the other one is on dividends. I don't know if you have some expectations in particular post next. Sure, obviously.

In the case of the capacity of the restriction in the capacity of Mexico City airport from 52 to 43 ATMs per hour, what I have seen in the news recently is that the Mexico City airport manager is open to eliminate this restriction and probably to go back to the 52. Remember that we're coming from the 63. So, that's why I'm expecting these to be lifted by the end of the quarter. Also, remember that next year we have, Mexico City will receive some passengers due to the World Cup. That will take place in June next year. So I hope that the government will change this restriction by the third quarter. And also as Volaris has more claims, I'm sure that they will put some pressure on this front. In the case of dividends, I have prepared my proposal and it will be sent to the Board of Directors. And I'm sure that you will hear from these on March 14th. That's what I can say for the moment.

Perfect, Adolfo. Very clear.

Thank you. Our next question comes from the line of Steven Trent with Citi. Please proceed with your question.

Thank you very much for taking my question, Adolfo, and good morning. I know that certainly there's a lot of political rhetoric at the moment in North America, and we've, of course, seen some currency movements, which you've mentioned. Are you seeing any nuances in your international traffic flow, for example, you know, Canadians visiting Mexico more frequently than you expected, and maybe some of these these folks are no longer going to, you know, Disney World or something like that? Any sort of pivots that you've noticed?

Well, I'm sure that you have heard my initial remarks. In the case of international traffic for the quarter, all divisions were negative. In the case of Canadians, they were negative 0.6%, which is almost flat, I would say. I don't see any change due to the situation in the U.S. during the last quarter. The traffic was weaker. Of course, you need to understand that some of this traffic is going to Tulum. Tulum last year got around 1.2 million passenger traffic and 75% of these was from the U.S. So if you make the math, that's basically what we are losing in terms of the U.S. traffic. Canadians are not so much, and the other, let's say 20%, it's Mexico, it's domestic traffic. But no, I have not seen any change due to the new politics in the U.S.,

Appreciate that, Adolfo. And just one other quick follow-up. I wasn't sure if I heard you, but are you getting or do you expect to get any meaningful traffic flow out of Felipe Angeles, you know, for example, if authorities do not make any adjustment in Benito Juarez air traffic movements?

Well, the case of the IFA is basically traffic to and from Tulum and I would say in the second place to Cancun. Most of the traffic is being managed by Viva Aerobús directly to Tulum. Also, Mexicana Airlines is having some flights there as well. The airport is growing, of course, because of the restriction in Mexico City Airport. And I hope that if the restriction is lifted, we will have some benefit there from Volaris flying directly to Cancun.

Okay, very helpful. Thanks, Adolfo.

You're welcome.

Thank you. Our next question comes from the line of Pablo Montevias with Barclays. Please proceed with your question.

Hi, Adolfo. Thanks for taking my question. Just want to learn a little bit more if you had any conversations on feedback, particularly from U.S. carriers towards capacity expansion plans into Cancun for the second half.

Thank you. Well, we're in the process to receive the summer season schedule. So that should be received, I would say, in the coming weeks. So for the moment, we do not have visibility for the summer season.

Perfect. And a second question, if I may. On the commercial revenues, Once you do the works that are expected to be done in the MDP, is there any target on commercial revenues per passenger that you are estimating?

Well, there is no specific number. I would say, and we used to say internally that is a moving target. We always want more. And that is why we are always looking for what the passenger is looking in terms of price, product, and service. So what we know today is that we are losing commercial opportunities due to the lack of capacity in some commercial areas, specifically in Terminal 2. And that's why we are expanding and reconstructing Terminal 1 that, as I said before, we're expecting to be open at the end of the second quarter, 2026.

Thank you very much. Thank you. Our next question comes from the line of Alberto Barreiro with UBS. Please proceed with your question.

Thank you. Thank you for taking my question, Adolfo. Two quick follow-ups on my side. Actually, I need one. We see that you have some rebalancing in Colombia and Puerto Rico. if you could provide a little bit of details on this rebalancement. And also, from your expectations, how Tulum has been operated so far? How has been the traffic in Tulum versus your expectations so far? Thank you very much.

Well, in the case of Colombia and Puerto Rico, I would say they are working and they are giving great results. I'm really surprised of the resilience of Puerto Rico. I was expecting the traffic to become more normal. If you see the report on the case of China, it's still strong, very strong. And Colombia, of course, is in the process to, well, it has concluded the process to recuperate the two islands we lost at the beginning of 2023. So we are back on track and I hope that Colombia will continue with the normal growth in the coming quarters. That's basically what I can say for the two cases.

Thank you. Our next question comes from the line of Jen Spies with Morgan Stanley. Please proceed with your question.

Yes, thank you, Adolfo. So just one question on capacity in Cancun. Like under a hypothetical scenario where international remains weak and there's an increase in capacity that the local, the domestic airlines want to increase to Cancun, Are there any constraints in the terminals where you service the national carriers, or would you be able to allocate or would you need to reallocate basically your operations there? Any call on that? Appreciate it.

Absolutely. Well, today we do not have restrictions in terms of operational capacity in Terminal 2. What we have is restrictions in the non-aeronautical side. The capacity, I would say, in the case of the middle of the day, probably you will not find the space to have your meal. But in the case of the operational front, we do not have problems. Of course, once Volaris recuperates its operations from the problem they have with Pratt & Whitney, we will need more capacity, and that's why we're constructing and expanding Terminal 1. In Terminal 2, what we have is basically Divan Volaris plus South America. So what we're intending to do is to subtract South America and move back to Terminal 1, and that will leave additional space for these dwellings. All right, perfect. Thank you.

You're welcome.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Alan Lucius with Bank of America. Please proceed with your question.

Hi. Good morning, everyone. Thank you so much. Just a question on Mexican tariffs. Were you able to implement a decrease last year? And is there any spin-over that we might see for this year? Thank you.

Alan, hi. Good morning. I cannot hear you. Your line is copying, so if you can repeat your question, please.

Yes, can you hear me better?

Better.

Yeah, just on Mexican tariffs, if you were able to implement the increase in 2024, and if we might expect some spillover for this year on Mexican tariffs. Thank you. It was basically implemented last year.

Thank you. Our next question comes from the line of Enrique Soho with Fundamenta Investments. Please proceed with your question.

Hello, Adolfo. Thanks for my question. My question is actually related to passenger growth. It's a bit of a double-click on some things you mentioned. As you referred to, Larry, yesterday stated in the earnings call that they expect GTS issues to affect a significant portion of their fleet all throughout 2025, 2026, and 2027, and they've

Enrique, again, could you repeat your question, please?

Sorry, it seems that we've lost Enrique. We'll move to the next question. Our next question comes from the line of Gabriel Himelfarb with Scotiabank. Please proceed with your question.

Hi Adolfo, thanks for the call. Question on Tulum. Is there any somehow updating mechanisms or compensating mechanisms for the traffic that is being taken from the Tulum airport from Cancun? Thank you.

Hi Gabriel. I would not call it compensation because at the end of the day, if you go back to the regulatory regime that was published on October 19, 2023, The formula is looking forward, it's not looking backward. Of course, the effects of Tulum airport were included in those calculations. So, to answer, to give you a very clear response is yes, it has been included, the effects of Tulum, but of course, we cannot compensate.

So they were included on the MDP on last year's MDP? Absolutely.

Thank you very much. You're welcome.

Thank you. Our next question comes from the line of Anton Morton-Cotter with GBM. Please proceed with your question.

Hi, Adolfo. Thank you for the call and congrats on the results. I'm sorry if this has already been asked. I had some issues with my line, but My question is related to the commercial side. I mean, we saw really good performance on the non-idle-per-pax growth. I was wondering, I mean, is this a result of the mix from having maybe a stronger U.S. dollar and maybe some pent-up demand or something, or also if there has been any strategic shift in how you renew your contracts, maybe a little bit of a pricing power on that side. I'm not sure if you could provide some color there.

Absolutely. Well, it has to do with the effects. You can see it very clearly in the four-quarter results, and partially on the third quarter last year results, because we saw some kind of result evaluations since the third quarter. But, of course, the most important effect was in the fourth quarter. That's basically what we have for the fourth quarter. Some effects, good results, you know, are No question about it. But I don't see any problem for the future, except that we know that we are losing commercial opportunities there.

And also, just a little bit of a follow-up there, Adolfo. Roughly, what amount of your commercial contracts are due each year, and are you able to renew them with, I mean, maybe open terms, or are those is renewed with maybe fixed terms or an automatic clause or something like that?

Well, there is no way to say that this year 20% of the contracts will be renewed. Every business line has its own term. I would say it could go from seven to three years, depending on the business line. Normally what we do is to continue with the same kind of terms. Increasing, as you have mentioned, increasing prices, increasing the concession fee is not the way to maximize revenues. Probably in some cases could be the opposite. Remember that what we want this day to sell more and we to get more. So in that sense, the most important thing is to be able to get as much as we can in terms of sales, not in terms of prices.

Perfect. That is really clear. Thank you.

You're welcome.

Thank you. Our next question comes in line of Guilherme Mendez with JPMorgan. One moment. Please proceed with your question.

Hey, Adolfo. Thanks for taking the question. First one is a follow-up on Toulon. You said it was included on the MDP, but can you share how it's trending when compared to your expectations, it's going in line or not? And the second one, in terms of capital allocation, there was some news on the Dominican Republican asset last year. I understand it's still on hold, and if there's anything else that the company would be considering outside Mexico. Thank you.

Yes, in the case of Tumul, what I can say to you is it's as we expected, basically. Probably not so strong, you know. Let me say this year probably originally we were expecting around $3 million. I'm saying... 2.9 million for this year, and that will be the ramp-up for Tulum, so the ramp-up between 2024 and 2025, and from there, Tulum will have to grow as the dynamics of the region. In the case of the Dominican Republic, we do not have any update. We continue with the legal process there, and I hope that we will have some results during this year.

Okay, thank you. And just to confirm, anything else outside Mexico and outside Dominican Republic that you would consider?

Well, of course, we want to consider all, we review all the projects that are there, but for the moment, I would say I do not have any significant project in front of me in the short term.

Perfect. Thanks very much, Adolfo. You're welcome.

Thank you. Our next question comes from the line of with Fundamenta Investment. Please proceed with your question.

Apologies, my line dropped. Were you able to listen to me? No, I can hear you. Okay, thank you. My question is actually kind of a double-click on some things you mentioned, more specifically Volaris. As you mentioned yesterday, they're in the earnings folder. They're going to have GDF engines for this year, next year, and possibly 2027. and they have, moreover, renegotiated the aircraft deliveries with the Airbus to further slow down capacity increases. Do you believe that this new information significantly hinders growth in the short to medium term? Do you think it may be indicative of a more weak domestic market and players? Thank you.

Yes, Enrique. Well, what is important for us is the additional capacity they are including as we speak, not just Volaris, also in the case of Viva and in the case of Aeromexico. If you see the report of Volaris, of course, I'm not so sure that what they report is the operational aircrafts, but if you see the report at the end of 2023, they reported 133. At the end of 2024, they reported 143. So if we just use those two numbers, we will say they have more aircrafts in comparison to what they had before Pratt & Whitney. The problem with those two numbers is that we don't know how many of those are in the shop, no? Also, it has been announced yesterday by them that some of the aircraft that have already been recalled will have to go again for some additional works. So that is why I said during my remarks that next year we will see the problem will still there, you know. Of course, in a more smaller manner, you know, my expectation is that these first three quarters are going to be the last strong effects from Captain Whitney in the case of Polaris, you know.

Great. Thank you very much.

You're welcome.

Thank you. Ladies and gentlemen, as a final reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. We'll pause a moment to allow for any other questions. Mr. Castro, it seems there are no other questions at this time. I'll turn the floor back to you for any closing comments.

Thank you, Melissa. Thank you all. of you again for joining us today for this fourth choir 2024 conference call. We wish you a good day and goodbye. Now you may disconnect.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.