Grupo Aeroportuario Del Pacifico, S.A. B. de C.V.

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

Thank you, and welcome to Grupo Aeroportuario del Pacifico's second quarter 2023 conference call. Presenting from the company today, we welcome Mr. Raul Revuelta, chief executive officer, and Mr. Saul Villarreal, chief financial officer. Please be advised that forward-looking statements may be made during this conference call. They do not account for future economic circumstances, industry conditions, company performance, or financial results. As such, statements made are based on several assumptions and factors, That could change. This could cause actual results to materially differ from current expectations. For a complete note on forward-looking statements, please refer to the quarterly report that was issued by the company. At this point, I'd like to turn the call over to Mr. Raul de Huerta for his opening remarks. Please begin, sir.

Thank you, Maria. We appreciate everyone who joined our call today to review GAAP's second quarter of 2023. During the period, GAP transported nearly 16 million travelers throughout our network of 14 airports. This represents a 12% increase compared to 2022, which added to the first quarter, put us above our original traffic growth guidance for this year. Eight routes opened during the quarter, four domestic and four international. Los Cabos led the way with three new routes, followed by Puerto Vallarta with two, Guadalajara, Mexicali, and Montego Bay with one each. Guadalajara, also worth mentioning, has accelerated traffic growth during the quarter with an 18% increase. This was related to domestic market growth of 19%, mainly due to the new routes to Monterrey and Puerto Vallarta, as well as higher load factors from Viva Aerobus and Volais. International traffic benefited from an increase in frequencies in key U.S. markets, such as New York and California routes to Los Angeles, San Jose, and Oakland. As a result, international traffic grew by 17% during the second quarry. Tijuana continues to be one of our main traffic generators, boosted by the cross-border express, which has captured 32% of the airport's total traffic. The bi-national terminal continues to be a fundamental part of the airport's growth, as were other factors such as the new shoring effects at the beach destinations, which have left the performance of the airport passing as traffic at this location. The growth trend at Puerto Vallarta and Los Cabos is very similar, given a strong domestic market fueled by increasing load factors and frequency. In terms of international passengers in Los Cabos, we opened two new routes to Dallas and Houston, as well as the seasonal Iberojet route to Madrid. Puerto Vallarta opened a route to Guadalajara by Volaris and to Los Angeles by JetBlue. We expect to share with you great news regarding passenger development for the whole network. In the coming months, we anticipate more than 40 new domestic routes in July operated by Volaris and Ibarbus. Now moving on to aeronautical revenues, the use line even increased by 14% driven by passing the traffic to our gas network. In the case of our Mexican airports, the increase was offset by the new increase in the produce price index, excluding petroleum, which has led to no inflation increase in maximum tariff approved in our Mexican airports. As such, we were able to reach 99% compliance of our maximum tariff. In addition, the consolidation of our Jamaican airports have a negative impact due to the appreciation of the Mexican peso by almost 12% over the US dollar that has affected the revenue increase. Just to remind you, the two Jamaican airports represent 15% of the total aeronautical revenues. At this point, let's take a look at non-aeronautical revenues, which reflected an outstanding performance rolling by 18%. This resulted in a 10% increase in non-aeronautical revenue per passenger. Most of the increase was attributable to the opening of new spaces at the Guadalajara, Montego Bay, and Euskavos airports. The increase was also due to the passenger's traffic recovery and the renegotiation of contracts conditions with the tenants. It is worth mentioning that despite of nearly 12% depreciation of the pesos, which affected 20% of total revenues, non-ronatical revenues increases above the passenger traffic increase. In terms of business units, food and beverage increases by 27%. This outstanding performance was only in Los Cabos, Puerto Vallarta, Guadalajara, and Montego de Herbos. Presently, new spaces were incorporated at the Guadalajara and Montego de Herbos. Additionally, for the upcoming months, we are working on the opening of the terrace at the Guadalajara Airport and upscale rooftop food and beverage space, which we expect to be completed in November. At this point, that project is 80% abundant. Convenience stores revenue increases by 71%. To expand our business line, we opened up three convenience stores during the last six months in Los Cabos, and we will cover one more in Guadalajara. Just the three stores in Los Cabos represent 20% of the total income from this business line. It is worth mentioning that one of the stores at the international terminal has the highest revenue of all the network stores. This brings the total number of convenience stores in our network to 29. Duty-free increased by 9%. The increase below passenger traffic rose by nearly due to the Mexican petrol appreciation, as all the revenues from this business line are in dollars. It was also affected by the temporary closing of the walk-through during free-storing Guadalajara due to the construction projects that are in progress at the terminal. Advertising increased by 71%. New client catchment growth increased, which put us on track to recovery following the COVID effects. VIP lounges increased by 14%, mainly due to the lounges at our tourist destination that continues to that business line. In addition, Guadalajara is currently remodeling the international VAP launch, and we are also reconfiguring some stations in the international VAP launch in Los Cabos, due to the higher than expected demand throughout 2023. We expect both construction projects to conclude next year. Moving on to the EBITDA results. Despite the 12% appreciation of the peso and the almost new inflation in the quarter, EBITDA reached 4.5 billion pesos for the quarter with an EBITDA margin of 17.4%. This was led by the passenger traffic recovery and solid commercial revenues and was partially offset by the 15% increase in the cost of service. As we have previously discussed, despite our best efforts to comply with our cost contract policy, we have had to deal with inflation, the hiring of additional personnel, changes in labor load and minimum wage increases. These factors have affected not only salaries, but also the terms that are linked to personnel, such as janitorial, security, and maintenance. We expect higher costs further down the line due to the airside and terminal expansion, in addition to the inflationary effects. Moving on to the CAPEX, it continued to be carried out in accordance with the master development program, along with commercial investment. During these first six months, we have deployed 5.6 billion pesos, which was allocated mainly to the Guadalajara, Puerto Vallarta, Tijuana, and Los Cabos . Just to remind you that GAAP paid the second portion of this year's dividend for 3.71 pesos on July 13th, per the resolution made at our annual shareholders meeting. Before I conclude my presentation, I would like to announce that the revised guidance figures for the 2023 versus 2022. For the staffing, we expect an increase for 10% to 12%. For the aeronautical revenue, an increase between 13% to 15%. For the non-aeronautical revenue, we expect an increase between 16% to 18%. For a total revenue increase from 14% to 16%. EBITDA between 12% and 14%, and EBITDA margins from 70% plus minus 1%. CAPEX has evolved for all the year to 11.9 billion pesos. Partner traffic projection is based on the consolidation of rules developed to date. It also includes increasing load factors and airline flight frequencies and data by the means, with the information that is currently public. Total revenues have been adjusted based on expected changes in traffic performance, applicable passenger speeds, a decrease in product price index, including petroleum, and a Mexican peso appreciation. This is in addition to the opening of new spaces, as well as the negotiation of contract terms in commercial agreement, as well as the development of other business lines operated directly by the company. Increasing the cost of services reflects the operating requirements needed to meet airport services demand. In addition to that, it reflects infrastructure expansion and service quality improvement added to higher inflation, minimum wage increases, and additional personnel required for operations, maintenance, security, and cleaning. CAPEX reflects committed investments in GAP airports for the master development program and investment in commercial spaces. The process of acquiring land is moving really quickly. Hence, we are adding 1.7 billion pesos to the original guidance, amounting to a total of 3 billion pesos for land acquisition at the Guadalajara airport. At this point, that is for my remarks. I will ask the operator to open the floor for your questions.