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.

At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and 1 if you would like to ask a question. And we will take our first question from Hermione Mendez with J.P. Morgan. Your line is open.

Good morning, everyone, and thank you for taking my question. The first question is a follow-up to the comments on the guidance. If you may just provide a little bit more color of what is behind the traffic update. I understand the load factors and the additional capacity from the airlines. Just wanted to pick your brains on which regions are performing better, if domestic, if international, or maybe some surprise on Jamaica going forward. And on the CAPEX, if it's only related to the land acquisition in Guadalajara or something else, just to make it clear. And the second question is related to the expected upgrades to category one of the Mexico Aviation Agency. So what is the latest on that and what is the company's expectations in terms of the time for it? Thank you.

Thank you, Leonardo. This is Raul. First, I will go into the traffic performance. We are seeing a really interesting growth on traffic in some airports, some airlines, new routes as could be Mexicali or Guanajuato. We're seeing a really interesting moment or boosting on the domestic traffic, for instance, in the leisure destinations like Puerto Vallarta and . For sure, in some regions that will be more, I would say, affected or more in line with the new sharing, as could be Tijuana, Mexicali, or even Bajio and Guadalajara, we expect to begin to see more domestic traffic happening because if this trend continues, we are seeing better wages, better salaries, better kind of employment in the region that will bring more money to the pockets of the people around this area. So we're going to see more traffic for instance on leisure and domestic traffic flying from Guanajuato to Los Cabos or to Vallarta. This kind of traffic we expect to increase due to the fact of better employment in the area. The other one that is not completely clear is how many of these additional frequencies that has opening on the last month will be fully operating in the future as soon as the cathode rate one could be recovered. In other words, in other way, Both Bolares and Belarus have received new planes, have increased their fleet, but they could not put a fly on international, on US market, that plane. So they are pulling that capacity for the moment on domestic markets. But one of the things that we're gonna see change in some way is as soon as the category one is recovery for Mexico, we're going to have to see some kind of shift from some specific domestic market to international market due to the fact that the likes of Uber Eats could open or could use, could add frequencies on the future for the US market. Going through the category, I would say that the last visit of the FAA and the US authorities to Mexico to review all the progress on the different observations to the Mexican authority. I think that we are in the line and we are in the last part of this long process. We expect that for the fourth quarter of this year, the category could be recovered. But again, we are talking about public information and how the authorities are communicating all the progress in this process. For the last, related to the capex, the general change on the capex, we are just adding above our original plans some acquisition of land for the Guadalajara Airport. We are preparing the long-term reserve of the airport that will allow us to have a possible third term, the terminal number three on the future, and even if the demand is there, the third runway for the airport. But the specific or the most important part is that our biggest asset, we are preserving the value for the future, acquiring reserve for a maximum capacity growth in the coming years and in the long term.

That's super clear, Raul. Thank you very much. Have a great day.

Let's take our next question from Rodolfo Romo. Ramos with Brook Dasco, BBI. Your line is open.

Good morning. Thank you for taking my question. I have a couple, if I may. The first one is when you think about this faster recovering traffic that you've seen, you know, how does this – how do you think of the main variables that you will be discussing with regulators today? This and but mostly next year as part of your development plan and also having in mind, you know, the investment requirements that you'll need to accommodate that higher passenger growth. And then the second one is you talked a little bit about the impacts of the Mexican peso appreciation on your commercial revenues. Can you talk us through, you know, your thought process on how it can impact your business side on the aeronautical revenues? Thank you.

Thank you, Robert. This is Raul. I mean, for sure the increase of passengers when you put it on projections will be some additional pressure for passengers possible decrease on the maximum target. But in the other hand, when you bring this kind of boost of traffic, you will need, as an airport, additional capex and additional expenses for giving the correct quality service at the airport, or to comply with the quality standards of our concession. In that way, we are seeing the next negotiation of the master plan completely based on the methodology and regulatory framework that we have. We will see important amount of capex just to catch up the needs that the airport has to face in terms of the new passenger roads. Another important key factor that we must is that the changes on the fleet, not only the number of planes that Volaris and B-by-the-Wolfs is bringing to the market will affect not just the total amount of traffic in the future, but also are affecting the peak hours of our terminal airports, of our terminal buildings. This is important to understand because the airports and the terminal buildings are the same in terms of peak hours. And these peak hours are changing really fast, even faster than the growth of the total or the absolute amount of passengers. And let me go a little bit on that. For instance, when we design an area for a gate for a plane, We say, okay, we would need 150 seats. We need a toilet area with this amount of places. We need this amount of square meters around the gate. In the past, for instance, with the 320s, we used to have an average of plane seats of 150, 170, even 180 seats per plane. What is happening with the new 321s of Viva and Volaris is that our peak hours changes really fast. So in the past, we used to receive in the same gate 150 plane seats of Interjet and we are in the same route, in the same hour, in the same gate. Today we are receiving an A321 So that is a complete change in how we design our terminals. And for sure for the coming years, we'll need to bring additional investments for growing our terminals. So in general terms, I would say that that is what What we expect in terms of the market plan, I know you about the impacts on commercial revenue. Yes. Thank you, Raul. Hi, Raul. Well, the main effect in the commercial is the change rate. Absolutely, the appreciation of the peso is affecting only in our commercial revenues in Mexico. It's around 12%. with the consolidation of the Jamaican airports, the total effect is over the 20% of the total revenues. It means that we should be growing 12% more of the 20% of the revenue. So what we are expecting is that, according to macroeconomics, to have an stabilization of the exchange rate around 17, 1750, and that will impact our budget. That's why our guidance, our total revenue is not growing at the same pace of the traffic growth. But this is, in general, how will be the effect in the commercial and the consolidation of the American Air Force. Talking about aeronautical revenues, let me tell you that a produce price index in Mexico is almost flat. the last 12 months of June 2022, the inflation was 9%. If we look at the inflation of the produced price index in last 12 months of June 23, it's 0.9. So it's a bit different affecting also the effect of the annual revenues. In general, just the effect of a change rate in their revenues is the consolidation of the Jamaican airports. In the other hand, for Mexican airports, we have a fulfillment of 99% of maximum rate, maximum tariff, which benefits in the total and offset the decrease even due to the inflation and due to the change rate. That's in a general view.

Thank you, Simon.

We'll take our next question from Anton Martin-Cotter with GBM. Your line is open.

Hello, guys. Congratulations on your results, and thank you for taking my question. I have some follow-ups on the CapEx front. Just to better understand the increase in the land acquisition, how much land was it, and is all of this related to the so it falls under the MDP, just trying to understand if it has been already talked with the authorities and will fall apart as an advance investment on the MDP commitments or how it will be treated.

Yeah, it was, for sure it was previously, we received the previous authorization of the authority This goal will be an advance of the new master plan. And we already received the authorizations. We are talking of an acquisition of, the total acquisition gonna be close to 150 hectares for the airport. And we are just, expecting to finalize the total acquisition of all these lands for the end of this year or nearly the first month of the coming year. But the most important part here is that all these land acquisition is part of the master plan. We already have the authorization of the authority And it's also important to say that this land acquisition ends with an historical problem with the around the airport. Some remember we were in the middle of legal processes for the last 25 years with that . One of the points that is also important is that we are not only acquiring the reserve for the future, but also we are finalizing all these legal matters or legal issues with El Zapote in Guadalajara.

That's pretty useful. Thank you. And just another one on the, if you could provide some breakdown on the CapEx deploy during the quarter, mostly on the commercial front.

Well, hi, Anton. This is Saul. Well, as we have talked in previous conference calls, we have a very ambitious program of commercial investment during the year. We will have the main investment in the construction of the mid-use building in Guadalajara, which is a very important project with 180 rooms of a hotel. We have more than 5,000 square meters of offices. We have a commercial retail. We also have the expansion of the parking lot in Guadalajara with more than 2,000 spaces just for in this phase and we have the expansion in other airports in terms of parking lots. So we have also and we are opening additional business plans or business spaces for convenience stores and we are in the expansion of VIP lounges. So all these amount will be around 2.3 during the year, including some activities in commercial areas in Montego Bay that we are also adding space and we are also a rehabilitation of some commercial areas. So that's in general the commercial and also just have in mind that the MVP in Mexico will be around 5.6 billion during the year. the peak of our investment of our master development program and we will do investments in Jamaica for around one billion pesos and for land will be around three billion if we consider the full project. If you remember in the beginning of the year we announced in the guidance the acquisition of land for around 1.2 billion pesos and now we are in almost 1.8. billion pesos of additional land.

That's really useful, Raul. Thanks a lot. Thank you.

We will take our next question from Pablo Monsivais with Barclays. Your line is open.

Hi, thanks for taking my question. I'm sorry if you answered this already. But just wanted to have an update on the MVP agreement with Jamaica. Is there any update on that?

Thank you. Hi, Pablo. This is Saul. Well, we have almost an agreement. We are going to receive from the authorities a notification. We are in the middle of the final conversation just to try to have the formalization of the changes in the constitutional agreement. It's not yet official, so we cannot announce it yet, but as soon as we have the formal notification from the authorities, we will announce that, but we have almost the final stage of this process. In a couple of weeks, even one month and a half, where I have the official, the final response to the Dominican authority, and so we want to make it public.

Yes, correct. Great. And if I can squeeze one more question. On the terminal processing facility, as of now, can we, I mean, Are operations already normalized? I mean, the increase in fixed expenses are already diluted with the additional passengers, or there's still some catch-up process there? I mean, what is currently the normalization timeframe for this? Are we already there, or we're still a few quarters away from that? Thank you.

Thank you, Pablo. I mean, in terms of the Tijuana report, the facilitator or processor building, we, for instance, I mean, we were announced in a couple months, coming back on November, we expect in November that Hermann Erland will begin again international operations at Tijuana, what is great news. One of the key parts that we need To begin to see some also additional international frequency for routes happening in the terminal building on Tijuana, the new international terminal building on Tijuana, if they have the category one from the US government to the Mexican government, because some of the routes that we have that the market is there to begin operations are also on the near area of Tijuana, but in the US market as could be Oakland, San Francisco, Las Vegas as the most important markets that are not served from Tijuana. But the key point here is that the terminal is completely ready for the operations of international flights. We are seeing the first coming on international again in November. And as soon as we have the category, we're gonna see a more dynamic of new routes on the international area of Tijuana. So I will say that for Tijuana and not only this process of our building for all the area, we are really optimistic because The area is growing in terms of economy, of employment. So the natural thing that we're gonna see or the natural way to see Tijuana on comings in the midterm would be interesting growth because the population has more money in their pockets in this moment, just with a big impact happening already due to the fact of the new showing in the area. So I think that if there will come great news from Tijuana airport on the midterm and long-term for sure.

Great, thank you, Rice.

We'll take our next question from Steven Trent with Citi. Your line is now open.

Good morning, gentlemen, and thanks for taking the question. Just two quick ones for me. The first question is about your domestic traffic flow. Have you seen any disruption at all in your domestic connectivity with Mexico City metro area since authorities started pushing some traffic to Felipe Angeles Airport?

Not yet. We are seeing that the flight to Felipe Angeles is opening and it's in the process of the ramp up for more openings. But what we are seeing, if we see the complete market of the Mexico metropolitan area, that is Felipe Angeles plus the Mexico City Airports plus Toluca Airports, We've put all together, I will say that increasing the traffic is really a low digit, around three to 4%. I will see that at least for the moment, we are seeing some kind of gradual shifting from Mexico City Airport to Felipe Angeles and even to Toluca. So I mentioned that the area, We need to see it like a whole, the three airports. And we are seeing that it's aligned with this low-digit growth in general terms.

Okay, that's great. Thanks very much for that, Raul. And just one other very quick one. I mean, a little bit of a follow-up to Rodolfo Ramos' question earlier. When you think about the totality of... the movements in the Mexican peso against the dollar, you know, sort of any high-level sensitivity as to, you know, what's the impact on EBIT margin for every, you know, 1% or 5% movement in the peso against the dollar. Thank you.

I will go through this. First, in terms of the revenue, we are thinking, we are talking about around 20% of our total revenue that in some ways impact by the appreciation of the peso. In general terms, I will say that in the expensive side, that in some way could offset some part The biggest part of the expenses in Mexico, taking out the Jamaican for sure, but at least for the case of the Mexican airports, the expenses are mainly in pesos. So we don't really have some kind of offset because one of the question that everybody say, okay, if you have some kind of decrease on revenue due to the fixed rate or the appreciation of the pesos, but you got in some way compensated with some savings for imports or some kind of things on our services. But the truth is that the airports are mainly business really high on efforts of personnel, not only airport directly personnel cap, but also personnel from security, for maintenance, for cleaning. So I would say that we are in the middle of a moment where we have a big impact coming from the reviews of the minimum wage in Mexico with increase on some benefits on holidays, on the labor law, these kind of things. So what we are seeing, at least on the coming at least part of this year and maybe the coming year, is some pressure coming from the labor market in our expenses, in pesos. Or sure, on the area of the revenues, it will depend a lot of what will happen with the central bank in Mexico and the rates. If we will begin to see some kind of depreciation on the person on the coming months. But I will say that we are just in the middle of that sandwich that will some way give us some pressure to the margins. I know. Exactly. We have two effects in revenues. One is the produced price index affecting aeronautical revenues in Mexico. That is upset. by the fulfilling of the maximum tariff at 99%, which is good. But in the other hand, we have the appreciation of the peso of around 12% affecting the 20% of our total earnings. And as Joe said, in terms of expenses, we don't have significant contracts being nominated in US dollars. I will say that around 99% of the total expenses in Mexico is eliminated in pesos. So we don't have any compensated effect.

Okay, that's super helpful. I really appreciate that, guys.

We'll take our next question from Gabriel Hemelfar with Scotiabank. Your line is open.

Hi, thanks for the call. Just a quick question about cargo. We saw that cargo units decreased year over year. So, can you give us a bit of color on why it was a decrease? And also, can you provide us a bit of color on how much capacity will be added to the Guadalajara Airport once the planned investments are finished? Thank you.

Coming to the cargo, as you said, the cargo is decreasing, and it's mainly decreasing in Guadalajara airport. What is important to understand is what is really happening with the cargo. In the cargo industry, it's like two kinds of cargo, one that is called web cargo, and dry cargo. Dry cargo are mainly electronics and this kind of high value cargo that are increasing or growing a lot in Guadalajara due to the new shoring and what's happening in the electronic, the dynamic, the industry dynamic on the area. But in the other hand, the wet cargo that are mainly fruits, vegetables, flowers, need all this kind of production is decreasing. But the interesting here is that you could not mix wet and dry cargo in the same daily of a plane. So what is happening is that all the electronics that have a much higher yield for the cargo airlines is moving or changing the trend for offer of additional offer for wet cargo. Saying on other words, the total volume on the Guadalajara airport cargo is decreasing because the value of the cargo is increasing. So the planes are going fully with electronics and they are not moving the same level of fruits and vegetables that used to have. It's just, I will say, a temporal move until the airport has additional capacity and additional planes and additional fleet to absorb the wet cargo that could not be in the same plane that the dry cargo. I mean, it's like a general explain what is happening in Guadalajara. What is interesting is that when you receive or when you review the results of the yields of the cargo, it's increasing and it's in a historical point right now. I mean, the value of the cargo in the airport is in the record, the value, not the volume. But I mean, it's a general explain of that. And in terms of the capacity, how much capacity will it add to Guadalajara Airport? The most important part of adding capacity during this master plan is related with the air site, because we are putting on operations the second runway that will give us around 65% to 70% additional capacity per hour on the runway. We also expand our for commercial for general aviation. We also add all the big area for hangars in the airport. All these movements of the general aviation and hangars to a new land in the airport will give us the chance to begin the construction of the second terminal building on the coming year. the idea of the beginning of the construction in coming year is that that new terminal will be on operation after three years before we, after we begin with this construction. So we are thinking that around the end of 26, we're gonna have the second terminal building on operations. Another part that will bring additional capacity to the airport of Guadalajara right now is related with the parking lots. In December, we will open the first 2,000 additional spots for the parking lot. That will be a great relief to the area, to the experience of our passengers in the airport, but also to the commercial revenues specific on the parking lots. Today, we are 100% low factors when we talk about the parking lot in Guadalajara Airport. So these additional 2,000 spots will give us the chance to capture additional demand that we are not getting right now. So in general terms, that are the main capacity that will be added to Guadalajara in the coming months.

Okay. And once the capacity is added, that 65, 70% is added, how much time will it take to reach such capacity until you have to add even more capacity? For how much will that additional capacity be effective?

Okay. I mean, in theory, because again, it depends on the peak hour, the size of the plane. So there's a minimal variables to answer where that is not like a plain or flat answer for that specific point. But when we have the second runway on operations, and we have the second terminal, the terminal number two also operating, we go both of these assets, we want to have around 37 to even 40 million passengers capacity. That is an important part to understand that we could depend on the demand and depends on how fast could grow in the coming years the traffic. But the idea is that we want to be really close to the 40 million passengers in terms of the capacity when we end with all our Guadalajara planning on the coming master plan. Other point interesting to understand because in some way always it's important to remember that when you have a bigger building or a bigger aprons or bigger In the future, you will need to see, in some moment, increases in cost, because you have more areas to clean, more areas to maintain, but also the capex, because you're going to have bigger refects, reposition of capacity on the coming years. the AC systems you could have it on operation seven to 10 years. You will need to change the, some of the, for instance, the air bridges that have, normally operates only 10 years. So the thing is, we are expanding our capacity, but that's never gonna mean you will not have additional CapEx or additional capital requirement in the future. It's just to have in mind for I would say everybody.

Okay. Thank you very much.

We will take our next question from Andresa Velado with US. Your line is open.

Hi, good morning, everyone. Thank you for taking my question. I have two on my side. The first one is if you could provide an update on how are the constructions of the mixed user space in Guadalajara going and when can we expect it to be operational? And my second question is on the international traffic in the leisure destination. So we are seeing Los Cabos and Puerto Vallarta in the last month more to flattish to slightly dropping. So I was wondering what is your view, what's behind that? Thank you very much.

Thank you, Andresa. First in terms of Guadalajara, as I said, the second runway is going to be in operation from the first quarter of the coming year. The hotel, the building office, and the new building will be operating in January of the coming year. The first stage of the parking lot expansion will be operations also in December of this year. The , that is a big expansion of the area of Guadalajara Airport, going to be on full operations on November of this year. And that, I would say, the biggest, and for sure, the new hangar area will be fully operating on November of this year. And that's something about the construction working in Guadalajara. For the second one, what is happening with Cabo and Vallarta, the flat increase on passengers, I will give a step back for 2019. When we compare, for instance, May of 2023 versus May of 2019, we have an increase of 37% on the amount of seats for the region, for Cabo and for Guadalajara. So that was a completely boost on the capacity that in some way, put a lot of offer in an airport for one day to another. In that moment, it was mainly related for a strategic decision for the US Airlines that was not operating to Europe and to the Caribbean in the middle of the COVID crisis. So they shift a lot of their seats to Mexican destination that give us this peak or increase on passengers. So I would say that it's natural to see some fragments until the destination completely digest all these big amount of seeds. I will put it in other way. It's a great news. that all these additional capacity that the US carriers system from the Caribbean to the Mexico markets, they're still in place today. That will be my first view. I would say we catch it for the long term. What in the first stage was a temporal shifting of capacity. So what we could expect is a couple of flatter months and around one year we expect to begin to see again an increase on seat capacity and it's also related with the hotel and key capacities, other room key capacity on the market. We will begin to see the opening of new hotel development It's going to be the Cirque du Soleil Hotel at the first quarter of 2025 that will bring to Vallarta a big amount of additional keys, all the new developments in Cabo, the way to Cabo Pulmo. I mean, the key point here is that the market at Cabo and in Vallarta is really healthy in terms of yield of the airlines. use of the hotels, and we will see gradually additional offer of hotels coming to the area that will bring us additional passengers in the mid-term.

Perfect. Thank you very much. We'll take our next question from Alan Macias with Bank of America. Your line is now open.

Hi. Good morning, and thank you for the call. Just one question on your guidance, on traffic guidance. I guess this implies that you're expecting single-digit year-on-year growth in the second half of this year, and I just wanted to understand the drivers behind this. Is it mainly more challenging comparison-based, normalization of traffic, or are you expecting also a decrease in GDP growth? and also if you're seeing any other factor as a stronger peso making Mexico less attractive for U.S. tourists or any other factor. Thank you.

Thank you, Alan.

I mean, I would say that the first part is the second half or the second half of the year will have a most difficult or more tough comparison versus 2022. It's important to remember that during the second half of 2022, for instance, where the first month that we begin to see positive numbers on Guadalajara, for instance. So what we wanna see on the second half of the year, it's a comparable or more tough comparables in traffic in general way. Also, for sure, we're gonna have some pressure on the winter season, mainly in Cabo San in Puerto Vallarta, related with that Mexico could begin to be a really some kind of extension than other destinations in the Caribbean, for instance. So, and the last part that we need to see happening is the additional fleet coming from Viva and Volaris would happen more to the end of the year, that in the summer. Saying that, all the needs of this change of different variables is given out some numbers closer, so around seven, eight percent for the second, an average of the second half of this year. I mean, in general, those are the specific drivers of what will happen on traffic for the coming months. Yes, and in terms of, this is . In terms of the GDP growth, we do not expect this acceleration. On the contrary, we expect to maintain the performance of the GDP in the first half of the year. But as Raul explained, the effect on the traffic is not because of the GDP, it is because of the comps of the previous year. The first one will be less attractive for Americans, just for sure, but we are sure that there is, in fact, the passing traffic trend from international, not only because of the currency, but also because of the second home effect that we have seen in the last years. Many Americans are having second homes. It's more attractive the beach destinations for Americans in general. We saw a boom of real estate in our beach destinations. So we did not expect any negative effect from the stronger .

Thank you. And any, what are the upside risks? for traffic in your airports. Are you seeing the Mexico recovering category one for the U.S. authorities? Is that something that could happen this year or not? And is Guadalajara benefiting from nearshoring and if you're seeing that as a medium long-term driver for Guadalajara? Thank you.

I mean, it's happening. The best way to see how the new sharing is happening in Guadalajara is the vacancy on the industrial park is almost huge. I mean, everything that is on development in terms of industrial parks is already digested by the market. it's a big part on development of industrial parks happening even really close to the airport in the El Santo area. So we think that all the new showing effect is beginning and we could see it right now in Guadalajara happening mainly in the electronics manufacturing that are the factories and some of the plants have been operating on Guadalajara for the last 10 or 20 years, are expanding their lines of operations to expand their production. So I think that we are seeing the coming months or years of directing results for the economy of Jalisco. We're here at the last quarter of this year in terms of the public information of Mexican authority that it could happen at the end of this year. Thank you.

And once again, that is star and 1 if you would like to ask a question. We will pause for a moment to allow further questions to queue, and we will take web questions at this time.

Hi, thank you. We have two questions related with the land acquisition in the webcast. The first one is from Bruno Morim from Goldman. He's asking, will these additional capex of land acquisition be included in the NDP process?

Yes, it was included as an authorization in advance for the master plan coming. So we already received the authorization and will be count, this amount of land acquisition will be count for the calculus of the new master plan, of the coming one.

Thank you, Robert. And the other one is from Rody Seymour from Brown Advisory. Unless the land purchase falls into 2024, has there been any changes to 2024 CAPEX plans? Would you still expect a similar CAPEX per passenger as you previously expected in 2023? Is it likely for the next MDP also?

Yes. I mean, the only main change on our CAPEX plan was related with the land acquisition. And we're still seeing for the... for the common master plan, the same level of capex per passenger that we have seen on this.

Thank you Raul. And I believe that this is the last question in the webcast. So I will turn back the call to the operator.

And we will take our final question on the line from Fernando Ricardo with BTG. Your line is open.

Hi, thank you for taking my question. Very quick here on my end, just wanted to hear the latest update from UNRWA's intention to reform the federal laws. We know that Congress is expected to resume activities in September, so just wanted to hear your updated thoughts on this topic, and also if you expect this to bring some impact on your next MVP revision. Thank you.

Hi, Fernanda. We haven't heard nothing from the authorities regarding the initiative changes that were announced last March. We will be looking forward to any change as soon as we have more information. And in case it affects or has some potential affectation to our positions, we will do some statement. But for now, We don't have any additional information. They said in April that for September they will send back to the Congress. But for now, we don't have more information. In the case for the next NDP, we do not expect any change for the revision of the NDP or the maximum tariff determination. The formula is pretty clear. The regulatory framework is pretty clear. We have seen our first numbers, and we will continue with this process that takes around two years. So we do not expect any change on that regard. Great.

Thank you. We have no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks.

Thank you, everyone, for joining us today at our Second Quiet Results Conference. The Zoom remains available to answer any questions you may have. Please enjoy the rest of the day. Thank you very much.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.