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

Good morning and welcome to GAP's fourth quarter 2024 conference call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions. I am pleased to turn the call over to GAP's investor relations team. Please go ahead.

Thank you and welcome to Grupo Reportario del Pacifico's fourth quarter 2024 conference call. Presenting from the company today, we have Mr. Raul Revuelta, GAPS 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, future performance, or financial results. As such, statements made are based on several assumptions and factors that could change causing actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the quarterly report. At this time, I'd like to turn the call back over to Mr. Revuelto for his opening remarks. Please begin, sir.

Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2024 earnings conference. It is a pleasure to be with you here today to share GAAP's financial and operational development. Let me begin with the financial highlights. This quarter has been a period of recovery. After various industry challenges, both revenues and profitability have remained positive. Total revenues without I3 plots increased by 16.4% compared to the same quarter of the last year. The 32.7 percent increase in non-aeronautical revenue was the main driver for the growth we experienced. Overall, passenger traffic grew by 1.4 percent year-over-year, driven by the opening of 22 international and 11 domestic routes, in addition to more capacity from Volaris and VivaFleet. The non-aeronautical revenue segment rose by 32.7 percent being the top contributor to our revenue growth. Here we saw a remarkable improvement to the consolidation of the cargo facility businesses, better performance on VIP lounges, and the operation of the hotel. In addition to the good performance in the retail, duty-free, and food and beverage divisions, the new businesses have contributed significantly to overall revenue diversification which make it one of our main strategic growth pillars going forward. From an expenses perspective, service costs have increased by 29%, largely driven by consolidation of the cargo facilities and the cost of operation of the hotel, besides additional headcount for airport operations and salary increases in Mexico, derived from several changes in labor law. On the other hand, New operational areas have implied higher consumptions of energy, security, and cleaning services, which are unavoidable despite the efforts for management to control costs. Evidence increases by 14.9% year-over-year, reaching 4.8 billion pesos, with an evident margin of 66.9%, excluding the effect of the IFRIC Trust. Slightly below, our EBITDA margin in fall quarter 2023, mainly due to the increase in the concession fee in our Mexican airports, which changes from 5% to 9% in 2024. Moving to a macroeconomic perspective, the 14.1% peso to dollar depreciation has played a dual role. While it has caused high revenues generated in U.S. dollars, it has also led to higher financial costs. particularly in terms of debt services. Moreover, inflation in Mexico and U.S. CPI decreased in 2024, increasing pressure to the future interest rates for loans denominated in pesos and U.S. dollars. We continue to carefully track and manage these impacts to ensure continued financial stability. If we look at full-year financial results, 2024 was a year of strategic growth, and one where GAAP demonstrated resilience once again. There were industry challenges, such as the grounding of Volais and VivaFlip, and increase of the concession fee. However, revenue and profitability remained in a positive trend. As a result, full-year results were in line with our expectations. Total revenue rose by 5.3%. This growth was primarily driven by the 24.4% decrease in commercial revenues, which more than offset the slight 0.8% decrease in analytical revenues. The significant growth was mainly due to the business line operated directly by us, which saw a 58.4% increase. It is essential to note that in 2024, we commenced operations on mixed-use buildings and acquired GWTC, both located in Guadalajara. Regarding the business lines operated by third parties, it increased by 10.5%, mainly due to the food and beverage, car rentals, retail, and leasing office space. Cost of service increased by 20.2%, mainly driven by increasing headcounts and higher salaries. security and insurance, maintenance expenses, and utility costs. The consolidation of the cargo facilities and the operation of the hotel contributed to a higher cost of operations, and the additional square meters of the terminal buildings resulted from all the expansions, as well as added personnel and minimum wage increases. EBITDA grew by 2.4%, reaching roughly 18.1 billion pesos, while EBITDA margin, excluding AFRIC 12, reached 67.6 percent. Gas overall financial position remaining robust. As of December 31, 2024, we reported total asset increase of 14.2 billion pesos, an increase primarily driven by the improvements to concession assets, a stronger gas position, and strategic investment. Total liabilities increased by 10.5 billion pesos, mainly due to the issuance of long-term debt securities and bank loans, thus reinforcing our capital structure for future growth. Moving on to the capex, we deployed 7.9 billion pesos during the year, thereby compiling the committed investment for 2020-2024 period in addition to the commercial product. In the next five years, we are planning unprecedented growth in our infrastructure, and it's reflected in many of our reports. Just a few weeks ago, GATT presented its 2025-2029 Master Development Program for Guadalajara and Puerto Vallarta with a large event in Jalisco. The event, titled Transforming for You, featured the upcoming investment plan for our major airports in Jalisco. We invite you to take a look at our social media accounts where we illustrate our commitment to regional development and our strategic focus on infrastructure enhancement to meet the growing demand in the market. Most importantly, this investment reflects our confidence in the long-term growth potential of our main markets. The main projects include the second terminal of the airport in Guadalajara, which will add around 7 to 3 percent capacity, as well as new vehicle access roads, which will make it easier for traffic to flow to this airport. In Puerto Vallarta, we will conclude the second term of increasing capacity by 134 percent. Please note that the investment amounts disclosed at the end are the upper-asset figures by our regulator, but included annual projected inflation at a rate of 4 percent using the construction price index. Looking ahead, we are pleased to announce our growth guidance for the full year of 2025 compared to 2024, reflecting a strategic development across our operations. In terms of passenger traffic, we expect to grow from 4 to 6 percent, driven by the consolidation of existing routes, increasing flight frequencies and additional seat capacity. Regarding aeronautical revenues, we expect to grow for 23 percent to 25 percent, supported by the implementation of new tariffs approved by the Authority for our airports in Mexico, alongside positive traffic performance, inflation adjustments, and expected exchange rates. We anticipate an increase of 24 to 26 percent on new aeronautical revenues Due to the improved contract conditions, the full year operations of our cargo facility, the hotel, and corporate office, as well as the development of the additional business lands managed directly by the company. In terms of the margin, we expect it to be 66 plus minus 1%. This is mainly due to the change in the concession fee, which has increased from 5% to 9% for our percentage. To finalize, CAPEX will be around $13 billion. This includes $8.8 billion for committed investment at airports in Mexico on their master development programs, $1.7 billion for the continued construction of the new terminal building in Puerto Vallarta, $1.5 billion for the investment at airports in Jamaica, and $1 billion for the commercial investments. This work guidance reflects our commitment to strategic development and value creation, setting a solid foundation for the continued success in 2025. We are confident and excited about our strategic direction. We believe that diversifying revenue streams, enhancing commercial operations, and leveraging the cargo facilities will be key to our continued growth. Therefore, we are extremely focused on these areas and on their success. Now we must continue to strengthen our infrastructure as well as optimize operational efficiencies in order to deliver long-term value to our stakeholders. We appreciate your continued trust and support in GAP. Thank you for joining us today, and we now open the floor to your questions.

At this time, we will open the question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad, and you'll be placed into the queue in the order received. You may remove yourself from the queue at any time by pressing pound and 1. Once again, to ask a question, press star and 1 on your phone now. And our first question today will come from Rodolfo Ramos with Bradesco BBI.

Thanks for taking my question. I have a couple, if I may. Could you just help us reconcile what seems to be a rather conservative traffic guidance in a year where a lot of the headwinds in terms of traffic will not be there anymore? So if you can elaborate a little bit on the drivers behind the guidance. And secondly, on the gradual rollout of your new tariffs, maximum tariffs, can you just give us a little bit more detail on the schedule and magnitude that you're intending to follow and whether this was a commercially driven decision to postpone this? Thank you.

Thank you, Raul. This is Raul. In terms of the traffic, the 4% to 6% guidance is related to the number of seats already in the pages for commercialization and the slots that are already solicited by the airlines. In this line, for sure, if there are some other additional routes that have not been announced yet from the part of the airline, will be for sure an upside in our For the moment, the only thing that we are taking into account is that the specific routes already announced by the airlines or the ones that are already solicited by the airlines asking for specific slots. So in that way, our guidance only reflects this kind of data that comes from the database. The second part of the question related was in our strategy for the change on the specific tariffs for the coming years. On March 1st, we will increase 15% of the passenger seats. For sure, that will give us the chance for have a fulfillment of the maximum tariff. from 89 to 90% depending on the change rate. And we will have three different moments from additional increase. So what we are expecting is to having the 100% of fulfillment or the maximum time during the 2026.

Perfect. Thank you. Just to clarify, so you will not have increased in any amount the tariffs during this quarter. It'll be until March 1st. Did I understand that correct?

That's correct. As you can see, it's five years, and it happens always in the same way. The law of airports made us some different steps until we get the authorization of the authority. Always it takes us like around 90 days. On this case, the authority gives us the authorization for the release of the new carrier that will be applied for March 1st.

Okay, thank you, Ron. Thank you, Rolfo.

Our next question will come from Pablo Monsabas with Barclays.

Hi. Good morning, Raul and Ale. Just I have a question on the commercial revenues of Guadalajara. Last year you opened a lot of new spaces and the commercial revenues are increasing. But are we in 2025 in a more normalized environment or still there is some upside to the numbers that you are right now reporting? Thank you.

Thank you, Pablo. I would say that it could be some kind of upside depending on the mix of traffic for Guadalajara Airport. For instance, if we begin to see a more strong trend of growing on the international side, always, for instance, the food and beverage business will grow in even a faster pace than we expected. Let me put it in this way. Today, we have all the new spaces already operating. We are seeing that the new brands, for instance, in food and beverage or retail, have been well-accepted by the consumer, by the passengers in the airport. But for sure, we expect a better, I would say, knowledge of these new brands and for sure a possible increase on possible sales on these business lines. But for sure the mix of the passengers could make some upside for the revenues on the commercial side. The other part that is important to have in account is the cargo facility, JWC. As you remember, In July of last year, we began with the consolidation of this facility, of this new business. So we will have, I would say, an issue come. We will consolidate six months of revenue that we were having in the past year. And the other part, the other thing that's going to be interesting to see is the moderation of the hotel. The hotel in Guadalajara began operations on March, the last week of March of last year. The pace of the, I would say, how the low factors, the yield of each room begins to grow gradually. I mean, it begins like all the, Like all the new hotels, the development of that, we think that this year is going to be an excellent year in terms of consolidation and a more, I would say, bigger growth on the hotels that we have on the last year. But that mainly some of the additional colors for Guadalajara.

Perfect. And I have a second question, if I may, on the TORQ and CAICOS acquisition process. Are we still in the schedule that you provided last year? How are we doing in that project? Thank you.

Thank you, Pablo. The government has changed again the final time for the results of the tender. So we are still waiting for that. We think that could be during March, but we really don't know if that's going to be the case. But we are waiting for the final results.

Understood. Thank you very much. Our next question will come from Alberto Valerio with UBS.

Thank you, Raul, Saul, for the opportunity, Alejandro, also. My question, I have two on my side. One is, how about the negotiation with the airlines and for the airports that we have the higher increasing tariffs that we started here? If it's a letdown, it's a fail to some, not to be negotiated yet. And the second one about M&A as well, if you have any interest in assets outside. I know there are assets outside Mexico and in Caribe and Brazil. As you may know, we have some players selling assets in South America and in Central America at this time.

Thank you. We took from you.

Thank you very much, Raul. Just to remember, it's important to have in mind that the change on tariff, it would not be like some kind of direct negotiation in terms of the airport's law. We could change it directly and it passes through a procedure through the authority. Each year, we have some different package of discounts on specific routes that we use to, you know, for support in the ramp-up of some of these routes. On that area of, I would say, airport marketing and new routes, we used to have different packages for supporting new routes and the new launches of routes from airlines. In that way, we negotiated several different discounts in all our airports, depending the amount of new routes that will happen. So on this year, we have, for sure, on one hand, a big increase on terms of the maximum tariff. But on the other hand, we have different or several packets of discounts for airlines with the idea of supporting their relaunching of some groups that will happen on the coming months. So that will be the, I would say, the kind of negotiation that we have on a daily basis with their legs. In terms of different M&As, we always are looking for opportunities in our sector. For sure, we have an important discipline trying to look for jobs or bring to the table only opportunities that will be a creative tool for other stakeholders. So in general terms, for sure, we will review each kind of opportunity that could be in the market for airports in our region, but always with the discipline of only participate in the ones that we think that could bring be created for the value of the company.

Thank you very much, Paul, for these days. We'll move to our next question from Yen Spice with Morgan Stanley.

Yes, thank you for taking my question. Just along those same lines, I just want to understand the 15% increase you mentioned for March. Why not 20%? What's the thought process there? You already mentioned some marketing campaigns for your routes and stuff like that. How does the economics of it work? If you increase it 20%, that would probably have a hit on your maybe on your traffic assumption, but wouldn't it offset it? Just if you could walk us through the thought process of choosing that 15%.

Hi, and this is... Well, the target increase is according to the trends in the... and the market expectation. Obviously, there's some effect into the performance of the passenger traffic. If we increase more than is supported by the market, it will be more complicated to positive traffic increase. So we made some analysis, and those analyses were about What kind of increase? It depends on the airport. It's not a 15% for each airport. It depends on the market or the type of airport. But it's a 15% general direct increase considering that just to try to incentivize the market and not interrupt the future growth. Obviously, we have... some consensus internally and with every stakeholder to try to see what is the best approach. So the three times increase will be in the future. And as Raul said, our target is to raise 100 percent of the maximum target in 2026. I'm sorry. Just to complement, in terms of the marketing report analysis that we do and all that our marketing team does that work, that they do with the airlines, international and domestic airlines, to try to do and expand more frequencies and bring more routes into our airports.

I understand. And just one follow-up on your guidance for traffic for this year. You mentioned that it's basically based on the slots that you have been negotiating, so basically capacity. But Volaris has been mentioning that basically the Pratt & Whitney issue will extend for basically until 2027, also that they're seeing some VFR cross-border weakness in demand, which which I guess of the three airport groups, maybe you're one of the most exposed. So do you see any risk of potentially lower load factors that could put some risk to your traffic guidance, or do you feel very comfortable with that level? Thank you.

I would say that we are comfortable with the level of the traffic, and let me put it on this way. For sure, we are beginning to see a softer... I would say growth in the economy of Mexico. The GDP data has already been delivered by the government, and we are beginning to see a softer increase of the economy of the GDP, and for sure it will have some kind of direct impact on the demand for the passengers. But the other hand, we are still having a big decrease or lack of capacity just for the P&W engines in the market. So for our view, even if we have softer demand, there's so big a lack on passengers, on capacity, that could be absorbed the demand that we have right now. So in other words, we are at the moment with the data that we have today, we are really comfortable with our guidance.

Perfect. I appreciate the additional color. Thank you. And we'll move next to Jorge Vargas with GBM. Hi, good morning. Thank you for taking my questions.

I would like to know what are your views on the pace of domestic traffic recovery, especially considering capacity deployment from airlines? And a second question, if I may, what additional opportunities are you considering for expanding non-aeronautical revenue streams?

Thank you.

As we have said, the first part of what is more important for our forecast is in terms of traffic is the capacity and the routes that we already know in database. But one of the key factors that we are expecting for this year is a lot of recovery that maybe will come from some additional capacity, additional fleet that will arrive from Volaris and Liverpool. And we are expecting that some of the engines from PMW will come back in the coming months and will give us the additional capacity that we need in our airports. So that is why we are expecting this 46% in terms of our guidance. For sure, this guide is not considering any, I would say, change or critical change on the trend of economics or the BFR trends or any other kind of possible topic that change in a main way the way that passengers fly. But we are confident with our guidance. the investment to expand the commercial revenues, we need to end the expansion of the Guadalajara parking lot. It's an important investment. We are in the first stage of increase. We will open additional parking spots for the summer. It's a really important investment for specific commercial We also have some additional investment for VIP lounges. We have some additional or the final investment for the opening, for the full opening of all our offer for rental space for offices. in Guadalajara Airport. So that are mainly our key projects. And also showing the expansion of commercial areas on Kingston Airport. That will be the main investments on the non-analytical side. It is important to remember that on all the 5G period, we will have a huge expansion on the total square meters in our terminal buildings. We are saying that we will increase around 50% our total capacity for the end of the period, 2029. But the biggest part of the expansion will begin to opening, probably, 2026. At the end of 2026, we will have Puerto Vallarta. around 28 Guadalajara. So, gradually, during the next four years, we will have openings on big expansions in terms of terminal buildings that will give us the possibility to expand our commercial spaces and the commercial areas of the airport. So, all these expansions will be gradually So the idea is trying to keep refreshing our layouts, refreshing the brands on the commercial side, and, you know, bring the best possible offer on the commercial for our passengers. And that will be the idea for all the next five years.

Thank you. We'll move next to Jason with Citi.

Thanks for taking my question. It's Jason going on from Stephen Trent's team. I guess the first question I want to ask is, on a longer-term basis, do you see any possibility that the Mexican government might extend the airport concession expirations beyond 2048?

Thank you, Jay.

I mean, in terms of our contracts and in terms of the law of airports, there's a clause that It gives us a chance for an extension of an additional period of 50 years. But it says that we'll be in a direct negotiation with the federal government. It's not clear which could be the conditions for that negotiation. But let me say that in terms of our contract, there is a possible additional period of 50 years that is included in all the legislation and the contracts of the concession.

Thank you. And as a follow-up, I know you spoke a bit before on Turks and Caicos. Maybe could you talk about where you stand regarding other potential investments, maybe in the Caribbean or some of the other regions? Thank you.

For the moment, I would say that there's We are analyzing different process. Some of them, they are not public yet. But we will still analyzing and for sure we will give you some. We will make it public on the moment that we make the decision to participate on some of these, of some of these projects. But I would say for the moment we are analyzing different projects. None of them are public yet. That will be, I mean, the most important part, as Sam said, is that we will always try to analyze different options that will give value to our company. So that is a continuous effort on the company.

Thank you. Appreciate it. Our next question will come from Pablo Recalde with ITAU.

Hi, good morning. I have two questions. And the first one, I don't know if you have already answered it. It's on the CapEx guidance. Just trying to double check that of the 13 billion guided, you have already deployed 4.5 billion related to the MDP CapEx. And the other one, it's on the second installment of the implementation. Do you think it's fair to assume something around September or you think you can accelerate the second implementation?

Yes, we have some investments already made, basically the acquisition of the land in Guadalajara Airport, but we have a lot of things to do. more than 43 billion pesos in terms of 2022. Current pesos will be more than that. We are expecting to deploy around 52 billion pesos during the following five years. So we will have a very strong capex. So we release and try to split the type of investment and The way that we are trying to be is more clear what are for NDP, what are for commercial purposes, what are for Jamaica, and also the continuity of the 10-unit building in Puerto Vallarta, which we had a waiver from the authority to conclude in the following two years. So in general terms, we try to split it and to be basically more clear on that. But you are correct. So there are some investments that we already made. And regarding the second question. I would like to add, Pablo, the second touch of the tariff increase, it will depend on the trends of traffic. I would say that we will follow really closely the trends of the profits, but our main plan or our original plan would be to change it on January of the coming year. And the last one of the changes on the mid, I would say, some moment on the summer of 26 with the idea of fulfillment of 100% of a maximum tariff at the end of 2026.

Perfect, Raul. So just double-checking, 100% maximum tariff by December 2026.

Basically, yes.

Perfect. That was very clear. Thanks, Raul, as well.

Thank you.

We'll move next to Anton Mortenkotter with GBM.

Hi, guys. Thank you for taking my question. It's just a quick one. To clarify, the 15% increase you mentioned is in real terms, right?

It's not real terms. It's nominal.

It's nominal?

Okay. Nominal over the current tariffs. Okay. Thank you.

And we'll move next to Alan Macias with Bank of America.

Hi. Good morning. Thank you for the call. Just two questions. First, if you could provide the GDP growth assumption for your traffic guidance. And the second question is, is on GAAP's total EBITDA margin. Is the expansion limited by the consolidation of the cargo business? And we would be expecting a higher expansion due to the higher traffic and tariffs that you are guiding. Thank you.

Thank you, Alain. In terms of the GDP growth, we are assuming from 1 to 1.3% of increase on GDP for 2045? Yes. And this is a... I'm sorry. This is from... Well, the VITAS margin will be in that range. It will be very complicated to see the previous year's VITAS, VITAS margins, because the affectation from 5% to 9% from the concession fee is very relevant. Probably when we have 100% of the maximum tariff implemented, probably we could see 1% more than we are planning for this year. But it's complicated. The cargo facility has a different EBITDA margin, close to 55% to 60% in the future. but it's not significant to the business, around 5% of the total revenues. But the main effectation comes from the concession fee in Mexico.

Thank you. Understood. Thank you.

As a reminder, if you'd like to ask a question, please press star 1 at this time. And our next question will come from Jeremy Mendez with J.P. Morgan.

Hi, Raul, Saul. Thanks for taking my question. A quick one on Mexico City Airport. There's some news on the government potentially increasing the number of slots being operated on the airport. Do you guys have any views on the likelihood and timing for it to happen? Thank you.

Thank you, Jeremy. I mean, there's, I would say, some public information that the Mexican authority or the government is to increase the capacity of the Mexico City airport. I think that is good news for all the environment of airports in Mexico. At the end of the day, it's the biggest airport in Mexico, so additional capacity or additional slots for Mexico City always converted in the possible of additional operations and more efficient turnarounds for airlines operating in Mexico City that give us a chance for get some additional turnarounds in our airport. So I would say for the industry in the whole, could be a good news to have the increase on capacity of Mexico City Airport.

Great. Thanks, Howell. And once again, if you'd like to ask a question, please signal by pressing star 1 at this time. Well, we have some questions from the webcast.

The first one is from Edson Nurgia from Sumacap, and he's asking, regarding the 2025 road guidance, Volaris mentioned in the 424 call that they are expecting to have 30 aircraft grounded during 2025. How will it impact your traffic guidance?

There will not be impact in our guidance. The guidance already considered that that the number of ground planes for Volaris.

And there is a second question from Edson as well. What is the timeline for Puerto Vallarta's new terminal to be finished?

December 2026.

Perfect. Then we have the last one is from Bernardo Malpica from Santander. If I'm making you repeat this, sorry, I didn't manage to hear well. Is the 15% tariff increase real or nominal? Does it include inflation and discount reversals?

It will be 15% nominal for the tariff that we have on December of 24. I would say in the most simple way, The specific type that we are applying right now in our efforts will increase 15% from March 1st.

Perfect. Thank you, Raul. There is no further questions on the webcast.

Thank you, and there are no further questions over the phone either. I'd now like to turn the conference back to our presenters for closing remarks.

Thank you again, everyone, for joining us today at our Fulcrum Results Conference.

On GAP's behalf, we wish you a great day. Thank you. This does conclude GAP's conference call. Thank you for your participation. You may disconnect.