Good morning, and welcome to GAP's first quarter 2022 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 GAP's investor relations team. Please go ahead.
Thank you, and welcome to the Grupo Aeroportuario del Pacífico first quarter 2022 conference call. Presenting from the company today, we welcome Mr. Raúl Revuelta, GAP's Chief Executive Officer, and Mr. Saúl Villarreal, Chief Financial Officer. Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's future performance, or financial results. As such, statements made are based on several assumptions and factors that could change, causing actual results to materially differ from the current expectations. For a complete note on the forward-looking statements, please refer to the quarterly report issued earlier this week. At this point, I'd like to turn the call over to Mr. Revuelta for his opening remarks. Please begin, sir.
Thank you, Maria. Good morning, everyone, and thank you for joining us today. GAP experienced solid results during the first quarter of 2022, reflecting the recovery that has been prevalent throughout the Mexican travel industry. We reached almost 30 million passengers, a recovery of almost 70% compared to 2021, and an increase of 6% versus 2019. This outstanding result was mainly driven by growth at the Tijuana and Los Cabos Airport, two of our strongest performing airports for the year 2021. Notably, Guadalajara also did well and, for the first time since the pandemic, experienced positive passenger traffic numbers during March, evidence of the strengthening business travel market.
As a result, aeronautical revenues increased by 47% compared to 2019, driven by the passenger traffic recovery throughout GAP's network, as well as an increase in the maximum tariff, reaching 97% of the approved maximum tariff. Moving on to the commercial revenues, these rose by 33% compared to 2019. Most of the increase came from food and beverage, retail operations, as well as duty free. The tenant discounts that we have discussed previously continue in place. However, given the passengers' traffic recovery, most tenants ended up paying their revenue share. As we mentioned in the previous call, we renegotiated the terms of several contracts, which resulted in financial conditions that were more positive for the company.
In addition, we opened more square meters, both reflected in the extraordinary increase of 87%, which we can see in the total commercial revenues compared to 2021. The only business line that continues to lag is advertising, with a -48% versus 2019. There are, however, several strategies that we are working on to mitigate this impact, including the development of digital advertising using the actual airport spaces to enhance brand experience, for instance, the use of marketing showrooms. EBITDA reached MXN 3.7 billion for the quarter, with an EBITDA margin of around 74%. This was the result of the outstanding passenger traffic recovery, higher maximum tariff, and solid commercial revenues that were partially offset by the 26% increase in cost of service by 2019.
Only 15% increase excluding the consolidation of Kingston Airport, since this airport did not enter our portfolio until October of 2019. We have worked hard to maintain our cost control policy, but we do expect some higher costs coming in accordance with our expansions and inflationary effects. Moving on to the financial performance, cash and cash equivalents increased by 15%, reaching a total of MXN 16.9 billion. On the debt front, this figure reached MXN 31.2 billion. This includes the new issuance of another tranche of debt bonds in the Mexican market for a total of MXN 5 billion. A portion of these proceeds were used to pay the GAP 17 bond that was due in March 2022 for MXN 1.5 billion. The remaining portion will be allocated towards mandatory CapEx for this year, as well as other commercial investments.
It is important to mention that the rating agencies of S&P and Moody's both gave this bond a AAA rating on a local scale due to the GAP's solid results and strong fundamentals. In accordance with these figures, we continue with healthy leverage levels, reaching a net debt to EBITDA ratio for trailing twelve months of 1.1 x, complying with all our debt covenants. Moving on to the CapEx. In Tijuana, the construction of the Transit Processing Building progressed as planned. If you attend our GAP Day 2022 event, you were able to see the first half, an almost finished project. Since the event, a lot of work has been finalized. We are scheduled for the official opening in May 2022.
This new building will add around 40,000 sq m , and it will greatly expand our ability to better serve international markets, complementing the great functionality of the Cross Border Xpress. In the Guadalajara Airport, we continue with the construction of the second runway, as well as a new commercial mixed-use building. We expect that this building will be completed during 2023, and we look forward to sharing those updates with you in the future communication. The international terminal building in Los Cabos continues its expansion, adding around 20,000 additional square meters, which also includes commercial spaces. I want to mention that the construction project has reached 50% progress rate. Additionally, we are currently working on the design for the second terminal building in Puerto Vallarta, which is already in the first stage of construction.
To conclude, I want to mention that our ordinary and extraordinary shareholders meeting took place last week, and all the proposals in the agenda were successfully approved, with a quorum of 82.9% for the ordinary shareholders meeting and 86% for the extraordinary shareholders meeting. As I mentioned, we have a very successful update in the new Transit Processing Building in Tijuana last month. I just want to say a special thank you to all those who attended, as well as our team who put it together. At this point, that is for my remarks. I will ask the operator to please open the floor for your questions.
Thank you. At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that's star and one to ask a question. The first question comes from Guilherme Mendes with JP Morgan. Your line is now open.
Hi, guys. Good morning. I have two questions. The first question is regarding margins. My question is how sustainable do you see margins going forward? You just mentioned about cost pressures going forward, but what can we expect in terms of the margins over incoming quarters? The second question is in terms of traffic performance. What is the outlook for traffic in 2022? Thanks.
Hi, Guilherme. This is Raúl. I mean, in general terms, I will say that exactly with all the pressure of that we will have on cost, on one hand, the inflation that is happening around the world, and in the second part, additional square meters that we are putting into our portfolio with expansion of Tijuana Airport, for instance, or Cabo Airport in this year. We for sure we're gonna have some additional pressure on the cost. I will say that talking around margins that will be aligned with a 70%-72% will be something that could be sustainable on time. Again, we are in, I would say, a really shaky moment when we are talking about inflation.
I would say that could be one of the areas of pressure for this year. Talking about the outlook for traffic in 2022, as we said in our guidance, we are expecting going from the range of 14%-20% increase. Again, we also talk about this guidance assuming that there is no other additional problem with the pandemic or all the deliveries for planes or additional planes with the fleets of the Mexican airlines, of course, on time. We are aligned on that guidance of traffic.
Very clear, Raúl. Thanks.
The next question comes from Alejandro Zamacona with Credit Suisse. Your line is now open.
Yeah. Hi, Raúl. Thank you for taking my questions. Quick question on in terms of dividend. So we should start to assume that the MXN 10.5 billion dividend or 14.4 MXN per share dividend is in some way a catch up for the dividend omitted in 2020. How should we think for dividends going forward? Thank you.
Yes. Hi, Alex. This is Saúl Villarreal. Well, as we have mentioned before in the previous quarters, we will try to normalize our dividend payment. We just recently announced that the shareholders meeting approved the payment of MXN 14.4 per share for this year. Indeed, we are planning to pay in 2 tranches during the year. We would like to see the normalization of the dividend as we had in the previous to the pandemic. 2020 was the only year that we didn't pay any dividend. We are considering to continue and normalize for the coming years.
Okay. Thank you, Raúl. My second question, if I may, in terms of labor cost, do you have any plans for hiring new staff in the upcoming months or quarters? With the terminal expansions in Los Cabos or in Guadalajara, I mean, this could be a potential impact on costs for the upcoming quarter, you know, so curious on that point.
Yes. Hi Alejandro, this is Raúl. I mean, just as we talked in different conference call, it is important to remember that all the airports work with some way the economies of scale. Always the costs arrive first then the passengers, because at the end of the day, when we put in place a new facility, if the facility is designed for GAP, or expand the possibility of attend passengers for at least 5-6 years. I would say that for sure, as we put in place or we put in operations the different terminals, we wanna see some slight jumps on the cost.
The first one will happen in the coming weeks, that we will begin operation of the Tijuana airport, the new building. At the end of the day, we are increasing more than 80% the total square meters of the airport with this new terminal facility. Yes, we're gonna see a jump in cost, in cost because for this example, we're gonna have additional maintenance, additional cleaning services, additional security services, energy consumptions, insurance, everything for a new building. I would say that for sure we're gonna see some kind of jump in the cost of operation for the opening of Tijuana in May.
For sure for the end of the year that we will end, we will end the expansion of the T2 in Los Cabos. Also we're gonna have some additional jump. I would say for this year, this will be the two only facilities that we will begin to operate and that could have some kind of impact in the cost of operation. I will say for the side of the management, these are the more clear effects that we wanna see in the coming months. For sure, we also know that inflationary effect will give us some additional pressure. For sure we will try to avoid as possible on all this impact with the negotiation of our different contractors.
The truth is that it is something that's happening around the world, so it would be difficult to say that GAP will be maintained neutral to this effect.
Okay, Raúl. Thank you very much.
The next question comes from Juan Macedo with GBM. Your line is now open.
Hi. Thanks for the call and congrats on the report. My question is regarding CapEx. We saw a slightly weak deployment for the quarter, considering your guidance for the year. Could you give us some color on a possible timeline you have for the full deployment of the CapEx?
Hi, Juan. Yes, it is in the first quarter of the year. It's complicated because we have to conclude some projects, but according as we advance in the year, we will make and deploy in a higher level and a higher pace the CapEx, not only for the mandatory CapEx, which is the MDP, but also for the commercial projects. We have several projects like the second runway in Guadalajara, which is already on the way. We have the construction of the mixed-use building in Guadalajara, which is already on the way also. We are finishing the CapEx for the Tijuana airport, and we are also finishing the expansion of the Los Cabos Terminal 2, the expansion.
It will be accelerated in the following months, so we are pretty confident to reach the level of CapEx that we announced in our guidance.
Okay, great. Thanks for the color and congrats on the results.
The next question come from Bruno Amorim with Goldman Sachs. Your line is now open.
Thank you. Thank you for taking my question. I have a question on your traffic growth guidance for the year. You know, if we just multiply your first quarter traffic by 4 as a way to, you know, simplify a forecast for the full year, you know, this implies 17% growth year-on-year, which is pretty much in the midpoint of your guided range. You know, to the extent that there could be additional growth during the year, you know, don't you think the guidance is kind of conservative? Is it a fair assumption to make? Thank you very much.
Yeah, for sure we are being somewhat cautious because let's think for a second that some different changes with the pandemic is happening. In Mexico, for instance, what used to be the biggest airline in terms of domestic traffic that used to be Interjet stopped operations for the pandemic. We know that in Mexico we are having a lack of capacity in terms of the domestic planes. For sure we know that the demand is there, but in some way we know just seeing the load factors of the different airlines that the space, for instance, in Viva Aerobus or Volaris are getting a really higher load factor in their planes.
What I'm trying to say is that all the rest of the fleet that the airlines has announced for sure will give us some additional jump or even could give us some more positive result on the traffic. At the end of the day, depends more on their capacity to bring additional fleet. In that area, one of the other additional big question that everybody in the market is in some way asking is for new planes, there are some parts that in some way are jeopardized by the war in Ukraine. I mean, some of the titanium parts of the planes, for instance, have a shortage in terms of inventories.
At the end of the day, I see some kind of risk coming for the additional fleet. In general terms, I could say that if the Mexican airlines fulfill their original plans or the plans that have announced, for sure we could be more in the positive side of the guidance or even higher. For sure, I would say, Bruno, that our numbers as always caution, and taking account different risks that we are seeing on the horizon. For sure, if this risk will not occur, for sure we're gonna be in a more positive result for the end of the year.
Thank you very much. Very clear. If I may just a follow-up question. You know, interest rates, the ten-year rates in Mexico are on the rise. They are now near multi-year highs, and they are an important component of the, you know, tariff adjustment process every five years. Do you think, you know, let's say, let's assume, for the sake of simplicity, the ten-year rates remain where they are, near 9%. Is it straightforward for you to see that being reflected into the allowed return during the MDP process, or is there any sort of subjectivity around that?
Hi, Bruno, this is Saúl. Yes, you're right. The interest rates are higher right now, and obviously, it depends at the moment of the inclusion of the review of the MDP in the new tariff approval from the authorities at all. We are going to consider the new at that moment the new rates. It's something in our favor? Yes, absolutely, because this is a moment that we have, in some way, a defense position because we have 78% of our interest rates fixed. We have an average cost of finance of around 7%, which is very good according to the circumstances. For the tariff negotiation, we will consider the last 24 months of the average of the interest rates.
It implies that in case we are in middle of the negotiation, we will consider a higher level of rates. You are correct.
Thank you very much.
The next question comes from Filipe Nielsen with Citi. Your line is now open.
Hello, everyone, thank you for taking my question. I have two questions on upside. The first one is regarding traffic recovery. How do you see Jamaican traffic recovery in the coming quarters versus Mexico recovery? And how do you see it building up, like, some tourism traffic from Southern Mexico? And how do you see the tourism in Jamaica building up compared to the Mexican tourists? That's the first one, then I'll ask the second one.
Okay. Thank you. Talking about the recovery of the traffic in Jamaica. Let's remember that the Jamaican authority has been more aggressive in the past in the way that they manage the COVID. Some time in the last year, they closed completely the island. What is important also to remember is that the peak season for the travelers in Jamaica runs from November to March. Part of the restrictions that the Jamaican government put in place, of course, touched part of the winter season in the last year and part of this year. I would say that we are really positive of the results that Jamaica will have for the next winter season. I mean, in the next November.
We are seeing that the most important, I would say structural change for our leisure destination is happening. That is the expansion of keys. Montego Bay is developed. It's right now in the area of development of Montego Bay is happening at enormous growth of additional keys. I would say that we are positive in the middle and long term of Jamaica because the attraction of new hotels is still happening. For the case of Los Cabos and Vallarta, it's also happening the same. We are seeing a huge construction of additional keys in the case of Vallarta. One example of that project is the Cirque du Soleil of Grupo Vidanta. That is putting in place a really important project for the coming years on Vallarta.
The first stage of this project will be open and inaugurated on November of this year. In Los Cabos, it's an interesting boom in real estate that give us the sense that the future will be also really excellent for Los Cabos. I would say that resuming, we are seeing that in all our leisure destination at Los Cabos, Puerto Vallarta, Montego Bay, there's an important growth of key rooms and hotels, the development of real estate that give us, in some way, the tranquility of the really optimistic future for coming years.
When this is mixed or blended with the change in some of the trends of traffic in the world, that the long haul is not working as good as in the past, that we are seeing some kind of trend of people going for vacation in a more closer area than in the past. We're also seeing that U.S. will be a market that will for sure accelerate the result of leisure destination at Cabos, Vallarta or Montego Bay.
Thank you for the answer. I have a second question, if I may. Do you see any new projects outside of Barbados that you're interested in? How are the negotiations or studies for new airports in the future?
For the moment, the only project that we are seeing is Barbados. We are, as you know, really careful about and disciplined about all the M&A strategies. For the moment, I would say that the only project that we are seeing is Barbados.
Great. Thanks very much.
The next question comes from Lucila Gomez Palomino with Compass Group. Your line is now open.
Hi. Thank you for taking my question. I have two questions, and my first one would be, do you feel confident on the current maximum tariff that you have in place? Are you maybe looking forward on the coming months, the quarter to reach 100%? My other question would be in the commercial side, do you currently have any discounts to help increase, for example, on the restaurants and stores to help them out or during the pandemic, or are you no longer giving any more discounts, and when?
Hi, Lucila. This is Saúl Villarreal. Thank you for your questions. Yes, we feel confident about the maximum tariff. Right now, we are in the level of 97% of fulfillment. We just adjust some of the passenger charges from April in some of our bigger airports in Mexico. We believe if we continue with this trend and the passenger traffic continues, we will reach the total of the maximum tariff. We have to consider and taking in account the exchange rate will affect in favor the fulfillment of the maximum tariff. We have to consider also the inflation. A higher inflation is more complicated to reach a higher or the 100% of the maximum tariff. It depends of these two external factors.
For now, we are pretty confident to reach 100%. In terms of the commercial side, we have been giving some discounts according to our program of incentives and supporting some of our tenants in our airports. However, due to our passenger traffic trend and recovery, the effect is very irrelevant. We do not see that we will continue providing. We have to take into account that the discounts are over the minimum rental, and most of our clients are paying already the royalty fee, which is higher than the minimum rental. The effect of the discounts are not relevant at this moment.
Perfect. Thank you.
As a reminder, if you'd like to ask a question over the phone, please press star and one. You may also submit a question via the webcast. The next question comes from Pablo Monsivais with Barclays. Your line is now open.
Hi. Thanks for taking my question. I have a quick one. I recall that you said at the beginning of the call that you renegotiated some contracts, commercial contracts at your airport. Can you please give us some color on what is your expectations on the non-aeronautical revenue per passenger growth? Because we have seen an improvement over the last few quarters, but I want to see if there's a chance that we should see that number increasing, I don't know, 5, 6, or 10%, or it's just gonna be flattish or following an inflation. Just a little bit more detail on that will be great. Thank you.
Thank you, Pablo. I will say that there's two big parts that are in some way helping us, or three parts that are helping us to get a better result on commercial revenues. The first for sure is the passengers. The key part there for sure is the volume. Also if we see a better, even a better recovery on international passengers in Vallarta, Cabos and Montego, we will see some additional jump on the commercial revenues. The second is related in the newer spaces. For instance, as you know, everyone knows, Cabos has perhaps one of the biggest ratio of commercial revenue per passenger in Mexico.
As we have the new building or the expansion of the building in Cabos in time for November of the new season of passenger in Cabo, we now have some additional jump on the results. I will say last, some of the contracts that we have renegotiated are related mainly in Vallarta. What happened in Vallarta, as everybody knows, we are beginning the construction of the new terminal building that will be operative on two more years or for the last quarter of 2024. In the midterm, we have at least two years and a half in the actual terminal that we need to take some advantage of the recovery of the passengers.
We begin some negotiation of really short time of two years and a half contract to get some additional revenues for the case of Vallarta. I would say that in general terms, we are optimistic to maintain or even increase more our results on the ratio of commercial revenue per passenger. We have almost MXN 85 per passenger in the first quarter. I would say that we will continue that trend of growing for the end of this year.
Perfect. Thank you very much.
Once again, that's star and one to ask a question. You may also submit a question via the webcast. You have a follow-up question from Guilherme Mendes with J.P. Morgan. Your line is now open.
Hi, everybody. Quick follow-up question. In Jamaica, how has been the negotiation regarding potential rebalance on the contract?
Hi, Guilherme. We have been working with the government of Jamaica regarding this. The authorities are hiring some advisors in terms of begin with the negotiation. Our perception is that we will finalize at the end of the year. Even though we have a very good relationship with the government, it is important that the negotiation will be done by a special team integrated by different ministers from the government. We have to wait until this is fully integrated and the advisors are ready to begin with the negotiation. Our best estimate is to begin in June in order to finalize at the end of the year.
Okay. Very clear. Thanks.
There are no further questions over the phone at this time. At this time, I would like to hand the call over to the team for any closing remarks.
Thank you everyone again for joining us today in our first quarter results conference. We want to remind you that we are always open and available to answer any question. On behalf of GAP, we wish you a great day.
Thank you. This does conclude today's call. Thank you for your participation. You may now disconnect.