Greetings. Welcome to OMA's Q3 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anybody should need operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Emmanuel Camacho, Investor Relations Officer. Thank you. You may begin.
Thank you, Sherry. Good morning, everyone. I'd like to welcome you all to OMA's Q3 2022 earnings conference call. Participating today are CEO Ricardo Dueñas and CFO Ruffo Pérez Pliego. Please be reminded that certain statements made during the course of our discussion today may constitute forward-looking statements which are based on current management expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. With that, I will turn the call over to Ricardo Dueñas for his opening remarks.
Thank you, Manuel. Good morning, everyone. We appreciate you joining us today. This morning, we will review the evolution of our business and our Q3 performance. Before we begin, I would like to comment on an important update on OMA shareholding structure. During the quarter, we were informed by Fintech Advisory that certain affiliates of Fintech had entered into a share purchase agreement with a subsidiary of VINCI Airports for the direct acquisition of 29.99% of Series B and BB shares of OMA. This transaction will make VINCI Airports our largest shareholder. VINCI Airports investment in OMA represents an endorsement of the extraordinary performance we have delivered in the past and a confirmation of the potential of OMA's assets.
We are excited to be welcoming the world's leading private airport operator, and together create additional value by combining VINCI's global network and expertise with OMA's long-term strategy and prospects. We will not further comment on this transaction ahead of the closing, which is expected to occur in December 2022. I will now review our Q3 operational performance. In Q3, OMA's passenger traffic surpassed 2019 levels for the Q1 since the beginning of the pandemic. Total passenger traffic reached 6.3 million, an increase of 2% versus Q3 of 2019. Domestic and international passenger traffic increased by 1.8% and 3.7% respectively versus the same quarter of 2019. Our strong passenger traffic performance was guided by the continued improvement on the business travel segment in our main routes.
The Monterrey to Mexico City route, which is our most relevant route, was already at the same level of Q3 of 2019. Additionally, other important business routes such as Monterrey to Guadalajara and Ciudad Juárez to Mexico City, delivered important growth levels versus Q3 of 2019, with an increase of 12% and 34% respectively. As a result of the strong passenger traffic performance and the increase in our aeronautical tariffs in Q1 of 2022, our aero revenue grew 27% in the quarter versus the Q3 of 2021 to MXN 1.9 billion. On the commercial front, occupancy rate for commercial space in our terminals closed at 93% at the end of the quarter versus an 89% by the end of the Q2 of 2022.
Strong demand for commercial spaces was mainly guided by an additional 1,000 square meters occupied for the food and beverage and retail segment in our Monterrey and Tampico airports. Commercial revenues increased 34% compared to Q3 of 2021, driven by parking, car rentals, restaurants, retail, and VIP lounges. Diversification revenues increased 35%. Our hotel services and OMA Carga contributed most to this growth. In the Q3 of 2022, occupancy rate at our Terminal 2 NH Collection hotel was 79%, while the Hilton Garden Inn hotel had an occupancy rate of 77%. OMA Carga had another set of strong results as revenues increased 35% versus the Q3 of 2021, mainly driven by revenues from handling, storage, and custody of ground, airport, and import cargo.
As a result of OMA Cargo's continued strong performance during the quarter, we decided to increase capacity of our ground cargo operation facilities at Monterrey Airport. The expansion project entails an additional operating area of approximately 1,100 square meters, an increase of 70%, and is expected to be fully operational by the Q1 of 2023. On the capital expenditures front, total investments in the quarter, including MDP investments, major maintenance, and strategic investments, was MXN 839 million. During the quarter, we continued to work on the following major projects. Expansion and remodeling of the Monterrey Airport Terminal A building, as well as the Ciudad Juárez and Culiacán terminal buildings. Reconfiguration of the Mazatlán terminal building. Modernization of the Zihuatanejo terminal building. Major rehabilitation of platform and taxiways in several airports. Platform reconfiguration at the Monterrey Airport.
With that, I will now turn the call over to Ruffo Pérez Pliego for more detail on our financial highlights for the quarter.
Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results, and then we will open the call for your questions. Turning to OMA's Q3 financial results. Aeronautical revenues increased 27% relative to 3Q 2021.
Driven by a 23% increase in passenger traffic and an increase in aeronautical tariffs implemented in the Q1 of this year. Non-aero revenues increased 28%. Commercial revenues increased 34%, and the categories with the highest growth were car parking, car rentals, restaurants, retail, and OMA Premium Lounges. Car parking revenues increased 58% due to higher penetration in our Chihuahua, Monterrey, and Culiacán airports, as a result of higher business dynamism in those airports. Car rentals, restaurants, and retail increased 34%, 23%, and 34% respectively, mainly due to higher revenue sharing and the opening of new commercial space. OMA Premium Lounges increased 57%, due primarily to the recognition of revenues as a direct operation, as well as an increase in the number of users of the OMA Premium Lounges.
Diversification activities increased 35%, reflecting strong hotel and OMA Carga performances. Total aeronautical and non-aeronautical revenues were MXN 2.5 billion in the quarter, and grew 27% relative to the Q3 of 2021. Construction revenues increased 56% as a result of increased MDP investments. The cost of airport services and G&A expense increased 16% relative to the Q3 of 2021, mainly due to an increase in payroll expense as a result of increased headcount, higher salaries versus last year, and provisions, including statutory profit sharing. Contracted services grew due to overall higher activity in our airports, and materials and supplies grew as we recorded direct costs from the operation of the OMA Premium Lounges. Major maintenance provision was MXN 51 million compared to MXN 165 million in the Q3 of 2021.
OMA's Q3 adjusted EBITDA was MXN 1.9 billion, and the adjusted EBITDA margin reached 76.5%. Our financing expense was MXN 219 million, mainly due to higher interest expense as a result of additional debt issuance and higher cost of debt, as well as the non-cash implied interest on the major maintenance provision. Consolidated net income was MXN 1.1 billion, an increase of 36% relative to the Q3 of 2021. Turning to our cash position. Cash generated from operating activities in the Q3 amounted to MXN 1.6 billion, and cash at the end of the quarter stood at MXN 2.1 billion.
During the quarter, we paid the second MXN 500 million installments of the MXN 2.3 billion dividend that was approved in the 2022 annual shareholders meeting. At the end of the quarter, total debt amounted to MXN 9.2 billion, and our net debt to adjusted EBITDA ratio stood at 1.1 times. This concludes our prepared remarks. Operator, please open the call for questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Alejandro Zamudio with Credit Suisse. Please proceed.
Thank you. Hi, Ricardo, Ruffo, and Manuel. Quick question on the tariffs. During 2022 we have seen a slight increase so far in terms of the aeronautical revenue per working load unit. Is it fair that in 2023 you will be able to implement a tariff increase beyond inflation amid the last 13% real increase in the MDP negotiation?
Hi, Alejandro. This is Ruffo. Certainly, beginning of this year, we implemented approximately 11% increase in our tariffs throughout our airports. We do not expect this year to get to the maximum recovery. In fact, we should be around the same level of last year, around 92%. For next year, we are targeting increases. We still have yet to define what the level of increases will be, and we'll take into consideration the expected inflation for next year as well as the overall situation of the industry.
Okay. Ruffo, thank you. My second question, if I may, in terms of the margins, just a question regarding how sustainable do you believe this high 70s% margin is achievable for long term?
Thank you, Alejandro. Yes, we think 76, something close to 76% margin is sustainable in the long term, in the medium term.
Okay. Thank you.
Our next question is from Juan Ponce with Bradesco. Please proceed.
Hi. Good morning, everyone. I have a question on Monterrey. We saw in your most recent traffic report north of 5% above pre-pandemic levels. In your view, what were the main drivers in September and going forward? Is nearshoring actually moving the needle? Do you think these drivers will be sustained next year amid a potential slowdown? Thank you very much.
Thank you. Yeah. Yes, we think they're sustainable. Two things that have helped us in our favor is business traffic has been recovering. As you know, it was the traffic that was lagging VFR and leisure traffic. We're starting to see more dynamism in that sector. Also, the nearshoring effect has had some positive effects in our airports. You can see that by looking at some of the traffic, for example, in Juarez, where we're already much higher than the traffic that we used to have in 2019.
Okay, great. Thank you.
Our next question is from Filipe Nielsen with Citi. Please proceed.
Hi. Good morning, everyone, or afternoon. So I have two questions on my side, and thanks for taking my questions. I'd like to know what are the impacts you're seeing from the Mexico City airports reshuffle into your airports? Is it good or bad? Like hubs in Monterrey, less business travel flow from Benito Juárez, et cetera. How are you seeing that? The second question is what are your thoughts on new projects? If you have any intentions on expanding outside Mexico or even getting new projects inside Mexico. Would like to hear a little on that. Thank you.
Sure. In terms of the new airport effect, it's still too early in the process. What we know is the government has been very clear about trying to decentralize traffic from Mexico City. That is an opportunity for private airport groups like OMA. When we see that trend in which a lot of the traffic will start to bypass Mexico City, we believe Monterrey is strategically located across the United States to take advantage of the situation. During the quarter, we opened new routes to Santa Lucía Airport, to Toluca. We think a shift might happen, but it's not going to be immediate effect. As to new projects, well, we are executing the MDP plan. We're in year two of the plan.
Our main works are Monterrey, Culiacán, and Ciudad Juárez major terminals. As for expansion abroad, we're always looking at potential opportunity to expand. So far we don't have any concrete transaction in the table. We're always open to listen to opportunities. We were participating, as you know, in the Barbados privatization process, but our understanding is that it was recently canceled.
Okay, great. If I may, I just have one follow-up on the tariffs. You said that you're expecting increases for the next year. Do you see any probability of this rolling off due to large tariff increases that you've seen last year or not?
We're still working internally what that should be, and that will be also an effect of what are the inflation expectations that we're seeing next year. It's too early in that budgeting process.
Okay, great. Thank you. Thank you very much.
Our next question is from Juan Macedo with GBM. Please proceed.
Hi. Thanks for the call and congrats on the results. My question is regarding the increasing payroll. Could you give us some detail on that increase? Was it related to last year's outsourcing law, and do you expect more increments soon?
Hi. Yes.
Hey.
Oh, sorry, Juan. Yes, this was partially due to that effect. I think that at this time, it has stabilized. We do have certain openings of new VIP lounges in the upcoming couple of quarters. Headcount will continue to increase slightly. In terms of amounts, I think that it has stabilized.
Okay, great. As a second question, if I could ask you to give us some color on the storage expansion in the Monterrey terminal. What impact do you expect from this expansion?
We are, as Ricardo mentioned, increasing our warehouse, one of the warehouses that we have in Monterrey, the Recinto Fiscal. As you know, OMA Carga continues to post double-digit growth, and it's already well above the 2019 levels. We do see this trend maintaining in the next few years. I mean, this expansion will allow us to capture that underlying demand that we see in that market. We should continue to expect double-digit growth in OMA Carga for the foreseeable future.
Great. Those are the answers, and congrats on the results. Thank you.
Our next question is from Gabriel Himmelfarb with Scotiabank. Please proceed.
Hi, good morning to everyone, and thanks for the call. Just a quick question about the MDP. Do you expect the planned levels of the MDP could be modified due to inflation as construction materials are increasing and maybe payrolls might also increase as labor costs are increasing? Thank you.
As per the regulation, the commitment of investment in the five-year period from 2021 to 2025 is in real terms. As you may remember, when we announced the MDP negotiation results, we committed to a roughly MXN 12 billion expressed in pesos of December 2019. With a cumulative inflation from December 2019 to September of this year, the total MDP commitment has increased to MXN 16 billion. That is the amount expressed in real terms with pesos purchasing power as of today.
To just add a little bit. MDP is inflation protected because it's adjusted annually by inflation. In case you see inflation in some certain aspects that are higher or above that level, there's always opportunities to value engineer some of those projects.
Okay. Thank you very much.
Our next question is from Edson Murguía with SummaCap. Please proceed.
Hi. Good morning. Thank you for taking my questions. I have two of them. The first one is related to new routes. This Q3, all the companies, Viva and international carriers open new routes. For the end of 2022, are you expecting opening more routes between Mexico or other parts of the U.S.? That would be my first question. The second one is related to construction costs. This quarter, construction costs increased 56%. I was wondering if this is related to the MDP or it's only the cost of you already explained about another operational cost. Thank you.
On your second question, the construction cost that you see in the P&L equals the construction revenues. They have a net effect of zero EBITDA or operating income. What they reflect is the higher execution of MDP investments relative to last year.
Okay. Okay, makes sense.
With respect to new routes that we're expecting, some of the carriers that have announced already additional frequencies and capacity starting in December to markets such as Guanajuato, Guadalajara, Querétaro. In the international front, we have some recovery of the Canadian market that went primarily to Mazatlán, which last year was not as strong a season as it usually has been. We are expecting a further increase in charter flights from Canada to our Mazatlán Airport this winter season that's starting basically tomorrow starting in November.
We see additional frequencies and capacity to markets such as Detroit and Los Angeles as well, on the last quarter. All these should bode well for a strong quarter and for OMA.
Okay. Thank you so much.
Our next question is from Alberto Valerio with UBS. Please proceed.
Hi, Ruffo and Emmanuel. Thank you for taking my question. I'd like to ask about the cycle of the demand, where we are now at the moment. We saw OMA for the first time above the pre-pandemic level at this quarter. I'm wondering whether the Category 1 next to head, if you type on the chat. When you get-
Sorry, Alberto.
Yes?
Alberto, can you repeat your question? The line is not great.
Oh, okay. No, no problem. No, but my question is about the cycle of the demand, where we are at this moment. If you are in the top of the cycle, or if you are in the middle of the cycle, we just see on a recovering traffic to pre-pandemic levels at this quarter. My second one is the Category one in Mexico as it relates to that. If you had upgraded with the categories for safety in Mexico, we may see some aircraft going away from Mexico and back to the U.S. routes and impact the domestic traffic in Mexico. This is my question about the demand.
Well, let me take the second part. Regarding category two, there was news during the weekend. Public officials from Mexico went to meet the FAA personnel in the United States. There was a public release this weekend. They say that the meeting was very good, that in January, the FAA is going to send a group to Mexico to review the process and where we are. And the expectation, apparently, but from the information that we have, is that we could return to Category one somewhere around the Q1 of next year. That is going to be very important.
It's just gonna have an impact in Mexican carriers, which right now, they don't have an opportunity to increase new routes to the United States, or in those existing ones to increase frequencies.
The other part, yes.
In terms of demand outlook for the next few months, I mean, we do expect some economic deceleration in the US that could affect overall demand. However, as Ricardo mentioned, we see a strong nearshoring effect as well as the recovery of the business routes that have been lagging the other type of markets like VFR or leisure that have recovered faster. We think that it will even out and we'll continue to see some positive growth over the next quarters.
Fantastic. Thanks very much. Muchas gracias.
Thank you.
Thank you.
We have reached the end of our question and answer session. I would like to turn the conference back over to Ricardo for closing comments.
Thank you all for your participation today. Ruffo, Manuel, and I are always available to answer your questions, and we hope to see you soon. Thank you and have a good day.
Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.