Good morning, and welcome to Corporacion American Airport First Quarter 2021 Earnings Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of Corporacion America Airports Investor Relations website. As a reminder, all participants will be in listen only mode. There will be an opportunity to ask questions at the end of the presentation. At this time, I would like to turn the call over to Gimena Alwanese of Investor Relations.
Go ahead.
Thank you. Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Martino Urmecian, our Chief Executive Officer and Jorge Urruda, our Chief Financial Officer. Both will be Welcome for the Q and A session. Before we proceed, I would like to make the following Safe Harbor statement.
Today's call will contain forward looking statements, and I refer you to the forward looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward looking statements to reflect new or changed events or circumstances. Note that for comparison purposes and for a better understanding of the underlying performance of this presentation today, we will be discussing results excluding hyperinflation accounting in Argentina, which became effective in July 2018. Additional Information in connection with the application of full IAS 29 can be found in our earnings report. Now let me turn the call over to our CEO, Timo Macchaine?
Thank you, Gimena. Hello, everyone, and welcome to today's call. It's been over a year since the beginning of the pandemic, and we are very proud of the way the company managed these unprecedented crisis. During the quarter, we began to navigate the 2nd wave of this health crisis in some of our countries of operations, which reflected in passenger traffic dynamics. However, we are encouraged with the positive trends we are seeing in the U.
S. And some countries in Europe, where the vaccine rollout is more advanced. And as I will shortly discuss, While we have already started to see some of these positive trends in our operations, we are not losing sight of the challenges we still have ahead in our markets. The significant impact of the pandemic on air travel resulted in a 62% year on year decline in Almost a third of the pre pandemic levels recorded in the Q1 2019. This mainly reflects the impact of the beginning of the second wave in Latin America, which resulted in tariff restrictions And lower demand that negatively impacted traffic.
By contrast, Armenia saw a significant pickup in traffic. Despite the challenges faced by the pandemic, we are optimistic with the advance we are seeing in the pace of vaccination in Uruguay and Italy, While vaccinations in Brazil are starting to pick up. Argentina lags behind, but we expect to start seeing a catch up later in the year as more vaccines become available. Turning to our financial results, our top line ex IFRIC12 Was down 57% year on year in the quarter to slightly over $110,000,000 also nearly a third of 1st quarter 2019 levels. Despite the severe impact of the pandemic in travel demand, Our sustained focus on cost controls and cash preservation allowed us to achieve a positive comparable adjusted EBITDA of $14,000,000 in the Q1 of 2021, excluding one time fees, representing a margin of 12%.
This is an $18,000,000 improvement from the previous quarter when Excluding the economic compensation obtained in Brazil and Italy at year end, Results in the Q1 of 2021 were also better than comparable losses of nearly $20,000,000 $33,000,000 posted in the 2nd and third quarters of last year, respectively. We are confident in the potential of our business And we continue working towards reaching pre pandemic adjusted EBITDA levels, while at the same time building a leaner and stronger company that extension in Argentina and full economic equilibrium for 2020 in Brazil, we are actively seeking to restore value By also pursuing economic equilibrium in other operations, and I will discuss this in more detail shortly. More details on our Q1 results can be found on our earnings report filed yesterday and the exhibits of these presentations, both of which are available on our website. Please turn to Slide 4. As you can see on this page, the yellow boxes, the big countries where commercial operations are subject to travel restrictions.
This is the case for most countries of operations, with the exception of Ecuador and Armenia, we generally allow commercial operations. In Argentina, passenger traffic posted a significant sequential recovery during the summer season. This was even despite That in late December, the government reenacted a ban on entry for all foreigners until May 21 in light of a new COVID-nineteen strain. Even despite the COVID cases, towards the end of March, The government also introduced restrictions of 2,000 daily international arriving passengers. In addition, flights from the UK, Chile and Mexico were banned.
Passenger traffic in Italy declined sequentially, reflecting Travel restrictions reestablished by the government in Q4 2020 and the closing of Florence Airport between February early April to allow the execution of PremierWorks. While commercial operations remain open, restrictions apply for travelers coming from or that transited certain countries. A green COVID-nineteen passport is expected to be implemented soon, Which will drive higher mobility within the European unit. In Uruguay, traffic level remains low. Borders remain closed to nonresident foreigners with certain exemptions and requirements apply upon entry.
In Brazil, following a good performance in January, the recovery in passenger traffic decelerated in February, reaching a low towards the end of March, reflecting a spike in COVID cases throughout the country. Traffic hit low in April, but is already showing signs of recovery this month As sanitary situation improves, domestic travel is not restricted, while the main requirement for non resident foreigners entering the country In Armenia, traffic continues to improve sequentially since air travel restrictions were terminated last September. More recently, traffic is also benefiting from the opening of Russian borders to foreigners. Finally, Inequara traffic was relatively unchanged sequentially. There are no restrictions to domestic nor international travel subject to certain requirements upon arrival.
On Page 5, we show preliminary monthly passenger traffic and cargo trends since April 2020. January continued the recovery trend experienced since May 2020 aided by the summer season in Latin America. Back in February, we began to experience the impact of the 2nd COVID-nineteen wave with progressive contractions in traffic. Traffic in March April was down 71% and 76% respectively, when compared to the respective pre pandemic month of 2019. We expect to see improvements starting May as COVID cases decline and the vaccination rollout advanced across our markets.
Although performance in cargo operations has shown some volatility since the beginning of the year, it remains strong. Importantly, revenues from archival terminals in Argentina and Uruguay play an active role in mitigating lower income from passenger traffic in those two countries. Turning to Slide 6. Over the years, Passenger traffic across our 52 airports increased consistently until we hit a low of 25,000,000 passengers in 2020 impacted By the COVID-nineteen pandemic as shown in the chart on the left. As you can see on the right chart, the recovery Has been mainly driven by domestic traffic.
By contrast, international traffic has been more impacted by higher restrictions and travel bans. Now turning to Slide 7. We are pleased to report that our strategic initiatives of cost control and gas preservation Continuing to show good results. In the Q1 of 2021 marked the 4th consecutive quarter posting Significant cost savings ranging between the mid-40s to the low-50s. Actually, cash operating costs declined this quarter by 43% year on year, Equivalent to saving of $60,000,000 reaching a total of $80,000,000 in the quarter.
Remember, this excludes concession fees and construction costs. Fee savings this quarter include $16,000,000 in salaries, Reduction of €13,000,000 in both maintenance costs and SG and A, while other expenses declined by €27,000,000 Currency appreciation in the main markets also contributed to the savings. While we remain committed to keeping Changing cost controls as the year progresses, we would expect to see some increases in labor, maintenance and other operating costs As traffic recovers over time and government support declines. Please turn to Slide 8. We also remain fully focused on advancing in the process of obtaining economic equilibrium of concession agreements across our operations.
Starting with Argentina, as provided under the 10 year extension agreement of our A2000 concession Last December, on March 15, international passenger fees were effectively increased by 11% to $57 In Brazil, we are working on 2 fronts. 1st, following the BRL36 million economic compensations of Last December for the impact of COVID-nineteen on our Brasilia and Natal airports covered in 2020, our next step is To soon file our request for the long term reequilibrium for Brasilia. 2nd, in relation with the return of our Natal concession, We expect the government to carry out the anticipated tender in the Q4 of 2021. Then after, We expect to resolve the Nantal concession and receive the corresponding indemnification payment during the first half of twenty twenty two. In Ecuador, the negotiations to obtain economic compensation for the way accumulator concession are moving along and are well advanced at this stage.
We are also keeping active discussions with the government of Uruguay and Armenia. Our concession agreement with Armenia includes a contractual internal rate of return 20% in U. S. Dollars. Finally, in Italy, following the successful €10,000,000 grant and the 2 year extension Of the concession achieved in 2020, we expect this concession to benefit from the €500,000,000 fund Established by the Italian state budget law to support the Italian airport sector this year.
Moving on to our debt and liquidity on Slide 9. We ended the quarter with $256,000,000 in cash and equivalents And $71,000,000 in treasury bills and time deposits for a total liquidity of $327,000,000 at the end of March. Earlier this week, we refinanced $40,000,000 in principal payments Our net debt to last 12 months adjusted EBITDA ratio remains above historical levels, solely driven by the impact of the pandemic on adjusted EBITDA. Net debt remains unchanged at $1,100,000,000 A reminder, we are not subject to debt covenants at the consolidated level. Importantly, our financial discipline and strict focus on cost control Allowed us to deliver the 2nd quarter with positive operating cash flow across most of our countries of operations.
Before that, we were operating cash flow breakeven in Argentina and Uruguay since the Q2 of 2020 and in Ecuador in Armenia since the Q3 of 2020. Now to wrap up, please turn to Slide 10. With the onset of the pandemic, we have made significant strides in the successful execution of our COVID-nineteen mitigation strategic plan And remain dedicated to continue the consistent execution of this plan, which includes: 1st, Finalizing the economic recruiting processes to restore the value of our business. 2nd, continuing to preserve liquidity and strengthen our balance sheet. And finally, we are also dedicated to keeping a lean structure across our operations and maintaining a tight control on costs As the level of activity progressively increases.
In terms of passenger volume dynamics, We observed a pickup in traffic in Brazil, Armenia and Ecuador, primarily driven by a faster pace in the rollout of the vaccination program And better sanitary conditions. Italy should also benefit from the rollout of the vaccination campaign, Warmer weather and lower restrictions during the summer season. We expect overall better trends as the The international campaign begins to pick up in Argentina and travel restrictions are progressively lifted in the year, both in Argentina and Uruguay. Long term, we are confident people's desire to travel remains unchanged. This together with strong pent up demand Should contribute to drive sustained traffic growth.
Finally, I wish to thank our teams for their hard work and commitment to executing our strategic plan to protect the company's financial position and ensure the highest standards of health and safety for our passengers and employees.
We will now begin the question and answer session. Our first question is from Ian Zaffino from Oppenheimer. Go ahead.
Hi, good morning guys. This is Mark on for Ian. Thanks for taking our questions. Just on, I guess like on the request for the long term Economic Reequilibrium for Brasilia. Can you give a sense of the process and the timeline there?
After you file, when should we expect a response and what
Hi, Ian. This is George. How are you?
Good. Good. Hi, George.
Hello. Just to make sure I understood the question, you were requesting in connection with Natal, right?
The question was in regards to Brazil, I guess like the timeline and the milestones we should be looking out for As you filed the request for long term economic re equilibrium.
Okay, brilliant. So, we expect to formally file the long term Rekylebrium request this week. And we have been since Actually, the beginning of the year, really, having very active discussions with the regulator, in particular, and with the government in general. And it's going to be an ongoing discussion. We expect To have a general agreement with them around the amounts and the mechanics, Etcetera, by September, October and finalize the process before year end.
This is our objective. There is not a timetable set in stone, but that's what we are working towards with. In terms of headlines, we expect very little to be honest because this is a private discussion And we do not expect any press release either by ourselves or the government in the meantime until the process It's much more advanced.
Okay, great. That's very, very helpful. And then just If I may, a second question. You guys continue to Yes.
And by the way, yes.
No, go ahead.
I'm sorry, just to finalize, Ian. And by the way, I mean, there are a bunch of operators Here in Brazil, as you may know, and all of them are basically in the same stage as we are. Some filed last week, others are about to file, etcetera. And there is a lot of discussion directly with the regulator through the airport association. So it's a very intense topic at the moment in Brazil.
Okay, got it. Thank you so much, George. And I guess like just to follow-up, you guys Continue to do very well on the cost control side. Can you give a sense of number 1, how much more costs can be taken out If we continue to see COVID volatility and number 2, how much of these costs are permanent once Operations normalized, any sense any better sense you guys have now versus call it like 6 or 8 months ago? Thank you.
Yes, good. That's a good question. Look, we do expect Some of the cost savings to become permanent, if you will. But obviously, as traffic pick up, We some of the costs that we are currently not having will come back without a doubt. There are multiple examples.
One of them is Security Checkpoint. Obviously, we have less Security Checkpoint channels Currently, but as traffic increases, we will have to increase the number of security checkpoints to process passengers properly, And that obviously will increase costs. So we do expect some of the savings to remain permanent. It's difficult to say how much, but we do expect some benefit out of costs going forward.
Okay, great. Thank you guys very much.
Okay. Did I answer all your questions or there's anything pending on my side?
No, I think we hit all of that. Thank you, guys.
Our next question is from Niko Fabriano from Jefferies. Go ahead.
Hi, guys. Thanks for the call and the outlook. Just a quick one on liquidity. We noted $256,000,000 in cash and $40,000,000 refinancing of the short term bank debt at the Argentine subsidiary. Could you please give us some additional color on available liquidity, anything in credit lines and progress on refinancing of the 2021, 2022 maturities that you listed on Page 8.
Thank you.
Hi, this is George Again, thanks for your question. We continue to have support from our lenders. We have refinanced The principal amount due and payable of the syndicated loan facility in Argentina, as you already noted. We also obtained $10,000,000 new loan from a local bank in Uruguay. We refinanced A smaller working capital facility in Brazil.
We have been financing refinancing, I'm sorry, all the short term debt That is coming due this year in Italy. So generally speaking, we are we have been having Strong support from our lenders to navigate through the pandemic. And we see we are looking at our cash position, Our liquidity on a constant basis and taking the necessary action. Therefore, we are confident that we are going to be able to continue Navigate smoothly throughout the pandemic until traffic, it starts to come back in a stronger way.
Perfect. Thanks very much.
Our next question is from Roberta Versiani from Citibank. Go ahead.
Hi, good morning. Thanks for taking my questions. Just two quick ones on my side. First, Could you give us some color about how the Argentine government is providing incentive For help to the local airlines to strengthen the local market, you gave some color On the health of the airports, but if you could expand that a bit more, it would be helpful. And secondly, In some markets we see air cargo has risen consistently, while passenger volume is fell.
Any view why this hasn't generally happened to Corpus
Hello, Roberta. Thank you for your question. This is Martin here.
Regarding the government's priorities, as of today, the clear priority of the government is to transit the pandemic, Putting health as the number one priority and that's what motivated all of The decisions made by the government regarding our industry and that's why we have so many restrictions as of today. So In that sense, I think that until the second wave in Argentina It is past, we will not see strong reactions towards Incentivizing the industry, at least until there's a clear path out of The health crisis that the country is going on right now. And we assume that that will happen within this year as the vaccination Campaign takes off and more vaccines are available for Argentina. Regarding cargo, What I can tell you is most of our airports have a mixture of Full cargo aircraft and what is called belly cargo on passenger aircraft. And that second part is quite important in our operation.
So when passenger aircraft Stopped flying because of the restrictions. We lost some cargo offer, Some availability there. And the good thing that happened is that The full cargo type of offer has increased and that's why we did not see a The proportional decline in cargo to what happened in the passenger market. So, I think that's why you see The net effect into our cargo operations numbers that we share. So, I think that's the effect that you should look for and What is making the net cargo operations that we have during the pandemic and as of today look like they look and The fact that they did not drop in the same way as passenger numbers did.
This concludes our question and answer. I would like to turn the conference back over to Martin Euniquian for closing remarks.
I'd like to thank everybody for joining us today. We really appreciate your interest in our And we look forward to providing updates on our business initiatives as
they become available. In the meantime, the team remains available to answer any questions that you may have. Thank you, everybody. Bye bye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.