Grupo Aeroportuario del Sureste - Q3 2024
October 23, 2024
Transcript
Operator (participant)
...As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.
Adolfo Castro (CEO)
Thank you, Sherry, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during the call today may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that beyond our company's control. Additional details about our quarterly results can be found in our press release, which was issued yesterday after market close, and is available on our website, investor relations section. Following my presentation, I will be available for Q&A. As usual, all comparison disclosed will be year-on-year, unless specified otherwise. Starting with a review of ASUR's operational performance for the quarter, passenger traffic declined 2% year to year to slightly over seventy-seven million passengers.
A solid performance in Colombia and Puerto Rico nearly offset weaker traffic in Mexico. Looking at traffic by geography, similar to past quarters, Colombia continued to post the strongest performance in passenger traffic, achieving a 16% year-on-year increase, benefiting from the easier comps following the suspension of two local operators in February of last year. We saw positive travel dynamics in both domestic and international traffic, which were up 23% and 14%, respectively. As mentioned in prior earnings call, this recovery trend is expected to continue in the remaining of the year, as Avianca and LATAM Airlines regain some lost routes. Looking ahead, we expect to see a continued recovery towards the end of the year and then normalizing mid first quarter of next year.
The next best performing market was Puerto Rico, which reported a nearly 5% increase in traffic, driven by a low single-digit growth in domestic traffic, while international traffic was up in the low twenties. We expect traffic in Puerto Rico to continue to normalize, as last year benefited from increased operations by Frontier Airlines. As anticipated, passenger traffic in Mexico remained weak, declining 10% year-on-year, with international traffic declining in the low teens and domestic traffic in the high single digits. In terms of international traffic, we saw declines from all the regions in the quarter. Specifically, traffic from Europe and Canada declined 8%, the U.S. 9%, and South America, 20%. Domestic traffic remains impacted by two key issues.
First, the Pratt & Whitney engine problem experienced in the past three quarters, and we expect this to persist until the second quarter next year. Second, capacity reduction of air traffic movements at Mexico City Airport since early this year. Now, as we turn into the P&L, recall that all reference to revenues and costs are excluding construction. Total revenues in the quarter were up 14% to nearly MXN 7 billion, driven by a solid performance of all three countries of operation. Colombia again stood out with a strong top line growth of 30%, benefiting from the pickup in traffic. In Mexico and Puerto Rico, delivered revenue growth in the low teens. Mexico, which contributed 71% of total revenues, delivered a top line increase of nearly 12%.
This positive performance was largely driven by a 19% increase in aeronautical revenues, resulting from the recent tariff adjustments. Non-aeronautical revenues remained relatively flat compared to previous years. Puerto Rico accounted for nearly 16% of total revenues and reported a 13% increase in the top line, reflecting increases of nearly 12% and 15% in aeronautical and non-aeronautical revenues, benefiting from the FX conversion due to weaker peso in the period. Colombia, which represented 13% of total revenues, achieved an impressive 30% increase in top line growth, driven by a robust performance in both aeronautical and non-aeronautical revenues, which were up in the high twenties and thirties, respectively. Both business segments benefited from growth in domestic and international traffic, as well as the weaker peso. Advancing on our strategy of expanding commercial offerings, we opened 54 new commercial spaces in the past 12 months.
Of these, eighteen were established in Mexico, five in Puerto Rico and thirty-one in Colombia. As a result, we achieved a 5% increase in commercial revenues, mainly reflecting increases of nearly 15% in Puerto Rico and an impressive growth of 38% in Colombia, which more than offset the close 2% decline in commercial revenues in Mexico. On a per passenger basis, commercial revenues were up 7% year-on-year, reaching 125 pesos in the quarter. This good performance was mainly driven by a solid growth across our three markets. Colombia saw a strong increase of nearly 20%, while Mexico and Puerto Rico delivered increases of nearly 10%, benefiting from a stronger U.S. dollar. Moving down to the P&L, costs and expenses increased 18% year-on-year.
By geography, costs in Mexico were up 15%, as seen in the current quarter this year. The main drivers behind these were the increases of 80% in concession fees established by the Mexican government, and 20% in minimum wages, mainly in cleaning and security, both effective January the first this year. This was partially offset by a 50% reduction in technical assistance fee. Puerto Rico reported 20% increase in costs, reflecting the weaker peso, while costs in Colombia increased 28% below revenue growth. Consolidated EBITDA was up 12% year on year to MXN 4.7 billion in the quarter. While the adjusted EBITDA margin, which excludes construction, declined 130 basis points to 68.3% from 69.6% in the third quarter 2023. This good EBITDA growth performance was driven by solid profitability across the three regions.
Colombia reported the strongest performance, with EBITDA up 28%, followed by Mexico, with EBITDA up nearly 11%, and Puerto Rico, which posted a 7% increase in EBITDA. Our balance sheet remains robust, closing the quarter with cash and cash equivalents of over MXN 18 billion, and debt up to the last twelve months, adjusted EBITDA at a negative of zero point three times. Lastly, during the quarter, we made capital investments over MXN 1 billion, of nearly MXN 1.9 billion in the first nine months of the year. The main projects include expansion of Terminal 4 and the reconstruction and expansion of Terminal 1 at Cancun Airport, as well as the expansion of terminal in Oaxaca Airport. As a reminder, all construction work will take place outside the original areas and will not affect the functioning of these airports.
In sum, we delivered a solid quarter, even as we navigating through the challenges posed by the P, starting with the engines problem and the reduction of capacity at Mexico City. Net income was up 28% year on year to MXN 3.4 billion. This good performance also benefited from a foreign exchange gain of MXN 900 million during the quarter, resulting from the 7.6% quarter-end depreciation of the Mexican peso against the US dollar, compared with the 143 million FX gain reported in the third quarter 2023. This ends my presentation remarks. Sherry, please open the floor for questions.
Operator (participant)
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. If you would like to remove your question from the queue, please press star two. And as a reminder, if you're on speakerphone, please pick up your handset. Our first question is from Alex Marques with Bank of America. Please proceed.
Alex Marques (Rate Sales)
Hi, good morning, Adolfo, and thank you for the call. Just one question. Given the new administration in Mexico, I guess, the continuity is, it's very close to the last administration's policies. Any indication that you have seen that, some policies toward Mexican airports might be changing or, or do you see, things continued as, as the past administration? Thank you.
Adolfo Castro (CEO)
Alex, hi, good morning. Thank you for your question. I don't see any major change. I see more continuity of what the previous government was doing. What I do expect is some kind of positive effect in the case of Mexico City Airport reduction in terms of the capacity. I hope that the reduction from 52 to 43 should be made early next year, because the reduction has been very strong and is having an impact in the whole city.
Alex Marques (Rate Sales)
Thank you.
Operator (participant)
Our next question is from Juan Ponce with Bradesco BBI. Please proceed.
Juan Ponce (Analyst)
Hi, Adolfo. Good morning, and thanks for taking my questions. So the share of Mexican tourist destinations in the U.S. travel market have been decreasing all year, which seems to be favoring Europe. So from your perspective, how much of this is related to airline capacity constraints in the U.S., or is it simply tough comps after the pandemic surge? Thanks. That's my first question. I have a second one.
Adolfo Castro (CEO)
Yes, Juan. Well, what I'm seeing is exactly what we saw in twenty eighteen. Twenty eighteen was also an election year for the U.S. If you see our numbers, the comparison between twenty nineteen and twenty eighteen, we lost 500,000 U.S. traffic. And this is, in my opinion, the most important reason why we're seeing this decrease. Of course, the situation with travel to Mexico is not just in Mexico, it's also in the U.S., you know, but the most important is what I already said.
Juan Ponce (Analyst)
Okay, that's clear. And you mentioned in your remarks that the domestic traffic impacted by the Pratt & Whitney should continue until the second quarter of twenty twenty-five. I just wanna clarify, is the- do you mean that by the second quarter of twenty twenty-five, you expect to be completely recovered, or will the recovery begin in the second quarter, and then, you know, it'll take some time for you to completely normalize? Thanks.
Adolfo Castro (CEO)
Okay. What I do expect is that this effect will end after the second quarter, twenty twenty-five.
Juan Ponce (Analyst)
Got it. Thank you very much, Adolfo.
Adolfo Castro (CEO)
You're welcome.
Operator (participant)
Our next question is from Fernanda Recchia, with BTG Pactual. Please proceed. Fernanda, please check and see if your line is muted. We are not able to hear you.
Adolfo Castro (CEO)
Okay.
Operator (participant)
Go ahead, Fernanda. We can hear you now. Okay, we will move on to the next question. Our next question is from Jens Spiess with Morgan Stanley. Please proceed.
Jens Spiess (VP)
Yes. Hello, Adolfo. I have a few questions. The situation in Cancun in particular, I mean, according to, like, flight schedule data we're tracking, it seems that the situation will remain challenging the rest of the year and slightly improve towards the beginning of next year. Are you seeing the same as we are? And secondly, if you could give us just some indication of traffic versus what you assumed in the last MDP review, is it tracking above or below the assumptions that you agreed with the government? Thank you.
Adolfo Castro (CEO)
Sure. Yes, I do agree with you that the winter season looks better than what we see now. Look, winter season starts basically with the flights leaving of the U.S., I would say, at the end of November, beginning of December, and goes up to April next year. In terms of the traffic so far, we are seeing a decreased traffic or lower number in comparison to what we forecasted in the MDP.
Jens Spiess (VP)
All right. Perfect. Very clear. Thank you.
Adolfo Castro (CEO)
You're welcome.
Operator (participant)
Our next question is from Isabela Salazar with GBM. Please proceed.
Isabela Salazar (Equity Research Analyst)
Hello, Adolfo. Thank you for taking my question. I was wondering if you could provide some insights on capital allocation given the company's current high cash position?
Adolfo Castro (CEO)
Isabella, in terms of that, nothing has changed. We continue with the same, as in the past, which is we want to grow, as an operator. We are looking for more opportunities and basically to try to find attractive investment opportunities for shareholders. The problem we have today is we don't have anything in front, so if we do not have anything in front, we will do as we have been doing, to send this money back to shareholders.
Isabela Salazar (Equity Research Analyst)
Okay, thank you.
Operator (participant)
Our next question is from Stephen Trent with Citi. Please proceed.
Stephen Trent (Managing Director)
Good morning, Adolfo, and thanks very much for taking my question. I was just trying to get color around how we should think about full year CapEx spend, so the first nine months of the year, your amount of CapEx is running well below what you have in the MDP by itself, and you know, maybe how we should think about the fourth quarter. Thank you.
Adolfo Castro (CEO)
Of course. The first nine months of the year is MXN 1.9 billion. We're expecting, or not just expecting, we have to comply with what we have committed with the government, which is MXN 3.7 billion pesos, so expect the difference for the fourth quarter.
Stephen Trent (Managing Director)
Appreciate it, Adolfo. And just as a quick follow-up, would you expect sort of the ratio of MDP CapEx to non-MDP CapEx for the full year to be around the same level as it was over the nine-month period?
Adolfo Castro (CEO)
Yeah. Well, for the moment, we are not doing too much, commercial, investment.
Stephen Trent (Managing Director)
Okay, very clear. Thanks, Adolfo.
Adolfo Castro (CEO)
You're welcome.
Operator (participant)
Our next question is from João Frizo with Goldman Sachs. Please proceed.
João Frizo (Global Investment Research VP)
Hey, good morning, Adolfo. Thanks for taking my question. I have just a quick follow-up, and sorry if I missed this in your initial remarks. But I just wanted to understand a bit more on the commercial on non-air revenues, sorry, in Mexico. If we look quarter over quarter, it was basically flat, despite the currency having depreciated by roughly 10% sequentially. So just wanted to understand what drove this weakness and whether we should expect this to continue into the fourth quarter, or we should see a recovery back to the levels of commercial revenues in dollars per passenger, right, we saw in the first half of this year? Thank you.
Adolfo Castro (CEO)
João, in terms of the commercial revenues, and I'll be careful on that. I'm not saying non-aeronautical, because a piece of non-aeronautical is also regulated revenue. So first of all, my first advice would be total revenues excluding construction, minus commercial, should be regulated. So in the case of commercial, yes, we were benefited from the effects, you know? But remember that this quarter, most of the traffic is domestic, and then the effect of duty-free is not as it is in the first quarter of the year. So the commercial revenues per passenger increase even with the decrease in the traffic. And remember also that we are losing opportunities today in the case of Terminal 2, basically at Cancun Airport, as a result of the congested terminal we have there.
That should be solved once we open the newly Terminal 1, that should occur in the second quarter, 2026. So far we will still suffering in the commercial revenues, even though that the commercial revenues increased on a per-passenger basis.
João Frizo (Global Investment Research VP)
Got it. Thank you very much.
Adolfo Castro (CEO)
You're welcome.
Operator (participant)
Our next question is from Pablo Monsivais with Barclays. Please proceed.
Pablo Monsivais (Equity Research Analyst)
Hi. Good morning, Adolfo. Thanks for taking my question. Just kind of a follow-up question from Jens. Regarding your expectations on the MDP for Tulum, for example, the impact on Tulum to Cancun, how has been the traffic evolution of Tulum versus what you initially expected to be? Thank you.
Adolfo Castro (CEO)
Pablo, hi, good morning. Tulum Airport is in line with what I expected, and what I do expect for the whole year is 1.35 million passengers. It's been ramping up, you know, but it's so far in line with what we expect.
Pablo Monsivais (Equity Research Analyst)
Okay, perfect. And having a follow-up, if I may. What is the conversation or how the dialogue that you have with U.S. carriers? It seems that, yes, they are pulling out capacity and they have said so in the earnings call. What do you discuss with them? What's their plan for twenty twenty-five? Thanks.
Adolfo Castro (CEO)
As you know, some of them are suffering from also lack of planes due to grounding, but conversations with them are okay, and they are expecting a good winter season.
Pablo Monsivais (Equity Research Analyst)
Perfect. Thank you.
Adolfo Castro (CEO)
You're welcome.
Operator (participant)
As a reminder, it is star and then the one, if you would like to ask a question. We will pause for a brief moment to see if there's any final questions. Okay, with no further questions, this will conclude the question and answer portion of today's conference call. I would like to turn it back over to Mr. Castro for closing remarks.
Adolfo Castro (CEO)
Thank you, Sherry, and thank you, all of you again for joining us today for this third quarter 2024 conference call. We wish you a good day, and goodbye. Now you may disconnect.
Operator (participant)
Ladies, gentlemen, that concludes ASUR's third quarter twenty twenty-four results conference call. We would like to thank you again for your participation. You may now disconnect.