Grupo Aeroportuario del Pacífico - Q3 2023
October 26, 2023
Transcript
Operator (participant)
Good morning, and welcome to the GAP 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 conference over to GAP's Investor Relations team. Please go ahead.
Maria Barona (Investor Relations Advisor)
Thank you, and welcome to Grupo Aeroportuario del Pacífico's Third Quarter 2023 Conference Call. Presenting for 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, company performance, or financial results. As such, statements made are based on several assumptions and factors that could change. This could cause actual results to materially differ from current expectations. For a complete note on forward-looking statements, please refer to the quarterly report. At this point, I'd like to turn the call over to Mr. Revuelta for his opening remarks. Please begin, sir.
Raúl Revuelta (CEO)
Thank you, Maria, and thank you to everyone who took the time to join us today. Let's begin with, by addressing the recent events. We know that the last week has been tough on the market, given the decision made by the Mexican government. Today, I would like to clarify the changes during this presentation and answer all your questions regarding this news. First, I will start with the financial results, and then I will go deeper into the regulation. Let's recap GAP's operational and financial performance for the third quarter of 2022, and then the recent events prior to taking questions. For the period, GAP transported 16.2 million passengers throughout the 14 airports, representing a 10.8% increase.
Together with the solid results we experienced during the first half of the year, these results keep us on track to reach our annual growth guidance. Aeronautical revenues increased by 8.2%. In GAP Mexican Airport, there was not increase in the producer price index, excluding petroleum, which led to zero inflation, increasing the maximum tariff approved. In addition, the nearly 16% appreciation of Mexican peso over the US dollar negatively impacted the consolidation of the two Jamaican airports during the third quarter of 2023, therefore affecting our overall increase in revenue. As a result, there was a decline in the consolidated aeronautical revenue per passenger. Non-aeronautical revenue grew by 14%. Most of the increase was attributed to the opening of the new spaces in the airport of Guadalajara, Montego Bay, and Los Cabos.
Passenger traffic growth and the renegotiation of tenant contracts also contributed to this increase. It is remarkable that despite the nearly 16% peso appreciation during the quarter, which affected 39% of commercial revenue, non-aeronautical revenue per passengers increased 3%. On that note, I want to mention that just this past week, at the Guadalajara Airport, we opened The Terrace, an upscale rooftop space featuring well-known restaurants and bars. Also, at this airport, the mixed-use building is nearly complete and is expected to be fully operational during the first quarter of 2024. EBITDA reaches MXN 4.3 billion for the quarter, rising 4.5% with an EBITDA margin of 67.5%.
This increase was not aligned with the passengers traffic growth because of the almost null inflation in the Maximum Tariff and the appreciation of the peso, which impacted total revenue growth figures. In addition, cost increase was related to concession taxes, mainly in Jamaica, where we saw a passengers traffic recovery, specifically in Montego Bay. If you recall, the concession fee in Montego Bay is variable, based on the excess earned about the project scenario that was established at the beginning of the concession. We have been below this project scenario with the pandemic, hence, we haven't reflected the additional concession fee in the past years. However, we are now seeing a recovery in Montego Bay and thus higher concession fees. Furthermore, inflation has caused higher cost of services and had the hiring of additional personnel and the changes in labor law.
Additionally, the minimum wage increase has affected not only the figures for salaries, but also personal contracts, such as janitorial, security, and maintenance. Moving on to the CapEx, this continues to be carried out in accordance with the Master Development Program, along with commercial investment. During the quarter, we deployed MXN 2 billion, which were mainly allocated to the Guadalajara and Puerto Vallarta airports. We have also continued with the acquisition process for the land reserve in the Guadalajara airport. In recent events, this past September, Pratt & Whitney, a world leader in aircraft engines, announced preventive accelerated inspections of the Airbus A320 and Airbus A321 engines. It is expected around 700 engines worldwide will undergo inspection from 2023-2026. These inspections are mandated by the FAA after a specific number of cycles, depending on the engine type.
Currently, the FAA has only issued the first service instruction for the initial batch of engines. It is estimated that it will take from 250-300 days for P&W to remove and inspect the engines to be returned to the operations. Volaris, that represents 42% of our total passenger traffic, announced in its conference call that from the current 126 aircraft fleet, they have 22 Airbus A321neo and 55 A320neo that may be temporarily affected. The visibility is limited, but GAP estimates that most of the impacts will be felt in 2024 and 2025. The situation is still evolving. We will keep you updated once more information is available.
On the other hand, on October 19, the Mexican House of Representatives presented a bill regarding the Mexican Federal Duties Laws, changing the concession fee from 5%-9%. This bill was passed by the Mexican Senate yesterday, going into effect on January 1, 2024. The amount paid in excess over the 5% of the aeronautical revenue due in 2024, will be included in a reference value for 2025. For the 2025-2029 MDP period, the new concession tax over the aeronautical revenues will be included in our operational costs and will be recovered through the joint maximum tariff. On October 4, we received a notification from the Civil Aviation Agency, modifying the rules of tariff regulation that have been in place since 1999.
After two weeks of analysis, on October 19, the authority announced the amended rules, clarifying the methodology for determining the joint Maximum Tariff and defining the scope regarding supervision of compliance by the authority. The full text of the new rules was disclosed in our press release on that same day and can be found on our website under Press Releases. I just want to briefly review some of the main changes in the rules for tariff regulation. First of all, changes in the discount rate, going from cost of capital to weighted average cost of capital. We believe that this reflects the actual balance sheet position of the company, as well as the leverage strategy followed within recent years. Secondly, a throwback over 3% excess in Workload Units for the 12 airports project in the quinquennium.
The trigger for the calculation will be when the aggregate workload units of the period exceed 3% of the low workload units projection established in the MDP. In that case, we will have to calculate the excess revenue generated, offset by the concession fee paid for those revenues. The result will be subtracted from the reference value of the next quinquennium. It is important to mention that this will be reviewed for the workload unit of the 2025-2029 period, hence, will be applicable in the 2030 reference value. Third, the change in the terminal value. In the former rules, we project the net cash flow from the year 16 to the end of the concession period. Now, the terminal value will begin in the year six until the end of the concession period.
It is important to note that GAP's joint maximum tariff for 2023 and 2024, as well as the MDP, remain the same. Before we move to Q&A, I would like to confirm our guidance figures for 2023, published in the second quarter of 2023. I just want to underscore our confidence in the underlying fundamentals of our business and our commitment to our shareholders. Thank you for your attention. I will ask the operator to open the floor for your questions.
Operator (participant)
Thank you. At this time, we will open the floor for your questions. First, we will take the questions from the conference call and then the webcast questions. If you would like to ask a question, please press the star key followed by the one key on your telephone keypad. If at any time you would like to remove yourself from the questioning queue, just press the pound key. For the webcast participants, simply type your question in the box and click send. We'll take our first question from Guilherme Mendes with JPMorgan. Please go ahead. Your line is open.
Guilherme Mendes (Senior Equity Research Analyst)
Good morning, Raúl, Saúl. Thanks for taking my question. I have two questions. The first one is related to the GTF engine situation. I know there are still a lot of moving parts and uncertainty, but what is your best estimate for the potential impacts for traffic in 2024 and 2025? And the second question is regarding the MDP changes, so the changes on the regulatory front. If you see any room for any kind of legal measures against the changes? And just a clarification in terms of the MDP negotiation, if the base case is still to have it completed before the presidential election or more towards the end of next year. Thank you.
Raúl Revuelta (CEO)
Thank you, Guillerme. This is Raúl. I mean, talking about the engines, I would say it is difficult to have a number right now because it's something that is really evolving. I will say that in a couple of months, we're gonna have more clarity about what could come, but at the moment, on a really first view, we think that it could have an impact from -5% to -7% on the total passengers of GAP. For sure, this could be much better if the number of planes, in some way, come to fly yearly or don't have any kind of, the, or they don't have the number or the batch of engines on that plane. But today, it's really difficult to say.
So we run some, I would say, big numbers about some of our routes, taking into account the low factor. For instance, in the routes that there are some additional space, we, we think that the impact will be lower. But also, we have to take into account that in January, on the Mexico City Airport, gonna be a cut of capacity announced, already announced by the federal government, that could cause also a reorder on some of our operations that could have, as a result, that some planes will... or some rotation of planes will move from Mexico City Airport to other airports in the country. Saying all that, our view today, gonna be an impact that could be around 5%-7%, but again, we saying that there is a lot of information that today is not completely clear.
Saúl Villarreal (CFO)
Okay, hi, Guillerme, this is Saúl. Well, in terms of the MDP changes, we don't see any potential legal claim in the coming months, we will see what is the effects. Regarding the MDP negotiation, I think there is more certainty, more clarity about some of the calculations in terms of the discount rate. I think it's good for the market to have this certainty. It's very early to know what could be the effect. We know that the election will be in the same year. We do not expect any change in terms of the review with the government. We believe that this is the basis for the MDP review for 2025-2029.
Raúl Revuelta (CEO)
Mm-hmm.
Saúl Villarreal (CFO)
By the end of September, we will have the change of government, and probably in the last quarter of 2024, we will have, or we should have the new MDP and the new tariffs.
Guilherme Mendes (Senior Equity Research Analyst)
That's super clear. Thank you, Raúl and Saúl. Have a great day.
Operator (participant)
Our next question comes from Alberto Valerio with UBS. Please go ahead.
Alberto Valerio (Equity Research Analyst)
Hi, Raúl, Saúl, and all the team. Thank you for taking my question. My question is regarding the discount rate. When moved to cost of equity to WACC, we usually see a decrease, and if you take the methodology that the government just reported to us, we would see this change. However, for the old regulatory framework, we used to have Mexican 10-year bonds plus a spread that we estimate close to 4%. And with this new regulatory framework, even WACC being below the cost of equity, this would be higher than the previous one. My question is, this doesn't make sense with the announcement of tariff cuts. Where could I be wrong here?
What I could be missing on these new discount rates for the new regulatory framework? Thank you.
Raúl Revuelta (CEO)
Thank you, Alberto. I will say that going from, from which could be the impact, well, right now for us, it's difficult because we are more than, I mean, a year-
Alberto Valerio (Equity Research Analyst)
Mm-hmm
Raúl Revuelta (CEO)
Before we know which gonna be the specific rates that we will have take in account, the inflation, and all the different variables that today are in way, in some way moving. One of the things that you said that is interesting also is that in the cost of capital, in the new formula, the government add all the different maturities of bonds from 10, from five years to 30 years. I think that is good for the calculation of the cost of capital, because at the end of the day, in the time, it will reflect in some way the long-term cost of capital for a company in Mexico.
I think that one of the things that are interesting, and in some way have been clarified by the system, is rather the, like the, of, of, of, of, of, the cost of capital and the, the different maturities that we'll use, that will take in account all the different matures for the UMS. But it's, I think, a good, a good news for, for, for the company and for, for, for the regulation. It's difficult to say which gonna be the, the, the impact, because there are a lot of variables happening right now, and we are more than one year ago from, from, from our actual review of the, of the, of the, of the calculation, of the... on, and the maximum tariff.
Alberto Valerio (Equity Research Analyst)
... Fantastic. And if I may, just a follow-up. In terms of CapEx, before we are talking about to keep the same CapEx per passenger, close to MXN 40 billion for the next MDP, should you keep in mind the same reference value, or should increase or decrease than you, you were thinking, six months ago?
Raúl Revuelta (CEO)
I would say that one of the parts that will be, is one of the moving parts that we are seeing right now, eh, today, we, we don't know how big gonna be the impact or how long gonna take the impact of the air Pratt & Whitney, the Airbus A320 and A321, engines. It go deeper into, into the MDP is, is saying not only in 2025 or even 2026. Today, it's really difficult to say which additional capacity we will bring to the table. For sure, right now we are working, right now on, on all our, quality services and capacity reviews to understand which gonna be the, the, the biggest, the, the biggest amount or, or, or the amount that we will have on CapEx for the for, for coming years.
One of the things that is important to have in mind, that some of the CapEx that will be reflected in the new master plan has already paid. And with that, I was saying about mainly the Guadalajara land reserve, that already passed through the balance sheet of GAP, that, but it will be reflected on the Maximum Tariff in the next, in the next, period. So in general terms, I would say that the CapEx per passenger could be closer to what we have in the past, but it's important to know that the effect of the Guadalajara land reserve has already paid, so it will not have future effect on the cash flows of the whole of the company, even if will be reflected on the new master plan as a part of our formula.
Alberto Valerio (Equity Research Analyst)
Okay. Thank you very much for the clear answer.
Operator (participant)
Thank you. We will take our next question from Pablo Monsivais with Barclays. Please go ahead.
Pablo Monsivais (Equity Research Analyst)
Hi, thanks for taking my question. It's kind of a follow-up to the previous question. The fact that we're moving from well to a WACC from a cost of equity, but your debt ratio is very low. Is it correct to think that you're basically back again to a cost of equity calculation because your debt ratio is quite low? That's number one. Number two, in general, how do you feel about this agreement? Do you feel comfortable with having these rules, or is there anything that probably is you feel it's not right? I don't know, perhaps a related question on that.
Do you feel like the government liberty to estimate the growth variable on the terminal value calculation is something that you probably dislike, or how do you feel in general about this? Thank you.
Raúl Revuelta (CEO)
Thank you, Pablo. Let me begin with the G factor for the terminal value. Just remember that the G factor has existed in all the life of our concession, but in the past, it used to be the average of the last five years before the counting of the beginning of the terminal value on the formula. In the past, it was really clear, and the authority applied just directly from that average of traffic growth. In this new version, the yield still, I would say, is the same in terms of the terminal value. It still is a calculus from an average growth from the projections of traffic, still the same way. For sure, it has a big...
a bigger impact than in the past, because it will take from year six until the end of the concession. At least thinking on what the past, the way that the past, in the past was the G, the G calculated and in some way accepted by the government, the federal government, I will not foreseeing any changes in the way that could, could or not could affect. At the end, at the end of the day, Pablo, the new rules are in some way clear about the way of the calculus of the G. The only part that we need to have a much better understand is the normalization of the CapEx for the long term on the terminal value. I will say that that is the tricky part that we'll need to understand better how the authority will apply that....
But again, we have enough time to understand on the couple of months and to begin any before we have the new negotiation of the Maximum Tariff.
Saúl Villarreal (CFO)
Yes. In terms of the cost of equity or WACC, we believe that here this change reflects the composition of our balance sheet. So, obviously, the cost of equity and WACC has a main difference, but it's complicated to say now that if we could return to the cost of equity calculation.
The bases are pretty clear, and what we have to do as management is to analyze the best composition, the best balance of our debt, in general terms, our capital structure, and to see what is the best approach for the next tariff review, and obviously to try to obtain the fair return for our investors in terms of our MDP, and obviously in terms of the new regulatory basis.
Pablo Monsivais (Equity Research Analyst)
Thank you very much.
Operator (participant)
Our next question comes from Bruno Amorim with Goldman Sachs. Please go ahead.
Bruno Amorim (VP of Equity Research)
Thank you. Good morning, everybody. So I have two questions. The first one on the new regulatory framework for the calculation of the tariffs as of the MDP. I'd like to ask you some help to understand the big picture, because, you know, you correct me if I'm wrong, but it seems that those changes, they point to lower tariffs. The concession fee will increase. The concession is not being extended. And, you know, CapEx, at the end of the day, is a function of traffic, so it's not being changed. So if you have lower tariffs, higher concession fee, and other variables are not changing, you know, is it fair to say the return on the regulated side of the business is coming down, or is there, you know, any offset that that I'm not aware of?
The second question is on the parallel discussion for the short-term reduction in the TUA, which has been in the press over the past few days. You know, what's the basis for that, you know, for that revision in TUA outside of the MDP? What could be the offset to keep the contract balanced? You know, those are my two questions. Thank you very much.
Raúl Revuelta (CEO)
Thank you, Bruno. Today, it's difficult to say what's gonna be the final result of the calculus, because at the end of the day, we have moving parts on the demand, moving parts on the rates. So it's difficult to say what's gonna be the direct impact on the new calculation. In general terms, I would say that the biggest change in all this regulatory framework is the way of the calculation of the from cost of capital to WACC. So over there, depending on the structure of cost of debt of the company for the future, it will or not offset the possible impacts on the calculus of the WACC.
But again, it's really difficult to today say a number or say by itself that it's gonna be a decrease on tariff. We need to run the numbers. We need to understand the new characteristics of the market, to understand the specifically which gonna be the size of our CapEx, and after that, we could have a more correct number that it will happen in the coming months. It is important to say, in terms of the change on the concession fee, it is important to notice that the regulation, the new regulation, is still having the tool for pass through the tariff, at least the cost of the concession fee that is implied by the aeronautical revenue.
I would say that the effect of the concession fee on the aeronautical revenues in the next, not, eh, modification of the maximum tariff, would be neutral, just that part of the concession fee.
Saúl Villarreal (CFO)
Yes, hi, Bruno. This is Saúl. In terms of the short-term reduction of TUA that has been in the press, we would say we would like to let you know that it's something that we do every year, and we provide to the market this kind of benefits. It's not an exception. It is probably right now there's additional notion that, but it's something that we do almost every year, providing this kind of a-
Raúl Revuelta (CEO)
Incentives.
Saúl Villarreal (CFO)
Incentives to the market. And the discounts in TUA or discount in aeronautical services, it's happening all the time. Obviously, right now, it was part of the review with the authorities. But it's something that we do regularly. So it is true, it is a discount, but it's something that we just do every year. So it's not an exception, but just now because of this.
Raúl Revuelta (CEO)
Yeah. And it, to be clear about the two, reduction, one of the things that we're gonna announce in the coming days is that we will have discount of TUA of 10% in nine of our airports during November and December. Then we will review inflation in all our tariff, not only TUA, and we will keep with the new tariff, a discount of the 10% in nine of our airports. In other terms, that is a promotion that we will put in place for the coming year, from 2024.
It is important, again, really important to say that these promotions or discounts on TUA is not affecting or changing the rules on the maximum tariff, because the maximum tariff is still in place, is still exactly the same that were, eh, negotiated and announced by the government five years—four years ago.
Bruno Amorim (VP of Equity Research)
So, just to make sure that we got it. So you're saying it doesn't change the maximum tariff, but you're gonna charge a lower TUA by 10% in some airports. So is it fair to say in those specific airports, the tariff or the revenues per passenger will be roughly 10% below the maximum tariff going forward?
Raúl Revuelta (CEO)
Oh, no. Not, not necessarily, because as you know, the Maximum Tariff is a basket of services. In that services we have-
Bruno Amorim (VP of Equity Research)
Yes.
Raúl Revuelta (CEO)
Other services, and of course, for example, there are two variables that really change the way that we make the figures about the maximum tariff, that is the inflation and the exchange rates. So what we are saying on this moment for the coming year, and what some of the things that we will announce in the coming days, is that we will have a reduction of the 10% of TUA in nine of our airports. This 10% is, I would say, it will be after the inflation review, and it's just in that specific tariff. It's not directly imply a reduction on the 10% of the total aeronautical revenues.
Saúl Villarreal (CFO)
Yes, just to add something again in that, the effect of inflation that was almost null during the year has, for the maximum tariff, more of a high effect than the discount in TUAs. Also, the appreciation of the peso is affecting the revenue, and it represents, obviously, an impact in the revenues, but it doesn't affect directly the fulfilling of our maximum tariff. Those macroeconomic effects are implied in the fulfilling of the maximum tariff. It's fair to say, and it's just to let you know that the discount on TUA has an effect in the maximum tariff, but it's not full.
It will be part of the fulfilling of the Maximum Tariff during 2023, and the fulfilling of the Maximum Tariff for 2024.
Bruno Amorim (VP of Equity Research)
How much of the regulated tariff is the TUA or the regulated revenues, roughly? It's the majority, right?
Raúl Revuelta (CEO)
Of our aeronautical revenues, represents around 85% of our total aeronautical revenues.
Bruno Amorim (VP of Equity Research)
Okay, so, so if you lower the TUA by 10%, you lower your revenues on the regulated side by 8.5%. Can there be an offset, like increasing tariffs for the airlines?
Raúl Revuelta (CEO)
It will be some kind of offset because the inflation for all, for 2024, for all the tariff, including the TUA, will be put in place on the first month of the year. Eh, again, it will be for the maximum tariff for the basket. It's important to know what will happen with a possible or with the exchange from peso and dollar, and with inflation. It's not like a completely pass through from discount. It doesn't have a direct, I would say, direct effect, one to one, to what it means aeronautical revenue. It's the mix of the basket. What we announced is that a decrease on the TUA for nine of our 12 airports, eh, of 10% discount.
Bruno Amorim (VP of Equity Research)
Thank you very much. I have other questions, but I'll let others ask. Thank you.
Raúl Revuelta (CEO)
Thank you.
Operator (participant)
We'll take our next question from Jay Singh with Citi. Please go ahead.
Jay Singh (VP)
Hey, thanks for taking my questions. My first one is, how much traffic flow are you guys seeing from the new Mexicana Airlines, and are they actually selling tickets? And, as a follow-up, how much damage have you seen in Los Cabos because of Hurricane Wilma? Thanks.
Saúl Villarreal (CFO)
Hi, Jay, this is Saúl. Well, we do know exactly what could be the effect and the benefit in Cabos because of the hurricane. We believe that obviously the tourist destinations will be benefited by this diversion of the tourism.
Raúl Revuelta (CEO)
Yeah, for the case for Norma, I mean, saying about what Saúl is saying is the case of Otis, of the impact of hurricane of Acapulco, I mean, it's terrible, a huge destruction there. For sure, some of the passengers will move to other leisure destinations. For the case of Norma, that affected a couple of days ago in La Paz and in Los Cabos, we don't have major impact on the infrastructure.
We only have closure of the airport for one day. We are seeing a really quick recovery on traffic on Los Cabos and in La Paz. So we don't see really major impacts on traffic, because it will be only reflect a couple of days of closing, but not just only that.
Operator (participant)
Thank you. Our next question comes from Anton Mortenkotter with GBM. Please go ahead.
Anton Mortenkotter (VP of Equity Research)
Sorry, can you hear me?
Operator (participant)
Your line is open.
Anton Mortenkotter (VP of Equity Research)
Yeah. Hi. Thank you for taking my question. I just have two quick questions. One is regarding your investments on the commercial front. Given the higher concession fee, that will certainly pressure some of your cash flows, do you expect to continue at the same pace that you've been having? I mean, I know most of the projects are almost done, but do you expect this to have an effect? Also, are you considering buybacks?
Raúl Revuelta (CEO)
Thank you, Anton. In terms of the commercial CapEx, as you know, when we made a decision to have a major commercial CapEx in place, for sure we see a really short-term recovery rates. I mean, we see that the recovery of the investment is really, really fast. For sure, we will incorporate the impact, the possible impact of the 9% on our business cases. If the return for the investment still being higher than our WACC as a company, and it's interesting for the creation value for the company, we will still put in place CapEx. For sure, we will have to take in account on our business plan, commercial business plans, and specific business plan for new CapEx, these new impacts.
For sure, in case that the return for the investor is not the correct, we will not put in place that specific additional CapEx. In case of the buybacks, for sure it's something that we will continue analyzing, but it's important to understand that the new rules for WACC will make us make different, possible different decisions. We are analyzing that, which gonna be our new cost, debt structure for the future. So I will say that for the moment, it is more important for the company to have first the clarity, which gonna be our leverage for the future, for instance, before we make or where we put in place any kind of, of, of buyback program.
Anton Mortenkotter (VP of Equity Research)
That is pretty clear. Thank you.
Operator (participant)
Our next question comes from Pedro Balcão. With Santander, please go ahead. Pedro, your line is open. Pedro, would you please check your mute? We will move next with Juan Macedo, Macedo with GBM. Please go ahead.
Juan Macedo (Equity Research Analyst)
Hi, thanks for taking my question. My question is regarding the direct operation of commercial business. Obviously, revenues in that segment have been growing, but also costs. Are you expecting costs to continue growing, or are they on a normalized level now?
Raúl Revuelta (CEO)
Hi, Juan. It will be... I mean, they're gonna be a part of the cost, I mean, the cost of sale. If the revenues on the direct operations of GAP, on the some of the business lines that we operate directly, as could be the convenience stores of the VIP lounges, for sure it's a part of the cost that is related of cost of sales. So if the revenues are still growing, we're gonna have some kind of growth-
... on the cost of sale for sure, on the total cost. But it is important to say some part of this cost also come from the new openings, pre-operational costs, and in some of these directly operated by us business, as soon as we are having bigger amounts of bigger volumes, we could achieve better prices for the cost, that in some moment will begin to give better margins for the specific, for this specific business. But in general terms, I would say that some of the costs related with the business directly operated by us, will still growing in the line or alignment with the cost of the growth on the revenues.
Juan Macedo (Equity Research Analyst)
Right. Thanks for the clarity.
Operator (participant)
We have a follow-up from Pablo Monsivais with Barclays. Please go ahead.
Pablo Monsivais (Equity Research Analyst)
Hello, hi. Can you hear me well?
Saúl Villarreal (CFO)
Yes, Pablo.
Pablo Monsivais (Equity Research Analyst)
Okay. One question that I wanted to follow up on, on Bruno's question: Is the TUA that we're seeing in the press, the 10% decrease, unrelated to these new rules that the government is setting? I mean, there are, like, two different things. You are offering discounts on the TUA, and the rules are a different thing. Can you please clarify that? Thank you.
Saúl Villarreal (CFO)
Hi, Pablo, this is Saúl. I just want to point out that the discount in TUAs happen almost every year, and we do regularly as part of our incentives to the market, to the airlines. We provide a different kind of discounts, not only TUA. We provide discounts when they open additional routes, when the airlines add additional frequencies, so it's part of the business. That we have to take into consideration is the fulfilling of the Maximum Tariff. That's our target. And as you know, we are in almost 99% of that fulfilling tariff. That will be affecting us. There are other two effects, the exchange rate, the appreciation of the peso, and also the inflation applicable to the tariffs.
So, just to be clear, the discounts in TUA will be 10% for these two months of the year, November and December, and for 2024 will be the discounts in TUA the same, but we will have to update all the specific tariffs, not only TUAs, all the specific tariffs for the full years with inflation. So at the end, and again, just to try to point out, our target is to fulfill the 100% of the maximum tariff. Last year, we reached around 96% of the maximum tariff, and what we are expecting at the end of the year, around 90, 98, 97.5%.
For 2024, we will see what will be the range, but probably will be in that area, 98%-99% of the Maximum Tariff.
Pablo Monsivais (Equity Research Analyst)
Okay, and just a follow-up on this. Like, we have seen the share price, that it dramatically move to the downside. What is the piece of information that the market or us we're not understanding based on what you- we have here on the rules? What do you think is a key issue to close the gap and to understand what is the economic impact, the actual economic impact of these changes? Thank you.
Saúl Villarreal (CFO)
Pablo, I think the main difference is the change in discount rate from Ke to WACC, and that's the main part. Just to know what could be the effect is complicated to say now. We have to continue with our regular review with the reporting in terms of CapEx, in terms of the MDP, the different inputs, the OpEx, the discount rate, everything. I think the effect on the share price is more the uncertainty about the phases were announced by the government, and we didn't know exactly.
But after different meetings and conversations, I think we have a regular basis that you can see is attached in our last week press release is full explained there. And I think this is, in terms of interpretation, it's more the perception of the market than a real change. We will see what is the real effect in terms of return until next year when we are at the end of the year, the different inputs, the different rates, the composition, the capital structure of the balance sheet of the company. With all different assumptions, we will have more visibility on that. But for now, it's just to let you know what are the new rules.
... are full, translated and it's in our press release, and you can go through and see all the main changes.
Pablo Monsivais (Equity Research Analyst)
Thank you.
Operator (participant)
Thank you. We will now take our webcast questions. I will turn the call over to management.
Maria Barona (Investor Relations Advisor)
Thank you. We have several questions in the webcast. There are one of them that we have already answered, so I will skip those ones. So I will start with the question of Pablo Coloma from MetLife. Is it fair to assume that EBITDA margin will reduce by 4% with the new concession fee in 2024? Is a 66% the new expected level of the company going forward?
Raúl Revuelta (CEO)
Thank you, Pablo. I will say that today, or for the coming year, we will be careful in terms of the cost management. So if today, I would say that it is not completely clear which is gonna be the impact on that, on that, on the margin. Because we have a couple of effects today into the table. We have the effects of the NGNs, that we are not pretty clear today about the size of that, of that impact. On the other hand, we have the temporary impact on the aeronautical revenue coming from the change on the concession fee.
We have part of our revenues that comes from Jamaica, and they are not fully, I would say, affected or they are not affected by these changes on the Law of Federal Rights. In that view, I will say that for us, it's early to completely say which is gonna be the impact on the margin for the coming year. I could assure you, as management, we are working to offset any kind of... trying to offset the maximum on all the effort on the cost management, to have the correct margin for the company. Again, today is still being early to understand the impact.
María Barona (Investor Relations)
Thank you, Raúl. And now I'm going to move to Ana Cecilia Reyes. She's from Grupo Bal. She has some questions. Having a little more clarity on the regulation changes, do you plan to continue with the issue of the new bonds? And also, are there any changes on the dividend policy?
Raúl Revuelta (CEO)
Hi, Ana Cecilia. I will say that today we are not... We don't have yet which is gonna be the policy for the next master plan, 2025 to 2029. We need to run the numbers, we need to understand which is gonna be the new tariff, the new CapEx, and then we will make the decisions about our policies on leverage and dividends. So for the moment, it's not clear which gonna be our, our future policy. Policy, we need to understand which is gonna be the new tariffs on the, on the, on the next regulation and on the next review of the maximum tariff, and to understand the size of the CapEx, and to understand specifically in which year I will need to, to put in place which size of investment and which kind of investment.
So in general terms, I'd say that today we don't have yet the clarity to say which is gonna be the new or our dividend and leverage policy for the 2025-2029 period.
María Barona (Investor Relations)
Thank you, Raul. I am going to move to Alejandro Fuchs questions. He has two. The first one: The concession tax going to 9%. On the bill presented, it says that the tax is paid on gross sales, as it was in the past. If I understood correctly on the remarks, you mentioned that it was on aeronautical revenue. Has that changed?
Saúl Villarreal (CFO)
Hi, Alejandro. It's basically the same calculation, the same methodology for to apply this tax. The change is only about from 5 to 9. That's the change. Everything is the same.
María Barona (Investor Relations)
The second one: you mentioned that higher costs concession tax will be passed through higher tariff, if I understand correctly. But on the new law, that clause was taken. Could you please clarify this point as well?
Saúl Villarreal (CFO)
Yes. The maximum tariff includes the cost of the concession fees. In general terms, we will include this for the MDP for 2025-2029. But, for the year 2024, because this new bill will be enacted in January 1, 2024, we will include the excess of the payment over the aeronautical revenues-
... on the, in the next reference value that will be used for the calculation of the period 2025-2029.
María Barona (Investor Relations)
Thank you. So, now I'm going to move to Marco Montañez from Vector. And he says, "Reviewing the formula to calculate the maximum tariff, it seems that the companies have the incentive to increase the leverage, to increase the discount rate. What do you think? And which would be the equilibrium to increase the discount rate versus increase the leverage?" Thank you.
Saúl Villarreal (CFO)
Hi, Marco. Well, it is some way to see it, but we will have to do a deeper analysis on that. What is the best balance for the company? Obviously, looking for the higher return for our investors. We have to think that moving from key to WACC is a huge difference, and we have to analyze the total effect into the discount rate. It is something that we will go deeper in the following months. We have, as Raúl explained early, that we have almost a year to analyze and to see what could be the real effect in terms of the discount rate.
Raúl Revuelta (CEO)
Just complementing the answer of Saúl. Again, it's important to think that the effect is not only related on tariffs by itself. The tariffs, the new tariffs that we could have in 2025-2029, we need to see the full picture. That means CapEx, leverage, and dividend policy. So as soon as we have clarity about that, we could say which gonna be the new policies in that way for GAP. What is important is trying not to insulate just the effect of the maximum tariff from the future years, but seeing as a full picture that incorporates the CapEx, the leverage, and the dividends, and different ways for understanding what gonna be the policy for the future of the company.
María Barona (Investor Relations)
Thank you. Kenton Moorhead from DWS. He's asking if this increase in tax from 5%-9% includes aero and non-aero, correct? But aero can be recovered, is that right?
Saúl Villarreal (CFO)
Hi, Kenton. That's correct. It's basically the same effect and calculation that we had before. It's just the change in terms of the percentage that should be applicable to the aero and non-aero revenues.
María Barona (Investor Relations)
Yeah. Thank you. So, and Pablo Coloma from MetLife again, he, "What will apply with the suspend debt issuance? Will you come back to the market? Do you think the debt cost could have increased with the new regulation?
Saúl Villarreal (CFO)
Well, as Saúl was explaining, we will analyze that because the level of leverage is really important so far. We know that the strategy from the company last years was to leverage 100% of our CapEx. We have a huge commitment in terms of CapEx for the end of this year and for next year, and we have to finalize the new MDP to review and define. That is something that we will analyze in the following months and decide as soon as possible. But for now, it's something that we are analyzing.
María Barona (Investor Relations)
Thank you. The last one comes from Evan Curtz from Lord Abbett. Is the WACC calculation based on net debt to total cap or gross debt to total cap?
Saúl Villarreal (CFO)
Hi, hi, Lord. This is... Hi, Evan. Sorry. This is the, over the total, total debt.
María Barona (Investor Relations)
Perfect. So thank you, Saúl. And with this, we will finish the webcast call. And I will return the word to Raúl Revuelta for the final remarks.
Raúl Revuelta (CEO)
Thank you everyone for joining us today in our third quarter results conference. The team remains available to answer any questions you may have. Please enjoy the rest of the day. Thank you very much.
Operator (participant)
This does conclude today's program. Thank you for your participation. You may disconnect at any time.