Grupo Aeroportuario del Sureste, S. A. B. de C. V. (ASR) Q4 2024 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to ASUR's Fourth Quarter 2024 Results Conference Call. My name is Melissa, and I'll be your operator. [Operator Instructions] As a reminder, today's call is being recorded. And now I'd like to turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Thank you, Melissa, 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's expectations and beliefs and are subject to several risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control. Additional details about our quarterly and full 2024 year, results can be found in our press release, which was issued yesterday after market close and is available on our website in the Investor Relations section. Following my presentation, I will be available for Q&A. As usual, all comparisons discussed on this call will be year-on-year and figures are expressed in Mexican pesos, unless specified otherwise. Let me start with a review of ASUR's operational performance for the quarter. Passenger traffic was basically flat year-over-year, down 0.3% at 17.7 million passengers. This brought our full year to close at 71 million passengers traveling through our airports in 2024. Sustained growth in Colombia and Puerto Rico largely offset weaker passenger traffic in Mexico. Now taking a deeper look at our geography. Colombia remained our strongest performance market with passenger traffic increasing in the mid-teens year-on-year, supported by the favorable comps following the suspension of 2 local carriers in early 2023. Travel demand remained solid with international traffic up 29% and domestic traffic rising 7% as Avianca and LATAM Airlines continued to be selling routes lost last year. Looking ahead, we expect traffic trends to be normalized in the first quarter on the year towards the more sustainable levels of 2023. Puerto Rico was the next best market and similar to past quarters, maintained its positive trend with total traffic up nearly 10%, supported by a strong growth in international traffic, up 29%, while domestic traffic was up 7%. We expect traffic in this market also normalize after benefiting from increasing operations by Frontier Airlines a year ago. Lastly, performance in Mexico remained soft as anticipated, declining 8% year-on-year with both international and domestic traffic down in the high single digits. Moving next to more details on the performance. International traffic continued to experience year-on-year declines from all regions during the quarter. Specifically, traffic from Europe decreased 6.4%; from Canada, 0.6%; from the U.S., 8.8%; and from South America, by 11.1%. With respect to domestic traffic, the ongoing Pratt & Whitney engine restrictions, together with the air traffic capacity constraints at Mexico City Airport in effect since early 2024 are constraining traffic flows. In addition, Cancun Airport is slightly impacted by the initial ramp-up phase of new Tulum Airport. Tulum Airport captured around 1.2 million passengers from Cancun last year and is expected to capture another 1.7 million this year compared to the 30.4 million passengers that traveled through Cancun Airport last year. Looking ahead, we expect to normalize in 2026, as Pratt & Whitney effect is reduced and Tulum initial ramp-up concludes. From that point, we anticipate passenger traffic at Cancun Airport and Tulum Airport to grow at a pace consistent with each region dynamics. Now as we turn to the P&L, recall that all reference to revenue and cost figures are excluding construction. Total revenues for the quarter increased 19% year-on-year to MXN 7.4 billion, reflecting a strong performance across all 3 regions. Colombia once again lead growth, posting a 30% increase in top line revenue, supported by rising passenger traffic. Mexico and Puerto Rico also delivered solid results with revenue growth in the low teens. Mexico, which accounted for 72% of total revenues, posted a mid-teen increase in top line performance. Growth was primarily driven by a low 20% increase in aeronautical revenues following the recent tariff adjustments, while non-aeronautical revenues rose in the low single digits. Puerto Rico represented 15% of total revenues and delivered high 20% growth, supported by a strong increase in both aeronautical and non-aeronautical revenue, further boosted by the foreign exchange benefit from the weaker peso. Colombia contributing 12% of the total revenues recorded a robust 31% increase in top line revenue. This growth was fueled by strong performance in both aeronautical and non-aeronautical segments. With revenues rising in the low 30s, both segments benefited from continued recovery in the domestic and international traffic. Colombia, as part of the strategy to expand commercial offerings, we opened 45 new commercial spaces over the last 12 months. This included 12 locations in Mexico, 5 in Puerto Rico and 28 in Colombia. As a result, total commercial revenues grew in the high single digits, with Puerto Rico posting a 26% increase. Colombia is delivering a strong year-over-year growth of 31%. In Mexico, commercial revenues show a low single-digit increase, marking a positive shift from the previous trend. On a per passenger basis, commercial revenue grew in the high single digits year-on-year, reaching MXN 130 in the quarter. This solid performance was supported by the growth across all 3 markets. In Puerto Rico and Colombia, commercial revenues per passenger rose in the mid-teens with Puerto Rico benefited from a stronger U.S. dollar and Colombia from new openings. Mexico also posted solid growth in the low single digits to MXN 158 per passenger, also benefiting from the FX impact. On the cost front, total expenses increased 13% year-on-year. In Mexico, costs were up 12%, primarily reflecting the 80% increase in the concession fees mandated by the Mexican government and a 20% in minimum wages, mainly affecting cleaning and security services, both effective since January 1 last year. These impacts were partially offset by a 50% reduction in technical assistance fees. In Puerto Rico, cost increased in the high teens, driven mainly by the depreciation of the Mexican peso against the U.S. dollar, while Colombia cost rose just 7%, benefiting from a reversal in the provision for maintenance and consolidation, which helped to mitigate overall cost pressures. Consolidated EBITDA was up 23% year-on-year to over MXN 5 billion in the quarter, while the adjusted EBITDA margin, which excludes construction, improved 200 basis points to 69.7%. Driven by solid profitability across the 3 regions, Colombia reported the strongest performance with EBITDA up 61%, followed by Puerto Rico with a 39% increase, while Mexico posted an increase of 70% in EBITDA. Our balance sheet remains robust, closing the quarter with cash and cash equivalent over $1 billion with debt to last 12 months adjusted to EBITDA remaining at the negative of 0.3x. During the quarter, capital expenditure accelerated, reaching MXN 2.5 billion and accounting for half of the full year of total MXN 4.4 billion in 2024. Main projects during the quarter included the construction and expansion of Terminal 1 at Cancun Airport as well as the expansion of Terminal Oaxaca Airport. In Puerto Rico, expansion works at Terminal B and runway remodeling remain on track. As a reminder, all the construction activities will take place outside the operational areas to ensure no disruption to airport operations. We expect investments to gradually ramp up CapEx through this year as we advance in the key infrastructure projects. Those projects include the construction and expansion of Terminal 1 at Cancun Airport with estimated completion in 2026, while Terminal 4 is scheduled for completion by 2028. Terminal 2 is expected to see operational improvements once Terminal 1 is completed, helping to alleviate bottlenecks on the non-aeronautical side of the business. This enhancement will also optimize the processing of traffic to and from South America, further supporting revenue generation opportunities. Wrapping up, we closed 2024 with another strong quarter, a solid full year performance despite the navigating industry challenges such as Pratt & Whitney engine issue and capacity reductions in Mexico City. Net majority income for the year rose 33% year-on-year to MXN 13.6 billion, supported by a resilient operational performance and a disciplined execution. Our results also benefited from a MXN 2 billion foreign exchange gain driven by the depreciation of the Mexican peso against the U.S. dollar compared to the FX gain nearly of MXN 840 million in 2023. We remain focused on strengthening our airport network through strategic infrastructure investments that enhance the passenger experience, expand commercial opportunities, support long-term traffic growth, and create value for shareholders. We achieved substantial progress on our strategic objectives and have a solid foundation in place, which positions ASUR for continued success in 2025 and beyond. This ends my presentation remarks. Melissa, please open the floor for questions.

[Operator Instructions] Our first question comes from the line of Rodolfo Ramos with Bradesco BBI.

I have a couple, if I may. Can you share with us your traffic growth expectation for this year and whether you're seeing any pickup in route openings or network development by airlines, specifically on the Mexico side? And then the second question is on the commercial revenue per passenger. I mean the Mexican peso depreciation certainly helps on that front. But all else constant, do you expect the traffic Tulum, these 3 million passengers that you expect now this year on a full annualized basis, to cannibalize your commercial revenue per passenger? I don't know if you see a higher spend per passenger on that particular passenger that was cannibalized from Tulum?

Thank you, Rodolfo. Good morning. In the case of the Mexican traffic, we will continue suffering from the restriction in capacity of Mexico City and the problem of Pratt & Whitney. I'm sure that you have heard what Volaris has said yesterday. And basically, they are expecting to have or to continue with the Pratt & Whitney engine problem during next year. Of course, they have been receiving airplanes in accordance with the requested airplanes they have done in the past. So it's true that we will suffer from some aircraft to be on ground as a result of Pratt & Whitney, but the situation is improving. I would say, yes, we will be affected, but not as we were affected last year. I hope that by the end of the third quarter, situation will improve in that front, as well in the case of the restriction of Mexico City Airport. In terms of commercial revenues, as I said during the initial remarks, we are still suffering in the case of Terminal 2. We know that we are losing some commercial opportunities there, and we are expecting those to improve once we open Terminal 1. We expect to open Terminal 1 at the end of the second quarter 2026. So for the moment, we don't see a decrease, but we know that we are losing commercial opportunities.

Our next question comes from the line of Pablo Ricalde with Itaú.

I have 2 questions. One is a follow-up to Rodolfo's. We have seen some press that the capacity of the Mexico City Airport should increase this year. I don't know if you heard something on that front. And the other one is on dividends. I don't know if you have some expectations on what to propose at the next shareholders' meeting.

In the case of the capacity of the restriction in the capacity of Mexico City Airport from 52 to 43 ATMs per hour. What I have seen in the news recently is that the Mexico City airport manager is open to eliminate this restriction and probably to go back to the 52. Remember that we are coming from the 63. So that's why I'm expecting this to be lifted by the end of third quarter. Also, remember that next year Mexico City will receive some passengers due to the World Cup that will take place in June next year. So I hope that the government will change this restriction by the third quarter. And also as Volaris has more planes, I'm sure that they will put some pressure on this front. In the case of dividends, I have prepared my proposal, and it will be sent to the Board of Directors. And I'm sure that you will hear from these on March 14. That's what I can say for the moment.

Our next question comes from the line of Stephen Trent with Citi.

I know that certainly, there's a lot of political rhetoric at the moment in North America. And we've, of course, seen some currency movements, which you've mentioned. Are you seeing any nuances in your international traffic flow, for example, Canadians visiting Mexico more frequently than you expected, and maybe some of these folks are no longer going to Disney World or something like that? Any sort of pivots that you've noticed?

Well, I'm sure that you have heard my initial remarks. In the case of international traffic for the quarter, all the regions were negative. In the case of Canadians, they were negative 0.6%, which is almost flat, I would say. I don't see any change due to the situation in the U.S. during the last quarter. The traffic was weaker. Of course, you need to understand that some of this traffic is going to Tulum. Tulum last year got around 1.2 million passenger traffic and 75% of this was from the U.S. So if you make the math, that's basically what we are losing in terms of the U.S. traffic. Canadians are not so much. And the other, let's say, 20% it's Mexico, it's domestic traffic. But no, I have not seen any change due to the new politics in the U.S.

Appreciate that, Adolfo. And just 1 other quick follow-up. I wasn't sure if I heard you. But are you getting, or do you expect to get any meaningful traffic flow out of Filipe Angeles, for example, if authorities do not make any adjustment in Benito Juárez air traffic movement?

Well, the case of the IFA is basically traffic to and from Tulum. And I would say, in the second place, to Cancun. Most of the traffic is -- it's been managed by Viva Aerobus directly to Tulum. Also, Mexicana Airlines, it's having some flight there as well. The airport, it's growing, of course, because of the restriction in Mexico City Airport. And I hope that if the restriction is lifted, we will have some benefit there from Volaris flying directly to Cancun.

Our next question comes from the line of Pablo Monsivais with Barclays.

Just wanted to learn a little bit more if you had any conversations or feedback, particularly from U.S. carriers towards capacity expansion plans into Cancun for the second half of this year.

Well, we are in the process to receive the summer season schedule. So that should be received, I would say, in the coming weeks. So for the moment, we do not have visibility for the summer season.

Perfect. And a second question, if I may, on the commercial revenues, once you do the works that are expected to be done in the MDP, is there any target on commercial revenues per passenger that you are estimating?

Well, there is no specific number. I would say, and we used to say internally that is a moving target. We always want more. And that is why we are always looking for what the passenger is looking in terms of price, product and service. So what we know today is that we are losing commercial opportunities due to the lack of capacity in some commercial areas, specifically in Terminal 2. And that's why we are expanding and reconstructing Terminal 1 that, as I said before, we're expecting to be open at the end of the second quarter 2026.

Our next question comes from the line of Alberto Valerio with UBS.

Two quick follow-ups on my side. Actually, a new one on -- we see that you have some rebalancement in Colombia and Puerto Rico. If you could provide a little bit of the details on this rebalancement? And also from your expectation, how Tulum has been operating so far? How has been the traffic in Tulum versus your expectations so far?

Well, in the case of Colombia and Puerto Rico, I would say they are working and they are giving great results. I'm really surprised of the resilience of Puerto Rico. I was expecting the traffic to become more normal. If you see the report from the case of January, it is still strong, very strong. And Colombia, of course, is in the process to -- well, it has concluded the process to recuperate the 2 airlines we lost at the beginning of 2023. So we are back on track, and I hope that Colombia will continue with the normal growth in the coming quarters. That's basically what I can say for the 2 cases.

Our next question comes from the line of Jens Spiess with Morgan Stanley.

So just one question on capacity in Cancun. Like under a hypothetical scenario where international remains weak and there's an increase in capacity that the local -- the domestic airlines want to increase to Cancun. Are there any constraints in the terminals where you service the national carriers? Or would you be able to allocate or would you need to reallocate basically your operations there? Any color on that? Appreciate it.

Absolutely. Well, today, we do not have restrictions in terms of operational capacity in Terminal 2. What we have is restrictions in the non-aeronautical side. The capacity, I would say, in the case of the middle of the day, probably you will not find the space to have your meal. But in the case of the operational front, we do not have problems. Of course, once Volaris recuperates its operations from the problem they have with Pratt & Whitney, we will need more capacity. And that's why we are constructing and expanding Terminal 1. In Terminal 2, what we have is basically Viva and Volaris plus South America. So what we are intending to do is to subtract South America and move that to Terminal 1, and that will leave additional space for these 2 airlines.

[Operator Instructions] Our next question comes from the line of Alan Macias with Bank of America.

Just a question on Mexican tariffs. Were you able to implement the increase last year? And is there any spillover that we might see for this year?

Alan, I cannot hear you. Your line is cutting. So if you can repeat your question, please?

Yes. Can you hear me better?

Better.

Yes. Just on Mexican tariffs, if you were able to implement the increase in 2024, and if we might expect some spillover for this year on Mexican tariffs?

It was basically implemented last year.

Our next question comes from the line of Enrique Sojo with Fundamenta Investments.

My question is actually related to passenger growth. It's a bit of a double click on some things you mentioned. As you referred to Volaris, they stated in the earnings call that they expect GTF issues to affect a significant portion of their fleet all throughout 2025, '26, '27. And the [Technical Difficulty].

Enrique, again, could you repeat your question, please.

Sorry. It seems that we've lost Enrique. We'll move to the next question. Our next question comes from the line of Gabriel Himelfarb with Scotiabank.

A question on Tulum. Is there any somehow updating mechanisms or compensating mechanisms for the traffic that has been taken from the Tulum Airport from Cancun?

Gabriel, I will not call it compensation because at the end of the day, if you go back to the regulatory regime that was published on October 19, 2023, the formula is looking forward, it's not looking backward. Of course, the effects of Tulum Airport were included in those calculations. So to give you a very clear response is, yes, it has been included, the effects of Tulum, but of course, we cannot call it compensation.

So they were included on the MDP, on last year's MDP?

Absolutely.

Our next question comes from the line of Anton Mortenkotter with GBM.

Congrats on the results. I'm sorry if this has already been asked. I had some issues with my line. But my question is related to the commercial side. I mean, we saw a really good performance on the non-idle per pax growth. I was wondering, I mean, is this a result of the mix from having maybe a stronger U.S. dollar and maybe some pent-up demand or something? Or also if there has been any strategic shift in how you renew your contracts, maybe a little bit of pricing power on that side. I'm not sure if you could provide some color there.

Absolutely. Well, it has to do with the FX. You can see it very clear during the fourth quarter results, and partially on the third quarter last year results, because we saw some kind of peso devaluation since the third quarter. But of course, the most important effect was in the fourth quarter. That's basically what we have for the fourth quarter. Some FX, good results, no question about it. But I don't see any problem for the future, except that we know that we are losing commercial opportunities there.

And also, a little bit of a follow-up there, Adolfo. Roughly, what amount of your commercial contracts are due each year? And are you able to renew them with, I mean, maybe open terms? Or are those getting renewed with maybe fixed terms or an automatic plus or something like that?

Well, there is not a way to say that this year 20% of the contracts will expire. Every business line has its own term. I would say it could go from 7 to 3 years, depending on the business line. Normally, what we do is to continue with the same kind of terms. Increasing -- as you have mentioned, increasing prices, increasing the concession fee is not the way to maximize revenues. Probably in some cases, could be the opposite. Remember that what we want is they to sell more and we to get more. So in that sense, the most important thing is to be able to get as much as we can in terms of sales, not in terms of prices.

Our next question comes from the line of Guilherme Mendes from JPMorgan.

First one, it's a follow-up on Tulum. You said it was included on the MDP. But can you share how it's trending when compared to your expectations, it's going in line or not? And the second one, in terms of capital allocation, there was some news on the Dominican Republican asset last year. I understand it's still on hold. And if there's anything else that the company would be considering outside Mexico?

Yes. In the case of Tulum, what I can say to you is as we expected basically, probably not so strong. Let me say, this year, probably originally, we were expecting around 3 million. I'm saying 2.9 million for this year, and that will be the ramp-up for Tulum. So the ramp-up during '24 and '25. And from there, Tulum will have to grow at the dynamics of the region. In the case of Dominican Republic, we do not have any update. We continue with the legal process there. And I hope that we will have some results during this year.

Okay. And just to confirm, anything else outside Mexico and outside Dominican Republic that you would consider?

Well, of course, we want to consider all. We review all the projects that are there. But for the moment, I would say I do not have any significant project in front of me in the short term.

Our next question comes from the line of Enrique Sojo with Fundamenta Investments.

Apologies, my line dropped. Were you able to listen to me?

Now I can hear you.

Okay. My question is actually kind of a double click on some things you mentioned, more specifically Volaris, as you mentioned yesterday during the earnings call that you're going to have GTF engines for this year, next year, and possibly 2027. And they have moreover renegotiated the aircraft deliveries with Airbus to further slow down capacity increases. Do you believe that this new information significantly hinders growth in the short to medium term? Do you think it may be indicative of a more weak domestic market and players?

Yes, Enrique. Well, what is important for us is the additional capacity they are including as we speak, not just Volaris, also in the case of Viva and the case of Aeromexico. If you see the report of Volaris, of course, I'm not so sure that what they report is the operational aircraft. But if you see the report, at the end of 2023, they reported 130. At the end of 2024, they reported 143. So if we just use those 2 numbers, we will say they have more aircraft that in comparison to what they have before Pratt & Whitney. The problem with those 2 numbers is that we don't know how many of those are in the shop. Also, it has been announced yesterday by them that some of the aircraft that have already been recalled will have to go again for some additional works. So that is why I said during my remarks that next year, we will see the problem will be still there. Of course, in a more smaller manner. My expectation is that the first 3 quarters are going to be the last strong effects from Pratt & Whitney in the case of Volaris.

[Operator Instructions] Mr. Castro, it seems there are no other questions at this time. I'll turn the floor back to you for any closing comments.

Thank you, Melissa, and thank you all of you again for joining us today for this fourth quarter 2024 conference call. We wish you a good day, and goodbye. Now you may disconnect.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect your lines.