Southeast Airport Group (ASR) Q1 2026 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to ASUR's first quarter 2026 results conference call. My name is Sachi, and I'll be your operator. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of today's teleconference. If you would like to ask a question, please press star 1. If you want to withdraw your question at any time, please press star 2. If you are using a speakerphone, please lift the handset before making a selection. As a reminder, today's call is being recorded. Now, Mr. David Barlow, Corporate Governance, Strategic Planning Manager, and IRO at Azur. Please go ahead, sir.

Thank you, Sachie, and thank you, everyone, for joining us today to discuss Azur's results for first quarter, 2026. With me on today's call is Adolfo Castro, Chief Executive Officer. Additional details about our results can be found in our press release, which was issued yesterday after market close, and is available on our website. As usual, all comparisons discussed on this call will be year on year and all figures are expressed in Mexican pesos unless specified otherwise. As a reminder, 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 may be beyond our company's control. Please refer to the forward-looking statements disclosure included in this earnings presentation for additional information. With that, I will now turn the call to Adolfo. Please go ahead, Adolfo.

Thank you, David, and good morning, everyone. Before I begin, I would like to note that David Barlow has assumed his responsibility for investor relations. that David has been with Azur for more than 20 years and knows the company and operations very well. He attends our board of directors meeting and committee sessions. Now let me start by framing the quarter. We expected the first quarter of 2026 to reflect the period of transition for Azur. We were operating in an environment where the traffic trends on our core Mexican market were stabilizing after a period of normalization puerto rico entering a more mature phase following strong post-pandemic growth and colombia in a growth mood momentum recall that the first quarter for mexico is the seasonality the strongest then we were negatively affected by the security-related events beginning on February 22nd, and after that, by the TSA-related disruptions in the U.S. airports, which also impacted Puerto Rico. This effect contributed to increased volatility in traffic trends, particularly toward the end of the quarter. On the positive side, we've made progress on two key priorities. The first one, the integration of Azure's U.S. airports. This makes the first full quarter of consolidation of our U.S. commercial platform. The business contributed to non-aeronautical revenues while profitability reflects the early ramp-up operations. We expect travel improvement as the platform scales, supported by the new commercial openings in Terminal 8 and the upcoming opening of the Terminal 1 this year. Both at GEA will further expand the commercial base. Second, continue the execution of our regional expansion strategy. We remain focused on completing the Motiva transaction, which is now pending remaining regulatory approvals, and is expected to close in the second quarter this year. This transaction will significantly expand our footprint and reinforce our long-term growth profile. This transaction represents a step change in scale and geographic diversification, expanding our presence in new markets and further balancing our portfolio. Our strategy remains consistent, diversifying our revenue base, including a greater focus on non-regulated revenue, selecting expanding into markets with attractive long-term demand, and deploying capital in a disciplined and value-attractive manner. Let me now review a source of operational performance for the quarter. Total passenger traffic increased 1.9% year-on-year, reaching nearly 90 million passengers, driven by strong traffic in Colombia, stabilization in Mexico, and short-term softness in Puerto Rico. Colombia remains our fastest-growing market with traffic up 11%, supported by the increased connectivity and solid demand. Domestic traffic growth 12%, outpacing 7% growth in the international baskets. Mexico remained broadly stable, with international traffic showing modest growth, while domestic traffic remained slightly below prior years' levels. Trafficking in Cancun declined 2% during the quarter, while the other eight airports in Mexico grew by 5%. Positive trends in January and February were offset by weaker March. Beginning on February 22nd, traffic was affected by the security-related events in Mexico, which impacted traffic to and from the United States through mid-March. Later that morning, traffic was affected by TSA-related screening disruptions in the U.S. We believe these factors were temporary and do not reflect a change in the underlying demand. As we move through the year, we expect to see difficult operating conditions, including higher fuel prices and recent capacity reductions. Passenger volumes from the United States, our largest international source market, decreased 4.6%, while South America contracted 1.4%. On the positive note, Canada and Europe increased by 11% and 11.4%, respectively. In Puerto Rico, traffic trends declined on single digits, driven primarily by domestic demand and the effects of TSA while international traffic continued to grow turning now to financial performance as a reminder all figures exclude construction revenue and cost and comparison are year-on-year unless otherwise noted total revenues increased to 0.2 percent year-on-year reaching 8.4 billion pesos this performance was primarily driven by a nearly nine percent increasing non-aeronautical revenues, supported by the first full consolidation of the U.S. airports, which added approximately 438 million pesos in non-aeronautical revenue during the quarter. In turn, aeronautical revenues declined low single digits, mainly reflecting the FX conversion impacts in Puerto Rico and Colombia, together with a lower traffic in Puerto Rico. Commercial revenues increased nearly 7%, primarily reflecting the new commercial operations in the U.S. and middle single-digit organic growth in Colombia. Performance in Mexico and Puerto Rico remained softer during the quarter, reflecting a combination of FX headwinds, even the strength of the Mexican peso against the U.S. dollar, combined with lower traffic in Puerto Rico. We continue to execute on our strategy to enhance and diversify our revenue base with a growing contribution from non-regulated and dollar-denominated sources. The integration of the U.S. commercial platform is an important step in that direction, and while still in its early stages, it already represents an attractive addition to our portfolio. Over the past year, we also continued to actively expand our commercial footprint across the network, opening 47 new retail and service units, including 34 in Colombia, 8 in Puerto Rico, and 5 in Mexico. On a per passenger basis, commercial revenue increased to 153.6 pesos, benefited from a full quarter of operations from the U.S. commercial operations. Despite the impact of the appreciation of the Mexican-Colombian pesos against the U.S. dollar and a mixed traffic environment, by geography, Puerto Rico delivered the highest levels with 163.3 pesos per passenger, despite the 5% decline driven by FX conversion and the slight reduction in traffic levels. Mexico's job hopes and decline mainly reflected the impact of the peso appreciation over the US dollar denominated commercial revenues lastly Colombia posted a single-digit decline despite the strong traffic growth reflecting FX and mixed effects even higher growth domestic traffic turning to operation cost total expenses increased 25% year-on-year mainly driven by the integration of U.S. commercial operations, higher depreciation, and amortization in Colombia, professional fees related to the U.S. acquisition together with the ongoing inflationary pressures. Excluding these effects on the line operating cost was moderate. By region, Mexico recorded a 6% increase in expenses. Excluding professional fees associated with the U.S. commercial acquisition, expenses would have grown just 0.9%, mainly reflecting modest increases in labor and service-related costs. In Puerto Rico, expenses declined nearly 7%, benefiting from depreciation of the Mexican peso against the U.S. dollar. Expenses in Colombia increased 33%, largely driven by the higher depreciation and amortization following the change in amortization methodology. Recall this change reflect the expected evolution of the concession, including the phase-out of regulated revenues starting in 2007 and the remaining life of the asset through 2032, excluding depreciation and amortization expenses in Colombia would have increased by just 2.6%. In the U.S., we recorded approximately $368 million in operating costs during the quarter. Of these, approximately $70 million related to items attributed to 2025 that were recognized in this period, including list-related adjustments, account reconciliation items, provisions for uncollectible accounts, and prior year employees' photos. Moving on to profitability, consolidated EBITDA decreased nearly 6% to $5.4 billion in the quarter. EBITDA was lower across regions, down mid-single digits in Mexico and Colombia, high single digits in Puerto Rico, while our U.S. commercial operation costing a negative EBITDA of million pesos in the quarter. The adjusted EBDM margin declined nearly 600 basis points to 64.1% year-on-year, mainly reflecting the ramp-up of the U.S. operation and the impact of amortization changes in Colombia I just mentioned. Net majority income declined 20% year-on-year to $2.8 billion, mainly reflecting higher depreciation and monetization, increased interest expenses following the recent financings, and a lower interest income. Importantly, the reported profitability of Azur's U.S. airport this quarter is not yet indicative of the underlying earnings capacity of the business and cost associated to set up the business. As disclosed in our 20-year report on a pro forma basis full year consolidation this commercial operation generated approximately 2.1 billion in revenues and 711 million in net income in the fiscal year 2025. In addition the launch of the new terminal one at gfk airport expected to come online during the third quarter this year will further support commercial revenue growth as it ramps up further in enhancing the performance of this business. Moving into the balance sheet, we closed the quarter with cash of 13.8 million pesos, and net debt UDA of 0.8 times. Our balance sheet continues to prove significant flexibility to form growth while maintaining conservative leverage. Capital expenditures total $544 million, primarily focused on Mexico, where our investment under the mass development program continued to advance, including the construction of Terminal 1 in Vancouver, on track to open on the third quarter of this year, which will enhance capacity, improve passenger flow, and optimize commercial mix, supporting higher commercial revenues over time. No static capits for the full year, as per our mass development plan, total $7.9 billion. In Puerto Rico, we remain focused on operational improvements and while capital deployment in Colombia remaining at the end of March airplane sign an addendum to its concession agreement authorizing immediate interventions at Jose Maria Córdova airport to address unexpected events with an estimated investment of approximately 165 billion Colombian The project covers a series of capacity expansions, a service-level improvement works, including domestic and international check-in facilities, a departing baggage handling system, and immigration facilities. In summary, Astros is becoming a more diversified platform with increasing exposure to U.S. the low denominated revenues a clear visibility on key growth drivers including the ramp up of u.s commercial operations and expected closing of motiva transaction while in the near term traffic trends remain mixed across regions we continue to see healthy underlying demand for air travel and remain focused on execution cost discipline and long-term value creation The final comment is that as soon as this meeting will take place at 10 a.m. Mexico City time today, with a proposed dividend payment of 10 pesos per share to be paid at the end of May. Now, I will open the floor for questions. Sashi, please open the floor.

Thank you. We will now begin the question and answer session. To ask a question, dial in by phone and press star and then one on your telephone keypad. Make sure your mute function is turned off, and if you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star and then two. Please limit yourself to one question and one follow-up. Join the queue again if you have additional questions. At this time, we will pause momentarily to assemble our roster. The first question is from Rodolfo Ramos from Bardesco BBI. Please go ahead.

Thank you, Adolfo and David. Congratulations on your new responsibilities, all the success there. I have a couple of questions. The first one is in regards with your U.S. commercial business. I'm assuming there is some level of seasonality. Can you give us a sense of how much a U.S. should be contributing in EBITDA on a 12-month rolling basis, you know, considering this new commercial space in JFK, and if you expect any material extraordinary expenses in the coming quarter as you close the Motiva acquisition. So that would be my first one. And the second one on traffic, and let me perhaps take a little bit of a different approach here. I mean, the Cancun-Mexico route has been an important bottleneck for you guys. I mean, do you see a scenario where we could see a short-term pressure during the World Cup as, you know, Guadalajara-Monterrey routes are prioritized? Thank you.

Good morning. In the case of the U.S., it's important to say that the current operation we have is not exactly what we will have, what we expect to have at the end of this year. Just to say, on the 21st of April, new openings took place at the Jonathan Kennedy Terminal 8, and we are expecting the opening of the new Terminal 1 at the end of this year. New Terminal 1 today is a project that is under construction, it's a new terminal, so it's not in operation. So, even though, even if I tell you the 12-month number would not meant anything to give information of what this business could be next year, basically I would say the EDA, let's say 20 million, that we would be basically investing or reinvesting in the products we have. In the case of the traffic, Cancun, yes, we are right, Mexico City Airport. If they are going to relocate some traffic because of the World Cup, I don't think so. Remember that the World Cup at the end of the day in Mexico is just particularly important. In the case of Guadalajara, apart from that, nothing else. On the other side, I have to say that Cancun Airport is probably the only one in the world that has daily connection to the 16 venues of the world. It's a different story for some of the people that live outside Mexico.

Thank you.

The next question is from Guillermo Mendes from J.P. Morgan. Please go ahead.

Good morning, Adolfo David. Thanks for taking my question. A follow-up on traffic performance. You mentioned that the trends remain kind of mixed in the near term. If you can help us try to understand what to expect, especially in Mexico. I know there's a lot of moving parts, but it looks like some of the negative impacts of the first quarter seems to be fading away. So if it's fair to assume some kind of increase in traffic on a year-over-year basis going forward. And the second one is a follow-up on the Motivas Airport. If you can share what kind of synergies of upside on the commercial front you expect to get once you integrated the business into a search platform.

Yes, of course. Well, in the case of traffic, I have to say that in the case of Mexico traffic, and particularly in the case of the most important source of traffic for the first quarter, which is the U.S. Everything went well up to February the 22nd, and then basically collapsed. That collapsed up to March 14, that we were back on track again, and then the TSA thing appeared. So I have to say that the quarter was severely affected by these two things. Going forward, the only thing I can say is Hollywood is in a different date as it was last year, so probably the beginning of April is something that we can see on the positive side. On the other side, I'm saying that we will be facing difficult operational conditions going forward, and we don't know how much. Basically, with the oil price of 100 tons per barrel, it's not the best for the airlines. No. We have received some capacity reduction from the spirit. So far, the only one. But we don't know how much this is going to last So, it is not an easy moment to be saying how the year is going to end up. In terms of Motiva, the word synergy is not probably the right one. They have a business that is operating well. We have some common customers. Yes, it's true. The large ones, they are also in the U.S. I don't see synergy as an important piece of...

Got it. Thanks, Adolfo. Have a nice day.

You're welcome.

The next question is from Anton Montenkotter from GBM. Please go ahead.

Hi, Adolfo. And David, thank you for the call, guys. Just two quick ones. One is related to the investments in Colombia. I was wondering if this investment will trigger any amendment to concession or any maybe adjustment or any kind of compensation on that front. And the second one is related to the maximum tariff. Just wondering if due to the lower, well, the PESO appreciation, maybe there are some places where you are still slightly below the maximum tariff that we should see some adjustments going forward, or if you could give us some color on that one.

Absolutely. In the case of Colombia on March 20th, We signed an amendment to our concession agreement, that was the Otro C-27. The importance of this document is that, once again, we are able to invest in this country. Not for the moment as an emergency plan for the case of the airport of Rio Negro in Medellin. This will improve, which is really bad today. But for the moment, what this document allows is to invest 165 billion pesos, Colombian And of course, that will be moving the day when revenues will fade out. So, so far, we were expecting that to happen on February 27th with this investment and we are making all the calculations with the current conditions probably will be up to the end of 2017. But again, this will give us the opportunity, this is giving us the opportunity to invest more and to solve some issues that we have there. So we will keep you posted on how these things evolve in the future. But for the moment, this is very good news in the case of Colombia. In our maximum tariff, the objective we have for this year is 98%, and for the moment, we do not see why we should not be reaching the 98%.

Thank you.

You're welcome.

The next question is from Alberto Valerio from UBS. Please go ahead.

I know, folks. Welcome, David. Success on the new holds. And Adolfo, a follow-up on the maximum tariffs and also on the expenses for this quarter. Remind us how it's the methodology for maximum tariffs from the MVP on the international flights. If you can adjust later because it's appreciated or not. And also, if you could tell us from the needs that you pay this quarter, if there is any one of those that is not recurring. We saw 9 million pesos in the Mexican airport, and as well, 120 for the U.S. operations. Thank you very much.

Yes, Alberto. In the case of maximum tariff, remember the maximum tariff is about two pesos or the passenger basis or on a workload unit basis that we can charge in a year. So when you're saying the national traffic, That is part of the maximum time. So if peso, the dollar, the peso, we will have to just, in accordance, to try to reach the amount in pesos. So there is no different treatment for international flights versus domestic flights. It's one basket and it's a peso denominator. In the case of the one-time events, yes, you're right, $91 million is what we have paid as a professional piece to get the U.S. acquisition. And also I have mentioned that in the case of the U.S., we have recorded things that were related to last year, so one-time events as well of approximately $70 million more.

Thank you.

Again, if you have a question, please press star, then one. The next question is from Gabriel Fimelbarb from Scotiabank. Please go ahead.

Hi. Good morning. Thanks for the call. Just a quick question. Have you seen any shifts on traffic or seats or capacity from airlines from both perhaps U.S. and domestic airlines? And what could be like the outlook or the drivers for the traffic ahead? Thank you.

Gabriel, hi, good morning. Well, the only shift that we have seen or we have been informed is what I just mentioned, is the case of a spirit spirit has decreased its capacity for the case of may in comparison of what they have scheduled before that is the only one we have so far and as i said before it's a difficult times with the level of fuel prices we have today the uncertainty that we have in the Middle East, you know, and hope that this situation in the Middle East resolves quickly and that just affects, let's say, the end of April and May, you know, but that's it, but it's difficult for me to say.

Okay, thank you, and if I may, another question, and perhaps in the terms of commercial revenues, what is, like, the trend on the passenger profiles? Is there, like, lower expenditure on terminals, lower time on the terminals? What's driving the trends on the commercial revenues?

Let me say, let me start with Puerto Rico because we were facing difficult times. Let's say the third week of March, the TSA lines over the weekend reached four and a half hours. plus one hour more for the case of the agricultural filter. So you have to be there more than six hours before your flight. And, of course, that has an impact on everything. And also on the commercial side. A lot of people lost their flights, and a lot of flights had to be rescheduled, et cetera. But we are not seeing, let's say, low-spending people with some other effects that have been affecting the situation. The effects that I have mentioned during my call or during my initial remarks, remember last year, peso versus dollar was 20-something, and today is 70-something.

Okay, thank you very much.

The next question is from Andres Cardona from Citigroup. Please go ahead.

Good morning, Adolfo. David. I have one question about the EVDA contribution of the U.S. business. You can share how much do you expect on an annual basis from there. Thank you.

I'll repeat your question again. How much?

How much EVDA contribution you expect from the U.S. business on an annual basis?

What I was saying is this year, so far, $30 million in EBITDA, but, of course, next year should be more as a result of the opening of the new Terminal 1.

Thank you.

The next question is from Francisco Suarez from Scotiabank. Please go ahead.

Hey, Adolfo. Thanks for the call. David, congrats on the new appointments. The question that I have relates also with the U.S. operations, it is about excluding Terminal 1, what would be the overall occupancy rates that you see over there? And also, in a related question, what is the overall outlook, again, excluding Terminal 1, on potential increases in the overall leases that you may see there and your overall strategy to manage those assets?

Round numbers, I would say, Francisco, we have more than 400 contracts there, so 400 units. If you see some of them in the case of LAX are empty, but that doesn't mean that those does not have a contract. Some of them are empty because they're in the process of being remodeled or in the process of new spaces. So, basically, I would say we have all or almost all the spaces.

Okay, and a little bit about your overall average life on those leases and what would be the potential to see further increases in rents? Do you have any idea of how likely it is to see an improvement on rents once the leases expire?

Well, average life, basically I would say between 15 to 17 years. Okay. I will invite you to see some news related to Terminal 8 of John F. Kennedy. And you can see the news basis recently, severe remodeling process. We have the...

Thanks for the tip. So, in other words, I think that the overall tenant improvements and all these investments and the remodellation are linked towards better rents at the end of the day because you will be recovering. Absolutely. Ah, fantastic. Thank you so much for the call.

You're welcome. Again, if you have a question, please press star then one. We will pause momentarily to assemble our roster. This concludes the question and answer session of today's conference call. I would like to turn it back over to Mr. Castro for closing remarks.

David, and thanks, Sashi, ladies and gentlemen. That concludes ASUS' first quarter 2026 results conference call. So we would like to thank you again for your participation. Now you may disconnect.

Ladies and gentlemen, that concludes ASOTUS' first quarter 2026 results conference call. We would like to thank you again for your participation. You may now disconnect.