Earnings Call Transcript - ASR Q4 2024

Operator, Operator

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. 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.

Adolfo Castro, CEO

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 comparisons following the suspension of two 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 sell routes lost last year. Looking ahead, we expect traffic trends to normalize in the first quarter of 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 strong growth in international traffic, up 29%, while domestic traffic was up 7%. We expect traffic in this market to 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 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 has been slightly impacted by the initial ramp-up phase of the 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 normalization in 2026, as the Pratt & Whitney effect is reduced and Tulum's 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's dynamics. Now, as we turn to the P&L, recall that all references to revenue and cost figures exclude construction. Total revenues for the quarter increased 19% year-on-year to MXN 7.4 billion, reflecting a strong performance across all three regions. Colombia once again led 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 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 as both segments benefited from the continued recovery in domestic and international traffic. In 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 growth across all three markets. In Puerto Rico and Colombia, commercial revenues per passenger rose in the mid-teens, with Puerto Rico benefiting 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, 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% increase 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, costs increased in the high teens, driven mainly by the depreciation of the Mexican peso against the U.S. dollar, while Colombia's costs rose just 7%, benefiting from a reversal in the provision for maintenance and consolidation that 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 three regions, Colombia reported the strongest performance with EBITDA up 61%, followed by Puerto Rico with a 39% increase, while Mexico posted a 70% increase in EBITDA. Our balance sheet remains robust, closing the quarter with cash and cash equivalents of over $1 billion, with debt to last 12 months adjusted EBITDA remaining at a negative 0.3x. During the quarter, capital expenditure accelerated, reaching MXN 2.5 billion and accounting for half of the full year's total of 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 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 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 and a solid full year performance despite navigating industry challenges such as the 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 resilient operational performance and 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 of nearly 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, Operator

Our first question comes from the line of Rodolfo Ramos with Bradesco BBI.

Rodolfo Ramos, Analyst

I have a couple of questions, if I may. Can you share with us your traffic growth expectations 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. The Mexican peso depreciation certainly helps on that front. But all else constant, do you expect the traffic in 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?

Adolfo Castro, CEO

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 Pratt & Whitney problem. I'm sure you have heard what Volaris said yesterday. Basically, they are expecting to continue facing the Pratt & Whitney engine problem during next year. Of course, they have been receiving airplanes in accordance with the requests they have made in the past. So it's true that we will suffer from some aircraft being grounded 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, the situation will improve on that front, as well as with the restrictions at 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 expect those to improve once we open Terminal 1. We expect to open Terminal 1 at the end of the second quarter of 2026. So for the moment, we don't see a decrease, but we know that we are losing commercial opportunities.

Operator, Operator

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

Pablo Ricalde, Analyst

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

Adolfo Castro, CEO

In the case of the capacity restriction in 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 eliminating this restriction and probably going back to the 52. Remember that we are coming from 63. So that's why I'm expecting this to be lifted by the end of the third quarter. Also, remember that next year, Mexico City will receive some passengers due to the World Cup that is taking place in June next year. So I hope that the government will change this restriction by the third quarter. As for dividends, I have prepared my proposal, and it will be sent to the Board of Directors. I'm sure that you will hear from this on March 14. That's what I can say for the moment.

Operator, Operator

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

Stephen Trent, Analyst

I know that certainly, there's a lot of political rhetoric at the moment in North America. 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?

Adolfo Castro, CEO

Well, I'm sure that you have heard my initial remarks. In the case of international traffic for the quarter, all 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 do 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% is Mexico, which is domestic traffic. But no, I have not seen any change due to the new politics in the U.S.

Stephen Trent, Analyst

Appreciate that, Adolfo. And just one 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 Felipe Angeles, for example, if authorities do not make any adjustments in Benito Juárez air traffic movement?

Adolfo Castro, CEO

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

Operator, Operator

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

Pablo Monsivais, Analyst

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.

Adolfo Castro, CEO

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

Pablo Monsivais, Analyst

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

Adolfo Castro, CEO

Well, there is no specific number. I would say, and we used to say internally that it is a moving target. We always want more. And that is why we are always looking for what the passenger is looking for in terms of price, products, and services. 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. That's why we are expanding and reconstructing Terminal 1, which we are expecting to be open at the end of the second quarter of 2026.

Operator, Operator

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

Alberto Valerio, Analyst

I have two quick follow-up questions. First, I noticed there's some rebalancing happening in Colombia and Puerto Rico. Could you share more details about this rebalancing? Also, how has Tulum been performing so far, and how does the traffic there compare to your expectations?

Adolfo Castro, CEO

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

Operator, Operator

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

Jens Spiess, Analyst

I have just one question on capacity in Cancun. In a hypothetical scenario where international traffic remains weak and there's an increase in capacity that the local 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.

Adolfo Castro, CEO

Absolutely. Well, today, we do not have restrictions in terms of operational capacity in Terminal 2. What we have is restrictions on the non-aeronautical side. The capacity in the case of the middle of the day is probably not sufficient for meal service. But operationally, we do not have any problems. Of course, once Volaris recovers its operations from the problems they have with Pratt & Whitney, we will need more capacity. That's why we are constructing and expanding Terminal 1. In Terminal 2, we primarily have Viva and Volaris, along with South America. What we intend to do is to move South America to Terminal 1, which will create additional space for these two airlines.

Operator, Operator

Our next question comes from Alan Macias with Bank of America.

Alan Macias, Analyst

I have 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?

Adolfo Castro, CEO

Yes, it was basically implemented last year.

Operator, Operator

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

Enrique Sojo, Analyst

My question is actually related to passenger growth. It's 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, and '27. 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 weaker domestic market?

Adolfo Castro, CEO

Yes, Enrique. What is important for us is the additional capacity they are including as we speak, not just Volaris but also in the case of Viva and Aeromexico. If you see Volaris's report, at the end of 2023, they reported 130 operational aircraft. By the end of 2024, they reported 143. If we just use those two numbers, we can say they have more aircraft compared to what they had before the Pratt & Whitney issues. The challenge with those numbers is that we don't know how many of those are actually operational. Also, it has been announced that some of the aircraft that had already been recalled will need to go back for additional works. This is why I said during my remarks that next year, we will still see strong effects from Pratt & Whitney, but in a lesser capacity. My expectation is that the first three quarters will be the last significant effects from Pratt & Whitney in the case of Volaris.

Operator, Operator

Mr. Castro, it appears there are no further questions at this moment. I'll hand it back to you for any closing remarks.

Adolfo Castro, CEO

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

Operator, Operator

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