Earnings Call Transcript - PAC Q1 2026

Operator, Operator

Good morning, everyone, and welcome to GAP's First Quarter 2026 Conference Call. Now it's my pleasure to turn the call over to GAP's Investor Relations team. Please go ahead.

Maria Barona, Investor Relations

Thank you, and welcome to GAP's First Quarter 2026 Conference Call. Prior to introducing GAP's management team, I'd like to take a few moments to mention the forward-looking statements as described in the financial disclosure statements. Please be advised that any statements made today may not account for future economic circumstances, industry conditions, the company's future performance or financial results. As such, any information discussed is based on several assumptions and factors that could change, causing actual results to materially differ from current expectations. For a complete note on forward-looking statements, please refer to the quarterly report issued on Monday. Thank you for your attention. Our speakers today from GAP are Mr. Raul Revuelta, Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer. At this time, I'll turn the call over to Mr. Revuelta for his opening remarks.

Raul Musalem, Chief Executive Officer

Thank you, Maria. Good morning, everyone, and thank you for joining us today. I'm pleased to report that GAP delivered a solid start to the year on results as I discuss the company operational and financial highlights for the first quarter of 2026. Despite the challenging traffic environment, our performance remained strong, supported by the resilience of our aeronautical revenues as well as the continued growth of the non-aeronautical business, which helped to offset the more complex traffic environment. Let me begin by discussing passenger traffic. Total passenger traffic across GAP's 14 airports decreased by 5.5% in the first quarter compared to the same period of 2025. This decrease reflects various factors that impacted the Mexican as well as the Jamaican operations. In the Jamaican operations, we continue to face headwinds from Hurricane Melissa. Despite this, the recovery of hotel capacity has been better than expected along the main TUA corridor. It is important to note that as of today, passenger volumes have not yet reached pre-storm levels. Trends indicate that we will regain this level by the fourth quarter of this year. Traffic declines in Mexico were largely driven by temporary disruptions such as the security incident in Jalisco during the last week of February. This event negatively affected the perception of safety in key leisure destinations in Mexico, such as Puerto Vallarta and Los Cabos, thereby softening demand at these airports. These dynamics affected the typical high season month of March, impacting spring break traffic and causing demand to decline. Tijuana was also impacted given its stronger reliance on cross-border travel as roughly 75% of CBX users are U.S.-based passengers accessing domestic flights to Mexican tourist destinations. Additionally, global macroeconomic volatility impacted operations. This included geopolitical tension and fuel prices, which pressured airlines' operating costs, prompting a realignment of capacity to maintain efficiency, as well as the possibility of economic downturn. Now moving on to the revenues. Total revenues increased by 2.8% compared to the first quarter of 2025. Aeronautical revenues for the group grew by 3.9%, and in Mexico the increase was 9.3%, primarily driven by the implementation of the maximum tariff for the 2025-2029 regulatory period in Mexico, which are linked to the highest level of CapEx investments in the history of the company. Aeronautical revenues increased by 6.1%, supported by strong performance in our Mexican operations, reaching 10.7%, particularly in businesses operated directly by GAP. This includes the bonded warehouse business, which represents around 21% of total non-aeronautical revenues. This performance underscores the resilience of our business model and the continued success of our increasingly diversified revenue base. Cost of service increased by 6.5% compared to the same period last year, mainly due to higher personnel costs, increased security and maintenance expenses and the expansion of operational areas. We work hard to offset this pressure by maintaining rigorous cost control throughout the organization. As a result, EBITDA increased by 6.4%, reaching MXN 6.0 billion with an EBITDA margin of 68.3%, reflecting both revenue growth and operational efficiency. This occurred despite the reduction of additional concession fees in Montego Bay Airport due to the decrease in passenger traffic and revenues, which is a temporary effect. Regarding our financial position, GAP maintains a strong liquidity position with cash and cash equivalents of MXN 23.2 billion during the first quarter of 2026, mainly due to the historic bond issuance of MXN 10.7 billion on March 31. The proceeds we allocated toward our strategic acquisition of 25% of CBX, as well as capital expenditures. Furthermore, during the quarter, we refinanced existing debt, optimizing our balance sheet and strengthening our overall financial flexibility. In terms of CapEx, we continue to advance our investment program under the current Master Development Plan, deploying during the quarter MXN 1.8 billion, focusing on enhancing capacity as well as the passenger experience across all of our airports. I would like to briefly update you on our strategic initiatives. As you know, in December 2025, our shareholder approved the business combination related to the CBX as well as the internalization of the technical assistance services. This transaction is still in the process of being formalized. Once completed, it will be consolidated in our financial statements, and we expect the conclusion of this process to take place during the second quarter of this year. We believe this initiative will strengthen our long-term growth platform, specifically by promoting our cross-border passenger profile as well as unlocking additional commercial opportunities. As we move into the rest of the year, we remain mindful of the macroeconomic environment and short-term traffic volatility. Despite this, we believe structural demand remains strong, supported by the solid fundamentals of our market. We remain confident that our diversified asset portfolio, strong financial position and disciplined execution strategically position GAP well to navigate near-term challenges while continuing to generate long-term shareholder value. Later today, we will hold our ordinary shareholders' meeting, in which we will propose a dividend payment of MXN 20.8 per outstanding share during the following 12 months, among others. Thank you again for your time. Operator, please open the line for questions.

Operator, Operator

Our first question over the telephone comes from Rodolfo Ramos of Bradesco BBI.

Rodolfo Ramos, Analyst (Bradesco BBI)

My question is on the aeronautical part of the business, perhaps a two-parter here. After this tariff implementation, can you let us know what your current maximum tariff compliance is? And how should we think about it towards year-end? And secondly, on the traffic outlook that you have, there's a host of domestic and global factors at play negatively impacting demand for air travel. Just can you frame it a little bit in terms of your 2% to 6% guidance? I mean, how do you think about it? And when do you think we could see a more meaningful recovery there?

Raul Musalem, Chief Executive Officer

Thank you, Rodolfo. First, related to the maximum tariff, we are between 92% and 93% of fulfillment. We still need to implement additional passenger fee changes for the summer in two of our airports, Vallarta and Cabos, so we're on track with our original expectation of being close to 95% by the end of the year. Regarding the maximum tariff, we need to take into account the churn rate and the fact that an important part of those revenues are denominated in dollars in the case of passenger charges. On traffic, it is difficult today to forecast what could happen in the coming months given uncertainties such as geopolitical tensions and fuel prices. That said, we expect a summer season with at least some additional seats for leisure travel. In past geopolitical crises, U.S. passengers have tended to choose nearby destinations such as Cabos or Vallarta rather than long-haul travel to Europe, so we expect some additional seats for the summer in those markets. For the moment, we maintain the guidance we provided earlier for the year. We believe some of the temporary effects from the security incident that reduced passenger numbers will be behind us by summer. We are also seeing a better-than-expected recovery of Montego Bay hotel capacity. We will review our guidance for traffic in the second quarter to confirm these expectations.

Operator, Operator

Next, we'll move on to Alan Macias of Bank of America.

Alan Macias, Analyst (Bank of America)

Just a question on the CBX and technical assistance transaction. What is pending for it to be completed? And I guess, should we expect it to be consolidated in May or in June?

Raul Musalem, Chief Executive Officer

Thank you, Alan. We are doing our best to consolidate the results during May. We are in the middle of the process, and consolidating in May is our target.

Operator, Operator

Next, we have Guilherme Mendes with JPMorgan.

Guilherme Mendes, Analyst (JPMorgan)

Two questions, the first one being on the commercial front. First of all, congrats on the strong results during the first quarter of the year. Just wondering what is behind the very strong cargo performance; is there anything in particular to the bonded warehouse or something else? And can we assume these numbers are sustainable going forward? The second question is on capital allocation. Now following the upcoming conclusion of the CBX transaction, I understand the Turks and Caicos was put on hold as well; is there anything else that you'll be evaluating on the inorganic side of growth opportunities?

Raul Musalem, Chief Executive Officer

Related to the bonded warehouse business, it's important to remember that this business is mainly driven by cargo. In the case of Guadalajara and the central area of Mexico, we are seeing a more than 20% increase in cargo of high value in the area, mainly driven by electronics. For example, Foxconn has significant movements in Guadalajara for additional production. What we have observed over the last year is that following announcements of specific tariffs for China and other Asian countries, there has been a shift of production of some electronic parts from Asia to Guadalajara. So we are seeing a meaningful increase in cargo volumes and value. For the bonded warehouse business, revenue depends on a mix of volume and value of cargo moved, and this shift has positively impacted our results.

Saúl García, Chief Financial Officer

Hi, Guilherme. In terms of capital allocation, as you know, we constantly evaluate opportunities. So far, we don't have anything more important or relevant than the CBX conclusion and its integration into the consolidated financial statements. For now, we don't have any other major projects to disclose. We will inform the market as soon as we have something on the table. Regarding Turks and Caicos, the project was canceled by the government, so we will not continue with that. So far, we don't have any other relevant project.

Raul Musalem, Chief Executive Officer

To complement Saul's answer, we are focused on new business development within our airports. We are working on two different hotel projects at our Mexican airports. We are also focused on increasing the efficiency and margins of the businesses we operate directly. We will continue to review M&A opportunities, but we also have a strong focus on improving efficiency across our directly operated businesses.

Operator, Operator

From Itau Unibanco, we have Pablo Ricalde.

Pablo Ricalde Martinez, Analyst (Itau Unibanco)

I have one question on the cost side. We saw depreciation expense remained flattish year-over-year. I just want to understand why, despite all the CapEx you made last year, depreciation remains stable year-over-year.

Saúl García, Chief Financial Officer

Pablo, this is Saul. Basically, we are aligned. We don't have any other major projects capitalized and depreciated beyond what we reported. Also, as you may know, we have more than 25 years of concession. Major projects that were capitalized in prior years were depreciated over their respective periods, and some assets are already 100% depreciated. The net effect is an offset of the increases in depreciation by assets that have reached full depreciation.

Operator, Operator

Next, we have Gabriel Himelfarb of Scotiabank.

Gabriel Himelfarb Mustri, Analyst (Scotiabank)

Two quick questions. First, are you seeing any meaningful capacity movements from airlines, mainly domestic or perhaps low-cost U.S. airlines, given the rise of fuel prices and perhaps what happened in Jalisco in the past months? And my second question is about the CBX financing. I think it was financed 25% in Mexican pesos. Why was the logic of financing it in pesos rather than in U.S. dollars?

Saúl García, Chief Financial Officer

Thank you, Gabriel. Regarding seat capacity, it is important to separate two possible effects. First, related to security concerns, we are not seeing a structural change in seat capacity. But related to fuel costs and potential reactions by airlines, it's still an open question. At the moment, we are seeing some decreases in capacity in places, although not major: some airlines have cut certain services, for instance Interjet cut some services in Guadalajara, and we've seen reductions in Tijuana and Cancun. So it's early to have a clear view of the impact of crude at around $110 per barrel. Looking back at 2022 when prices were at similar levels, we did not see a broad decrease in capacity. Also, airlines are still opening new routes—for instance, Volaris announced new routes from Guadalajara to Mazatlán, Zacatecas and San Luis—so we are still seeing additions to capacity. Nevertheless, the potential for capacity reductions is on the table depending on how long fuel prices remain elevated and how much airlines can pass through costs to fares. For now, we are not observing a major reduction in capacity; new route openings are still occurring.

Raul Musalem, Chief Executive Officer

Related to your question about the currency of financing for CBX, we decided to take advantage of the current exchange rate level. The peso is at relatively low levels against the dollar, and this appreciation of the peso plays in our favor. The idea is to take long-term debt and try to finance these assets in Mexican pesos. That avoids some volatility in our balance sheet from exchange rate movements in the long-term view. As you may know, exchange rate effects will impact our P&L, so we accepted a slightly higher interest rate for greater certainty on our long-term balance sheet.

Operator, Operator

From Barclays, we have Pablo Monsivais.

Pablo Monsivais, Analyst (Barclays)

Just one question in terms of the traffic expectations for next year. I know we're very early, but have you had any contact or new information about Viva and Volaris? Any color on that or how the potential merger will shape domestic travel and especially the routes where they overlap? Any intel you'd like to share?

Raul Musalem, Chief Executive Officer

Thank you, Pablo. Regarding the potential merger between Viva and Volaris, for the moment we are not seeing any particular change. We are in communication with both airlines; they still speak of operating as two different companies. They are not currently communicating overlap plans. Once antitrust authorities in Mexico provide guidance or rulings on the transaction, we could have more clarity about its eventual shape. But based on our communications with the airlines to date, they continue to discuss operations as two separate companies.

Operator, Operator

And we'll move on to Andres Aguirre of GBM.

Andrés Aguirre Campillo, Analyst (GBM)

Congrats on the results. We noticed that accounts payable increased sharply to around MXN 2 billion in the cash flow statement. Could you please elaborate on what is driving this increase?

Saúl García, Chief Financial Officer

Andres, yes—we have a significant increase in cash due to the bond issuance on March 31. The proceeds will be used for the acquisition of 25% of CBX, which will be paid in cash, and additionally for committed CapEx under the Master Development Plan. That's basically why we have this significant increase: it was MXN 10.7 billion more in cash that will be used for CBX and MDP commitments.

Operator, Operator

And we'll move on to Alberto Valerio of UBS.

Alberto Valerio, Analyst (UBS)

First, a follow-up on CapEx. How should we be modeling CapEx during the year? We know seasonally it starts a little weaker and then increases during the year. How should we expect that? And second, about jet fuel—does anything concern you? We know that different airlines, if I'm not mistaken, have not hedged their fuel. How do you see the supply of seats for Mexico during 2026 at the current oil price?

Raul Musalem, Chief Executive Officer

Alberto, related to seats in Mexico: hedging levels differ across airlines, so the important things to watch are the resilience of demand and the extent to which airlines can pass through fuel cost increases to airfares. Another important factor is the distance of specific routes. In the first stage, we may see some decreases in seats on routes with longer distances within the domestic market. For example, Tijuana has flights with average times around 2.5 to 3 hours; routes with longer flight times may be more affected. On the other hand, some routes are relatively short—for instance Los Angeles to Cabo is about 2.5 hours, Cabo to Vallarta, or domestic short flights within Mexico. Shorter flights tend to be more resilient to fare increases. We expect a mix of effects: potential reductions on longer, less resilient routes, but resilience or growth on shorter leisure routes. We also expect some leisure passengers who might otherwise travel long haul to choose Mexico as a nearer destination, supporting demand. All these factors together make us think our original guidance for the year remains in place. That said, it is difficult today to be fully certain about the trajectory of fuel prices. If conditions remain at current barrel price levels, we still find our guidance for the year to be reasonable.

Saúl García, Chief Financial Officer

Alberto, on CapEx deployment: our economic cycle for CapEx is more concentrated in the latter quarters of the year. In the early months, we are typically conducting bidding processes for projects. We expect a higher intensity of deployment in the following months as projects move from bidding to execution.

Operator, Operator

Next, we have Abraham Fuentes of Santander.

Abraham Fuentes Salinas, Analyst (Santander)

Recently, we have seen some pressure in terms of traffic in Tijuana. I wonder if you can give us more color about what you expect going forward and maybe the main dynamics behind this expectation.

Raul Musalem, Chief Executive Officer

In terms of Tijuana, Abraham, we see a mix of factors. First, we still lack some aircraft capacity due to Pratt & Whitney issues affecting aircraft availability, mainly for Volaris. We expect to see more of these planes back flying by the summer. Second, we believe the security-related effects following the major capture operation were temporary and will recede; we expect a recovery over the summer. Overall, we expect revenue and traffic recovery in Tijuana as additional seats return to the airport and as last year's base becomes easier to compare against. In general, we are optimistic that Tijuana will have a positive result and passenger growth by the end of the year.

Operator, Operator

There are no further questions at this time. I'll turn the call back over to Mr. Raul Revuelta for closing remarks.

Raul Musalem, Chief Executive Officer

Thank you once again for joining us today. Before concluding, I would like to invite you all to join us on May 13 for GAP Day 2026. The event will start in San Diego at the CBX facilities and will continue at Tijuana International Airport and will include a series of strategic management presentations followed by a guided tour of our airports and the CBX facilities. We believe this is an excellent opportunity to learn more about our strategy, operations and long-term growth outlook. For registration and further details, please reach out to our Investor Relations team. Thank you, and we look forward to seeing you there. Have a great day.

Operator, Operator

Thank you. This concludes GAP's conference call for today. Thank you for your participation, and you may disconnect.