Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) Q2 2023 Earnings Call Transcript

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) Q2 2023 Earnings Call Transcript July 26, 2023

Operator: Good morning, and welcome to GAP’s Conference Call. [Operator Instructions]. It’s now my pleasure to turn the call over to GAP’s Investor Relations team. Please go ahead.

Maria Barona : Thank you, and welcome to Grupo Aeroportuario del Pacifico Second Quarter 2023 Conference Call. Presenting from the Company today, we welcome Mr. Raul Revuelta, Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer. Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company’s future performance or financial results. As such, statements made are based on several assumptions and factors that could change. This could cause actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the quarterly report that was issued by the company. At this point I’d like to turn the call over to Mr. Raul Revuelta that for his opening remarks. Please begin, sir.

Raul Revuelta : Thank you, Maria. We appreciate everyone who joined our call today to review GAP’s second quarter of 2023. During the period GAP transported nearly 16 million travelers throughout our network of 14 airports. This represents a 12% increase compared to 2022, which added to the first quarter put us above our original traffic grow guidance for the year. Edwards opened during the quarter for domestic and — International — led the weight with three new roads followed by Puerto Vallarta with two, while Lara Mexican and Montego with one inch. Well, Lara also were mentioning was half accelerated profit grow during the quarter with a 18% increase. This was related to domestic market growth of 19%, mainly due to the new roots to Montego Bay and Puerto Vallarta, as well as higher low factors from bi roots symbolize international traffic benefited from an increase in frequencies in key U.S. markets such as New York and California, route to Los Angeles, San Jose, and Oakland.

As a result, international traffic grew by 17% during the second quarter. The quarter continues to be one of our main traffic generators boosted by the gross border express, which has captured 32% of the airports total traffic. The international terminal continues to be a fundamental part of the airport’s growth as well other factors such as the near shoring, effect of the big destinations with left the performance of their [ph] catastrophic at this location. The growth trend of Aeroportuario del Pacifico is very similar, given a strong domestic market fuel by increasing low factors and frequency. In terms of international passenger, we open up two new routes to Dalla and Houston, as well as the seasonal jet route to Madrid. our route to AK and to los.

We’ll expect to share with you great news regarding passenger development for the whole network. During the coming months, we anticipate more than 14 new domestic routes in July, operated by [indiscernible]. Now moving on the aeronautical revenues. This line events increased by 14% driven by passing the traffic to all gas network. In the case of our Mexican airports, the increase was offset by the new increase in the produce price index excluding petroleum, which has led to no inflation increase in maximum tariff approval in our Mexican airports. As such, we were able to rate 99% compliance of our maximum tax. In addition, the consolidation of our Jamaican airports have a negative impact due to the appreciation of the Mexican peso by almost 12% over the U.S. dollars that has affected the revenue increase.

Just to remind you, the two Jamaican airports represent 15% of the total aeronautical revenues. At this point, let’s take a look at non-aeronautical revenues, which reflected that outstanding performance growing by 18%. This resulted in a 10% increase in non-aeronautical revenue capacity. Most of the increase was attributable to the opening of new spaces at the Guadalajara, Montego Bay and Los Cabos airport. The increase was also due to the passing of traffic recovery and the renegotiation of contracts conditions with the tenant. This were mentioning that, despite of nearly 12% precision of the peso, which affected 20% of total revenues non-aeronautical revenues increases above the passenger traffic increase. In terms of business units, food and beverage increases by 27%.

This outstanding performance was only in Los Cabos, Puerto Vallarta, and Montego Bay Airports. [Indiscernible] new spaces were incorporated at the Guadalajara and Montego Bay Airports. Additionally, for the upcoming months, we are working on the opening of the tariff at the Guadalajara Airport and up rooftop food and beverage space. Would you expect to be completed in November? At this point, that project is 80% a government. Convenience storage revenue increases about 71%. To expand our business line, we opened at three convenience stores during the last six months in Los Cabos and we recover one more in Guadalajara. Just the three stores in Los Cabos represent 20% of the total income from this business land, and is worth mentioning that one of these stores at the international terminal has a higher revenue for the network stores.

This brings the total number of convenience store in our network to 29. Duty free, increased by 9% the increase below passenger traffic growth by mainly due to the Mexican compensation. All the revenues from this business are in dollars. It was also affected by the temporary closing of the walkthrough duty free store in Guadalajara, due to the construction projects that are in progress at the terminal. After tax increase by 71%. New client catchment dropped increase, which put us on fracture recovery following the COVID effect. VIP lounges increases by 14%, mainly due to the lounges at our tourist destination that continues to drive the business line. In addition, while has currently remodeling international VIP lounge, and we are also reconfiguring some inspection international bill launch in Los Cabos, due to the higher than expected demand throughout 2023.

We expect instructions priors to conclude next year. Moving on to the EBITDA results, despite the 12% of the peso and the almost new inflation in the quarter EBITDA reached MXN4.5 billion for the quarter with an EBITDA margin of 17.4%. This was led by the passenger traffic recovery and solid commercial revenues and was partially offset by the 15% increase in the cost of service. As we have previously discussed, despite our best effort to comply with our cost contract policy, we have had to deal with inflation, the hiring of additional personnel, changes in labor low, and minimum wage increases. This factor has affected not only salaries, but also the tons of that are linked to personnel such as janitorial, security, and maintenance. We expect higher cost further down the line, due to the higher size and terminal expansion, in addition to the inflationary effects.

Moving on to the CapEx, it continued to be carried out in accordance with the master development program, along with commercial investment. During these first six months, we have deployed MXN5.6 billion which was allocated mainly to the Guadalajara, Puerto Vallarta Just to remind you that GAP paid the second portion of this year dividend for MXN3.71 on July 13th as per the resolution made at our Annual Shareholders Meeting. Before I conclude my presentation, I would like to announce that, the revised guidance figures for the 2023 versus 2022. For the capacity, we expect an increase for 10% to 12% for the run out of capital revenue, an increase between 13% to 15%. For the non-aeronautical revenue, we started an increase between 16% to 18%, where our total revenue increased from 14% to 16%.

EBITDA between 12% or 14% and EBITDA margin from 70% to plus, minus 1%. CapEx overall for all the year to MXN11.9 billion. Passenger traffic projection is based on the consolidation of risks developed to date. It also includes the increasing load factors and airline class frequency with the information that is currently public. Total revenues have been adjusted based on expected changes in traffic performance, applicable passenger speeds, a decrease in product price index excluding petroleum and a Mexican peso appreciation. This is in addition to the opening of new spaces as well as the negotiation of contract terms in commercial agreement as well as the development of other business lines operated directly by the company. Decreasing the cost of services reflects the operating requirements needed to meet airport services demand.

In addition to that, it reflects infrastructure expansion and service quality improvements added to higher inflation, minimum wage increases and additional personnel required for operations, maintenance, security, and cleaning. CapEx reflects committed investments in GAP’s Master Development program and investment in commercial spaces. The process of acquiring land is moving really quickly. Hence, we are adding MXN1.7 billion to the original guidance, amounted to a total of MXN3 billion for Dalla decision at the Guadalajara. At this point, that is for my remarks, I will ask operator to open the floor for your questions.

Q&A Session

Operator: [Operator Instructions]. And we’ll take our first question from Guilherme Mendes with JP Morgan. Your line is open.

Guilherme Mendes : Good morning everyone and thank you for taking my question. First question is a follow-up to the comments on the guidance. If you may just provide a little bit more color of what is behind the traffic update. I understand those factors and the additional capacity from the airlines. Just wanting to pick your brains on which regions are performing better if domestic, if international, or maybe some surprise on Jamaica going forward. And only CapEx if it’s only related to the land acquisition in Guadalajara or something. Something else. Just to make it clear. And the second question is related to the expected upgrades to category one of the Mexico Aviation Agency. So, what is the latest on that and what is company’s expectations in terms of the timing for it? Thank you.

Raul Revuelta : First, I’ll go into the traffic performance. We are seeing a really interesting growth on traffic in some airport, some airlines. — has also new roots as could be me or Guanajuato, Tijuana. We’re saying, seeing a real interesting moment or boosting on the domestic traffic, for instance, in the leisure destinations and plus Puerto Vallarta. — for sure in some route, in some regions that will be more, I would say affected or more in line with the near shoring as could be Tijuana or even — we expect that begin to see more domestic traffic happening because if this trend continues, we’re seeing better wages, better salaries, that kind of employment in the region that will bring more money to the pockets of the people around this area.

So, we’re going to see more traffic, for instance, on leisure, on domestic traffic flying from Montego Bay, Puerto Vallarta this kind of traffic we expect to increase due to the fact of better employment in the area. That is pretty first part. The other one that is not completely clear is how much of these additional of how many of these additional frequencies that [ph] has opening on the last month will be fully operating in the future as soon as the category one could be recovered. In other one, in other words, in other way both — have received new plane, have increased their fleet, but they could not put a fly on internet on U.S. market that plays. So, they are pulling that capacity for the moment on domestic markets. But one of the things that we’re going to see change in some way is as soon as the category one is recovery for Mexico.

We’re going to have see some kind of shift from some specific domestic market to international market due to the fact that could open or could produce, could that frequencies on the future for the U.S. market. going through the category. I will say that, the last visit of the Guanajuato authorities to Mexico to review the — all the progress on the different observations to the Mexican authority. I think, that we are in the line, and we are in the last part of this long process. We expect that for the fourth quarter of this year, the category could be recovered, but again, we are talking about public information, and how the authorities are communicated, all the progress in this process. For the last related to the CapEx in the general change on the CapEx, we are also just adding the above our original plants, some acquisition of land for the Guadalajara airport, we are preparing the long-term reserve of the airport.

That will allow us to have possible third term terminal number three on the future. And even if the demand is there — the third wrong way for their airport. But the specific or the most important part is that our biggest asset, we are preserving the value for the future, acquiring reserve for a maximum capacity growth in the coming years and in the long term.

Operator: [Operator Instructions]. I’ll take our next question from Rodolfo Ramos with Bradesco BBI.

Rodolfo Ramos: Good morning. Thank you for taking my question. I have a couple, if I may. The first one is, when you think about this faster recovery, traffic that you’ve seen, how does this — how do you think of the main variables that you will be discussing with regulators. This — and but mostly next year as part of your development plan, and also having in mind the investment requirements that you’ll need to accommodate that higher passenger growth. And then the second one is, you talked a little bit about the impacts of the Mexican peso appreciation on your commercial revenues. Can you talk us through your thought process on how it can impact your, business side on the aeronautical revenues? Thank you.

Raul Revuelta: Thank you, Rodlofo. This is Raul. I mean, for sure the increase of passengers, when you put on projections, will be some additional pressure for a possible decrease on the maximum target. But in the other hand, when you bring this kind of boost of traffic, you will need an airport additional CapEx, and additional expenses for giving the — for the correct quality service at the airport or to comply with the quality standards of our concession. In that way, we are seeing the next negotiation of the master plan, completely basic in the methodology and the regulatory framework that we have. We will see important amount of CapEx just to catch up the needs that the airport had to face in terms of the new passenger growth.

Another important key factor that we must understand is that, the changes on the fleet, not only the number of planes that Volaris and Viva Aerobus to the market, will affect not just the total amount of traffic in the future, but also are affecting the peak hours of our terminal airports, of our terminal buildings. It is important to understand because the airports and the terminal buildings are the same in terms of peak hours. And this pick hour site changing really fast even faster than the growth of the total or the absolute amount of passengers. And let me go a little deep on that. For instance, when we designed an area for a gate for a plane. We say, okay, we would need 150 feet. We need toilet area with this amount of places. We need this amount of square meters around the gate.

In the past, for instance, with the 320s, we used to have an average of plane seats of 150, 170, even 180 seats per plane. What is happening with the new 321s of VIVA and Volaris is that our peak hours changes really fast. So, in the past, we used to receive in the same gate 150 plane ships of interject, and we are in the same route, in the same hour, in the same gate, today we are receiving an A321 of 20 or 45 feet from Viva and Volaris. So that is a completely change, in how we design our terminals and for sure for the coming years will need to bring additional investments for growing our terminal. So, in general terms, I would say that, that is what we have stated in terms of the market plan, energy about the impact on commercial revenue.

Saul Villarreal: Yes. Thank you, Raul. Hi, Rodolfo. This is Saul Villarreal. The main effect in the commercial is the exchange rate. Absolutely, the appreciation of the peso is affecting only in our commercial revenues in Mexico is around 12%. With the consolidation of Jamaica and airports, the total effect is over the 20% of the total revenues. It means that, we should be growing 12% more of the 20% of the revenue. So, what we are expecting is that, according to macroeconomics to help in a stabilization of exchange rate around 17, 17.50, and that will impact our budget. That’s why our guidance — our total revenue is not growing at the same pace of the traffic growth. That is, in general, how will be the effect in the commercial and the consolidation of the Jamaican efforts.

Talking about aeronautical revenues, let me tell you that the produce price index in Mexico is almost flat. If we compare the last 12 months of 20 June, 2022, the inflation was 9%. If we look at the inflation of the produced price index in last 12 months of June ‘23 is 0.9. So, it’s a big difference affecting also the effect of the — in the error revenues in general, just the effect of a exchange rate in the error revenues is the consolidation of the Jamaican airports. In the other hand, for Mexican airports, we have a fulfillment of 99% of maximum tariff, which benefits in the total and offset the decrease even due to the inflation and due to the change rate. That’s it in generally.

Rodolfo Ramos: Thank you saul.

Operator: [Operator Instructions]. We’ll take our next question from Anton Mortenkotter with GBM. Your line is open.

Anton Mortenkotter : Hello guys I Congratulations on your results and thank you for taking my question. I have just some follow-ups on the CapEx front, just to be understanding, increase in the land acquisition — first, how much land was it? And is it — is all of this related to the Guadalajara airport? So, it falls under the MDP? Just trying to understand if it has been already told with the authorities and will for part, as an advanced investment on the MDP commitments or how it will be treated?

Raul Revuelta : This is — it was for sure. It was previously, we received the previous authorization of the — this goal will be an advance of the new master plan. And we already received the authorization, we are talking and of an acquisition of the total acquisition going to be close to 150 sectors for the airport. And we are just expecting to finalize the total acquisition of all these lands for the end of this year, or mainly the first months of the coming year. But the most important part here is that all this land acquisition is part of the master plant is already out. We already have the authorization of the authority. And it’s also important to say that this land acquisition ends with an historical problem with around the airport.

That is some, remember we were in the middle of legal processes for the last 25 years with that hero. So, one of the points that is also important is that we are not only acquired the reserve for the future, but also, we are finalizing all these legal matters and legal issues with support in Guadalajara.

Anton Mortenkotter : And just another one of the, if you could provide some breakdown on the CapEx deploy during the quarter mostly on the commercial front.

Raul Revuelta: Well, hi Anton. This is Raul. As we have a talk in previous conference calls, we have a very ambitious program of commercial investment during the year. We will have the main investment in the construction of the mixed-use building in Guadalajara, which is a very important project with 180 rooms of a hotel. We have more than 5,000 square meters of offices. We have a commercial retail. We also have the expansion of the parking lot in Guadalajara with more than 2000 spaces just for in this space. And we have expansion in other airports in terms of parking lots. So, we have also — and we are opening additional business lines of business spaces for community stores. And we are in the expansion of VIP launches. So, all this amount will be around MXN2.3 billion during the year, including some activities in commercial areas in Montego Bay that we are also adding a state, and we are also a leading area rehabilitation of some commercial areas.

So that’s in general the commercial, and also just kind remind that the MVP in Mexico will be around MXN5.6 billion during the year. It is the peak of our investment of our master development program, and we will do investments in Jamaica for around MXN1 billion. And for land we’ll be around MXN3 billion. We would consider the full project that, if you remember in the beginning of the year, we announced in the guidance, the acquisition of land for around MXN1.2 billion. And now we are in almost MXN1.8 billion of additional land.

Operator: We will take our next question from Pablo Monsivais with Barclays. Your line is open.

Pablo Monsivais: Hi thanks for taking my question. I am sorry if you answered this already, but just wanted to have an update on the MVP agreement with Jamaica. Is there any update on that? Thank you.

Raul Revuelta: Hey, Pablo. This is Raul. So, we have almost an agreement. We already receive from the authorities a notification. We are in middle of the final conversation just to try to have the formalization of the changes in the concession agreement. It is not yet a official. So, we cannot announce it yet. But as soon as we have the formal notification from the authorities, we will announce that. But we have almost the final stage of this process.

Saul Villarreal: And in a couple of weeks, even one month and a half where I have the official, the final response for to the Jamaican authority. And so, we want to make it public.

Raul Revuelta: Yes, correct.

Pablo Monsivais: Great. And if I can squeeze one more question. On the terminal processing facility, as of now, can we — I mean, our operations already normalized, I mean, the increase in fixed expenses are already diluted with the additional passengers, or there is still some catch-up process there? I mean, what is currently the normalization time frame for this? Are we already there or we will still a few quarters away from that? Thank you.

Raul Revuelta: Thank you, Pablo. I mean, in terms of the quarter, — processor building. We — for instance, I mean, we were announcing that a couple of months, coming back on November, we expect in November that, and Netherland [ph] will begin again in international operations at Tijuana, while it’s reduced. One of the key parts that we need to begin to see some also additional international frequencies from what’s happening in the terminal building on Tijuana, the new international terminal building on Tijuana, if they have the category one from the U.S. government to the Mexican government, because some of the routes that we have that the market is there to begin operations are also on the near area of Tijuana. But in the U.S. market could be Oakland, San Francisco, Las Vegas as the most important markets that are not serviced from Tijuana.

But the key point here is valid. The terminal is completely ready for the operations of the international flight. We are seeing the first plane coming on international again in November. And as soon as we have the category, we’re going to see a more dynamic of new routes on the international area of Tijuana. So, I will say that, for Tijuana, not only this process of building for all the area, we are really optimistic because the area is growing in terms of economy, of employment. So, the natural thing that we are going to see or the natural way to see Tijuana coming in the mid-term would be — we’re interested in growth because the population has more money in their pockets in this moment just with a big impact happening already due to the fact of the new sharing in the area.

So, I think that, there will come great news from the Juan airport on the midterm and long-term for sure.

Pablo Monsivais: Great. Thank you, guys.

Operator: We will take our next question from Stephen Trent with Citi. Your line is now open.

Stephen Trent: Good morning, gentlemen, and thanks for taking the question. Just two quick ones from me. The first question is about your domestic traffic flow. Have you seen any disruption at all in your domestic connectivity with Mexico City metro area since the authority started pushing some traffic to Felipe Angeles Airport?

Raul Revuelta: This is Raul. Not yet, we are seeing that the flight to Felipe Angeles is opening and it’s in the process of the ramp up for more openings. But what we are seeing is — we see the complete markets of the Mexico metropolitan area that is Felipe Angeles plus the Mexico City Airports plus Toluca Airport. We’ve put all together. I would say that increasing the traffic is really a low digit around 3% to 4%. I will see that, at least for the moment, we are seeing some kind of gradual shifting from Mexico City Airport to Felipe Angeles and even to Toluca. So, in the general terms, I would say that the area, we need to see it like a whole, the three airports, and we are seeing that it is aligned with this low digit growth in general terms.

Stephen Trent: And just one other very quick one, I mean a little bit of a follow-up to Rodolfo Ramos’s question earlier. When you think about the totality of the movements in the Mexican peso against the dollar sort of any high level sensitivity as to what’s the impact on EBIT margin for every 1% or 5% moving in the peso against the dollar?

Raul Revuelta: I will work with the seven first. In terms of the revenue, we are thinking, we are talking about around 20% of our overall of the total revenue that in some ways impact by the appreciation of the peso. In general terms, I will say that in the expensive side that in some way could offset some part. The biggest part of the expenses in Mexico, taking out the Jamaican for sure, but at least for the case of the Mexican airports, the persons are mailing pesos. So, we don’t really have some kind of offset because one of the question that everybody say, okay, if you have some kind of decrease or revenues due to the fixed rate or the depreciation of the pesos, but you have in some way compensated with some savings in the — on for imports or some kind of things on our services.

But the truth is that the airports are mainly business really hide on efforts of personnel, not only airport directly personal gap, but also personal from a security for maintenance for cleaning. So, I would say that we are in the middle of a moment where we have a big impact coming from the reviews of the minimum wage in Mexico with increase on some benefits on holidays, on labor law, labor law these kind of things. So, what we are seeing, at least from the coming, at least part of this year, and maybe the coming year, is some pressure coming from the labor market in our expenses in pesos. For sure on the area of the revenues, it will depend, a lot of what would happen with the central bank in Mexico and the rate, if we will begin to see some kind of depreciation of the pesos in the coming months.

But I will say that we are just in the middle of that sandwich. That will some way give us some pressure to the margins.

Saul Villarreal: Exactly, we have two effects in revenues one is the produce price index affecting aeronautical revenues in Mexico. Mexico that is offset by the fulfilling of the maximum tariff at 99%, which is good, but in the other hand, we have the application of the pesos of around 12% affecting the 20% of our total revenue. As Raul said, in terms of expenses, we don’t have a significant contracts being nominated in the U.S. dollars. I will say that around 99% of the total expenses in Mexico nominated in pesos. So, we don’t have any compensated effect.

Operator: I’ll take our next question from Gabriel Himelfarb with Scotiabank. Your line is open.

Gabriel Himelfarb: Just a quick question about cargo. We saw that cargo units decreased year-over-year, so can you give us a bit of color on why it was a decrease? And also can you provide us a bit of color on how much capacity will be added to the Guadalajara airport once the planet investments are finished?

Raul Revuelta: Okay, thank you, Gabriel. And going through the cargo was decreasing and it’s mainly decreasing in Guadalajara Airport. What is important to understand is what is really happening with the cargo is, in the cargo industry is like two kind of soft cargo, one that is called wet cargo and dry cargo. Dry cargo mainly electronics and this kind of high value cargo that are increasing or growing a lot in Guadalajara due to the near shoring and what is happening in the electronic, the dynamic the industry, dynamic on the rail. But in the other hand, the wet cargo that are mainly fruit, vegetables, flowers, meat, all this kind of production is decreasing. But the interesting here is that you could not mix, wet and dry cargo in the same belly of a plane.

So what is happening is that all the electronics that have a much higher yield for the cargo airlines is moving or changing the trend for offer of additional offer for wet cargo. Saying, on other words, the total volume on the Guadalajara airport cargo is decreasing because the value of the cargo is increasing. So, the planes are going fully with electronics, and they are not moving the same level of fruits and vegetables that you to have. It’s just, I will say, a temporary move until the airport has additional capacity and additional planes, an additional fleet to absorb the wet cargo that could not be in the same plane that like — I mean, it’s like a general explain what is happening in Guadalajara. What is interesting is that, when you receive or when do you review the results of the yields of the cargo?

It’s increasing and it’s historical point right now, I mean, the value of the cargo in the airport is in our record, the value, not the volume. But, I mean, a general explain of that. And in terms of the capacity, how much capacity will add to Guadalajara Airport? I mean, the most important part of adding capacity during this market plan is related with the curbside because we are putting on all operations to second runway. That will give us around 65% to 70% additional capacity per hour on the wrong way. We also expand our airports for commercial, for general aviation. We also add all the big area for hangers in the airport. All these movements of the general aviation are higher to a new land in the airport, will give us a chance to begin the construction of the second terminal building on the coming year.

The idea of the beginning of the construction in coming year is that new terminal will be on operation after three years before we begin with this construction. So we are thinking that around the end of ’26, we are going to have the second terminal on building operations. Another part that will bring the additional capacity to the airport of Guadalajara is now is related with the parking lot. In December, we will open the first 2000 additional spots for the parking lot that will be a great relief to the area, to the experience of our passengers in the airport, but also to the commercial revenue specific on the parking lot. Today, we are 100% load factors when we talk about the parking lot in Guadalajara airport. So this additional 2000 spots would give us the chance to capture additional demand that we are not getting right now.

So, in general terms that are the main capacity that will be added Guadalajara in the coming months.

Gabriel Himelfarb: Okay. And once the capacity is added, that 65%, 70% is added, how much time will it take to reach the touch capacity until you have to add even more capacity? For how much will that additional capacity be effective?

Raul Revuelta: Okay. I mean, on theory, because, again, it depends on the peak hour, the size of the plane. So there is many more variables to that. That is not like plane or flat downward for that specific point. But when we have the second runway on operations, and we have the second terminal, the terminal number two also operating, we got both of these assets. We want to have around 37 to even 40 million passengers capacity. That is an important part to understand that we could depend on the demand and depends on how fast could growth in the coming years, the traffic. But the idea is that we going to be really close to the 40 million passengers in terms of the capacity when we end with all the Guadalajara planning on the coming master plan.

Other point interesting to understand because, in some way always, it’s important to remember that when you have a bigger building or a bigger of aprons or bigger everything runways, everything in the future you will need to see in some moment increases and cost because you have more areas to clean, more areas to maintain. But also the CapEx, because you’re going to have bigger WebEx reposition of capacity on the coming years because the systems, you could have it on operation 7 to 10 years, you will need to change the, some of the instance, the air bridge that has the — normally operates only 10 years. So, the thing is we are expanding our capacity, but that one never going to mean you will not have additional CapEx or additional CapEx requirement in the future.

It’s just to have in mind for I will say everybody.

Operator: We’ll take our next question from Alberto Valerio with UBS. Your line is open.

Alberto Valerio: I have two on my side. The first one is if you could provide an update on how are the constructions of the mixed use space in Guadalajara going and when can we expect it to be operational? And my second question is on the international traffic in the leisure destination. So, we are seeing Los Cabos and Puerto Vallarta in the last month more to flattish to slightly dropping. So what I was wondering, what is your view and what’s behind that?

Raul Revuelta: First in terms of Guadalajara and the second quarter going to be in operations on the first quarter of the coming year. The hotel, the building office, and the misuse building will be operating in January of the coming year. The packing, the first stage of the packing, lot expansion will be operations also in December of this year. The tariff that is a big expansion of the food and beverage area of Guadalajara airport going to be on full operations on November of this year, and that I would say that the biggest, and for sure the new hangar area will be fully operating on November of this year and that, talking about the construction working in Guadalajara. For the second one, what happened with Guanajuato a flat increase on passengers, I will give a step back for 2019.

When we compare for instance, May of 2023 versus May of 2019, we have an increase of 37% on the amount of seats for the region for both for Cabos and Guanajuato. So that was a completely boost on the capacity, that in some way put a lot of offer in an airport for one day to another. In that moment, it was mainly related for a strategic decision for the U.S. airlines that was not operating to Europe and to the Caribbean in the middle of the COVID crisis. So, they shift a lot of their seats to Mexican destination of Cabos [indiscernible] that give us this big peak or increase on passengers. So, I would say that it is natural to see some flood months until the destination completely digest all these big amount of sips. I will put it in other ways, it’s a great news that all this additional capacity that the U.S. carriers shifted from the Caribbean to the Mexico markets is still in place today.

That will be my first view. I will say we catch it for the long-term, what in the first stage was a temporal shifting of capacity. So, what we could expect is a couple of flatter months and around Guanajuato, we expect to begin to see again an increase on seat capacity, and it’s also related with the hotel and key capacities auto room key capacity on the markets. We will begin to see opening of new hotel development [indiscernible] hotel at the first quarter of 2025. That will bring to Vallarta a big amount of additional keys, all the new developments on Cabos in the way to Cabos pull more. I mean, the key point here is that the market at Cabos and Vallarta is really healthy in terms of deal of the airlines, deals of the hotels, and we will not see gradually additional offer of hotels coming to the area that will bring us additional passengers in the meantime.

Operator: We’ll take our next question from Alan Macias with Bank of America. Your line is now open.

Alan Macias: Just one question on your guidance and traffic guidance. I guess this implies that you’re expecting single digit year-on-year growth in the second half of this year. And I just wanted to understand the drivers behind this. Is it mainly more challenging comparison base normalization of traffic? Or are you expecting also a decrease in GDP growth, and also, if you are seeing any other factor as a stronger peso making Mexico less attractive for U.S. tourism or any other factor? Thank you.

Raul Revuelta: Thank you, Alan. I mean, I will say that, the first part is, the second half of the year, we will have a most difficult more tough comparison versus 2022. It’s important to remember that, during the second half of 2022, for instance, were the first months that we begin to see positive numbers of Guadalajara for instance. So what we are going to see on the second half of the year is a comparable and more tough comparables tough comps in traffic in general way. Also for sure, we are going to have some pressure on the winter season, mainly in Cabos and in Puerto Vallarta related with that Mexican could begin to be a really some kind of expense here than other destinations in the Caribbean for instance. So — and the last part that we need to see happening is the additional fleet coming from Viva and Volaris would happen more to the end of the year that in the summer.

Saying that, all the mix of this change or different variables is given us some numbers closer to around 7%, 8% for the second — an average of the second half of this year. I mean, in general terms that are the specific drivers of what’s going to happen on traffic for the coming months.

Saul Villarreal: Yes. And in terms of this is Saul, Alan. In terms of the GDP growth, we do not expect this acceleration. On the contrary, we expect to maintain the performance of the GDP in the first half of the year. But as Raul explained, the effect on the traffic is not because of GDP, it is because of the comps of the previous year. The peso will be less attractive for Americas just for sure. But we are sure that there is an effect the passenger traffic trends from international, not only because of the currency, but also because of second home effect that we have seen in the last years. Many Americans are having second homes. It’s more attractive that each destinations for Americans in general. We saw a boom of real estate in our each destination. So, we do not expect any negative effect from the stronger peso.

Alan Macias: Thank you. And any — what are the upside risk for traffic in your airports? Are you seeing the Mexico recovering category one for the U.S. authorities? Is that something that could happen this year or not? And is Guadalajara benefiting from nearshoring and if you’re seeing that as a medium long term driver for Guadalajara?

Raul Revuelta: I mean, it’s happening the best way to see how the nearshoring is happening. Guadalajara is the — the vacancy on the industrial park is almost you. I mean, everything that is on development in terms of industrial parks is already digest by the market. It’s a big part on development of industrial parks happening even really close to the airport in the [indiscernible] area. So we think that all the near shoring effect, it’s beginning, and we could see it right now in Guadalajara happening, mainly in the electronics manufacturing that are the factories. And some of the plants that have been operating on Guadalajara for the last 10 or 20 years are expanding their lines of operations for expand their production. So, I think that we are seeing a coming months or years of interacting results for the economy of [indiscernible].

Well, we category one, we are seeing at the lie of the last quarter of this year in terms of the public information of Mexico authority that it could happen at the end of this year.

Operator: [Operator Instructions] We have two questions related with the land acquisition in the webcast.

Maria Barona: The first one is from Bruno Marine from Goldman. He’s asking if well, this additional CapEx of land acquisition be included in the MDP?

Raul Revuelta: Yes, it was included as an authorization in advance for the master plan coming. So, we already received the authorization and will be count — this amount of land acquisition will be count for the calculus of the new master plan of the coming one.

Maria Barona: And the other one is from Roddy Seymour from Brown Advisory. Unless the land parcel [indiscernible] falls into 2024, has there been any changes to 2024 CapEx plans? Would you still expect a similar CapEx per passenger as you previously expected in 2023? Is it likely for the next MDP also?

Raul Revuelta: Yes, I mean, the only main change on our CapEx plan was related with the land acquisition. And we are still seeing for the common master plan, the certain level of CapEx per passenger that we have seen on this.

Maria Barona: And I believe that this is the last question in the webcast. So, I will turn back the call to the operator.

Operator: And we’ll take our final question on the line from Fernando Ricotta with BTG. Your line is open.

Fernanda Recchia: Very quick here on my end. Just wanted you hear the latest update from [indiscernible] intention to reform the federal laws. We know that Congress is expected to resume activities in September, so just wanted to hear your updated thoughts on this topic, and also if you expect this to bring some impact on your next MDP revision. Thank you.

Raul Revuelta: Hi, Fernanda. We have heard nothing from the authorities regarding the initiative changes that were announced in last March. We will be looking forward any change in, and as soon as we have more information and in case it affects or has some potential affectation to our physicians, we’ll do some statement. But for now, we don’t have any additional information. They said, in April, that for September, they will send it back to the Congress. But for now, we don’t have more information. And in the case for the next MDP, we do not expect any change for the revision of the MDP or the maximum tariff determination. The formula is pretty clear. The regulatory framework is pretty clear. We’ve seen our first numbers and we will continue with this process that takes around two years. So, we do not expect any change on that regards.

Operator: We have no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks.

Raul Revuelta: Thank you everyone for joining us to our second results conference. The team remains available to answer any question you may have. Please enjoy the rest of the day. Thank you very much.

Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at any time.