Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) Q2 2025 Earnings Call Transcript

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (NYSE:PAC) Q2 2025 Earnings Call Transcript July 23, 2025

Operator: Good day, everyone, and welcome to GAP’s conference call. [Operator Instructions] Now it’s my pleasure to turn the call over to GAP’s Investor Relations team. Please go ahead.

Maria Barona: Thank you, and welcome to GAP’s Second Quarter 2025 Conference Call. Prior to introducing GAP’s management team, I would like to take a few moments to read the forward-looking statements as described in the financial disclosing statements. Please be advised that the information shared today may include forward-looking statements. These 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 the current expectations. For a complete note on forward-looking statements, please refer to the quarterly report.

Thank you so much for your attention. I’d like to present our speakers today. Mr. Raul Revuelta, Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer. At this time, I will turn the call over to Mr. Revuelta for his opening remarks. Please begin.

Raul Revuelta Musalem: Good morning, everyone, and thank you for joining us today. I’m pleased to be able to share with you GAP’s key operational and financial highlights for the second quarter of this year. Overall, it was a solid quarter marked by a continued growth in revenue, EBITDA and net income. This was achieved despite ongoing headwinds due to the macroeconomics issue and FX volatility. Let me begin with a discussion of total passenger traffic. We reached 15.8 million, representing a 4.1% increase if we compare it to the same quarter of 2024. It is also important to mention that 8 new routes were added this quarter, 7 domestic and 1 international, which brings us to 21 total new routes so far this year. As we’ve mentioned that we are still expecting to announce additional routes and frequencies during the second half of 2025.

In this regard, we have already announced additional frequencies and new international routes starting November to Canada, including services from Guadalajara to Montreal, Toronto and Calgary, from Puerto Vallarta to Toronto, Ottawa and [indiscernible] and from Montego Bay to Halifax and Ottawa. Canada continues to be an increasingly relevant market to leisure and VFR, especially during the winter season. These new routes will not only expand our network but also enhance our ability to capture seasonal demand and strengthen our position in key international markets. That said, market conditions changed rapidly, as you know, with [indiscernible] when looking ahead at the upcoming traffic trends. Thus, we will closely watch any changes as they occur and make adjustments as needed.

Mainly our concerns include restricted U.S. migration and enforcement policies under the current administration, which tends to discourage travel among the BFR international passengers base. By our estimates, the segment represents approximately 38% of GAP’s international traffic. As a result, what we see is that a portion of these travelers may opt not to travel outside the U.S. in order to avoid any potential compensation with their immigration status. We believe this could impact international traffic, specifically in the U.S. Mexico routes. But overall, we expect to maintain our initial annual guidance of [indiscernible] announced. Having said that, revenues generation, excluding IFRIC-12 grew by 30.6% year-over- year, reaching MXN 8.2 billion, driven by a 26.4% increase in aeronautical revenues and 41.8% increase in aeronautical revenues.

And excluding the acquisition of the cargo facility, it represents a solid 14% increase. This strong topline performance was mainly supported by the implementation of tariffs that took effect in March 2025. The continued Peso depreciation, which averaged around 13.6% versus the second quarter of ’24, as well as a 41% of total passenger traffic increased across our 14 airports. On the non-aeronautical side, commercial performance was solid. Revenues from business lines operated directly by GAP increased by 113% driven by the consolidation of the cargo and bonded warehouse business. Third-party operated business also grew by 10.7% with significant contribution from food and beverage, retail, duty-free, ground transportation and timeshares. EBITDA increased by 31.1%, reaching MXN 5.5 billion with an EBITDA margin of 67.1% excluding IFRIC-12.

As we discussed in previous quarters, the margin reflects the operating cost integration of the new business such as bounded warehouse business and the hotel, which while contributing positively in absolute terms, have lower individual margins. The cost increase during the quarter reflects the impact of higher operational expenses. Additionally, maintenance expenses increased by 57.3% related to the airfield improvements, the opening of new operational areas as well as operation with jet bridges and the Airbuses as that was previously managed by third parties, both must now be operated directly by GAP due to the new regulations. Despite the higher pressure on the cost of services, our focus remains on controlling costs, while at the same time, ensure that service quality across our airports remains top rate.

Operating income increased by 30.4% and net income by 17.9%, reflecting GAP’s solid underlying fundamentals. Turning to our financial position. As of June 30, we held by MXN 9.7 billion in cash and cash equivalents. During the quarter, we paid MXN 2.5 billion GAP’s 21 bond, the first tranche of dividends approved in the last shareholders meeting, and additional we secured an MXN 3.4 billion credit facility from Banamex. These funds were used to concentrate short-term debt with Banamex and [ BBVA ] on a 5-year loan. We continue to actively manage liabilities and maintain a healthy balance sheet with a net debt-to- EBITDA ratio of 1.8x. Let me now touch basically on CapEx. During the first half of 2025, GAP execute capital investments of about MXN 12.8 billion in line with our annual plans of MXN 13.3 billion.

This quarter, the investments were mainly focused on international of key projects with early-stage construction activities already underway. This includes works on both air sites, infrastructure and commercial areas. Looking ahead, we remain cautiously optimistic while peso volatility and U.S. macroeconomic conditions may impact discretionary travel. We are confident that our diversified portfolio and resilient domestic markets position us well to finish the year strong. I would like to mention that our shareholders meeting held last April, a dividend of MXN 16.84 per share was approved for payment throughout 2025. The first tranche was already distributed in May with the remainder schedule for the second half of the year, reinforcing our commitment to delivering value to shareholders while supporting growth through our disciplined investment.

We are focused on continuing to execute our investment plan we are prudently navigating traffic and maintaining the operational and financial excellence that we are known for. We are confident that our diversified revenue base and solid financial position will support the creation of long-term value shareholders moving forward. Before concluding, I wish to mention that as we informed during the previous conference call, we continue to pursue strategic expansion opportunities. As such, the outcome of the Turks and Caicos tender process was not been announced, and we are ready on that. We also continue to evaluate our participation in the potential acquisition of CCR Airports assets. Thank you again for your time. Operator, please open the line for questions.

Operator: [Operator Instructions] Our first question comes from Stephen Trent from Citigroup.

Q&A Session

Stephen Trent: I appreciate the color on the potential inorganic opportunities with Turks and Caicos and CCR. When you look at the broader environment, is there a lot else out there? I recall Barbados was pushing doing something and that seems to have stopped. Or do you see these opportunities is relatively rare in terms of what else you might be able to buy?

Raul Revuelta Musalem: Thank you, Stephen. I mean the airport assets, the ones that we are pursuing in some way are always the one that has this potential future growth on passengers, but also, let me say, the correct level of possible profitability on the asset. In that way, I would say that there is — in all the Latin America and the Caribbean, there will be some different opportunities but not necessarily all of these opportunities will be a — will have the correct return that we are looking for. I will close saying that the correct assets would be in some ways, not a lot as we see in the market, say in other words, today, we are analyzing some of the rear assets that, in some way, has the correct return for or could have the correct return for GAP.

Stephen Trent: Great stuff. That’s very helpful, Raul. Appreciate that. Just one quick follow-up question. And apologies if I missed it. I recall that there was some opportunity for you to do something with a hotel and the Guadalajara airport. And if you could just refresh my memory where things stand with that potential?

Raul Revuelta Musalem: Thank you, Stephen. I mean the hotel in Guadalajara is doing pretty good. I mean, we have our first year of operation on the first week of April. Let me say that we are achieving really interesting level of tariffs on one hand in average around the MXN 2,500 in average. And also, we are getting the occupancy rate around 80%. So for our first year, I will say that it’s a really great beginning of operation of our first hotel.

Operator: Our next question comes from Pablo Monsivais of Barclays.

Pablo Monsivais Mendoza: My first one is about the tariffs. As of now, how much of the authorized tariff increase have you already incorporated? And what should we expect in terms of further adjustments going forward?

Raul Revuelta Musalem: Pablo, could you repeat it? I mean we have a lot of communication for a second.

Pablo Monsivais Mendoza: Yes. I was referring to the tariffs. As of now, how much of the authorized tariff increase have you already incorporated? And what should we expect in terms of further adjustments going forward of the tariff?

Saul Villarreal Garcia: Pablo, this is Saul. Well, as we mentioned in the previous conference calls, we are seeing how is the market trend, and we will try to make it in different stages. The first one was already implemented in last March. We are expecting to have in January ’26. We are analyzing it is possible to have another one during 2025, but it’s complicated to say now and it’s complicated to see because they are decrease in trend in traffic, we are waiting to see what is the trend considering the immigration action from the U.S. government and could imply a little decrease in terms of VFR market to our airport. So we will analyze it. But what is pretty sure to have a second adjustment at the beginning of ’26.

Raul Revuelta Musalem: Yes. I mean the main idea will be that, I mean trying to close as close as possible of 90% of fulfillment of this year. And for sure, in the coming year, we are trying to do an important adjustment. Just for a reminder of everybody, it’s important to mention that the fixed rate and the possible appreciation of the peso in some way are pressured the fulfilling of the maximum tariff. So that is another variable to review really closer in the coming months.

Pablo Monsivais Mendoza: Of course. And kind of a follow-up to this. Have you seen this particular negotiation airlines being much more vocal or pushing back harder in terms of tariff increase or has been business as usual?

Raul Revuelta Musalem: I would say that the normal is nothing — nothing different, I would say, on the market. It’s not only of Mexico, it’s a national — it’s international, I would say, trend that always in some way, the airlines would be more vocal about any changes on the tariffs of an airport. What I’m seeing, Pablo, that’s still in the same way that in the past, I’m not seeing any, I would say, change on how vocal are the — the airlines about the possible change on tariffs.

Operator: Our next question comes from Fernanda Recchia from BTG.

Fernanda Recchia: Two here from our side as well. The first, I just wanted to dive deeper on the traffic trends. Yesterday, Volaris mentioned stabilization in the softness of demand in the cross-border region by mid-Q2. Just wondering if you have seen the same trend and if we should anticipate and improve in second half of this year? And second, I just wanted to dive deeper on the inorganic growth that you mentioned. If you could share with us any timeline for the answers from Turks and Caicos and the CCR process. And also, I wanted to understand if you have appetite for the whole portfolio of CCR or just the international airport?

Saul Villarreal Garcia: Thank you, Fernanda, this is Saul. In terms of the traffic trends, yes, we are seeing that after some changes on the migration policies under the Trump’s administration, we saw some decrease in number of passengers in BFR routes that could be some of [indiscernible], the most, I would say, biggest BFR routes. Saying that, I think that day by day, it’s more clear for our passengers or for the BFR market, which would be the possible policies. And they are, I think, could begin to fill more, I mean, comfortable to fly on the coming months as soon as they know that clear rules about the coming back to home that the green cards are working as always for coming back that they have not seen cancellation of green cards on the border and these kind of things.

So — and I will say that in the same way that Volaris mentioned in the conference call that we have said that some of the passengers that in some way, change their plans for flying to Mexico because all the changes of the migration policies. For today, they have more clear information and they will finally fly on the coming months. And again, it’s something really changing day by day. So it is — that is important to have in mind. The other part, I would say that it’s in the — still be the — I would say, the elephant in the room is that we continue to have complete information about the fleet or the grounding fleet of Volaris, mainly due to the Pratt & Whitney engines. So I will say that one of the key factors to understand the trend in the coming months and the coming year will be when all these planes will come back to fly again.

So that will be an important part to understand in coming months. In terms of the inorganic growth, we are expecting and continue expecting downward for trucks and tankers, and we are expecting that in some moment, during this year, we’re going to have the final decision for the government. And for the case of CCR, we are still on the analysis, I mean, for the moment, the way that the company has released the opportunity is for hold the portfolio, but we are analyzing asset by asset, and as soon as we are ready to make a formal position or a possible bid, I mean, all the markets will know. But I would say that we are analyzing all the different assets that are in the portfolio of CCR.

Operator: Our next question comes from Guilherme Mendes of JPMorgan.

Guilherme G. Mendes: The first one is a follow-up on the Motiva/CCRs portfolio. You think that assuming that you buy the whole portfolio, that would require some kind of new equity injection or you would be comfortable to increase your leverage for a period of time? And if that’s the case, if dividends could be impacted somehow? And the second point, it’s a question related to what Volaris mentioned yesterday on the conference call about unbundling the airport fees. Our understanding is that there is no impact to gaps or any of the airport operators. But I just wanted to confirm this understanding.

Raul Revuelta Musalem: Thank you, Guilherme. In terms of the CCR portfolio, I mean, we’re still on the analysis. But even with that, I would say that we have a really healthy balance sheet and the numbers that we are working with about this potential transaction would not include injection of capital. We think that we have enough space on our balance sheet. If that is the case, under the number that we are thinking for this possible assets. So in general terms, we are not thinking on any kind of injection of capital for this specific transaction. In terms of the separation of the 2 are for — I mean, it’s something that, for instance, [indiscernible] have implemented more than 4 years ago and even Volaris having presented for some time ago also.

I mean, so it’s just another flexible way for our passengers for acquiring a ticket for flying. So we are not seeing any, I would say, any big difference trend on that because it has been on the market for the last years. So we really don’t see any kind or potential change on the trend of traffic because this possible change on [indiscernible] way to sell their tickets.

Operator: Next, we have Jens Spiess of Morgan Stanley.

Jens Spiess: So I have basically 2 follow-ups on answers you already gave. One is on the question that Pablo did on the maximum tariff. I mean based on our calculations, we get that you could increase tariffs by around 15% to 20%. Does that number makes sense to you? Just see if we are in the ballpark? And the second one is on BFR demand. Obviously, the situation remains quite fluid and uncertain, I guess. But — so first of all, we are seeing quite strong capacity growth in the fourth quarter for you. So almost 10% of seat capacity being allocated according to schedules. That’s quite strong. So are you seeing the same? And is here like the key variable maybe the load factors of the airlines. I don’t know, what are your thoughts on like the fourth quarter and how much capacity is being allocated to your airports? In Mexico, by the way.

Raul Revuelta Musalem: Thank you, Jens. I mean, in terms of the maximum tariffs, we need to perfectly understand on the coming months, how is going to be the — I mean, the forecasting of the FX of the dollar and also the inflation on the product price index for ending the final number for that — how it could be the decrease on tariff for the coming year. But I would say that in some of our airports, remember that the maximum tariff is a tariff independent for each one of the airports. So I would say that for some of our airports, we will try to achieve a double-digit increase on passenger fee. From some other of our airports will be just inflation, but it will depend on the airport. But I would say that in terms — in general terms, that will be the answer.

And in terms of the demand, just when we see OSG and all the — I mean the asking of the slots for the last quarter, we are seeing a double-digit increase in terms of capacity for the airlines in the Mexico airports. But I mean it’s great that we are really optimistic. But the thing is to really follow the low factors of the airlines on that for those moments. I would say that it will depend of how the Mexican economy is doing at the end of the day. And also, if there are any kind of changes on policies on migration from the U.S. that in someway could affect the BFR market. But in general terms, I will say that we continue to be optimistic about the last quarter of this year seeing the additional capacity of different airlines are bringing to our airports for assuring them the domestic market, but also remained with leisure market and other markets that in the past has not been, I mean, completely slotted in our airports, that could be the additional seats from Canadian markets that we already talked for [indiscernible] for Guadalajara, but also other lines that are beginning to develop for the first time as, for instance, the service of COPA from Panama to Los Cabos that is completely a new market that could be in some way that we’re going to see in the coming years, but I would say that it’s a great news for Los Cabos that have the opportunity that bringing all these beyond passengers beyond their hubs of Panama and also South America coming to [indiscernible].

So we are still optimistic about the last quarter and the next half year — half a year of this year.

Jens Spiess: All right. Perfect. Yes, that’s very clear. And just if I may, one quick follow-up on the first question. As of the second quarter, are you at around 85% of the maximum tariffs that you’re allowed to charge? Does that make sense for you that number, 85?

Raul Revuelta Musalem: Depends on the — for sure, on the — on all the mix of the airport, but I mean, if we just see it as a general number, will be correct, yes, just remember that on the first 6 months of the year in January and February, we have 0 increase on tariff. So the next month is going to be a little different.

Operator: Next, we have Pablo Ricalde of Itau.

Pablo Ricalde Martinez: This question is more maybe for Saul because we have seen increase in depreciation in the past couple of years. So I don’t know how this affects your dividend policy or your need of leverage to fund your CapEx program? That’s my first question. And the other one is on the Madrid route. We have been rumored that Iberia is planning to open [indiscernible] Madrid route. I don’t know if you can confirm that?

Raul Revuelta Musalem: Pablo, it’s correct. The depreciation is increasing due to the capitalization of the assets, but also we have to consider the acquisition of the cargo bonded facility that is included in the full half of this year. That’s why the decrease also into depreciation and amortization.

Pablo Ricalde Martinez: But that should change how you’re like fund your CapEx program? Or we should continue to expect that most of the CapEx program will be funded with the debt?

Raul Revuelta Musalem: We will continue the same.

Pablo Ricalde Martinez: Okay. Perfect.

Raul Revuelta Musalem: And hype-related, Madrid-Guadalajara, with Iberia, a couple of weeks ago Iberia announced the beginning of the work of several routes in Latin America and for the case of Mexico with Monterrey related with the operation of a new plane, A321 large that could achieve a Monterrey and some other markets with more, I would say, smaller demand. In that way, also, they announced potential increase — on potential opening of a route Guadalajara to Madrid. Today, this has not been concluded the negotiation or, I would say, announced by Iberia, but in some moment, the same moment that they announced the Monterrey to Madrid route would they announce also the potential route for Guadalajara, but for the moment, it has not been, I would say, outrated the growth agenda.

Operator: Next, we have Jorge Vargas of GBM.

Jorge Vargas Cuadra: With growing CapEx, higher concession fees and the larger debt balance, how are you thinking about sustainability of distributions in the medium term? Should we expect a more cautious dividend policy? And my second question is, traffic at Montego Bay has continued to soften. Now that you have renegotiated that concession? Are there any initiatives in place to reactivate growth and strengthen its connectivity?

Raul Revuelta Musalem: Jorge, this is Raul. Well, the effect of the concession fee affects directly to our EBITDA. And considering the CapEx that we are making — also the base of our tariff increase, tariff increase related to our revenue increase. So at the end, we believe that our distributions will continue in the same. The effect, obviously, of the concession fee over the EBITDA is affecting directly, that is offset by the acquisition of the new cargo facility. So at the end, I would say that in general terms, EBITDA margin will be around 66%, 67%. So in some way, we are having a little effect on that EBITDA level. In terms of the traffic in MBJ, we are having some effects due to the — Saul, do you want to add some?

Saul Villarreal Garcia: I mean, talking about — in the last year, we saw — and it was a trend not only in Montego Bay, but I would say that mainly in all the Caribbean, we saw a decrease of number of seats, mainly from American Airlines was from — mainly from New York and Miami. If you remember, just after the COVID emergence the biggest airlines in the U.S., the biggest U.S. airlines just push a huge amount of additional fees on leisure generated a really big increase on traffic is mainly on the Caribbean. What we saw in the last year is, I would say, a reaccommodation on some of these additional offers that they push into the leisure market. But we are seeing and we are optimistic on what we’re going to see for the case of MBJ in the coming years.

First of all, different announcement of additional hotel and rooms in the area, it’s really important, yes, a really important effect coming on coming years, but also the tourist minister and the Tourist Board of Jamaica is doing a really important job trying to bring back some of the different and attacking some of the different markets. So in general terms, what we are seeing in the coming years of MBJ is after all this, decrease of number of seats that we saw in the last year, we think that we just [indiscernible] and the coming months and years will be of increasing number of seats. And on the long term, we’re going to see also an important increase of number of rooms that will win additional tourists to the island. So we are really optimistic on the long term for Jamaica.

Operator: [Operator Instructions] Our next question comes from Abraham Fuentes of Santander.

Abraham Fuentes Salinas: Two questions from my side. The first one, could you give us more color about the non-aeronautical revenue per passenger going forward? How much space is there to continue growing or where we can expect normalization? And the second question is about the U.S. Department of Transportation claiming that Mexico has engaged in anticompetitive behavior. Is there any opportunity or risk are you seeing in this regard?

Raul Revuelta Musalem: I mean in terms of commercial revenue per passenger, for sure, Abraham we have a big jump due to the acquisition of JWC, the cargo facility. But also, we have experienced an important increase on cargo per passenger just as we open new infrastructure, for instance, the expansion of terminal Guadalajara, the expansion of Tijuana, the expansion of Los Cabos. So the next, I would say, jump that we’re going to see on passengers per traffic, it will depends on the opening of new additional areas that is related with the new master plan. Let me put it this way. For instance, in the new master plan, we will have a complete brand new terminal 2 for Guadalajara, that will be operating for the — I mean, for the end of ’28, at that moment, we’re going to see an important jump on revenue per — commercial revenue per passenger in that airport.

For instance, for example, we are expecting in the first quarter of the 2027, the opening of the new terminal building of Puerto Vallarta airport, that also will bring a great potential for an increase on commercial revenues per passenger. So in that way, the new additional space that we could generate from the new terminals and expansion that will come on this new master plan, where we completely aligned with the next jumps on the revenue — commercial revenue per passenger. In terms of the Mexico U.S. new aviation policies, I mean, hard to see on this between all the different movements that is happening on the bilateral relationship with the U.S. And my point of view, it’s not only what could happen on the aviation policy is a more wider discussion about the bilateral relationship between both countries.

But in terms of what it was announced, it will depend how many — how much months will still place the need of an additional authorization for new slots in the U.S. for the Mexican carriers. Because for the moment, I mean, we just heard, we have a big part of the fleet of some of the Mexican airlines rounded for the problem the P&W engine. So on the really short term, I would not foresee any kind of impact for this change on the aviation policy from U.S. to Mexico. But in the long term, it will depend how is this authorization continues and how hard or difficult will be for the Mexican carriers to opening a new route in the U.S. So — and for the moment, I really — I will see more concern about a more broad bilateral relation — relationship between countries rather than just the U.S. aviation policy.

Operator: Next, we have Alan Macias, Bank of America.

Alan Macias: Just 2 questions or clarifications. I guess the exposure of GAP airports to the U.S. Mexican airlines just thinking about the restrict — possible restrictions from the U.S. Department of Transportation, is that 38%? Is that the exposure? And also on your guidance, I guess you are maintaining your guidance, right?

Raul Revuelta Musalem: Yes, I mean, we are seeing a possible impact on around 38% as more related to the BFR market because the leisure market is, I mean, completely operated for U.S. and Canadian carriers. So it will be an impact on the leisure market, but for sure, it could be an impact on BFR. But also, it is important to remember that for instance, a couple of years ago with the U.S. government decreased the category for Mexico for the Mexican authority aviation, we saw a really important increase in traffic in Tijuana for the passengers, the VFR passengers walking through the CBX because at the end of the day, all the Southern California area, catchment area that is covered by the Tijuana airport through the CBX could be connected even without the authorization of any additional services to the U.S. for a Mexican carrier.

They could put their fleets or their capacity for all the Southern California market through the Tijuana airport. And that happened a couple of years ago when they decrease on the category. If you remember at that moment, for instance, Tijuana airport, just to be even bigger than Monterrey Airport for a couple of years and was related for that effect. So in some way, again, our portfolio in some matter could help us for any potential slowdown of additional routes or services from Mexican carriers in the U.S.

Operator: We have no further questions at this time. Raul and Saul, back over to you for any additional or closing comments.

Raul Revuelta Musalem: Thank you once again for joining us today for our second quarter results conference. Please contact our Investor Relations team with any additional questions you may have. Have a great day, and thank you for your attention.

Operator: That concludes our meeting today. You may now disconnect.