Good morning, and welcome to GAP's First Quarter 2021 Conference Call. It is now my pleasure to turn the call over to GAP's Investor Relations team. Please go ahead..

Thank you and welcome to the Grupo Aeroportuario del Pacifico's first quarter 2021 conference call. Presenting for the company today, we welcome Mr. Raul Revuelta, Gap's Chief Executive Officer; and Mr. Saul Villarreal, the 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 causing actual results to materially differ from the current expectations.

For a complete note on forward-looking statements, please refer to the quarterly report issued Wednesday. Please note that unless stated otherwise, all comparisons in this call will be versus GAP's results for the comparable period of 2020..

Thank you. Good morning, everyone and welcome to GAP's first quarter 2021 conference call. In today's call, I will be briefly reviewing operational and financial figures for the first quarter of 2021 prior to taking your questions. GAP's results remain impacted by the pandemic. However, there are important changes in the landscape that I will discuss.

During the first three months of 2021, we did see a continuing recovery of traffic with a 37% decline year-over-year or a 38% decline versus 2019. Keep in mind that on March 31 of 2020 the Mexican government suspended all non-essential travelers for two full months.

Therefore, the main effect of the pandemic will not be fully reflected until the second quarter of 2021. The recovery trends we saw in the first quarter of '21 were driven mainly by stronger domestic traffic.

As a sample, the airport of Tijuana experienced extraordinary recovery following a negative 9% in the first quarter of 2021 versus the first quarter of 2019. However, in the case of Guadalajara, their recovery was at a slower pace, we have 36% decreases versus the first quarter of 2019.

On concentrate basis, we believe that the recovery of Guadalajara is a key element to bring us back to 2019 figures. On the other hand international passengers' traffic continued to be impacted by the US imposed travel restrictions that were implemented on the 25th of January.

There were also bans of travel to Mexico and Caribbean imposed by the governments of Canada and United Kingdom in an effort to reduce the spread of COVID.

Looking ahead, however, we fully expect a continued recovery of domestic traffic and we are also optimistic of international recovery as we see declining COVID cases together with the rising of vaccination rates.

It's important to mention that this summer will be a good indicator on the recovery we hope to achieve, not only in terms of the ratio destinations, but also of the Metropolitan airports, such as Guadalajara.

It's important to mention that the life in AeroMexico recently announced the addition of eight and 28 new planes in the near future respectively. In addition, JetBlue just announced the start of operation in - adding Puerto Vallarta during the first quarter of 2022. With the opening of Los Angeles and JFK New York routes.

Also - will start operation - route, they also announced the route of Bahia, Las Vegas, Morelia, Sacramento and Morelia Portland, which is a good sign of - market, and it's also final as a faster than expected recovery..

We'll take our first question from Alejandro Zamacona with Credit Suisse..

Thank you. Hi, Raul. Thank you for the call. Thank you for taking my questions. I have two questions actually. The first one is on the traffic recover.

Can you remind us what was the traffic recovery period of assumption in the last 10, I guess, for their competitors, was three years, give or take? But just I just want to confirm what was the traffic recovered for you.

And from the recent data that we have seen a regarding traffic, do you really - there is some upside to this scenario by means of shorter recovery..

Thank you, Alex. So as in terms of what we originally expect for the recovery, we saw that we will have the same amount of passengers that we used to have it in 2019, for 2024, for the end of this period of five years.

To date we told the news, great news of additional fleets of the Mexican companies, and also the new openings, the new announcements of openings that we are seeing in the last month, we are expecting to have a recovery really more in the 2023.

It is important to mention that it will depends of each of the airport, I will say for instance that we are seeing that, for instance, Tijuana going to be the first of our airport and we will have a fully recovery of traffic. Even it could happen at the first quarter of the coming year. So we're going to see various different of pace of recovery.

For sure, we have really - we are optimistic about the recovery of airports at Los Cabos, leisure airports.

Because at least on the coming months, we are seeing a greater opportunity for capture passengers that just may lesser on long hauls, that in some way will feel more comfortable or safe to fly to full time Cabos that is really assure flight from South California for instance.

So, in general term, I would say that we are more optimistic about the pace of recovery. And we see that is some room for all sides of the original projections of the master plan..

Okay, thank you, it was really clear. And my second question, if I may, it's on the domestic airlines so; I mean, Interjet was a relevant airline for GAP in some way.

But the airline has stated now that they are intending to restart operations by year end, although they are starting formal chapter 11 process so have you had any discussions with them to restart operations in GAP's airports..

I would say that for everybody in the peak time of operation of Interjet that used to have is around 10% of the total share of passengers on GAP. Really important to mention that all the routes that Interjet used to operate were routes where more than one competitor operates also.

So Interjet didn't have any exclusive work in GAP's network that is really important to mention because at the end of the day, the rest of the capacity of the rest of the companies, Mexico cover in some way stays that Interjet left in our network.

And about this chapter 11, we, I mean, we're still in communications with the legal team of Interjet but I really don't have any additional information about a possible restart of operation of them..

We'll take our next question from Pablo Monsivais with Barclays..

Hello, guys. Good morning. Thanks for taking my questions. I have two quick questions and kind of a follow up to what you Raul was saying in the remarks.

My first questions is on the - my first question, sorry, is on the tariff strategy that you have for this year? Are you already planning to be very close to the maximum tariff or what's the pace of increase that we might see in the next couple of years and this year, for instance? And my second question is kind of a follow up to Alejandro's questions on the Mexican airlines.

We know that and AeroMexico they announced new, they are increasing its fleet. Have you talked to these guys in terms of the potential opening of new routes or increasing frequencies? How the conversation has been with Boladis and AeroMexico, in order for you to have more traffic in your network? Thank you..

Thank you, Pablo. The first part relating with the maximum tariffs, we expect that in this year, quarter-by-quarter in some way gradually we will be closer to the fulfillment the common process fulfillment of the tariff.

We expect that on the last quarter of the year, as soon as the international traffic begins to have a more clear recovery we expect to be really close to the, I believe 98% of fulfillment and for the coming year will be 100%, but so that's a related to maximum tariff for next of the all the coming years we expect that we are going to be 100% fulfillment.

In terms of AeroMexico and Boladis for sure, we also are in really important contact with them talking to the planning department and talking about specifically these new planes as you know Boladis has two of the most important days of operations in Guadalajara airport.

Also for GAP, on this year for instance, they are more also the almost 50% of our participation in terms of passengers. So one of the things that we are beginning to see for the case for instance of Boladis.

They already have different financings for beginning operations in November, I told in Morelia, Sacramento to Seattle and Portland, or back here to Las Vegas. So, at the end of the day, what we are seeing is a run on the recovery operations in the route that they used to operate or do they get the 100% is still the seats that they used to have.

But for sure, that will be really great change the opportunities to begin operations of all on new route. So I will say that in general terms, for sure, we have said that we could capture part of this additional capacity in our airports..

Perfect, many thanks, and just do you have a sense of like those additional partners will be more leisure driven or BFR driven just to get a sense of the potential commercial revenues increase there. Thank you..

I will say that we have one of the things that we are seeing clearly is an important bit in terms of the leisure markets, I believe what we are seeing Davos from California and Texas is really very interesting. Also we have some new routes for Los Cabos airport coming from New York with JetBlue with American airlines also.

So we're seeing a really interesting increase of passengers on the leisure, but also in the BFR market, for sure, we are expecting an additional increase of passenger driven by day some of the fiscal supports that the US government will bring to the economy in some way.

One of the things that we are seeing on the past is that as soon as the US economy recovery, we will begin to see more BFR markets coming back and forward to Mexico and the different destinations that we have they have in the country.

So, I will say that I believe what we are seeing today with in some way more possible lower pace of recovery is the routes that are more related to business as to be the Mexico Guadalajara for instance. I mean, we are seeing for sure recovery, but it is still far away from what it used to be the standard size.

So in general terms, I would say that we will see a really important recovery of passengers on leisure market.

In the case of Puerto Vallarta, we need to expect the opening of the Canadian border at the end of the day talking about seasonality, if we could catch you the winter season on November Puerto Vallarta and Montego Bay airport for Canadian market will be great for vacation ratio or BFR, if I say, we expect really important recovery and also remember that the VFR market was really resilient in some way during the big part of the pandemic.

So for sure we will see important recovery but it will be faster in terms of overall percentage while this going to happen on the leisure..

Our next question from with JPMorgan..

Hi, Raul, Saul. Good morning, thanks for taking my question. I have two questions. The first one is regarding the potential rebalancing Jamaica, just wondering during the updates regarding the timing and the potential outcome of that negotiation.

And the second one is related to the discount programs that have been implementing to the commercial tenants and to the airlines. Just wondering as to when these programs should last and once the average level of discounts that have been implementing in the case of the airlines. Thank you..

Hi, this is Saul. Thank you for your questions. Well, regarding the negotiation of rebalancing with the Jamaican government, we are working they decided to have a team to analyze our proposals. There are two different proposals, one for MJ and another for Kingston.

And the idea of this is the final outcome will be at the end of this year because we will have to start conversations with this new committee is not already integrated. So it could take around six months of conversations.

So we will have to wait the potential of our request is an adjustment in a CapEx, some review the timeline of that concession, the concession period, and some other adjustments in terms of expenses. We are not adjusting tariffs, we believe that the tariffs just enough to recover the level of investment.

Raul?.

And related to the discounts tariff fees, I would say it first really with airlines as we talked at the last conference call. We will continue our policy that incentivize through discounts, the opening of new routes and the recovery of frequencies.

So it will not be a general apply of general discounts of under rates of all is just related to the specific routes that are - that will begin operations again or that will bring additional frequencies again.

The second part related to the commercial revenues, we will continue at least for this year with the discounts, as you know, our policy of discount is related to is a discount of the minimal rents for the - when we compare the result of traffic of 2019.

So the size of the discount is the difference of passengers between 2019, the same month on 2019 versus the same month on 2021. So we are seen in different airports and for sure the variable part of the rent fee is still in the same level.

So one of the things that we are seeing is the other leading response will be diminishes until these discounts will almost fully disappear on this year.

So, one of the things that we are seeing different airport is for the next quarter, some of the specific business lines will be at least in sales going to be in the same level that used to be a before COVID and this is going to happen in airports as Tijuana for example..

We will move next with Rodolfo Ramos with Bradesco BBI..

Good morning. Thank you, Raul and Saul, for taking my questions. I have two questions. My first one is on your perspectives for traffic in Guadalajara.

I know you mentioned the strong perspectives for traffic in Tijuana on the BFR market much more dynamic Southern California and also your leisure destinations which I also agreed that they'll perform much better once the vaccination improves, but what are you seeing in Guadalajara? What are you expecting in Guadalajara considering it's a tougher airport to put in into a bucket as far as leisure or business et cetera? So what are you see the drivers there, that's my first question?.

Perfect. There is, Rodolfo, we say that Guadalajara, as you say have really an important mix of leisure BFR and business. In some way that BFR for instance, the routes to South California to Sacramento, Oakland, we are seeing a continuing recovery on that.

So should you be really related of how the economy of California is performing? In that way, we are really confident that it will recover in some way a fast.

The second part, I will say that while Guadalajara the second biggest airport in a city in Mexico, we are seeing an important recovery also - of people around Guadalajara going for Cancun or to Davos.

One of the things that we saw on the last month is that at the end of the day that some Mexican make, that used to make leisure for Eastern in the US on this year we made leisure on Mexican beaches.

So we are seeing an interesting recovery on the routes to Cancun to Los Cabos for instance, I will say that the pattern today I will say we are not pretty clear on how fast to be the recovery is the route that are more related with business.

We are talking about Guadalajara Mexico route or Guadalajara Monterrey route, but in other way in other hand we have some positive use in that because as you know Mexico City, a policy for the reopening of office, of corporate office already happened.

So we are really reviewing closely how good you are the performance of the route after these announcements in the Mexican city that it will be along with, they come back to the office. So I would say that this going to be the first part of a more clear trend of what going to happen with a business which we never met..

And just a follow up on that, how much is Monterrey and Mexico City out of the Guadalajara traffic? If you have that number handy..

Yes, in general terms, I would say before the pandemic, these two routes used to have between two of them less than 18%, 17% of the total domestic passengers. But this number has changed dramatically after the COVID we are seeing more and more seats to leisure destination to domestic leisure destinations, for instance - used to have from the airport.

So at the end of the day I am seeing that we're going to see - are we reconfiguration of the market that clearly going to be in some way, for this year, at least, incentivize first by the US economy through the BFR and second through their leisure destination domestic destinations that the population of Guadalajara will go to the vacations on Mexican beaches mainly.

But I mean that's the big part to understand how we're going to be in the business market..

Thank you, Raul. And my second question was on the potential impacts that you could see from the outsourcing bill. I mean that you might have some of the parts of your labor that qualify as specialized. I mean, I don't know what has been your exercise, or the impact that we could see from day on higher labor costs..

Hi, Rodolfo. This is Saul. Well, we have done some analysis about this potential effect. Obviously, it is a new a rule about the net of insurance for the employees, the amount that could be affecting our resources around Ps. 60 million - Ps. 70 million, we are in the process analyze this. And the effect is not very relevant.

We, in terms of our - about our - we done - will be around less than 1%. So it's important to have in mind that this could have a higher effect in our companies. But without according to the structure we already have is one impact is significantly..

We will take next question from Stephen Trent with Citigroup..

Yes, hi, thank you for taking my question. It's actually Brian Roberts on for Steve. Just a quick one here on growth planning into the recovery. Aside from the airport there in Barbados, are you considering any other acquisitions? And any thoughts on specific regions perhaps that look most attractive? Thank you..

Thank you, Brian. We don't have any opportunity right now that we are reviewing, only as you say we are expecting about what happen with Barbados.

But for sure, I think that in the coming months or even years, we're going to have some additional clarity about the region that we will like to continue exploring is related mainly on the Caribbean and Central America, mainly..

And we will move next with Andressa Varotto with UBS..

Hi. Thank you for taking my question. I just have two questions on the MBT investment. So how is the construction of the second runway of Guadalajara, when it should be ready? And how does this coupled with your expectation of traffic recovery and also if there will be immediate Investment channels to commercial spaces.

And if this could be a potential trigger of a higher commercial revenue perfect way to are in the future. Thank you..

In terms of the runway, the second runway at Guadalajara, we just begin the workings of --the work of that area to develop the second runway. We expect to have ready these infrastructure for 2023.

When I say it's really hard to construction, because it just outside of the runway of Guadalajara, but so we have just more windows of operation for the construction, but we're going to be ready for opening that infrastructure on 2023.

Regarding commercial revenues, I would say that we will still working in the new business lines as we increase our ratchet, it will be for instance, the case of the hotels in the right now Guadalajara, but also in the future, we expect to develop a hotel in Tijuana.

Also we are working to increase our cargo facilities business, we are completing or in this moment we are reviewing which going to be the model of operations for mainly what we clearly see is a great opportunity in Guadalajara airport to get some, some additional revenues that will come from all the additional cargo that is happening right now at the airport, mainly imposed by the ecommerce.

So, and the last part related with the traffic, for sure. Any forecast today is in some way difficult, due to the fact that everything is in some way, changing really fast. But as we are talking that everything is still in the same way. There's no some kind of additional surprises of lockdowns or these kinds of things.

What we're expecting is that the traffic in 2021 will grow between 27% and 30%. It means we could be something around the 35 between 33 and 35 million passengers. I will said that we have decided that we are not completely clear what's going to happen in terms of the operations from Canada to Jamaica and from Canada to Puerto Vallarta.

So everything goes good. I mean the last quarter of the year we could catch the winter season we see that these numbers could go could be also there..

We will move next with GBM..

Hi, thank you for the call but all my questions have been already answered..

Thank you. I will now move to the webcast questions. Melanie, please go ahead..

Thank you, Nikki. We had a question for Saul.

Can you just comment and clarify the number of shares that you've repurchase to date?.

Hi, Melanie. Yes. We have purchase around 2.4 million shares during this report..

Excellent. And Saul I believe we have a question from the webcast..

Yes, thank you, Melanie. This question is from Juan Ponce from Bradesco. The first one is about the bill. I already passed the comments about outsourcing and in sourcing. We already answer that question. And the second question is what do you think is the impact on GAP's operating expenses could be? It's answered already.

And your talk about your outlook on the recovery of passenger traffic in, Raul, do you want answer?.

Yes, it was related to a about what we are seeing at Guadalajara airport.

We already talked about, we saw robust recovery of the BFR and leisure and we are expecting what will happen with this business, the market of Guadalajara but in general terms, we are seeing an important recovery from the beginning of the summer, for sure, in the last quarter with the winter season, we will see much better numbers..

And there appeared to be no further questions over the phone. At this time, I would like to turn the call over to Revuelta for any closing remarks..

Thank you, everyone, again for joining us today for our first quarter results conference. We'd want to remind you that we are always open and available to answer any and all of your question. On behalf of GAP, we wish you a great day. Thank you..

This does conclude today's conference. Thank you for your participation. And you may disconnect at any time..