Oct 23, 2009
Executives
Adolfo Castro Rivas - Chief Financial and Strategic Planning Officer
Analysts
Stephen Trent - Citi Investment Research Mauricio Santos - GBM Juan Carlos Mateos - BBVA Bancomer Casa de Bolsa Luis Miranda - Santander Central Hispano
Operator
Good day, ladies and gentlemen and welcome to the ASUR Third Quarter 2009 Results Conference Call. My name is Veronica and I'll been your coordinator for today.
At this time all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session.
(Operator Instructions). As a reminder this conference is being recorded.
For opening remarks and introductions, I would like to turn the call over to Mr. Adolfo Castro, Chief Financial Officer.
Please proceed, sir.
Adolfo Castro Rivas
Thank you, Veronica. Good morning everybody.
Thank you for joining us today for the conference call of our third quarter results. Allow me to remind you that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including risks that may be beyond our company's control.
For explanation of these risks, please refer to ASUR's filing with the Securities and Exchange Commission and the Mexican Stock Exchange. Today, I will focus on a brief discussion of our results for the quarter, the opening of our second runway at Cancún Airport and what we see going forward on the back drop of the changing economic environment in Mexico.
As expected, all airports with the exception of Huatulco and Veracruz, which have easier year-on-year comps, continue to show declines in the Mexican international passenger traffic. Passenger traffic in fact declined 14% this quarter, showing an improvement from the 26.8% decline in the second quarter 2009, following the H1N1 influenza outbreak in Mexico in late April, 2009.
Looking at the monthly figures, we see a slow recovery in passenger traffic from the low of 50.7% posted in May with traffic declining 28% in June; 17% in July; 13% in August and 11% in September. So we are still indirectly affected by the H1N1 virus to date.
As earlier in the year international tours operators looked for an alternative summer destination, given the uncertainty and health concerns on the onset of the virus outbreak. As you may know, in general, international travel packages from the U.S.
and Canada are booked between two to three months in advance and from Europe from six to one year. As a result international passenger traffic for the quarter accounted 49% of the total traffic compared with the 52% in third quarter 2008.
Domestic traffic in turn rose to 51.5% of total traffic from the 42.9% in year ago quarter. Here, the difficult macro economic environment in Mexico with the loss of some airlines and the reduction in flight frequencies has continued to impact domestic traffic.
We do not believe this will change in the short term. In summary, we expect the total traffic to remain weak, up to the beginning of the winter season.
Total revenues fell 2.67% this quarter, driven by declines of 3% in aeronautical revenues and 1.85% in non-aeronautical revenues. Commercial revenues fell slightly 0.20% year-on-year.
Commercial revenues per passenger however rose 14.88% to Ps.55.88 per passenger, as a result of the positive impact of the 23% depreciation of the peso against the U.S. dollar, in the last 12 months as contracts with some concession holders are denominated in U.S.
dollars. This was a 13% improvement from the Ps.48.64 per passenger posted in the third quarter 2008 and 15% higher than the Ps.49.29 recorded in the second quarter 2009.
Operating cost and expenses for the quarter declined 2.23% year-on-year. Cost of services was down by 9.42% reflecting savings in energy and cleaning services.
During the quarter we reassigned some of our operating employees of Cancún network to corporate, which resulted in an increasing administrative expenses. But keep in mind that this is just an accounting reclassification and has no impact in total cost and expenses for the quarter.
Technical assistance costs and concession fees also posted an increase driven by the declining revenues. In summary, operating profit for the quarter fell year-on-year by 3.36% to 278.35 million reflecting the 2.67 decline in revenues which more than the offset that 2.23 reduction in costs.
This however was a 14.4% improvement from the 243.3 million posted in second quarter 2009. Operating margins for the quarter stood at 38.95% compared with the 39.22 in third quarter 2008.
This quarter we made capital investments of Ps.98 million, mainly on the second runway of Cancún Airport which was inaugurated as planned this week, and which represents an investment of approximately $67 million. As you may have seen on the release with this new runway we have doubled the runway capacity of Cancún Airport from the current 14 million passengers per year to approximately 28 million.
This is very important as the peak we were operating at around 13 million passengers at this airport. Moving on to our balance sheet, we leveraged our balance sheet last quarter but we're still maintaining a very strong financial position.
We closed the quarter with cash and short term investments worth Ps.1,239 million, a 30% decline year-on-year, the majority of which remains in short-term investments. Remember that in second quarter we paid Ps.1,884 million in cash dividends.
At the end of the year -- at the end of the quarter, ASUR had a total bank debt of Ps.604 million, under a 750 million three year credit agreement in which we entered into in May 2009 with our group of banks. But still Ps.150 million are available for additional borrowings to fund capital expenditures related to the master development plans.
Now let me open the floor for questions. Please Veronica, go ahead.
Operator
(Operator Instructions). And the first question comes from the line of Steven Trent.
Please proceed.
Stephen Trent - Citi Investment Research
Good morning, Adolfo. And thank you for the color.
I was curious with respect to activity related to the Riviera Maya Airport bid, if there is any update as to what's going on.
Adolfo Castro Rivas
Thank you Stephen. Good morning.
Well, the latest information that we have about the Riviera Maya, is comments from the authorities, basically from the SCT, the Communications and Transport Secretary, saying that they will be making the bidding process during November. Of course, we do not have an official date or an official document in relation with these Riviera Maya project.
Stephen Trent - Citi Investment Research
Okay, fair enough. And with respect to Cancún Airport itself you made it very clear that the capacity is being expanded in terms of runways.
Are there other areas that might also need to expand, either additional terminal expansion, which I know you recently opened a new terminal or maybe a different -- or excuse me additional capacity on the traffic controller side, on a personnel level? Anything else you think is sort of missing from the formula or are we -- is Cancún itself sort of clear to the to actually begin receiving more flights?
Adolfo Castro Rivas
Okay, the situation is the following. Today we are managing around 11.5 million passengers, if we see over the last 12 months, okay.
If we see the peak, the peak was March 2008, February 2009 where we were very close to 13 million. And that's why we decided to increase the runway capacity because the runway was limited to 14 million passengers.
Today we have terminal capacity for more than 17 million passengers. So if we make a very simple calculation, we have airport for many years to come.
Stephen Trent - Citi Investment Research
Okay, very clear. Thanks very much, Adolfo.
Adolfo Castro Rivas
You are welcome.
Operator
Your next question comes from the line of Mauricio Santos, GBM. Please proceed.
Mauricio Santos - GBM
Hi, Adolfo. Good morning.
Adolfo Castro Rivas
Good morning, Mauricio.
Mauricio Santos - GBM
I had a couple of questions. The first was regarding commercial revenues.
What was the reason behind the increase in direct operations? Did you sell -- you sold any advertisement space or it was in decision (ph) or contracts?
And the second question would be about the taxes. Can you find any -- moving to the statement of cash flow.
I couldn't can you find any provisions of taxes, and well -- okay, that's it?
Adolfo Castro Rivas
Okay, Maurice. In the case of the commercial revenues, we have been working very hard in order to increase our commercial revenues per passenger.
You know that this is one of our objective as a company. In the case of the operations, the direct commission operation, we made a lot of effort in our stores in order to sell more.
I have to say that, due to the decrease in passengers, probably the service that we provided to the passengers was better and that's probably why we were able to increase the commercial revenues per passengers in our stores. And in the case of advertising, which is part also of our commercial direct operations, I have to say that there were no major improvements during the quarter.
In the case of taxes, IETU taxes is very high for the quarter as it has been for the year. And I would say that probably it's going be almost the same as during the fourth quarter.
The situation is the following, we are paying in all of the airports we have to the flat tax rate and also we have to record deferred taxes in terms of corporate rate and also in terms of the flat rate. On top of these, we're recognizing or we're sending a piece of the asset tax (ph) that we have paying that, because we believe that we will not be able to recuperate this in the future.
As you can see this was a on a month of almost Ps.10 million. The situation is very strange and it's hard to forecast how the future is going to be.
What I can say to you is if we continue to pay IETU tax in all of the airports, you will see more or less the same effective rate as what we are seeing today. I have to say also that there is an initiative in the Congress today that will increase the corporate tax from 28 to 30% for next year.
So taxes is going to be a tough line for the future.
Mauricio Santos - GBM
Okay. And I got a follow-up on that, on this issue.
There is also proposal from Congress regarding a change in the consolidation of fiscal losses. Does this -- would the effect the company considering that you consolidated on the --?
Adolfo Castro Rivas
No, we do not have tax consolidation. We applied in the past for that and the authorities basically reject our request.
Of course, today is not worth to fight against that anymore. And no, we do not have tax consolidation.
Mauricio Santos - GBM
Okay, thank you Adolfo.
Adolfo Castro Rivas
You are welcome.
Operator
Your next question comes from line of Kwon Asoma, (ph) Credit Suisse. Please proceed.
Unidentified Analyst
Hi Adolfo. Just one quick question.
We saw important energy reduction costs for the quarter. Can you give any additional color on whether you think these reductions are sustainable for the next year?
Adolfo Castro Rivas
Yes, good morning, Kwon. Well in the case of energy, we have some -- we have basically two effects.
The first one was a decrease in the price of the energy at the beginning of the year. In January -- in the third of January, the President of Mexico made a decree where they were reducing the cost of energy by 17%.
The increase that we have in the cost of energy last year was very, very high. From the top of my head, it was almost 42% increase last year.
That's one piece of the process. The second one is that we are working very hard to make reductions in energy consumption along all of the airports, basically improving facilities and improving the efficiency of air conditioner which is the highest consumption that we have at the airports.
Also I have to say that we are working in new activities in order to reduce more the energy consumption. We were working in order to change the lighting of the airports from the regular bulb (ph) lamps that we have today to LED.
Also, I have to say that for next year we will have additional consumptions resulted from the second runway of Cancún Airport, of course. So that's why I can say today, I hope that cost of energy will not be increased in the future from the government.
Unidentified Analyst
Okay, great. Thanks.
Adolfo Castro Rivas
You are welcome.
Operator
The next question comes from the line of Juan Carlos Mateos. Please proceed.
Juan Carlos Mateos - BBVA Bancomer Casa de Bolsa
Adolfo, good morning. Juan Carlos Mateos from Banco BC.
Adolfo Castro Rivas
Juan Carlos, good morning.
Juan Carlos Mateos - BBVA Bancomer Casa de Bolsa
Good, how about you? I have just a quick question on the commercial revenue per passenger, I mean it's been an almost eight years in November that the Cancún Airport helping centre was opened.
And looking at the number for the nine months through September 30, if we look even after the petrol depreciation, your commercial revenue for passenger including both the direct and the not-direct operations, the number is about $4.50 per passenger, which way back when the company was listed was more or less the target that -- the long term target that the company had. Now that after eight years of operation and of course there must be some plans to expand, to refurbish the shopping centre.
But can you tell us what will be the new target or is this still -- are you satisfied with this first US$4.50 per passenger, or what would be the next turn, I mean like the next step or medium term goal for this commercial revenue per passenger?
Adolfo Castro Rivas
Well, I don't have any specific numbers to share with you. Of course, you are and you haven't right to say that regional objective that we placed was $4.
Today we're at more than $4.50, including the peso depreciation and all of these. What I can say to you is that we believe that we can do better, of what we are doing today.
As you have seen during that quarter, probably the result of a better service or a less congested airport, than putting that way resulted in an increase in the commercial revenue per passenger, which is our -- at the end is our objective. I think that we can do better.
And also I have to say that in the case of small airports, as soon as they increase or they have more passengers, let's say more critical mass, we will be able to manage better numbers. Let me be clear on this.
If we seeing an applicant which has probably today five flights a day or three flights a day, you are not able to offer to much to the customer. If we compare that with Cancún, where you can have 440 flights a day, you can offer a lot of different products.
So once Minatitlán starts growing and the rest of the airports we will be able to offer more products to the passenger and these will have an impact on the commercial revenue per passenger. Again, what we can say is that we believe that we can do better and these numbers should be increasing in the future.
Juan Carlos Mateos - BBVA Bancomer Casa de Bolsa
Thank you Adolfo.
Adolfo Castro Rivas
Thank you, Juan Carlos.
Operator
Your next question comes from the line of Luis Miranda, Santander. Please proceed.
Luis Miranda - Santander Central Hispano
Hi, Adolfo. Good morning.
Adolfo, I have a couple of questions. The first is on Cancún visibility.
I know that the visibility overall is low in terms of the number of flights you will be receiving. But I understand also that there is sometimes more flights that are scheduled previously.
I would like to know in a bank of the high season, either in the domestic or international market you are seeing some recovery in the number of flights for November and December. And the other one in the commercial side, while you opened four new operations during the quarter.
Again do you expect to open some new operation during the current quarter.
Adolfo Castro Rivas
Okay Luis. In the case of the future, in the case of the passenger traffic for the future, what I believe is that we should be very close to the end of negative numbers.
Today that we are being affected by the H1N1 virus in the case of the international traffic and the domestic economic crisis. For the future what I expect is that the H1N1 will disappear and then we will see a recovery from international side, but not in the case of the domestic.
What I believe is that the domestic traffic will remain weak for most of the next year. In terms in the commercial revenues, what I can say is we continue to work very hard on that and that the opening spaces normally are resulted from a normal operation.
I don't see too much openings for the future in the short term. The only spaces that we'll be opening in commercial revenues during next year and may be at the end of next year will be additional spaces that we will be constructing in the case of some where is more terminal, one example is Veracruz.
Veracruz will have a major expansion in comparison with the current space that we have to date. Not in the overall picture and but yes, Veracruz will have an expansion in commercial revenues next year and probably the year after Huatulco and Villahermosa.
Luis Miranda - Santander Central Hispano
Thanks, Adolfo.
Operator
(Operator Instructions). And your next question comes from the line of Stephen Trent with Citi.
Please proceed.
Stephen Trent - Citi Investment Research
Good morning again Adolfo. Just a follow up question if I may.
When H1N1 first broke out this spring, you saw the Mexican government basically telegraphing that it was extending certain levels of aid, may be tax breaks to the airlines and may be some to hotels and there also seem to be a bigger advertising apparatus to help mitigate the outbreak. Do you have any sense as to where we are with this now?
Whether this programs in your view have really fulfilled what they were suppose to have fulfilled from at least a monetary and expenditure standpoint on the government's part?
Adolfo Castro Rivas
Well, I have to say that when we are talking about H1N1 virus we are not talking about crisis, we are not talking about economic factors. So I believe that in the case of the international traffic, they didn't come not because of the price, they didn't come because of the outbreak itself.
On the contrary in the case of the domestic, I have to say that these plans had an impact, a positive impact during the summer. We saw a recovery from the domestic side during the summer, especially in the case of Cancún.
For the future again, I don't believe that a difference price from the airlines, nor from the airports will make any major change in the case of an outbreak of H1N1. It's a different story.
Stephen Trent - Citi Investment Research
Okay, fair enough. Thank you again, Adolfo.
Adolfo Castro Rivas
Thank you.
Operator
(Operator Instructions). And your next question comes from the line of Ati Sierrada, IXT (ph).
Please proceed.
Unidentified Analyst
Hi, good morning Adolfo. Regarding the permit you got from a tour to promote development in Huatulco, have you been given permission to expand it, to extend it one year, how is that going?
And other question is you have intend -- you have plans to built a hotel in the Cancún Airport, is that still on?
Adolfo Castro Rivas
Well there are some -- let me start from your second question, there is a lot of projects that are being reviewed by our Board of Directors today. In the case of hotels, we continue to believe that we can have some kind of facilities in the airport or basically crews that should be there instead of being in a very fancy or expensive hotel at the beach.
So in the future what I believe is that yes we will have someone making or constructing a hotel in the airport. I don't believe that we're going to be ones who construct this.
In the case of Huatulco, yes you are right. We received an extension from Fonatur for the period to construct 450 hotel room.
And this was basically the result of the economic environment. And we are working in that specific project.
We finalized the master development plan. We presented that to Fonatur.
It was approved. Then we proceed with image and the beginning of putting all together, in order to be able to able to attract someone.
What I have to say to you is that during this summer we made some approaches with some tourist operators and tourist managers and basically their answer was hold one second because the situation is not the best. Today we expect -- I think that once this H1N1 outbreak ends and we see the international recovery, we will be able to attract someone to construct the hotel in Huatulco.
For the moment, we are not in a hurry and we are not pressured by the authorities because they have extended the period.
Unidentified Analyst
Okay, thank you.
Adolfo Castro Rivas
Thank you.
Operator
(Operator Instructions). Ladies and gentlemen, this ends the question-and-answer session.
I will now turn the call over to Mr. Adolfo Castro for closing remarks.
Please proceed, sir.
Adolfo Castro Rivas
Thank you Veronica. As you have seen despite the 14% decline in passenger traffic for the quarter resulting from the H1N1 influenza and the economic crisis in Mexico, ATA margin grows 1% to 60.83% from the 59.8% in a year ago.
This was mainly due to the efforts of Grupo Aeroportuario cost structure to the challenging environment. Looking into the future, the fundamentals of our business remain strong.
We expect to see a recovery in the winter season as international passenger traffic peaks up. Thank you for your attention and being here with us on a conference.
Have a good day.
Operator
Ladies and gentlemen, that concludes press conference. Thank you for your participation.
You may now disconnect. Have a great day.