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Operator
Good morning, my name is Cara, and I will be your conference operator today. At this time I would like to welcome everyone to the ASUR Second Quarter 2007 Earnings Conference Call.
(OPERATOR INSTRUCTIONS)
Thank you Mr. Castro, you may begin your conference.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Thank you. Good morning everybody. This is Aldolfo Castro, Chief Financial Officer of ASUR. Welcome to the discussion of our results for the second quarter 2007. 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 an explanation of these risks please refer to ASUR's filings with the Securities and Exchange Commission and the Mexican Stock Exchange. Today I will start with a discussion of the progress made to date at Cancun Airport and where we stand with respect to the potential second airport in Quintana Roo and will then come into Fernando Chico Pardo's offer.
As usual I will start with a brief operational overview then move onto a brief review of the results of the quarter and finally open the floor for questions. As you most likely know on May 17 we opened Terminal 3 at Cancun Airport. The new terminal represented US$93 million investment and has allowed us to double the international passenger traffic capacity at Cancun Airport.
That means adding capacity for an additional six million passengers per year. The facility has coverage area of more than 42,000 square meters, 84 check-in counters and platform equipped with 11 gates. It also includes security equipment including the first CT scanning system in Mexico for all checked baggage. This new facility has enabled us to reduce the congestion in our terminal buildings, and provide a better service level to our passengers.
As you have seen in the press release commercial revenues increased significantly in the period. In fact this new terminal building has ten new food and beverage commercial spaces, nine retail and other commercial spaces including a duty-free shop, convenience stores and exchange booths and several gift shops.
As it relates to the second airport in the Riviera Maya last week the Mexican government announced a national infrastructure development plan. The plan includes a project for international airport in the Riviera Maya region. This plan does not have an exact location but using the map that was included in the document this new airport should be located close to Tulum. The plan calls for a two-year development period beginning 2008 with a total estimated investment of US$172 million. The plan also includes the possibility of relocating the existing [Merida] airport.
As to regards to the progress of the tender offer launched in May of this year, Aeroportuaria Internacional II, the company indirectly owned and controlled by Mr. Fernando Chico Pardo, informed ASUR of the results of the tender offer on June 19th, a total of 12.56% of ASUR's outstanding capital stock was tendered and accepted for payment in the offers. The tender security includes Series B shares and ADS's previously owned and directly by Mr. Fernando Chico Pardo and Copenhagen Airport. As a result ITA retains ownership of BB shares representing 7.56% of ASUR's total capital stock.
Mr. Chico Pardo continues to own 51% of ITA, and beneficially owns Series B shares representing 19.91% of ASUR's total outstanding capital stock. The remaining 72% of ASUR's capital stock remains publicly held through the New York Stock Exchange and the Mexican Stock Exchange.
Let me discuss the results for the quarter. The numbers are in yesterday's press release. Once again, we reported a strong passenger traffic growth, up by 15.29% during the quarter. International passenger was up by 8.52% while domestic passenger rose by 25.51%. Passenger traffic for the quarter at Cancun and Cozumel Airports was up by 13.8% compared with a decline of 6.9% in the second quarter 2006.
Traffic also benefited from the growth of 42.97% at Veracruz Airport reflecting the new routes operated by local carriers. Passenger traffic at Oaxaca continues to be impacted by the ongoing public demonstrations in the region, which began during the second half of 2006. At this moment we are unable to predict whether or how the situation will be resolved or how the ongoing demonstrations may affect our operations.
Total passenger traffic grew year-over-year by 17.8%, 8.9%, 3.6% for the months of April, May and June respectively for passengers to and from the United States. International passenger traffic accounted for 56.6% of the total traffic of the quarter, compared with a 60.13% during the second quarter 2006.
Much of this growth reflects a strong increase in domestic traffic during the second quarter. Passenger traffic between Mexico, Canada and the United States represents 90.2% of the total traffic. Total revenues rose by 17.45% this quarter, mainly driven by the 11.65% in aeronautical revenues. Commercial revenues rose 32.68% with revenues from direct operations down 9.21% reflecting the strategy to discontinue direct operations of three restaurants and bars.
Commercial revenues per passenger rose 15.12% excluding the impact of the discontinuation of the direct commercial operations, revenue per passenger rose 25.14% to MXN36.14. This is above the 29.22% posted in the first quarter 2007, and the 28.88% recorded in the second quarter 2006.
This improvement mainly reflects the opening on Cancun's Airport new Terminal 3. Operating margin for the quarter in turn rose to 43.75% from 40.89% in the second quarter 2006, driven mainly by the strong increase in revenue, which more than offset the 11.76% rise in cost of services. This absolute increase in costs mostly resulted from the higher insurance premium, expenses required to comply with Sarbanes-Oxley requirements, and higher concession and technical assistance fees, and of course the result of opening Cancun Airport Terminal 3.
As a percentage of revenues, however, cost of services for the quarter declined to 56.2% from 59.1% in the year-ago quarter. Net income rose by 29.8% to MXN234 million during the quarter. And during the quarter we have made investments of MXN127 million. Now let me open the floor for questions. Please go ahead.
Operator
(OPERATOR INSTRUCTIONS)
Your first question comes from the line of Vanessa Quiroga.
Vanessa Quiroga - Analyst
Hello, Aldolfo. Congratulations on the strong improvement especially in the commercial segment. I wanted to ask you with regards to the airport in the Mayan Riviera, what probability do you see today of being awarded this concession directly without any bidding process and the probability -- if you see any probability still of substituting the construction of such airport by a light train? Thank you.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Hi, good morning, Vanessa. I don't see any chance to receive this concession directly from the government. The airport law in Mexico it states very clear that concessions cannot be granted without a bidding process directly to a concessionaire. So what I think is that this concession will be subject to a bidding process and if the document is right this will happen in 2008.
With respect to the light train and the second airport of the Riviera Maya these are two completely independent projects, so I don't see one in the exchange of the other.
Vanessa Quiroga - Analyst
Okay. And only -- a second question, do you have any color on why we have seen the change in mix in the Cancun Airport with regards to domestic versus international passengers, and if you think this is permanent? Thanks.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well, what I'm seeing is a complete change in the passenger mix since the month of May. This is the combination effect of the strong increase in domestic, but the important thing is that I am seeing a weaker U.S. passenger traffic. And probably this is the result of, I would say, the problem that the U.S. government has today with its passport control. They have, as far as I understand, they have around 2 million passports in process or in progress that they have not been able to deliver on time.
Vanessa Quiroga - Analyst
Okay, thanks.
Operator
Your next question comes from the line of Gonzalo Fernandez.
Gonzalo Fernandez - Analyst
Good morning, Aldolfo, also congratulations on the results. One question, could you elaborate on this idea of relocating the Mayan airport by law, by regulation that would have to be made by ASUR, and in that case how do you expect the government to compensate for that additional capital, direct source, something different?
And the question is, if you have a sense if the proposed new tax [setu] -- would increase or lower your tax rate compared with the asset tax and the combination of asset tax and income tax that you anticipate?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Okay. Good morning, Gonzalo. In the case of the relocation of the Mayan airport this was a project generated by the current governor that will leave office next week. This project is under a study and that's how the project was introduced in this new document. If that is the case or if that happens these projects will be funded completely by the government. And once they finish with this new airport that will have at least the same conditions that we have today in the current airport, they will have to transfer that airport to us and the current one will be closed.
In the case of setu what I can say to you is that in accordance with our estimated numbers this new tax will have a negative impact in ASUR in total. It will have a positive impact probably for three to four years, and then it will be completely negative for the rest of the concession period that we have. If we see these on a net present value that's a negative impact for the company.
Gonzalo Fernandez - Analyst
Okay, that's very clear. Thank you, Aldolfo.
Operator
Your next question comes from the line of Sara Delfim.
Sara Delfim - Analyst
Yes, I have two questions. One about the Terminal 3 in Cancun, how many slots could there be still added considering the total area or it's already fully occupied with the slots during this period? That's the first question.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Yes, Sara, when you are talking about the slots what's the definition of a slot for you?
Sara Delfim - Analyst
Including stores, restaurants.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Okay. Now everything is completed.
Sara Delfim - Analyst
Okay.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Between brackets, of course. I am not saying we cannot have one thing here and there from time to time, but we see the main physical space is completed.
Sara Delfim - Analyst
Okay. And the second question about the new runway to start in 2008, could you give us a sense of your current capacity utilization for the existing runway and the expectation for the first year of operation for the second runway? If -- I mean you are expecting new flights or new routes to be absorbed by this runway in Cancun, also considering the hotels' capacity in the region.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well, today we do not require a second runway. We are very close to let's say the full capacity of the second runway and we think that we will be full in the year 2009, and that is why we are constructing the second runway today. So in my opinion, once the second runway is open that will not have an impact on the normal growth in operations for our Cancun Airport.
So what I'm trying to tell you is that today we are not obstructing the growth in the region due to the lack of capacity. We have enough capacity today, and we will have enough capacity in the future to support the normal growth in the region.
Sara Delfim - Analyst
Okay, thank you.
Operator
(OPERATOR INSTRUCTIONS)
Your next question comes from the line of Steve Trent.
Steve Trent - Analyst
Good morning, Aldolfo. Hi, just one or two quick ones for me. With respect to the light rail plan for Cancun could you please refresh our memories as to what's the basic idea in terms of timing, investment levels and the participation by third parties?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Okay. This is again a project that we are promoting. This is not a project that we will do on our own completely. If we talk about times and investments we have a story that today tell us that we can take a passenger from Cancun Airport to Playa del Carmen in 12 minutes, investing between $800 million to $900 million. Probably that's too much.
If we go to the following, let's say technology in terms of trains they can be there in 25 minutes and probably the investment should be around $500 million, $600 million.
Steve Trent - Analyst
Great. Thank you very much.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
You're welcome.
Operator
(OPERATOR INSTRUCTIONS)
Your next question comes from the line of [Thomas Lahaise].
Thomas Lahaise - Analyst
Hi, Aldolfo, good morning. A couple of questions, the first one is if you can give us an update of how the second runway is coming along and the injunctions and everything. And when you can expect completion, and if there's any change in that.
And the second one is, now that you had Terminal 3 opened for I guess a bit, if you can give us a sense of how much cost impact or margin impact you're seeing from this now.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Okay, let me tell you that in the case of your second question I am not getting the exact meaning of your question.
Thomas Lahaise - Analyst
How much have overall costs increased at Cancun with the opening of Terminal 3?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Okay, the cost of Terminal 3. Well, in the case of the second runway, today we are constructing this Cancun runway and we do not foresee any problem to continue with the construction of the second runway. There are some legal process in some of the land that is required to operate the second runway. But in the case of the construction, we have enough space to do that. So personally, I do not expect any particular problem during the construction process.
In the case of the cost of Terminal 3, this terminal has been open during the second quarter but it's clear that opened at the end of the second quarter. So in order to see the real new costs or the real additional cost that this Terminal 3 will bring to Cancun Airport, we will have to wait until the third quarter. I think that the third quarter will be a better picture of the one that we are seeing right now. I have to say that most of these additional or incremental cost is related to security, to cleaning, to energy, and to the security baggage screening process. But during the third quarter we will receive the full cost of this building.
Thomas Lahaise - Analyst
So far since you've been open this hasn't surprised you either on the high side or the low side?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well, the only thing that I'm probably concerned about today is energy. Just to give you one number the cost of energy today is double what it was in January for the entire airport.
Thomas Lahaise - Analyst
Thank you, Aldolfo.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
You're welcome.
Operator
Your next question is a follow up from the line of Vanessa Quiroga.
Vanessa Quiroga - Analyst
Yes, Aldolfo I wanted to see if you can give us an update with regards to any investments that ASUR is thinking of doing either in Mexico or abroad, and any change in the leverage of the company? Thanks.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
No, for the moment we do not have or we are not seeing any project outside Mexico. So for the moment I do not expect to have any in the short period.
Vanessa Quiroga - Analyst
And with regards to financial leverage, Aldolfo?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
We continue with the study of how to improve the financial structure of this company.
Vanessa Quiroga - Analyst
Okay, thanks.
Operator
Your next question is a follow up from the line of Sara Delfim.
Sara Delfim - Analyst
Yes other questions, one do you have a number for the market share of the low-cost operating your domestic traffic?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
I do not have the number for the domestic, but probably you can make it if I tell you that for the month of June low-cost carriers in ASUR represented 7% of the total traffic.
Vanessa Quiroga - Analyst
Okay, and another question if you could confirm the total investment schedule for 2007 and for 2008?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Yes, in the case of 2007 and 2008 that will depend on the speed of the construction of the second runway. But I can say to you that number should be something like $110 million for both years.
Sara Delfim - Analyst
Each year?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
No -- for both.
Sara Delfim - Analyst
For both?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Yes.
Sara Delfim - Analyst
Okay. And the last question, I'm confused about the railway from Cancun to Mayan Riviera. In case the new airport is confirmed, I mean if there is a bidding process for this airport would you go ahead with this train or you would suspend this project?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Once again, these two projects are completely independent from each other. Just to give you an idea, today our passengers have to pay $100 to get Playa del Carmen. We think that we can do better and they deserve a better service, so that's why we are promoting this project since three years ago.
Sara Delfim - Analyst
Okay, thank you.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
You're welcome.
Operator
Your next question comes from the line of Nick Sebrell.
Nick Sebrell - Analyst
Hi, Aldolfo, how are you doing?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Hi, Nick, fine and you?
Nick Sebrell - Analyst
I'm good. Just actually really one question that's on the sustainability of commercial revenue that we saw in the second quarter, relative to the second quarter what do you think we can -- how much can we assume that carries over into the third quarter? What do you think the seasonality will be?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well, what I think is that commercial revenue per passenger in the third quarter will have to increase of what you have seen during the second quarter. Once again, I think that we can do better. We're doing better. Terminal 3 is working very nice and not just that, that has implicated a relief in Terminal 2 which will mean an increase in commercial revenue per passenger. Terminal 2 was completely congested, and that was why some of the passengers were not able to buy products.
Nick Sebrell - Analyst
Thank you.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
You're welcome.
Operator
(OPERATOR INSTRUCTIONS)
Your next question is a follow up from the line of Gonzalo Fernandez.
Gonzalo Fernandez - Analyst
Hi, Aldolfo, also to follow up on the question on energy costs. How much does energy cost represent approximately of your total costs?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well probably, and this is from the top of my head, 8%.
Gonzalo Fernandez - Analyst
Three?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Eight.
Gonzalo Fernandez - Analyst
Eight, okay thank you Aldolfo.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
You're welcome.
Operator
Your next question is a follow up from the line of Nick Sebrell.
Nick Sebrell - Analyst
Hi, thanks for the follow up. Regarding the two new airports that are in the northwest of the country, I think it's if memory serves Mar De Cortez and [Sanata] is there any interest --? I mean those would obviously go to a public bidding process similar to the second airport.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Not really.
Nick Sebrell - Analyst
Yes, okay. But in terms of a bidding process what kind of interest do you think there would be in any of the three new airports? Do you expect it mostly to be domestic players, international players or do you have any feel?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well, what I believe, or what I know is that some of those airports are not going to be made by a bidding process. Again that can happen if the government will own most of the equity of the airport. So with a 51/49% you don't need a bidding process. And you can see that today in Toluca. You can see that today in Puebla. And as far as I understand you can see that in Puerto Penasco.
Nick Sebrell - Analyst
Okay, and is your expectation that the two new airports in the northwest would probably go under that 49 or --?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Probably those are going to be with the same scheme.
Nick Sebrell - Analyst
Got it. Thanks.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
You're welcome.
Operator
(OPERATOR INSTRUCTIONS)
Your next question comes from the line of [Mauricio Santos].
Mauricio Santos - Analyst
Hi Aldolfo, good morning.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Hi, good morning.
Mauricio Santos - Analyst
I was wondering could you repeat the cost of the train, different trains?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well, it could go from US$900 million, up to US$600 million.
Mauricio Santos - Analyst
Thank you very much.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
You're welcome.
Operator
(OPERATOR INSTRUCTIONS)
Your next question comes from the line of [Roger Sachs].
Roger Sachs - Analyst
Hi, Aldolfo, a quick question on the energy cost you just mentioned. That's approximate 8% of sales or was that 8% of total cost? Could you just clarify?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
It's 8% of total operating cost.
Roger Sachs - Analyst
Okay, and that is as of right now for the second quarter? And where was it during first quarter just so we get the comparison of the energy cost doubling.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well, the number I remember from the top of my head is the one that we had for Cancun Airport in January. And the one that we had in June for the same airport and the cost in June was double of what we saw in January.
Roger Sachs - Analyst
Okay, and there's no way to approximate how much of that is due to Terminal 3 is there?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
No, and of course a portion of that has to do also with weather.
Roger Sachs - Analyst
Of course.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
The weather in January is not the same as in June, but I have to say the increase -- it's significant.
Roger Sachs - Analyst
Okay, and just lastly on this -- on a more of a normalized run rate basis there would it predict what it has been historically as a percent of total cost?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Yes we will have to see and wait -- we will have to wait and see during the third quarter. And let me tell you why, because I really don't know today if a portion of these energy resulted from the construction itself of the building, compared with the normal operation.
Roger Sachs - Analyst
Okay, fair enough. Thank you.
Operator
Your next question is a follow up from the line of Thomas Lahaise.
Thomas Lahaise - Analyst
Hi, Aldolfo. We've been talking a bit about this infrastructure plan, and I just want to ask what's your take on the Mexico City Airport and the sort of missing $3 billion from the infrastructure plan?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well, what's my role in Mexico City Airport or what's the plan?
Thomas Lahaise - Analyst
What's your --?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Well my view -- my view has been the same since two, three years ago. These additional or these new building in Mexico City Airport will not solve the problem of Mexico City Airport. Give some kind of relief to this airport, but this airport will be congested again once these buildings are open. So what I believe is that the government, the current government will have to give a real solution to this airport and this real solution could be the construction of new airport somewhere.
Thomas Lahaise - Analyst
Okay thank you.
Aldolfo Castro - Chief Financial and Strategic Planning Officer
You're welcome.
Operator
(OPERATOR INSTRUCTIONS)
And it appears that there are no further questions, sir. Do you have any closing remarks?
Aldolfo Castro - Chief Financial and Strategic Planning Officer
Okay, thank you to everybody, and sorry once again for the technical problem that we had at the beginning of this conference. Thank you for your attention. Have a good day. Bye.
Operator
This concludes today's conference call. You may now disconnect.