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Operator
Good day, ladies and gentlemen, and welcome to the ASUR Second Quarter 2010 Results Conference Call. My name is Veronica, and I will be your coordinator for today. At this time, all participants are in listen-only mode. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions).
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 - CFO
Thank you, Veronica and good morning, everybody. Thank you for joining us today for the conference call for our second 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 an explanation of these risks, please refer to ASUR's filings with the Securities and Exchange Commission and the Mexican Stock Exchange.
I will start today's call by discussing passenger traffic performance and the result for the quarter. I also want to briefly comment on recent developments, Copenhagen Airport's agreement to sell its interest in ITA to our CEO and Chairman, and the launch of the bidding process for the second airport in Riviera Maya.
As expected, this was an excellent quarter with better strong passenger traffic growth, up by 26.8% year-on-year. This compares with a decline of 27% in the second quarter for 2009, and the 3.6% in first quarter 2010. Within the quarter, traffic fell 0.9% in April, bouncing back to an 85.5% increase in May, and 25.5% in June.
We have 37.8% recovery in international traffic over the last year's weak figures, which were affected by the H1N1 influenza outbreak in April 2009, and the economic crisis was a key factor driving this performance. All airports, with the exception of Oaxaca reported international traffic, positive comps.
Domestic passenger traffic also contributed to the increase, although at a lower growth rate damped by the high domestic airlines fares, and the slow economic recovery. All airports reported domestic traffic growth with the exception of Tapachula. In fact, this was Cancun's airport third consecutive quarter of positive domestic passenger traffic since the influenza outbreak last year.
And of course, traffic also benefited from the recovery of domestic routes lost in November 2008, when ALMA Airlines ceased operations. As a result, international passenger traffic rose to 59% to total traffic from 54% in second quarter 2009. Passenger traffic between Mexico and Canada and the United States represented 78% of total traffic, compared with the 64% in second quarter 2009.
Looking ahead, we expect positive traffic figures driven principally by easier year-over-year comps. Consolidated revenues increased 32.5% this quarter, driven by an increase of 34.1% in aeronautical revenues, and 29.6% in non-aeronautical revenues. Commercial revenues for the passengers were quite strong, up 30.9% year-on-year to 61.17% and very close to the record high of 61.34% achieved in fourth quarter 2009. This compares with the 59.29% per passenger in second quarter 2009.
We also continued expanding commercial space, adding five new current exchange spaces in April at our smaller airports. Operating cost and expenses rose 11.5% year-on-year this quarter. Additional energy consumption from operation of the second runway at Cancun Airport launched last October was the key driver behind this cost increase, but we continued to focus on maintaining a lean cost structure throughout the company.
Operating profit for the quarter rose an impressive 70.2% to MXN414 million, as increasing revenues more than offset the higher cost. Operating margin increased 1,019 basis points to 46.1%. EBITDA margin was also strong, up 373 basis points to 62.8%. This quarter we've made capital investments of MXN123.4 million, as we continue with the terminal expansions in Veracruz, Villahermosa and Oaxaca airports begun in the first quarter of this year.
In terms of our balance sheet, cash and short term investments at the end of the quarter declined 31.2% to MXN670 million, as we paid MXN750 million in cash dividend and made capital payments of MXN309 million on bank debt this quarter. In fact, total bank debt at the close of the quarter fell to MXN181.8 million.
Before opening the floor for questions, let me briefly discuss a couple of recent events. On May 11, the [SET] launched a bidding process for their work of the concession for the construction of operation and management of the international airport in Tulum, in the Riviera Maya region. We're interested in participating in the bidding process, but this is all what we can share with you at the moment. This is a confidential process, and any comments on our part could result in our disqualification from the bidding process. We expect that the SET will announce a final decision late this year or early 2011.
As announced on June 22nd, Copenhagen Airport has entered into an agreement to sell its 49% interest in ITA, our strategic shareholder, to its local Mexican business partner and ASUR's CEO and Chairman, Mr. Fernando Chico Pardo. This operation is still subject to Mexican authorities' approval.
Now, let me open the floor for questions. Please Veronica, go ahead.
Operator
(Operator Instructions).
And your first question comes from the line of Nick Sebrell from Morgan Stanley. Please proceed.
Nick Sebrell - Analyst
Hi, Adolfo. I was wondering if you could start out with discussing the decline in depreciation that we saw, whether that is -- I read what you wrote in the press release, but I was also wondering whether there was an extension or change in the appreciation term of some of the items you have, and whether we'll see similar depreciation levels, do you think, in future quarters, or that might change?
And then, I was wondering if you could say anything about the tariffs. Given that the economy was rather poor last year, and as well you're facing a second airport, which obviously changes the economic equilibrium of your business, is it possible that you'll negotiate or renegotiate the tariff revision going forward?
Adolfo Castro - CFO
Hi, good morning, Nick. In terms of the depreciation, of course you know that the depreciation is the result of the calculation about the asset that we have and the asset that we're including, or the asset that we are adding to the infrastructure. The depreciation, the decline today means that if you go back to the history of this company, some of the concessions have 10, 11 years amortization periods. So, what we are seeing is that some of these have concluded their life into the depreciation process, and what we are adding today is not higher than what is finishing. That's the real reason.
In terms of the tariffs, you are absolutely right, that our concession title has that possibility, and the possibility is that we can ask for a maximum tariff revision, because of an extraordinary case, which was the reduction in the Mexican GDP for more than 5% last year. This is something that we have requested in one of our efforts for the moment, which is the case of the airport of Veracruz.
Basically, what we are requesting is a diminishing of the investments due to the fact that the passenger traffic demand is not the same as what we expected when we made the plan. And this will affect, of course, the capacity. So today, we have excess capacity in comparison of what we expected. And because of this, we are asking them to reduce the investment or not to reduce in terms of concepts, reduce in terms of amounts, but basically to delay the project for some years. We have not received an answer yet from them, and we will keep you posted on these during the third quarter.
Nick Sebrell - Analyst
Okay, and your tariffs would be on an airport-by-airport basis? So, for example -- or the MDP, whatever side you're choosing to address. So, Veracruz is one airport, and you could do other airports as you decide.
Adolfo Castro - CFO
Yes, but basically the effect on the tariffs will be the result of a CapEx diminishing, and CapEx diminishing will be originated if the capacity is not the same as expected, or the capacity utilization is not as expected. So, we decided to start with Veracruz because that's the one who is most affected in terms of passenger traffic and projects to be done.
So, let me rephrase this, we are extending today Veracruz terminal building, and we are expanding this because this airport was or had some years ago 500,000 passenger traffic on an annual basis. During the growth process, let's say 2007, 2008, and the passenger traffic reached 1.1 million, so the terminal was completely congested. So, that was the moment when we made the Master Development Plan. So, in that particular case, we included a very large expansion for this airport, in terms of the terminal building.
Today, you have seen the decrease in passenger traffic in Veracruz, and I don't have the annual figure right now in the top of my head, but should be very close to 800,000. So, we have today space to serve the people. So, basically what we are saying to the authority is, "Look, the passenger traffic decreased. The capacity that we placed in our Master Development Plan is not needed today. So, consider this to reduce or to delay the project," then they will have to recalculate the maximum rate if they accept to diminish the investments. Okay, I think that's the case, and we will see the other airports if they have the same kind of trouble.
Nick Sebrell - Analyst
Okay, very clear. Thank you.
Operator
Your next question comes from the line of [Eric Kina] from [River Road]. Please proceed.
Eric Kina - Analyst
Good morning, Mr. Castro, really excited about the great results today. I also wanted to ask about capital expenditures and the use of cash flow for this year. It looks like through the first half, you guys have underspent what I would have expected for CapEx under the Master Development Plan. If the plan that you just discussed for the Veracruz Airport is accepted by authorities, could you give us an idea of the change to the Master Development Plan in terms of CapEx this year or what you might target?
Adolfo Castro - CFO
Well, let me tell you that you're absolutely right in the sense that we should be spending more apparently if all of these things are done on a proportional basis through the year. The fact is that the first thing that we do normally in a project is to sign the thing, go into a bidding process of who's going to construct this thing. Then, we signed the agreement and then they start the construction project.
So normally, if we see this on the year, you will see that it is not proportional, and normally at the end of the years, when we spend more, but nevertheless we have requested this situation in the case of Veracruz, that could have an impact of around MXN200 million decrease in the case of Veracruz. I don't have, and we have not calculated the figures or the requests for the other airports. But I believe that if they authorize this situation in Veracruz, we can or we will proceed with some other airports, and next one I'm sure will be Villahermosa. And probably the reduction there could be another between MXN50 million to MXN100 million.
Eric Kina - Analyst
That's very helpful, thank you. Also, really happy to see the progress made on the balance sheet this quarter in terms of debt reduction. Does the company plan to use cash generated from operations to further reduce debt this year? And what are the plans for cash as you continue to strengthen the balance sheet? Do you look to have flexibility if the project in Tulum comes through, or what might contingency plans be?
Adolfo Castro - CFO
Okay, very good question. Well, we decided to reduce the bank debt, because if you remember, we took that debt last year when the conditions around the world, and of course in the case of Mexico were not the best. So, we decided to pay the bank debt in order to take advantage of the reduction in the cost of the debt.
As a matter of fact, what we are going to do this year is to increase the leverage of this company. We will be hiring some debt during the third quarter of this year, and probably some more during the fourth quarter, but of course with a total different cost of the one that we have. And in the case of the project that you have mentioned, I cannot say too much about it, but it's clear that if we go inside that and we result the winners of that, the situation in terms of leverage of this company may change significantly. That means that we will take advantage of this, and we will leverage the project in a significant way.
Eric Kina - Analyst
Okay, that's very helpful. Thank you for your answers.
Operator
(Operator Instructions).
Your next question comes from the line of Mauricio Santos from GBM. Please proceed.
Mauricio Santos - Analyst
Hi, good morning, Adolfo. Congratulations on your results. I just wanted to ask you about like the composition of your international passenger traffic. I didn't get it when you said it, and if you could elaborate more on this? Thank you.
Adolfo Castro - CFO
Okay, Mauricio. The international traffic of course was completely different than what it was during the second quarter last year, and that was basically because of the swine flu effect. If you remember, this was announced on April 26th last year, and immediately some of the tour operators decided to cancel their programs and basically their programs for all the summer. So, what we are seeing today is between brackets a normalized passenger traffic composition. I would say what it was wrong was the one that we had last year.
Mauricio Santos - Analyst
Yes, and what about the -- I think you said like 38% was from Canada or did you -- your mix has changed significantly from a year ago?
Adolfo Castro - CFO
The mix from Canada is -- hold on one second. I'm calculating the number. Sorry for having --
Mauricio Santos - Analyst
Okay.
Adolfo Castro - CFO
Hold on.
Operator
(Operator Instructions).
Your next question is a follow-up question from Nick Sebrell from Morgan Stanley. Please proceed.
Nick Sebrell - Analyst
Yes, I think he's still answering the question from the last guy, so --
Adolfo Castro - CFO
Let me say Canada was 7.6% -- 6.7%, sorry.
Nick Sebrell - Analyst
Okay. Adolfo, Nick Sebrell, just a couple of follow-up questions. One, Oaxaca, that's returning to normal. I mean from what you said in your comments, sounds like any of the problems that occurred there have been completely normalized, is the question. And then the second, cost of new debt, what does that run or what would your expectations of new debt being contracted in the second half be in terms of interest rate?
Adolfo Castro - CFO
Okay, the question about Oaxaca is the things have normalized. We cannot say that things have normalized. Of course, it is not as it was two years ago. These events of public disputes are basically coming from teachers, and their bargaining agreement is revised every May every year.
So again, we saw some disputes, and we had some noise about the city itself. And also, we can have this specific year, that in the month of June, we have the election process for governors. So, we have some, let's say, additional public demonstrations because of this. I hope -- well, of -- in summary, it's not as it was during the last two years. It's improving, but it's not yet normal completely.
And your second question was about the cost of debt?
Nick Sebrell - Analyst
Cost on your debt, yes.
Adolfo Castro - CFO
Well, I have not reached a complete agreement with the banks for the new debt, but I am expecting between 25 to 45 basis points less in terms of what we had before.
Nick Sebrell - Analyst
Okay, very helpful. Is there anything you can say about US tourism? And assuming that the US doesn't fall into a double dip and it continues to grow sort of at the rate that we're seeing now, would that mean a very normal year next year in terms of the international traffic that you guys see?
Adolfo Castro - CFO
Well, if nothing happens, yes.
Nick Sebrell - Analyst
Yes, I know, it's a big assumption. Okay, so in other words, the signals that you see now for US tourism to Cancun, et cetera, argue for or indicate a more normal year of say -- I'm just drawing numbers out, I'm not saying that this is what it will be, but for example 6%, 7% traffic growth, which is similar to the kind of growth rates we saw before the low cost carrier phenomena, before the financial crisis, et cetera. Is that reasonable?
Adolfo Castro - CFO
Well, what I can say to you, Nick, is that of course, this year is not also a normal year because we have this recovery process. In terms of the process, what I can see is that it's a slow recovery process in the sense that we are not -- I estimate that we are not going to reach what we had here in 2008, but reality is that the thing is getting better. And of course, if nothing happens, we expect to have a decent year next year, or a normalized year next year. And of course, the rates that you have mentioned are something that could be close to normal.
Nick Sebrell - Analyst
Okay. Thank you.
Operator
(Operator Instructions).
Your next question comes from the line of Rogelio Urrutia from Santander. Please proceed.
Rogelio Urrutia - Analyst
Yes, good morning, Adolfo. I just want to ask you about the decline in commercial revenues coming from the parking lots. In the press release, you mentioned that during the quarter, you saw a 0.26% decrease in these type of revenues, and as I understand it, they represent a significant portion of total commercial revenues.
Adolfo Castro - CFO
Well, parking lots is one of the most important activities that we have. We are working there very hard in order to increase that revenue, and not just it is important, it is very, very important in the smaller airports. I would say in the smaller airports, it's probably more important than what the normal commercial operation inside the terminal could be.
We're working today in order to improve our controls, and our equipment, and this also -- in order to facilitate the operation of the parking lots and to facilitate this operation to the users, I hope that with these kind of measures that we are taking, we will see an improvement, let's say, at the end of the year. I don't think we will reach the conclusion of this during the third quarter, but I hope that by the end of the year or the beginning of the year 2011.
Rogelio Urrutia - Analyst
Okay, thank you very much.
Operator
Your next question comes from the line of Francisco Suarez from HSBC. Please proceed.
Francisco Suarez - Analyst
Hi, thank you. Good morning, Adolfo, congrats on the results. Basically, what can you share with us on new frequencies going to Cancun, particularly the long haul ones? I believe that the Ministry of Tourism in Mexico actually stated that the British wanted to increase the frequency to Cancun directly from London?
Adolfo Castro - CFO
Well, Francisco, good morning and thank you for your comments, and thank you for your question. This is a very important question in the sense of the following. It was announced that British Airlines is going to start with its scheduled flights as from November this year to Cancun. And this is very important, because they were not in Cancun with regular flights, probably eight years ago, so this is a major achievement.
This achievement was the conclusion of a negotiation between the tourism authorities of the state, and the federal tourism authorities together with those and together with our route development team. And we are very happy to see that it's good to see that even with the financial crisis that we're seeing in the UK, they believe in us and they were able to fly these regular flights.
Francisco Suarez - Analyst
So, in other words, do you think that it is fair to assume that we might be seeing an inflection point as for the overall long-haul flights into Mexico, or do you think there's going to be a gradual approach by carriers, given that everything is very, very uncertain at this moment, as for the economic environment, particularly from Europe?
Adolfo Castro - CFO
Well, it's not easy to say, because what we're seeing today is that the European traffic is still weak. To be honest, I was gladly surprised to receive this news about the situation with British. In other words, it was not expected once what we are seeing in terms of the financial crisis there, and the current situation in terms of flights.
Francisco Suarez - Analyst
Yes, yes. Can you also remind us what is the share of the European tourism as for passenger traffic?
Adolfo Castro - CFO
Well, as I said, it's close to 8%.
Francisco Suarez - Analyst
Okay, and lastly if I may, can you walk us a bit with the potential trends of in-transit traffic to Cancun?
Adolfo Castro - CFO
Well, transit passengers in Cancun, it's not significant.
Francisco Suarez - Analyst
Okay.
Adolfo Castro - CFO
Since the end of last year, Mexican airlines have launched some programs in order to increase this in Cancun. They have, in some of the cases succeeded, but of course again, this is not very, very important in the overall picture.
Francisco Suarez - Analyst
Okay, okay, thank you. Sorry, I forgot that question, sorry for that. Can you also share any comment whatsoever as for the -- all the gossip that has been around here on Mexico on the health of the major carriers in Mexico, mean AeroMexico and Mexicana. Do you think that actually is that a concern? If I'm not mistaken, Mexicana is currently about 10% of your passenger traffic, isn't it?
Adolfo Castro - CFO
Well, you can refer to the filings in the SEC, and you will see a very clear point there, that it's of course always a risk when we lose one carrier. It's something that you saw during the second half of the year 2008. Always, when we lose a carrier, we have effects in the medium long-term. Those effects should disappear, because reality is that if you have passengers, you will have airlines, and not the opposite. When you talk about home airports, the situation is different. Then, you need an airline to have passengers, which is not the case of Cancun, and which is not the case of most of our airports.
Francisco Suarez - Analyst
You're right. Thank you very much.
Operator
(Operator Instructions). Ladies and gentlemen, this concludes the question-and-answer session. I will now hand the call back to Mr. Adolfo Castro for closing remarks. Please proceed.
Adolfo Castro - CFO
Thank you, Veronica. Before you leave, I would like to mention that we will host an event in New York on September the 13th, and the same event in Mexico City in September 28th. This will be to celebrate the 10 years of our company in both markets. This will be also including a presentation, and I think that -- well, the CEO has confirmed to be there, so I'm taking this opportunity to invite you to be there.
Thank you for being with us, and thank you for your attention for this conference call. Have a good day.
Operator
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.