Grupo Aeroportuario del Pacifico SAB de CV (PAC) 2012 Q3 法說會逐字稿

Good morning. My name is Jennifer and I will be your conference operator. At this time, I would like to welcome everyone to the GAP third quarter 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. Thank you.

I will now turn the call over to Maria Barona of i-advize Corporate Communications. Please go ahead.

Welcome to Grupo Aeroportuario del Pacifico's third quarter conference call. Today from the Company we have Mr. Fernando Bosque, Chief Executive Officer; Mr. Rodrigo Guzman, Chief Financial Officer; Mr. Miguel Aliaga, Institutional and Public Relations Officer; and Mr. Raul Revuelta, Chief Commercial Officer.

Please be advised that forward-looking statements made today may -- made during this conference call do not account for future economic circumstances, industry conditions, the Company's future performance or financial results. As such, these forward-looking statements are based in several assumptions and factors that could change, causing actual results to materially differ from the current expectations. For a complete note on forward-looking results, please refer to the Quarterly Report issued yesterday.

At this time, I would like to turn the call over to Mr. Fernando Bosque for his remark. Mr. Bosque, please begin, sir.

Good morning, everyone. We appreciate your participation in today's conference call. As the year draws to a close, we at GAP have been very hard at work according -- to fulfill our goals for the year end. As of the close of the third quarter, we have seen important increases in both aeronautical as well as non-aeronautical revenue. As you saw in the report that we issued related to the third quarter figures, aeronautical revenues have maintained solid and steady increases, reaching 11% growth for the second consecutive quarter.

Non-aeronautical revenues, however, continued to grow at impressive levels, reaching nearly 33% growth during this quarter. This is the result of the aggressive efficiency measures as well as strategies that we have put in place in order to maximize revenue generation from the commercial activities at our airport.

We remain committed to maximizing this revenue by investing in infrastructure as well as new projects that I will discuss in more detail in a moment. We continue to streamline our operation for the third quarter. Cost of services went down nearly 7%, despite increases in insurance, security and employee cost. But we contracted these necessary expenses by controlling other operating cost, which offset the increases and enabled us to maintain solid EBITDA levels.

This quarter GAP increased its EBITDA by MXN150 million, a margin of 69.5% compared to a margin of 64.5% in the third quarter of 2011. And higher EBITDA adjusted by the effect of IFRIC 12, translating to a higher enterprise value, showing GAP's ability to continue developing new project to improve revenues and the quality of our airport. This continued to be one of our main objectives and one of the many factors that set us apart from the other airport operators in the region.

For the quarter, we experienced a net income increase of MXN100 million for the quarter of nearly 27% increase compared to the third quarter 2011. All of the items I just mentioned led us to dramatically rise GAP's guidance figures pretty much across the board, particularly increase the EBITDA figure by 300 basis points to a range of 9.5% to 11.5%.

International traffic is expected to strengthen in coming years, particularly at the largest airport. Therefore, we are working to prepare the airports for the coming international traffic growth that we expect in the medium and long-term.

We mentioned in the last conference call that GAP completed Terminal 2 of the Los Cabos Airport. Now, while the official inauguration will take place in the first quarter of 2013 -- and that is very important to mention -- however, this new terminal will become fully operational on November 1st, which is just a few days. Total investment for this project reached MXN800 million and was fully leveraged by bank loans.

Reiterating my last point regarding the commitment to continue investing in our growth, I want to draw attention to the fact that of the 35,000 square meter area, which is the size of the new terminal, almost 1,000 square meters will be dedicated specifically to commercial duty free shops while 1,500 square meters (inaudible) another revenue generators. This includes major brand food and beverage options, stores and many other choices for the consumer.

One of our short-term plans is to open the first ever convenience store in Los Cabos Airport. GAP pilot tested this format in the Aguascalientes Airport and had a very good success rate there. Convenience store concept not only offers another option to the passenger but also high profitability for GAP in terms of EBITDA contribution and commercial revenues. And we expect a lot of things from this airport.

The city of Los Cabos and San Jose del Cabo has been steadily growing as a tourist destination in our country for many reasons; it is safe, has an interesting story and a lively entertainment scene, but also shares close proximity to parts of the US, with many options for direct flight between Los Cabos and major cities in North America.

In this quarter, specifically, international travel to this airport grows 5.1% with a lot of activity from Canada as well as several increasing frequencies from US airlines. Los Cabos has 23 direct services cities in the US and Canada.

Looking at Tijuana, GAP has been working towards obtaining the concession necessary to begin the expansion of the terminal to be connected to the cross border facility. The investment has been approved in the amount of MXN185 million. That facility will be fully operational in the spring of 2014. The project seeks to attract 1 million additional passengers within the first five years to one of GAP's already more active airports. In turn, this will not only benefit the city of Tijuana, which is a main driver for the government, but also for the passengers, a gateway of this magnitude could benefit the inbound passengers, that is 45% of which are expected will use the gateway to pass the time in Tijuana.

In the Guadalajara airport, our main airport, we are also preparing for continuing international as well as domestic passenger traffic growth that is anticipated in the coming years. As such, we are implementing a series of logistical changes that will enable the airport to face the expected future growth.

These include improvement and upgrades in the custom and immigration areas as well as baggage checking and inspection services, as we have been discussing in the past few quarters. Our goal is to offer more modern areas and convenience that is on par with major airports in the world. One item that I want to highlight that we are working on, for example, in the extension of the international and domestic areas in Terminal 1 in order to accommodate the future passenger numbers.

We are talking specifically about increased ramp, position and gates to accommodate additional fleet expected for Aeromexico, Volaris and Interjet. The total investment will be in the range of MXN400 million.

Finally, Puerto Vallarta, which although is not recovering at the same pace as other airports in the Group, we expect will continue develop added passenger traffic at a different rate. We have already completed the extension of the gates in the international areas as well as a complete reconfiguration of the ground transportation areas. These accounted for MXN200 million investment in this project.

In addition, we are also looking at some infrastructure upgrades at some of the smaller airports to improve quality of travel for the passenger as well as to modernize the existing facilities. Thus, we are very bullish on the upcoming traffic expectation and we are preparing for them right now.

Before I turn over the call to Mr. Raul Revuelta, our GAP Commercial Officer, I just want to mention that as per the press release we issued last Thursday on November 1st, GAP will pay the second portion of the dividend approved at the resolution for of the General Annual Shareholdings Meeting that was held back in April, thus fulfilling its dividends policy for the year.

Raul, please go ahead.

Good morning, everyone. I am pleased to have the opportunity to discuss in more detail the traffic and revenue figures mentioned by Mr. Bosque. First, I will present the traffic analysis and then I will review the commercial business.

During the third quarter of 2012, GAP's 6.8% total passengers traffic increase reflects a growth of 339,000 passengers compared to the same quarter of 2011. This increase was mainly caused by the domestic and international passengers' traffic growth of 90.2% and 1.4% respectively.

I would like to emphasize the important growth of domestic passengers in our four main airports during this quarter, Guadalajara, Tijuana, Puerto Vallarta, Los Cabos airports, driven mainly by Volaris, Aeromexico and Interjet. For instance, their role during this quarter of 2012 was driven by the opening of new routes by Volaris in April, May and June such as Gudalajara-Puerto Vallarta, Guadalajara-Gudalajara-Cabos, Guadalajara-Chihuahua, Guadalajara-Los Mochis, Guadalajara-Monterrey, Tijuana-Colima and Puerto Vallarta-Mexico, also of Aeromexico, Manzanillo-Mexico.

On the international side, I should mention that the increase of international passengers at Los Cabos and Puerto Vallarta airports were mainly caused by the growth of Canadian traffic, mainly in the passengers from the cities of Edmonton, Calgary and Vancouver. Additionally, there was a new route opened from Los Cabos to Orange County.

Regarding non-aeronautical revenues, this grew 32.6% or MXN64.5 million during the third quarter in comparison with the third quarter of 2011, and commercial revenues grew 29.9% or MXN57.6 million, mainly caused by commercial developments, for example. The line item of other revenues rose 396% -- 96% or MXN26 million, mainly caused by a one-time entrance fee from the [Albierto Royal Duty] Group to the new Terminal 2 in Los Cabos.

Parking lots, revenue rose 18% or MXN7. million compared to the third quarter of 2011 as a result of the traffic increase as well as the new parking fee structure implemented at the beginning of 2012. This effect, along with the new marketing strategies such as promotional package, are encouraging more frequent and longer use of the parking lots.

Revenues from VIP lounges increased 279% or MXN5.4 million, driven mainly by the opening of the three VIP lounges Los Cabos, Guadalajara and Puerto Vallarta during 2012, which are fully managed and operated by GAP compared to the only VIP lounge opened in 2011 in Los Cabos. Additionally, GAP generated recent revenues from the new dynamic video lounge at Guadalajara Airport.

Food and beverage as well as advertising revenue increased 19% or MXN3.5 million or 22% or MXN3.2 million respectively. These increases were the result of the renegotiations of certain contracts and because of the great operation of all advertising at our airports, with the only expectation of the old Terminal 2 at Los Cabos Airport. The rest of the year looks very positive given the processes that we have in motion.

I would like to share with you our main strategy for the upcoming months. On the aeronautical side, during October, Volaris began the following operation; Tijuana-Tepic, Tijuana-Queretaro, Culiacan-Mazatlan, Cuernavaca-Chihuahua, and also will begin operation on Cuernavaca-Sacramento in November.

Interjet will start operations in Manzanillo beginning with a route from Manzanillo to Vancouver in November. Spirit Airlines announced the opening of the routes Los Cabos-San Diego and Los Cabos-Dallas during November and June 2013 respectively. Interjet began operations in October on Guadalajara-Orange County route.

Regarding non-aeronautical revenues, the Terminal 2 in Los Cabos will open on November 1st as planned. This terminal will open with a highly developed strategy to increase duty free sales to provide distinct and well recognized offer on food and beverages products including brands such as Subway, Espresso, Carl's Jr., (inaudible) Foods, Corona and Starbucks.

Cabos' new terminal will operate the Group's largest VIP lounge to serve customer demands for additional services as well as the high level of service. Retail will provide the best of local offering of craft, jewelry, souvenirs, clothing and accessories. The commercial areas include 900 square meters of duty free area, 300 square meters of special retail, 700 square meters food and beverage as well as a 500 square meter VIP lounge directly operated by GAP. With the operation of this brand-new terminal, we expect to increase the commercial revenues per passengers at Los Cabos by at least 42% from MXN63 per passengers from 2011 to an expected MXN90 per passengers by the end of 2013.

As for the other airports, we are working aggressively to improve commercial areas in Hermosillo with the introduction of VIP lounge as well as our newest stores with international brands such (inaudible). We expect to continue the expansion related to operating our convenience store operated by [Sempta] Group brand [auction] in the parking buildings of Puerto Vallarta and outside Los Cabos Airport. These two stores will complete our portfolio of stores currently operated by (inaudible) in Guadalajara, Tijuana and Hermosillo. Especially, retail will continue expansion in Guadalajara in order to complete the presence of brands like [Ferragame] with similar such stores to provide our passengers a broad portfolio of choice.

We will continue to expand our other attaching business with inclusion of new areas in our inventory due to the expansions of Tijuana and Port Vallarta airports. Also at the Port Vallarta Airport we will transform the duty free layouts turning this area in a walk-through duty free that we expect will increase the sales penetration.

As you can see, we have plenty of projects going on and I'm sure that these projects will take advantage of the huge potential of our airports and will further drive higher commercial revenue for the coming years.

Thank you again for your attention and now Rodrigo Guzman, our CFO, will review the financial highlights.

Thank you again for your attention. Good morning, everyone. This is Rodrigo Guzman, GAP's Chief Financial Officer. As Fernando previously mentioned, EBITDA margin increased. Without the effect of IFRIC 12, the margin during the third quarter of 2012 reached 69.5%, the highest EBITDA margin since the second quarter '08 when the crisis and the passenger traffic decline began.

EBITDA margin, excluding the effect of IFRIC 12, increased 500 basis points from 64.5% in the third quarter 2011 to 69.5% in the third quarter of 2012, the increase resulting from the operational leverage the Company has been delivering. The sum of aeronautical and non-aeronautical revenues increased MXN147.4 million or 15.5% in the third quarter 2012. While the sum of custom services, technical assistance fee and government concession tax decreased MXN2.8 million or 0.84%, resulting in MXN150.2 million increase in EBITDA without the effect of IFRIC 12 or 24.5% increase, demonstrating the value of the Company based on its commitment to increase both aeronautical and non-aeronautical revenues and also controlling costs, taking advantage of its operational leverage and increasing its capacity to generate net income and to pay dividends.

Aeronautical services revenue increased MXN82.9 million or 11%, while non-aeronautical revenues increased MXN64.5 million or 32.6%, representing 56.2% and 43.8% respectively of the total increase in revenues. Aeronautical revenue increase was primarily due to MXN90.9 million or 14.6% increase in passenger charges that was offset by a decline in airport landing and airport parking revenues, which together declined MXN6.8 million or 9.2%.

As Raul previously mentioned, non-aeronautical revenue increased mainly as a result of, first, the fee for the assignment of the duty free stores contract that Los Cabos Airport received related with the Terminal 2 for MXN26.6 million, representing 41.2% of the total non-aeronautical revenue growth.

Second, the MXN21.1 million increase in revenues from car parking, checked baggage inspection services, other parking at VIP lounges, all of the business lines operated by directly by the Company or in which the Company participates with certain operations as is the case of VIP lounges. This increase represented 32.7% of the total increase in non-aeronautical revenues during the quarter.

As during the first nine months of the year, total passenger traffic increased beyond the original expectations we had at the beginning of the year as a result of the efforts realized by the Company and by internalized partners. GAP is moving its total passenger traffic guidance from 3% to 4% growth to an increase of between 4% to 5%.

However, as 85% of the total traffic growth during the first nine months is due to the domestic traffic, 67% of the total traffic growth was served by the airports with the lowest maximum targets.

And given that out of the total inflation generated in the period of September 2011 to September 2012, as measured by the PPY, 77% was generated in the period of September 2011 to December 2011 and only 23.3% was generated from January to September 2012, with a total inflation during 2012 of 0.8%, the guidance for aeronautical revenues remains the same.

Cost of service declined MXN17.8 million or 6.9% compared to the third quarter of 2011, mainly due to other operating cost decreased MXN24.7 million in three quarter 2012. Security and insurance costs increased MXN5.9 million, mainly as a result of the startup in October 2012 of the baggage screening system service given by the airports to the airlines that already signed the contracts with our airports.

Employee cost increased MXN3.7 million or 3.9%, in line with the average increase in wages during the year. Maintenance cost decreased MXN2.7 million. As a result of the increase in aeronautical and non-aeronautical revenues, government concession taxes increased MXN7.3 million or 15.3%. While as the revenue increased higher than some of the costs of services and government concession taxes in nominal values, technical assistance fees increased MXN7.7 million or 23.8%.

In terms of the balance sheet, as of September 30, 2012, the Company had a balance of cash and cash equivalents of MXN2.5 billion from which MXN28.8 million are mainly held in a trust to pay for the installation of the checked baggage inspection services and 341 -- MXN349.1 million are guaranteed delivered by the airlines in relation with the passenger charges collection agreement, representing 103% of the total passenger taxes receivables as of September 2012 already locked in the reserve for doubtful accounts.

As Raul mentioned, that receivables from passenger charges represented 68.9% of the total receivables of the Company already locked in the reserve for multiple accounts as of September 2012, meaning that the risk related with the receivables is very well covered by the guarantee program we have been following with our airline clients.

GAP continues its financial strategy seeking to reduce its weighted average cost of capital and seeking to change its capital structure in order to be more profitable. Thus, the short-term liabilities and long-term liabilities as of September 30, 2012 shows that trend. Total short-term liabilities of MXN2.13 billion are composed mainly by MXN1.15 billion related with equity reduction and dividends pending to be paid on September 30, 2012 composed by MXN870 million for the equity reduction declared on September 25, 2012 and paid on October 3rd, 2012, and MXN282.5 million for the dividends to be paid on November 1st. [MXN481.8] million of bank loans associated with the strategy mentioned previously; MXN278.0 million of accounts payable. While, long-term liabilities are for mainly by, MXN1.6 billion of bank loans and MXN386.4 million related with the guarantees delivered by the airlines up on the passenger charges collection agreement and and other guarantees related with aeronautical services out of passenger charges, initial agreements with airlines and other commercial repayments.

It is also important to mention that as was per the quarterly report, the Company is also moving its total CapEx guidance. The reasons for the reduction are, first, a cancellation of certain program investments outside of our massive development, and second, the inflation effect measure this time in terms of the construction price index, which affected our yearly massive development CapEx commitment. Index that this year registered a deflation in four out of nine months of the year, reaching a total inflation for the first nine months of 0.4%, while during the first nine months of 2011 it was 6.8%.

Thanks for your attention. I will now turn the call over to Miguel Aliaga for final comments.

Thank you very much, Rodrigo. This is Miguel Aliaga, the Investors Relations Officer. As Fernando mentioned, guidance changed this quarter for the best, which is a good thing. These are found on recent events section of the report.

We increased traffic guidance, an increase of 4% to 5% when it was previously 3% to 4%. Aeronautical revenues remained unchanged at plus 8% to 9%. As Rodrigo previously mentioned, this is despite higher overall traffic as increase in traffic took place at the airports with the lowest maximum rates, plus the effects on inflation and the effects on domestic traffic growing over international traffic. Non- aeronautical services increased to 14% to 15.5% compared to previously 6.5% to 8%, with an increase in commercial revenues of 15% to 17%. This affected total revenues to an increase of 9.5% to 10.5% versus 7.5% to 8.5% we had.

Cost of services changed to an increase of 8% to 10%, when it was previously 9% to 12%. EBITDA margin remained unchanged at 65.3% to 66.3%. EBITDA changed to an increase of 9% to 11.5%, when it was previously 6% to 8.5%.

GAP's management will be participating in two Investor Conferences in New York this November as well as one in Chicago. Please let us know if you would be interested in meeting with us at that time. Also, given all the exciting developments in Los Cabos that are occurring, we are hosting the Annual GAP Day event in that airport during the first quarter of 2013. Save the dates -- we'll be going out in the next few weeks. Thank you for your attention. Operator, we may proceed with Q&A.

(Operator Instructions).

Benjamin Trevor, Barclays.

Thank you very much for the call and congratulations. Actually, I have one question just related to the guidance. Miguel, you just spoke out on the EBITDA margin. It's kind of difficult to -- having seen the margin very high in the second and the third quarter, at about 69%, how do you actually expect that the margin is coming down in the fourth quarter in order to be in the guidance or what's the driver for bringing the margin actually, not to increase the margin for the full year? That will be one.

And the second one related to the recent dispute on the extraordinary shareholder meeting. What's the actual status you are having here and what are the steps you are going to proceed in the future in relation to the Grupo Mexico lawsuit, which is currently -- seems like revealed currently? Thanks.

Miguel, related with the margin in the last quarter of this year, it's in relation with -- there are certain cost -- maintenance cost expenses that will be happen in the last quarter. As you remember, we have certain rain seasons during -- that starts from, let's say, June until October so that there are many maintenance costs that are delayed until the last part of the year, so that's why we believe that during the last quarter, the margin -- the margin will decrease in relation with the last quarter increase. So that's why we believe that the margins are going to decline.

Okay.

And the second question -- I'm Fernando Bosque, the CEO of the Company. I will answer your second question. Of course we have dispute with one of the main shareholders of the Company. The last one was related to the dispersion or the distribution of the equity reduction that was approved by the extraordinary general assembly. That was happened in September 25th. That meeting was not attended by Grupo Mexico, nobody from this Company attended the meeting. But they obtained from the judge the solution. We realized about that when they announced by event that they obtained the suspension of the dispersion of the funds that was approved by all the shareholders.

During the extraordinary meeting more than 95% of the shareholders who attended the meeting approved the equity reduction. But in a very strange situation when the big portion of this distribution, with reduction will be for Grupo Mexico. They called for the judge of the court in order to have a suspension of this resolution. We are now involved in some legal initiatives to defend by laws of the Company and looking how to get the dispersion of the funds to all the shareholders. We have the expectation that it will be resolved shortly.

Okay, perfect. Thank you very much.

Francisco Suarez, HSBC.

Congrats on the quarter. A follow-up question if I may on the maintenance expenses that you mentioned. Is it correct to assume that the overall expenditures for the whole year might be in the range of roughly MXN190 million, MXN195 million?

And the second question if I may relates with the overall positive trends that we are seeing in passenger traffic. Currently, we are seeing some aggressive commercial policies from some of the domestic carriers. Do you think that is sustainable? I know that you are very, very well in terms of provisions for any potential loss on accounts receivables, but do you -- is it correct to assume that we might not see any disruption or anything that might actually happen from -- because of a potential problem on the financial situation of any carrier in Mexico at this moment?

Yes, this is Raul Revuelta speaking. In terms of the growth for the future, with the industry, we are much stronger airlines than in the past years. We think that the growth will be sustainable in the future. The growth of the fleet of the different domestic airlines are in a real important pace for the next year. But it is important to know then -- for example, in 2007, we had something like 335 planes from domestic airlines and for the end of this year, we are expecting to have only 222 planes in the fleet of the domestic airlines.

So even with this really aggressive and really important growth of the fleet that are happening in this year, the number of fleets that right now are in the market is 31.9% less than the fleet that we had in 2007. So we foresee that the growth is going to be sustainable for the future, and right now the companies have a really stronger financial situation.

Okay.

And the issue related with costs, in the line of the maintenance costs, I think we are going to close in the range between MXN185 million to MXN195 million. I think we are going to close the year between the range of MXN185 million and MXN195 million. So that will be the range of maintenance cost.

But also the thing that we have here is that as we are opening the new Terminal 2 in Los Cabos in November the 1st, the energy cost is going to increase, because that terminal increase allows the space and also the issue related with air-conditioning and all that stuff. So that's in the general -- that's why we expect that at the end of the year we are going to increase the cost of service in the range that I mentioned previously.

Eugenio Amador, Credit Suisse.

My question is regarding the Tijuana Airport project. You mentioned MXN185 million of CapEx and the view of having this operational by 2014. Will this be matched by federal investment as well? And also following up on the same subject, will this infrastructure -- will the revenues from this infrastructure be regulated within the maximum tariff for this airport?

Of course, that the reconfiguration of this terminal will be funded by the tariff system of the airport. It's really a reconfiguration that increase the space for immigration, custom and other areas. That will trigger an increase. That is our projection -- increase in the number of passengers that the benefit -- a part of the benefit for passenger, for the community is the prediction of the increase in commercial revenues. And that is our expectation. That will put this airport in a more competitive way, will be one of the main gates for the entry and disperse tourist and visitor to Mexico.

So that is our plan is prepare the terminal to receive these kind of visitor, increasing the number of passengers and taking more commercial revenues and offering less tariff. One time that you will increase the number of passengers, the total average of the cost of operation and investment will trigger probably a close reduction in the tariff, more competitive.

Thank you. And one more question. Yesterday the head of -- Bruno Ferrari, the head of the International Office for Mexico Foreign Investment, he made a statement of a federal initiative to try to reduce foreign caps on certain sectors. I don't know if you would have any view on -- if this would go through, if this could incentivize investment in the airline industry. Do you think this could be a driver? Is more investment to get more aircraft a driver or are the lead times to delivery of aircraft more of the issue of why more traffic is not addressed locally?

This is Raul Revuelta speaking. We think that it will be something really important that will have an important growth if the Mexican government changed the investment restriction for the airlines industry in Mexico. This is a global trend. The alliance between airlines is not just related for closures. There is a really important trend of shared seats and additional investment from -- for operating airlines in different countries. So we feel really optimistic that any change on the cap for any investment on the industry will help to potential the future growth of passengers.

Thank you very much.

Stephen Trent, Citigroup.

A follow-up on the airline question with respect to the government possibly looking to lift the foreign ownership stake. Are you assuming that this occurs in your long-term forecast or is your base case that this does not occur?

Hi. This is Raul Revuelta speaking. Right now we don't have any assumption on this change on the capital front for the foreign investment. So we feel positive, but we don't put it in our projection for passengers yet.

Okay, great.

Stephen, let me add something. And our feeling, I think, is we have to wait until the new administration will take its position and define openly how will be his strategy in order to develop the capacity of the aeronautical system in this country. It is clear that we have a lot of limitation in terms of the cost for the offer of seats. So we are expecting that the new administration will put in place some kind of initiative and we are waiting for that.

Okay, great. Thanks for that. And if I may just ask two other quick questions. One, you talk about -- and sorry if I missed this, you talk about Los Cabos, the new terminal there and Puerto Vallarta, maybe not quite as much growth there. Can you share any underlying plans as to what the hotel industry has been doing to add hotel rooms to some of these locations?

We know that there are a lot of different initiatives in the area of Los Cabos. Some kind of insurance investor is preparing new project that will increase the capacity in rooms in this area, but at this time I cannot tell you what is the total number that is under the plans of this investor. But of course it is very strong -- they are receiving a strong demand in the different areas. Also is growing the demand from Mexico, not only from US and Canada. And there could be -- have some idea, Raul Revuelta.

Related to IATA, let me tell you that there is a lot of initiatives between the different entities at federal level, state level in coordination with all the industry in this area, in [Beelanderas]. Also it's not only the municipality of Puerto Vallarta, it also is Riviera Nayarit that they really they are growing a lot. And they are currently one or two projects under construction that will increase the capacity and the modernization of this area.

The important thing is everybody is concerned of the need to implement a new image of the destination, looking to recover. And the competitor in another years was Vallarta as a second destination for tourism. Of course, there are a huge competition from other destinations, including Los Cabos and the Caribbean destination. So that is the plan, the kind of the work that we are doing. Our Commercial Director, Raul, could explain more about the figures that you have about the rooms.

Yes. Just some facts. For example, Los Cabos in the last 5 years from the period 2007 to 2012, Las Cabos has grown 50% the number of hotel rooms. For the case of Puerto Vallarta in this 5 -- in the same time, it means 5 years, the growth of the room was 10%. What we are foreseeing for the case of Los Cabos is an important growth for -- and at least, we will keep or maintain the trend of growth of at least 10% each year for the next 3 years in terms of rooms.

For the case of Puerto Vallarta there are not such a great project in terms of number of rooms, but they are working pretty hard on restructure some of the actual offer. So it doesn't mean exactly that Puerto Vallarta will have additional rooms for the next 3 years but they are modernizing the rooms that they have. So they will attract a most interesting passenger in terms of yield for the next years.

Okay. That's great. Let me leave it at that as I have taken a fair bit of time. I will let someone else ask a question. Thank you very much.

Neal Dihora, Morningstar.

I was just wondering if I can get some more details on the baggage claims, just on revenue? And I think last quarter you had talked about signing up more airlines for that program, just to see if you guys have made more progress on that. Thanks.

Okay, about that technological facility for checked baggage of the passengers, we have good news. We now -- was suggested today by the Civil Aviation Authority that, who has approved a new communication or a new regulation for all the airlines in order to -- they have to use the certificated equipment that the airport in Mexico has put in place during the last year and suspend the manual check of the baggage of the passengers.

So now we are clear that, in a very short period of time, 100% of the passengers will receive that service. That means reduced time in the counters and spend dual time in the gates and in the commercial areas. So that is the good news. And the other side also to mention that that not produce more EBITDA. This is a balance between cost and revenues. We will only recover the cost of the service, but increase quality. And the most important is that I mentioned before, dual time for passengers in the commercial areas.

Okay, that's helpful. Thanks.

Eduardo Couto, Goldman Sachs.

Congratulations on the strong results. I have a question on Los Cabos. Just to understand because the non-aeronautical revenues there very strong in the third quarter and it grew like 40% quarter-on-quarter and has almost doubled versus last year. But you said that the new terminal will only start in November. Just want to understand if this strong non-aeronautical revenues are recurrent and they can still grow with the launch of the new terminal?

Yes. On this quarter -- they reflect on the revenue of this new terminals on this quarter was mainly for the one-time fee, assignment fee for the duty free, something like MXN26 million. But right now in this quarter there is no additional reflect of the new terminal. The new terminal, as Fernando mentioned, will begin operations from November 1st, so the new revenues will be reflected on the revenues of the Company on the next month.

The important thing, as I mentioned, we expect that the ratio of revenue per passenger will grow in Los Cabos. We expect -- we are foreseeing that Los Cabos will have the most important ratio -- revenue per passenger ratio in all Mexico. We are foreseeing that it's MXN90 per passenger for the next year.

Do you think the new operation of the terminal can more or less offset this MXN26 million that you had in one-off, meaning that your non-aeronautical revenues will not decline significantly from fourth quarter onwards?

Rodrigo Guzman speaking, Eduardo. I think that in the last quarter we are going to see not that huge increase, but we are going to see an increase in commercial revenue in Los Cabos Airport. Why is that? Because imagine that we received in the third quarter $2 million as upfront payment and we are going to invoice an average of $300,000 per month for the rental valet space. So, imagine that in the last quarter of course we are not going to receive $[2] million in commercial revenues.

Let me add something. It's Fernando, the CEO of the Company. Of course next year we will see increases in the commercial side of this airport, mainly in the first and the second quarter. But also to consider that the use of this terminal will be gradually increased beginning November 1st of the coming year. But not full -- all the airlines will use this facility during the beginning. So gradually we will see in our financial the increase.

And of course in the third quarter of the next year will be practically not important increase because the application of these upfront fees received during the September. So I think we need to wait until the last quarter of the next year to see exactly how is the dimension of the increase in the commercial revenues in this terminal, because at this time we will see full operation of this terminal and also without the composition of the upfront fee.

Okay. And just a final question. When I looked at the guidance for non-aeronautical revenues, it's 14% to 16% growth and you are doing 26% year-to-date. So this lower guidance is mostly because of the fourth quarter, you are not going to have this -- the one-off charge, right, so probably the non-aeronautical revenues will not grow that much in the fourth year-on-year, that's the view?

That's right. That's totally right.

Okay. Thank you, guys.

(Operator Instructions). There are currently no further questions in the queue. I would now like to turn the conference back over to Mr. Bosque for closing remarks.

Thank you all for your interest in GAP. We look forward to speaking with you again soon. Have a good day.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.