Grupo Aeroportuario del Pacifico SAB de CV (PAC) 2015 Q3 法說會逐字稿

Good morning. My name is Katie and I will be your conference operator today. At this time, I would like to welcome everyone to the GAP third quarter 2015 conference call. All lines have been placed on mute to prevent any background noise. Thank you.

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

Thank you and welcome to Grupo Aeroportuario del Pacifico's third quarter conference call. Today from the Company we have Mr. Fernando Bosque, Chief Executive Officer and Mr. Saul Villarreal, Chief Financial Officer, as well as Ms. Paulina Sanchez, Investor Relations Manager.

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

At this point, I'd like to turn the call over to Mr. Bosque for his opening remarks. Mr. Bosque, please begin, sir.

Thanks, Maria. Hello, everyone, and thank you for joining us.

The third quarter was another productive one. As you have perhaps already seen, we revised our guidance upward for the third time this year. Our CFO will comment on that in that part of the presentation. And there has been significant activity from the airlines in terms of new and added frequencies.

On this past Friday night, GAP went under emergency protocol measures as Hurricane Patricia landed on the Mexican Pacific coast, affecting the cities surrounding Manzanillo, Puerto Vallarta, and Guadalajara airports. As such, the aeronautical authority suspended operation in Manzanillo and Puerto Vallarta airports early morning on Friday.

The hurricane touched down Friday at 6:00 p.m. in Cuixmala Beach, which is about 85 kilometers northwest of Manzanillo and about 180 kilometers south of Puerto Vallarta. Fortunately, these airports only suffered minor damage and reinitiated operations on Saturday. Puerto Vallarta airport had its first operation at 8:00 p.m. and Manzanillo airport at 3:00 p.m.

With regard to hotel damage in the area, apparently there was no major impact in their hotels in the circle, as these destinations reported. Therefore, we expect that most of them will be operating very early.

Guadalajara airport only suffered strong storms and rain on Friday and Saturday, but it continued operating normally both days.

In another note regarding the quarterly review, GAP is operating in an air transportation market that is growing at a very rapid pace. The Mexican airline industry has one of the youngest and most efficient fleets in the region. And in addition to that, GAP is working jointly with the airlines in order to continue this aggressive growth phase and ensure that we are leading the pack to achieve one of the highest traffic (inaudible -- technical difficulties).

Excuse me. Sorry for the interruption. Please remain on the line while we reconnect our speaker line. Again, please remain on the line while we reconnect.

Thank you for your patience in holding. We now have our speakers back in conference.

Yes. As I remember, I was talking about the fleet, how it's growing, the fleet in Mexico. Okay?

Okay.

So, sorry for everybody. I will continue talking.

For the third quarter of 2015, GAP experienced an increase of 863,000 total passengers, mainly driven by higher traffic in Guadalajara, Tijuana, and Puerto Vallarta in that order, which jointly represent 71% of the increase.

In terms of domestic passenger traffic, this figure increased by 597,400 passengers, and international traffic rose by 266,000, representing an overall increase of around 14% compared to the same period of the previous year.

Montego Bay, on the other hand, experienced an increase of 4.8% traffic for the quarter, representing 44,000 additional passengers.

GAP goes beyond strengthening our traffic potential. We also engaged in active discussions with the planning and the development departments of our airline network in order to capitalize on underserved markets as well as commercial expansion of opportunities available for us, as we fully do support any route worth opening, benefitting GAP's network.

This includes six new frequencies from Guadalajara, La Paz, and Mazatlan by TAR; La Paz and Los Cabos by AeroCalafia; and New York and San Jose, Costa Rica by Volaris. Puerto Vallarta also obtained two new connections with TAR, Guanajuato and Durango. And finally, in La Paz TAR initiated flights to Mazatlan.

For the third quarter of the year, we can expect new flights in both the domestic and international markets. On the domestic side, VivaAerobus returned to Tijuana with daily flights to our hub in Mexico City. The international market, on the other hand, has benefitted from a significant amount of new routes to GAP leisure destinations.

New flights are expected from Volaris, Alaska, Air Transat, Southwest, American Airlines, Germanwings, Condor, and Thomas Cook to and from cities such as Denver, Phoenix, Frankfurt, Munich, Cologne in Germany and many others. Data can be found in the report that you received last Thursday.

In terms of the individual development at the airports, I wish to highlight some of these. Starting with Guadalajara, it was the best quarter in terms of passengers transported in the history of the airport.

Both domestic and international markets experienced double digit growth numbers of 13% and 16% respectively. Today the airport has direct flights to 51 different destinations, 26 domestic and 25 international.

During this year, 14 new services have been opened. Load factors are growing as well to achieve a very healthy 79% during 2015.

Moving on to Puerto Vallarta, the airport continued to expand in the domestic market with a 23% growth as a result of the new services from Guanajuato and Durango.

In terms of the international market, the major American carriers continue expanding in Puerto Vallarta. Alaska, Delta, and United increased their capacity more than 30,000 seats during this quarter, resulting in a 13% growth in international traffic. With a new daily service to Houston Hobby and Denver, we can expect growth to continue at a steady pace for the coming winter.

In the Bajio area, Aguascalientes and Guanajuato reached a total growth of 18% and 28% respectively during this quarter. As you have probably been made aware, a growing number of industries are expanding in the Bajio region, resulting in an increase in demand for flights to both business and leisure destinations.

Interjet has been the major contributor to growth in both airports. We had a 36% increase in our (inaudible -- technical difficulties).

Again, please stay on the line while we reconnect our speakers. One moment, please. Thank you for your patience in holding. We now have our speakers back in conference.

Okay. Yes, I am sorry for everybody. We have some problem with the communication after the hurricane, and now we are trying to recover completely our services. I am sorry for everybody. Okay, so I will continue talking about the important contribution to Interjet for the development of the Bajio area.

And in Los Cabos, now fully recovered from Hurricane Odile a year ago, is set for domestic growth, 14% in the third quarter, while international traffic grows 9%, to reach a combined growth of 10%. This is a 95% recovery rate post hurricane. We expect a healthy passenger flow into Los Cabos this coming winter and a recovery in terms of far more passenger totals than in 2015.

Let's not forget Tijuana, where traffic figures looked extremely positive as the result of the continued growth in the number of frequencies, therefore helping out in our growth of 16% during this quarter. The load factor helped with 79%, an increase of more than 6% from the previous year.

Moving on to the CapEx project, GAP continuously adapts its interest factor to the capacity and quality needs generated by the traffic growth. One example is the Guadalajara International airport, where we have initiated an expansion of the entire terminal, combining Terminal Two with our waiting area in order to increase the number of gates and passenger services.

In addition, the waiting area of Terminal One will be expanded with remodeled boarding and in (inaudible) ways; all the services to be expanded as well as the check-in areas, baggage claim, and commercial services.

Hermosillo and Puerto Vallarta airports are also improving their infrastructure. In Puerto Vallarta, we are reconfiguring the arrivals area, baggage claim area, and customs, with a project that is expected to be complete by mid 2016.

Hermosillo will undergo a significant expansion, growing by 1,800 square meters in the waiting area and by two roadways. This terminal will be the first to make a real improvement in the airport service.

And in Tijuana, we are beginning an expansion on all our site facilities, not just the terminals, whereby a new area will be created for remote operations. In addition, international traffic facilities and aircraft park in California will be extended with new positions, fuel facilities, and a new fire station.

That leads me to the cross border project. This public bridge, as you know, is the only one of its kind, and will function as a large airport terminal, offering all of the services for traditional airports, including the accommodation, registration, commercial transactions, etc., in order to facilitate travel for those persons who cross the border.

GAP expects the new cross border facility to open during the second week of December, something that should ultimately increase passenger flow in and out of Tijuana. Airlines have already announced a 17% increase in the number of full price seats for the last quarter of the year, which is a growth that we can expect for the first half of 2016.

Just a little bit of background of this airport; just remember, everybody, the bridge will bring together the Otay Mesa terminal in the US and the Tijuana International Airport in Mexico by way of a large factor, expanding opportunities for attracting exponentially larger passenger numbers at Tijuana Airport.

Currently Tijuana's terminal operates 114 daily operations and realizes an average of 12,500 passengers per day, one of the highest traffic figures in Mexico at this time.

And now moving to Jamaica, tourism in Jamaica operated as per our expectations. At the end of the quarter, Montego Bay reported continued solid growth numbers, which is 953,000 passengers total in this quarter, a 5% growth compared to the last year. The most important contributors to this growth level are American Airlines, [Trans Jet], and Spirit, which increased their seat capacity by 13,000 seats.

(Inaudible) refers to its recovery. 2016 will see 60,000 additional airline seats, which is double versus the corresponding period in 2015. Entirely new services confirmed for the upcoming winter season and 2016 include Los Angeles and Houston Hobby in the US and their new European destinations in Cologne, or Oslo and Dublin.

As such, we expect increased traffic in the future, and are already seeing important growth and investment in the area. Fortunately, in 2015, more than 1,000 hotel rooms were added to the western part of the island, with an additional 1,500 hotel rooms planned to open in 2016, bringing the total number of confirmed hotel rooms to 20,000 from the current 16,600, an increase of 20.4 (inaudible -- technical difficulties).

Again, one moment while we reconnect our speakers. Please stay on the line.

Thank you. We now have our speakers back in conference. Sir, please go ahead.

Okay. Okay, thank you. We are talking about the -- concluding the development in Jamaica and some information that was offered within the last weeks in the specialized newspaper.

Within the third quarter, Karisma Hotel and Resort, a fast growing, purely the best operator of the high-end rented properties, announced plans to build hotels and resorts in Jamaica's north shore over the next decade. The first 1,200 rooms are expected to be ready to take in guests just in time for the 2017 to 2018 winter tourist season.

Hotel investment is scheduled to be upward of $900 million. This is separate from the $45 million it's spending on a 149 room property to be called Azul Seven, now under construction in Negril on Jamaica's west coast. Just to give you an idea of the level of demand in this area, the hotel in Negril was running at 100% capacity immediately after opening.

Another hotel group, Royal Decameron, plans to add 150 rooms by 2020, at each new hotel with up to 500 rooms. Other planned investment for the end of the decade includes Lido Braco with 250 additional rooms and the construction of three hotels and casinos by [Chen] Harbor totaling 2,500 rooms.

The airport is also [coming]. Particular attention is being paid to the commercial and support services requirements, both within the terminal building and land side, including a more efficient operation in our cargo center and better parking in current hotel facilities.

Now in terms of the commercial highlights, I am recalling that, as a result of the increase in traffic at Guanajuato and Aguascalientes airport during the last 24 months, we have taken steps in order to adapt our commercial services to rising passenger demand.

Most importantly, we have ensured (inaudible) to support the implementing and running of (inaudible) in this airport. Both of these airports have new single operator contracts which provide greater flexibility to opening new restaurants or coffee shops, as passenger demand required it.

At Guadalajara, during this quarter we began a marketing campaign to give more visibility to the car parking services that focus for us value-added services in the new parking structure and increasing the loyalty for long term users, a kind of loyalty program. We created a three layer product.

The first one is the short term parking business within the long term parking program, and then a very low cost coverage. As a result, we experienced double digit package sales increase when compared to the third quarter 2014, as well as a significant growth in the level of the car park revenues.

We also offered the new and improved full core facility at the Guadalajara airport as part of our way forward to improve our commercial offerings at the international departure gates.

Puerto Vallarta is now enjoying the result of the refresh of their main duty-free store and new food and beverage services at the international departures area. Currently we are in the process of building a new VIP lounge. I have showed you today a strong demand and potential.

At the end of 2015, we began work to remodel the domestic and international arrivals area in order to achieve a better ground transportation experience for our passengers. Terminal One is opening its redesigned layout, completely redesigned to maximize commercial potential. Additionally, Terminal Two will double the capacity size of the VIP lounge for this winter season.

And finally, the Montego Bay airport is currently running a request for proposal in order to determine an advertising operator for the following years. We are seeking alternatively to put in our commercial plan to improve quality and revenues in this category and destination.

Regarding the latest update with the situation with Grupo Mexico, after the sale of 7.5 million shares, this currently has taken GAP (inaudible) to 17.6% of the total shares.

In terms of the proceedings, the Mexican Supreme Court has already issued a writ on their solution. We are just awaiting the higher court of Mexico City to issue the official resolution. We were expecting this by the end of the month of August, which is what we had talked in the second quarter conference call. However, at this point in time the final resolution has not been officially made.

Thank you so much for your attention and patience. I know that was a lot I've covered, but it was fortunately an eventful quarter. I will now turn the call over to Saul for the financial part of the presentation.

Thank you, Fernando. Good morning, everyone. I will briefly review the financial highlights for the third quarter of 2015.

Aeronautical revenues increased MXN445 million, or 46%, quarter-over-quarter, mainly due to the consolidation of the Montego Bay airport, which contributed MXN241 million. The passenger charges represent the main revenue, with 72% of this amount.

The remaining MXN204 million of the increase came from higher passenger traffic in Mexican airports and the adjustment for aeronautical tariffs corresponding to 2015.

In terms of non aeronautical revenues, this increased MXN173 million, or 54%, during third quarter 2015. This increase was mainly driven by the consolidation of the Montego Bay airport, which earned non aeronautical revenues of MXN92 million. These revenues come for duty-free spaces, commercial spaces, and food and beverage, and represent 73% of this amount.

Mexican airports' revenues came in from the business line operated by three factors, primarily due to the revenue from car rental companies leasing office space, and time share developers and food and beverage, which together increased MXN43 million or 29%.

Additionally, revenues from business lines directly operated by the Company increased by MXN30 million, or 30%, mainly due to the revenues from convenience stores and advertising and VIP lounges. The non aeronautical revenues represent the 26% (inaudible) aeronautical and non aeronautical revenues in this quarter.

In terms of our consolidated operating cost, this increased MXN255 million, or 37%, compared to third quarter 2014, mainly to the consolidation of the Montego Bay airport, which had operating expenses of MXN203 million, which is comprised of concession taxes of MXN40 million; depreciation and amortization costs with MXN33 million; employee costs MXN26 million; utilities MXN22 million; safety, security, insurance MXN16 million; maintenance MXN15 million; besides the amortization of the concession fair value by MXN38 million.

On the other hand, operating expenses in our Mexican airports increased by MXN62 million, or 8.6%, compared to third quarter 2014. It was a net effect of an increase of our operating expenses of MXN224 million, which was offset by the recognition of a MXN162 million gain in fair value determination for the acquisition of DCA and MBJ, which is a one-time income but without any cash inflow.

The MXN224 million of operating expenses of Mexican airports are comprised of the increase of cost of improvements to concession assets of MXN173 million; depreciation and amortization costs MXN31 million; concession taxes MXN40 million; technical assistance fee MXN13 million; cost of services MXN10 million; and reduced by other income of MXN7 million.

As a result, EBITDA was MXN1,493 million in third quarter for 2015, which increased 71% compared to third quarter 2014, mainly to the consolidation of Montego Bay contributing with MXN203 million and the recognition of a gain from the determination of the fair value of the DCA and MBJ acquisition, which contribute MXN162 million. It is a one-time other income.

Our EBITDA margin, excluding the effects of IFRIC 12, was 78% for this quarter. It's worth to mention that recognition of gain from the determination of fair value represents 3%.

The financial costs increased this quarter by MXN402 million. This increase was mainly due to the foreign exchange rate loss of MXN275 million, derived from $199 million denominated loan incurred in connection with the acquisition of DCA.

Additionally, the Company recognized a foreign exchange rate loss of MXN101 million, which was determined from the conclusion of the fair value measurement since the acquisition went into effect January 1st, 2015. Consequently, GAP had to recognize a debt with [authorities] since then, and until the date of payment on April 20, 2015.

Therefore, the Company recognized the depreciation of the peso against the US dollar of 3.4% from an exchange rate of MXN14.73 per US dollar compared to an exchange rate of MXN15.26 per US dollar at the date of payment to authorities.

Then the total loss on the acquisition of DCA shares was MXN376 million for this quarter. It is worth to mention that the foreign exchange rate loss was partially offset by the recognition of MXN361 million in gain from currency translation effects recognized in the comprehensive income.

This effect is derived from the translation of the DCA and MBJ assets from US dollars to pesos. Therefore, the deprecation of the Mexican peso represents a currency translation gain.

Furthermore, the Company had the following financial costs; the interest expenses related to MBJ's debt was MXN21 million in this quarter; interest expenses on loans for capital investments in Mexico increased 22 million; financing interest on the loan for the acquisition of DCA was MXN7 million. These expenses were partially offset by an increase in interest income of MXN25 million.

Finally, net income and comprehensive income in third quarter 2015 increased MXN462 million, or 87%, of which the MBJ contribute MXN87 million, as well as the gain from the determination of fair value of the acquisition of DCA and MBJ of MXN162 million.

Income taxes increased MXN14 million in third quarter 2015. Tax expense for the Montego Bay airport was MXN22 million, while the Mexican airports experienced a current tax increase of MXN70 million and deferred tax gain of MXN78 million.

There have been a lot of market questions lately related to the fair value of the DCA/MBJ acquisition assets. I hope to shed some light on this matter right now.

The fair value of the DCA and MBJ acquisition asset was determined by an appraisal firm which used the current methodology to compete the measurement of the fair value of the acquired asset and assumed liabilities as a result of the DCA/MBJ acquisition, as well as their accounting treatment.

DCA's participation in the terminal area of Santiago was not recognized, since this concession concluded on September 30. This investment would result in a recovery value of approximately $3.5 million.

The acquisition of the business is accounted for in accordance with IFRS III combination of business under the purchase method, and requires the identification of goodwill or a gain in the fair value due to the transaction.

The acquired net controlled asset value results on the measurement of the fair value of the net assets from the acquisition of DCA and MBJ of MXN3,805 million minus the non-controlling interest of Vantage of MXN813 million results in MXN2,992 million.

This amount, when compared to the total payment amount of MXN2,830 million at the acquisition date, which gain generates a gain in fair value of MXN152 million, which is recognized in the consolidated comprehensive financial statement under other revenues.

It is important to mention that it doesn't represent a cash inflow. It is only the accounting recognition of the fair value measurement. I know that is a lot of information and I can take any additional questions on this matter in the Q&A section.

With this regards to dividends, it is important to mention that we will be issuing a payment for the financial end of this year in the amount of MXN789 million or MXN1.50 per outstanding share during November 2015.

Lastly, we have upwardly revised our guidance one more time based on GAP's extraordinary performance from both the Mexican and the Jamaican operations. The new figures are traffic increase over 2014 25%; total revenue increase versus 2014 42%; EBITDA will increase versus 2014 43.0%; and EBITDA margin for 2015 will be around 70%. Total CapEx for this year will be around MXN1,500 million pesos.

And with that, I conclude my comments and ask the operator to please open the floor for your questions. Thank you, everyone.

Thank you, sir. (Operator instructions.) Ricardo Alves, Morgan Stanley.

Hi, Fernando and Saul. Good morning. First question is on Tijuana. And I apologize, the audio was not very clear and I know you guys mentioned this. But, just if you could give a little bit more information on how the airlines are adding capacity to anticipate the bridge now in the fourth quarter. So, it may be helpful for you to remind us what kind of growth you're expecting for Tijuana in the fourth quarter and, maybe even more important, 2016, assuming that the bridge is fully operational by December this year. So, that's the first question, Tijuana.

And the second question I wanted to ask you is on Puerto Vallarta. We did see a weaker performance on Puerto Vallarta versus what we saw in the first half of the year. I know that we also saw that last year and the previous years, some margin deterioration in Puerto Vallarta from the first half to the second half. But, since the decline on margins were a little bit above what we expected, so just wondering if there was something specifically going on in Puerto Vallarta, given that the traffic was actually pretty decent. So, that's it. Thanks again.

Thank you, Ricardo. Let me express my confusion with the problem that we have with operations with the communications system. That was changed, the system, for -- on a more sophisticated solution and finally, to repair the problem today, was moved back using the traditional land network. So, I am sorry for everybody. I think it's also some of the problem is related to the network, that they are inside of the country.

Okay. To answer your question about Tijuana, the rest of the airlines is taking positions because the marketing effort to explain to airlines how will be our expectation of the use of this bridge or this facility is something that is moving very quickly in the last quarter of the year, the movement of some the airlines.

Now we know that the announced the increase of the volume of seats is 17% for the last quarter of the year. That answers your question. 17% is distributed between all the airlines. You remember in my presentation talking about VivaAerobus. And very importantly, Interjet is increasing the seat capacity, and also Aero Mexico and Volaris continue putting in more capacity.

Our expectation for the next year, the first quarter, is that will improve the volume of passengers. But, we need to know some the reaction of passengers, what will be in the initial weeks the use of the bridge, how will be the impact in the newspaper, and how will be attract more interest of other passengers to use this new facility and state of the art to the traditional border that is used in Otay and San Ysidro.

But, our expectation for the future is of course very successful, taking a big portion of the market that now is moving from south California to Mexico using this facility and departing from Tijuana instead of from San Diego, Los Angeles, and other airports.

And coming back to Vallarta, our expectation in Vallarta is during the quarter was an important increase in terms of the revenue. Remember the total revenue increased more than 30%, and the commercial side is also increasing importantly. And in general, the EBITDA is growing. We are in the range of -- in this airport in the range of 74%.

So, we are very, very happy that -- how was the reaction of Vallarta and the opening capacity. And they continue growing the new project in Nayarit area, and more demand from Europe and from other cities to visit Vallarta more than any other destination.

So, we are -- also that was part of our concern in the last three days with Patricia here again. But, finally it has not affect nothing, not at all, in the airport.

Okay, perfect. I was just wondering if there was something going on in the cost side here, but okay. That was clear. Thanks, Fernando.

Okay. Thank you, Ricardo.

Stephen Trent, Citigroup.

Good afternoon, gentlemen, and thanks very much for taking my questions; two or three from me, if I may. Saul, I appreciate your color on the adjustment you made. I'm looking at your release, and if I back out interest expense and interest income I get a number that's similar to the non-cash FX charge that you mentioned. I am not able to understand where that MXN361 million was run through the income statement. Your release says it was revenue from a currency translation. So, is it actually buried in the revenue line?

Okay. Well, the currency translation is just an accounting effect to recognize the translation from the asset that we have in US dollars from Montego Bay, and to consolidate all the numbers with Mexican airports. That's why we have a revenue or a benefit in this side. We were -- that MXN361 million, it is the number that we have in the income statement.

Okay. I have maybe a few more questions. I'll take the rest of those offline, and just a couple of others. On the Tijuana/San Diego bridge, I mean, fairly early at this point, but looking at US presidential elections and at last comments from some of the main candidates at this point, do you have any concerns that that bridge could be reassessed depending on what happens next year?

Hello, Stephen. It's Fernando.

Hi, Fernando.

Thank you to ask about this, that it kind of -- it's clear that the bridge will be opened in 2015. December second week is our expectation. That is completely in the process.

The CDP received the facility on the other side in the state. They are preparing all the systems to be more effective in the operation. I mean, the Mexico side is completely ready. All the system was checked two times, three times. And all the operation manual to be successful in the management of this facility for both sides is completed.

So, we are not seeing any difficulties to be opened, and it's not affected for the next year election period. That is something the US agreed in both countries, and we have all the permits to initiate the operation in December.

Okay. Appreciate that, Fernando, very helpful. I was wondering, just two other quick questions and I'll let someone else ask. The guidance that you guys mentioned for this year, the guidance increase, rather, and the EBITDA guidance increase, are you including the gain that you got from Montego Bay, or that's not included?

yes, it's GAP international guidance, so that includes all the consolidated figures. In terms of traffic, revenue, EBITDA, all that is included in this guidance.

And the gain too.

Yes.

Got it. Okay, very helpful. Finally, I didn't get a chance to ask last time, but looking at Montego Bay, the large increase that you received in regulated revenue. I believe it was last quarter -- excuse me, 2Q rather. Any color as to what was the driver for getting such a big increase, one? And two, what does this mean in terms of CapEx requirements for that asset versus what they were previously? Thanks.

Okay. Stephen, the change in the tariff was approved after a long negotiation with the previous stakeholder of MBJ during 2014. The civil aviation authority is responsible of the check and review, and negotiated how could be the new tariff for five years. They issued the approval at the end of the year. I think it was the end of November 2014.

And the increase was only in one of the tariffs. That is the tariff effective to the international departing passengers only that was increased. All the other tariffs will remain in the same level that was before.

So, the impact also was because at the end of March the airport improvement fund that means $5.00 per departing international passengers was also offset and retained for the authority in order to develop with the airport operator the facilities for the future.

All the investment that will require for future expansion of the airport will use this AIF, airport improvement fee, and that means that before the airport could discharge this $5.00 as a revenue stream. So, all these changes was also -- that is my opinion about that -- the end consideration of the civil aviation when they increased the passenger fees in this $10.08 per international departing passengers.

But, the impact is huge, and we know about that during the process to assess the concession. It is part of the value that was paid for that.

Okay, appreciate the color. And I'll let someone else ask a question. Thanks, guys.

Thank you, Stephen.

Pedro Balcao, Santander.

Yes, good morning, everybody. My first question relates to your traffic guidance for 2015. You kept it at around 25%. My question is if your expectation for the domestic operations is still 9% to 10%, or if you actually are expecting a different mix with a double digit traffic growth in the Mexican operations. That was my first question.

My second one is just if you could please give us some more color on Puerto Vallarta, and in particular about the hotel capacity, if it was indeed not affected at all and if we could -- what could be the impact of what happened during the weekend with Patricia on the total traffic of fourth quarter? Thank you.

Thank you, Pedro. I will initiate my answer related to Vallarta, and my colleague Saul will answer the question of the traffic. He will talk in our fully up arena.

Okay. Our understanding about how was the impact on the hotel capacity in Vallarta and the area of Nayarit, at this time we didn't receive any negative comment from the sector for the operators of this area. As of yesterday, talking with our governor of Jalisco, talking about how was the feeling about the reduction of capacity or damage in the hotel, and he told me that there are nothing to report.

Basically, all the hotel capacity is full without limitation; some damage about the water in some roads in the city and also around the mountains that surround the city. But, immediately in the coast, the beach areas and in the area of Nayarit and in Jalisco, they are not suffering important damage that limits the capacity of hotel rooms.

Okay. And about the traffic, Saul?

About the traffic, we can say that domestic passenger traffic will keep in the same pace that we saw in September, moving in that way there. Again, we will be in a total growth of terminal passengers of 10% in Mexican airports.

However, we know that the comparison of Los Cabos will be better, much better, because we will be comparing three months of 2014 with the affection of Odile. Therefore, our growth -- our main growth will be in the side of the international passengers. And the domestic passenger will be in the same level that we saw in September. Therefore, we will finish this year around 10% of growth, roughly.

Thank you, very helpful.

Really, the impact of Odile last year in September only was two weeks and in total about 100,000 passengers. So, you reduce this amount in the -- or complete this for 2015. You have to be -- consider that the important increase in the traffic that was experienced during September is really not only the effect in Cabos.

It's also the important increase in many other airports. It's mainly in terms of the total passengers in Guadalajara, Tijuana, Aguascalientes, Bajio, Vallarta. So, in the total of our 13 airports, I think there are at least six airports at issue with, for instance, that very important increase in traffic.

Cabos is in the process to -- the recovery process. And now we have more traffic in domestic terms than one year before, and we are very close. I think it's at this time, middle October, was recovered completely the international figure that was experienced during previous year up to the same date.

Thank you very much. Could I ask one final question? Would it be a surprise if the fourth quarter traffic growth, I mean of Mexican operations, is in line with what we saw in September? Could that be the case, that we have an above 20% traffic growth in the fourth quarter?

One other thing, Pedro, is again the question of Cabos. In October last year, the total traffic during October was in the range of the 100,000 passengers. However, for the current year, it will be full traffic.

So, that will be a very, very important increase that contributes to the total increase in our group of airports. However, Guadalajara and Tijuana will show a very important increase and the same what happened in Guanajuato. And so, some of the figures that we are looking specifically week to week is that October will be also very, very positive; very, very positive.

Thank you. Thank you very much.

(Operator instructions.) Pablo Balthazar, GBM.

Hello. Good morning. Thank you for taking my question. Could you give us a little bit of color on the exchange rate that is implied in the new guidance you released because of recent strong volatility on FX now?

Well, the effects of the exchange rate is not included in the EBITDA. It's only in the side of the comprehensive income at the end of the income statement.

The EBITDA will have obviously including the -- or we are recognizing in our projections the level of the US dollar exchange rate in the revenues and in the operating cost, but not for the financial cost that we have from the loan for the acquisition of the DCA. And we don't have the currency translation effect in the numbers that we provide for the guidance. It's only in the line of EBITDA.

I don't know if I am so clear about --.

Let me complete this. The answer to the question is exchange rate has important impact in positive in some of our non aeronautical revenues in Mexico. But, also because the functional currency in Jamaica in Montego Bay is US dollars, also we some impact when we consolidate all the revenues coming from Jamaica but also in the expenses.

Well, yes. We are expecting the projection at the end of 2015 will be in the level of MXN16.25 per US dollar. We are expecting that.

Okay. Thank you very much. And the other question, now that Los Cabos -- while it's back to very similar traffic levels than the ones witnessed last year before the hurricane, I know year-over-year comps will be easy. But, do you expect it to continue growing in terms of traffic in like month-over-month comparison, like a trend, I mean?

Yes. Pablo, remember that in 2014 -- sorry, 2015, the first and the second quarter experienced, in the case of Cabos, less traffic that previous year. That was because the hotel capacity was affected by the Odile hurricane.

Now in time for this winter season, practically 100% of the capacity, hotel capacity, was recovered. Our expectation is that during all the next two quarters also in 2015 will -- percent will show important increase in terms of the traffic, but also some of the hotel capacity was improved in terms of the quality and also number of rooms. So, along of the second quarter of 2016 will be more capacity in rooms than before Odile.

And that triggered our expectation that the traffic not only will increase because the difference in the one year turnover for the effect of Odile; also because its experienced more capacity and the increase of the demand for this destination.

Okay. Thank you very much. That will be all. Thank you.

Thank you, Pablo.

(Operator instructions.) Josh Milberg, Morgan Stanley.

Good afternoon and thanks for the question. Just to follow on to Ricardo's question earlier, you mentioned the capacity that's being added in Tijuana. I was hoping you could just comment a little bit more on what you're seeing in terms of capacity additions by the US airlines. I think you referred to this in your initial comments, but because of the audio I missed some of that. And so, I just wanted a sense of what you're seeing the US airlines -- what they're doing in terms of capacity and what you expect going forward.

Okay. So, our expectation in the first stage of the development of the (inaudible) is more related to the domestic airlines. Volaris, Aero Mexico, VivaAerobus and Interjet will provide more capacity, more seats for the last quarter of the year.

The increase in the capacity in these four airlines is in the range of 17% more than before. So, our expectation is related to this capacity. That is easy to follow looking the reservation system that they are. So, that is clear because we are just in this system.

And once that will be opened, the new facility, I think it's also going to trigger extra increase in the capacity. But, that will depend on how is the experience of passengers using this new facility.

You're in a wait and see mode with respect to the US airlines? You haven't -- so far you have not seen much movement in Tijuana specifically?

The first stage is just pretty difficult. I think our marketing effort will be to bring to Tijuana operations from Asia, because it's a good opportunity to go into countries arriving by one airport. So, that way will require some time to present the guests of some of the Asian airlines and finally obtain the permit.

But, that is something more for 2017. And during 2016 will be the opportunity more for the domestic carriers. Also, there is some opportunities for the US carriers, if they want to use Tijuana to connect some other airports in the state. But, I think that will require more time to understand how is the use of passengers of this facility and the volume that they are moving. So, for the moment our expectation is more for the Mexican carriers.

Okay. Thank you very much.

Thank you, Josh.

(Operator instructions.) At this time, I am showing no further questions. I would now like to turn the call back over to Mr. Bosque for closing remarks.

Thank you. Once again, we appreciate your attention today. Please contact us with any further questions or concerns you may have, and have a good day. I'm sorry for the communication problems. Thank you, everybody.

Thank you, everyone. This now concludes today's conference. You may now disconnect.