Grupo Aeroportuario del Pacifico SAB de CV (PAC) 2016 Q1 法說會逐字稿

Good morning, everyone. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the GAP First Quarter 2016 Earnings 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. Ma'am, please go ahead.

Thank you and welcome to Grupo Aeroportuario del Pacifico's first quarter conference call. Today from the Company we have Mr. Fernando Bosque, Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer.

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

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

Good morning, everyone. Thank you for your continued interest and for taking the time today to join us in this call. We are very enthusiastic about the 2016 year that is underway. For one, GAP is successfully integrating its 13 airport with its [scaled] new international presence, we have the incorporation of Montego Bay. Second a minor, aerospace industry continued to be very active with lower fuel prices, driving the increase in domestic and international travel. Also the Company's destination led by Los Cabos and Tijuana are showing positive and stable results, which we expect to continue in the coming quarters, during first quarter 2016. The Airlines increased their seat capacity around 3% and load factor was around 80% in our network in Mexico, which is 1.4% higher than last year.

Let me begin with general traffic review for the first quarter of the year, while we experienced an increase of approximately 1.4 million passengers, mainly driven by the higher traffic into Tijuana , Guadalajara and Los Cabos. In that order, which jointly represents 57% of the increase. Domestic passenger traffic increased by 919,000 passengers, while the international passenger traffic grew by 437,000, representing an overall increase of nearly 20% for our Mexican airports compared to the first quarter of last year.

A lot of these traffic was partly driven by the Tijuana airport, which is already seeing the benefit of the cross-border facility, which enable the fast and efficient transfer from San Diego to Tijuana and vice versa. Not only are we seeing a larger number of travelers from Mexico using this facility, but the popularity with San Diego resident is readily increasing as well, as you can see from our numbers. We expect this continue to be the case, particularly as people in the area become familiar with the facility and the benefit for using it in order to lower the wait times, as well as their travel costs to various value destination.

Aside from Tijuana, which was by far the star this quarter, almost all the other GAP airports posted double-digit traffic growth as well, including Los Cabos, Guadalajara and Guanajuato. Five new routes opened during the first three months of the year, which benefited our network. These were Monterrey, by Volaris in Los Cabos; by Aero California (inaudible) Guanajuato; Guadalajara and then the new connection to Los Mochis with AeroMexico. In Los Cabos Volaris added direct service to Toluca and finally Interjet opened the Guadalajara-Los Angeles route this past February.

During the coming months, we're expecting other new services to begin. Some of which were already announced for the rest of the year. While the domestic and international markets would be benefitted from the following new services during the next months, Guadalajara-Cancun and Guadalajara-Merida by AeroMexico; Guadalajara-Culiacan and Guadalajara-Chihuahua by VivaAerobus; Puerto Vallarta-Toluca by Volaris; Puerto Vallarta-Montreal by Air Canada; Los Cabos-Tijuana and Tijuana-Chihuahua by AeroMexico; and finally Montego Bay to Dublin by Delta.

As you know, there were two factors this year versus last year to enable travelers. These were the additional day during the February calendar month due to Leap Year and the Easter vacation further taking place in March, while in 2015 it took place in April., so this factor positively benefit traffic in our network.

Looking at each airport, I just want to highlight some of the main developments. Starting with our Bajio region airport, both Aguascalientes and Guanajuato continued to experience solid growth rate. This quarter under discussion, respectively the strongest first quarter period in the story of the two airports and the main reason behind the success was the unprecedented industrial development of the Guanajuato region that is taking place right now, particularly the auto manufacturing sector is driving an economic boon in the region that is stimulating travel to and from the city like never before.

In Guadalajara, the strong passenger traffic increased over 15% of this airport that was experienced during the first quarter, reflected just now important this airport has the main connection point in West of Mexico. This past February, Guadalajara become the third largest airport in the history of Mexico to transport more than 10 million passengers during the 12 months period.

Moving to Puerto Vallarta, the airport completely its 12th consecutive quarter of passenger growth during the first quarter of the year. What we are seeing here is the domestic market that keeps growing at a steady pace, benefited from the new service added during the last year, including new routes to Guanajuato, Durango and San Luis Potosi.

On the international side, Southwest has been the main contributor to the Puerto Vallarta growth with a recently added daily services to Denver, Houston and Orange County. In Los Cabos the number of hotel rooms in this city has reached an all-time high with nearly 12,000 available rooms of the destination. We believe that Los Cabos is now fully recovered from the impact of Hurricane Odile. Furthermore, load factor increased around 7% during the first quarter of the year, growing from 77% to 84%. This is the highest increase in load factor for the entire group of airport managed by GAP.

At Tijuana, as I mentioned, this airport had a great beginning of the year, experiencing the highest traffic growth in both percentage and total passengers in the Company. Tijuana continue to be in the preferred entrance point to Southern California from travelers from and all over Mexico, which has always been the case. However, currently the foreign exchange rate between the US and the Mexican peso has also brought a significant benefit for the airport, but it has become more of a devil compared to other airports in the region.

With the Cross -Border Xpress, which has also played a major role in the success story. The bridge has been used by more than 350,000 passengers since the inception, presently obtaining a 20% penetration rate over the total passenger transported at the Tijuana airport. In fact, the official opening of CBX took place [approximately] on April 6 and we were fortunate enough to have with us the participation of three Mexican Government Minister and various US authorities as well as our Chairwoman for this event.

Finally the Montego Bay continue experiencing the benefit of the growing European charter markets. Chartered passenger traffic grew an amazing 24% during the first quarter of the year, as a consequence of very low fuel prices and the situation of the Northern African leisure market with was the (inaudible) airline attention to our long-haul opportunities in the Caribbean. Overall, it was the best first quarter in the history of the airport.

Now in terms of commercial highlights, during the first quarter of the year, we have served an impressive impression in our VIP lounge network, which has served nearly 300,000 passengers during the last 12 months. We are entering the final construction stages for the new launch of Guanajuato International Airport, to be opened during the second quarter of the year. We are also into the final stage of the new arrival lounges at the Puerto Vallarta and Los Cabos Airports. Of these, we'll make up the largest VIP airport services provided in Mexico by the year end.

Car parking continue to be the most important commercial revenue generated in the Mexican airport. Traffic increased at record levels in Guadalajara and Tijuana, the most important large cities where the Company operate parking buildings. On a final note regarding car parking, we expect to launch customized car parking first at the Guanajuato Airport next month and we expect to increase our capacity for overnight users at the Guadalajara Airport, towers and extended stay format and this seems to be a popular request from our customers.

Aeromarket, our in-house news and gift shop brand saw increased sales of above 50% during the quarter. For the first quarter 2016, GAP operated 19 stores compared to the 13 stores that was operated in the first quarter last year. Currently, we are further expanding our portfolio of products, as well as working to create a franchise model to generate value from the Aeromarket brand, which is now very well recognized throughout the regions.

On a final note on Montego Bay, we are analyzing several opportunities for increasing commercial activity in this Caribbean destination. As such, our team is completing a new commercial plan, combining the best practice that we had learned from our experience in Mexico, as well as our local expertise in order to maximize a future master plan of this airport.

In other matters, we continue with the construction works for the expansions and improvement to our airports, mainly in Guadalajara, Tijuana, Los Cabos, Guanajuato and at Manzanillo. So far everything is in line with the rest scheduled for this quarter.

Our Annual General Ordinary and Extraordinary Shareholders' Meeting was held on April 26, reaching a [polling] of above 80%, all the items were approved as proposed, namely the approval of the financial statement of the fiscal year 2015, the approval of a cash dividend payment of MXN4.07 per outstanding share to be paid in two tranches, one in August and the other before December end for this year. The approval of our capital reduction of MXN3.33 per outstanding share and it is announced to be paid on May 9, 2016.

Our Chairwoman was rectified, two new directors were appointed to our Board, one by our strategic partner, AMP and the other by Grupo Mexico, who replaced the previous one. And the rest of our Board members were rectified. To conclude, I would like to mention that the legal proceeding with Grupo Mexico continued to have the same legal status, we do not have further news at this point. However, Grupo Mexico announced on April 10th that its stake in GAP is now at 14.9%. Therefore we see that they continue to sell-off their stake.

Thank you. Thank you so much for the attention. I will now turn the call over to Saul for the financial part of the presentation.

Thank you, Fernando. Good morning, everyone. First of all, it is important to mention that due to the acquisition of DCA concluded on April 20, 2015 financial and operating information for the fiscal 2015 will do not include that consolidation of the Montego Bay Airport. Therefore, information for the first quarter of 2016 may not be directly comparable.

I will briefly review the financial highlights for the first quarter of 2016. Aeronautical revenues increased MXN597 million or 54% roughly. Quarter-over-quarter, mainly due to the integration of the Montego Bay Airport, which contributed with revenues of MXN324 million, as well as MXN373 million increase from the Mexican Airports, generated by the higher passenger traffic and higher targets.

In terms of non-aeronautical revenues, this were up MXN196 million or 51% during the first quarter 2016, compared to the same quarter of 2015. This increase was mainly driven by the integration of the Montego Bay Airport, as well as revenues from business operated by third-parties such as duty-free, car rental, venture developers, food and beverage, among others. While revenues from business operated directly by the company increased MXN33 million.

Regarding consolidated operating cost for the quarter, this increased MXN604 million or 68% compared to first quarter 2015, mainly due to the consolidation of the Montego Bay Airport, which had operating expenses of MXN280 million, mainly comprised of the following charges; concession taxes MXN104 million; cost of services MXN95 million; amortization of the concession for MXN43 million and depreciation of the fixed assets for MXN38 million. These expenses were in line with our estimates.

Meanwhile, operating expenses in our Mexican Airports grew MXN324 million or 27% compared to first quarter 2015, mainly due to the improvement to concession assets, which increased by MXN229 million. This is an accounting effect that doesn't represent our cash outflow. However, cost of services increased MXN45 million, concession taxes increased MXN18 million, depreciation and amortization increased MXN17 million and the technical assistance fee increased MXN15 million. Without the effect of improvements to concession assets, our operating expenses increased 15%. As a result EBITDA rose by MXN515 million or 47%.

Our EBITDA margin excluding the effect of IFRIC 12 was 70% for first quarter 2016. The Montego Bay Airport contributed with MXN233 million and Mexican Airports with MXN282 million. We report our financial costs of MXN50 million in first quarter 2016, up MXN42 million from the MXN8 million in financing cost reported last year. This amount is mainly comprised by a foreign exchange rate loss of MXN28 million and financing interest expenses of MXN56 million, which includes MXN14 million in financing interest expenses related to Montego Bay Airport's debt, MXN21 million in interest expenses on loans or for capital investments in Mexico, and MXN11 million in financing interest expenses for the loans taken for the acquisition of DCA. These expenses were partially offset by interest income of MXN42 million. It is important to remark that foreign exchange rate loss is compensating with the currency translation effect that resulted in a gain in first quarter 2016.

Comprehensive income in first quarter 2016 was up MXN365 million or 55% compared to first quarter of 2015. Of this increase, MXN258 million was contributed by the Mexican Airports and MXN107 million by the Montego Bay Airport. The cash tax of the first quarter 2016 was 28.5%. However, the effective tax rate was 22% due to the effect of deferred income tax. It is important to mention that despite the decrease in our EBITDA margin resulting from the consolidation of Montego Bay Airport, our operating flow increased 46% around MXN480 million in first quarter of 2016. Lastly, the aggregate of dividend and the capital reduction payments approved for 2016 totaled MXN7.40 per outstanding share, representing an increase of 32% over the payment made in 2015 of MNX6 per share.

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

Thank you. At this time, we will open the floor for your questions. (Operator Instructions) Pablo Zaldivar, GBM.

Hello, good morning. Thank you for taking my question. I would like to ask you to give us a little bit more color on your expectations on Tijuana's traffic? On the last call you were calling for around 500,000 additional passengers in the first year, but in the first quarter we have around half already of that figure. So, I don't know if you could tell us if the expectations have changed, specifically in the airport, because we saw a guidance adjustment in last month's traffic report? What are you seeing in terms of Tijuana's expansion?

Thank you, Pablo. Good morning. Yes. After four months of the operation of the Cross Border Xpress in Tijuana showing that very important increase in the total volume of traffic in the airport. However, it is not easy at this time to know what portion of the total increase in the traffic in this first time is coming just only for the opening of the cross-border. There are important changes in the aeronautical -- in the sector in Mexico and many other countries. A portion is filled by the price of the oil prices, giving an important effect in the demand because some of the airlines has put in more capacity and adjusting tariff, and that is triggering more traffic.

In the case of Mexico also, there are the extra more capacity providing by some of the operators. The case of Volaris is the main operator in our network and also is close to 70% of the total traffic in Tijuana Airport. So, a portion of the increase is coming from the newer strategies, more capacity and another portion is coming from the opening of the cross-border. So, it's not easy to say today that the impact of the opening of the cross-border to be higher on this 500,000 passengers that was mentioned in the previous meetings. I think as we need at least to cover six months, nine months to know more about that and to investigate doing the interview to passengers to know what portion of them is coming to the Tijuana Airport only for the opening of the cross-border.

Okay. Thank you very much. That's very clear. And on the other hand, in terms of Montego Bay, last quarter we saw an EBITDA margin of roughly 50% and during this quarter it was a little bit higher more around 54%, if I remember. So going forward, what would you expect in terms of the margin of the airport figures closer to the last quarter or more in line with this quarters?

Hi, Pablo. No, the EBITDA margin of Montego Bay will be normalized at the end of the year, around 50%, 51%. At the beginning of the year, the expenses are little delay in our 13 airports. Therefore, our EBITDA margin is higher than expected at the end of the year, but we'll be more close to that 51%, 52% in most, but it won't be 54% for sure.

Thank you Saul, but also think about that the growth of the traffic is more in the first quarter of the year and also during the first quarter, we are enjoying now an important increase in the tariff that was initiated in April 2015 and so now we have in this first quarter done specific changes that we will move to the margin that as Saul has mentioned at the end of the year. So if the first quarter is quite little different that -- that will be entire year.

Rogerio Araujo, UBS.

I have two questions. First, on passenger growth, even when excluding Tijuana, GAP grew passenger growth by 16.5%, while your peers grew less than 10%, which sectors do you watch to boost this outperformance on passenger growth versus your peers? And my second question is regarding commercial revenue per passenger, we saw this rates show increase in low single digit basis in the first Q, I would like to know what should be the main drivers for GAP's commercial revenues in the coming quarters and if you could see this growth accelerating? That's it. Thank you very much.

In terms of the differentiation between the traffic evolution in GAP once you compared to our peers OMA and ASUR, of course we have found specific things that was not happened before last year or by our peers. Now remember, during the first quarter 2015, when you compare to the government, there is a question of a traffic in Cabos and that was affected by the Odile, so in the current year we have an important increase. Similarly we have the question of Tijuana Airport, I mentioned that the traffic was triggered also by the cross-border openings and -- but simultaneously is a question of how is the fleet. There were fleet of some of our main carriers as VivaAerobus and also Volaris that is both providing more capacity in our airports. And you are compared to the other airports, to our peers, they are in different situation when compared with the previous quarter -- in previous-year quarter.

And in the case of the commercial revenue, when you are experiencing a very important increase in the volume of traffic and the ratios of commercial passenger airport traffic, could be eroded, could be reduced because it's not enough some of the areas and the concentration of the peak times, peak hours to provide or to spend the maximum amount for the continuity of the commercial revenue per passengers. So, the changes that will happen during the next two years, 2016 and 2017, will be the expansion of terminals that we are underway is Guadalajara will provide an extra capacity and the transformation of some of the commercial areas.

And similarly in the case of Tijuana, when we will increase the total space providing more areas for the commercial activities. That is the main changes that will happen, but also there are new products that is underway in Vallarta and also there continue opening of business managed by us, that is other markets and also the VIP lounges and the parkings. So, it's a process, it's a continued process to change and to adjust the capacity to the demand of the passenger in the main airport.

Okay. So, if I understood it well the growth could accelerate as of 2017, is it right?

Yes. Because there are some terminals that will be opened during 2016 only in Hermosillo that will be at the end of the year. And for 2017 it will be the opening of more capacity in Guadalajara and Tijuana mainly.

Okay, great. Thank you very much.

Thank you.

Stephen Trent, Citi.

Good morning gentlemen and thanks very much for taking my questions. Just three from me, if I may. The first is -- and I know -- I appreciate what you said about Grupo Mexico that there is no update at this point, but we happen to see some, at least, Newswire saying that G Mexico wants to appeal this ruling. At least here in the United States, I have never heard of anyone appealing a Supreme Court decision. But do you have any color or comment on that or have you seen anything about that?

There is no news about Grupo Mexico. The most important thing is to know that during April they sold out 6% -- sorry 6 million shares. Now it's in just below the 15% of the -- and so that is my impression that it would continue selling extra over the 10%. And the substitution of the Member of the Board of Director appointed by Grupo Mexico that was happened last week. In our first meeting of the Board with the new Director (inaudible) was taking the first meeting with the Board of Director and that is the news that we have.

Yes, I would like to ask that the Court -- the Supreme Court decision wasn't an appeal. It was appealed that court from Mexico City court. It's not -- the appeal is not over the Supreme Court decision.

There are no update -- there are no possibilities to appeal. It's not clear that question, Steve. As the resolution taken has not integrated at a way that Grupo Mexico expects their time and also the way to do the sell-out of the excess of the 10% and they are asking about that. However, and that is the good news, is during April they are selling a big portion of the shares moving now to just below the 15%.

Okay.

Okay, okay. Steve continue, please.

Okay. Thank you. I appreciate the color. So there actually is some kind of appeal going and that's good to know. I was also curious, just two other questions in the case of Los Cabos, Vallarta and maybe even Montego Bay, do you have any color with respect to new hotel projects -- kind of longer-term hotel projects in those areas?

Yes, in the three areas we are looking more capacity for the next two, three years. In the case of Cabos it's expected the opening of the 3,000 more rooms that will happen along 2017 and 2018. That is important. Similarly, in Montego Bay there are projects to increase in the range of the 2,000 rooms the capacity in the same projects in the next two, three years. In Vallarta, it's a continued opening. They are under a very important project that was announced last week in the Tianguis in Guadalajara that is related to the opening in our thematic park that is to be Disney, something in this way in just below -- just very close to the airport. That will -- an investment of $1.3 billion to develop thematic park to attract around 5 million visitors. The opening of this facility will be at the end of 2018. And combining with this a new facility is opening also another 2,000 rooms in this area. So it's in the three beach destination is a very good news because all these element will trigger increase in the traffic for the future.

Okay, very helpful. And just one last question going back to Tijuana again, when I look at your historical numbers Tijuana is an installation. Traffic actually declined from the third quarter of 2014 through the first quarter of 2015, and the second quarter of 2015 was the first quarter where you actually had a resumption of growth. In that regard, when we think about how the traffic might trend through the rest of the year, do you see from a year-on-year slow basis at least some moderately harder comps coming exactly because you've been in relatively easy year-ago comps because of the historical declines?

There are important changes in the area and also the relation between San Diego County and Tijuana area, that is a very active economic area. And now with the opening of the cross boarder also it's given the extra opportunities to more visitors going from different cities in Mexico to the tourism in the South California states and simultaneously more visitors from this area in San Diego County to visit different destinations in Mexico. So now we are working with both authorities, with the tourist authority of Mexico and also with the tourism authorities in San Diego, to present the beauties of both sides in order to stimulate the tourism under traffic. Also the openings of the cross boarder gives us an extra opportunity, the connectivity to Asia. Tijuana has a very good opportunity for the Asian airlines to arrive to two countries. So we are seeing one airport countries permit this straight permit to bring in two, three years more traffic from Asia instead to only moving the traffic between Mexico and the State. So our expectations are that the traffic will continue growing every year to consolidate and a higher levels that was seen in 2008 of course. And the fact we are transforming the airport, the construction of the docks to provide extra capacity and new docks for the important increase that we will trigger with a study that we will follow as well in Asia. Our expectation at Tijuana is something that is year by year growing and presenting very good opportunities for everybody.

Okay. I appreciate the color. Let me allow someone else to ask a question. Thanks for the time guys.

Thank you.

Thank you.

(Operator Instructions) Rogerio Araujo, UBS.

Thanks a lot for the follow-up. I have one extra question regarding the Montego Bay tariff that increased, if I'm not mistaken, 15% quarter over quarter, right. I couldn't get which was the main driver for this increase in the regulatory tariff in Montego Bay, if you could clarify that. And if you could say if it's recurring going forward, I would really appreciate that. Thank you.

Okay, Rogerio. The tariff in Montego Bay in Jamaica is quite different than we have in Mexico. The tariff review every five years is similarly to Mexico. However, the consideration of the tariff and the combination of the expansion cost and also the different sources of revenue. Now the tariff that we have in force was initiated in April 2015 and will continue only with the adjustment of the inflections in the US up to the end of 2019. And that is -- the decline during the 2019 will be necessary to open new agreement with the authorities, with civil aviation authority in order to know how is the level of total cost, revenue, passengers and also the expansion to set up a new tariff. Every five years we have a new arrangement and to adapt every -- to increase every year with inflation after that. So, we have clear and tariff for five years and the adjustments at the end of this period will be related to how is, at least at this time, the expectation of traffic and also the expansion, the needs of the expansion of the terminal.

Okay. So, I take as a basis the first Q 2016 and I add inflation, is that right?

Yes. In January every year the tariff will be adjusted by the inflation of the US during the last 12 months.

Okay. Thank you very much.

Okay.

(Operator Instructions) [Ed Guthma, BlackRock].

Congratulations on the results and thanks for the time. I was wondering could you quantify the amount of square meters that you're adding in these expansions that you mentioned, specifically in Guadalajara and even Tijuana and what percentage of that square meter enhancement is going to be dedicated towards commercial space?

Hi, Ed. In the Guadalajara the expansion is in two different areas. One side is Terminal 2, that will be expanded 4,000 square meters. The opening will be at the end of the current year, December, and adding eight new gates and providing some portion of commercial areas. At this time it's not complete, the project, but it would be in the range of 600 square meters for commercial in this side.

And also the big project is the expansion of the domestic side with an increase at the end of 2017, 15,000 square meters and that will provide more capacity for terminal 1 adding three gates of contact and six remote gates. And that means 20% more space in the domestic side. Also a portion of this area will be dedicated for the commercials. Usually it's convenient to use not less than 10% of this space for the commercial, but at this time we haven't completed the project for the commercial side.

Great, thank you. And just -- is there any impact on your network in terms of the bilateral agreement signed by the US and Mexico that was ratified by the Senate last week?

Yes, we expect that it will be in force in July -- June, July. However, during 2016 we are not looking an important impact in terms of passenger traffic. It will be for the next -- next years it will be more impacted but will be minimum in our network. The main reason is because with all -- with the current bilateral agreement there are capacity now -- currently there are capacity to develop more traffic, more connections, but the airlines is not doing that. Could be one of the reasons is in terms of capacity how many fleet, how is the fleet of the operators and how is the market that they are attending before.

It is possible that in three years, four years, we have new services that could be provided by US airlines or Mexican airlines, but and I've mentioned for 2016 nothing will be impacted in our network. The last of the new services that was provided, let's say Guadalajara-Los Angeles, as you know in the bilateral agreement that we have now in function, there are three operators in each site. So in February was the opening of the service by Interjet, at this time it was only two operators from Mexican carrier. So they have capacity in the system currently before to take more advantage of the new bilateral agreement.

Great, thank you. And then just any comments on, I guess, the Delta-Aeromexico JV that got approved recently and they had to give back eight flights to Mexico City. What kind of an impact will that have on your network given I guess maybe Aeromexico-Delta will look to grow more in your hubs? And also you get new competition in Mexico City maybe expanding through your network. Could you just talk a little about the impact of the Delta-Aeromexico JV?

Aeromexico has remained service -- the main hub in Mexico City and secondary hub is Monterrey. So we are not expecting that the more integrated group of Aeromexico and Delta will provide more opportunities in our airport, it could be marginally. But also it's something depending of the fleet that they have. Currently the fleet at Delta is more dedicated to the international, outside of this region and to the domestic. I don't believe that Delta will provide extra planes or capacity to Aeromexico to fly in Mexico or to provide in domestic services when they are a huge competition by the low-cost carriers. It is a different profile of the market, that is Volaris and VivaAerobus.

So I think the main limitation in this alliance and the same with the bilateral agreement is the limitation of the slot in Mexico City. Now (inaudible) and the agency that control the competition is looking what is the rule that will be implemented in Mexico City in order to offer with all the other airlines. And the problem is there are no more capacity, there are no more slots. So the extra capacity that could be bring by Aeromexico with the alliance with Delta, I don't believe that could be used in Mexico City. And also the secondary services are there between secondary cities. It's more controlled by the low cost carriers. I don't believe for the reason that it could effect in more positive traffic in our one level.

Great, thanks so much. Congratulations again on the results.

Thank you, Ed.

Thank you.

(Operator Instructions) At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Bosque for closing remarks.

Okay. Once again, we appreciate your attention today. Please contact us with any further questions or concerns you might have and have a good day.

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