Grupo Aeroportuario del Pacifico SAB de CV (PAC) 2016 Q3 法說會逐字稿

Good morning. My name is Katie, and I'll be your conference operator. At this time I would like to welcome everyone to the GAP third-quarter 2016 earnings conference call. (Operator Instructions) I'd now like to 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 third-quarter conference call. Today from the Company we have Mr. Fernando Bosque, Chief Executive Officer; and Mr. Saul (technical difficulty) maybe made during this 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 Monday.

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

Good morning everyone. Once again, thank you for joining our call today and as always for your interest in GAP. I will begin my discussion with a review of our operating highlights. For the third quarter GAP continued to experience passenger traffic growth with approximately 1.3 million additional passengers, mainly driven by Guadalajara, Tijuana, Los Cabos and Puerto Vallarta in that order which jointly represent 80% of the increase. It is worth mentioning that 35% and 27% of this increase was respectively contribute by Volaris and VivaAerobus. The domestic segment holds the largest portion of the rise during the period with 1.1 million additional passengers followed by 230,000 additional international passengers.

Several factors of this growth as we have discussed in previous quarter, the most important being [lower] oil prices followed by an increase in capacity from domestic carriers which have continued the trend of expanding fleets. Additionally, there was an increase in the load factor that rose from 79.9% in the third quarter of 2015 to 81.8% for the same period of 2016. It is important to mention that the Mexican government has been actively promoting domestic leisure travels with other pricing campaigns headed of local travelers. This has also been support by a strong US dollar and with peso that has made domestic destination more attractive and affordable for Mexican tourists versus traveling abroad. On the flip side, foreign visitor could also see Mexico as an (inaudible) destination for the same reason.

The airport of Guadalajara contribute to the most to this outstanding performance. This was a result of higher domestic capacity from VivaAerobus and Volaris who experienced 57% and 17% passenger volume increases respectively during the third quarter. Tijuana maintained an extraordinary growth rate during the third quarter of the year. Traffic at this airport increased 27% during the period, making Tijuana the fastest-growing airports among the top 10 airports in Mexico for 2016. The Cross Border Xpress facility was a key factor in this standing performance.

During the third quarter, over 380,000 passengers used the facility, representing a 23% market penetration rate. This rate was 6% higher than achieved during the first quarter of 2016 and 3% higher than the average for the second quarter of the year. Aside from Guadalajara and Tijuana, nearly all other GAP airports posted double-digit traffic growth, specifically Los Cabos and Puerto Vallarta who are the most represented team. As such a total of 10 new routes opened during the third quarter that including VivaAerobus launched the Guadalajara to Culiacan and Guadalajara to Puerto Vallarta routes; Aeromexico connected Guadalajara with Merida; TAR began flying to Chihuahua and Puerto Penasco, both from Hermosillo. TAR also launched the Tijuana to Puerto Penasco and Bajio to Torreon routes.

And finally Volaris entered the Guadalajara to Seattle and Guadalajara to San Francisco market in the month of July and also launched the Guadalajara to Austin route in August. During the coming months we also expect other new services to begin some of which were already announced the rest of the year. Both the domestic and international market are expect to benefit from the following new services during the coming months.

Hermosillo to Queretaro by TAR, Tijuana to Monterey by VivaAerobus, Los Cabos to Los Angeles and Montego Bay to Boston by Delta, Puerto Vallarta to Los Angeles by American Airlines, Puerto Vallarta to Los Angeles and Los Cabos to Los Angeles by Southwest, Puerto Vallarta to Montreal by Air Canada, Puerto Vallarta to Warsaw by LOT Polish, and Montego Bay to Warsaw by Swiss, these new routes are expected to add 46,000 seat to the monthly seat offer at our airport.

Moving on to the individual airport, I just want to mention some of the projects we have been focused on during the third quarter. We also have a few in the works for the fourth quarter of the year coming up. Beginning with the said evolution, the total number of the seats offered at our airports during the third quarter reached 11.3 million, a 14% increase of 1.4 additional -- million additional seat compared to the third quarter of the last year. In Guadalajara we reached a total of 58 unique destination served to from the airport during the third quarter of the year.

These represent the highest connectivity the airport has ever had in this story, making in the most important transportation hub in Western Mexico. As we just mentioned, VivaAerobus and Volaris accounted for most of this traffic performance. However, a domestic conversion occurred such as Star and Aereo Calafia also posted double-digit in increase for the quarter. At Tijuana, as I mentioned before the airport's (inaudible) traffic performance has made it the most successful among the 10 most traveled airport in Mexico. This was the result of several factor that have continually contributed to this extraordinary growth levels.

First the exchange rate between the US and the Mexican peso which has transformed Tijuana into the least expensive option for people traveling to and from Southern California to Mexico. And a key element of this airport's success has been the Cross Border Xpress which has -- today has been used by over 1 million travelers. Domestic airlines have also faced the opportunity to grow at these airports and have been increasing capacity at a very rapid pace. During the third quarter for example, Volaris has transported 153,000 new passengers while VivaAerobus has moved 117,000 additional passengers during the same period.

In Los Cabos load factor had an all-time high. So far during 2016 this indicator has reached 84%, a number 6% higher than last year. And this is important to mention that the main source of growth for the third quarter of the year was the domestic market which grow 27% while the international traffic increased 9%. As such, we are confident that Los Cabos is set to become the number one leisure destination in the Mexican Pacific region during the coming years. Evidence of this is the 2,621 additional hotel rooms that are expected during 2017.

Moving on to the Puerto Vallarta, we also expect that the airport will profit from the opening of new -- five new routes during the coming five months. The US Mexico bilateral aviation agreement is definitely improving competition and Puerto Vallarta is not exception to this. For example, there are new routes from Los Angeles launched by Southwest and American Airlines who were restricted prior to the agreement going into effect. Also Grupo Vidanta, a hotel operator is currently building a 1,000-room complex in this city.

Moving into the GAP's airport in the Bajio region, both the Aguascalientes and Guanajuato airports have reached a point of maturity regarding the international traffic. This kind of passenger traffic grow 3% in Guanajuato and decreased 9% in Aguascalientes. However, both have continued growing at a double-digit pace in the domestic market.

With respect to the Mexicali, La Paz, and Hermosillo airport, these have experienced strong growth during the third quarter due to the routes opening, as well as a higher number of frequencies by TAR and Aereo Calafia which have had average increase of 19,000 passengers and 32,000 passengers respectively. GAP's commercial idea has placed special emphasis on developing the region and marketing short and medium haul routes which are efforts that have begun to show results as per the previously mentioned results.

Finally an update on the Montego Bay Airport; for the quarter this airport experienced an extraordinary performance with traffic growth of 4.5%. This represent the highest quarterly growth rate so far for 2016. Traffic is expected to remain positive through to the rest of the year as the Canadian market is showing signs of recovery. The US market also remained strong and Europe is showing signs of the further expansion.

Now in terms of commercial highlights, the commercial revenue which are the main part of our non-aeronautical revenue have been having a difficult time in growing revenue in a high-growth traffic environment, especially at our leisure destination which tend to concentrate the vast majority of flying within a short period of the day.

Puerto Vallarta commercial revenue grow 22.1% and Los Cabos commercial revenue grow 32.3% during the first nine month of the year. Retail, food, beverage, and duty-free are the commercial lines with the best performance in both airport, increasing 27%, 23% and 15% in the Puerto Vallarta Airport and 116%, 25% and 31% in Los Cabos Airport respectively. We recently run an open bidding process in Los Cabos for a three-years contract for car rental companies. The result was an immediate 30% increase in airport revenue. Additionally, the depreciation of the peso versus the US dollar has boosted commercial revenue due to the US dollar-denominated contract.

Guadalajara and Tijuana increased commercial revenue by MXN63 million and MXN53 million respectively due to the extraordinary performance of the passenger traffic growth.

Finally, current traffic levels have posted actively in the VIP lounge network, attracting a total of 263,000 users compared to the 181,000 users to the same period of 2015 during the quarter (inaudible) discuss when the new VIP lounge began operating at the Guanajuato Airport and another one in the domestic terminal at the Los Cabos Airport. Being the fastest growing business unit during 2016 with a remarkable 59% revenue increase, we expect that during the fourth quarter GAP will add new and larger facilities in Hermosillo and Puerto Vallarta in order to manage additional demand towards the end of the year.

CapEx continue in accordance with the committed Master Development Program. In Tijuana and Aguascalientes, the runway pavement improvement have conclude. In addition, in the Guadalajara, Tijuana, Hermosillo, and Puerto Vallarta Airports, we continued with expansion of the terminal building. As such, total CapEx for the year was MXN2.7 billion. However, in our new guidance we are estimating MXN2.5 billion for the year-end as some work was rescheduled for the first quarter of the next year.

During the first two years of the Master Development Program which was the period with the highest committed investment, the main activities have including program of airfields, runways, taxiways, tarmac, as such, the main project in Guadalajara and Tijuana were complete. In 2017, the Company must also complete all of the projects in the remaining airport. We have generated passenger traffic growth and we are experiencing the rise in demand -- traffic demand through most of our airport.

As a result, the management of incremental passenger traffic is the main challenge we are facing for the coming years. We will seek to complete all the work that are in process now as soon as possible in order to continue providing our travelers the best level of commercial quality and comfort. However, it is important to mention that this will not put projected incremental capacity for 2018 at risk. This is the timeframe where we expect that most of the project will be finalized.

With regards to dividends, on August 25, GAP paid the first portion of the dividend for MXN2.28 per standing share for a total amount of MXN1.2 billion. The second payment and final portion of the dividend of MXN1.79 for the total amount shall be there before the year-end as per the resolution made of GAP's annual shareholders meeting; this payment will be announced shortly.

Lastly, with regard Grupo Mexico situation, we have nothing new to report since last quarter.

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

Thank you, Fernando. Good morning everyone. From the financial side, aeronautical revenues for the third quarter increased MXN348 million or about 25%. This was mainly due to the 27% higher revenues from the Mexican airports because of increases in passenger traffic as well as tariffs as a result of inflation, primarily at the largest airports. Additionally, at the Montego Bay airport revenues increased by MXN37 million.

This was generate by the increase in passenger traffic, but mainly was due to the 14% depreciation of the Mexican peso in this quarter, which represent a MXN2 million to MXN3 million increase. With regards to aeronautical revenue per workload unit, during the third quarter 2016 this figure increased by 7%.

Non-aeronautical revenues increased by MXN117 million or 24%. MXN95 million of this increase was from the Mexican airports. This was driven by higher revenues from third parties such as retail operations, ground transportation, car rental, and food and beverages, which jointly increased MXN47 million. Moreover, revenue from business lines operated directly by GAP increased by MXN35 million mainly in advertising and VIP lounges.

Montego Bay Airport report a revenue increase of MXN22 million compared to third quarter 2015 driven by the previously mentioned 14% depreciation of the Mexican peso which represent a MXN13 million increase as well as to the growth in duty-free, which contribute with MXN7 million.

With regards to non-aeronautical revenue per passenger, during the third quarter 2016 this figure increased by 6%. It is important to mention that we are working on a full commercial plan in Montego Bay which will be implemented next year. The focus of this plan includes increasing per passenger revenue, emphasis on better distribution of the spaces, use of well-known brands and improving the financial conditions of the current contracts.

In terms of total operating cost for the quarter, this increased by MXN555 million, 57% compared to third quarter 2015. MXN229 million was driven by the cost of improvements to concession assets and MXN162 million were driven from the gain in fair value of the acquisition of DCA in third quarter 2015.

Cost of services increased by MXN35 million or 8.7% compared to 2015 comprised primarily of the 14% higher employee cost and 11% higher utilities cost. Cost of service per passenger decreased 7% from MXN51 in third quarter 2015 to MXN48 in third quarter 2016. This decrease was driven mainly by our Mexican airport, which decreased from MXN45 to MXN42.

EBITDA grew MXN330 million in third quarter 2016 or 25%, excluding the effect of IFRIC 12 and excluding the gain in fair value of the acquisition of DCA. With regards to EBITDA per passenger, also exclude the effects of IFRIC 12 in the gaining fair value during the third quarter 2016, this figure increased by 7%. As you can see, the effect of the foreign exchange rate in our consolidated numbers are benefiting our results driven mainly by the consolidation of the Montego Bay Airport.

The EBITDA margin for the quarter excluding the effects of IFRIC 12 was 69.9%, which is in line with our estimated number. In the case of the EBITDA margin for Montego Bay, we expected to reach between 52% to 53% for the year.

Financial cost decreased by MXN307 million to a net loss of MXN102 million in third quarter 2016 mainly comprising a foreign exchange rate loss of MXN295 million. This was from the bank debt from the acquisition of DCA and the depreciation of the peso versus the US dollar. This effect was offset by a positive comprehensive income generates by the currency translation effect of MXN251 million.

Finally, I would like to briefly review the update guidance figures for the year-end as per the press release that we distribute yesterday. Traffic will be in the range of 15% plus or minus 1%. Aeronautical revenue, non-aeronautical revenue, and total revenue will be in the range of 22% plus or minus 1%. EBITDA will be in the range of 23% plus or minus 1%. EBITDA margin will be at the level of 69% plus or minus 1%. And the CapEx will be for approximately MXN2.5 billion for the end of the year.

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

Thank you sir. At this time we will open the floor for questions. (Operator Instructions) Mauricio Martinez, GBM.

Thank you for taking my question and congratulations on the results. My question is on decline for aeronautical revenue per passenger as we saw a strong increase in that line and quite higher than inflation. So if you can share your thoughts, the main driver there? And also regarding non-aeronautical revenues in -- per passenger in Tijuana as the recovery this quarter that we saw than the first half of this year, can you give us color on your expectations for next year and before the expansions there are completed?

I understood that you are asking to how is the composition of the very important increase in the aeronautical revenue because if our increase will be in the range of 15%, how it's possible to have the increase of more than 22% in aeronautical revenue? I understood that that is your question, main question?

Yes, exactly.

Okay.

The aeronautical per passenger is 12% higher than a year ago.

Of course. You know that the adjustment of our maximum tariff on the total revenue per unit is adjusted by the inflation, and the inflation is not including some of the elements that you usually are considering, that is oil prices and many others. So what happen if a inflection, the adjustment for the inflection that we are putting in our source of aeronautical revenues is in the range of a 7% to 8% and that is the main explanation about that. And also you are asking about the commercial side, also there are an adjustment, that is a portion is coming from the increase of the volume of traffic, but also a portion of our non-aeronautical revenue is coming in US dollar. So the devaluation of the peso is giving us an extra increase in our non-aeronautical revenue reported. Does that answer your question, Mauricio? Yes?

Yes. But talking about next year for non-aeronautical revenue per passenger, what are your expectations?

Okay, yes. That is an issue that was coming in my presentation. Of course, when you are experienced that very important increase in the number of passengers, and also concentrate in the peak hours that you are in the process to expand your facilities, your terminals, of course, the ratio per passenger is not performed in the same base. And that will be more important next year when you are experienced more traffic increase and however, to the end of 2018 we will not complete all our expansion in the terminals mainly in the airport that now experienced a important increase in number of passengers, that is Guadalajara and Tijuana. The CapEx that we are doing now in Guadalajara will transform completely the terminal giving an extra capacity for passenger comfort and also commercial opportunities in the domestic and the international, both.

And in the case of Tijuana is the same question. As you are looking the -- how is the very important increase in the traffic in the range of 30%, it could be impossible to attend all the commercial opportunities for this very important increase in traffic. So one thing that we will finalize because talks on the expansion of the current terminal that will take another 15, 18 months, we will offer more capacity for operators, the commercial side, and also for the passengers. And the increase in the ratio per passenger will be with some important increases. But also there are many other airport now is experienced a pressure and challenges for the capacity of our commercial offer, and the expansion, as mentioned in my presentation, will conclude around the end of the winter of 2018. At this time we expect an important increase in our commercial performance.

Great. Very capable. Thank you.

Pablo Barroso, Credit Suisse.

Congratulation on the strong results. I just have one question regarding your new guidance. We saw a MXN200 million reduction in your CapEx compared to your prior guidance in July. I just want to better understand this reduction as you have carryon CapEx from 2015, will this [MXN2,000] million will be then deployed next year?

Yes, correct, Pablo. That amount will be for the first quarter of 2017, will be -- it was postponed due to the works in the way we are doing now and we have a little delay and the works will be postponed for 2017.

Okay. Okay, that was very helpful, so thank you.

Welcome.

Ravi Jain, HSBC.

I had two quick questions, the first one on your M&A strategy or your strategy for participating in auctions for airports in other countries around the region, if you can give us your thought, that will be helpful. And the second question is basically on the non-aeronautical revenues, again I'm -- just follow-up question from the first question here. As you mentioned, I think you have some more perspectives and that will increase non-aeronautical revenues in the following years. If you can just give us a little bit color on which particular airports you expect that, that will be helpful.

You answer the first.

Okay. Talking about the M&A, as you know, Ravi, we are very active. We are all the time looking for some opportunities, obviously, everything regarding to airports in LatAm only. Right now we're in middle in the process of Brazilian airports, for four airports. It's a public bidding in this country, and we are looking right now, analyzing if there could be some opportunity of business. Obviously, we will be very careful of the price we pay, the characteristics of the concession, the framework, and in everything regarding this potential investment. And in -- before this we analyzed some other opportunities, but right now the only we have is these four airports in Brazil.

Related to the second question about how will be the -- more color about the non-aeronautical development, of course I mentioned in the first question about Guadalajara and Tijuana. Of course, Guadalajara and Tijuana, we experienced a very important increase in the total space, the surface of the terminal and number of gates, and also the new bidding process for the commercial activities, especially in Tijuana, but also the transformation in Guadalajara in the domestic side and international frame more space to the same operators that we have now, however with a increase in the volume of sales in this food and beverage, retail, and all the categories.

In the case of the tourist destination, in the case of (inaudible) we are completely satisfaction about how is the performance in the commercial side. All the business is performing very well in -- both in domestic and international, and that is one of the reason because we have the top high performance per passengers in terms of a commercial revenue than any other airports.

In our network (inaudible), so I think it's compared with other airports as Cancun and other, I think the performance in the commercial per passenger is higher that any other airport. However, Vallarta is performing below this level and the reason is because we have very limited opportunities to expansion the commercial offer. So up to complete the project to expand the international areas of gate, and the domestic we cannot perform in the same level of Los Cabos.

So our view is in three years could be taken to higher level for Vallarta. And in the case of Montego Bay, Montego Bay experienced the level similar that Cabos. However, now we are in the process to renew the commercial, one side of the commercial area, increasing the capacity and to offer new brands, new product that will increase also the performance of Montego Bay per passenger, will be very similar to Cabos in the one year more.

And however there are many other airports in the domestic side as Mexicali, La Paz, Hermosillo, that now is in the process to expand their terminals providing extra commercial capacity. They will experience also important increase because when you compare their performance per passenger that we have in this airport compared to the many others is in very low level. So we will experience some very important increase. I cannot to tell you now at this time how will be because after the opening of the expansion of the terminal we will have a process -- a bidding process to get the new operators.

And finally another small airport is in the case of Morelia and Aguascalientes now in the process to redesign the terminal and that will deliver in two years more capacity. Bajio also is growing very fast. Now we are attending more than 1.7 million passenger per year and we are doing a big expansion and the work will start in December covering year and we will take 15 months to complete and also will deliver better performance. So in general in all the airports, so in order to have a view is to have a look to each of the performance per passenger we have in each of these airport and put new figures looking that the transformation of the terminal will deliver a higher level for -- in the -- looking for the complete Group in 2018, I think it will be very important increase.

Thank you. That's very helpful. And just if I may, just another final last question from my end. After this -- the US-Mexico bilateral agreement we are seeing several new routes from Guadalajara and from the tourist destinations into the US and Canada et cetera. Over the medium term, do you think that there could be space even for more point-to-point routes to smaller airports, some of your smaller airports would also be connected to the US cities, do you think that is a potential?

Ravi, the bilateral agreement has not impact in the smaller airport, but now we have because there are no restriction to do services between any of our airport and the US airport. The exception to be in some of the services that they are between Guadalajara and Los Angeles, the initial restriction was three per destination, three from Guadalajara and three from Los Angeles.

And now with these restriction, we are experienced that there are -- some of the airlines has been to increase the number of services. And the same happened in the case of Cabos and Vallarta, specifically with Los Angeles with LAX that in any other airport, we are not looking any special improvement in the connectivity coming from the bilateral agreement.

So summarizing, could be have some increase in the number of frequencies and the number of the providers in Guadalajara to LAX and also in Vallarta LAX, and probably some influence also in the case of Cabos LAX.

Thank you, that's very helpful.

Thank you. (Operator Instructions) Rogerio Araujo, UBS.

This is Rogerio here. Thanks for the opportunity and congratulations for the results. We saw the passenger expectations come here to 15% from 7% in the beginning of the year. This increased the regulated revenue expectations to 22% from 11% in the beginning of the year which is great. My question is regarding the next MDP, the Market Development Plan. So is this growth rate substantially above the official expectation in the past MDP, and also as these revenues are regulated, do you expect a decrease in the tariffs in the next MDP to offset this higher than expected growth? This is my first question.

Rogerio, thank you for your question. Yes, we are in middle of this analysis for the next MDP period. We as you know will require to be prepared with capacity in our airports 28%, 30% above of the real requirements. Okay, in this five, you feel we are above of the expectations of traffic. For the next five-year period we will require more investments.

So with this new requirements and with the expansion that we are doing in this five-year period, we -- our expectation for the next five-year period will be to be in the same range of tariff that we have now. Obviously, as we have more demand, we will require more infrastructure in our airports.

The main investment that we will do the next five-year period will be the second runway for the Guadalajara Airport. So it's a huge investment. So we are not expecting a decrease in the tariff. And so our expectation and our best estimate for the next five-year period will be to be in the same line.

Let me complete something about that. The big difference between the original guidance and the final guidance that we are presenting today is the change in the strategy of the airlines. The first is the -- how is possible to have this very important increase in the load factor. That is because the marketing campaign, the competition between airlines and more clear is the increase in the fleet.

So we have two elements. One is the marketing campaign and second is the increase in the offer of seats. These two element was impossible to know the beginning of the year when was also a high volatility for the market because we had a lot of uncertainties related to the oil prices. So one time that the year was initiate and will be the airlines taking more confidence and putting this capacity and doing the campaign and also the devaluation was the -- that was an important impact in the demand of the traffic.

And now we are looking that we have 1.4 million more seats in our network. That was one year before and also the load factor only to increase in the range of the two to three basic points meaning that you are taking more passengers can be considered, that is the element. And that is the reason because we are -- our reaction is to put forward in advance some of the works, working more faster to put in operation some of the areas that we was planning for late.

And also is the same thing as Saul has mentioned, if you are receiving more volume traffic, that mean that in the next five years period, beginning 2020, we will need to have more capacity, more expansion in all our network and that mean that with more investment will require, so to keep at least the level of (inaudible) that we have now.

Okay, that's very clear. So just to confirm, if you look at the NPV of regulated revenue cash flow, it should be the same, right, as your previous expectation? So of course you get the upside for this cycle, but in the -- as of the next cycle, you have this same NPV, you have to adjust either CapEx or tariff in the way that you have the same NPV than five years ago, is that right?

Yes, we have to adjust the NPV, we have to adjust the OpEx because we will have more infrastructure in all our network. So that's part of the next negotiation with the authority.

Okay, that's very clear. Thank you very much. My second question and last one is regarding your expectations for growth. If you are based on the Company's growth expectations, do you already have a growth forecast for 2017 passenger growth and can you share this with us?

Rogerio, as you know, in the -- during the first week of the year traditionally GAP issue the guidance in terms of traffic revenue and other (inaudible). At this time it is not clear how will be the plan of the old airlines.

However, there are basement, that is the volume of seat, of the capacity that there are is done by the four domestic -- the six domestic airlines. When you compare the capacity the rest of the beginning of the last year and the beginning of 2017, it mean that of course we'll continue growing if there are no changes in any other element that affect to the demand.

From my point of view, the only -- only considering that we have very high level of a load factor, and we are talking now that we are in the range of above the 80%, that mean is -- only the increase in the traffic is coming when you are putting -- adding more seats. And have a look to the new fleet, the deliveries that will receive Viva and Volaris, and also in the case of Interjet and the limitation to use its fleet in another part of the network in Mexico, talking about Mexico City International Airport, I think that they will continue growing in the -- but however, I cannot too precise give you exactly how will be the -- I think as we continue growing, but not the pace of the 15% that we are looking in the current year.

The comparison is very difficult to do. So we are now working in that. We are preparing our budget for the next year and when we will have this figure and we will issue our guidance in January, and this time we will put our -- the ready -- the best estimation at this time.

Perfect. Thanks and congratulations again.

Thank you.

Magdalena Santana, Citibank.

I had two questions. The first one is what are your thoughts on potential and long-term opportunity rate for Cuba considering that they are already present in Montego Bay? And the second one is, what is your view regarding the Mexican government possible privatizing more airports? Are you interested in any or do you see any of them as creating more competition for your airport?

Okay, Magdalena, I will answer your question. I will start with the second one. You know that there are around 16 facilities airport managed by [ASHA] in Mexico. The big one of this airport is in the range of -- in terms of passenger in the range of 600,000, so it's not a big airport, but there are lot, 1,000, that could be in the range of less than 200,000 passenger per year. It's not a great deal, is not a great business, and also there are limitation.

I believe that is not possible by the three group of operators that there are, [ASUL], OMA, and GAP to be permit to increase the number of airport in our network. And also it could opened -- a process, an open process by the government because they need to subsidize this airport, but that mean that could be -- the three groups could be interested in the same, one, two, or three airport, but no more.

What happened with the other is you are removing these three from the group of 16 or also the portion of the participation in three of the airports, [Kere], [Taroloc], Toluca, and I think there are one more in Puebla. So what happened with this participation? I don't believe that that will be possible and will be under a good business for GAP. However, we will expect that if the airport authority of Mexico ask or have a bidding process, we will have a look to how is the condition and after that we will take a decision.

And outside of Mexico, in the case of Cuba, the -- I mean it's a business between governments. I don't believe that will be an open bid process for each of the remaining airports. It could be there are three or four airports in Cuba apart of the Lavana that could be interested because it's tourist destination and we will expect if there are opportunity to have a look and to have -- to check how is the performance and how is the condition. Could be interesting because it's in our geographical area, it's in our linguist and cultural area, so of course initially it's interesting for us.

Okay, thank you. But do you see any risk for (inaudible) Montego Bay, do you see any risk there?

No, Magdalena, we are not looking any risk because currently there are a process to develop more hotel facilities than in Montego Bay in the North Coast. So it's under construction or with permit by the government to develop.

So during the next 2017 and 2018 could be the opportunity to see opened of more than 3,000 new hotel rooms. So there are no risk in this way. Our projection was on the [due diligence] and average increase in the next 15 years of below 3%. However, we are growing faster than this pace and the expectation with the opening of these facilities -- these hotel facilities will also put more demand for our traffic.

Recently was present to the authorities of Jamaica our master plan for the expansion of the airports and that was including projection for the traffic for the next 15 years. And for us it's more positive that was overseen during the due diligence. So we are not looking risk to be for the future, the next 5 to 15 years. The decision by the hotels developers will be to -- instead to develop new capacity in Dominican Republic, Jamaica, Cancun and other area, Caribbean destination develop more investment in Cuba.

So that will not affect to the graph of the traffic that we are looking in Montego Bay because our expectation was with the capacity, hotel capacity that was done at this time and now we are looking that there are more rooms that was initially check. So, Magdalena, we are not looking any risk for Cuba.

. Thank you very much.

Pablo Zaldivar, GBM.

It's just a quick one. This was the first quarter that we saw a charge from improvements to concession assets in Montego Bay. What should we expect going forward? It was a small amount for the quarter, almost MXN9 million, but should we expect this number to continue going forward and -- or should it increase and what will be the impact on the related CapEx?

Yes, this is the first quarter with concession building in Montego Bay. It will be in the same pace in -- according to our expectation for the last quarter. The total amount for the five-year period from 2015 up to 2019 will be in the range of $35 million for the full expansion in -- on that full investment in the airport. We will continue growing. This is part of the expectation that we have and for the next year will be higher than in this year. Right now we are at the end of the period -- in this last quarter our investments will be lower than in the next year, but in -- it will be in the range of $20 million for -- between this year and the next year together.

This is -- it's not easy to develop construction works in Jamaica. Different reason; one is there are not enough contractors to provide these services. And secondly, you need to import all the materials and also machinery to do this work. So when you are doing your bid process, looking there surprise was that we are not receiving enough bidders to one who will complete and who will put offer. And so we are now under discussion in the negotiation with some of them in order to initiate as soon as possible the investment.

But the investment is not to provide more capacity. The investment that was scheduled for the 2016 to 2019 is more in the renew of the tarmac, is the renew of the some of the areas in the area of the aircraft and it's to -- because it's part of the commitment taken with -- by the previous owner with the authority in order to improve and to renew areas that done 20 years ago. So it does not -- will not increase capacity, it's only to keep the current capacity.

It's most important, the negotiation that was done by us with the authorities in order to prepare the master plan. The master plan include expansion of the runway first; second, expansion in the terminal to provide more gates and more capacity in commercial. And that will be initiate not before two years because they require to prepare the project and to look for the contractors. And for this case, looking what has happened now with the contractor -- local contractor we are now in the opportunity to motivate Mexican contractors to come with us to do this kind of investment.

In -- additionally, Pablo, in our guidance is including -- we are including around MXN100 million of investment in Montego Bay for this year. So in this last quarter will be higher the investment and will be the beginning for the next investment of the next year. So that's in line of our expectation and the highest level of investment will be in 2017.

Okay. Perfect. That's very helpful. Thank you.

Ulises Argote, Santander.

Real quick, I was just wondering if you could elaborate further on your expectations for the EBITDA margins for the Mexican airports and for Montego Bay, and where we could expect to see stabilization for margins in both cases?

Okay, we'll pass to our CFO to know more about these details. But let me tell you that this is a natural difference between Montego Bay and Mexican airport because that is the model of concession. In the case of Montego Bay, you have to pay a concession fee that is in three different tranches; minimum guarantee, and another by unit of traffic.

And finally, you are in above of the line of revenue that was agreed in the beginning of the concession in 2003 if you have also to contribute with another 45% of the excess. So when you are putting all together, you are paying about -- in the range of the -- close to 22%, 23% over the total revenue. However, in the case of Mexico, you are looking at different performance, you are paying 5% of the revenue because in the beginning the shareholders' pay for the net present value of the Company at this time.

So it's a different approach to the same question, how will be the total revenue that will be project to the Company and looking how is the arrangement for the tariff. The adjustment of the tariff in the case of Mexico is clear is related to the traffic, but to the CapEx and the OpEx. In the case of Jamaica, it's a different approach. Every five years also they are looking how is your level of revenue and your level of the traffic and they are doing a negotiation.

In this negotiation you are offering investment or you are having a negotiation that at the end is to write an agreement that will take annual adjustment of the CPI of the US. So now one time that was stable in Montego Bay, the EBITDA margin in the range of 52%, 53% when you compare with the average of our group of airport that is in the range of over 70%. The combination of both is giving you the old figures that was managed in 2015 that was in the 70% -- close to 70%, 69% to 70%. Saul.

Just to complete, well, no, you did fine. Yes, everything that almost Fernando mentioned everything. Just to remark that 52%, 53% of this year will be normalized for the coming years in Montego Bay in the range of 51%, 52% of EBITDA margin. Obviously we are working the -- in commercial plan we are working in the OpEx control that we had Mexico trying to transmit all the efficiencies that we have here and tried to improve the level of EBITDA that we have in Montego, but it is very complicated to the -- Fernando mentioned before.

So in the range of 51%, 52% could be normalized for the coming years whereas Mexico will be in the range of 71%, 72%. It depends of the commercial revenue, it depends of the traffic. As you know, we have a very well control of our OpEx, so we will try to improve, but is really complicated to improve the level of efficiency that we have right now in Mexican airports. So with that we will be in the range of 69% to 70% of -- on consolidated basis for the EBITDA margin.

Okay guys, thank you very much. Real clear.

Thank you.

Alexandre Falcao, HSBC.

I have one specific question regarding the Brazil airport bidding round. So what happens if [Ariana] bids -- wants to bid for the same asset, you guys are going to compete against them? That's the first question. And second question is how do you plan to fund if you get more than one project there?

So you're talking both question related to Brazil expansion?

No, the first one, they're general, can be Brazil or any place -- any other place. But I guess, I'm not sure there is any other thing in Brazil in the short term being put out for bid, is it? I don't think so.

Okay. Brazil now is in the process to review to check by the authorities for the way that they will put in the market the operation of four airports. These four airport is in medium range. The site is from the 3 million to 10 million passengers, is two in the north east coast, another two in the south east coast. And there are no option to manage the four, so you have to complete by one of the north and one in the south.

It's interesting, but however, at this time there are not clear how will be the full kind of rules for this competition, for this bid process. We are of course involved in the -- to know the -- how is the condition that authority of Brazil is putting in this bid process. It's interesting, but however the condition of the market in Brazil is not very positive now and there is dependent how will be the final condition that the Brazil authorities will put for this bid process.

The original three opportunities there was before and I remember you that in the first time was for Natal Airport and GAP was involved in this process. However, at the end of the analysis and after two years of work and with (inaudible), we decided to not present our proposal because the condition was convenient for us.

In the second and the third of tranches, we know that one of our main shareholders, Ariana, will participate in the second one and was not very success because their leaders all related to contractor and building companies, development companies, has put in a very high level of construction fees because the interest of this builder was to get the construction works and in the current process, this four airports also required a very high level of investment, is a duty that you have to develop during the first two or three years a huge investment and that is one of the main concern in the -- not only in the case of GAP, but many other bidders interested in this airport, and also to pay a very high construction fee.

So now we are doing our work having to look up the regulation and talking with the authorities and I don't know if finally we will present or not a proposal. That could be happen during the first quarter of the next year. And there are other small opportunities in this sector in airports. However, the position of GAP is only to have a (inaudible) network region looking more in the Caribbean and South American and only when (inaudible) size of the airport and could be provide more value to the shareholders, that was the operation that was done with Montego Bay that provide an extra value, more international passengers, and a very well now operation for this airport.

So that is the requirement that we are putting in for the expansion internationally. The diversification in another country requiring to keep the level of profitability for our shareholders and not only to do our vendors going to any opportunity that is presenting outside. And as for looking the recovery in the period of time that will -- not very long.

Perfect, perfect. And just quick follow-up; on Montego Bay, are you guys monitoring the Havana Airport, and since airport -- the fares, one that concession was being done there, do you think it's a threat for part of your traffic down the stretch and how long would that take if anything to become a threat for Montego Bay?

The threat to Montego Bay, I asking -- answer that question to Magdalena about Cuba and that was clear; for us, we are not looking at any risk, any challenge to the opening of the increase of the traffic in Cuba because of the -- the capacity of the hotel is really the element to be put in challenge Montego Bay. It is not easy to develop new hotel facilities, and that mean that is a new expansion of the offer.

However, each country, and a small country as is Jamaica or many other in the Caribbean, try to keep the visitor in the number of the hotel capacity that they have, and that is a source of a guarantee of production for the airport operators because if the country is depending on the tourist and they will keep giving discount benefit for the new investor in the sector in tourism, and all is working with the -- many times in different forums.

Everybody is working for the airport because the development of the hotel rooms, the interest of the government to bring more visitor because it's revenue and so everybody is working and we are completely linkage with the authorities of the tourism and hotel. And the other challenge to be -- you are talking about the second airport that they are in Jamaica.

In Jamaica, Montego Bay is airport placed -- located exactly in the North Coast, that is the hotel development of the country. However, now they are a high rate of connect and reduce in half an hour at least the movement from Kingston, that is in the southeast of the country to the North Coast to be some develop -- to be seen that a person could be -- come from Kingston instead from Montego Bay airport.

So we are -- at this time we are not looking that will be a real challenge for us, a threat. This airport currently is moving 1.3 million passengers, is more related to the economic activity that they are in the capital of the country, (inaudible), some industries related to the seaport and that is a different kind of activity that we are performing in the North Coast.

[Ramon Peroso], Scotiabank.

My question is regarding the commercial platform Montego Bay. What could be the impact of this planning manning such airport because I believe there are some limitations to the regulatory framework in (inaudible), so I don't know if you could give us some color on this?

Yes, as we mentioned in the report, we are working with a full plan, the commercial plan to improve that we have already in the airport. The main target -- our main target is to improve the passenger ratio, the ratio from commercial revenue per passenger, that's our main target.

Montego has a profile, passenger profile like Cabos. However, Montego Bay is lower than Cabos, so we saw a great opportunity to increase the commercial revenue changing the configuration of some spaces within this expansion that we are doing right now and additionally to change the well-known brand that we have and trying to add to the airport. So additional to that we have to negotiate with our current -- the current contracts that we have with the tenants.

Right now the Montego Bay Airport is below of Cabos. I mentioned Cabos is in the average of MXN115, and Montego Bay is MXN105. We have -- we are benefiting by the recession of the peso. But in real terms, in US dollars we are lower than our expectation. So we will try to improve this. The condition of the contracts in Montego Bay are lower than the same contract that we have in Mexico with this profile of 99% of international passengers, we could have more commercial revenue per passenger. So we will try to improve all -- with all this [chartings] to improve the commercial revenue per passenger.

And also the contract we have now in Montego Bay was initiate in 2008 and 2009, so has an old-fashioned contact, and in these seven, eight years, the commercial agreement in different airports in the region, in the area is quite different. So only is with the reconfiguration of the commercial side of these contract that is ending next year and giving new brands and coming with new operators could be -- and increases will be much more or less the figures that we have in the case of Cabos.

However, remember in the case of Montego Bay, we are attending in the range of 4 million international passengers for the next year. However, in the case of Cabos and the same, similar in Vallarta, we are moving a pace of the -- in the range of 2.5 million, 2.6 million international passengers. So it's a big different.

So it's not only the question of the rate here per pass, it's also the total volume, how will the -- if you visit Montego Bay, you will realize that the commercial [RAIs] rate congested, it's -- and need to verify and to do a different decoration and distribution, to increase the value of the commercial side.

Okay. Thank you very much.

You're welcome.

Thank you. Once again we are now holding for questions. (Operator Instructions) Sir, at this time I am showing no further questions. I'd now like to turn the call over to Mr. Bosque for closing remarks.

Thank you once again for your attention and your participation here today. As always it was a great pleasure to share with you our perspective on the results and we thought our comments were helpful to you. Have a good rest of the day.

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

Thank you. Thank you all.