Good day, ladies and gentlemen, and welcome to ASUR's Third Quarter 2023 Results Conference Call. My name is Ryan, and I will be your operator. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today's conference. [Operator Instructions] As a reminder, today's call is being recorded. I'd now turn the call over to Mr. Adolfo Castro, Chief Executive Officer. Please go ahead, sir.

Thank you, Ryan, and good morning, everyone. Before I begin discussing our results, let me remind you that certain statements made during this call may constitute forward-looking statements, which are based on current management expectations and beliefs and are subject to several risk and uncertainties that could cause actual results to differ materially, including factors that may be beyond our company's control. As usual, additional details about our quarterly results can be found in our press release, which was issued yesterday after market close and is available on our website Investor Relations section. Following my presentation, I will be available for Q&A. Before getting into a discussion of the quarterly results, let me start today's call with a recap of the recent development in connection with the concession agreements of our Mexican operations as recently announced. On October 4, ASUR received a notification from the Mexican Federal Civil Aviation Agency that it has decided to amend with immediate effect the terms of the Tariff Base Regulation. These terms were laid out in the Exhibit 7 of the concession agreements established in 1998 and then amended in 1999. On October 19, as we received a notification from the Mexican Federal Civil Aviation Agency, which modified the document received on October 4. The full text of the amended Exhibit 7 was filed with the Mexican Bolsa and the Securities and Exchange Commission. On October 18, the lower house of the Mexican Congress approved the initiative to increase the concession fee from 5% to 9%, which is now under review by the Senate. We do not know when this may be approved and when the change in the case will be effective. ASUR is currently evaluating the charges -- the changes implemented by the Mexican Federal Civil Aviation Agency and the potential impact…

Thank you. [Operator Instructions] Our first question comes from Juan Ponce with Bradesco BBI. Please go ahead.

Hi, Adolfo. Good morning. Good morning, everybody. Thank you for taking my question. Considering that the MDP negotiation is a long process and the fact that you are now in the last stretch of the tariff negotiation, what are the implications from the regulatory changes on your MDP negotiating process? That's my first question. And my second question would be, do you agree that perhaps the initial tariff impact be around 10%, which is what some members of the SICT have mentioned? And if the impact -- if the financial impact is unknown or if we get an even greater negative impact, are there any legal avenues you can take to curtail these measures? Thank you very, very much.

Hey, Juan, good morning. In the case of the MDP process, as we have mentioned, this is almost two years process. We were almost at the end of the process and now with this document, we will have to restart again in terms of the document that we will have to present to authorities in the coming days, I would say. As we speak, we are adjusting the document in accordance with the new regulation that we have received last week. So, we are now in the process to evaluate what the impacts may be on this respect. In terms of what you're saying of the 10% tariff reduction, et cetera, it's not something that we are, for the moment, available to answer. We will have to see and wait until these new bases of regulations are applied in the numbers of the company. And that I believe is going to be at -- towards the end of the year, probably the first week of January, when we are going to be able to say what was the implication of these new base tax regulations on the numbers of the company.

Okay, thank you very much, Adolfo. And regarding the -- any legal avenues you can take to curtail these measures, is there a possibility or not at all, not in the cards? Thank you.

For the moment, we are not considering any legal action on this respect.

Got it. Thank you very much, Adolfo.

Thank you. Our next question comes from the line of Guilherme Mendes with JPMorgan. Please go ahead.

Good morning, Adolfo, and thanks for taking my question. I have a follow up on the MDP and the regulatory changes which is related to the concession fees. On the old contract, there used to be a compensation on tariffs regarding any potential increase in concession fees. Just wondering, how should we think about this going forward so this increase from 9 -- 5% to 9% on the concession fees should be fully incorporated by companies, or there may be some kind of compensation on the new contract? And the second question is regarding to the investment on the Dominican Republic. If there is any update on that front? If you could share any details in terms of timing or potentially the financials of the project? Thank you.

Hi, good morning. In the case of the 5% to 9%, as I have mentioned during the initial remarks, this has not been approved yet. On the first place, it's subject to Senate approval. And second, we can know when this is going to be applicable or as from when in the case Senate approves. So, in that sense, we don't know yet how the new document or the new types of regulations are going to treat these charts. In the case of your second question, could you repeat that again?

Yeah, sure. It's regarding the investment on the Dominican Republic that you announced on the previous quarter. If there's any update on this project? Or if you could share something in terms of timing or the financials of the investment? Thank you.

Yes, we are in the process today, as we speak, finalizing the design of the buildings. And we believe that we will initiate construction in the first half of next year.

Thank you, Adolfo.

You're welcome.

Thank you. Our next question comes from the line of Fernanda Recchia with BTG Pactual. Please go ahead.

Hey, Adolfo. Good morning. Thank you for taking my question. I have two. First, on the Pratt & Whitney issue that we saw that might impact Volaris' and Viva's [indiscernible]. Just wondering how are you expecting the impacts on ASUR? I know it maybe could be early, but we know that Cancun has a great exposure to the Volaris. So, if you could give us your preliminary thoughts, if you expect this capacity to be absorbed by other airlines, or it could impact ASUR? And second, on traffic evolution, as you mentioned on your remarks, Puerto Rico is doing very well. So, just wondering your forecast for Puerto Rico going forward. And Colombia, they are down by more than 10%, more or less. I think the last time we spoke, you mentioned a 20% fall that you were expecting. So just wondering if you're still forecasting this number and when should we start to see growth pace normalize? Thank you.

You're welcome. Well, in the case of your first question, that has to do with the Pratt & Whitney engines. It is not just Viva and Volaris, this is all around the world. It's 3,000 engines that must be recalled, that's 1,500 airplanes. And that accounts for many other airlines. I know that JetBlue has some, Spirit has some, American Airlines, very few of them. So to be honest, today we do not have enough information to say what the implications are going to be in the traffic of the world. In the case of Viva and Volaris, Viva has said to us that they do not see a major implication with this situation. In the case of Volaris, what I understand is that around 60% of the fleet has this kind of engine, so we are expecting a major impact from Volaris. And I agree with you that Cancun has a lot of flights with these airlines. So, the best way to evaluate this situation would be to hear Volaris and to see what they're going to say during their conference. But yet, we do expect some effects of these next year. And that will, of course, depend on how fast and how the manufacturer recalls the engines of Volaris. That had to do with the cycles they have in their engines and it's something that we don't know yet. In the case of Colombia, the 20% was what we have said that these two airlines meant, 20% of our traffic last year. So, whatever number is better than the 20%, that means that the other two airlines, Avianca and LATAM, are recuperating from these two airlines that disappeared or that went in stop operations. So, the number we have recently published is, in my opinion, a good number because it's lower than the 20%. Remember that these airlines were out since February this year. So, as from February next year, we will see the traffic to start growing again.

Thank you. And just a follow-up on Puerto Rico. Do you expect to keep this double-digit growth rate going forward?

The extraordinary growth we are seeing in Puerto Rico right now has to come with a new airline, an ultra-low-cost carrier, that started operations in Puerto Rico and they have increased our traffic substantially. So, this is good news for Puerto Rico. We don't know how much or how long this is going to last, but for the moment we are very happy to see these 20%-something increase year-over-year.

Thank you, Adolfo. Have a good day.

Thank you.

Thank you. Our next question comes from the line of Bruno Amorim with Goldman Sachs. Please go ahead.

Yeah, good morning. Thank you for taking my questions. I have two. The first one, I just wanted to reconcile the big picture here. Directionally, the government is increasing the concession fee. They have stated that they want to lower tariffs. So, if you want to keep the contract balanced, meaning allowing for the private operators to earn, the allowed return on invested capital, I guess, you could extend the life of the concession or eventually postpone CapEx. So, the question is, are those the two levers still on the table? And are you in talks with the government to eventually postpone CapEx or to extend the life of the concession? So that's the first question. And the follow-up on that is, if we get to a situation where it's not possible to square all those variables, if the contract is not balance, if the concession is not earnings the allowed return, is it still an option to go to the court or not? How do you think about this trade-off going to the courts or not? What could trigger this decision? Thank you.

Well, in the case of your first question, extending the concession or diminishing CapEx, well, first of all, I have to say that CapEx is not because we want, the CapEx is the mathematical relation in terms of the demand. So, if demand increases, of course CapEx increases. So, we will have to construct whatever is necessary to support the level of service for the demand that is coming. We are not in talks about extending the concession contract. In terms of the balance, I do agree with your question about how to reduce rates if you're increasing fees. It's something that we will have to see once we apply this new regulation document in our numbers or in our MDP towards the end of the year.

Thank you, Adolfo. And so, if at the end of the day there is no offset for the higher concession fees for the lower tariffs, is it fair to say the returns would likely be lower than what they should be? And in that case, could the company go to the court?

Well, Bruno, in the case of the document, you already have the full text of the document. So, in terms of the discount rate, I do believe that you all have all the information -- the necessary information to calculate what is that number today. So, it's now more than ever completely transparency for you to calculate this number.

Thank you, Adolfo. We can follow up offline if necessary. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Alberto Valerio with UBS. Please go ahead.

Hi. Thank you, Adolfo, for taking my question. My first one, I would like to -- if you could provide some details on Mexican traffic? We see a resilient domestic demand and a soften international. This is a trend. It's something that we should see recovering next quarter and next year? And my second one, if you could give it some color as well on Mexicana de Aviación? How should we treat it? Should we see, firstly, some increase in supply and then we might see some -- company is struggling to follow the price? What is your color on it? Thank you.

You're welcome. In the case of the Mexican traffic, as I have said, yes, we do expect some negative effects next year due to the fact of these Pratt & Whitney engines in the case of Volaris. Of course, on the other side, as we have mentioned, the government has announced that they will initiate operations with Mexicana Airlines. This Mexicana -- well, what we have heard from them is that they will initiate with 10 aircrafts. Just to give you an idea, today, the Mexican fleet is around 356 aircrafts. So, if we add 10, it is not an important effect on the whole scenario. In the case of Pratt & Whitney engines for Volaris, that means more or less 60 aircraft that could be stopped for 200 or 250 days. So, the negative effect is offsetting these new additional airlines of Mexicana de Aviación. What we know is that they have not received as of today the license to start operations even though they were saying that they will be initiating flights December 1 this year. So that maybe it will take more time.

Okay. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Anton Mortenkotter with GBM. Please go ahead.

Hi, Adolfo. Thank you for taking my question. Without getting much into details, I understand you're still evaluating the effects that the regulatory change will have. But thinking on a more strategic way and knowing the most relevant changes of these amendments, what would you say are the main ways that these modifications could affect your way of looking at the path and decisions taken by ASUR going forward?

Well, again, in that sense, Anton, we are transforming or updating or adjusting our documents to these new regulatory details that we have received last Thursday. So, it's too early to tell. Once they apply this new regulatory regime, we will be able to say what the effects were in the case of our MDP.

Okay, thank you. And also, just a quick follow-up. I didn't get -- I'm not sure if I got it right, but given that there was -- the adjustment was so quickly and you were already at the end of the MDP, is it possible for you to delay the final outcome of the MDP, or it has to be ready for the beginning of the next year?

I do believe that it has to be ready by the end of the year unless they say that they are not ready. So, we will -- I do believe that we will deliver our documents, update it with these regulatory details in the coming days, and we will take it from there.

Perfect. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Stephen Trent with Citi. Please go ahead.

Good morning, Adolfo, and thanks very much for taking my question. The first is actually a follow-up from Alberto Valerio on AMLO's new airline. Are you hearing anything at all pushback-wise with respect to the government arguably having control of some airports and an airline in the same market?

Well, as far as I understand, they have adjusted the law because in the past that was not possible. There was no way that someone will have airports and airlines in both centers of more than 5% from one to the other. So, I do believe that they adjusted the law in order that they can have this.

Wow, okay. I appreciate that, Adolfo. Just one other very quick one for me. I know that AMLO also has this Tulum Airport that seems to be in the works. Do you have any high-level view with respect to whether the risk to charter traffic could impact your joint maximum tariff?

Well, in the case of Tulum Airport, and that's a good question, Aeroméxico and Viva started to sell tickets from December 1 from that airport. So, it's something that you can see in their webpage, on their reservations page. They will start December 1. In the case of charter flights, I do believe that charter flights that have final destination, let's say, 10 kilometers south to Playa del Carmen, they will -- they should be using Tulum as airport because their final destination is closer to that airport. That, of course, will have an impact on Cancun and that has been considered in our MDP and that, technically speaking, made a [sharp increase] (ph) of the tariff of Cancun Airport.

Okay. Perfect. Appreciate the color, Adolfo, and thanks for the time.

Thank you.

Thank you. Our next question comes from the line of Pablo Ricalde with Santander. Please go ahead.

Hi, everyone. Thanks for taking my question. I have a question on the [indiscernible] as well. And now that you have to discount using a WACC, which level of debt you have to use? The one that you have on the Mexico structure or the one that you have consolidated? That's my question.

Pablo, there is no way to understand what you're saying. Your line is cutting in a very bad way.

I don't know if you can hear me better now.

Well, more or less.

I have a question on the debt you have to use to calculate the WACC on the new discount rate. Do you have to use the one in Mexico or you have to use the one consolidated?

Well in the case of that, you can see a paragraph there in the document we have filed last week that says that in terms of the debt, it should only be included in operations in Mexico. So, if you are using consolidated and financial statements of Cancun, you must exclude what is related to Puerto Rico and Colombia.

Okay. Perfect.

You're welcome.

Thank you. Our next question comes from the line of Pablo Monsivais with Barclays. Please go ahead.

Hi, Adolfo. Thanks for taking my question. I just have two quick questions. The first one is on the commercial revenues per passenger in Mexico. On the dollar basis, it has increased a lot, and you just mentioned the opening of new spaces. But if you have more info -- more detail, will be good. Also, on the expectation for year-end on international travel to Cancun. I mean, international travel has decreased over the last few months. How are you seeing the final stretch of the year? Thank you.

Well, in the case of commercial revenue, we are having some effects, of course, from the Mexican strong peso. So, that was the case of duty-free. Now, that is the case of some other activities that are related to foreign people. In the case of the traffic, as I had mentioned during the initial remarks, what we saw from the quarter, on the first side, we have to understand that there should be a normalization of the numbers. Normalization means that no more double-digit numbers, no more external growths. But in the case of international, the decrease was related to the traffic to and from Europe and to and from South America. In the case of the U.S. and Canada, was a slight increase that offset these negatives. But the strong peso, of course, is taking some foreign people out from this country. That's true.

Thank you.

You're welcome.

Thank you. Our next question comes from the line of Arthur Suelotto with APO Capital. Please go ahead.

Thank you. Good morning, Adolfo. Just a quick follow-up, please, regarding the concessions. Are you in talks to extend the terms of your concession at this point? I know that someone asked this previously, but just I couldn't get your answer. Just to check if you are discussing this with the government at this point, considering all the changes that were announced recently. Thank you.

Well, we are exactly at the middle of the term, so the original term was 50 years where we have 25 in front. And as I had mentioned, we are not in talks at all about extension of the concession.

Very clear. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Luis Lama with BlackRock. Please go ahead.

Hi, Adolfo. Thanks for taking the question. I'm just trying to clarify something that is a bit ambiguous on the new regulatory document. So, are these changes to be applied at the end of this current MDP cycle or only for the next cycle?

This document is enforceable as we speak. In the case of [rules] (ph), the main implications, of course, are within next MDP, that is in process. So, I would say if everything is okay in terms of time from the authorities' respect, this document will be applied as well before the year is over, with our rates are from the first day of next year.

Okay. Thank you.

You're welcome.

Thank you. [Operator Instructions] As there are no further questions, that concludes the question-and-answer portion of today's conference call. I would now like to turn the call back over to Mr. Castro for closing remarks.

Thank you, Ryan, and thank you all of you again for participating in our third quarter results conference call. On behalf of ASUR, we wish you a good day and goodbye. Now you may disconnect.

Thank you. Ladies and gentlemen, that concludes ASUR's third quarter 2023 results conference call. We would like to thank you again for your participation. You may now disconnect your lines.