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Grupo Aeroportuario Del Pacifico, S.A. de C.V.  (NYSE:PAC)
Q3 2018 Earnings Conference Call
Oct. 26, 2018, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to GAP's Third Quarter 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, we will open the floor for questions and at that time, instructions will be given, if you would like to ask a question.

It's now my pleasure to turn the call over to Patricia Cruz of i-advize Corporate Communications. Please go ahead.

Patricia Cruz -- Investor Relations

Thank you, and welcome to Grupo Aeroportuario del Pacifico's third quarter 2018 conference call. Today, from the company, we have Mr. Raul Revuelta, GAP's Chief Executive Officer; and Mr. Saul Villarreal, Chief Financial Officer.

Please be advised that forward-looking statements may be made during this conference call. These 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 call -- to the earning -- to the quarterly report issued yesterday.

At this point, I'd like to turn the call over to Mr. Revuelta for his opening remarks.

Raul Revuelta -- Chief Executive Officer

Thank you. Good morning, and thank you all for joining us today. As always, we appreciate your interest. In the essence of time and given that you already have the earning report, I'm going to focus my comments on traffic evolution, airport performance, and the various airport projects under way.

Just a brief overview. During the third quarter, GAP served 11 million passengers throughout 13 airports. This represent a 9% decrease in the total number of passengers compared to the same quarter of 2017 and 11% if we compare with the nine-month period. This constant level of traffic growth is coming mainly from the expansion of Mexican airlines throughout our airports network and this added 1.3 million new seats during the third quarter. Naturally, traffic growth brought important benefits for both our aeronautical and non-aeronautical revenue sources. And I will disclose that further in the following section.

In terms of traffic and operations, the traffic increase we've experienced was mainly driven by the strong growth of Vallarta, Mexicali, and Guanajuato domestic markets as well as solid recovery of the Los Cabos international traffic. The Montego Bay airport also continues to present solid growth. Domestically, traffic rose by 12%, representing 714,000 new passengers during the quarter. The Guadalajara, Guanajuato, Mexicali, and Tijuana airport jointly contributed 75% of this increase. Internationally, traffic rose by 5% or by over 207,000 additional passengers. Apart from a good performance that we saw coming from Guadalajara and Tijuana markets, the Los Cabos stand out with load factors that grew 10% during the quarter.

In terms of the new routes for the quarter, there were two new routes; one additional domestic route and one international. VivaAerobus initiated flights from Guadalajara to Puebla during September with three weekly frequencies and Eurowing began flying on a weekly basis to Montego Bay from Munich during the month of July. As we mentioned in the report, for the next quarter, we expect the launch of 20 new routes, most of them are approximately two to three frequencies per week. So that is a huge leap to the end of the year with. It is important to remark that last week Aeromexico announced the cancellation of three routes in our network. Those are Tijuana to Montego Bay, Guadalajara to Cancun, and Guadalajara to San Jose, California. The three routes I just mentioned are operated by other airlines as well. So we expect that these airlines will pick up the passengers of the cancelled routes.

Guadalajara remained the top performer in terms of additional passengers for the quarter. Together with Tijuana and Los Cabos, these three airports represent 62% of the total passengers increase, 91% of this growth. Clearly, the entire increase was driven by the Mexican low-cost carriers. Volaris added 498,000 additional passengers, VivaAerobus brought 262,000 passengers, and Interjet 73,000 passengers. In terms of seats, this reached 30 million in the third quarter, representing a 10% increase compared to the same quarter of 2017. Commercial passenger load factor remained flat with 83% for both quarters. In Guadalajara, domestic traffic propelled 85% of the growth at the airport. In that regard, the Mexico City route went back to being the top (inaudible) of additional domestic passengers during the third quarter. International traffic growth was mainly as a result of an increase in the important visiting friends and relatives markets of Los Angeles and Chicago, which grew by 27% and 31%, respectively, during the quarter.

I want to make a special mention about Tijuana. The number of CBX users at these airports continue to rise. 28% of Tijuana total passengers uses the bridge during the three months period. That represent an 8% increase compared to the figures reported in 3Q17. As you have been seeing in the last month, in Los Cabos Airport, domestic traffic maintained double-digit growth. In terms of international traffic, 3Q17 traffic was affected by several weather phenomenon, which creates a low quarter-over-quarter comparison base to the 3Q18. These, combined with a significant improvement in the security condition of destination, resulted in international load factor increase of 10%, which in turn supported international traffic growth of 5%.

In Puerto Vallarta, Josefinos, Cabo domestic traffic was the main source of passengers growth. International traffic decreased slightly by 2%. As I mentioned, last year traffic in Los Cabos was affected due to the weather which in turn created a temporary increase in traffic for Puerto Vallarta. Montego Bay kept a constant growth pace during the third quarter via 5% traffic increase. This performance was the result of expansion of our dual low-cost carrier at this airport, mainly (inaudible) who were the top two airlines in terms of additional passengers for the period. Also during the quarter, Eurowings began flying from Munich on a weekly basis, fueling the airline's 50% traffic growth for the period. I want to mention that we believe that the Canadian market is finally back to the normal levels, as evidenced by Air Canada's 37% growth during the quarter.

Now, the non-aeronautical's revenues increased by a total of MXN107 million or 16%. However, commercial revenues per passengers only grew by 6% in 3Q18. This was a result of the construction projects that are still under way at the airports of Guadalajara, Hermosillo, Mexicali, and Tijuana. Once they are finished, we expect to see considerable growth in commercial revenues.

In Guadalajara, one of the most ambitious food and beverage project began operating in August. This 1,400 square meters space includes a modern food court area, a full service restaurant, and a gourmet market. As a result, we expect a ramp up in food and beverage revenue at this airport for 4Q18. By the end of the year, the company commercial areas are expected to increase 31% or 6,400 square meters compared to the 2017. Once we conclude the terminal building expansion of the Mexican airports in 2018, that purpose will happen with a surface area by 42% or 80,615 square meters compared to 2017.

The strongest performing business units were duty-free, which currently represents 70% of the non-aeronautical revenue. Compared to the 3Q17, this business line increased by 34%. Retail, which increased 18% during 3Q18. There were some (inaudible) that we mentioned previously are temporarily affecting retail sales. However, Guadalajara is nearly complete and we expect that the remaining stage will complete in the first quarter 2019. In the meantime, and in order to support sales at the airport, we have offered tenants temporary retail space. Additionally, Concourse D, we successfully operated 1,500 square meters of new retail spaces including new bookshops, song rack, and cellphone accessory stores. Also Concourse D successfully reopened, however, commercial areas in Concourse C will not be fully operating until the end of the first quarter of the coming year.

The Tijuana terminal expansion also continues and will be completed during the first month of 2019. As a result, commercial revenue growth at this airport is expected to remain relatively flat for the rest of the year, at least until the works are complete and the new commercial areas are opened. In order to be ready to begin commercial operation as soon as possible, during the 3Q18, we're finalizing the bidding process for the new food and beverage area. As such, these are already negotiated and will include globally recognized international brands.

Now, in terms of the construction works under way at each of our airports. At the Guadalajara Airport, as we mentioned before, we are expanding and refurbishing the terminal and we are opening a new food and beverage area. Also, in the 3Q18, we focused expansion of the remote boarding Concourse E including five additional boarding gates. This expansion should be complete by mid-November 2018. The rest of the works are entry door and exiting areas and expansion of the terminal via new vertical transportation model, that is elevator and escalators. And these are expected to be completed during the 1Q19.

At Los Cabos, during the 3Q18, we made significant progress in the expansion of the terminal building. In order to strengthen commercial revenues, we are changing the previous layout, focusing on improvement for the commercial development, including an additional 4,500 square meters. We expect to complete the terminal expansion by 2020. Regarding the Tijuana works, the terminal building expansions continue. We expect to complete this work by the first quarter of '19. In Guanajuato, we refurbished and expanded the terminal building. On October 2, Mexican President Mr. Pena Nieto visited the airport and was the official inauguration ceremony of these new areas.

At La Paz, the works to expand and remodel the terminal building are ongoing and should be complete by mid-November 2018 as well. The works are 95% complete at this point in time. And once finished, the boarding lounge will be 70% larger and the baggage claim area 35% bigger. There will be also two additional boarding gates, a new commercial development that includes a new VIP lounge. Finally, at Aguascalientes Airport, we have started the expansion and refurbishment of the terminal building during the 3Q18. Upon completion, the boarding lounge will be 30% larger and the commercial area will be significantly bigger. We expect to complete this work by 2019 year end.

To conclude, a quick review of the financial results. Total revenue figures increased 16% during the nine months of 2018 and due to the outstanding performance of traffic as well as the inflation. In terms of the cost of service, during the 3Q18, it increased by 25%. As we discussed in our previous conference call, our main objective is offer to our passengers the highest level of quality service and comfort level at our airport.

As you know, the several expansion at our airports mean additional cost for maintenance, cleaning, and security services for larger space. The Mexican airports increased by MXN98 million or 24%, driven mainly by, we had an increase in employee cost of MXN23 million or 17%, due to an increase in headcount of 56 people that we added during the previous quarters. Also, we had an increase in safety, security, and insurance costs of MXN22 million or 36% in 3Q18, due to additional personnel needs to attend the new areas, resultant from the expansions and also the higher number of security checkpoints to improve the access times and the waiting areas in the benefit of our passengers and we achieved our goal of guarding them in the commercial areas for a longer period of time, which increase spending.

We also had an increase in the utilities of MXN22 million or 40%, mainly due to higher energy prices. Other operating expenses in 3Q18 increased MXN34 million, mainly due to an increase in professional services fees, including outage fees and legal fees of MXN40 million, and increasing reserve for doubtful account of MXN6 million, and increasing sales costs of the VIP lounge of MXN2 million, due to a 36% increase in the number of users at the VIP lounge.

As we previously announced on October 10, we closed the transaction with the Government of Jamaica to operate Kingston International Airport through a 25-year concession agreement with a possible extension of five years. We will take the control to the operation in October 2019. This concession represent a strategic decision to raise capital position in Jamaica to expand the development and growth of both international airports.

Before I move on to the Q&A session, I just want to reiterate the guidance revised in the second quarter earnings report. In essence, given the current scenario, we are expecting a continued solid performance for the remaining three months of the year.

Thank you for your attention. We will now be pleased to take your questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) We can start with Alejandro Zamacona with Credit Suisse. Please go ahead. Your line is open.

Alejandro Zamacona -- Credit Suisse -- Analyst

Hi, Saul, hi, Raul. Thank you for the call and just a couple of questions here and I don't know if you can give us more color on what can we expect about the cost of services going forward. I don't know if you can mention what initiatives are you taking on or what can we expect for the following quarters.

Raul Revuelta -- Chief Executive Officer

I will say that there is a couple of initiatives that here we are beginning to see. First, in terms of the utilities and energy, we are seeing a really important rise on the cost of energy. We are running to implement a more stronger program in terms of the consumption in the different airports of energy. That means, for instance, change the kind of lights, turn off some areas of the airports in the moment that there are not operations. So all the different actions that we could take for -- decrease the level of consumption. Just trying to decrease the possible impact on all these increases on price on energy.

Also, as soon as we open some of the new areas in the airports that, for instance, change or the service -- some of the equipment, for instance, they see equipment in some of our airports, we are working for bringing first a modern equipment that have a lower consumptions of energy. So we are going to see this possible decrease on the consumption on the coming year as soon as the new areas are open. And in these areas we're going to have these more efficient equipments for AC. This is the kind of things that we're going to see.

Saul Villarreal -- Chief Financial Officer

Yes. I agree with Raul with the activities we have implemented in the airports. For this quarter, we saw some increase in the cost of tariff in Mexico and in Jamaica for electricity. So we assume that with these measures, we will decrease a little bit the cost of energy. Anyway, we have some additional expenses to professional services because -- legal services, because the process of the acquisition of Kingston that we are incurring additional expenses, we incurred additional expenses also with the legal advisor from -- with our lawyers, external lawyers, but these were very important. As you saw, at the end we obtained a favorable outcome for (inaudible) capital reduction that they retained. So additionally to the increase in the meters that we have in our airports due to the expansions, so we have more expenses. Anyway, for the following quarter, we will show a decrease in the -- increase in the cost of service and for 2018, with all these measures we will implement -- that we will implement, we will control the cost of service and we will continue at the same level that we will finish in 2019, the cost of service will continue at the same level that we will finish in 2019 because of service per passenger, that's our target.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay, thank you. And my second question is about the master development plan. I don't know if you can give us a little more details or any updates on the expected dates, the investment commitment or any information you can provide us.

Raul Revuelta -- Chief Executive Officer

Thank you, Alejandro. As you know, in December of this year, we will file our first draft, our first public draft of the master plan for this next five-year period. We are just beginning, I will say, the negotiations and the review of this master plans with the authority. I will say, that we are going to be more -- we are going to have more clear data on the next June -- on June, on the coming year because for that moment we are going to have the second draft and will be the -- the draft officially filed to the Ministry of Communication and Transportation.

But what I could tell you in terms of general things that today are not official, I will say, like in general terms, GAP will work to develop additional square meters on terminals, try to get the best quality of services for our passengers and we are going to have, for sure, the possibility of increasing some commercial meters in our different terminals due to the main expansion of our biggest terminal. So, well, the thing that in general things what we are pursuing on this master plan is, for sure, make enough room for what we are seeing in terms of forecasting of additional passengers for the coming years. Second, increase the level of quality in our terminals and additional square meters on those terminals. And third, I will say that, due to the fact that we are going to increase the square meters, we are expecting to develop additional commercial areas that should increase in some way the commercial revenue per passengers for the coming year.

Alejandro Zamacona -- Credit Suisse -- Analyst

Okay, thank you very much.

Operator

Our next question comes from Natalia Zamora with GBM. Please go ahead.

Natalia Zamora -- GBM -- Analyst

Hi, good morning. Thank you for taking my question. I was wondering, on traffic in Tijuana, as we saw deceleration in the quarter, could you give us any color on why it might be and what you think we can expect for the next quarters in this regard? Thank you.

Raul Revuelta -- Chief Executive Officer

Thank you. Hi, Natalia. What else is starting or what we are seeing that is going to happen on the coming quarter, VivaAerobus will adversely begin to grow seats on Tijuana on the fourth quarter. It is important to mention that VivaAerobus already publicly announced that they will open a base of operations in Tijuana. So one of the things that we are expecting due to the fact that these new base of operations will be on this airport is that we are going to see an important role of seats from VivaAerobus. Also one of the fact that we see on the third quarter in some way was reduction in some specific routes, for example, on the Mexico City-Tijuana route and some seats that we also decreased on Guadalajara-Tijuana route. In these both routes what we are seeing is that the seats for the coming quarter will again increase.

So I'm seeing just a decrease that happened in some ways temporarily due to, first, the high comparison with the one year ago and, second, with some kind of delays on additional seats that were programming from the different airlines for being in place on the third quarter that will end on -- at the end of day, it's going to happen in the fourth quarter. But in general terms, we are seeing that the Tijuana traffic will still grow in a good trend, in a robust way, thinking on the additional seats that VivaAerobus will bring. And also Volaris has announced different additional routes for the case of Tijuana. It's really interesting that they are putting in place a new strategy for Mexican beaches from Tijuana. This is the first time that its happening. We will have, for the fourth quarter -- beginning of the fourth quarter, we will see routes that come from Tijuana to Huatulco, Tijuana to Ixtapa, Tijuana to Vallarta, Tijuana to Cabos.

So the idea is to try to bring some of the visitors from South California through Tijuana, through this cross border express to go the Mexican beaches. I think that is -- this strategy will be interesting. I mean, it is beginning for sure in a small base of number of seats, but if this -- if Volaris has a good result on this new strategy, we think that open the opportunity to attract a completely new kind of passenger on Tijuana. I mean, we will attract the Californian visitor going from South California to the Mexican beaches. So I think that this kind of news are really interesting on the future -- possible future growth for Tijuana airport.

Natalia Zamora -- GBM -- Analyst

Okay, great. That's very helpful. Thank you.

Raul Revuelta -- Chief Executive Officer

Welcome.

Operator

Our next question comes from Ruben Lopez with Santander. Please go ahead.

Ruben Lopez -- Santander -- Analyst

Hi, Raul, thanks for the call. I have two questions. The first one, we saw a strong increase in several cost items. You already talked about utilities and the actions that you are doing to take care of these. But can you elaborate more on safety and security and on other operating expenses that also increased strongly. And then the second one is on Kingston Airport. It seemed like an aggressive bit with a high concession fee. So just wanted to hear your thoughts on the operation of this airport and the potential that you see in terms of top line growth and margin expansion. Are there any additional numbers that you can share with us? Thank you.

Saul Villarreal -- Chief Financial Officer

Okay, thank you, Ruben, for your question. In terms of the operating expenses, as we mentioned, we have an increase in professional and legal fees as we already said. And an increase in reserve for doubtful accounts from some clients, nothing to worry. But we have to recognize according to our policies. Anyways that will be recorded during the following months.

In terms of safety, security, and insurance, as we may have mentioned, we have been opening another areas in the terminals. Every time we open more areas, we have additional costs of security and headcount. So we have increased these costs due to the expansions in our airports according to the program of openings. In other hand, the insurance increased in general terms around 30% because of the impact of the hurricanes and the earthquakes of the last year. For this year, we renegotiated the new insurance policy and the insurance costs increased significantly, more than 30%. So it is something that we can do nothing about it. It's some situation in terms of market conditions. So it's something in that sense.

And regarding Kingston, I will try to give you move color about the transaction. It is very, very important for our company. Now we have the 100% of the traffic of the airport. We knew that we have to be more bullish for a bid. We did, at the end we obtained the concession. We will start operation in October 2019. And we will expand the -- we will increase the level of our EBITDA. It is an upfront fee of only $7 million. It means that we obtained a business, an airport for $7 million, that is almost nothing. So it would be very interesting and we will start with the transition period, that is for 12 months and then we will start with the operations. Right, Raul?

Raul Revuelta -- Chief Executive Officer

Yes. And also I will add part of what we are seeing on Kingston for the coming years. I will say that three really important points to understand the transaction. First, related with the Jamaican future. What we are seeing, Kingston as a capital airport or the airport -- the capital of Jamaica, what we are seeing in Jamaica is, in general terms, a great airport from the government trying to increase or to improve the macroeconomics of the island. We are also seeing for the coming years a GDP per capita on the island growing. We also see the effect or the future effect of the increase of the additional money coming from the diaspora, it means the migrant, the Jamaican migrants living mainly in US, New York, and Florida area that are growing the sending of money to the island and that is having also an additional great effect for the economy. So I will say that we are seeing the strong -- or a Jamaican economy working to a better situation and working to a better future. That is one really important point.

The second point is related to specific Kingston as a city, that is on the really important program for investments to increase the highways that connect the different areas of development in Jamaica. So we are also seeing an important potential opportunity for the future in terms of attracting different or to serve different beach areas of the island through Kingston and in some way, in all the potential that would be there is that we are expected that some additional room hotels will develop on that part of the island. So also we are seeing this additional growth of the city, not only for what is happening in the economy, but also for the potential of attraction of tourists in a non-developed area of beaches that we expect that going to happen on the coming years.

And third, the most important, as almost any of the privatization, we think that as soon as GAP takes control of these businesses, we will improve the margins of operations. We have a big opportunity in terms of increasing the commercial revenues, changing the way of the structure of the contract and the kind of offer that we are having over there. For sure, there is an important leverage in some way about the clients that we already have on Montego Bay -- in Montego Bay in terms of the of the commercial revenues. Also, we will see all the efficiencies that we could bring on the cost of operations. That includes, for instance, working with the headcounts of employees in the airport. We have the great opportunity that brings the economy of the scale of the airports procurement. So we are expecting to see a really important improve of the margins.

So these three parts are the most important things that in a strategic way we are seeing for the coming years on these airports. So we are seeing a big potential there that will be with the catalysis that will bring the change of the operator to GAP. In general terms what we are seeing is that we are going to expect a successful transaction and successful operation in the coming -- in a couple of years. At the end of the day, the first -- the beginning of operation, but we have a lot of work, a lot of things to do. So we will see that reflect upon this work, I will say, on the first two years of operation of this new concession.

Ruben Lopez -- Santander -- Analyst

Okay, very clear. Thank you.

Operator

Our next question comes from Alex Falcao with HSBC. Please go ahead.

Alex Falcao -- HSBC -- Analyst

Hi, good morning, and thanks for the question. I have few questions. First one is more high level. One of your mandates when you came in was to looking for new opportunities and I know you guys have done a good job there. I just wanted to explore, with the elections in Brazil and what's going on in Mexico, are there -- and the infrastructure plan that is to come to the US, where are you spending most of your time right now and where we should see more activity? That's the first question. Thank you.

Raul Revuelta -- Chief Executive Officer

Thank you, Alex. Yes, we are looking for opportunities, for sure, in our international expansion. There's different opportunities that have been -- probably that is on public. We know all the Brazilian opportunity that is happening. We analyze that opportunity in the moment. We don't see all the potential that we'd like to see and we don't say, all the economy of scale that we could get and also in terms of our strategic plan, we don't see that Brazil was the best, the best opportunity on the pipeline.

So, yes, on the moment we saw it, was not completely the kind of asset that we were looking for. Also, there is other opportunities happening in Central America and also the Caribbean and, for sure, as you say, all the possibilities that could happen on the US market would be really interesting to review. I will say that in the US market, for sure, we are going to look, for the US markets and Latin America and in the markets, we will try to look for opportunities that in some way will happen on markets that we already know. For instance, when we would took the hit for or when we would take the opportunity of Montego Bay and then in Kingston, in general terms, there were airlines that we already worked with those American, Southwest, United all these airlines. So the possibilities that we have to work with the planning team of all these airlines and to develop business are really better than in other markets.

So, near terms, I will say that we are still looking for opportunities, always that have some kind of synergies, thinking in the same kind of markets that we already know, that it means markets that has diaspora or markets that includes some migration, visit the relative and friends effect. We also will look for the tourist destinations as we have on Vallarta, Cabos or Montego Bay. So in general terms, all the opportunities that we look are going to have; first, the correct size for GAP; second, the correct profitability for GAP; and third, in some way market that we could get some kind of synergies about the expertise and know-how that GAP has in the region.

Alex Falcao -- HSBC -- Analyst

Okay, perfect. That's super helpful. Second question is regarding Tijuana. With the announcement on Viva and you talked to other players actually going more into Tijuana. What are the odds that we are probably going to see a price for -- on that airport specifically? And have you guys seen in any other of your bases, something more in that sense before adding capacity and attract traffic, prices going down? If you could comment, that will be super helpful. Thank you.

Raul Revuelta -- Chief Executive Officer

Yes, I will say that, for sure, at the beginning we could see some reduction on prices for sure. We don't like to see any kind of price war. One of the great things that we are seeing that is different from the past that happened on different times on Tijuana, the expansion of seats are happening in new routes. In the past, the biggest expansion happens always on the Guadalajara, Mexico route and in the Mexico City-Tijuana routes and mainly on migrants market. I mean, in the past, we saw only these kind of Zacatecas, Morelia, Uruapan, these really migrant markets going to Tijuana.

For the first time we are seeing much more seats, for instance, on beaches like Zihuatanejo-Ixtapa, like Huatulco. So like additional seats from Tijuana to Vallarta. So what we are seeing at the moment at least is that, for sure, VivaAerobus and Volaris are expanding their seats there. But for the moment, at least they are expanding their seats on different routes. So, for the moment, at least we are not seeing that this price war already begin. But for sure it's something that we should follow really closely because at the end of the day, there is additional seats coming to the market. For sure, in some moments, some of the airlines will cross same markets and some of the specific airlines like Viva and Volaris for their way or their kind of business would be easy to see some kind of decrease on price or difference. (ph) And for sure, there is a continuous risk of a possible war of prices on the future, but at the moment, we don't see it yet.

Alex Falcao -- HSBC -- Analyst

Okay, perfect. Very helpful. Really appreciate it. Thank you.

Operator

(Operator Instructions) We'll go next to Stephen Trent with Citi. Please go ahead. Stephen, please check the mute function on your phone.

Stephen Trent -- Citi -- Analyst

Hello. I'm sorry about that. Good morning, gentlemen, and thanks very much for taking my questions. Just actually to start off with a follow-up from the gentlemen who spoke earlier with respect to the airport in Jamaica. I mean, I know it's not exactly a large asset, but when you think about your bet on longer term economic growth, what was your thinking with respect to acquiring another asset in the same relatively small country, viewing the risk that one airport's growth could cannibalize the other versus looking at a new airport or another airport opportunity in another country? Just wanted to get your view on that.

Saul Villarreal -- Chief Financial Officer

Okay. Hi Steve, thank you for the question. This is Saul. Let me tell you very briefly that it is -- from our perspective, it is a very good opportunity to consolidate the market of Kingston. We do not believe that could be a cannibalization between both airports, they are different markets. Montego is mainly tourism and Kingston is a VFR market, visiting friends and relatives. We know and we have the experience here in Mexico to increase traffic in airports competing for the same market. In this case, it is more easy for us to negotiate with the American -- with US airlines and Canadian airlines for two markets in two countries, Jamaica and Mexico, to negotiate and open roads in Jamaica and open roads in Mexico, increase frequencies in Jamaica, increase frequencies in Mexico.

So the power of negotiation that we could have with the airlines is stronger and we will try to increase this. As Raul mentioned before, it is a great opportunity for us because it's the moment of the country that has a better performance is improving the economics of the country and we believe there is a very good opportunity. And at the end it was a great opportunity because of the upfront fee only $7 million, it's nothing to have the opportunity to operate an airport, to develop and to improve the profitability of the company. So at the end, we analyzed and we decided to be bullish. And at the end, we were granted with the concession.

Stephen Trent -- Citi -- Analyst

Okay, that's helpful. So in other words, you're saying that this to some extent helps your negotiating power with the airlines, even as Kingston, the first thing that came to my mind is no way that's going to be a big tourism hub. But I guess negotiating -- the negotiation power is part of the strategy there?

Saul Villarreal -- Chief Financial Officer

No, my point is -- in that way is that we will benefit Kingston with this power that we have to negotiate with the airlines to have additional roads in our other networks, because the other network is stronger. And in that sense, we can provide more capacity to Kingston. This is the other hand -- in the other way, it's not that Kingston will help to our network, our network will help to increase traffic for Kingston, it is in that way.

Raul Revuelta -- Chief Executive Officer

And it's important, Stephen, also what is happening, that we are seeing on the Jamaica -- on the island is, for sure, there is more important discipline in terms of the macro economics that we will have for the future development. But also due to the fact that the US economy is growing in a really interesting pace and the effect that migrants or VFRs, the mainly -- the most important traffic or the most important market for Kingston, for example, are the markets to New York. So one of the things that we are seeing is for our experience in other migrant markets like the one that we have in Mexico, as soon as the economy on the US begins to work in some way -- in a better way or where they're growing in better pace, we're going to see an expansion of the number of visits that these migrants or these Jewish Jamaican guys will have to the island. So what we are seeing or what we think that is going happen on coming months and coming years will be an expansion of number of seats that connect this busy relatives and friends market or that expands this market on Kingston.

Stephen Trent -- Citi -- Analyst

Okay, appreciate that. So -- and just one other quick one for me, if I may. And I know it's not a fair question, it may be kind of a black box with this whole Texcoco airport referendum going on. When you guys think about master development plan and other stuff with Texcoco, without Texcoco, are you at least thinking at this point on one level lower growth opportunity, you got a Mexico City metro area, but on an another -- any possibility at all that there is an opportunity with respect to pitching Guadalajara or another airport as an alternate hub? Just wanted to get your take. Thank you.

Raul Revuelta -- Chief Executive Officer

Yes, thank you, Stephen. I will say that -- I mean, as you say, it's a hard question because everything is moving. We don't have really complete clarity of what's going to happen or what could happen. But I would say that, first, some of our airports of Guadalajara is bringing passengers due to the fact that the city is growing, the economy is growing. As you could see, Jalisco is a state where Guadalajara is -- Guadalajara is the capital of Jalisco. For instance, on the last almost seven quarters, in terms of the GDP, has been between the second and the third state in Mexico in terms of growing. So, one part of my thinking is Guadalajara up -- some of our different airports in the Central Mexico as Aguascalientes and Guanajuato are growing at great pace, more for what is happening in terms of the local economy of the industrial local economy on these three different states rather than other kind of things. So, one is -- that is one point.

We're seeing origin destination market growing for the coming years due to the fact that the economies of this area are growing in a higher pace than rest of the country. And second, in terms of connection, for instance, Guadalajara on the last almost eight years has growing the pace on this specific market of connection with or without the Mexico City Airport. So, for sure, if the metropolitan area demand in some ways solve it in the coming years, for sure, the natural thing is that we're going to track some different connections for Guadalajara and it could be an opportunity to develop additional hub market for Guadalajara. I will say that the market has grown and today almost between 7% and 8% of the passengers of Guadalajara are connected. So, we are seeing that trend. It is growing the connections on Guadalajara and for sure, it could be an opportunity for Guadalajara to be bigger hub.

Stephen Trent -- Citi -- Analyst

Okay. Very thorough and I'll let someone else ask the question. Thank you.

Operator

Our next question is from Marco Montanez with Vector. Please go ahead. Your line is open.

Marco Montanez -- Vector -- Analyst

Hi, good morning, and thank you for taking my questions, Raul and Saul. Considering the recent announcement of Aeromexico of having no growth for capacity in the next year and maybe considering your insights from Interjet, from Viva and obviously Volaris, and I know well, it's very early to give a guidance, but could you share with us your expectations for traffic for the next year, at least for Mexico? That would be super helpful.

Raul Revuelta -- Chief Executive Officer

No, I will say that the change of fleet that we are seeing from both Aeromexico and Interjet has mainly -- let's speak with the Embraer 190 is a plane with the same case of the Sukhoi that really don't move a lot or have these big offer of seats. So what we are seeing is that the extra capacity that is arriving to the market through VivaAerobus, Volaris and even the new configuration of seats that Interjet is having in the 320s, in the new 320s and the new 321, we are seeing that is -- all these changes on the fleet will be perfectly observed for the changes of the fleet that's going to happen on the coming six months.

So, we are not seeing really a big issue on the decrease of these specific number of seats from Aeromexico and (inaudible) through their change in the fleet with the Embraer 190 and some 737 Aeromexico and also through Interjet. Also I will say that I will be in some way slightly positive about this change, not about the number of seats, but in terms of the cost of operation for these airlines. These airlines are taking out some of the inefficient part of their fleets. So, we will see some change on the cost for the operations and the cost per passenger of all of these airlines. So, I will say like -- on long-term I will say that it is a positive news in terms of the health of the finance on the airlines. In the really short-term, I will say that these possible decreases on the offer of seats will be perfectly absorbed by the new seats coming on the market, and also due to the fact that it will be in some way absorbed by load factors in the rest of the market.

But, in general terms, I will say that we are working for our new -- forecasting for the coming year. We are seeing a healthy market for the moment, but in terms of all the different changes that is happening, I will say, in the word, Chinese, US, Mexico and change of the government, we are not ready to give our projections yet. But in general terms, we are seeing for the moment a strong demand, a capacity growing for almost all the airlines. But I will say like in the coming months, we're going to be ready for release of our view of coming year.

Marco Montanez -- Vector -- Analyst

Okay, Raul, thank you so much.

Operator

(Operator Instructions) And we do have a question from Andres Nieto with Signum Research. Please go ahead.

Andres Nieto -- Signum Research -- Analyst

Good morning, everyone. I would just want to have a small follow-up question about the Kingston Airport. Could you give us some estimates about the earnings. I don't know if you had talked to us about some estimates about the earnings or the increase in traffic you expect to see? Thank you very much.

Saul Villarreal -- Chief Financial Officer

Thank you, Andres, for your question. As we mentioned, we cannot disclose too much information now because the current revenue, the current earnings of the airport will be different of the two that we are (inaudible) start the operation. What we can say is that this airport is handling 1.6 million passengers. Once we start operation of the airport that we expect to be ready for October 2019, then we will have to start in the middle, certain negotiations with the authority regarding the new tariffs and different issues. So once we have that, and when we have this asset consolidated with our operations, with all our efficiencies, with all our experience managing airports, we believe that this airport will contribute to around 1%, 2% to our current EBITDA. So it is not a big asset, it's not a big airport. But it represents a good opportunity for us to be more -- or have a stronger position in Jamaica. Obviously, our main asset is Montego Bay and through Kingston, we will have the 100% of the operation of the country. So it's more on a strategic decision, it's not a big investment, only $7 million. So it's a large opportunity for consolidating both airports. That's the main reason of this. We don't have -- we cannot release yet more economics of the airport.

Andres Nieto -- Signum Research -- Analyst

Okay, perfect. Thank you very much.

Saul Villarreal -- Chief Financial Officer

Welcome, thank you.

Operator

And it appears we have no further questions, I would turn the floor to you Mr. Revuelta for closing comments.

Raul Revuelta -- Chief Executive Officer

Thank you. Thank you again for your attention. I look forward to interacting with you in the near future. Have a good afternoon.

Duration: 60 minutes

Call participants:

Patricia Cruz -- Investor Relations

Raul Revuelta -- Chief Executive Officer

Alejandro Zamacona -- Credit Suisse -- Analyst

Saul Villarreal -- Chief Financial Officer

Natalia Zamora -- GBM -- Analyst

Ruben Lopez -- Santander -- Analyst

Alex Falcao -- HSBC -- Analyst

Stephen Trent -- Citi -- Analyst

Marco Montanez -- Vector -- Analyst

Andres Nieto -- Signum Research -- Analyst

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