Grupo Aeroportuario del Pacifico S.A.B. de C.V. (NYSE:PAC), the Guadalajara, Mexico-based airport operator, reported first-quarter 2017 earnings on April 26 that largely conformed to its previously provided guidance. After a review of GAP's key earnings metrics, we'll dive into the quarter and discuss important themes, including traffic trends, capacity expansion, and new airport operation opportunities.

Grupo Aeroportuario del Pacifico: The raw numbers


Q1 2017 

Q1 2016 

Year-Over-Year Growth





Operating income




Net income attributable to controlling interest




Data source: Grupo Aeroportuario del Pacifico. All figures in thousands of Mexican pesos. At an exchange rate of 18.83 persos per U.S. dollar on March 31, 2017; Q1 2017 revenue, operating income, and net income convert to $168.2 million, $86.9 million, and $82.3 million, respectively. 

What happened with GAP this quarter?

  • After adjusting for foreign currency translation of 582 million Mexican pesos, GAP's "comprehensive" net income, not shown in the table above, increased 1.1% to 1.04 billion Mexican pesos ($55.5 million).

  • GAP's 14.6% rise in revenue was paced by an increase of 11.3% in total terminal passenger traffic. This was comprised of an 11% bump in domestic terminal traffic, to 5.1 million passengers, and a gain of 11.7% in international terminal traffic, to 4.9 million passengers.

  • As the company had previously signaled, first-quarter terminal traffic expanded at a reduced pace versus the mid-teens improvement recorded over the past few quarters. However, this result is still 2 percentage points above the company's 2017 traffic increase projection of roughly 9%.

  • Aeronautical services (e.g., passenger fees) rose 22.2%, which the company attributed to increased passenger traffic and higher tariffs due to inflation.

  • Non-aeronautical services (e.g., advertising, VIP lounges, and car parking charges, as well as third-party revenue from car rentals, food and retail sales, etc.) jumped 26.6% on the strength of third-party services.

  • To ensure that it can handle and profit from another surge in traffic similar to 2016, GAP is planning major renovations at its two biggest airports. The organization will expand commercial areas in both Guadalajara and Tijuana airports by 20% this year.

  • The company also continues to prepare for higher traffic by embracing the strength of the Mexican air market. GAP welcomed seven new domestic routes and five new international routes at its airports during the quarter, inking the deals with a variety of domestic and global carriers.

  • Beginning with first-quarter 2017, GAP is now reporting all passengers who use the "Cross Border Xpress," or CBX, at the Tijuana airport, its second-largest airport, as international passengers. This pedestrian walkway, which was completed in December 2015, connects the Tijuana airport with the city of San Diego, thus functioning as a U.S./Mexico border crossing. 

  • CBX traffic continued to grow sharply, increasing 76% to nearly 420,000 passengers in first-quarter 2017.

  • GAP's EBITDA margin of 70.7% was little changed from the prior-year margin of 70.4%.

  • Buoyed by its successful purchase of Sangster International Airport in Montego Bay, Jamaica, in 2015, GAP is bidding on another airport concession in Jamaica. It is one of several groups currently submitting proposals to operate Norman Manley International Airport in Kingston. 

Young happy family handing over tickets at airline counter.

Image source: Getty Images.

What management had to say

Due to the vibrant Mexican economy, Grupo Aeroportuario's greatest task may simply be to keep up with demand. On the earnings conference call, CEO Fernando Bosque provided some color on the forces spurring GAP to undertake the expansions at Guadalajara and Tijuana airports:

Of course... the problem [is] to address passenger needs with the capacity that was projected four years ago -- with the evolution [it] is not enough. But it is not only Tijuana, so is Guadalajara, is Vallarta, is Cabos. Some of these airports [are] now in the process to provide extra capacity and also over and above the amount that was committed with the authorities for the current period of investment.

So, this is a typical thing that's happened... sometimes you have some limitation in the capacity and you have to do more investment -- and quickly. And that is a situation in general that we are living now not only in our network in GAP, also all the [Mexican] airports [have] the same... situation.

Looking forward

Grupo Aeroportuario enjoyed admirable growth in 2016, and so far, the company is meeting its projections for another brisk year. First-quarter revenue fell right in line with GAP's full-year revenue expansion target of 14%.

Passenger traffic, above projections in the first quarter, may also be set to pick up further momentum. The company's monthly statistics report, released on May 5, revealed a surprisingly active showing in April, with passenger traffic improving 19% versus April 2016. Some of this increase is due to traditionally strong Easter traffic. Nonetheless, the magnitude of the improvement may bode well for GAP's second-quarter report, which is due out in August.

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