Grupo Aeroportuario del Pacifico S.A.B. de C.V. (NYSE:PAC), the operator of 12 Mexican airports and Sangster International Airport in Montego Bay, Jamaica, issued first-quarter 2018 earnings results on April 26. Did the company otherwise known as GAP flourish or falter out of the gate in 2018?

Below, we'll review the raw numbers and details from GAP's report and assess where the organization stands against full-year targets after the first three months of the year.

Grupo Aeroportuario del Pacifico: The raw numbers


Q1 2018

Q1 2017

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 18.17 pesos per U.S. dollar on March 30, 2018: Q1 2018 revenue, operating income, and net income convert to $187.5 million, $101.5 million, and $78.7 million, respectively. 

What happened with GAP this quarter?

Overhead night image of the illuminated Palacio De Bella Artes, Mexico City

Image source: Getty Images.

  • Terminal passenger traffic rose 12.9% against the prior-year quarter, to 11.3 million passengers. 

  • Within the total above, GAP's domestic terminal traffic expanded 16.7%, to 5.9 million passengers. The improvement was shouldered by the company's four largest airports, Guadalajara, Tijuana, Puerto Vallarta, and Los Cabos, which booked traffic gains of 19.2%, 9.1%, 18.8%, and 18.3%, respectively.

  • International terminal traffic grew at a more modest pace of 8.8%, as three of the biggest four airports marked high single-digit gains in passenger volume. Tijuana's international tally jumped 22.5%, however, as GAP now classifies travelers utilizing the Cross Border Xpress (CBX), the pedestrian sky bridge connecting San Diego with Tijuana, as international passengers.

  • Montego Bay, GAP's sole non-Mexican airport, enjoyed a credible boost in terminal traffic of just under 7%, to 1.2 million passengers. 

  • While passenger activity was brisk, the rate of revenue growth actually decelerated during the quarter. Revenue expansion of 7.6% fell short of both last year's total revenue growth rate of 11%, and GAP's full-year 2018 expected growth rate of 13%.

  • The company breaks its top line into two major sources. Aeronautical revenue, which is comprised primarily of passenger fees, was lifted by traffic trends, improving 13.2%. Non-aeronautical revenue, however, went up just 2.2%. Management cited slower growth in food and beverages, duty-free store sales, retail sales, and revenue from timeshare spaces.

  • Non-aeronautical revenue was also challenged by a stronger Mexican peso relative to the U.S. dollar. A portion of non-aeronautical revenue is denominated in greenbacks, and these sales were trimmed upon conversion to GAP's reporting currency of the peso. Finally, management cited the expiration of a loss-covering agreement with the CBX bridge operator for initial passenger traffic as another factor behind nearly flat non-aeronautical growth.

  • Its aggressive expansion of routes at its airports continued, with six new domestic routes and eight international routes added over the last three months. Notably, Hainan Airlines introduced the first-ever direct service between Beijing and Mexico, which also counts as the first nonstop flight between China and Latin America on a Chinese airline. The Tijuana-to-Beijing route beneficially adds a new China flight option for U.S. travelers who cross over from San Diego via CBX.  

  • After removing the effects of an accounting adjustment under international financial reporting standards (IFRS), which is related to the GAP's airport concessions renovations, operating margin improved 1.8 percentage points to 59.3%.

  • Excluding the IFRS adjustment, EBITDA margin climbed slightly year over year, from 70.7% in the first quarter of 2017 to 71.7% in the first quarter of the current year.

  • GAP continues to produce attractive operating cash flow. During the last three months, it generated 2.6 billion pesos of operating cash ($143.1 million) versus 2.3 billion pesos ($126.6 million) a year ago.

Looking forward

Tall arched windows at airport terminal overlooking planes.

Image source: Getty Images.

To understand how Grupo Aeroportuario is tracking against expectations after the first quarter of 2018, it's useful to review the company's full-year 2018 growth outlook, issued in January. Management has provided the following targets within a range of plus or minus 1%: 

  • Traffic: +8%
  • Aeronautical revenue: +12%
  • Non-aeronautical revenue: +16%
  • Total revenue: +13%
  • EBITDA margin: approximately 69%

In the first quarter, the actual performances of traffic and total revenue were reversed against expectations: Revenue hit close to 8% expansion, while traffic rose almost 13%. Though GAP fell well short of the full-year revenue target in the first quarter, management hasn't adjusted its 2018 guidance.

This is likely because terminal passenger traffic continues to exhibit relative health, while the peso has recently begun to moderate against the U.S. dollar. These factors should provide a nominal lift to non-aeronautical revenue, perhaps as early as next quarter. Thus, with three quarters remaining, GAP still has room to meet or achieve its 2018 benchmarks.

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