Grupo Aeroportuario del Centro Norte(OMAB) - 2023 Q4 - Annual Report

Revenue Sources and Regulations - In 2021, 2022, and 2023, approximately 60.5%, 59.1%, and 61.8% of the Company's total revenues were derived from aeronautical services, which are subject to price regulation[13] - The maximum rates applicable to the Company's airports reflect an annual efficiency improvement of 0.70% for the five-year period ending December 31, 2025[14] - In 2023, revenues subject to maximum rate regulation represented approximately 97.5% of the amounts the Company was entitled to earn under the maximum rates for all its airports[33] - The Company aims to charge prices as close as possible to its maximum chargeable rates, with adjustments allowed only once every six months for inflation[37] - The regulations governing maximum rates do not guarantee profitability for the Company's airports or expected returns on investment[24] - The Company may face sanctions if it exceeds the maximum rate at any airport, which could lead to termination of concessions if violations occur more than twice within a 10-year period[35] - The Company cannot predict the impact of potential future amendments to the tariff base regulation, which may affect maximum rates and overall financial performance[16] Government and Regulatory Risks - The Mexican government may terminate or reacquire the Company's concessions under various circumstances, which could materially affect its operations[39] - The Mexican government has recently awarded several airport concessions to state-owned companies, consolidating military presence as an airport operator overseeing 20 airports, including major ones like Mexico City International Airport[45] - The Mexican government increased the fee paid by airport concessionaires from 5% to 9%, which will affect revenues starting in 2024[64] - The Mexican Supreme Court has declared amendments to the Electric Industry Law unconstitutional, which may affect the regulatory environment in which the Company operates[58] - The Mexican National Water Commission has the authority to restrict water use at some airports, and non-compliance could lead to significant fines or cancellation of water extraction rights[195] Economic and Market Conditions - The peso appreciated by approximately 13.3% from Ps.19.50 per U.S.$1.00 on December 31, 2022, to Ps.16.90 per U.S.$1.00 on December 31, 2023[38] - The Mexican economy achieved real GDP growth rates of 3.1% in 2023, 3.1% in 2022, and 5.0% in 2021, with an estimated growth of 2.7% in 2024 and 1.5% in 2025[165] - The company is significantly dependent on the performance of the U.S. economy, as a downturn could materially affect its results of operations[87] - Economic conditions in Mexico are increasingly correlated with those in the United States, indicating that a downturn in the U.S. could adversely impact the Mexican economy[190] Competition and Market Dynamics - A new airport in Bocoyna, Chihuahua, has started operations with an annual capacity of up to 20,000 passengers, expected to increase to 80,000 in the first five years and 250,000 thereafter, potentially competing with the Company's airport[44] - The Company may face competition from Aeropuerto del Norte, which is expected to expand its commercial aviation operations under a new concession granted to the Ministry of National Defense[46] - Increased competition from other tourist destinations could adversely affect passenger volumes and, consequently, revenues[104] - In 2023, VivaAerobus accounted for 38.7% of total aeronautical revenues, followed by Volaris at 23.5% and Aeroméxico at 19.9%[114] Operational Challenges - The Company’s concessions are its principal assets, and losing any concession would have a significant adverse effect on its business and results of operations[42] - The operational disruptions due to the dependency on a single commercial runway at several airports could materially affect business and financial results[142] - The company is exposed to risks related to construction delays and budget overruns that could limit airport capacity expansion and adversely affect financial performance[144] - The company may incur increased costs if required to monitor aircraft movements at its airports, which could negatively impact its results of operations[49] Labor and Compliance Issues - The Company has complied with new labor laws that protect workers' rights, but increased demands from unionized workers could lead to higher labor costs[52] - Collective labor conflicts in Mexico have led to a 20.0% increase in the general minimum wage applicable as of January 1, 2024, which may increase personnel costs[122] - The company is required to comply with anti-money laundering regulations, and failure to do so could result in fines and reputational damage[160] Environmental and Natural Disaster Risks - The increasing frequency of natural disasters due to climate change poses a significant risk to the company's operations and financial condition[140] - The company has insurance for physical facilities at airports against natural disasters, but lacks coverage for business interruption losses, which could lead to significant financial impacts[139] - The presence of protected mangrove species at Acapulco and Zihuatanejo airports may restrict expansion opportunities[193] - Environmental legislation in Mexico, including a carbon dioxide market initiated in 2018, could limit airport growth and impose additional reporting requirements[192] Financial Performance and Taxation - Changes to Mexican tax laws could impose significantly higher income tax obligations on the Company, adversely impacting its results of operations[50] - Net deferred tax assets amounted to approximately Ps.809,700 thousand as of December 31, 2023, subject to changes in tax laws or accounting standards[133] - As of December 31, 2023, 31.2% of the company's long-term debt has interest payments at a variable rate, exposing it to risks from market interest rate fluctuations[166] External Factors and Geopolitical Risks - The ongoing military conflict in Ukraine has caused significant volatility in commodity prices, which may adversely affect the company's operations[69] - The travel warning issued by the U.S. Department of State on August 22, 2023, urges U.S. citizens not to travel to several Mexican states, which could negatively impact passenger traffic[184] - The arrest of a major drug cartel leader in January 2023 led to the cancellation of 163 air traffic movements at Culiacán and Mazatlán airports, highlighting operational risks[188] - The company is exposed to potential adverse effects from rising crime rates in Mexico, which could decrease passenger traffic and increase security costs[184] - Political conditions in Mexico, including upcoming elections in June 2024, could materially affect the economic environment and the company's operations[170] Technological and Cybersecurity Risks - The company faces risks from cybersecurity threats, having previously experienced a ransomware attack in 2021, which was mitigated with backup processes[109] - The company has invested in new baggage screening technology, with a replacement of existing equipment expected to continue through 2025, which may incur significant capital expenditures[101] Strategic Initiatives and Future Outlook - The company may consider international expansion opportunities, which could involve significant capital expenditures and exposure to various risks[162] - The company’s diversification projects, including hotels and industrial parks, are highly dependent on passenger traffic, which may be affected by external factors beyond its control[111]