Speaker #2: Good morning, and welcome to Aeromexico's third quarter 2026 earnings conference call. At this time, all participants are on a listen-only mode. There will be a question-and-answer session at the end with instructions given at that time.
Speaker #2: For the webcast participants, you may submit questions at any time during the call using the Ask a Question section on the webcast. As a reminder, today's conference is being recorded.
Speaker #2: Now, I would like to hand the conference over to Ms. Lucero Medina, Head of Investor Relations. Ms. Medina, you may begin.
Speaker #3: Good morning, everyone. Joining me today to discuss our results are Andrés Conesa, Chief Executive Officer, Aaron Murray, Chief Commercial Officer, and Ricardo Sánchez Baker, our Chief Financial Officer.
Speaker #3: Before we get started, I would like to take this opportunity to remind you that during the course of this call, we will present results that are based on our unedited, consolidated financials.
Speaker #3: Accordingly, the financial results discussed today are based on information available to us as of the date of this call and are not a comprehensive final statement of our financial results for any period presented.
Speaker #3: We may make forward-looking statements within the meaning of the U.S. private securities mitigation reform acts regarding future events and our company's future performance. We caution you that several important factors could cause actual results to differ materially from any plans and expectations expressed in this call, including the risk factors disclosed in our SEC filings.
Speaker #3: During this call, we will present certain non-IFRS financial measures. We have included a reconciliation and explanation of adjustments and other considerations of our non-IFRS measures to the most comparable IFRS measures in the earnings release.
Speaker #3: Both our call and the earnings release are available on our website. It is now my great pleasure to turn the call over to Andrés Conesa.
Speaker #4: Thank you, Lucero, and good morning, everyone. I appreciate you joining us today to discuss our third quarter 2026 results. We delivered strong third-quarter results, reflecting once again the resilience and unique strengths of Aeromexico's business model.
Speaker #4: These results also demonstrate the significant progress we have made in recent years to build a stronger and more flexible company, better positioned to navigate periods of uncertainty, including today's high fuel-cost environment.
Speaker #4: I would like to thank the entire Aeromexico team for their commitment and discipline in executing through a challenging environment. By putting our customers first, while maintaining strong cost control, the team continues to protect the quality of our service and capitalize on attractive revenue opportunities.
Speaker #4: Headed margin reached a strong 12%, supported by record quarterly revenue that came in above the midpoint of the June guidance range. In a quarter defined by higher-than-expected and volatile fuel prices, delivering a double-digit EBIT margin is a significant achievement.
Speaker #4: It demonstrates that strength of our business, our ability to capture premium revenues, and the discipline execution of our teams. Demand remains healthy, supported by a successful peak season that extended through September and delivered outstanding growth factors.
Speaker #4: We also continue to see strong contributions from our premium products and loyalty program, which enhance our offering and reinforce customer preference for Aeromexico. Premium revenue represented 42% of total revenue, up 1 percentage point year over year, while loyalty penetration reached 40%, an 8-point increase versus last year.
Speaker #4: Total revenue grew 14% year over year, driven by premium and other revenue streams, including cargo and loyalty. Together, these factors along with cost is revenue management initiatives supported our performance during the quarter.
Speaker #4: Capacity increased by around 1% year over year in the third Q, and as a temporary negative impact of the World Cup in June and July normalized, we saw a clear improvement in those factors.
Speaker #4: August reached 90%, and September recorded 87%, which is a very strong level for a shoulder-season month following the summer peak. More importantly, forward bookings remained strong, supporting a constructive outlook for the remainder of the year.
Speaker #4: This gives us confidence that underlying demand trends remain solid, and that our capacity is well aligned with market conditions. Revenue growth more than offset the year-over-year increase in fuel costs, despite fuel prices being generally above our guidance.
Speaker #4: Fuel costs increased by approximately $170 million year over year in the third quarter, including nearly $93 million above the guidance we shared with you in early July.
Speaker #4: However, revenue growth was not enough to offset the combined increase in fuel and non-fuel costs. In addition to the higher-than-expected fuel expense, we experienced an anticipated increase in non-fuel costs, driven by inflationary pressures and unexpected cost pressures resulting from the appreciation of the Mexican peso.
Speaker #4: Even so, our teams responded to revenue initiatives fuel recapture actions and discipline capacity deployment, enabling us to deliver a very strong level of profitability in the quarter.
Speaker #4: This third quarter also showed early signs of a better cost-at-fuel trajectory. Some pressures, including FX, started to normalize, and our teams continue to manage the cost base with discipline.
Speaker #4: Looking ahead, as operating leverage builds, cost excluding fuel is expected to continue to improve. This is important because it demonstrates that beyond the temporary impact of fuel, we believe the underlying business is moving decisively in the right direction, with improving cost momentum and a stronger foundation for sustainable profitability.
Speaker #4: As a result of this structural resilience, we ended the quarter with a cash position above the level reported in the third quarter of 2025.
Speaker #4: Financial debt, including leases, continued on a downward trajectory, while we maintained our investment program without raising additional debt. Our focus remains on investing for the future while protecting liquidity and preserving the financial strength of the business.
Speaker #4: Our net worth will continue to grow through the recently announced route launching in 2027, including Mexico City to Milan, Guadalajara to Paris, Nassau, and Montego Bay.
Speaker #4: This expansion reflects our confidence in the long-term demand outlook and our discipline approach to growth. Adding capacity selectively in markets where we see attractive opportunities to generate profitable returns.
Speaker #4: The U.S. Department of Transportation decision, in immediately revoking its prior order disapproving certain scheduled Mexican carriers, marks a very positive development for Aeromexico. It removes an important restriction on our ability to add frequencies and launch new scheduled services between Mexico City and the United States.
Speaker #4: Subject to applicable regulatory requirements. This gives us greater flexibility to capture attractive growth opportunities, strengthen our transborder network, and offer our customers more connectivity between Mexico and the United States.
Speaker #4: Taking care of our customers also means delivering a reliable operation—every day, in every market we serve. This is something our teams have been focused on, and the results are clear.
Speaker #4: Serial, once again, recognized Aeromexico as the most on-time airline in the world during the third quarter. Together with our performance in the first and second quarters, this positions us very strongly to receive this recognition for the third consecutive year, a feat that no other airline has achieved in history.
Speaker #4: Building on our strong third-quarter results and solid outlook, we plan to remain focused on operating reliably, protecting revenue performance, managing costs with discipline, and further strengthening our balance sheet.
Speaker #4: Rebeca will provide more detail on our fourth quarter and full-year outlook shortly. Before that, I want to highlight the positive opportunities ahead, with rising demand and a favorable fare environment supporting continued revenue momentum.
Speaker #4: We also see meaningful operating leverage and improvements in our existing fleets. At the same time, we anticipate continuing to invest selectively in customer experience and in the network that makes Aeromexico the preferred choice for travelers.
Speaker #4: We are confident that this combination of strong execution discipline, growth, and a resilient business model will continue to differentiate Aeromexico and create long-term value for our customers, employees, and shareholders.
Speaker #4: With that, I will turn it over to Adam to discuss our commercial performance in more detail. Thank you very much.
Speaker #1: Thank you, Andres, and good morning, everyone. I want to thank the entire Aeromexico team for their hard work and dedication, and our customers for their continued loyalty.
Speaker #1: As Andres mentioned, we delivered the strongest quarterly revenue performance in Aeromexico's history, with total revenue of $1.62 billion, up 13.6% year-over-year. This performance reflects strong demand across the network and the benefits of the commercial initiatives we are executing.
Speaker #1: International revenue showed strength across all entities, increasing 17.4% year over year, led by long-haul markets and the U.S. region. Growth in the U.S. region was especially notable given the high comparison base, as last year's third quarter marked the inflection point in U.S.
Speaker #1: Demand recovery. Regarding domestic, performance strengthened throughout the quarter as we distanced ourselves from the World Cup, resulting in domestic revenue growing 6.7% year over year.
Speaker #1: Turning to commercial initiatives, Aeromexico Rewards continues to be an important driver of customer engagement and revenue quality. As Andres mentioned, program participation reached a new record in the third quarter of 40%, up 8 points year over year and 19 points since the program's reacquisition and rebranding in 2023.
Speaker #1: Redemption revenue grew 27% year over year, twice as much as total revenue growth for the quarter, as investments in the program continued to bring value to customers.
Speaker #1: Regarding modern airline retailing, our redesigned branded fare structure is driving significant incremental revenue, by better aligning our product offering with different customer needs and willingness to pay.
Speaker #1: This enables us to more effectively position our premium offering, while expanding our ability to compete for more price-sensitive demand. These capabilities continue to support growth in our direct online channel, where in the third quarter, direct online share remained at an all-time high of 48%, up 2 points year-over-year and 23 points versus 2019.
Speaker #1: These initiatives are giving us greater control over how we present, differentiate, and monetize our products, enabling more disciplined execution of our premium strategy, while giving us the flexibility to compete across a broader range of customer segments.
Speaker #1: Looking ahead to the fourth quarter, Ricardo will provide details of our guidance, but we continue to see strong demand trends across all geographies. In September, our fall sales campaign generated 45% more revenue than the previous year.
Speaker #1: In response to rising fuel costs, Aeromexico remains focused on fuel recapture initiatives and maintaining flexibility in capacity management. Regarding capacity, fourth-quarter growth will be driven primarily by wide bodies, as Aeromexico continues expanding its long-haul network in Europe and Asia, enabled by recent 787 deliveries.
Speaker #1: This wide-body growth reflects a continued stretching of demand into traditionally weaker periods, particularly in European markets, and includes the extension of Monterrey-Paris to year-round and the annualization of our recently launched Mexico City-Barcelona service.
Speaker #1: In addition, in the fourth quarter, we plan to grow domestic capacity between 3% and 4%, enabled by the increase in Mexico City slots from 44 to 46 per hour.
Speaker #1: We expect this growth to enhance our leading domestic position at our hub. In closing, we believe Aeromexico is well positioned to deliver a strong finish to the year, supported by continued revenue momentum, growing customer engagement, and a disciplined approach to growth.
Speaker #1: I'll now turn the call over to Ricardo.
Speaker #2: Thank you, Adam, and good morning, everyone. First, I would like to join Andrés and Aaron in thanking the entire Aeromexico team for its outstanding efforts and execution during the quarter.
Speaker #2: Our results reflect the team's ability to remain focused, responsive, and disciplined while navigating significant fuel price volatility. Foreign exchange movements and a more demanding than expected cost environment.
Speaker #2: Our results also demonstrate the strength and resilience of our business model, and the durable structural advantages we have built over time. In the third quarter, total capacity measured in megasends increased 1% year over year, generally in line with our guidance.
Speaker #2: We managed capacity carefully, prioritizing profitability. International ASMs grew 3%, while domestic ASMs declined 3%, aligning supply with demand. As Aaron mentioned, revenue reached $1.6 billion, up 14% year over year, and a record for any quarter.
Speaker #2: Grossum increased 12%, driven primarily by passenger revenue and cargo, and other commercial incentives. Total revenue increased by $1.94 million, more than offsetting the $171 million year-over-year increase in fuel prices.
Speaker #2: This is strong revenue performance, driven by resilient demand, strengthened international markets, targeted revenue management initiatives, and continued growth in our premium products and loyalty program.
Speaker #2: The result was particularly significant, given that fuel costs were approximately $93 million above the level contemplated in the guidance provided last quarter. During the third quarter of 2026, Aeromexico updated its loyalty program breakage—the first such alignment since 2018.
Speaker #2: To better reflect current member activity and long-term program trends, this update resulted in the recognition of $49 million in revenue for the period, together with an adjustment to our required liability.
Speaker #2: More importantly, this updated breakage establishes the baseline that we expect to drive sustained growth in our annual royalty revenue moving forward. Our revenue growth fully offset the year-over-year increase in fuel prices. The combined impact of higher fuel costs, anticipated increases in other operating costs, and the impact of the stronger Mexican peso continues to pressure profitability.
Speaker #2: Despite these broader cost pressures, our disciplined execution and strong revenue performance supported an EBITDA margin that remains among the strongest in the industry. Total operating expenses increased 22% year over year, primarily due to a 58% increase in fuel expense.
Speaker #2: As fuel prices average nearly $4 per gallon compared with $2.50 in the third quarter of 2025, our efficient fleet helped mitigate this impact, with fuel consumption down 2%, and fuel burn per ASM, including 3%.
Speaker #2: Excluding fuel, operating expenses increased 10%, primarily reflecting the stronger Mexican peso, inflationary pressures, and costs associated with fleet growth. Customized fuel increased 7% year-over-year, a clear improvement over the approximately 15% increase recorded during the first half of the year.
Speaker #2: This progress reflects continued cost discipline, operating efficiency, and a more stable foreign exchange environment. As we continue to capture operating leverage opportunities by generating more ASMs with our existing assets, we expect our customized fuel to turn more favorable.
Speaker #2: Adjusted EBITDA amounted to $389 million, representing a strong 24% margin. Operating income reached $190 million, resulting in a robust 12% operating margin. The strength of our financial results underscores the structural durability of our business model and our ability to preserve healthy profitability despite a challenging cost environment.
Speaker #2: In our view, however, the most important financial result of the first nine months of the year has been our strong cash flow generation. Aeromexico generated $542 million in net cash from operating activities through September 30, 2026.
Speaker #2: This enables us to fund our planned investments while continuing to reduce financial debt. During the third quarter, we repaid an additional $7 million of debt, further strengthening our balance sheet despite elevated fuel prices and other cost pressures.
Speaker #2: We ended the period with $965 million in cash and cash equivalents, up $31 million year over year. We also renewed and upsized our revolving trade facility from $200 million to $250 million, bringing total liquidity to $1.2 billion.
Speaker #2: Equivalent to 21% of the last 12-month revenues. This liquidity position provides a strong foundation to continue investing in the business while preserving financial flexibility. Looking ahead, our updated guidance reflects our latest assumptions for fuel prices, foreign exchange, and inflation-related expenses.
Speaker #2: For the fourth quarter, we expect capacity to increase between 7% and 8% year over year. The operating leverage that began to emerge in the third quarter should become more visible in the fourth quarter and continue to build in the years ahead.
Speaker #2: We expect fourth-quarter (Q4) revenue growth of approximately 14% to 16%. This outlook reflects robust demand, the strength of our network, and disciplined commercial execution. With strong demand, a stronger revenue base, and higher utilization of our existing fleet, we expect to generate more revenue and use our existing cost base more efficiently, supporting stronger margins over time.
Speaker #2: More importantly, we expect to achieve this without adding incremental fleet or taking on additional debt to fund growth. We anticipate fourth-quarter customized fuel to remain double-digit year over year.
Speaker #2: For the fourth quarter, we expect an adjusted EBITDA margin between 19.5% and 21.5%, and an operating margin between 7.5% and 9.5%. Taken together, this would take us to a full-year 2026 capacity growth of approximately 2% to 3%, and year-over-year revenue growth of approximately 13.5% to 14.5%.
Speaker #2: We expect full-year adjusted EBITDA margin between 21.5% and 22.5%, and full-year operating margins between 8.5% and 9.5%. Our guidance assumes an average all-in fuel price of approximately $4.50 per gallon for the fourth quarter and an exchange rate of approximately 18 pesos per dollar.
Speaker #2: We cannot predict if our fuel prices will moderate, but we believe they will eventually decrease. When that happens, our ability to capture premium revenue, together with our operating leverage and the revenue in the existing platform that we have, should allow us to unlock additional profitability opportunities.
Speaker #2: In the meantime, we remain focused on strengthening Aeromexico within a challenging environment. Our structural advantages and strong cash flow generation should continue to reinforce our competitive position, and we believe that the gap between Aeromexico and its competitors should continue to widen in the following months.
Speaker #2: With that, we will now open the call for questions. Thank you.
Speaker #1: Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker #1: We ask that you please limit yourselves to one question and one follow-up. Please stand by while we compile our Q&A roster. Our first question is going to come from the line of Dwayne Finigerworth with Evercore.
Speaker #1: Your line is open. Please go ahead, sir.
Speaker #3: Hey, good morning. Thank you. Can you just remind us—just play back for us—the impacts from changes in FX? Our understanding is a modestly softer peso will lower, or help, your unit cost.
Speaker #3: Slightly lower your unit revenue, but be net neutral, or maybe even a slight tailwind to margins. Can you just speak just remind us if we're now, say, modeling 18 or 18 and a half instead of 17, how that impacts your revenue costs and margins?
Speaker #2: Thank you, Dwayne. Let me make some comments, and then maybe I'll just cut off to be deeper. So, as you know, we have a natural hedge on the currency.
Speaker #2: So basically, this movement did not affect the P&L. However, they do have an impact on demand—a second-order impact—where a stronger peso means stronger demand from Mexicans flying abroad, and the other way around.
Speaker #2: With the peso at these levels, around between 18 and 19, we feel that demand to travel from Mexico abroad continues to be solid.
Speaker #2: We are in a good spot. Obviously, when the peso touched below 17 pesos per dollar, it was even stronger during the summer. But again, we see at these levels of the currency very strong demand for Mexicans traveling abroad.
Speaker #2: So a weaker peso, which we are expecting versus the July guidance, means lower costs in dollars and lower revenues in dollars. Even though we kept the total revenue projections in the guidance flat compared to what we were expecting in July, we see there is an impact from this weaker peso, which is equivalent to around 2 percentage points.
Speaker #2: So that's really, really important. If you consider that, the expected growth in revenues for Q4 is between 16% and 18% versus Q4 of 2025.
Speaker #2: So, it's very, very solid, and we continue to take additional steps to strengthen revenue. We discussed that in more detail. Again, the new level of jet fuel that we are seeing, for example, is relatively new.
Speaker #2: This is the past three weeks or so, with jet fuel approaching $5 per gallon. It's new—it's a new norm. We are, as Ricardo explained, for the quarter, expecting a much higher jet fuel price, which means around $170 million of pressure.
Speaker #2: And we are acting, so hopefully, with these actions plus what I adjusted for this peso effect, we can even get closer to a growth rate of around 20% in total revenues for the quarter.
Speaker #2: Again, I presume to say today, but we're working in that direction. Ricardo?
Speaker #3: Yeah, just to complement Andres—Andres talked about the revenue side—looking at the cost side, if you look at the anticipated or estimated cascade fuel for Q4 versus the previous guidance, what we see is that cascade fuel can be better by around 2 to 3 percent, given also this FX impact.
Speaker #3: So, yeah, we have some impact on the revenue side, as Andres already described. And on the cost side, we see some positive impact on cascade fuel.
Speaker #3: Thank you. Go ahead. Sorry.
Speaker #2: Yeah, Dwayne, just to follow up on fuel recapture initiatives. Obviously, it's been a difficult year in terms of needing to recapture the cost of fuel.
Speaker #2: We have had a lot of success, though. And even in recent weeks, continued with the rising fuel—to find regional success in passing those costs on.
Speaker #2: So our revenue guidance is in no way an indication that we feel like we've hit the end of that. In fact, with all these initiatives that have been deployed this year, we haven't seen any signs that there's any cracks in demand or that maybe we've gone as far as we can.
Speaker #2: So, I think implicit in our guidance is not too much more recapture for the quarter, but we do feel like, as we deploy those initiatives, that could be upside.
Speaker #3: Thank you for that detailed response. And then, just for my follow-up, can you speak to competitive capacity trends that you're seeing here into the fourth quarter?
Speaker #3: It does look like the capacity picture gets a bit tighter sequentially from Q3 to Q4 domestically in Mexico. I wonder if you could speak to that as well.
Speaker #3: Thanks for taking the questions.
Speaker #2: Well, what we are seeing, if you look at the capacity projections for the other two carriers in Mexico, they are down. They have been revised down, particularly for one of them, which is even projecting pricing with digit contraction for the first Q.
Speaker #2: So we are not anticipating pressures on the capacity side in the domestic market. There is an increase in the slots at Mexico City that I have mentioned, from 44 to 46.
Speaker #2: We are covering our fair share of that, and we expect other airlines to follow. We haven't yet seen too much activity, but it’s rational to anticipate that those will be covered.
Speaker #2: And that is what partially explains our growth for Q4. But I want to stress, as I mentioned, that this growth of between 7% and 8%—70% of that is driven by widebody flying, right?
Speaker #2: Again, those flights that we started after Q4 of '25, that are year-on-year and there plus. Some additional narrowbody flying, particularly in the domestic market, as we catch up versus the previous actions before.
Speaker #2: So it's sustainable growth. It's disciplined growth. And it doesn't consider any additional flying to the US because the VLT order was listed just at the end of last week.
Speaker #2: So, we are analyzing our options, and soon we will hear positive news on network expansion to the US. But it will not happen this year.
Speaker #2: If anything, it will be at the start of 2027.
Speaker #1: Yeah. Dwayne, a few more details on that. First of all, our 7 to 8 percent capacity growth, as Andres mentioned, is super efficient growth, almost all driven by stage and gauge, versus departure growth.
Speaker #1: So I think an important context. And then when you look at, just to give you some specifics on OA capacity growth for the fourth quarter, some modest growth domestically, low single digits, 3 points of growth, a little bit more on international, 4 points, but much below our growth in the quarter.
Speaker #1: So I look at the OA industry capacity growth in the fourth quarter to be favorable.
Speaker #3: Thank you.
Speaker #4: Thank you. One moment for our next question. Our next question will come from the line of Michael Lindenberg with Deutsche Bank.
Speaker #4: Your line is open. Please go ahead.
Speaker #5: Oh, hey. Good morning. This is Shannon Doherty on for Mike. Thanks for taking my question. We saw the headline come through about Volaris and Viva's expected merger approval by the end of this year.
Speaker #5: We're anticipating seeing some remedies. Do you have any thoughts on what they could be, and if Aeromexico would benefit from potential remedies?
Speaker #1: Shannon, I'm sorry. We didn't hear that very well. Could you please repeat?
Speaker #5: Oh, yeah. Just on Volaris and Viva's expected merger approval by the end of this year, and we're anticipating to see some remedies. Do you have any thoughts there, and what Aeromexico could potentially benefit from remedies?
Speaker #2: Thank you for the question. We're waiting for the decision of the authorities. As we mentioned before, our job is to continue strengthening our business.
Speaker #2: We continuously invest in our airline to continue differentiating ourselves—our model—from the two ULTCs. So that's our job. And I think, again, as we mentioned in our remarks, we have a very positive trend.
Speaker #2: We are very happy with where the business is going. So we have been, obviously, in contact with the authorities, sharing our views. We cannot comment on whether it’s going to be approved or not.
Speaker #2: But certainly, in the past, on any occasion, in other parts of the world, when this type of merger is not approved, they usually come with remedies.
Speaker #2: Which remedies? If it's approved, we will not know yet. And as soon as we know it, we will show and explain our position. But again, I think we are in a good spot with where we are today.
Speaker #2: And going forward.
Speaker #5: Thanks. And if I may follow up, with the increase in slots from 44 to 46 per hour, do you think that this number increases further?
Speaker #5: I know that pre-pandemic, the airport was running in the low 60s. So, I'm just wondering if there are any conversations about raising the slot limits further, given the DOT's revocation, which would support further service to the US.
Speaker #5: Thanks for taking my questions.
Speaker #2: Yes. Again, this increase was from 44 to 46. Yesterday, our Secretary of Transportation – we are in the Alpha Forum this week. It's in Mexico City.
Speaker #2: He participated, and he was asked that question. He did mention that, going forward, by the end of this decade, we can expect to see a larger number of operations in Mexico.
Speaker #2: Going to high 40s. That was and this is in line with what we are projecting.
Speaker #5: Thank you.
Speaker #4: Thank you. And our next question is going to come from Gillerme. Mendez with JP Morgan, your line is open. Please go ahead.
Speaker #6: Yes. Good morning, all. Hi, Andres, Ricardo, Aron, and Lucero. Thank you for taking my question. I have a follow-up on the yield recapture and demand trends.
Speaker #6: I guess the initial remarks on the strong demand environment were very clear, but I just wanted to better understand the breakdown between leisure, corporate, domestic, and international— which segments are you seeing?
Speaker #6: In which segments are you seeing underperformance? Thank you.
Speaker #1: Yeah, I can take that. In terms of performance and where we're seeing strength as we look out into the fourth quarter, we're super optimistic on the wide-body fleet.
Speaker #1: Europe and Asia, in particular, because that's where all our growth is coming from. So, with the capacity expansion, we're going to daily, and inch on later in the winter add-up period.
Speaker #1: And then we're up about 25% in Europe in the fourth quarter. Given that capacity growth, we're really happy with the increases in fares and the traction we're seeing.
Speaker #1: Demand-wise, we're booked ahead in terms of load factor. Really, across the board in all geographies, we sit here for the quarter up about 2 to 3 points in booked load factor with that kind of capacity increase.
Speaker #1: So, I'd say strength generally across the board, more international than we are domestic. And I think that follows, in addition to just performance overall, where we're seeing fuel recapture.
Speaker #1: Maybe highlighting another entity would be the US. You may recall, fourth quarter US was quite strong in the comp. And even on top of that, we're seeing strong fuel recapture that's been sticky, and demand that really hasn't slowed down.
Speaker #1: Again, why I echo Andres's excitement about the DOT rescinding the order and us being able to grow into the US in the future. So those would be the geographies where we're seeing strength.
Speaker #1: No real weaknesses. I mean, the domestic market's a little different and the competitive set's a little different. So your process for getting fuel recapture isn't the same.
Speaker #1: But generally speaking, across the board, we're pretty optimistic within all geographies.
Speaker #2: Let me just complement what Aron mentioned. Generally, if you look at the Q3 numbers, revenue growth offset the fuel pressure. So we were able to recapture more than 100% of the fuel pressure.
Speaker #2: Again, not enough to consider the growth in other costs associated with inflation in Mexico, like labor costs. But it was a very strong performance.
Speaker #2: For the Q4, the guidance that we gave, fuel recapture stands today at low 90s—92, 93. There will be initiatives that we described that are not included, which may result in better revenue numbers.
Speaker #2: We feel confident that we can get close to 100% offset of the fuel. And I don't think many airlines in the industry can have these types of results.
Speaker #6: Very clear. Thank you, guys. If I may follow up on breaking down between corporate and leisure, corporate continues to be relatively stronger.
Speaker #1: Yeah, we're seeing strength across both those segments. We just did a corporate survey, a little pulse survey, and the vast majority of corporates are looking at fourth quarter demand as stable or slightly up.
Speaker #1: Corporate — where we did see some corporate impact was during the World Cup. There was definitely, and this was not surprising. But as hotel and fare prices were high during the Cup, in addition to just people's excitement around the Cup, we did see corporate not grow at the same pace as the leisure business.
Speaker #1: But that's really as we've transitioned and distanced ourselves from the Cup, both corporate and your high-end leisure are behaving at a similar clip year over year.
Speaker #1: So both real strong demand.
Speaker #6: That's clear. Thank you.
Speaker #4: Thank you. And our next question is going to come from the line of Jen Spies with Morgan Stanley. Your line is open. Please go ahead.
Speaker #6: Hello, thank you. So, yeah, my first question is on the fourth quarter guidance, specifically how it changed versus your previous fourth quarter guidance. Right?
Speaker #6: If we look at it, obviously, the biggest variable that changed this is obviously the fuel price assumption. But at the end of the day, your revenue guidance slightly declined despite the higher fuel.
Speaker #6: I mean, some of it might be due to FX, right? But I was wondering, haven't you raised fares versus what you were expecting within your previous guidance to offset that higher fuel assumption?
Speaker #6: And also, trying to understand how this will impact the next year, right? I mean, Andres, you already mentioned some metrics on fuel recapture, but assuming that fuel remains at this elevated level, I don't know, 4.3, 4.5, whatever, but should we expect more pronounced fare increases in revenue growth in the first quarter of next year?
Speaker #2: Yeah. Thank you, Jen, for your question. When we did the guidance in July and we priced that, we were expecting, despite there was a peace announcement and jet fuel went down, we were expecting fares to stick at least until the end of the year.
Speaker #2: And that was reflected in the guidance. Obviously, then the ceasefire didn't stick. Jet prices went up. But this new spike—we are paying, as you know, historically high jet fuel prices.
Speaker #2: We've never faced this jet fuel situation in history, not all the airlines, right? Even though crude oil is at one-tenth. I mean, it touched $180 about 15 years ago.
Speaker #2: But jet fuel only for a couple of days when the conflict in Ukraine started, we didn't see it at these levels. But what we are seeing today, sustained, is the first time in history.
Speaker #2: We are adjusting. We have many initiatives in place. Every day, we take them visits. Again, new in the last three weeks. It's not reflected, these initiatives, on the guidance.
Speaker #2: Hopefully, they will stick. We see very strong demand. Today, we are not in a position to review these guidance because, again, they are very new.
Speaker #2: We need to wait a little bit more time, but we are working on it. And again, let me stress once again that the strong dollar versus the peso resulted in 2% lower growth in revenue for Q4.
Speaker #2: So, if you adjust for that — if you go back to the July exchange rate — growth for Q4 would be between 16% and 18% versus Q4 of 2025.
Speaker #2: So, adjusting for the peso—and again, if these initiatives that we're taking succeed—we could be close to 20% year-on-year growth for Q4, which would be outstanding and would put us, again, in a pole position in the industry.
Speaker #2: And that's where we want to be, and we're working in that direction.
Speaker #1: Yeah, I would just add to Andres's comments. And as I mentioned before, I wouldn't dismiss the headwind that FX has on revenue. But implicit, I think, in our guidance and the expectations is not that we're going to have significant movements on the fare recapture side.
Speaker #1: So, it's conservative from that regard. With that being said, we are seeing no signs of demand cracking, right? And we're going to go back, like we do every week.
Speaker #1: And look for opportunities to pass the cost of fuel on to consumers and we're pretty optimistic that at this point through the year we've had to not have any signs of weakness in demand I think that bodes well for us to continue to push on fuel recapture.
Speaker #2: The additional fuel impact versus the July guidance, Jen, is $170 million. It's around 1.1% of margin point. So if you adjust for that, the guidance that we gave, adjusted margins are close to 20%.
Speaker #2: Again, we've already had fuel prices, which are the ones that we were expecting in July. Not the same level that we were seeing in 2025.
Speaker #2: So that's where you can sense how strong, structurally, the company is.
Speaker #6: All right. Perfect. And one additional question. On the DOT ruling and the lifting of the restriction in Mexico City, I mean, you already mentioned that you plan to deploy additional capacity to the US in mainly next year.
Speaker #6: But given the current FAA review and the potential, I mean, downgrade to Category Two, isn't there a window of opportunity to anticipate those capacity deployments, just to raise your capacity ahead of any potential downgrade?
Speaker #2: Yeah. On the FAA review, as you know, the Mexican government provided a statement last week where they expressed that the audit went well. Obviously, there are, as in any audit, some observations.
Speaker #2: We had a much lower number of observations compared to the last FAA audit conducted a few years ago, and we are very close to the authorities.
Speaker #2: We heard that they will be able to remedy those observations. Again, in the alpha form that was held yesterday, our Secretary of Transportation—she stressed that one of the concerns the FAA had was the budget for the Civil Aviation Authority in Mexico.
Speaker #2: So, she mentioned that the budget considers for 2026 an increase of close to 60% in the resources to the FAA, which is the civil aviation authority.
Speaker #2: The FAA administrator was there, and they got together. They mentioned they had productive meetings yesterday. She was in the Alpha Forum as well. So with this 60%, that will strengthen the capacity of the Civil Aviation Authority to regulate the industry.
Speaker #2: They plan to hire—she mentioned—around 500 more people, with 100 in 2026. So, things are looking fine on that front. Again, it doesn't depend on us.
Speaker #2: It's an issue between the two governments, but we have that in mind. Things look well, and in our decisions to expand the network to the U.S., obviously, we consider that risk.
Speaker #1: Yeah, I'll just add too: the window that you discussed in the back-and-forth—there was, I guess, a follow-up happening in February. So we're definitely, as we think about deploying capacity, expanding to new markets in the U.S.
Speaker #1: We have that window in mind.
Speaker #6: Perfect. All right. Thank you.
Speaker #4: Thank you. And our next question is going to come from the line of Ernst Anton Morton Cotter, Terrazas, with GBM. Your line is open.
Speaker #4: Please go ahead.
Speaker #7: Hi, guys. Thank you for taking my question. Just a quick one: I was wondering if anything related to the recent events in Europe, and specifically in France, has caused any change in the demand for some regions or is affecting any of your long-haul travel.
Speaker #7: Thank you.
Speaker #8: I'm sorry, Ernest, we didn't hear you very well. Could you please repeat? Maybe move a little away from the phone.
Speaker #7: Hi, yes. I was asking if anything related to the events that recently happened in France and Europe has maybe negatively impacted any of the demand that you're seeing in your long-haul. Thank you.
Speaker #1: Yeah, we haven't seen any impact due to that. Obviously, watching closely as those events unfold. But so far, no impact on demand.
Speaker #2: Yeah, we started, Ernest, as you know, the new flight between Monterrey and Paris, and the performance has been very solid since the start.
Speaker #2: So we are keeping it going forward, and we are launching, as I mentioned before, Guadalajara and Paris. So, like Madrid, where we expanded from Guadalajara and Monterrey, Paris is the next point in Europe where we will deploy that strategy.
Speaker #2: And it's looking fine. This pilot has not affected most factors.
Speaker #7: Super. Thank you.
Speaker #2: Hi, this is Ricardo. We have a couple of questions from the webcast that we would like to respond to. The first question is related to the implications of our guidance for the fourth quarter in terms of our cash flow performance.
Speaker #2: As we described in our remarks, we are convinced that one of the major successes that we have had financially this year has been our ability to maintain a strong cash flow generation in the first nine months of the year.
Speaker #2: We have been able to generate a strong cash flow, with net cash flow from operating activities of around $540 million, which is only about $25 million below the net cash from operating activities that we generated in the first nine months of last year.
Speaker #2: So this has been a really remarkable achievement. We expect that these trends will continue for the fourth quarter. Overall, for the full year, what we expect is that cash flow generation will be strong.
Speaker #2: We will be able to continue implementing our CAPEX plan. It is very important to highlight that we are not delaying our CAPEX plan; we continue to implement it.
Speaker #2: We will continue to bring down financial debt. What we expect is that our cash balances will remain stable. This will give us a lot of flexibility going forward to pursue any other initiative once conditions improve.
Speaker #2: The second question that we have in the webcast is related to our CASC exclude trends and what our expectation is on this. Also, as we discussed in our remarks, the CASC exclude trends have been positive.
Speaker #2: And we expect them to continue to be positive in the first half of the year. CASC exclude grew around 15%. Parts of it reflecting a negative impact from the strong peso.
Speaker #2: In the third quarter, we reported an increase in CASC exclude of around 7%. But if you look at the implicit guidance that we provided, CASC exclude in the fourth quarter is expected actually to contract versus last year.
Speaker #2: So, this is partially reflecting a more stable foreign exchange, but it’s also reflecting the operating leverage that we have highlighted in previous calls. The fact that we already have this capacity—the aircraft—in our fleet, and that now we’ll be using this asset more intensively, more efficiently, producing revenue.
Speaker #2: And as we are able to do that, we should see improvement in our margins—producing revenue with assets on the one side, and on the other side, producing ASK with the capacity that we currently have and reducing our cash and exclude.
Speaker #2: So we expect these trends to continue to improve in the following quarters. Well, thank you again for your time for being able to join the call.
Speaker #2: We, again, will continue to work to strengthen revenue, to contain costs, and to continue providing these outstanding levels of profitability. We posted a minor relevant issue that we faced.
Speaker #2: And again, we look forward for a very solid forecast and then obviously challenging year. Thank you very much again. And any follow-up questions, please let us know.
Speaker #2: Thank you.
