Grupo Aeromexico Q3 2026 Earnings Call Transcript
Grupo Aeromexico (NYSE:AERO) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Grupo Aeromexico reported a strong third quarter 2026 with a 12% EBIT margin and record revenue of $1.62 billion, a 14% year-over-year increase.
Premium revenue and loyalty program participation rose, contributing significantly to the revenue mix, with premium revenue representing 42% of total revenue.
The company experienced increased fuel and non-fuel costs but managed to maintain profitability through strong revenue growth and cost-control measures.
Forward bookings remain strong, with a constructive outlook for the remainder of 2026, and the company plans to expand its network with new routes launching in 2027.
Grupo Aeromexico’s operational efficiency led to recognition as the most on-time airline globally, and the company reports a solid cash position, enabling continued investment without additional debt.
Full Transcript
OPERATOR
Good morning and welcome to Grupo Aeromexico’s third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session at the end with instructions given at that time 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. I would like to hand the conference over to Ms. Lucero Medina, Head of Investor Relations.
Ms. Medina, you may begin.
Lucero Medina (Head of Investor Relations)
Good morning everyone. Joining me today to discuss our results are Andres Conesa, Chief Executive Officer, Aaron Luray, Chief Commercial Officer, and Ricardo Sanchez Baker, our Chief Financial Officer. 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 unaudited consolidated financials. 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. We may make forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act 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. 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. Both our call and the earnings release are available on our website. It is now my great pleasure to turn the call over to Andres Conesa.
Andres Conesa (Chief Executive Officer)
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 Grupo Aeromexico’s business model. 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.
I would like to thank the entire Grupo 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. EBIT 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. It demonstrates the strength of our business, our ability to capture premium revenues, and the disciplined execution of our teams. Demand remained healthy, supported by a successful peak season that extended through September and delivered outstanding load factors.
We also continue to see strong contributions from our premium products and loyalty program, which enhance our offering and reinforce customer preference for Grupo 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. Total revenue grew 14% year over year, driven by strong ancillary revenue streams including Tatvo and nolocis.
Together, these factors, along with revenue management initiatives, supported our performance during the quarter. Capacity increased by around 1% year over year in the first few, and as the temporary negative impact of the World Cup in June and July normalized, we saw a clear improvement in load factors. August reached 90% and September recorded 87%, which is a very strong level for a shorter season month following the summer peak. More importantly, forward bookings remain strong, supporting a constructive outlook for the remainder of the year. 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 cost despite jet fuel prices being generally above our guidance. 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. 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 derived from inflationary pressures and unexpected cost pressures resulting from the appreciation of the Mexican peso.
Our teams responded with revenue initiatives, fuel recapture actions, and disciplined capacity deployment, enabling us to deliver a very strong level of profitability in the quarter. This third quarter also showed early signs of a better cost ex-fuel trajectory. Some pressures, including FX, started to normalize, and our teams continue to manage the cost base with discipline. Looking ahead, as operating leverage builds, costs excluding fuel are expected to continue to improve. This is important because it demonstrates that beyond the temporary impact of fuel, we believe that the underlying business is moving decisively in the right direction, with improving cost momentum and a stronger foundation for sustainable profitability.
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. Financial debt, including leases, continued on a downward trajectory while we maintain 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. Our network will continue to grow through the recently announced routes launching in 2027, including Mexico City to Milan, Guadalajara to Paris, Nassau, and Montego Bay. This expansion reflects our confidence in the long-term demand outlook and our disciplined approach to growth, adding capacity selectively in markets where we see attractive opportunities to generate profitable returns. The U.S. Department of Transportation decision immediately revoked its prior order disapproving certain schedules by Mexican carriers marks a very positive development for Grupo Aeromexico.
It removes an important restriction on our ability to add frequencies and launch new scheduled services between Mexico City and the United States, 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. 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. Cirium once again recognized Grupo 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.
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. Ricardo will provide more detail on our fourth quarter and full-year outlook shortly. Before that, I want to highlight the positive opportunities ahead with resilient demand and a favorable fare environment supporting continued revenue momentum.
We also see meaningful operating leverage and better in our existing fleets. At the same time, we anticipate continuing to invest selectively in customer experience and in the network that makes Grupo Aeromexico the preferred choice for travelers. We are confident that this combination of strong execution, disciplined growth, and a resilient business model will continue to differentiate Grupo Aeromexico and create long-term value for our customers, employees, and shareholders.
With that, I will turn it over to Aaron to discuss our commercial performance in more detail. Thank you very much.
Andres Castañeda (Chief Customer and Digital Officer & EVP)
Thank you, Andres, and good morning, everyone. I want to thank the entire Grupo Aeromexico team for their hard work and dedication, and our customers for their continued loyalty. As Andres mentioned, we delivered the strongest quarterly revenue performance in Grupo 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.
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. demand recovery. Regarding domestic performance, strength continued throughout the quarter as we distanced ourselves from the World Cup, resulting in domestic revenue growing 6.7% year over year.
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 3Q24, up 8 points year over year and 19 points since the program’s reacquisition and rebranding in 2023. Redemption revenue grew 27% year over year, two times more than total revenue growth for the quarter, as investments in the program continue to bring value to customers.
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. 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.
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. 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. In response to rising fuel costs, Grupo Aeromexico remains focused on fuel recapture initiatives and maintaining flexibility in capacity management. Regarding capacity, fourth-quarter growth will be driven primarily by widebodies as Grupo Aeromexico continues expanding its long-haul network in Europe and Asia.
Enabled by recent 787 deliveries, this widebody growth reflects a continued stretching of demand in 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. 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.
We expect this growth to enhance our leading domestic position at our hub. In closing, we believe Grupo 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. I’ll now turn the call over to Ricardo.
Ricardo Sanchez Baker (Chief Financial Officer)
Thank you, Andres, and good morning, everyone. First, I would like to join Andres and Andres in thanking the entire Grupo Aeromexico team for its outstanding efforts and execution during the quarter. 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. 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 ASMs increased 1% year over year. Generally in line with our guidance, we managed capacity carefully, prioritizing profitability. International ASMs grew 3%, while domestic ASMs declined 3%, aligning supply with demand. As Andres mentioned, revenue reached 1.6 billion, up 14% year over year and a record for any quarter. Total revenue increased by 194 million, more than offsetting the 131 million year-over-year increase in fuel price.
This strong revenue performance was driven by resilient demand, strength in international markets, targeted revenue management initiatives, and continued growth in our premium products and loyalty programs. 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, Grupo Aeromexico revised loyalty program breakage, the first such alignment since 2018. This reflects current member activity and long-term program trends. This update resulted in the recognition of $0.9 million in revenue for the period, together with an adjustment to our deferred liability.
More importantly, this objective breakage establishes the baseline that we expect to drive sustained growth in our annual royalty revenue moving forward, while revenue growth fully offset by year-on-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 continued to pressure profitability. Despite these broader cost pressures, our disciplined execution and strong revenue performance supported a net income margin that remains among the strongest in the industry.
Total operating expenses increased 22% year over year, driven by a 58% increase in fuel expenses as fuel prices averaged nearly $4 per gallon compared with $2.50 in the third quarter of 2025. Our efficiency helped mitigate these impacts, with fuel consumption down 2%. Excluding fuel, operating expenses increased 10%, primarily reflecting the stronger Mexican peso, inflationary pressures, and costs associated with growth. Unit cost ex-fuel increased 7% year over year, an improvement over the approximately 15% increase recorded during the first half of the year.
This progress reflects continued cost discipline, operating efficiencies, 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 capital next year to turn more favorably. Adjusted EBITDA amounted to 389 million, representing a strong 24% margin, while 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. In our view, however, the most important financial result of the first nine months of the year has been our strong cash flow generation.
Grupo Aeromexico generated $542 million in net cash from operating activity through September 30, 2026, enabling 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 jet prices and other cost pressures, 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 credit facility from $200 million to $250 million, bringing total liquidity to $1.2 billion, equivalent to 21% of last 12 months’ revenue. This 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. 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. We expect fourth-quarter 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 contracts more efficiently, supporting stronger margins over time. More importantly, we expect to achieve this without adding incremental fleet or taking on additional debt. We anticipate fourth-quarter fuel to remain broad year over year. 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 takes 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%. We expect full-year adjusted EBITDA margin between 21.5% and 22.5% and full-year operating margin 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. We cannot predict if fuel prices will moderate, but we believe they will eventually do so.
When that happens, our ability to capture premium revenue, together with our operating leverage and the existing platform that we have, should allow us to unlock additional profitability opportunities. In the meantime, we remain focused on strengthening Grupo Aeromexico even in 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 Grupo Aeromexico and its competitors should continue to widen in the following months.
With that, we will now open the call for questions. Thank you.
OPERATOR
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, 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. Your line is open. Please go ahead, sir.
Dwayne Finigerworth (Analyst)
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, 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 18.5 instead of 17, how that impacts your revenue, costs, and margins.
Andres Conesa (Chief Executive Officer)
Thank you. Let me make some comments and then maybe I’ll be deeper. So as you know, we have a natural hedge on the currency. So basically this movement will not affect the P&L. However, they have an impact on demand, like a second order impact, where a stronger peso means stronger demand for Mexicans flying abroad, and the other way around. With the peso at these levels, around between 18 and 19, we feel that demand to travel from Mexicans abroad continues to be solid.
We are in a good spot. Obviously when the peso touched below 17 pesos per dollar, it was even stronger during the summer, but we see at these levels of the currency very strong demand for Mexicans traveling abroad. So a weaker peso, but we are expecting versus the July guidance, means lower costs in dollars and lower revenues in dollars. So even though we kept the total revenue projections in the guidance flat versus what we were expecting in July, we see there is an impact of this weaker peso, which is equivalent to around 2 percentage points. So that’s really, really important if you consider that the expected growth in revenues for the 4Q is between 16 and 18 versus the 4th year of 2025.
So it’s very, very solid and we continue to take additional steps to strengthen revenue. Can, in more detail, but again, the new level of jet fuel that we are seeing, for example, it’s relatively 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 way higher jet fuel price, which means around $170 million of pressure. 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.
Again, too soon to say today, but we’re working in that direction.
Ricardo Sanchez Baker (Chief Financial Officer)
Ricardo, just to complement Andres, Andre talked about the revenue side. Looking at the cost side, you look at the anticipated or estimated CASK ex-fuel for the 4Q such as the previous guidelines. What we see is that CASK ex-fuel can be better by around 2% to 3%, given also this FX impact. So yes, we have some impact on the revenue side, but as we already described and on the cost side we see some positive impact on CASK ex-fuel.
Andres Castañeda (Chief Customer and Digital Officer & EVP)
Sorry, yeah, just to follow up kind of on fuel recapture initiatives, obviously it’s been a difficult year in terms of needing to recapture cost of fuel. We have had a lot of success though, and even in recent weeks continue with the rising fuel to find regional success in passing those costs on. 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.
So I think implicitly 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.
Andres Conesa (Chief Executive Officer)
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 high single-digit contractions for the first Q. So we are not anticipating pressures on the capacity side on the domestic market. There is an increase in the slots in Mexico City that are mentioned from 44 to 46. We are covering our fair share of that, and we expect for the 19 we yet haven’t seen too much activity, but it’s rational to anticipate that those will be covered and that is what partially explains our growth for the fourth year.
What I want to stress, as Aaron mentioned, is that this growth of between 7 and 8%, 70% of that is driven by widebody flying. Right. Those flights that we started will be after the fourth year of 25 that are year on year, and there plus some additional narrowbody clients, particularly in the domestic market as we catch up versus the previous actions before. So it’s sustainable growth, it’s disciplined growth, and it doesn’t consider any additional flying to the US because the DOT order was lifted just at the end of last week.
So we are analyzing our options, and soon you will hear positive news on network expansion to the US, but it will not happen this year. If anything, it will be at the start of 2027.
Andres Castañeda (Chief Customer and Digital Officer & EVP)
Dwayne, a few more details on that. First of all, our 7%—7 to 8%—capacity growth, as Andres mentioned, super efficient growth, almost all driven by stage and gauge versus departure growth. So that’s, I think, 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.
So I look at the OA industry capacity growth in the fourth quarter to be favorable.
Dwayne Finigerworth (Analyst)
Thank you.
OPERATOR
Thank you. And one moment for our next question. Our next question is going to come from the line of Michael Linenberg with Deutsche Bank. Your line is open. Please go ahead.
Shannon (Analyst)
Oh hey, good morning, this is Shannon on for Mike. Thanks for taking my question. So we saw the headline come through about Volaris and Viva’s expected merger approval by the end of this year. We’re anticipating to see some remedies. Do you have any thoughts on what they could be and if Grupo Aeromexico would benefit from potential remedies?
Andres Conesa (Chief Executive Officer)
Shannon, I’m sorry, we didn’t hear that very well. Could you please repeat?
Shannon (Analyst)
Oh yeah, just on, you know, Volaris and Viva’s expected merger approval by the end of this year and, you know, we’re anticipating to see some remedies. Do you have any thoughts there? And would Grupo Aeromexico potentially benefit from remedies?
Andres Conesa (Chief Executive Officer)
Thank you for the question. We are waiting for the decision of the authorities. As we mentioned before, our job is to continue strengthening our business. We continue to invest in our airline, to continue differentiating our model from the two ULCCs. So that’s our job. And I think again, as we mentioned during our remarks, we have a very positive trend. We are very happy where the business is going and so we have been obviously in contact with the authorities, sharing our views, and we cannot comment if it’s going to be approved or not.
But certainly in the past, in many occasions in other parts of the world, when these type of mergers are approved, they usually come with remedies. Which remedies if it is approved, we do not know yet and we will show and explain our position. But again I think we are in a good spot with where we are today and going forward.
Shannon (Analyst)
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? I know pre-pandemic the airport was running in the low 60s, so I’m just wondering if there are any conversations about raising the slot limit further given the DOT’s revocation which would support further service to the US. Thanks for taking the questions.
Andres Conesa (Chief Executive Officer)
Yes, again, this increase was 44 to 46. Yesterday our Secretary of Transportation—we were in Mexico City—he participated and he was asked that question, and he did mention that going forward by the end of this decade we can expect to see a larger number of operations in Mexico, going to higher sorties. And this is in line with what we are projecting.
Shannon (Analyst)
Thank you.
OPERATOR
Thank you. And our next question is going to come from Guillermi Mendez with JP Morgan. Your line is open. Please go ahead.
Guillermi Mendez (Analyst)
Yes. Good morning all. Hi Andres, Ricardo, Aaron, and Lucero. Thanks for taking my question. I have a follow-up on the fuel recapture and demand trends. I guess the initial remarks on the strong demand environment were very clear, but just wanted to better understand the breakdown between leisure, corporate, domestic, international. Which segments are seeing outperformance, and which segments are you seeing underperformance? Thank you.
Andres Castañeda (Chief Customer and Digital Officer & EVP)
Yeah, I can take that in terms of performance and where we’re seeing strength. And as we look out into the fourth quarter, we’re super optimistic on the widebody fleet, Europe and Asia in particular, because that’s where all our growth is coming. So with the capacity expansion, we’re going to daily in Incheon later in the winter IATA period, and then we’re up 25% or so in Europe in the fourth quarter. And given that capacity growth, we’re really happy with the increases in fares and traction.
We’re seeing demand. We’re booked ahead in terms of load factor really across the board in all geographies. We sit here for the quarter up about two to three points in booked load factor with that kind of capacity increase. So I think 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. 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. Again, why I echo Andres’ excitement about the DOT rescinding the order and being able to grow into the US in the future. So those would be the geographies where we’re seeing strength, no real weaknesses. I mean, 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.
But generally speaking across the board, we’re pretty optimistic within all geographies.
Andres Conesa (Chief Executive Officer)
Let me complement what Aaron mentioned. If you look at the currency numbers, revenue growth offset the fuel pressure. So we were able to recapture more than 100% of the fuel pressure. 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. For the full Q in the guidance that we gave, fuel recapture stands today at low 90s—92, 93—with initiatives that we described that are not included that may result in better revenue numbers.
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 this type of results.
Guillermi Mendez (Analyst)
Very clear. Thank you, guys. If I may follow up on breaking down between corporate and leisure. Corporate continues to be relatively stronger?
Andres Castañeda (Chief Customer and Digital Officer & EVP)
Yes, 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 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.
But 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. So both real strong demand.
Guillermi Mendez (Analyst)
That’s clear. Thank you.
OPERATOR
Thank you. And our next question is going to come from the line of Jen Spiess with Morgan Stanley. Your line is open. Please go ahead.
James (Analyst)
Thank you. So yeah, my first question is on the fourth quarter guide, specifically how it changed versus your previous fourth quarter guide. If we look at it, obviously the biggest variable that changed is the fuel price assumption. But at the end of the day your revenue guidance slightly declined despite the higher fuel. 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?
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, should we expect more pronounced fare increases and revenue growth in the first quarter of next year?
Andres Conesa (Chief Executive Officer)
Yeah. Thank you, James, for your question. When we did the guidance in July, we stressed that we were expecting, despite there was a peace announcement, we were expecting fares to stick at least till the end of the year, and that was reflected in the guidance. Only reason the ceasefire didn’t stick, jet prices, liquid prices went up. But these spikes, we are paying, as you know, historically high jet fuel prices. You’ve never seen jet fuel in history, not all the airlines, right, even though crude oil is at one penny and it touched 180 back 15 years ago.
But jet fuel only for a couple of days when the conflict in Ukraine started, we didn’t it was these levels. But what we are seeing today sustained is the first time in history. We are adjusting. We have many initiatives in place every day in the mistake and this is again new, the last three weeks. It’s not reflected in these initiatives on the right hands. Hopefully they will stick. We see very strong demand today. We are not in a position to review this guidance because, again, they are very new. 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 reflected in 2% lower growth in revenue for the 4Q. So if you adjust for that, if you go back to the July exchange rate, growth for the 4Q would be between 16 and 18% versus the 4Q of 2025.
So adjusting for the peso and, again, these initiatives that we’re taking, we could be close to the 20% year-on-year growth for the fourth year, which would be outstanding and would put us again in a pole position in the industry, and that’s where we want to be and we’re working in that direction.
Ricardo Sanchez Baker (Chief Financial Officer)
Yeah, I would just add to Andres’ 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. So it’s conservative from that regard. With that being said, we are seeing no signs of demand cracking, right. We’re going to go back, like we do every week, and look for opportunities to pass the cost of fuel onto consumers.
And we’re pretty optimistic that at this point through the year we have not had any signs of weakness in demand. I think that bodes well for us to continue to push on fuel recapture. The additional fuel impact versus the July guidance, it’s 170 million. It’s around 11% of margin points. So if you adjust for that in the guidance that we gave, margins are close to 20%. Again, we’ve already hiked the prices which are the ones that we were expecting in July, not the same level that we were seeing in 2025. So that’s where you can sense how strong structurally the company is.
James (Analyst)
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 mainly next year. But given the current FAA review and the potential 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?
Andres Conesa (Chief Executive Officer)
On the FAA review, as you know, the Mexican government provided a statement last week where they stressed that the audit went well. Obviously, there are, as in many audits, some observations, much lower number of observations versus the last FAA audit that was done a few years ago. I mean, we are very close to the authorities. We heard that they will be able to remedy those observations. Again, in the ALTA forum that was held yesterday, our Secretary of Transportation, she stressed—because one of the concerns that the FAA has was the budget for the Civil Aviation Authority in Mexico—so she mentioned that the budget considered for 2026 an increase of close to 60% in the resources to the AFAC, which is the Civil Aviation Authority. The FAA administrator was there and they got together, they mentioned they had productive meetings.
Yesterday she was in the ALTA forum as well. So with that 60%, that will strengthen the capacity of the Civil Aviation Authority to regulate the industry. 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. It’s an issue between the two governments. But we have that in mind. Things look well. And now our decisions to expand the network to the US already consider that.
Andres Castañeda (Chief Customer and Digital Officer & EVP)
Yes. I’ll just add, too, there was 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 and expanding to new markets in the US, we have that window in mind.
James (Analyst)
Perfect. All right, thank you.
OPERATOR
Thank you. And our next question is going to come from the line of Ernst Anton Mortencotter Terrazas with GBM. Your line is open. Please go ahead.
Ernst Anton Mortencotter Terrazas (Analyst at GBM)
Hi guys, thank you for taking my question. Just a quick one. I was wondering if anything related with the recent events in Europe, and specifically in France, have caused any maybe change in the demand for some regions or affected some of your long-haul travel.
Andres Conesa (Chief Executive Officer)
Thank you. I’m sorry, didn’t hear you. Very low. Could you please repeat? Maybe get a little away from the phone.
Ernst Anton Mortencotter Terrazas (Analyst at GBM)
Hi, yes, I was asking if anything related to the events that recently happened in France and Europe has maybe impacted negatively any of the demand that you’re seeing in your long-haul. Thank you.
Andres Castañeda (Chief Customer and Digital Officer & EVP)
Yeah, we haven’t seen any impact due to that. Obviously watching closely as those events unfold, but so far no impact.
Andres Conesa (Chief Executive Officer)
We started, as you know, the new flight between Monterrey and Paris, and the performance has been very solid since the start. So we will keep it going forward, and we are launching, as I mentioned before, Guadalajara. So like Madrid, where we expanded, Paris is the next point in Europe where we will deploy that strategy, and it’s looking fine. These riots have not affected load factors.
Ernst Anton Mortencotter Terrazas (Analyst at GBM)
Super, thank you.
Ricardo Sanchez Baker (Chief Financial Officer)
Hi, this is Ricardo. We have a couple of questions from the webcast we would like to respond. The first question is related to the implications of our guidance for the fourth quarter in terms of our cash flow performance. 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 strong cash flow generation. In the first nine months of the year, we have been able to generate strong net cash flow from operating activities of around 540 million, which is only around 25 million below the net cash from operating activities that we generated in the first nine months of last year. So this has been really a remarkable achievement, and we expect that this trend will continue for the fourth quarter.
So overall, for the full year what we expect is that the cash flow generation will be strong. 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. We will continue to bring down financial debt, and then what we expect is that our cash balances will remain stable. So this will give us a lot of flexibility going forward to do any other initiative once conditions improve.
So the second question that we have in the webcast is related to our CASC and what our expectations will be. Also, as we discussed in our remarks, the CASK ex-fuel trends have been positive, and we expect them to continue to be positive. In the first half of the year, CASK ex-fuel grew around 15%, part of it reflecting a negative impact from the strong peso. In the third quarter we reported an increase in CASK ex-fuel from 7%. When you look at the implicit guidance that we provided, CASK ex-fuel in the fourth quarter is expected actually to contract versus last year.
So this is actually reflecting a more stable foreign exchange, but it’s reflecting the operating levers that we have also highlighted in previous calls. The fact that we already have this capacity, the aircraft in our fleet, and now we’ll be using these assets more intensively, more efficiently producing revenue. And as we are able to do that, we should have 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 costs.
So we expect these trends to continue to improve in the following quarters.
Andres Conesa (Chief Executive Officer)
Well, thank you again for your time for being able to join the call. We continue to work to strengthen revenue, to contain costs, to continue providing these outstanding levels of profitability. We posted on any relevant issue that we face, and we look forward for a very solid 4Q and end of this challenging year. Thank you very much again, and any follow-up questions, please let us know. Thank you.
OPERATOR
This concludes today’s conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
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