Grupo Aeroméxico, S.A.B. de C.V. Q4 FY2025 earnings call

Team Appreciation

• Appreciated employees' dedication and commitment in navigating a dynamic operating environment.

Financial Performance

• Record financial results with strong adjusted EBITDAR and operating margins.

Demand and Network

• Demand strengthened in second half of 2025, particularly in last quarter, with improved traffic trends in domestic and international markets. Selectively expanding long-haul network in 2026 with launches like Mexico City - Barcelona and Monterrey - Paris.

Customer Experience and Operations

• Maintained industry-leading reliability and customer experience, recognized as world's most on-time airline and received APEX awards. Deployed new app and continued passenger experience enhancements. Fleet grew by 17 aircraft to 165 at year-end.

Safety and Recognition

• Recognized by IATA for safety management systems, the first in Latin America and second in Western Hemisphere in this regard.

In 2025, Aeromexico achieved strong financial results. Adjusted EBITDAR margin reached 31%, the highest on record, and operating margin was 17%, the second strongest annual performance in the company's history. Full year total revenue was $5.4 billion, with fourth quarter revenue at $1.4 billion. Adjusted EBITDAR for full year was $1.7 billion with a 31% margin, and for fourth quarter was $502 million with a 35% margin. Full year operating income was $928 million with a 17% margin, and fourth quarter operating income was $303 million with a 21% margin. Passenger revenue in full year 2025 declined 4.4% year-over-year, but fourth quarter passenger revenue was up 4.3% year-over-year. Premium revenue represented approximately 42% of total revenues, nearly 17 points above pre-pandemic levels.

2026 Outlook

• Intend to increase ASM capacity by 3% to 5% over full year. Expect revenue to grow in range of 7.5% to 9.5%, adjusted EBITDAR margins between 28.5% and 30.5%, and operating income margins between 15% and 17%.

2026 First Quarter Outlook

• Expect total revenue to grow in range of 10% to 12% year-over-year. Adjusted EBITDAR margin expected to range between 26% and 28%, operating income margin between 11% and 13%.

Regulatory Risks

• Ongoing regulatory constraints affecting U.S. operations, including restrictions on routes from Mexico City Airport. Potential industry consolidation in Mexico could lead to rationalization of unprofitable flying.

Currency and Cost Risks

• Appreciation of Mexican peso during second half of 2025 raised peso-denominated costs. Labor costs increased due to collective bargaining renegotiations. Impact of foreign exchange rates on financial results and costs.

Q: Good morning, and welcome to Aeromexico Fourth Quarter 2025 Financial Results. [Operator Instructions] As a reminder, today's conference is being recorded. Now I would like to turn the call over to Lucero Medina, Head of Investor Relations. Ms. Medina, you may begin.

A: Thank you. Good morning, and thanks for joining us. Welcome to Grupo Aeromexico's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today to discuss our results are Andres Conesa, Chief Executive Officer; Aaron Murray, 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, which remains subject to revision upon completion of our annual audit process and other developments arising between now and the time our 2025 year-end audit is finalized. 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. In addition, 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. Such statements are subject to a number of risks, uncertainties and assumptions. We caution you that a number of important factors could cause [indiscernible] the plans, objectives, expectations, estimates and intentions expressed in this call. Any forward-looking statements that we make today are based on assumptions as of today and our management's good faith beliefs with respect to the future events but there can be no assurance given regarding our actual future results. Furthermore, we undertake no obligation to update these statements as a result of more information or future events. We also caution you to consider the risk factors that could cause actual results, including those disclosed in our financial prospectus dated as of November 5, 2025, relating to our initial public offering and other documents filed with or furnished to the SEC from time to time differ materially from those in the forward-looking statements that may be made during this call. For more information, please see the risks described in our published fourth quarter 2025 earnings release, the final prospectus for our IPO dated November 5, 2025, with the SEC and other documents that we may file with or furnish before the SEC from time to time. During this call, we will present both IFRS and non-IFRS financial measures on an unaudited basis. We have included a reconciliation and explanation of adjustments and other considerations of our non-IFRS measures to the most comparable IFRS measures in our fourth quarter and full year 2025 unaudited earnings release. Our call is being webcasted and available at ir.aeromexico.com. The earnings release is also available on the website. It is now my great pleasure to turn the call over to Andres Conesa.

Q: It's nice to be on the call with you. Just a couple of questions. First on the demand impacts related to FX. Can you speak to purchasing power dynamic in Mexico? Obviously, the comps are very easy in front of us. So it may be tough to measure. But are you seeing a pickup in demand from a stronger peso and maybe highlight what you've seen in prior periods, maybe how much of a lag there is between when the currency moves and maybe when you see that knock-on effect to improving demand?

A: Duane, nice to see you. Nice to hear you. Let me make a brief comment and then [indiscernible] as we've stressed in the past, we have a natural hedge. So we have a match between our revenue and our expenses in dollars. But there is a second order effect that with a stronger peso, we see a pickup in demand for travel as was well the case in the previous stage of strong peso appreciation. So that effect with the very strong pesos we're seeing today can be relevant and shifts demand to the right. And that at the end translates into, and that's going -- probably stressing what we are seeing for the first Q. As it was explained on the guidance, revenues will grow 10% to 12%. EBIT is going to grow more or less the same, around 10%. So margins do -- probably you can see some negative impact on margins with the strong peso because of the higher revenue based in dollar. EBITDAR and EBIT are growing significantly as well on positive cash flow generation, for example. So with that, let me turn to Aaron or Ricardo if they want to complement.

Q: And then just for my follow-up, can you speak to opportunities to deleverage the business? What will be your priorities for debt paydown over the balance of 2026?

A: Duane, this is Ricardo. I mean in terms of deleveraging, as you know, in terms of financial debt, we basically only have the senior secured notes that were issued in November of 2024. We don't think right now it would be a good opportunity to do something there. We have some small debt associated to financial leases for aircraft fleet that will mature in the next few months. So that is going to finish. But really, for us, in terms of deleveraging, the big opportunity comes on the present value of the leases. As we have mentioned before, last year, we received 17 aircraft [Technical Difficulty] are already included in both our P&L [indiscernible] in the balance sheet in terms of the present value of the leases but we are not really going to grow in the next couple of years in terms of aircraft. So basically, the amortizations that are going to be paid or associated to the present value of the leases are going to be reflected in lower leverage. So that's where we see also a big opportunity as we put these assets into more use, given that we already have the ownership cost in our P&L and that we have the liabilities in our balance sheet as we produce more revenue with this aircraft, definitely, we will see lower leverage through higher EBITDAR and also through more amortization of lease debt.

Q: I have 2 questions here. Just one, with respect to the sale of your MRO JV, who was that sold to? And does Delta still own the other 50%? And as I recall, I believe it was actually a bit of a profit center or maybe it wasn't. How does that change the P&L whether you no longer get the pickup in the JV or maybe your maintenance expenses now go up?

A: Yes. Thank you, Michael. I mean, yes, the MRO facility, as you might remember, around 10 years ago, both Delta and Aeromexico decided to establish a joint venture to provide maintenance services in Queretaro to Delta, Aeromexico and third parties. After several years of operation and particularly after the COVID crisis, in 2022, we decided to transfer all operations, management and employees and also all permits and licenses to a third party that was actually operating the business. And the revenue that both Delta and Aeromexico received was only associated to the lease of the facilities, the lease of the hanger. That's why now we saw a good opportunity last year. And actually in negotiations led by Delta, we decided to divest and sell our business. So both Delta and Aeromexico, we both sold, and that resulted in this profit of $71 million in the P&L. I mean what we will be losing going forward is just basically the lease amount that we were obtaining from this, which is really not material. And important to mention that in terms of maintenance, since we transferred these operations to these third parties since 2022, we have been operating with a commercial agreement that gives us very competitive maintenance rates. We service there our E190s and our 737 NGs. And we do in-house the 737 MAX and the 787. So also as we have grown more in the MAX aircraft, we rely less and less on Queretaro. So that's why we thought it was a good opportunity to sell.

Q: That's great. That makes sense. And then -- very helpful. Then just my second question is that we're now at a point where your antitrust immunized joint venture with Delta, it's business as usual given the ruling by U.S. courts. But can you just update us on where things stand with respect to the restrictions from the 2 Mexico cities to the U.S.? It seems like that those are still being restricted, but that the restriction that was contemplated about cargo has actually not been put into effect. Can you just update us on what's going on there?

A: Michael, good to hear from you. [indiscernible] the U.S. courts, we were allowed to keep this API with Delta. As you know, and we've explained before, this has to do not with Aeromexico or with Delta but on the argument by the U.S. government that the Mexican government is not complying with the open skies agreement. And it's mainly due to cargo as the cargo-based companies were moved from AICM to AIFA. What I know from talking to our government is that talks have been going very well between the 2. So we expect this issue to be behind us relatively soon as part of that also, and this is public information, these cargo companies were offered the possibility to do some flying from AICM. And most of them, if not all, decided to stay in AFA because for cargo-related operations, probably AIFA is a better airport than AICM. And maybe just a few cargo operations will move. So again, one that issue is solved because the other 2 that were in the table that had to do with those slots being returned to a couple of U.S. operators and how the slot management is done in Mexico City, that already has been resolved. So it was only this third issue. We are okay because we deployed all of our U.S. routes from the metropolitan area in Mexico City before. So this year, we're okay. We hope this issue will be solved. Obviously, if this extends beyond '26, we would have an issue, right, because it would not allow us to grow from exclusivity, but we think that it's very, very unlikely.

Q: Congrats on the results. I have 2 follow-ups. The first one is on the guidance. Can you share the assumptions using for FX and jet fuel prices, please? And the second point, back to Ricardo's point that you guys don't need extra planes to keep growing that you still have some idle capacity there. How should we think about how much you can grow and for how long without getting additional planes in the coming years?

A: Yes. Thank you, Guilherme. In terms of the assumption that we have on the guidance, what we are including in terms of FX is an average for the year of around MXN 18.3 per dollar. So that's our assumption. And in terms of fuel, it's basically a Brent of around $69 per barrel. So those are basically our assumptions with a crack spread that is roughly around $25 per barrel. So as mentioned before, what we estimate is that the economy is going to grow between 1.2% to 1.5%. And given the income elasticity that we have seen in the past [indiscernible] growth. That's why we think we can grow on a healthy basis between 3% to 5%. And that's what we have included in our plan to make sure that we can grow but grow profitable.

Q: Guilherme, good to hear from you as well. Base growth going forward, for this year, we are expecting to receive 3 MAXs and a couple of 787s. So we will end up the year roughly with 170 planes. That behind the growth in the midpoint of the range of 4% will allow us in 2026 to continue with this type of growth, say, in the neighborhood of 5% for the next couple of years beyond '26. So we wouldn't need any additional planes to have an accumulated growth for the next 3 years of, say, 15% to 20%, '26, '27 and '28. Beyond that, we would need to get additional capacity to continue this growth trend.

Q: Yes. So I have 2 follow-up questions. One to the question that Michael did on the regulatory situation in Mexico. Just to be clear, at the moment, you're still not able to add new routes to the U.S. from the Mexico City Airport. Basically, what needs to happen needs the government to lift that restriction? And at the end of the day,我是要完整的问题和回答吗？根据用户提供的要求，需要将问题和回答完整呈现。不过由于内容较多，我继续按照格式输出。但可能之前的回复有误，现在重新整理：</think>{