Grupo Aeroméxico, S.A.B. de C.V. (AERO) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights solid financial performance with expected revenue and EBIT growth of 10%-12%. The sale of the MRO JV resulted in a profit, and there is potential for deleveraging. Despite some regulatory challenges, the company has grown significantly in the transborder market. Premium revenue is increasing, and aircraft utilization can support future growth. Management's optimistic guidance and strategic focus on premium products and operational efficiency contribute to a positive sentiment, likely leading to a stock price increase in the short term.
Key Financial Performance
Adjusted EBITDAR margin 31%, the highest on record, while operating margin was 17%, representing the second strongest annual performance in the company's history. Reasons: Strong year-end performance, recovery momentum, improving traffic trends, and effective network discipline.
Passenger revenue Declined 4.4% year-over-year and passenger unit revenue declined 4.9% year-over-year. Reasons: Impact of currency, economic, and geopolitical headwinds earlier in the year.
Fourth quarter passenger revenue Up 4.3% year-over-year and passenger unit revenue up 6.2% year-over-year. Reasons: Recovering demand, strong domestic and international performance, particularly in Europe, and sequential improvement in U.S. portfolio.
Premium revenue Represented approximately 42% of total revenues, nearly 17 points above pre-pandemic levels. Reasons: Investments in premium experience and improved selling of premium products.
Total revenue for 2025 $5.4 billion, representing a 2% increase over 2024 when excluding extraordinary nonrecurring items. Reasons: Improved traffic levels and enhanced unit revenues by year-end.
Fourth quarter total revenue $1.4 billion, representing a 3% increase compared to last year when extraordinary nonrecurring items are excluded. Reasons: Market conditions improved throughout the year.
CASM excluding fuel Rose by a moderate 1.8% year-over-year. Reasons: Increased labor costs, higher depreciation, IPO-related expenses, and appreciation of the Mexican peso.
Adjusted EBITDAR for 2025 $1.7 billion with a 31% margin, the highest margin in the company's history. Reasons: Strong operational performance and efficiency initiatives.
Fourth quarter adjusted EBITDAR $502 million with a margin of 35%, the highest quarterly EBITDAR on record. Reasons: Strong operational performance and efficiency initiatives.
Operating income for 2025 $928 million with a 17% margin, the second best annual performance in the company's history. Reasons: Improved traffic levels and enhanced unit revenues.
Fourth quarter operating income $303 million with a margin of 21%, representing a record fourth quarter performance. Reasons: Improved traffic levels and enhanced unit revenues.
Financial debt reduction Reduced by $63 million during the fourth quarter and by $156 million over the full year. Reasons: Robust cash flow generation and deleveraging strategy.
Cash and cash equivalents $1 billion as of December 31, with total liquidity of approximately $1.2 billion including undrawn revolving facility. Reasons: Strong cash flow generation and financial flexibility.
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Operating Highlights
Fleet Modernization: Invested in fleet modernization to improve efficiency and reliability, adding 17 MAX aircraft in 2025.
New App Deployment: Fully deployed a new app in Q4 2025 with enhancements for easier and faster check-in and trip management.
Passenger Experience Enhancements: Planned rollout of new check-in models and reopening of redesigned VIP lounges at Mexico City International Airport.
Long-Haul Network Expansion: Launched new routes: Mexico City to Barcelona and Monterrey to Paris, strengthening connectivity to Europe.
Premium Revenue Growth: Premium revenue now represents approximately 42% of total revenues, 17 points above pre-pandemic levels.
On-Time Performance: Recognized as the world's most on-time airline for the second consecutive year by Cirium.
Safety Recognition: Achieved the highest level of recognition in operational safety by IATA, becoming the first airline in Latin America to do so.
Revenue Management Actions: Focused on profitability by rightsizing capacity in weaker demand geographies and improving unit revenues.
TechOps Sale: Sold maintenance joint venture with Delta to capitalize on market opportunities, without impacting fleet operations.
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Risk or Challenges
Regulatory Constraints: Ongoing regulatory constraints affecting U.S. operations, which could impact network discipline and profitability.
Economic and Geopolitical Headwinds: Currency fluctuations, economic challenges, and geopolitical issues earlier in the year negatively impacted passenger revenue and unit revenue, particularly in domestic border cities and the U.S. market.
Labor Costs: Increased labor costs due to collective bargaining renegotiations, which could pressure operating margins.
Mexican Peso Appreciation: The appreciation of the Mexican peso during the second half of the year raised peso-denominated costs, impacting overall cost structure.
Potential Changes in Mexico City Airport Operations: Possible operational changes at Mexico City Airport could require adjustments in capacity and operations.
Industry Consolidation in Mexico: Potential industry consolidation in Mexico could lead to rationalization of unprofitable routes, impacting market dynamics.
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Guidance & Outlook
Capacity Growth: Aeromexico plans to grow capacity by approximately 4% in 2026, focusing on resilient markets and prioritizing profitability.
Market Adaptability: The company maintains flexibility to respond to evolving demand conditions, including potential changes at Mexico City Airport and possible industry consolidation in Mexico.
Revenue Growth: Revenue is expected to grow between 7.5% and 9.5% in 2026, supported by strong demand trends and effective commercial execution.
Adjusted EBITDAR Margin: Adjusted EBITDAR margins for 2026 are projected to range between 28.5% and 30.5%.
Operating Income Margin: Operating income margins for 2026 are expected to range between 15% and 17%.
First Quarter 2026 Revenue: Total revenue for Q1 2026 is expected to grow between 10% and 12% year-over-year.
First Quarter 2026 Margins: Adjusted EBITDAR margin for Q1 2026 is expected to range between 26% and 28%, while operating income margin is expected to range between 11% and 13%.
Fleet Modernization: The company plans to continue fleet modernization efforts, incorporating more efficient aircraft to enhance operational leverage and match increased market demand.
Long-Haul Network Expansion: Aeromexico will expand its long-haul network in 2026 with new routes, including Mexico City to Barcelona and Monterrey to Paris, strengthening connectivity to Europe.
Premium Revenue Growth: Premium revenue now represents approximately 42% of total revenues, and the company plans to build on this momentum in 2026.
Loyalty Program Expansion: The company will launch a new credit card program in June 2026 to deepen customer engagement and expand loyalty participation.
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Shareholder Return Plan
Capital disbursements in 2025: Aeromexico returned over $200 million to shareholders through capital disbursements in 2025, bringing total distributions since December 2023 to approximately $1.3 billion.
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Key Q&A
Q:What are the demand impacts related to FX, particularly in Mexico, and how does a stronger peso affect demand?
A:A stronger peso drives demand for travel, as seen historically. The impact of currency appreciation on demand is observed quickly due to a dense booking curve. For Q1, unit revenue growth is driven by both current demand and FX-neutral business growth. Revenue is expected to grow 10%-12%, with EBIT growing similarly, around 10%.
Q:What are the opportunities for deleveraging the business, and what are the priorities for debt paydown over the balance of 2026?
A:The company has senior secured notes issued in November 2024 and small debts associated with financial leases for aircraft that will mature soon. The main deleveraging opportunity lies in the present value of leases. As aircraft are utilized more, liabilities on the balance sheet will decrease, leading to lower leverage through higher EBITDAR and lease debt amortization.
Q:Who was the MRO JV sold to, and does Delta still own the other 50%? How does this sale affect the P&L and maintenance expenses?
A:The MRO JV was sold to a third party operating the business. Both Delta and Aeromexico sold their shares, resulting in a $71 million profit in the P&L. The lease revenue from the facilities is no longer received, but this is not material. Maintenance expenses remain competitive due to a commercial agreement with the third party.
Q:What is the status of the antitrust immunized joint venture with Delta and the restrictions on routes from Mexico City to the U.S.?
A:The joint venture with Delta is business as usual. Restrictions on new routes from Mexico City to the U.S. remain due to U.S. government concerns about Mexico's compliance with the open skies agreement. Talks between the U.S. and Mexican governments are progressing, and the issue is expected to be resolved soon. The company has already grown significantly in the transborder market.
Q:What are the assumptions for FX and jet fuel prices in the 2026 guidance?
A:The guidance assumes an average FX rate of MXN 18.3 per dollar and a Brent price of around $69 per barrel, with a crack spread of roughly $25 per barrel.
Q:How much can the company grow without acquiring additional planes in the coming years?
A:The company expects to receive 3 MAXs and 2 787s in 2026, ending the year with roughly 170 planes. This will support growth of around 5% annually for the next couple of years, allowing for an accumulated growth of 15%-20% through 2028 without needing additional planes.
Q:What is the regulatory situation in Mexico regarding new routes to the U.S., and is it a net positive or negative for the company?
A:The company cannot add new routes from Mexico City to the U.S. until the U.S. DOT lifts restrictions. While this limits capacity deployment, the company has already grown significantly in the transborder market, making the impact neutral to slightly negative in the short term.
Q:What are the load factor and RASM assumptions in the 2026 guidance?
A:The guidance assumes load factors will remain flat overall, with revenue growth driven by yields. FX appreciation also contributes to revenue growth, as the average FX rate in 2025 was MXN 19.3 per dollar compared to MXN 18.3 in the 2026 guidance.
Q:How should we think about ex-fuel costs and margins in the 2026 guidance?
A:Ex-fuel costs are influenced by peso appreciation, labor cost increases in line with inflation, and ownership costs from new aircraft. Margins are stable due to higher revenue offsetting cost increases. Operational leverage from underutilized capacity offers opportunities for cost efficiency in the next 2-3 years.
Q:What is the outlook for premium revenue growth?
A:Premium revenue has grown significantly, with 42% of passenger revenue coming from premium products in 2025, up from the mid-20s pre-pandemic. The company expects continued growth in premium revenue, driven by consumer demand and improved retailing of premium products.
Q:What is the potential impact of the Viva and Volaris merger on the domestic market?
A:The impact depends on regulatory remedies imposed on the merger. The company plans to continue investing in its product and sees opportunities for growth regardless of the merger outcome.
Q:Is there room to increase aircraft utilization, and how does this affect growth?
A:There is room to increase utilization, particularly for narrow-body aircraft, which currently average 9 hours per day. Utilization could return to 2024 levels of around 10 hours per day, supporting growth of 3%-5% annually for the next 2-3 years.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer on the potential impact of the Viva and Volaris merger, stating that the outcome depends on regulatory remedies and emphasizing their focus on product investment regardless of the merger.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
APEX
Airline
Airport
America
Chief
Mexico City
Officer
SEC
airline
capacity
commitment
condition
customer
demand
end
enhancement
environment
event
experience
factor
improvement
industry
information
investment
loyalty
market
measure
momentum
network
passenger unit
point
premium
product
program
record
release
result
risk
safety
service
statement
strength
term
today
trend
value
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
