This work represents a first attempt to include the complex variety of electron-molecule processes in a full kinetic particle-in-cell/test particle Monte Carlo model for the plasma and neutral gas phase in a Hall thruster. Particular emphasis has been placed on Earth’s atmosphere species for the air-breathing concept. The coupling between the plasma and the gas phase is self-consistently captured by assuming the cold gas approximation and considering gas-wall and gas recycling from the walls due to ion neutralization. The results showed that, with air molecular propellants, all the most relevant thruster performance figures degraded relative to the nominal case using Xe propellant. The main reasons can be ascribed to a reduced ionization cross-section, a larger gas ionization mean free path due to lighter mass air species, and additional electron collisional power losses. While vibrational excitations power losses are negligible, dissociation and electronic excitations compete with the ionization channel. In addition, for molecular oxygen, the large dissociation leads to even faster atoms, further reducing their transit time inside the discharge channel. Future studies are needed to investigate the role of non-equilibrium vibrational kinetics and metastable states for stepwise ionization.