Earnings call transcript: Sun Country Airlines Q4 2024 sees record revenue

Sun Country Airlines Holdings Inc (SNCY) reported its fourth-quarter and full-year 2024 earnings, highlighting record revenue figures and operational milestones. The airline surpassed earnings per share (EPS) expectations, posting an EPS of $0.20 against a forecast of $0.1888. The company reported a total revenue of $260.4 million for Q4, a 6.1% year-over-year increase, although slightly below the forecasted $257.29 million. Following the earnings release, Sun Country’s stock rose by 2.35%, closing at $16.62. With a market capitalization of $908.45 million, InvestingPro analysis suggests the stock is currently trading below its Fair Value, presenting a potential opportunity for investors.

Key Takeaways

• Sun Country Airlines achieved its highest annual revenue on record at $1.08 billion.
• The company reported a 10th consecutive quarter of profitability.
• Operating margins reached a record high of 10.6% for Q4.
• Strategic growth is expected in the cargo segment, with plans to double revenue.
• The stock price increased by 2.35% post-earnings announcement.

Company Performance

Sun Country Airlines demonstrated robust performance in Q4 2024, marking its 10th consecutive profitable quarter. The airline’s diversified business model, which includes charter and cargo segments, has allowed it to maintain flexibility and resilience in the face of industry challenges. With an EV/EBITDA ratio of 7.32 and a P/E ratio of 19.42, the company shows strong financial metrics. The company’s strategic focus on expanding its cargo fleet, particularly through its agreement with Amazon (NASDAQ:AMZN), positions it for significant growth in the coming years. Access comprehensive financial analysis and more insights through InvestingPro, which offers detailed reports on over 1,400 US stocks.

Financial Highlights

• Q4 Total (EPA:TTEF) Revenue: $260.4 million, up 6.1% year-over-year
• Full Year 2024 Revenue: $1.08 billion, a record high
• Q4 Operating Margin: 10.6%, highest on record
• Full Year Operating Margin: 9.9% (adjusted 10.4%)
• Adjusted Diluted EPS for 2024: $1.05

Earnings vs. Forecast

Sun Country Airlines reported an EPS of $0.20, surpassing the forecasted $0.1888, marking a positive surprise of approximately 6%. While the actual revenue of $260.4 million slightly missed the forecast of $257.29 million, the overall financial performance remains strong, driven by operational efficiencies and strategic initiatives.

Market Reaction

The market responded positively to Sun Country’s earnings report, with the stock price rising by 2.35% to $16.62. This increase reflects investor confidence in the company’s strategic direction and its ability to deliver consistent profitability. InvestingPro data reveals impressive returns, with a 50.68% price gain over the past six months. The stock is trading near its 52-week high of $17.51, and analysts have recently revised earnings estimates upward, suggesting continued optimism. InvestingPro subscribers have access to 8 additional key insights about SNCY’s performance and outlook.

Outlook & Guidance

Looking ahead, Sun Country Airlines projects Q1 2025 revenue to be between $330 million and $340 million, with an expected operating margin of 17-21%. The company plans to expand its cargo fleet with eight additional Amazon aircraft, anticipating a significant increase in cargo revenue. Additionally, a 10% increase in block hours is planned for 2025, aligning with the company’s growth strategy.

Executive Commentary

"Our diversified business model is unique in the airline industry," stated Jude Bricker, CEO. He emphasized the company’s ability to leverage its charter DNA for flexible operations. Dave Davis, President and CFO, added, "Our business is built for resiliency," highlighting the company’s robust operational framework.

Risks and Challenges

• Supply Chain Issues: Potential disruptions could affect aircraft availability and operational efficiency.
• Market Saturation: Increased competition in key markets may impact revenue growth.
• Macroeconomic Pressures: Economic downturns could affect consumer travel demand.
• Regulatory Changes: New aviation regulations could impose additional operational costs.
• Fuel Price Volatility: Fluctuating fuel prices may impact profit margins.

Q&A

During the earnings call, analysts inquired about the impact of strong European travel on Sun Country, to which executives responded that it does not directly affect their operations. Questions also focused on the strategic network adjustments and potential future expansions, with management expressing optimism about continued growth and adaptation to industry changes.

Full transcript - Sun Country Airlines Holdings Inc (SNCY) Q4 2024:

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Sun Country Airlines 4th Quarter and Full Year 2024 Earnings Call. My name is Michelle, and I will be your operator for today’s call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session.

Please be advised that today’s conference is being recorded. I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Thank you. I’m joined today by Jude Bricker, our Chief Executive Officer Dave Davis, President and Chief Financial Officer and a group of others to help answer questions. Before we begin, I would like to remind everyone that during this call, the company may make certain statements that constitute forward looking statements. Our remarks today may include forward looking statements, which are based upon management’s current beliefs, expectations and assumptions and are

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: subject to risks and uncertainties. Actual results may differ materially. We encourage you to review the risk factors and

Jude Bricker, Chief Executive Officer, Sun Country Airlines: cautionary statements outlined in our earnings release and our most recent SEC filings. We assume no obligation to update any forward looking statements. You can find our Q4 and full year 2024 earnings press release

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: on the Investor Relations portion of our website at ir. Suncountry.com. With that

Jude Bricker, Chief Executive Officer, Sun Country Airlines: said, I’d like to turn the

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: call over to Jukin.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Thanks, Chris. Good morning, everyone. Before we get into our financial results, I want to take a moment to address the tragic accident last week in Washington, D. C. Our thoughts are with the families and loved ones affected by this event.

Our industry is highly competitive, but we’ve always worked together with other airlines, the OEMs and regulators to make sure we deliver the safest possible operations. Once all the facts are gathered, there will surely be lessons that will be applied across the industry. We will continue to maintain the highest safety standards across our operations to earn and keep the trust of our passengers and the public. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo business, we are able to deliver the most flexible scheduled service capacity in the industry.

The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages, we will be able to reliably deliver industry leading profitability throughout all cycles. I want to first highlight a few developments. First, last month, we reached agreements in principle with the unions of both our flight attendants and our dispatchers. We expect these agreements to go to vote among the respective work groups in the next month or so.

I’m excited to be able to deliver improved rates and work rules to all these team members. Also, we took delivery of our first cargo aircraft from our latest agreement with Amazon. This aircraft is yet to enter service, but by summer, we will have all 8 aircraft growing the cargo fleet to 20. I expect cargo revenue will roughly double by this time next year. We also executed redelivery off lease of our first 730seven-nine 100.

This aircraft will also go into service this summer. We still have 6 aircraft that we own that are out on lease, redelivering through the end of 2026. These aircraft will provide the growth in our passenger fleet in the coming years. Including the freighters, we’ll be able to grow block hours by about 30 percent through 2027 without a change in utilization or additional aircraft acquisitions. In scheduled service and similar to the rest of the industry, we are seeing capacity rationalization starting to inflect unit revenues to the positive.

Our TRASM was flat year on year for the Q4. However, in December, we saw scheduled service TRASM increase almost 5%, which is where January is. Capacity trends remain positive through the selling schedule. As underlying demand remains strong, I expect unit revenues continue to perform well. Our staff continues to deliver for our customers.

Of note, our completion factor and mishandled bag rate operational metrics that are particularly important to our low frequency model are near the best in the industry. After a strong 2024, you should expect more of the same from us in 2025, margins at or near the top of the industry, high levels of free cash production, healthy growth at about 10% block hour increase, operational excellence and continued balance sheet strengthening. And with that, I’ll turn it over

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: to Dave. Thanks, Jude. We’re pleased to report that Q4 was our 10th consecutive quarter of profitability. Both total revenue of $260,400,000 and adjusted operating margin of 10.6 were the highest on record for Sun Country. With the exception of the Q2 of 2022, on an adjusted net income basis, we’ve been profitable in every quarter since our IPO in March of 2021.

Additionally, 2024 was our 4th consecutive full year of profitability. Total revenue of $1,080,000,000 was our highest full year on record, driven by strong revenues in the charter line of business and the cargo segment. Operating margin for the year was 9.9% and adjusted operating margin was 10.4%. Adjusted diluted EPS for the year was $1.05 These results speak directly to the resilience of the uniquely diversified Sun Country model. Industry overcapacity prevailed through much of 2024, but the capacity picture changed quickly in Q4 and we were very active in adjusting scheduled service capacity to match demand.

While scheduled service ASMs in the first half of the year grew 17%, we trimmed growth in the second half of the year to less than 5%. Despite the significant removal in scheduled service flying, we’re still able to hold growth in adjusted CASM to only 1.3% for the year. Unit revenues rebounded in the second half of the year as Q4 scheduled service TRASM was down only 1% on 3.5% growth in scheduled service ASMs. As industry capacity continues to rationalize, we are seeing a stronger pricing environment into Q1 of ’twenty five. I’ll now turn to the specifics of the Q4.

First to revenue and capacity. 4th quarter total revenue of $260,400,000 was 6.1% higher than last year. Revenue for our passenger segment, which includes our scheduled service and charter businesses grew 2.2% year over year. Average scheduled service fare also grew 2.2% year over year to $159.88 Scheduled service TRASM steadily improved during the quarter with December up 5.8% year over year. As we turn our focus to Q1 ’twenty five, we’re expecting scheduled service unit revenues to be roughly flat with Q1 of ’twenty four and 7% growth in Sched Service ASMs.

Charter revenue in the 4th quarter grew 2.3% to $48,000,000 on 5% growth in charter block hours. As a reminder, a portion of charter revenue is a reconciliation of fuel expense caused by the variance of fuel prices to the amount specified in our longer term charter contracts. As Q4 fuel prices were down 20%, we received less revenue tied to fuel reconciliation. Excluding this fuel reconciliation, Q4 charter revenue grew approximately 10% over last year. Ad hoc charter revenue growth was also significant as we saw it increase by 27% in the quarter versus last year.

Excluding the fuel reconciliation, Q4 charter revenue per block hour was up 4.6% versus Q4 of 2023 24, I should say. For our cargo segment, revenue grew by 13.1% in Q4 to $28,600,000 which was an all time quarterly high. This growth came despite a 2.5% decrease in cargo block hours. Q4 cargo revenue per block hour was up 16%, driven by the impact of a portion of the rate changes implicit in our extended Amazon agreement as well as annual rate adjustments. We continue to expect cargo flying to reflect sharply upward in 2025 as we take on an anticipated 8 additional freighter aircraft throughout the year.

1 of the freighters has already been delivered and we expect it to enter service in late Q1. The revised Amazon contract rates will continue to escalate as we receive additional aircraft and will not be in full effect until the second half of twenty twenty five. Turning now to costs. Q4 total operating expense grew 2.6% on 2.7% growth in total block hours. We continue to remain well disciplined as demonstrated by full year 2024 adjusted CASM only increasing by 1.3% versus 2023.

For full year 2025, we expect our ex fuel operating expenses to grow in line with our total block hours, which are expected to increase between 9% 10% versus full year of 2024. As a reminder, our 8 additional Amazon aircraft will drive most of the growth in 2025 and we expect full year scheduled service ASMs to decline between 3% 5% with the reductions occurring in Q2 through Q4. The lower ASM productions put pressure on adjusted CASM, which we currently anticipate to increase mid to high single digits in 2025. This decline will happen from Q2 through the rest of 2025 as we are anticipating scheduled service revenue growth in Q1. Regarding our balance sheet, our total liquidity at the end of the year was $205,600,000 As of February 3rd, total liquidity stood at $226,700,000 Full year 2024 CapEx was $88,000,000 which includes the acquisition of 3 aircraft previously on finance leases.

At this point, we do not need to purchase any incremental aircraft until we begin looking for 2027 or 2028 capacity. We expect 2025 CapEx to be between $70,000,000 $80,000,000 with much of this spent on spare engines. During the quarter, we appended a new C tranche to our existing 2019 AETC raising $60,000,000 This was used to pay down a significant portion of the term loan financing our 5730seven-nine 100 ER aircraft. This is expected to drive savings of approximately $800,000 in 2025 interest expense. Our leverage continues to improve and we finished 2024 with a net debt to adjusted EBITDA ratio of 2 times.

Additionally, we have extended the lease return dates on 3 of the 4730seven-nine hundred ERs currently on lease to another carrier. The 4 aircraft are now expected to return to us in May, September November of 2025 and in November of 2026. We had 1 730seven-nine 100 ER returned to us in November 2024 and we expect this aircraft to enter revenue service in mid-twenty 25. These extensions provide continued lease revenues as we focus our 2025 growth on our cargo business. As the lease 730seven-nine 100 ERs return to us, they’ll provide the passenger service growth we expect in 2026 and 2027.

Let me turn now to guidance. We expect 1st quarter total revenue to be between $330,000,000 $340,000,000 on block hour growth of 7% to 9%. We’re anticipating our fuel cost per gallon to be $2.76 and for us to achieve an operating margin between 17% 21%. Our business is built for resiliency and we’ll continue to allocate capacity between segments to maximize profitability and minimize earnings volatility. With that, we’ll open it up for questions.

Thank

Operator: And our first question will come from Ravi Shanker with Morgan Stanley (NYSE:MS). Your line is now open.

Ravi Shanker, Analyst, Morgan Stanley: Great. Thank you. Good morning. A couple of here just to kick off. There’s been some commentary on other airline calls about just strength in Europe in the Q1, kind of just unusual, probably driven by FX and such.

How does that kind of impact you guys? Does it kind of help with feeder? Does it potentially redirect some traffic away from domestic winter destinations to Europe? Just obviously given how important 1Q is for you guys?

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Yes. To start with the obvious,

Jude Bricker, Chief Executive Officer, Sun Country Airlines: we don’t fly there. So I think the secondary effect is that there’s a reallocation of capacity into the transatlantic market that positively affects us. We’re selling really well in the Mexican Caribbean destinations. It certainly doesn’t appear that there’s a shift in demand out of those markets into the transatlantic market. So I think on the whole, it’s a positive.

I mean, we would like to see strength everywhere for U. S. Airlines. So there’s no downside risk there.

Ravi Shanker, Analyst, Morgan Stanley: Got it. That’s really helpful. And yes, I was referring to the indirect impact. And maybe as a follow-up, kind of Dave, thanks for the specific guidance there. But can you just help us, given the moving parts here, frame the trajectory of margin and CASM evolution through the year please?

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Yes. I mean, I think you know the seasonal or the seasonal profile of the company. Q1, we expect to be really strong. We gave guidance. I think as sort of revenues come in, we’re very confident in that guidance.

I think we’ll follow sort of a typical seasonal pattern. A lot of how the year plays out is going to be driven by the exact delivery dates of the Amazon cargo aircraft. We expect them to start service in March and then enter service throughout the year. They should all be in by late summer into Q4. But I don’t see anything abnormal from a seasonal profitability perspective for the company.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: One thing of note would be that the things that we were dealing with last year primarily were competitive encroachment into our network and that negatively affected the second and third quarter the most. As you can see in the Q4, we did quite well, the best we’ve ever done in the Q4. And that variance where capacity is now a tailwind as opposed to a headwind It’s the strongest in the Q2 combined with the Easter shift into April. All else equal, we’re not giving guidance into the Q2. The Q2 has the most upside relative to the prior year comps.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: And from a capacity perspective, Ravi, probably, you can anticipate Q3 being the biggest drawdown in scheduled service capacity for the year. Right now, it’s looking to be around 10% reduction in Q3 and then starting to rebound in Q4.

Ravi Shanker, Analyst, Morgan Stanley: Very helpful. Thank you.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Thanks, Ravi.

Operator: And the next question will come from Duane Pfennigwerth with Evercore. Your line is open.

Duane Pfennigwerth, Analyst, Evercore: Hey guys, good morning. Maybe you could just speak to bookings patterns in the Q4. It looked like there was a nice build in your ATL. And is there something around maybe seasonal changes? Or is the booking curve extending?

Is it spring break? Any color you could provide on that would be great.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Well, so I just want to make sure when we look at ACLs that we should look on a year on year basis, not sequential because we have such strong seasonality. I’m assuming that you’re doing that.

Duane Pfennigwerth, Analyst, Evercore: We are, sorry. We are, but I guess that sequential move is much stronger than it has been for the last few years, it looks like to us.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Yes. So a couple of things were bigger in the Q1 than we were in the prior year that affects ATLs. As we mentioned, we got some TRASM tailwind. One of the changes that we’re inflicting ourselves on our own booking is just holding capacity further out. So we’re seeing less variability in our pricing as the particular flight sells.

So we’re building Mode Factor early on. And then as it moves close in, in the mid range, we get less bookings because we see such strong demand close in these days, particularly in our larger EDU markets. Anything else? Okay. Yes.

So like that’s a complicated answer, but I’d say generally the output of that is higher fares, it’s slightly lower load factors.

Duane Pfennigwerth, Analyst, Evercore: Got it. Thank you. And then just to the extent that you can on the cargo expansion, can you just remind us of, I guess, the cadence of the aircraft that you’re taking on? How that may have changed? And relatedly, the cadence of maybe the rate improvement as that business rolls on?

Thank you for taking the questions.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Yes. I think as we sit now, there’s really no significant change from the guidance we’ve been giving for a while. The first aircraft now looks like it’s probably going to be in service in late March.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Mid to late March.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Mid to late March. And then they should all be in service by Q4.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: By the

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: end of August. End of August, yes. So the rate of delivery is really fast and the rate of the escalations the 2 additional escalations in our rate is basically similar to what we’ve been talking about before.

Duane Pfennigwerth, Analyst, Evercore: Okay. Thank you.

Operator: And the next question will come from Brandon Oglenski with Barclays (LON:BARC). Your line is open.

Brandon Oglenski, Analyst, Barclays: Good morning and thanks for taking the question. Jude or Dave, do you guys mind talking about network priorities as you get into the summer months, especially as you flip some pilot capacity into the cargo business? And actually, should that help shape a better margin profile in those softer quarters for you guys?

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Yes, I’ll take that one. So it’s pretty simple. I mean, the stuff that was on the margin last summer is going to be cut from the schedule. And that’s going to be the cuts are going to be a combination of in particular last summer, we had a lot of markets that we put in to repel competitive incursion. Many of those will be suspended.

And then there’s going to be some carving some capacity reductions in same store markets that had particularly low yields. So it’s a pretty easy schedule to write from a capacity planning perspective. And yes, like we expect fares to be substantially higher based on those capacity moves and then a general reduction in OA capacity across our network and underlying strong demand. Yes, we’re forecasting some pretty strong revenue productions.

Brandon Oglenski, Analyst, Barclays: Appreciate that, Jude. And then as you think about it going into 2026, I know it’s far out there, but should we be thinking scheduled capacity remain down at the beginning of next year as well?

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: I think probably by mid-twenty 26, we should be pretty close to back to where we were, let’s say at the end of the Q1 of 2025. So in other words, shrink Q2, shrink Q3 and then start to rebound in Q4, grow into the Q1 of 2026. So sometime between there and the middle of 2026, we should be sort of back and then growing again.

Brandon Oglenski, Analyst, Barclays: Okay. Thank you, guys.

Operator: And our next question will come from Catherine O’Brien with Goldman Sachs. Your line is open.

Catherine O’Brien, Analyst, Goldman Sachs: Good morning, everyone. Just a one on the margin outlook here, I know you’ve already given some details, but your Q4 operating margin up just over 300 basis points year over year, midpoint of the Q1 guide implies 100 basis point decline. Obviously, the fuel tailwind is smaller year over year. But just sounded that the capacity environment continues to improve further upside on Amazon. On the 1Q year over year versus 4Q year over year margin comparison, is that just fuel or maybe the new flight attendant deals in there, perhaps some conservatism around industry uplift?

Any color there would be really helpful. Thanks.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Yes. So first of all, the new flight attendant deal is in there for part of the quarter. There is a little bit more significant increase in pilot pay in 2025. I would say just speaking generally probably the Q1 of 2025 we see at least as strong as the Q1 of 2024. We put a range around the guidance.

Everything looks good at this point. Probably not going to say much more than that, but I think we’re very confident in the number.

Catherine O’Brien, Analyst, Goldman Sachs: Got it. Understood. And then just a strong secondary aircraft pricing, do you think you’ll still be able to find growth aircraft for later this decade? Can you just help us frame maybe like rough numbers, how many aircraft you’d need past the ones you already have out on lease to get you through your growth plan to the rest of the decade? And do you feel confident being able to find opportunistic purchases for that volume of aircraft?

Thanks.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: The answer is yes. There’s 2 pieces that are out there to provide growth in the 2026, 2027 and 2028. And those two pieces are the redelivery of the aircraft that are on lease with Oman, the 730seven-900s, those 5 aircraft and then a couple other ones that we have on lease 730seven-800s. So those come back into the fleet and then we still think there’s room on the utilization front. We’re in the 7 hours range ish.

We think there’s upside to that as well. So there’s probably 30% to 40% growth just on the metal that we have right now and that gets us into 28% most likely. Used aircraft are expensive right now. We continue to be in the market and we’ll buy opportunistically. But with very little activity in the market, we think there’s significant growth left in the airline, enough to get us through the end of the decade.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Just a couple more comments. It’s good not to be dependent on Airbus, Boeing (NYSE:BA), CFM or Pratt and Whitney the way they’re executing right now. So I’d rather have our fleet win than sort of anybody else’s. And then also we have very reliable aircraft. So like we’re not having to deal with any of the out of service issues that other airlines are dealing with associated with the new technology equipment.

So I mean, we already own these aircraft that Dave mentioned that are going to provide growth. I just feel really good about where we are on the fleet

Catherine O’Brien, Analyst, Goldman Sachs: side. Yes, definitely a great spot to be in. Thanks for all that color.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Yes.

Operator: And the next question will come from Michael Linenberg with Deutsche Bank (ETR:DBKGn). Your line is open.

Michael Linenberg, Analyst, Deutsche Bank: Hey, good morning guys. I guess a couple here. Jude, you talked about encroachment capacity and I do see that as you guys scale back pretty meaningfully in call it, spring, early summer, we are seeing some additional capacity come into your markets by some of those who are probably just there skimming. And so I guess the question is, as you scale back, does it open up opportunities for others and maybe to establish share sort of thoughts on that?

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Hey, Mike, let me take this opportunity to talk a little bit better about how we think about capacity. So I think the innovation that Sun Country brings to the market is that we basically say at any moment in time, what’s the best thing a plane can do right now. And then we fill out the schedule till we either run out of things to do, and in which case we park airplanes or we run out of planes. And every other airline generally would build an optimized day and repeat it many, many times and then kind of tweak that day based on certain inputs. It’s just fundamentally different way to think about it.

And what we want to get to, which probably isn’t possible, is where we don’t have to fly, where our fixed obligations are so low and can be serviced by our cargo and track flying that’s contractual that we can be entirely independent when we make capacity decisions. So when we look at summer markets, for example, that we’re going to be pulling out, those markets work for us, but don’t work for anybody else even if we’re not in them. We’re talking about like Cleveland, Minneapolis that can be supported by a carrier, a leisure carrier like ours because there’s leisure demand between Memorial Day and Labor Day sufficient to support a twice weekly service pattern. But if you’re going to fly it daily with the 321, at the back of the clock, it’s going to be empty at 0 fares. And so I’m just not at all I don’t lose any sleep about some of the backfill opportunities that might happen for other airlines.

We are keeping our footprint down in these really what I would consider strategically important markets that call out like JetBlue leaving Minneapolis, Boston. If you go way back in time to 2017, we used to serve that market up to 3 daily in the summertime. We’re going to keep a healthy level of capacity in that market. So I think markets that can sustain any significant capacity level will continue to get service from us. And then markets that really only work for us are going to be the kind of markets that we’re going to be pulling back on for the summer next year.

Michael Linenberg, Analyst, Deutsche Bank: Great. Very great. Very helpful. And then just thanks for that. My second, just with all the headlines around tariffs and you’re going all in on cargo and I realize there’s it’s more about knock on effects, secondary or second order effects from tariff and the impact to overall cargo and commerce and freight.

With your Amazon contract, do you have minimums whether it’s block hours or revenues and so the plane flies and if whether the plane is 90% full or 60% full, you’re going to get compensated. Can you just talk about maybe downside risk protection? Thanks.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Yes. So the way the contract maybe before speaking broadly about tariffs, which are difficult to sort of assess, especially given that we have one customer. There’s no set minimums, but there’s the way this contract is constructed is there is a fixed rate per aircraft and then a block hour rate on top of that. So it operates as sort of a de facto minimum, because we get paid for each aircraft.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Generally speaking, the lower the utilization of the cargo fleet, the better the margins are for us because we can redeploy that pilot capacity most of the calendar into more high margin flying. And then you mentioned the load on the airplane, I want to call out, we can fly empty or full, it doesn’t matter that the rates are the same. Hence, pass through economics on fuel and stuff. So any other secondary effects of a full airplane that doesn’t impact profitability of the cargo market

Michael Linenberg, Analyst, Deutsche Bank: for us. Perfect. That’s what I wanted to hear. Thanks.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Nice quarter. Thanks.

Operator: And our next question will come from Scott Group with Wolfe Research. Your line is open.

Scott Group, Analyst, Wolfe Research: Hey, thanks. Good morning. I just I’m not sure if I heard this right, but I think at one point you said January unit revenue was tracking up 5%, but you’re assuming for the quarter scheduled service unit revenue flat. Did I hear that right? Is that I just want to understand that.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Yes. January is doing about what December did. We haven’t closed January yet, but it looks like along the lines, February is going to be a softer month this year. So kind of the wash is and March is about in line. So that’s kind of where we’re at.

On a quarterly basis, roughly flat.

Scott Group, Analyst, Wolfe Research: What’s driving the weaker February and flattish March relative to a strong January?

Jude Bricker, Chief Executive Officer, Sun Country Airlines: So March has there’s the Easter shift. We should talk about a flat March with 5% unit revenue with 5% or 6% ASM growth, I think is a pretty good result. And February, the weakness?

Grant, Unnamed Executive, Sun Country Airlines: I think it’s some of it moving into sort of that April timeframe. Last year was so concentrated with the early holidays. And we have some strategic capacity growth out of Milwaukee into the Caribbean, which we feel really good about meeting expectations, but there’s just some year over year comp on that as well.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: I’d say, yes, just more color would be the Caribbean is a little bit softer than previous year, but our core markets are really strong. So those are the markets that you would see, call it, trunk wrap for us. So Phoenix, Vegas, Fort Myers, Orlando, Cancun are all really good. And those become a more heavily weighted portion of the network in March, where kind of early February is these once or twice a week markets into deep Caribbean and those are a little off.

Scott Group, Analyst, Wolfe Research: Okay. With last week, UPS announced a 50% cut in their volume with Amazon. So Amazon maybe has got to look somewhere else. Is this an opportunity for you? Or is this what you’re doing for Amazon is pretty different than what the UPS is involved with?

So I don’t know. Is this an opportunity, a risk?

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Yes. I think I don’t see it as a risk in any way. Here’s sort of the issue. The Amazon operates 20 narrow bodies and we’re going to have them. So unless we sort of go to a different fleet type where they grow that narrow body fleet, there’s probably not a short term opportunity to take advantage of what’s going on at UPS.

And as you pointed out, it doesn’t matter if the aircraft are more full, we get paid a per block hour basis. Now over the long term,

Jude Bricker, Chief Executive Officer, Sun Country Airlines: we love the Amazon business.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: The margins are great. So we think there’s probably more growth ahead, but I don’t think the near term UPS stuff is near term potential for us.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: The Amazon growth is coming faster than we can grow the operation and also keep the kind of performance that we expect. So we want to be able to absorb this growth, allocate more growth into our scheduled service and then before we talk about cargo growth, if we could have it our way, that’s how we do it. We pause on cargo growth after this 20 airplane expansion and then for a couple of years at least.

Scott Group, Analyst, Wolfe Research: And then just lastly if I can, I think you said $70,000,000 to $80,000,000 of CapEx this year? Any other what are the other puts and takes for free cash flow and how are you

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: thinking about the buyback right now? Yes. So, yes, your CapEx number is right. We’ll be paying back a fair amount of debt in 2025. And a buyback is always on the table that we are and we are looking at it and as we see sort of how the numbers come in, cash flow looks strong now, we’ll kind of make decisions.

But we’re not announcing a buyback right now, but we’ll continue to be sort of assessing it.

Scott Group, Analyst, Wolfe Research: Thank you, guys.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Thanks, guys.

Operator: And the next question comes from Tom Fitzgerald with TD Cohen. Your line is open.

Jude Bricker, Chief Executive Officer, Sun Country Airlines0: Hi, everyone. Thanks so much for the time. Did I hear that right that you said 30% block hour growth through 2027? And would you mind just breaking that up between scheduled charter and cargo?

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Well, that’s just simple arithmetic of saying 2024 utilization applied to the in service fleet that we will have after all the committed fleet is redelivered into the operation. Yes.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: So that by definition is passenger growth. Yes. Yes. So the 30% is basically as you just said, the redelivery of the leased aircraft and then improved utilization.

Jude Bricker, Chief Executive Officer, Sun Country Airlines0: Okay, thanks. That’s really helpful. And then, just like longer term, how are you thinking about I know in August you talked about with some of the volatility that other airlines are facing, wanted to keep your powder dry to invest opportunistically. How are you thinking longer term about adding other focus cities or adding like another and something else in addition to Minneapolis? Thanks again for the time.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Well, we want to do it. I’d say we’re putting in we’re making the investments into markets that we think can support over time a Sun Country type operation. So we have we’ve expanded into the upper Midwest with origination service out of Milwaukee. We continue to support our summer Mexican Caribbean service out of Dallas and Central Texas. So I think those are the kind of markets that we’re going to be able to expand into at the end of the decade.

But quite frankly, the next 2 years, it’s going to kind of be getting the network back to what it was in 2024.

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Yes. So I mean, I think if you just look a little bit sort of longer term, 25 is all cargo, right? And then 26 cargo basically the full year effect of these new aircraft will be hitting the growth of the airline as well. And then 26, probably 27 are refilling in Minneapolis and then some of these other focus cities. As we move to later in the decade, we think we can take this model to a lot of different cities.

Grant mentioned one, where we’re doing some strategic growth now. But that’s definitely on the table, but we got our hands full with all of our sort of program bid growth here over the next couple of years.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: I think also the point would be it’s difficult to predict where those opportunities are going to be because of the pull down from Spirit and kind of how all that shakes out where they end up in their restructuring. So and then Southwest is doing some pretty dramatic changes to their network and adjusting down their growth. So I think

Scott Group, Analyst, Wolfe Research: what we see as an opportunity a few years from

Jude Bricker, Chief Executive Officer, Sun Country Airlines: now may not be what we see is an opportunity a few years from now may not be what we see today. And so I think the main point is our capacity is going to be our growth capacity outside of Minneapolis isn’t going to be available about 2 years. And when that happens, it’s going to be probably a different network.

Operator: And our next question comes from James Kirby (NYSE:KEX) with JPMorgan.

Jude Bricker, Chief Executive Officer, Sun Country Airlines1: Hey, good morning guys. Most of my questions have been asked. Maybe just on the ad hoc charter segment, I think you mentioned in the prepared remarks that has been growth in the Q4. I guess what drove that? Was that just kind of better efficiency or demand?

And I guess going forward, should we expect the charter segment to kind of be proportionally down with scheduled service for the cadence of the year?

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: Yes. So the growth on a percentage basis in ad hoc charter in the Q4 was significant. Now remember, most of our flying 80% plus is on the program side, so that percentage growth is up a relatively low base. But we did have

Jude Bricker, Chief Executive Officer, Sun Country Airlines: a lot of football flying in

Dave Davis, President and Chief Financial Officer, Sun Country Airlines: the 4th quarter that really drove that growth. And we sort of see that ad hoc growth continuing into the year, into 2025. The cargo that charter business story is not going to be down on the order of the scheduled service business, maybe flat to up low single digits kind of a number.

Jude Bricker, Chief Executive Officer, Sun Country Airlines1: Got it. That’s helpful. And there’s a significant contract roll offs in the next 2 years, I believe, right? I think, MLS was 2027 or is that incorrect?

Grant, Unnamed Executive, Sun Country Airlines: Yes. We did work with them this year. So we feel really good about that contract into the future. And then I would just say for the Q4, I would just add to what Dave said. I think it’s just a very good illustration of the power of our model that when we are looking for that.

We communicate really well with them and when we have availability, we win business. So, I would just say that, but yes, we feel very good about our partnerships in the short term, the medium term. We’re doing a really good job of delivering for our customers.

Jude Bricker, Chief Executive Officer, Sun Country Airlines1: Okay, got it. Thanks for the questions.

Operator: And our next question will come from Christopher Staphoulopoulos with Susquehanna. Your line is now open.

Scott Group, Analyst, Wolfe Research: Thank you, operator. Good morning, everyone. I want to go back to the Amazon. Good morning. Amazon business.

So the date, March and then mid to late August, full you’ll have the full fleet in place. So I want to go back to the economics here. So there’s a fixed rate per aircraft, which I’m guessing covers all insurance and things like that and block hour, commit rate on top of that, which is utilization agnostic. And then how much visibility do you have into the block hours? So is it sort of as your schedule is given a week, a month in advance?

And then is the flying going to be concentrated out of CVG or more ad hoc point to point? Just want to understand the more nuances here between the fixed block hour rate piece and then the commitments and how that kind of network looks and will ultimately shape over time? Thanks.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Scheduled development is a 2 month schedule that gets approved roughly 6 times a year. They come in and we try to work together to optimize the schedule for utilization inputs, but ultimately it’s their network and they fly where they want. I can’t really comment on where we expect the planes to go because I don’t really know. And that’s the value Sun Country brings is that we can do sort of anything with the airplane based on our charter DNA really. So, but your comments about the rate structure are accurate and that there’s a fixed component that includes margin and sort of everything else.

And then the variable costs associated with the operation are passed through in a fee basis. So from our perspective, it doesn’t matter so much what the network looks like.

Scott Group, Analyst, Wolfe Research: Okay. So I heard Chris, if

Jude Bricker, Chief Executive Officer, Sun Country Airlines: I get to your crux of your prop, go ahead.

Scott Group, Analyst, Wolfe Research: Yes. So 2 month approval prop, so you have visibility into what March and through spring flying might look like at this point?

Jude Bricker, Chief Executive Officer, Sun Country Airlines: That’s right. Yes. Now this is going to be a messy period just because the dates that we get the airplane on the certificate. So we take a delivery, then we’ll do some work to the airplane, get it on the certificate and then schedule it. And so there’s going to be a little bit of noise about the fleet count and the utilization and the schedule as we integrate these aircraft.

Scott Group, Analyst, Wolfe Research: Okay. And my second question, so you spoke to the favorable supply demand balance here in the U. S. We’ve heard that from the peers. But as we look at a map of your network, are there areas or regions that are perhaps doing better or worse versus what kind of sort of looks like a low single digit domestic seat growth or at least the first half and a point or 2 of demand on top of that.

Just want to understand if there are pockets that are doing better or worse than as we think about domestic system as a whole? Thanks.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: On the scheduled side, we’re seeing, as I mentioned earlier, really strong demand into our really leisure trunk routes. I’d say the things that were uncertain going into this period are West Florida, they’ve had a lot of impact from storms down there and we’ve got a ton of seats. We have 5 markets on the West Coast and they’re doing really well. I’d say Southern California is off a little bit. And then Caribbean as I mentioned earlier, but the Mexican markets are doing really, really well.

That was a point of uncertainty just with all the geopolitical stuff going on. I don’t know, is it sort of

Grant, Unnamed Executive, Sun Country Airlines: I think you nailed it. The traditional spring break routes look really good year over year, just the capacity rationalization. And as we’ve mentioned, the Caribbean, there’s pressure in the Caribbean, but it’s because it’s a strategic growth opportunity for us. We’ve done exceptionally well there. So we’ve added some these were single weekly markets.

We’ve added some to twice a week. That’s a significant capacity adjustment. These are really strong markets. So there was always going to be some impact to that and some competitors have seen that too. But we will be continue to be in these markets for the long run and the customers are responding to what we’ve added.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Yes. It’s a good point, Grant. I should clarify. It’s in the schedule because it’s going to achieve some really high level of profitability. When I say weak, it’s a year over year, yes, transit decline, but it’s from such a high level in the prior year.

Scott Group, Analyst, Wolfe Research: Okay. Thank you.

Operator: I show no further questions in the queue at this time. I would now like to turn the call back over to Jude Bricker for closing remarks.

Jude Bricker, Chief Executive Officer, Sun Country Airlines: Thanks for calling in everybody. We really appreciate it. I think we have a great story and we’re excited to share it with you guys. Have a great day everybody.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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