NASDAQ:SNCY Sun Country Airlines Q3 2024 Earnings Report $9.42 -0.01 (-0.11%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$9.41 -0.01 (-0.05%) As of 04/25/2025 06:58 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Sun Country Airlines EPS ResultsActual EPS$0.06Consensus EPS $0.06Beat/MissMet ExpectationsOne Year Ago EPS$0.14Sun Country Airlines Revenue ResultsActual Revenue$249.50 millionExpected Revenue$250.30 millionBeat/MissMissed by -$800.00 thousandYoY Revenue Growth+0.20%Sun Country Airlines Announcement DetailsQuarterQ3 2024Date10/30/2024TimeAfter Market ClosesConference Call DateThursday, October 31, 2024Conference Call Time8:30AM ETUpcoming EarningsSun Country Airlines' Q1 2025 earnings is scheduled for Friday, May 2, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfilePowered by Sun Country Airlines Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 31, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Welcome to the Sun Country Airlines Third Quarter 2024 Earnings Call. My name is Daniel, 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. Operator00:00:31I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Speaker 100:00:37Thank you. I'm joined today by Jude Ricker, our Chief Executive Officer Dave Davis, President and Chief Financial Officer and a group of others to help answer questions. Before we begin, I'd 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, assumptions and are subject to risks and uncertainties. Actual results may differ materially. Speaker 100:01:00We encourage you to review the risk factors and cautionary statements outlined in our earnings release and on our most recent SEC filings. We assume no obligation to update any forward looking statement. You can find our Q3 2024 earnings press release in the Investor Relations portion of our website at ir. Suncovery.com. With that said, I'd like to turn it over to you. Speaker 200:01:18Thanks, Chris. Good morning, everyone, and happy Halloween. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, 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 to respond to both predictable leisure demand fluctuations and exogenous industry shocks. Speaker 200:01:42We believe due to our structural advantages, we'll be able to reliably deliver industry leading profitability throughout all cycles. Domestic industry capacity growth peaked in June at almost 7% and the growth rate has been slowing ever since. But across our network, industry capacity reached a peak growth rate of 12%. By January, domestic industry capacity will be flat year on year and will be down across our network. Many airlines earnings calls have focused on a rationalization of capacity. Speaker 200:02:14Clearly, much of the capacity that other airlines added across our network was loss making and has been removed. All the while, Sun Country continues to expand and produce profits and healthy cash flows. Selling unit revenues are now positive year on year for all future selling months. Flown unit revenues will lag, but we now expect 4th quarter TRASM year on year to be around flat based on industry schedules that remain bullish on unit revenue trends into next year. Translating scheduled unit revenue trends into margins, we have positive trends in charter yields and cargo yields, both of which are contractual. Speaker 200:02:52We have mostly passed the post COVID inflationary pressures and are expecting only modest ex fuel unit cost increases going forward and fuel was down. As shown in our 4Q guide, we believe we'll likely show a margin expansion and based on current inputs, I remain bullish into 2025 as well. Another common topic on airline 3Q calls has been challenges with aircraft availability and OEM deliveries and AOGs caused by OEMs. Again, to draw a distinction with our business, all the aircraft supporting our fleet growth for 20252026 are currently in operation with other carriers. They are either on our balance sheet as leased out until they are redelivered or committed through our cargo program. Speaker 200:03:36Further, borrowing costs are a common topic. Just to remind everyone, we continue to produce free cash flow and are able to self fund our modest CapEx requirements. As such, our debt levels continue to decline even as we grow. As we ride these positive trends, this management team will primarily be focused on operational improvements and service delivery. This past summer was very challenging operationally, as we discussed in the past, and only to cap the season off with hurricanes and a major IT disruption. Speaker 200:04:06But since August 1, we have achieved a 99.5 controllable completion factor. We have an incredible team that navigates these challenges and I'm proud to be part of it. With that, I'll turn it over to Dave. Speaker 300:04:20Thanks, Jude. We're pleased to report that Q3 was our 9th consecutive quarter of profitability and year to date Sun Country has among the highest margins in the industry. Both our cargo segment and our charter line of business continue to produce solid growth, which has partially offset the capacity driven pricing pressure we've experienced in the scheduled service business this year. As industry capacity continues to rationalize, we're seeing a stronger pricing environment in Q4 and into Q1 of 2025. Sun Country has rapidly matched our capacity with market demand as Q3 scheduled service ASM growth fell to 5.8% year over year versus more than 18% in the 2nd quarter. Speaker 300:05:02We're planning this growth to slow further in Q4 with scheduled service ASM growth expected to be slightly higher than 3% year over year. Let me now turn to the specifics of Q3. 1st to revenue and capacity. 3rd quarter total revenue was $249,500,000 which was roughly flat with the Q3 of 2023. Revenue for our passenger segment, which includes our scheduled service and charter businesses, fell 3% year over year. Speaker 300:05:32Scheduled service revenue declined 5.9%, driven by an 11.1% decline in scheduled service TRASM. The quarter was impacted by industry overcapacity, the crowd strike outage and hurricanes in Florida. We rapidly reduced our scheduled service capacity as the quarter proceeded with July growing 12% versus prior year, but September shrinking by 10%. Given the length of our booking window, it generally takes a couple of quarters to fully realize the impact of capacity changes on flown fare levels. We feel confident that our current capacity allocation for Q4 and Q1 2025 matches customer demand. Speaker 300:06:11Q4 scheduled service TRASM is expected to be flat with Q4 'twenty three levels and total TRASM, which includes our charter business, is expected to be up versus last year by low single digits. Charter revenue in the 3rd quarter grew 7% to $51,000,000 which was a new quarterly high for Sun Country, partially offsetting scheduled service weakness. Driving this result was a 1.7% increase in charter block hours and a 5% improvement in revenue per block hour. Charter unit revenue improvement resulted from recently renegotiated contractual rate increases and a better mix of flying. Charter unit revenue growth would have been significantly higher had lower fuel prices not reduced the fuel cost reimbursement we received from our charter customers. Speaker 300:07:02Over 80% of our charter revenue during the quarter came from flying done under long term agreements. For our cargo segment, revenue grew by 11.9 percent in Q3 to $29,200,000 which was also an all time quarterly high. This growth came despite a 3.6% decrease in cargo block hours, resulting from aircraft and heavy check and hurricane driven flight cancellations in the Southeast. 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 escalations. We continue to expect cargo flying to inflect sharply upward in 2025 as we take on an anticipated 8 additional freighter aircraft throughout the year. Speaker 300:07:52In the segment reporting table included in our Q3 10 Q, you'll see that cargo margins improved significantly versus last year. As a reminder, the segment reporting in our quarterly filings includes allocated corporate overhead. 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. We continue to remain well disciplined as Q3 CASM declined 1.9% versus the Q3 of 2023, while adjusted CASM increased 3.7%. Speaker 300:08:31This adjusted CASM increase was largely driven by our slowing growth during the quarter. Ground handling expenses grew 23.3% year over year, driven by more flying volume, higher outsourced ground handler costs and one time credits incurred in Q3 2023, which didn't repeat this year. Regarding landing fees and airport rents, we continue to see pressure on costs due to the roll off of COVID era relief payments that airports have been using to minimize rate increases. It's contributed to a 14.5% increase in landing fees and airport rent expense during the quarter. As we move into Q4, the slowing growth in our scheduled service business is likely to continue to put some pressure on adjusted CASM. Speaker 300:09:16Regarding our balance sheet, our total liquidity at the end of the Q3 was $165,000,000 As of October 30, total liquidity stood at approximately 184,000,000 dollars Year to date, we've spent $42,600,000 on CapEx and we anticipate full year 2024 CapEx to be approximately $75,000,000 At this point, we do not expect to purchase any incremental aircraft until we begin looking at 2027 capacity. We continue to generate strong free cash flow and our leverage remains low. We expect to finish the year with a net debt to adjusted EBITDA ratio of 2.3 times. Let me turn now to guidance. We expect 4th quarter total revenue to be between $250,000,000 $260,000,000 on block hour growth of 2% to 5%. Speaker 300:10:07We're anticipating our fuel cost per gallon to be $2.47 and for us to achieve an operating margin between 7% 9%. Our business is built for resiliency and we'll continue to allocate capacity between segments to maximize profitability and minimize earnings volatility. With that, I will open it up for questions. Operator00:10:52Our first question comes from Wayne Peningworth with Evercore ISI. Your line is open. Speaker 400:10:59Hey, good morning. Thanks. So on cargo, just with respect to the existing book of business that you're doing, have you hit full run rate on improvements on the existing business that you're doing? Or is some of that still building? And do you have any update on the timing of incremental cargo aircraft, growth aircraft in 2025? Speaker 300:11:28Yes. So, the answer is not all of the rate changes that are implicit in our new agreement are included in that number. So, a portion of them occurred this year, but there will be 2 more increases next year as the new aircraft deliver. We're really still looking to be on track for sort of the new cargo aircraft coming in, which would be late first, early second quarter for the first one and then by late third, early Q4 for the 8th one. So it's a rapid ramp during the summer months of 2025. Speaker 300:12:05And by the end of the year of next year, 'twenty five, all the aircraft should be operating and the rate changes should be fully in place. Speaker 400:12:14Okay, great. That's very clear. And then just on the seasonal flying that you do in scheduled service away from Minneapolis, any new thinking in your approach there? Any kind of new markets you're particularly excited about? And are the industry capacity adjustments that you're seeing any different in those seasonal markets away from Minneapolis? Speaker 200:12:40Non Minneapolis capacity Duane, non Minneapolis capacity is primarily at Sun Country as summer issue. And we're going to be likely shrinking scheduled service capacity summer of 2025 versus 2024 because of the cargo inductions that Dave was talking about. So total block hours for the year will be up somewhere around 10%. So we're still hiring and growing sort of at a controlled but sustainable pace, but the mix will be different. So for summer of next year, our non Minneapolis flying will be under some small pressure. Speaker 200:13:23So consider it may mostly flat. I wouldn't expect any new markets for summer next year. Operator00:13:31Very clear. Speaker 200:13:32Substantial we had a lot of market launches in the summer of 'twenty four out of Minneapolis predominantly, some non Minneapolis markets and some of those will need to be will also need to be suspended in order to support the cargo growth. Speaker 500:13:49Okay, got it. Thank you. Operator00:13:53Thank you. And our next question comes from Ravi Shanker with Morgan Stanley. Your line is open. Speaker 600:14:00Hi, good morning. This is Catherine on for Ravi. Thank you for taking my question. Just a quick question on the update on the Oman aircraft that you've leased. I was curious if those are going to continue to be on lease or if you're planning to add those to your fleet? Speaker 300:14:15Yes. So here's where we stand with that. We will definitely be adding them to our fleet. Remember, we have 5 aircraft, which were scheduled to sort of one of them redeliver this year and go into service next year and then all of them in place here at Sun Country by the end of next year. I think what's going to happen given some of these OEM delays that are impacting other airlines, they want to extend leases and we're no exception to that. Speaker 300:14:44So they want to extend the leases that we have to them. So I would say it's very likely that we extend at least a portion of those aircraft out into 2026 before they are redelivered, which works well for us given the cargo growth we have next year. Speaker 600:15:03Got it. And then just a quick follow-up. I was curious what the RASM opportunity might be next year, just given all this industry capacity has been coming out of the market. I was curious how you think about that impacting Sun Country. Thanks. Speaker 200:15:16Hey, Catherine. We just loaded summer schedule, so there's no meaningful volume of bookings past April. As I mentioned in my comments earlier, the Q1 bookings remain strong. We're seeing positive trends year on year. And so to the extent that we have data to look at in our own bookings beyond what other airlines have loaded in their schedules, things look really positive, but that's only through April. Operator00:15:51Thank you. And our next question comes from Brandon Oglenski with Barclays. Your line is open. Speaker 700:15:57Hey, good morning, Jude and Dave. Thanks for taking the question. So should we still be thinking double digit declines in your scheduled service capacity or block hour flying next year? Is that still the bogey? Speaker 300:16:13Yes. So let me give a brief update on that. We're still finalizing the 20 25 plan, but I think so we originally thought that we were going to need to shrink our scheduled service business next year on the order of, let's say, 10% -ish. I think given the situation with our pilots, better availability than we thought, that shrink in our scheduled service business is probably more like mid single digits type number. Again, we're finalizing right now, but I think we'll be able to fly a little bit more on the passenger side next year than we had initially thought. Speaker 200:16:48Yes, you can look at loaded schedules and compare July year on year and June year on year and you'll see down high single digits. As we get more clarity on the delivery timing of the cargo fleet, there's a little bit of an input that we is an unknown related to captain upgrades. We're not going to shrink from there. It will only go higher. So we'll continue to add scheduled service capacity as we become as the segment mix becomes clear and pilot staffing becomes more clear. Speaker 700:17:22I appreciate that, Jude. And I guess there was a comment about your booking profile. It takes a few months for capacity reductions to start showing up in higher fares or higher realized fares, I guess. Is there anything you're changing given that capacity is likely to be down next year in the way you're holding inventory or pricing? Speaker 300:17:47No, I think that comment Brandon was really more around just sort of leisure passengers and the tendency to book earlier, particularly given the leisure passenger mix that we have. So the only point was, as I think you had mentioned, we're seeing nice upward trends, positive inflection year over year on a booked fare basis, but that won't sort of flow into flown revenue for a quarter or so because people buy in advance and maybe a little bit more in advance when they're leisure passengers. Speaker 700:18:20Okay, understood. Thank you, guys. Operator00:18:25Thank you. Our next question comes from Michael Linenberg with DB. Your line is open. Speaker 600:18:33Hi, yes. This is Shannon Daugherty on for Mike. Thanks for taking my questions. Dave, maybe a couple for you. With other revenue up 48% year over year, what drove that large increase? Speaker 300:18:44I mean, the biggest driver of that is our that's where the revenue from leased aircraft hits our P and L. So the aircraft that we have out on lease, we get revenue for, that's the line item where it's shown. Speaker 600:19:01Okay, got it. And how do you think about balancing deploying your free cash flow for share buybacks and other uses, just knowing that some shareholders may be limited to some extent from buying your stock due to your current market cap and trading liquidity? Speaker 300:19:19Yes. So we had a sort of a share buyback program going for a while. Our free cash flow profile looks good. I would say we are very rapidly amortizing debt right now and that will continue into the future. I don't really foresee us in a share buyback mode for the next couple of months, but as we move into 2025, our cash is building rapidly. Speaker 300:19:43We're going to we'll sort of revisit this. There's always this trade off for us in relatively limited float. People have difficulty getting in and out of the stock. As we buy back shares, it kind of exacerbates that. But we think our shares are really good investment at this price. Speaker 300:20:04So as we move later this year into early next, we're going to revisit that. Speaker 200:20:09Just one thing on cash balances. The end of the Q3 is the annual trough in the seasonality of our cash balances. So when you look at the balance sheet on the Q, just keep that in mind. Speaker 600:20:23Helpful. Thank you. Operator00:20:27Thank you. Our next question comes from Tom Fitzgerald with TD Cowen. Your line is open. Speaker 500:20:34Thanks so much for the time everyone. Just going back to the health of the booking window, especially in Minneapolis with carriers like JetBlue leaving. Could you touch on like how 7 day rolling yields have trended over the last 6 or 8 weeks or so? Speaker 200:20:50Sure. I mean they're up. So 7 day trailing fares versus the same period last year are up in every selling month as we look forward where we have any significant volumes. And I mean also I just want to point out that the calendar shift for leisure carriers like ours that's happened this year is really powerful. So it's a late Thanksgiving and a midweek Christmas and New Year's. Speaker 200:21:23It's sort of the best setup that we could hope for combined also with the late Easter extends our winter travel season. So there's a really weak period between Thanksgiving and Christmas. That's a relatively short period this year. And then we have a long winter booking cycle because of a late Easter. So there's some other background that's kind of helping bookings like those things. Speaker 200:21:48But generally on our biggest, thickest markets for this winter, we're all seeing in each of those markets, we're seeing really positive trends. So that's Minneapolis, Vegas, LA, Orlando, Cancun, Fort Myers. December bookings in West Florida haven't been really affected by the hurricane challenges. So November, we'll see an impact, but that appears to be over by the time the December schedule starts. So bookings look really good. Speaker 500:22:23That's super helpful. Thanks so much. And then just as a follow-up, once you get into 26 and you have the Amazon, the full comportment of the Amazon planes on board, how are you thinking about the seasonality of cargo block hours, just kind of first half, second half? Any color there would be really helpful. Thanks again for the time. Speaker 300:22:44If you go look at sort of the revenue profile of the cargo business, it varies. The main variance quarter to quarter honestly is just check volume, like what aircraft are going through check at any one time. So the business has a great advantage for us and that it's quite flat throughout the year and we expect that to continue a little bit harder flying during Amazon Prime periods, but not that much. So it's great, very stable business and we expect that to continue as all the aircraft are in. Operator00:23:32And our next question comes from Scott Group with Wolfe. Your line is open. Speaker 800:23:39Hey, thanks. Good morning. I want to follow-up on the cargo revenue per block hour. So I don't know if I say it's up 7% over last quarter, 16% year over year, which is sort of in your mind is more representative of the new rate with Amazon. And I'll tell you what I'm trying to figure out. Speaker 800:24:00It sounds like there's 2 more increases coming. Should we think about these other two increases similar in magnitude as what we just got? And I'm just trying to understand ultimately by the back half next year where this revenue per block goes Speaker 700:24:16to go? Speaker 300:24:18Yes. So the 16% year over year has got in it, the annual rate escalators and then the other number you mentioned is quarter over quarter. I would say that without being too precise that quarter over quarter number is more representative of one element of the new contractual rates. We have 2 more increases coming next year, which vary roughly in totality between the 2 should be roughly equivalent to the increase we saw in the number you mentioned. Speaker 500:24:54I'm not going to Speaker 300:24:54get into detailed contractual rates here, but by the end of 'twenty six everything sorry, end of 'twenty five everything will be fully in. Okay. Speaker 800:25:02No, that's helpful. Scott, Speaker 400:25:03I just want Speaker 200:25:03to bring up also the rate structure has a fixed component and then a departure component and a block hour component. So utilization mostly subject to heavy check schedules has some impact on the per block hour rate that you're looking at in the financials. So there's not only rate changes, there's also a little bit of noise associated with other things. Speaker 800:25:28Yes, makes sense. You made a comment that fares booked are positive, RASM is flat in Q4 and people on leisure tend to book early. Do you feel like we should be able to does the fare positive translate into positive RASM in Q1, which is your big quarter? Or is it has there been enough early booking where we may not see the RASM inflection in Q1? Speaker 200:26:00Yes, we're not going to guide to 1Q, but my point was only that the inflection happened a few months ago. So we were selling into flown months, October, November, December at a negative fair versus last year up until a few months ago. Now it's positive. It will take a while for total TRASM to catch up. But the further out in the schedule we look, the longer time we'll have with these positive booking trends and the more bullish we become. Speaker 800:26:29Okay. Makes sense. And then just lastly, there's obviously a lot of mix changes next year, scheduled down mid single digit cargo growth. What's a good way to think about CASM next year? Speaker 300:26:46Yes. So the plan is still sort of coming together. CASM is going to be up because the passenger business is down and the passenger business is what drives CASM obviously not the cargo business. I would say we're looking at numbers, let's just call it mid single digit up next year in CASM, but that's subject to change here as we finalize our plan. Speaker 800:27:17Makes sense. Thank you guys. Appreciate it. Speaker 200:27:20Thanks Scott. Operator00:27:23Thank you. I'm showing no further questions at this time. I would now like to turn it back to Jude Ricker for closing remarks. Speaker 200:27:31Hey guys, thanks for your interest. I hope everybody has a great weekend. We're really excited about what we're seeing on booking trends, which we've talked about quite a lot this morning. And look forward to giving you another update in 90 days. Speaker 300:27:43Have a Speaker 800:27:44great day, everybody. Operator00:27:46This concludes today's conference call. Thank you for participating. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSun Country Airlines Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Sun Country Airlines Earnings HeadlinesSun Country Airlines Will Hold Its First Quarter 2025 Earnings Conference Call May 2April 23 at 11:02 AM | globenewswire.comShort Interest in Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) Declines By 14.6%April 22, 2025 | americanbankingnews.comFrom Social Security to Social Prosperity?In less than a decade, Social Security could be out of money. But a surprising plan from Trump’s inner circle may not just save the system — it could unlock a major opportunity for savvy investors. Financial insider Jim Rickards calls it “Social Prosperity,” and says those who act now could see the biggest gains.April 26, 2025 | Paradigm Press (Ad)Is Sun Country Airlines Holdings Inc (SNCY) The Top Falling Stock with Unusual Volume?April 22, 2025 | msn.comSpirit Airlines names new CEO after emerging from bankruptcyApril 17, 2025 | msn.comSun Country CFO Departing for Top Role at Spirit AirlinesApril 17, 2025 | marketwatch.comSee More Sun Country Airlines Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Sun Country Airlines? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Sun Country Airlines and other key companies, straight to your email. Email Address About Sun Country AirlinesSun Country Airlines (NASDAQ:SNCY), an air carrier company, operates scheduled passenger, air cargo, charter air transportation, and related services in the United States, Latin America, and internationally. It operates through two segments, Passenger and Cargo. The company also provides crew, maintenance, and insurance services through ad hoc, repeat, short-term, and long-term service contracts; and loyalty program rewards. As of December 31, 2023, its fleet consisted of 60 Boeing 737-NG aircraft, which includes 42 passenger fleet, 12 cargo, and 6 leased to unaffiliated airlines aircraft. The company serves leisure, and visiting friends and relatives passengers; charter and cargo customers; military branches; collegiate and professional sports teams; wholesale tour operators; schools; companies; and other individual entities through its website, call center, and travel agents. Sun Country Airlines Holdings, Inc. was founded in 1983 and is headquartered in Minneapolis, Minnesota.View Sun Country Airlines ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 9 speakers on the call. Operator00:00:00Welcome to the Sun Country Airlines Third Quarter 2024 Earnings Call. My name is Daniel, 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. Operator00:00:31I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Speaker 100:00:37Thank you. I'm joined today by Jude Ricker, our Chief Executive Officer Dave Davis, President and Chief Financial Officer and a group of others to help answer questions. Before we begin, I'd 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, assumptions and are subject to risks and uncertainties. Actual results may differ materially. Speaker 100:01:00We encourage you to review the risk factors and cautionary statements outlined in our earnings release and on our most recent SEC filings. We assume no obligation to update any forward looking statement. You can find our Q3 2024 earnings press release in the Investor Relations portion of our website at ir. Suncovery.com. With that said, I'd like to turn it over to you. Speaker 200:01:18Thanks, Chris. Good morning, everyone, and happy Halloween. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, 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 to respond to both predictable leisure demand fluctuations and exogenous industry shocks. Speaker 200:01:42We believe due to our structural advantages, we'll be able to reliably deliver industry leading profitability throughout all cycles. Domestic industry capacity growth peaked in June at almost 7% and the growth rate has been slowing ever since. But across our network, industry capacity reached a peak growth rate of 12%. By January, domestic industry capacity will be flat year on year and will be down across our network. Many airlines earnings calls have focused on a rationalization of capacity. Speaker 200:02:14Clearly, much of the capacity that other airlines added across our network was loss making and has been removed. All the while, Sun Country continues to expand and produce profits and healthy cash flows. Selling unit revenues are now positive year on year for all future selling months. Flown unit revenues will lag, but we now expect 4th quarter TRASM year on year to be around flat based on industry schedules that remain bullish on unit revenue trends into next year. Translating scheduled unit revenue trends into margins, we have positive trends in charter yields and cargo yields, both of which are contractual. Speaker 200:02:52We have mostly passed the post COVID inflationary pressures and are expecting only modest ex fuel unit cost increases going forward and fuel was down. As shown in our 4Q guide, we believe we'll likely show a margin expansion and based on current inputs, I remain bullish into 2025 as well. Another common topic on airline 3Q calls has been challenges with aircraft availability and OEM deliveries and AOGs caused by OEMs. Again, to draw a distinction with our business, all the aircraft supporting our fleet growth for 20252026 are currently in operation with other carriers. They are either on our balance sheet as leased out until they are redelivered or committed through our cargo program. Speaker 200:03:36Further, borrowing costs are a common topic. Just to remind everyone, we continue to produce free cash flow and are able to self fund our modest CapEx requirements. As such, our debt levels continue to decline even as we grow. As we ride these positive trends, this management team will primarily be focused on operational improvements and service delivery. This past summer was very challenging operationally, as we discussed in the past, and only to cap the season off with hurricanes and a major IT disruption. Speaker 200:04:06But since August 1, we have achieved a 99.5 controllable completion factor. We have an incredible team that navigates these challenges and I'm proud to be part of it. With that, I'll turn it over to Dave. Speaker 300:04:20Thanks, Jude. We're pleased to report that Q3 was our 9th consecutive quarter of profitability and year to date Sun Country has among the highest margins in the industry. Both our cargo segment and our charter line of business continue to produce solid growth, which has partially offset the capacity driven pricing pressure we've experienced in the scheduled service business this year. As industry capacity continues to rationalize, we're seeing a stronger pricing environment in Q4 and into Q1 of 2025. Sun Country has rapidly matched our capacity with market demand as Q3 scheduled service ASM growth fell to 5.8% year over year versus more than 18% in the 2nd quarter. Speaker 300:05:02We're planning this growth to slow further in Q4 with scheduled service ASM growth expected to be slightly higher than 3% year over year. Let me now turn to the specifics of Q3. 1st to revenue and capacity. 3rd quarter total revenue was $249,500,000 which was roughly flat with the Q3 of 2023. Revenue for our passenger segment, which includes our scheduled service and charter businesses, fell 3% year over year. Speaker 300:05:32Scheduled service revenue declined 5.9%, driven by an 11.1% decline in scheduled service TRASM. The quarter was impacted by industry overcapacity, the crowd strike outage and hurricanes in Florida. We rapidly reduced our scheduled service capacity as the quarter proceeded with July growing 12% versus prior year, but September shrinking by 10%. Given the length of our booking window, it generally takes a couple of quarters to fully realize the impact of capacity changes on flown fare levels. We feel confident that our current capacity allocation for Q4 and Q1 2025 matches customer demand. Speaker 300:06:11Q4 scheduled service TRASM is expected to be flat with Q4 'twenty three levels and total TRASM, which includes our charter business, is expected to be up versus last year by low single digits. Charter revenue in the 3rd quarter grew 7% to $51,000,000 which was a new quarterly high for Sun Country, partially offsetting scheduled service weakness. Driving this result was a 1.7% increase in charter block hours and a 5% improvement in revenue per block hour. Charter unit revenue improvement resulted from recently renegotiated contractual rate increases and a better mix of flying. Charter unit revenue growth would have been significantly higher had lower fuel prices not reduced the fuel cost reimbursement we received from our charter customers. Speaker 300:07:02Over 80% of our charter revenue during the quarter came from flying done under long term agreements. For our cargo segment, revenue grew by 11.9 percent in Q3 to $29,200,000 which was also an all time quarterly high. This growth came despite a 3.6% decrease in cargo block hours, resulting from aircraft and heavy check and hurricane driven flight cancellations in the Southeast. 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 escalations. We continue to expect cargo flying to inflect sharply upward in 2025 as we take on an anticipated 8 additional freighter aircraft throughout the year. Speaker 300:07:52In the segment reporting table included in our Q3 10 Q, you'll see that cargo margins improved significantly versus last year. As a reminder, the segment reporting in our quarterly filings includes allocated corporate overhead. 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. We continue to remain well disciplined as Q3 CASM declined 1.9% versus the Q3 of 2023, while adjusted CASM increased 3.7%. Speaker 300:08:31This adjusted CASM increase was largely driven by our slowing growth during the quarter. Ground handling expenses grew 23.3% year over year, driven by more flying volume, higher outsourced ground handler costs and one time credits incurred in Q3 2023, which didn't repeat this year. Regarding landing fees and airport rents, we continue to see pressure on costs due to the roll off of COVID era relief payments that airports have been using to minimize rate increases. It's contributed to a 14.5% increase in landing fees and airport rent expense during the quarter. As we move into Q4, the slowing growth in our scheduled service business is likely to continue to put some pressure on adjusted CASM. Speaker 300:09:16Regarding our balance sheet, our total liquidity at the end of the Q3 was $165,000,000 As of October 30, total liquidity stood at approximately 184,000,000 dollars Year to date, we've spent $42,600,000 on CapEx and we anticipate full year 2024 CapEx to be approximately $75,000,000 At this point, we do not expect to purchase any incremental aircraft until we begin looking at 2027 capacity. We continue to generate strong free cash flow and our leverage remains low. We expect to finish the year with a net debt to adjusted EBITDA ratio of 2.3 times. Let me turn now to guidance. We expect 4th quarter total revenue to be between $250,000,000 $260,000,000 on block hour growth of 2% to 5%. Speaker 300:10:07We're anticipating our fuel cost per gallon to be $2.47 and for us to achieve an operating margin between 7% 9%. Our business is built for resiliency and we'll continue to allocate capacity between segments to maximize profitability and minimize earnings volatility. With that, I will open it up for questions. Operator00:10:52Our first question comes from Wayne Peningworth with Evercore ISI. Your line is open. Speaker 400:10:59Hey, good morning. Thanks. So on cargo, just with respect to the existing book of business that you're doing, have you hit full run rate on improvements on the existing business that you're doing? Or is some of that still building? And do you have any update on the timing of incremental cargo aircraft, growth aircraft in 2025? Speaker 300:11:28Yes. So, the answer is not all of the rate changes that are implicit in our new agreement are included in that number. So, a portion of them occurred this year, but there will be 2 more increases next year as the new aircraft deliver. We're really still looking to be on track for sort of the new cargo aircraft coming in, which would be late first, early second quarter for the first one and then by late third, early Q4 for the 8th one. So it's a rapid ramp during the summer months of 2025. Speaker 300:12:05And by the end of the year of next year, 'twenty five, all the aircraft should be operating and the rate changes should be fully in place. Speaker 400:12:14Okay, great. That's very clear. And then just on the seasonal flying that you do in scheduled service away from Minneapolis, any new thinking in your approach there? Any kind of new markets you're particularly excited about? And are the industry capacity adjustments that you're seeing any different in those seasonal markets away from Minneapolis? Speaker 200:12:40Non Minneapolis capacity Duane, non Minneapolis capacity is primarily at Sun Country as summer issue. And we're going to be likely shrinking scheduled service capacity summer of 2025 versus 2024 because of the cargo inductions that Dave was talking about. So total block hours for the year will be up somewhere around 10%. So we're still hiring and growing sort of at a controlled but sustainable pace, but the mix will be different. So for summer of next year, our non Minneapolis flying will be under some small pressure. Speaker 200:13:23So consider it may mostly flat. I wouldn't expect any new markets for summer next year. Operator00:13:31Very clear. Speaker 200:13:32Substantial we had a lot of market launches in the summer of 'twenty four out of Minneapolis predominantly, some non Minneapolis markets and some of those will need to be will also need to be suspended in order to support the cargo growth. Speaker 500:13:49Okay, got it. Thank you. Operator00:13:53Thank you. And our next question comes from Ravi Shanker with Morgan Stanley. Your line is open. Speaker 600:14:00Hi, good morning. This is Catherine on for Ravi. Thank you for taking my question. Just a quick question on the update on the Oman aircraft that you've leased. I was curious if those are going to continue to be on lease or if you're planning to add those to your fleet? Speaker 300:14:15Yes. So here's where we stand with that. We will definitely be adding them to our fleet. Remember, we have 5 aircraft, which were scheduled to sort of one of them redeliver this year and go into service next year and then all of them in place here at Sun Country by the end of next year. I think what's going to happen given some of these OEM delays that are impacting other airlines, they want to extend leases and we're no exception to that. Speaker 300:14:44So they want to extend the leases that we have to them. So I would say it's very likely that we extend at least a portion of those aircraft out into 2026 before they are redelivered, which works well for us given the cargo growth we have next year. Speaker 600:15:03Got it. And then just a quick follow-up. I was curious what the RASM opportunity might be next year, just given all this industry capacity has been coming out of the market. I was curious how you think about that impacting Sun Country. Thanks. Speaker 200:15:16Hey, Catherine. We just loaded summer schedule, so there's no meaningful volume of bookings past April. As I mentioned in my comments earlier, the Q1 bookings remain strong. We're seeing positive trends year on year. And so to the extent that we have data to look at in our own bookings beyond what other airlines have loaded in their schedules, things look really positive, but that's only through April. Operator00:15:51Thank you. And our next question comes from Brandon Oglenski with Barclays. Your line is open. Speaker 700:15:57Hey, good morning, Jude and Dave. Thanks for taking the question. So should we still be thinking double digit declines in your scheduled service capacity or block hour flying next year? Is that still the bogey? Speaker 300:16:13Yes. So let me give a brief update on that. We're still finalizing the 20 25 plan, but I think so we originally thought that we were going to need to shrink our scheduled service business next year on the order of, let's say, 10% -ish. I think given the situation with our pilots, better availability than we thought, that shrink in our scheduled service business is probably more like mid single digits type number. Again, we're finalizing right now, but I think we'll be able to fly a little bit more on the passenger side next year than we had initially thought. Speaker 200:16:48Yes, you can look at loaded schedules and compare July year on year and June year on year and you'll see down high single digits. As we get more clarity on the delivery timing of the cargo fleet, there's a little bit of an input that we is an unknown related to captain upgrades. We're not going to shrink from there. It will only go higher. So we'll continue to add scheduled service capacity as we become as the segment mix becomes clear and pilot staffing becomes more clear. Speaker 700:17:22I appreciate that, Jude. And I guess there was a comment about your booking profile. It takes a few months for capacity reductions to start showing up in higher fares or higher realized fares, I guess. Is there anything you're changing given that capacity is likely to be down next year in the way you're holding inventory or pricing? Speaker 300:17:47No, I think that comment Brandon was really more around just sort of leisure passengers and the tendency to book earlier, particularly given the leisure passenger mix that we have. So the only point was, as I think you had mentioned, we're seeing nice upward trends, positive inflection year over year on a booked fare basis, but that won't sort of flow into flown revenue for a quarter or so because people buy in advance and maybe a little bit more in advance when they're leisure passengers. Speaker 700:18:20Okay, understood. Thank you, guys. Operator00:18:25Thank you. Our next question comes from Michael Linenberg with DB. Your line is open. Speaker 600:18:33Hi, yes. This is Shannon Daugherty on for Mike. Thanks for taking my questions. Dave, maybe a couple for you. With other revenue up 48% year over year, what drove that large increase? Speaker 300:18:44I mean, the biggest driver of that is our that's where the revenue from leased aircraft hits our P and L. So the aircraft that we have out on lease, we get revenue for, that's the line item where it's shown. Speaker 600:19:01Okay, got it. And how do you think about balancing deploying your free cash flow for share buybacks and other uses, just knowing that some shareholders may be limited to some extent from buying your stock due to your current market cap and trading liquidity? Speaker 300:19:19Yes. So we had a sort of a share buyback program going for a while. Our free cash flow profile looks good. I would say we are very rapidly amortizing debt right now and that will continue into the future. I don't really foresee us in a share buyback mode for the next couple of months, but as we move into 2025, our cash is building rapidly. Speaker 300:19:43We're going to we'll sort of revisit this. There's always this trade off for us in relatively limited float. People have difficulty getting in and out of the stock. As we buy back shares, it kind of exacerbates that. But we think our shares are really good investment at this price. Speaker 300:20:04So as we move later this year into early next, we're going to revisit that. Speaker 200:20:09Just one thing on cash balances. The end of the Q3 is the annual trough in the seasonality of our cash balances. So when you look at the balance sheet on the Q, just keep that in mind. Speaker 600:20:23Helpful. Thank you. Operator00:20:27Thank you. Our next question comes from Tom Fitzgerald with TD Cowen. Your line is open. Speaker 500:20:34Thanks so much for the time everyone. Just going back to the health of the booking window, especially in Minneapolis with carriers like JetBlue leaving. Could you touch on like how 7 day rolling yields have trended over the last 6 or 8 weeks or so? Speaker 200:20:50Sure. I mean they're up. So 7 day trailing fares versus the same period last year are up in every selling month as we look forward where we have any significant volumes. And I mean also I just want to point out that the calendar shift for leisure carriers like ours that's happened this year is really powerful. So it's a late Thanksgiving and a midweek Christmas and New Year's. Speaker 200:21:23It's sort of the best setup that we could hope for combined also with the late Easter extends our winter travel season. So there's a really weak period between Thanksgiving and Christmas. That's a relatively short period this year. And then we have a long winter booking cycle because of a late Easter. So there's some other background that's kind of helping bookings like those things. Speaker 200:21:48But generally on our biggest, thickest markets for this winter, we're all seeing in each of those markets, we're seeing really positive trends. So that's Minneapolis, Vegas, LA, Orlando, Cancun, Fort Myers. December bookings in West Florida haven't been really affected by the hurricane challenges. So November, we'll see an impact, but that appears to be over by the time the December schedule starts. So bookings look really good. Speaker 500:22:23That's super helpful. Thanks so much. And then just as a follow-up, once you get into 26 and you have the Amazon, the full comportment of the Amazon planes on board, how are you thinking about the seasonality of cargo block hours, just kind of first half, second half? Any color there would be really helpful. Thanks again for the time. Speaker 300:22:44If you go look at sort of the revenue profile of the cargo business, it varies. The main variance quarter to quarter honestly is just check volume, like what aircraft are going through check at any one time. So the business has a great advantage for us and that it's quite flat throughout the year and we expect that to continue a little bit harder flying during Amazon Prime periods, but not that much. So it's great, very stable business and we expect that to continue as all the aircraft are in. Operator00:23:32And our next question comes from Scott Group with Wolfe. Your line is open. Speaker 800:23:39Hey, thanks. Good morning. I want to follow-up on the cargo revenue per block hour. So I don't know if I say it's up 7% over last quarter, 16% year over year, which is sort of in your mind is more representative of the new rate with Amazon. And I'll tell you what I'm trying to figure out. Speaker 800:24:00It sounds like there's 2 more increases coming. Should we think about these other two increases similar in magnitude as what we just got? And I'm just trying to understand ultimately by the back half next year where this revenue per block goes Speaker 700:24:16to go? Speaker 300:24:18Yes. So the 16% year over year has got in it, the annual rate escalators and then the other number you mentioned is quarter over quarter. I would say that without being too precise that quarter over quarter number is more representative of one element of the new contractual rates. We have 2 more increases coming next year, which vary roughly in totality between the 2 should be roughly equivalent to the increase we saw in the number you mentioned. Speaker 500:24:54I'm not going to Speaker 300:24:54get into detailed contractual rates here, but by the end of 'twenty six everything sorry, end of 'twenty five everything will be fully in. Okay. Speaker 800:25:02No, that's helpful. Scott, Speaker 400:25:03I just want Speaker 200:25:03to bring up also the rate structure has a fixed component and then a departure component and a block hour component. So utilization mostly subject to heavy check schedules has some impact on the per block hour rate that you're looking at in the financials. So there's not only rate changes, there's also a little bit of noise associated with other things. Speaker 800:25:28Yes, makes sense. You made a comment that fares booked are positive, RASM is flat in Q4 and people on leisure tend to book early. Do you feel like we should be able to does the fare positive translate into positive RASM in Q1, which is your big quarter? Or is it has there been enough early booking where we may not see the RASM inflection in Q1? Speaker 200:26:00Yes, we're not going to guide to 1Q, but my point was only that the inflection happened a few months ago. So we were selling into flown months, October, November, December at a negative fair versus last year up until a few months ago. Now it's positive. It will take a while for total TRASM to catch up. But the further out in the schedule we look, the longer time we'll have with these positive booking trends and the more bullish we become. Speaker 800:26:29Okay. Makes sense. And then just lastly, there's obviously a lot of mix changes next year, scheduled down mid single digit cargo growth. What's a good way to think about CASM next year? Speaker 300:26:46Yes. So the plan is still sort of coming together. CASM is going to be up because the passenger business is down and the passenger business is what drives CASM obviously not the cargo business. I would say we're looking at numbers, let's just call it mid single digit up next year in CASM, but that's subject to change here as we finalize our plan. Speaker 800:27:17Makes sense. Thank you guys. Appreciate it. Speaker 200:27:20Thanks Scott. Operator00:27:23Thank you. I'm showing no further questions at this time. I would now like to turn it back to Jude Ricker for closing remarks. Speaker 200:27:31Hey guys, thanks for your interest. I hope everybody has a great weekend. We're really excited about what we're seeing on booking trends, which we've talked about quite a lot this morning. And look forward to giving you another update in 90 days. Speaker 300:27:43Have a Speaker 800:27:44great day, everybody. Operator00:27:46This concludes today's conference call. Thank you for participating. You may now disconnect.Read morePowered by