NASDAQ:SNCY Sun Country Airlines Q1 2024 Earnings Report $9.31 -0.11 (-1.17%) Closing price 04/28/2025 04:00 PM EasternExtended Trading$9.30 -0.02 (-0.16%) As of 04:00 AM 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$0.66Consensus EPS $0.68Beat/MissMissed by -$0.02One Year Ago EPS$0.68Sun Country Airlines Revenue ResultsActual Revenue$311.50 millionExpected Revenue$316.23 millionBeat/MissMissed by -$4.73 millionYoY Revenue Growth+5.90%Sun Country Airlines Announcement DetailsQuarterQ1 2024Date5/6/2024TimeAfter Market ClosesConference Call DateTuesday, May 7, 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)Earnings HistoryCompany ProfilePowered by Sun Country Airlines Q1 2024 Earnings Call TranscriptProvided by QuartrMay 7, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Welcome to the Speaker 100:00:00Sun Country Airlines First Quarter 2024 Earnings Call. My name is Jill, 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. Speaker 100:00:32We will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Speaker 200:00:39Thank 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 and assumptions and are subject to risks and uncertainties. Actual results may differ materially and we encourage you to review the risks and cautionary statements outlined in our earnings release and our most recent SEC filings. Speaker 200:01:07We assume no obligation to update any forward looking statement. You can find our Q1 2024 earnings press release on Investor Relations portion of the website at ir. Suncountry.com. With that said, I'd like to turn it over to Jude. Speaker 300:01:19Thank you, Chris. Good morning, everyone. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we're 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. Speaker 300:01:42We believe due to our structural advantages, we're able to reliably deliver industry leading profitability throughout all cycles. Operational excellence is a core tenant of our product. It's critical to our scheduled service customers and justifies our growth with our charter and cargo customers. Among the 11 public mainline carriers, Sun Country again had the best completion factor at 99.7% for 1Q. Congratulations to our employees, especially our front lines for delivering excellence this past quarter. Speaker 300:02:14In the Q1, we saw yields reset off their post pandemic highs. These fare declines were partially absorbed by our continued momentum on costs. Our CASM ex declined slightly in 1Q in spite of significant increase in heavy aircraft visits. Diligent cost control, scheduled service growth along with the effects of our buyback program produced flat EPS versus last year. Our adjusted operating margin of just over 18% was at the lower end of our expectations coming into the quarter. Speaker 300:02:45This variance is mostly due to close in March bookings finishing less strong than in 2023. March is still a great month for us. We had gross margins, profit in excess of variable costs approaching 50%. However, March bookings made through January would have indicated an even stronger month. As lows remained high, most of the variance can be attributed to industry capacity growth across our largest markets. Speaker 300:03:13Our response to changes in the fare environment or fuel price inputs is to adjust marginal capacity so that we continue to produce positive and industry leading results. When possible, we may allocate surplus capacity into our charter and cargo segments. So looking into the rest of the year, we're currently allocating too much capacity growth in off peak periods based on selling fares. While we're committed to May, I expect us to make some significant capacity trends in September through November. Some of that displaced will provide growth opportunities in cargo and charter. Speaker 300:03:49Summer peak continues to sell well and should remain mostly as scheduled. Also a quick note on the Easter shift and early Easter reduces the peak winter season and explains about 10 percentage points in fare drop in April 2024 or about $3,000,000 This revenue isn't recoverable in March because it's already at peak capacity. Finally, on fleet activities, with our recent aircraft purchase, we now have a controlled fleet of 63 aircraft. 7 of these aircraft remain out on operating lease and 2 more are in induction process to enter service in late 2Q. Once all these aircraft are in operation by late 2025, we'll have fleet capacity to produce about 40% more block hours than we currently operate. Speaker 300:04:37As we already paid for that growth, we won't require any aircraft CapEx and so expect CapEx to fall to maintenance levels, which is about $50,000,000 to $75,000,000 per year. And with that, I'll turn it over to Dave. Speaker 400:04:52Thanks, Jude. We're pleased to report strong Q1 results, including record revenue and an adjusted operating margin of 18.2%, which we expect to be at the top of the industry. Our quarterly results again demonstrate the resiliency and earnings power of our diversified business model as this is our 7th consecutive quarter of profitability. The staffing driven constraints we've experienced for over a year now have eased and we were able to grow our scheduled service business as rapidly as we intended to. Year over year unit costs fell for the 2nd consecutive quarter despite significant increases in maintenance and airport related expenses. Speaker 400:05:29It's important to keep in mind that our unique operating model is the opposite of the high utilization carriers. Our diversification across scheduled service, charter and cargo operations leads to resiliency through business cycles. While we've seen large increases in OA capacity in some of our markets, which has pressured yields, there are significant opportunities for accretive growth in our charter and cargo businesses, and we'll continue to allocate capacity to the segments generating the highest returns. Let me turn now to the specifics of the Q1. First on revenue and capacity. Speaker 400:06:03In the Q1, total revenue grew 5.9% versus Q1 of last year to $311,500,000 This is our highest quarterly total record of revenue on record. Scheduled service revenue plus ancillary revenue grew 2.8% to $227,400,000 also the highest on record. Scheduled service TRASM decreased 11.7% to $0.122 as scheduled service ASMs grew by more than 16%. Total fare declined 11.3% to $196.41 while we maintained an 87% load factor. For the month of March, we saw our scheduled service load factor hit 89%. Speaker 400:06:47First quarter is historically our strongest and we expect to see a seasonally driven fall in unit revenue from Q1 to Q2, exacerbated by the Easter shift into Q1 and the nearly 20% growth in scheduled service ASMs we're expecting to see in Q2. Charter revenue in the Q1 grew 2.4 percent to $47,300,000 on a block hour decline of 3%, driving charter revenue per block hour up 5.6%. If you exclude changes in fuel reimbursement revenue from both Q1 of this year and Q1 of last year, charter revenue grew 6.5% over the period and revenue per block hour was up 9.8%. Ad hoc charter revenue grew 29% versus Q1 of last year and charter flying under long term contracts was 75% of total charter revenue versus 80% last year. 1st quarter cargo revenue grew 2.5 percent to $23,900,000 on a 1.1% increase in block hours. Speaker 400:07:52As a reminder, our cargo rates 1.1% decrease in block hours. As a reminder, our cargo rates increased annually at the end of December. Let me turn now to costs. Our 1st quarter total operating expenses increased 7.5% on a 9.6% increase in total block hours. CASM declined by 5.4% versus Q1 of 2023, while adjusted CASM declined by 0.1% marking our 2nd consecutive quarter of year over year CASM declines. Speaker 400:08:26As our pilot availability issues have eased, we've been able to grow flying through higher aircraft utilization, which was 8 hours per day in Q1, up 9.6% versus Q1 of last year. Our declining CASM came despite increases in both maintenance expenses and higher airport costs. Maintenance expenses grew by 29% year over year, driven by an increase in the number of airframe and engine overhaul events from 3 in Q1 of 2023 to 8 this quarter, while the rolling off of COVID relief payments to airports helped to drive a 34.6% increase in rent and landing fees. Now let me turn now to the balance sheet. Our total liquidity at the end of Q1 was $179,000,000 which incorporates $11,500,000 in share repurchases that we made during the quarter and $29,700,000 in CapEx spend. Speaker 400:09:23At this point, we do not expect to purchase any incremental aircraft until we begin looking for 2026 capacity at the very earliest. We anticipate full year 2024 CapEx to be well below $100,000,000 We continue to maintain a very strong balance sheet and our net debt to adjusted EBITDA ratio at the end of Q1 was 2.5 times. Since we do not have a significant debt burden, we have flexibility in how we deploy our cash. Turning now to guidance. We expect 2nd quarter total revenue to be between $255,000,000 $265,000,000 on block hour growth of 8% to 11%. Speaker 400:10:04We're anticipating our cost per gallon for fuel to be $2.93 and for us to achieve an operating margin between 4% and 7%. Our business is built for resiliency and we'll continue to allocate capacity between our lines of business to maximize profitability and minimize earnings volatility. With that, we will open it up for questions. Speaker 100:10:28Thank you. At this time, we'll conduct the question and answer session. First question comes from Ravi Shanker with Morgan Stanley. Go ahead, Ravi. Your line is open. Speaker 500:10:56Thanks. Good morning, everyone. Dave, can I just start with where you ended off and talk about the difference in the segment realignment or reallocation of capacity? Can you go into a little more detail on kind of what you guys are doing in terms of specific actions to absorb some of that excess capacity in some of your oversupplied markets and kind of how long that will take? Speaker 400:11:18Yes, I'll let Jude speak to that mainly, but let me just say it at a high level here. So I think basically our capacity is committed for Q2 and that explains part of the margin pressure that we're seeing into the second quarter. There'll be opportunities in the back half of the year to reallocate some of that capacity, particularly in off peak times away from our scheduled service business and into our charter businesses. In the longer term, let's say the medium term, we continue to look for opportunities to allocate the resources we have across all our segments. There's opportunities in the cargo business that present themselves, we're going to pursue them. Speaker 400:11:57We're going to allocate our pilot capacity, our training capacity, the capacity of our company between the segments based on profitability. If there's continued pressure in the scheduled service business, we're going to allocate to the other segments that we think there opportunities in both of our other lines of business. Speaker 300:12:16Yes. The focus is in the Labor Day through Thanksgiving period to try to pick up more charters. But it usually is that way. So incremental allocations are going to be marginal. So it's mostly going to be capacity cuts of scheduled service flights that don't make variable contribution. Speaker 500:12:38Got it. And so maybe just to follow-up on that, kind of how do we think about modeling from 2Q to 3Q kind of the relative to normal seasonality given the kind of extremely low starting point for 2Q? Speaker 300:12:52That's a fair point. I mean typically we would see 2Q and 3Q perform equally. This 2Q has both overcapacity in April May and an Easter shift. So our expectation is we outperform 2Q and 3Q. Speaker 600:13:15Understood. Thanks guys. Yes. Speaker 100:13:18One moment while we prepare the next question. Next question comes from Duane Pfennigwerth with Evercore ISI. Duane, your line is open. Speaker 600:13:37Hey, good morning. Thanks. So if we just play back your ability to kind of flex up in the peak periods, you're obviously constrained for an extended period of time. Those constraints started to ease and now you have a greater ability to kind of flex up in these peaks, which theoretically was going to be at higher incremental RASM. And so I guess relative to your expectations going in, how has that gone? Speaker 600:14:04And I guess more importantly, what do you take with you going forward? So how are you thinking about flexing up in future peaks, maybe relative to how you managed peaks in the Q1? Speaker 300:14:19The biggest surprise is that the scheduled service network didn't absorb the growth in the off peak periods the way we expected it to do. Keep in mind, we designed the network based on its performance largely of the prior year on a granular level. So this flight on this day did well, let's add another. This market was cut right at the end of the peak period, but performing strongly. So maybe it can go into the off peak period and still contribute. Speaker 300:14:49And those decisions on the margin didn't produce the results that we thought they would. So most of the difference between where we expected fares to be and where they actually turned out to be can be explained through more seats in markets, not just from us, but from OAs. And there's a really strong correlation between the change in the downward pressure on fares, the change in unit revenue in a market and its seat growth as you would expect. And in off peak periods when there just isn't a lot of margin to give, those markets those flights should have been not in the schedule. The change what's really interesting about this time is that the change in the selling fare environment didn't really start until mid February. Speaker 300:15:43And then we're looking at 2Q and saying, okay, well, these fares are coming down. Some of these flights aren't going to be positively contributing, but we should leave them in there to protect the sold seats on those flights. And further, like fare fluctuations are pretty common. This one just lasted all the way through the selling period. So, I think we made the right decision in 2Q, keep these markets going and then we'll adjust to the new environment in the post summer trough. Speaker 600:16:23That's great. So basically the learnings that you're taking here from your approach to off peak, 2Q is not really the period to measure that change. It's more kind of 3Q second half. Is that fair? Speaker 300:16:38Yes. But Duane, I mean, keep in mind, we're always adjusting utilization based on the inputs of fare environment and fuel. So this can reverse itself as well, but the marginal capacity that comes in or out of the schedule largely resides in the off peak period. So think of our business as there's one awesome month, that's March. There's about 6 good months, February, April, June, July, December, August. Speaker 300:17:08And then there's a really bad month in September and then there's kind of a couple that are meh, 4. And when we think about variable capacity, it's always allocating into like those shoulder months that can absorb or not based on the fuel price and fare environment. Speaker 400:17:26Yes, but it is fair to say Duane, obviously we have more of the 2nd quarter sold than we do the Q3 or the Q4. So our ability to adjust the schedule gets better the further on we go and it's somewhat limited in Q2 at this point. Speaker 600:17:41That's all great. And just my follow-up, any outlook or update you can provide us, your outlook for new wins in the cargo segment? Thanks for taking the questions. Speaker 300:17:54Nothing to talk about right now. Speaker 400:17:56Yes, we probably don't have much to talk about at this point. Speaker 600:18:00Okay. Thank you. Speaker 100:18:03One moment for our next question. The next question comes from Helane Becker with TD Cowen. Go ahead. Your line is open. Operator00:18:16Thanks very much, operator. Hi, team. Thanks for the time. Just a couple of clarification points. Are you expecting maintenance costs then to continue to be at this level for the rest of the year or is this just a 1 quarter event? Speaker 400:18:35No. Maintenance costs are going to stay a bit elevated like this through the rest of the year. I think we talked about on the Q1 or the call we did at the end of 2023 about some intentional changes to our maintenance program that we made in 20 24 that are going to keep costs higher. And that's going to likely persist or it will persist based on our plan through 2024. Operator00:19:04Okay. That's very helpful. Thanks, Dave. And then the other question I have is with respect to the decline in air traffic liability and maybe you explained it through the changes in bookings. But usually it doesn't decline as much as it seems to have declined from the year end from the Q4 to the Q1, but it was down 24%. Operator00:19:31So how are you thinking about that? Or did you explain that already? Speaker 400:19:37I don't think we explained it already, but I mean the ATL is going to drop as we go through Q1. A little bit of the decline this time might be the weaker fare environment in the Q2, but there's nothing unusual in the ATL drop. Operator00:19:56Okay. Well, that's Speaker 700:19:58very helpful. Speaker 300:19:58Yes. There is a lot of seasonality in our ATLs just based on the volatility of our schedule and fare environment. So going into the Q1, we'll have the highest ETLs of the year. Operator00:20:10Right. That's what I would expect, but I wouldn't expect it to decline as much as it did from January to March. But I guess it all has to do with not having as many bookings for the Q2, the Easter shift and all the other things you've already explained, right? Is that how we should sort of think about it? Speaker 400:20:28Yes. To the extent that it's a little bit unusually large, it would be fair issues you're talking about and Easter is a big part of it. Operator00:20:34Perfect. Okay. Thanks for your help. I appreciate it. Speaker 300:20:38Thanks, Elena. Thanks, Elena. Speaker 100:20:42Thank you. One moment while we bring up our next question. Our next question comes from Michael Linenberg with Deutsche Bank. Go ahead. Your line is open. Speaker 800:20:54Yes. Hey, good morning, everyone. Yes, no, I in the release and I think Judy even sort of mentioned capacity by competitors, OA capacity. Can you give us a sense of maybe what OA capacity looks in the June quarter in your markets year over year changes maybe June, September, maybe how that trends, maybe it was better in the March quarter? Any color on that would be great. Speaker 300:21:19Domestic capacity was up 6% and overlay capacity was up about 10% in the Q1. Those trends are basically consistent in the Q2 as well. Keep in mind, our network is dramatically different from quarter to those two quarters. But I mean, we're just seeing a lot of seats in our markets. In the back of the year, we become really concentrated between Labor Day and Thanksgiving because as we trim out markets that are seasonal, so that's where the concentration resides. Speaker 300:21:55So then we have a lot of capacity into major trunk routes out of Minneapolis and that's where you see a lot of seed pressure. Speaker 800:22:03Okay. And then just my second question is, you've obviously identified the issue you'll respond, as you mentioned in sort of the off peak periods from September through Thanksgiving. How much of what's going on reflects some of the other churn going on in the industry? When I think about the network changes being made by many of the other carriers, and I would say it's really the smaller carriers, not the big three. I mean, they're very well established. Speaker 800:22:35The churn that we're seeing in network changes, it's quite frankly, it's nothing like I've seen before when I look at the number of additions and deletions. And so how much of this may be just more of this sort of structural change going on in the industry where it just maybe that more difficult to respond to because of the dramatic shifts in networks that we're seeing? Just your thoughts on that. Thanks. Speaker 300:22:59It's difficult to give a long term read through based on a very limited amount of input. I mean, my view would be that Spirit and Frontier are challenged more with when they fly than where they fly in the same way that we're having these off peak weaknesses, they're experiencing the same. And so the network churn isn't addressing the issue. Our response to this is going to be look at incremental capacity and shave it down as it always has been. So like and then on a competitive encroachment, most of what we're seeing is from Delta, quite frankly. Speaker 300:23:39And it seems like they're just kind of building out Minneapolis in the post COVID recovery a little later than they've done in some of their other hubs. And then there has been some encroachment speaking specifically of Minneapolis from Frontier, but those markets like Cleveland are ones that they had done pre COVID and canceled because it didn't work. So I don't I think it's mainly just our markets had really high fares through the comp period that people are scheduling into and they attracted a bunch of seats And it will sort of equivocate over time. Speaker 800:24:19Yes, makes sense. All right, great. Thanks. Thanks for answering my questions. Speaker 300:24:23Thanks, Mike. Speaker 100:24:25One moment for our next question. Next question comes from Scott Group with Wolfe. Go ahead. Your line is open. Speaker 900:24:38Hey, thanks. Good morning. So I just want to make sure I'm understanding some of the are things are things getting incrementally worse? Is it stabilizing? Any signs of things getting better? Speaker 900:24:57I know June seasonally is a better month, but just seasonally adjusted, do you feel like things are getting incrementally better or worse? Speaker 300:25:07Well, I guess it depends, Scott, on what the expectation basis is. So when we went into the quarter when we built the quarter last year, we're way below that. And then we had this period of resetting through late February March for selling fares into the Q2. And now in the last couple of weeks, they've come up slightly. So it's been an evolution, but I'd say fares have our selling fare expectation has bottomed and is recovering slightly. Speaker 300:25:39But we're talking about a recovery that is small numbers relative to where we expected to be when we built the schedule. Speaker 900:25:49Okay, that's helpful. And then where do you ultimately think you're going to take capacity in the second half? And did I hear right that you think that your margins in Q3 will be higher than Q2? Speaker 300:26:03On the second part, yes. Because typically second and third quarter had produced about the same margin. And in this particular second quarter, we'll be handicapped by the Easter shift and some overcapacity in April in May. The first part of your question is difficult to say at this point. I mean, we have some time to make these adjustments. Speaker 300:26:31But post Labor Day, I would expect us to be mostly focused on scheduled service flying in markets that typically have a good Q3. There's about a handful of those and then scheduled service flying in support of positioning airplanes and crews for our charter business. So there's not a whole lot of opportunity in September. So it's going to be pretty small. Speaker 400:26:58Yes. So Scott, just let's say from a planning perspective, we had sort of in the scheduled service segment year over year capacity growth peaking in the 2nd quarter, tapering in the 3rd quarter and then tapering significantly more into the 4th quarter. So Q2 was our peak year over year growth. And as we pointed out here, we'll kind of revisit that given the soft peak weakness. So it's probably going to be even more dramatic than it was in our plan. Speaker 900:27:27Okay, great. And then just last question. I thought I heard $65,000,000 of CapEx. Is that the rest of the year comment and or is that a full year comment? And then does is 25 a similar it sounds like it's another very low number. Speaker 900:27:41I just want to make sure we're thinking about that right. Speaker 300:27:43That's right. Yes. So my commentary was about a run rate basis. So we completed an aircraft purchase a couple of months ago. That's the last airplane that we're committed to buy. Speaker 300:27:55We'll still be in the market also for engines. So I'm just trying to give a little bit of a sense of what we would expect on maintenance CapEx, $50,000,000 to $75,000,000 And the lumpiness is largely going to be about opportunistic buys for engines that would replace an overhaul. Speaker 400:28:15Yes, Scott. So this year, we will be on pace to do well sub $100,000,000 in CapEx. I would expect $25,000,000 barring what Jude is saying here in terms of some opportunistic purchases here and there to be less than 24. From a cash flow perspective, the calls on cash around CapEx are minimal for several years to come. Speaker 900:28:46That's very clear with cash flow. Speaker 300:28:49Yes, with growth too, which is Speaker 400:28:54unusual. Speaker 900:28:57Okay. Thank you for the time guys. Appreciate it. Speaker 600:29:00Thanks, Scott. Speaker 100:29:02One moment for our next question. And now we have Brandon Oglenski with Barclays. Go ahead. Your line is open. Speaker 700:29:23Hey, gentlemen. Good morning and thanks for taking the question. Jude, I guess I want to come back to the comment about Delta adding capacity in Minneapolis and the challenges you guys are seeing in off peak because I thought that was kind of the strength of your model that you guys tried to target the peak travel periods. So can you just put this in context? Did you guys go after a little bit more off peak this summer and it just didn't play out the way you thought? Speaker 700:29:49And maybe longer term, does this change your view on the opportunity set in Minneapolis in any way? Speaker 300:29:55Well, in the first part, that's exactly what happened. So our percentage growth by month year over year in the second quarter is smallest in June. And that's just because when we came into the year, we're looking at the fares of the previous comp month, so April of 'twenty three, and it looked like it could support incremental growth. And we have the capacity, we have the pilot. So it's really low cost incremental flying. Speaker 300:30:29And yes, I mean, I think that the market just couldn't support that kind of growth. And so the fare pressure was beyond what we expected. And that's because we were adding seats as along with side of all the OAs in and out of Minneapolis. We're a pretty Minneapolis centric airline in the Q1 in particular because that's sort of the bright spot in the U. S. Speaker 300:30:51Network. As we move into the summer, I mean, we're not cutting in June July. Those months look really good. August is probably mostly like we plan it to be. There's no real change in the long term opportunity in Minneapolis. Speaker 300:31:09I think long term where I've reset is an aircraft utilization. In 2019, we were producing about 9 block hours per aircraft per day. We kind of said, all right, with the fleet age and our focus on reliability, we probably need to be around 8 hours a day per aircraft in a steady state environment just based on operational restrictions. And now based on off peak performance, I think we're probably lower than that. But these things change pretty rapidly as we've been talking about and it could easily reverse itself. Speaker 300:31:48The key for us is flexibility. So it's just very important that you understand how we think about incremental capacity. If you want to understand the business is every airplane doing the best thing it can with that plane time at that moment and when we run out of things to do that contribute positively, we don't fly or we fly cargo or we fly charter. And so we're just adjusting at the margin and we were a little bit bigger than we needed to be into April May. Speaker 700:32:15Appreciate that, Jude. And Dave, I think you said in your prepared remarks and we kind of spoke about this in the Q and A, but about reducing volatility in earnings. I mean, we probably shouldn't confuse that with seasonality, right? But can you maybe elaborate a little bit more there? Speaker 400:32:32Yes. So, yes, we shouldn't confuse it with seasonality. That's going to be a part of our business. I think there are pieces of our business without getting into a ton of detail that are much more stable from an earnings perspective that we will continue to focus on and maybe emphasize more in future periods that should help reduce the volatility of earnings. And by reduce the volatility, I guess what I mean by that is somewhat less exposure to capacity adds in the scheduled service segment. Speaker 400:33:13So it's really focusing on some of these other segments filling in off peak periods and focusing on other segments that are going to be more stable and provide more stability to earnings. Speaker 700:33:26Thank you both. Speaker 100:33:29Thank you. This now concludes the question and answer session. I would now like to turn it back to Jude Brooker for closing remarks. Speaker 300:33:37Thanks for your time everybody. Have a great day and we'll talk to you in 90 days. Speaker 100:33:44Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSun Country Airlines Q1 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, 2025 | globenewswire.comShort Interest in Sun Country Airlines Holdings, Inc. 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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. 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There are 10 speakers on the call. Operator00:00:00Welcome to the Speaker 100:00:00Sun Country Airlines First Quarter 2024 Earnings Call. My name is Jill, 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. Speaker 100:00:32We will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Speaker 200:00:39Thank 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 and assumptions and are subject to risks and uncertainties. Actual results may differ materially and we encourage you to review the risks and cautionary statements outlined in our earnings release and our most recent SEC filings. Speaker 200:01:07We assume no obligation to update any forward looking statement. You can find our Q1 2024 earnings press release on Investor Relations portion of the website at ir. Suncountry.com. With that said, I'd like to turn it over to Jude. Speaker 300:01:19Thank you, Chris. Good morning, everyone. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we're 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. Speaker 300:01:42We believe due to our structural advantages, we're able to reliably deliver industry leading profitability throughout all cycles. Operational excellence is a core tenant of our product. It's critical to our scheduled service customers and justifies our growth with our charter and cargo customers. Among the 11 public mainline carriers, Sun Country again had the best completion factor at 99.7% for 1Q. Congratulations to our employees, especially our front lines for delivering excellence this past quarter. Speaker 300:02:14In the Q1, we saw yields reset off their post pandemic highs. These fare declines were partially absorbed by our continued momentum on costs. Our CASM ex declined slightly in 1Q in spite of significant increase in heavy aircraft visits. Diligent cost control, scheduled service growth along with the effects of our buyback program produced flat EPS versus last year. Our adjusted operating margin of just over 18% was at the lower end of our expectations coming into the quarter. Speaker 300:02:45This variance is mostly due to close in March bookings finishing less strong than in 2023. March is still a great month for us. We had gross margins, profit in excess of variable costs approaching 50%. However, March bookings made through January would have indicated an even stronger month. As lows remained high, most of the variance can be attributed to industry capacity growth across our largest markets. Speaker 300:03:13Our response to changes in the fare environment or fuel price inputs is to adjust marginal capacity so that we continue to produce positive and industry leading results. When possible, we may allocate surplus capacity into our charter and cargo segments. So looking into the rest of the year, we're currently allocating too much capacity growth in off peak periods based on selling fares. While we're committed to May, I expect us to make some significant capacity trends in September through November. Some of that displaced will provide growth opportunities in cargo and charter. Speaker 300:03:49Summer peak continues to sell well and should remain mostly as scheduled. Also a quick note on the Easter shift and early Easter reduces the peak winter season and explains about 10 percentage points in fare drop in April 2024 or about $3,000,000 This revenue isn't recoverable in March because it's already at peak capacity. Finally, on fleet activities, with our recent aircraft purchase, we now have a controlled fleet of 63 aircraft. 7 of these aircraft remain out on operating lease and 2 more are in induction process to enter service in late 2Q. Once all these aircraft are in operation by late 2025, we'll have fleet capacity to produce about 40% more block hours than we currently operate. Speaker 300:04:37As we already paid for that growth, we won't require any aircraft CapEx and so expect CapEx to fall to maintenance levels, which is about $50,000,000 to $75,000,000 per year. And with that, I'll turn it over to Dave. Speaker 400:04:52Thanks, Jude. We're pleased to report strong Q1 results, including record revenue and an adjusted operating margin of 18.2%, which we expect to be at the top of the industry. Our quarterly results again demonstrate the resiliency and earnings power of our diversified business model as this is our 7th consecutive quarter of profitability. The staffing driven constraints we've experienced for over a year now have eased and we were able to grow our scheduled service business as rapidly as we intended to. Year over year unit costs fell for the 2nd consecutive quarter despite significant increases in maintenance and airport related expenses. Speaker 400:05:29It's important to keep in mind that our unique operating model is the opposite of the high utilization carriers. Our diversification across scheduled service, charter and cargo operations leads to resiliency through business cycles. While we've seen large increases in OA capacity in some of our markets, which has pressured yields, there are significant opportunities for accretive growth in our charter and cargo businesses, and we'll continue to allocate capacity to the segments generating the highest returns. Let me turn now to the specifics of the Q1. First on revenue and capacity. Speaker 400:06:03In the Q1, total revenue grew 5.9% versus Q1 of last year to $311,500,000 This is our highest quarterly total record of revenue on record. Scheduled service revenue plus ancillary revenue grew 2.8% to $227,400,000 also the highest on record. Scheduled service TRASM decreased 11.7% to $0.122 as scheduled service ASMs grew by more than 16%. Total fare declined 11.3% to $196.41 while we maintained an 87% load factor. For the month of March, we saw our scheduled service load factor hit 89%. Speaker 400:06:47First quarter is historically our strongest and we expect to see a seasonally driven fall in unit revenue from Q1 to Q2, exacerbated by the Easter shift into Q1 and the nearly 20% growth in scheduled service ASMs we're expecting to see in Q2. Charter revenue in the Q1 grew 2.4 percent to $47,300,000 on a block hour decline of 3%, driving charter revenue per block hour up 5.6%. If you exclude changes in fuel reimbursement revenue from both Q1 of this year and Q1 of last year, charter revenue grew 6.5% over the period and revenue per block hour was up 9.8%. Ad hoc charter revenue grew 29% versus Q1 of last year and charter flying under long term contracts was 75% of total charter revenue versus 80% last year. 1st quarter cargo revenue grew 2.5 percent to $23,900,000 on a 1.1% increase in block hours. Speaker 400:07:52As a reminder, our cargo rates 1.1% decrease in block hours. As a reminder, our cargo rates increased annually at the end of December. Let me turn now to costs. Our 1st quarter total operating expenses increased 7.5% on a 9.6% increase in total block hours. CASM declined by 5.4% versus Q1 of 2023, while adjusted CASM declined by 0.1% marking our 2nd consecutive quarter of year over year CASM declines. Speaker 400:08:26As our pilot availability issues have eased, we've been able to grow flying through higher aircraft utilization, which was 8 hours per day in Q1, up 9.6% versus Q1 of last year. Our declining CASM came despite increases in both maintenance expenses and higher airport costs. Maintenance expenses grew by 29% year over year, driven by an increase in the number of airframe and engine overhaul events from 3 in Q1 of 2023 to 8 this quarter, while the rolling off of COVID relief payments to airports helped to drive a 34.6% increase in rent and landing fees. Now let me turn now to the balance sheet. Our total liquidity at the end of Q1 was $179,000,000 which incorporates $11,500,000 in share repurchases that we made during the quarter and $29,700,000 in CapEx spend. Speaker 400:09:23At this point, we do not expect to purchase any incremental aircraft until we begin looking for 2026 capacity at the very earliest. We anticipate full year 2024 CapEx to be well below $100,000,000 We continue to maintain a very strong balance sheet and our net debt to adjusted EBITDA ratio at the end of Q1 was 2.5 times. Since we do not have a significant debt burden, we have flexibility in how we deploy our cash. Turning now to guidance. We expect 2nd quarter total revenue to be between $255,000,000 $265,000,000 on block hour growth of 8% to 11%. Speaker 400:10:04We're anticipating our cost per gallon for fuel to be $2.93 and for us to achieve an operating margin between 4% and 7%. Our business is built for resiliency and we'll continue to allocate capacity between our lines of business to maximize profitability and minimize earnings volatility. With that, we will open it up for questions. Speaker 100:10:28Thank you. At this time, we'll conduct the question and answer session. First question comes from Ravi Shanker with Morgan Stanley. Go ahead, Ravi. Your line is open. Speaker 500:10:56Thanks. Good morning, everyone. Dave, can I just start with where you ended off and talk about the difference in the segment realignment or reallocation of capacity? Can you go into a little more detail on kind of what you guys are doing in terms of specific actions to absorb some of that excess capacity in some of your oversupplied markets and kind of how long that will take? Speaker 400:11:18Yes, I'll let Jude speak to that mainly, but let me just say it at a high level here. So I think basically our capacity is committed for Q2 and that explains part of the margin pressure that we're seeing into the second quarter. There'll be opportunities in the back half of the year to reallocate some of that capacity, particularly in off peak times away from our scheduled service business and into our charter businesses. In the longer term, let's say the medium term, we continue to look for opportunities to allocate the resources we have across all our segments. There's opportunities in the cargo business that present themselves, we're going to pursue them. Speaker 400:11:57We're going to allocate our pilot capacity, our training capacity, the capacity of our company between the segments based on profitability. If there's continued pressure in the scheduled service business, we're going to allocate to the other segments that we think there opportunities in both of our other lines of business. Speaker 300:12:16Yes. The focus is in the Labor Day through Thanksgiving period to try to pick up more charters. But it usually is that way. So incremental allocations are going to be marginal. So it's mostly going to be capacity cuts of scheduled service flights that don't make variable contribution. Speaker 500:12:38Got it. And so maybe just to follow-up on that, kind of how do we think about modeling from 2Q to 3Q kind of the relative to normal seasonality given the kind of extremely low starting point for 2Q? Speaker 300:12:52That's a fair point. I mean typically we would see 2Q and 3Q perform equally. This 2Q has both overcapacity in April May and an Easter shift. So our expectation is we outperform 2Q and 3Q. Speaker 600:13:15Understood. Thanks guys. Yes. Speaker 100:13:18One moment while we prepare the next question. Next question comes from Duane Pfennigwerth with Evercore ISI. Duane, your line is open. Speaker 600:13:37Hey, good morning. Thanks. So if we just play back your ability to kind of flex up in the peak periods, you're obviously constrained for an extended period of time. Those constraints started to ease and now you have a greater ability to kind of flex up in these peaks, which theoretically was going to be at higher incremental RASM. And so I guess relative to your expectations going in, how has that gone? Speaker 600:14:04And I guess more importantly, what do you take with you going forward? So how are you thinking about flexing up in future peaks, maybe relative to how you managed peaks in the Q1? Speaker 300:14:19The biggest surprise is that the scheduled service network didn't absorb the growth in the off peak periods the way we expected it to do. Keep in mind, we designed the network based on its performance largely of the prior year on a granular level. So this flight on this day did well, let's add another. This market was cut right at the end of the peak period, but performing strongly. So maybe it can go into the off peak period and still contribute. Speaker 300:14:49And those decisions on the margin didn't produce the results that we thought they would. So most of the difference between where we expected fares to be and where they actually turned out to be can be explained through more seats in markets, not just from us, but from OAs. And there's a really strong correlation between the change in the downward pressure on fares, the change in unit revenue in a market and its seat growth as you would expect. And in off peak periods when there just isn't a lot of margin to give, those markets those flights should have been not in the schedule. The change what's really interesting about this time is that the change in the selling fare environment didn't really start until mid February. Speaker 300:15:43And then we're looking at 2Q and saying, okay, well, these fares are coming down. Some of these flights aren't going to be positively contributing, but we should leave them in there to protect the sold seats on those flights. And further, like fare fluctuations are pretty common. This one just lasted all the way through the selling period. So, I think we made the right decision in 2Q, keep these markets going and then we'll adjust to the new environment in the post summer trough. Speaker 600:16:23That's great. So basically the learnings that you're taking here from your approach to off peak, 2Q is not really the period to measure that change. It's more kind of 3Q second half. Is that fair? Speaker 300:16:38Yes. But Duane, I mean, keep in mind, we're always adjusting utilization based on the inputs of fare environment and fuel. So this can reverse itself as well, but the marginal capacity that comes in or out of the schedule largely resides in the off peak period. So think of our business as there's one awesome month, that's March. There's about 6 good months, February, April, June, July, December, August. Speaker 300:17:08And then there's a really bad month in September and then there's kind of a couple that are meh, 4. And when we think about variable capacity, it's always allocating into like those shoulder months that can absorb or not based on the fuel price and fare environment. Speaker 400:17:26Yes, but it is fair to say Duane, obviously we have more of the 2nd quarter sold than we do the Q3 or the Q4. So our ability to adjust the schedule gets better the further on we go and it's somewhat limited in Q2 at this point. Speaker 600:17:41That's all great. And just my follow-up, any outlook or update you can provide us, your outlook for new wins in the cargo segment? Thanks for taking the questions. Speaker 300:17:54Nothing to talk about right now. Speaker 400:17:56Yes, we probably don't have much to talk about at this point. Speaker 600:18:00Okay. Thank you. Speaker 100:18:03One moment for our next question. The next question comes from Helane Becker with TD Cowen. Go ahead. Your line is open. Operator00:18:16Thanks very much, operator. Hi, team. Thanks for the time. Just a couple of clarification points. Are you expecting maintenance costs then to continue to be at this level for the rest of the year or is this just a 1 quarter event? Speaker 400:18:35No. Maintenance costs are going to stay a bit elevated like this through the rest of the year. I think we talked about on the Q1 or the call we did at the end of 2023 about some intentional changes to our maintenance program that we made in 20 24 that are going to keep costs higher. And that's going to likely persist or it will persist based on our plan through 2024. Operator00:19:04Okay. That's very helpful. Thanks, Dave. And then the other question I have is with respect to the decline in air traffic liability and maybe you explained it through the changes in bookings. But usually it doesn't decline as much as it seems to have declined from the year end from the Q4 to the Q1, but it was down 24%. Operator00:19:31So how are you thinking about that? Or did you explain that already? Speaker 400:19:37I don't think we explained it already, but I mean the ATL is going to drop as we go through Q1. A little bit of the decline this time might be the weaker fare environment in the Q2, but there's nothing unusual in the ATL drop. Operator00:19:56Okay. Well, that's Speaker 700:19:58very helpful. Speaker 300:19:58Yes. There is a lot of seasonality in our ATLs just based on the volatility of our schedule and fare environment. So going into the Q1, we'll have the highest ETLs of the year. Operator00:20:10Right. That's what I would expect, but I wouldn't expect it to decline as much as it did from January to March. But I guess it all has to do with not having as many bookings for the Q2, the Easter shift and all the other things you've already explained, right? Is that how we should sort of think about it? Speaker 400:20:28Yes. To the extent that it's a little bit unusually large, it would be fair issues you're talking about and Easter is a big part of it. Operator00:20:34Perfect. Okay. Thanks for your help. I appreciate it. Speaker 300:20:38Thanks, Elena. Thanks, Elena. Speaker 100:20:42Thank you. One moment while we bring up our next question. Our next question comes from Michael Linenberg with Deutsche Bank. Go ahead. Your line is open. Speaker 800:20:54Yes. Hey, good morning, everyone. Yes, no, I in the release and I think Judy even sort of mentioned capacity by competitors, OA capacity. Can you give us a sense of maybe what OA capacity looks in the June quarter in your markets year over year changes maybe June, September, maybe how that trends, maybe it was better in the March quarter? Any color on that would be great. Speaker 300:21:19Domestic capacity was up 6% and overlay capacity was up about 10% in the Q1. Those trends are basically consistent in the Q2 as well. Keep in mind, our network is dramatically different from quarter to those two quarters. But I mean, we're just seeing a lot of seats in our markets. In the back of the year, we become really concentrated between Labor Day and Thanksgiving because as we trim out markets that are seasonal, so that's where the concentration resides. Speaker 300:21:55So then we have a lot of capacity into major trunk routes out of Minneapolis and that's where you see a lot of seed pressure. Speaker 800:22:03Okay. And then just my second question is, you've obviously identified the issue you'll respond, as you mentioned in sort of the off peak periods from September through Thanksgiving. How much of what's going on reflects some of the other churn going on in the industry? When I think about the network changes being made by many of the other carriers, and I would say it's really the smaller carriers, not the big three. I mean, they're very well established. Speaker 800:22:35The churn that we're seeing in network changes, it's quite frankly, it's nothing like I've seen before when I look at the number of additions and deletions. And so how much of this may be just more of this sort of structural change going on in the industry where it just maybe that more difficult to respond to because of the dramatic shifts in networks that we're seeing? Just your thoughts on that. Thanks. Speaker 300:22:59It's difficult to give a long term read through based on a very limited amount of input. I mean, my view would be that Spirit and Frontier are challenged more with when they fly than where they fly in the same way that we're having these off peak weaknesses, they're experiencing the same. And so the network churn isn't addressing the issue. Our response to this is going to be look at incremental capacity and shave it down as it always has been. So like and then on a competitive encroachment, most of what we're seeing is from Delta, quite frankly. Speaker 300:23:39And it seems like they're just kind of building out Minneapolis in the post COVID recovery a little later than they've done in some of their other hubs. And then there has been some encroachment speaking specifically of Minneapolis from Frontier, but those markets like Cleveland are ones that they had done pre COVID and canceled because it didn't work. So I don't I think it's mainly just our markets had really high fares through the comp period that people are scheduling into and they attracted a bunch of seats And it will sort of equivocate over time. Speaker 800:24:19Yes, makes sense. All right, great. Thanks. Thanks for answering my questions. Speaker 300:24:23Thanks, Mike. Speaker 100:24:25One moment for our next question. Next question comes from Scott Group with Wolfe. Go ahead. Your line is open. Speaker 900:24:38Hey, thanks. Good morning. So I just want to make sure I'm understanding some of the are things are things getting incrementally worse? Is it stabilizing? Any signs of things getting better? Speaker 900:24:57I know June seasonally is a better month, but just seasonally adjusted, do you feel like things are getting incrementally better or worse? Speaker 300:25:07Well, I guess it depends, Scott, on what the expectation basis is. So when we went into the quarter when we built the quarter last year, we're way below that. And then we had this period of resetting through late February March for selling fares into the Q2. And now in the last couple of weeks, they've come up slightly. So it's been an evolution, but I'd say fares have our selling fare expectation has bottomed and is recovering slightly. Speaker 300:25:39But we're talking about a recovery that is small numbers relative to where we expected to be when we built the schedule. Speaker 900:25:49Okay, that's helpful. And then where do you ultimately think you're going to take capacity in the second half? And did I hear right that you think that your margins in Q3 will be higher than Q2? Speaker 300:26:03On the second part, yes. Because typically second and third quarter had produced about the same margin. And in this particular second quarter, we'll be handicapped by the Easter shift and some overcapacity in April in May. The first part of your question is difficult to say at this point. I mean, we have some time to make these adjustments. Speaker 300:26:31But post Labor Day, I would expect us to be mostly focused on scheduled service flying in markets that typically have a good Q3. There's about a handful of those and then scheduled service flying in support of positioning airplanes and crews for our charter business. So there's not a whole lot of opportunity in September. So it's going to be pretty small. Speaker 400:26:58Yes. So Scott, just let's say from a planning perspective, we had sort of in the scheduled service segment year over year capacity growth peaking in the 2nd quarter, tapering in the 3rd quarter and then tapering significantly more into the 4th quarter. So Q2 was our peak year over year growth. And as we pointed out here, we'll kind of revisit that given the soft peak weakness. So it's probably going to be even more dramatic than it was in our plan. Speaker 900:27:27Okay, great. And then just last question. I thought I heard $65,000,000 of CapEx. Is that the rest of the year comment and or is that a full year comment? And then does is 25 a similar it sounds like it's another very low number. Speaker 900:27:41I just want to make sure we're thinking about that right. Speaker 300:27:43That's right. Yes. So my commentary was about a run rate basis. So we completed an aircraft purchase a couple of months ago. That's the last airplane that we're committed to buy. Speaker 300:27:55We'll still be in the market also for engines. So I'm just trying to give a little bit of a sense of what we would expect on maintenance CapEx, $50,000,000 to $75,000,000 And the lumpiness is largely going to be about opportunistic buys for engines that would replace an overhaul. Speaker 400:28:15Yes, Scott. So this year, we will be on pace to do well sub $100,000,000 in CapEx. I would expect $25,000,000 barring what Jude is saying here in terms of some opportunistic purchases here and there to be less than 24. From a cash flow perspective, the calls on cash around CapEx are minimal for several years to come. Speaker 900:28:46That's very clear with cash flow. Speaker 300:28:49Yes, with growth too, which is Speaker 400:28:54unusual. Speaker 900:28:57Okay. Thank you for the time guys. Appreciate it. Speaker 600:29:00Thanks, Scott. Speaker 100:29:02One moment for our next question. And now we have Brandon Oglenski with Barclays. Go ahead. Your line is open. Speaker 700:29:23Hey, gentlemen. Good morning and thanks for taking the question. Jude, I guess I want to come back to the comment about Delta adding capacity in Minneapolis and the challenges you guys are seeing in off peak because I thought that was kind of the strength of your model that you guys tried to target the peak travel periods. So can you just put this in context? Did you guys go after a little bit more off peak this summer and it just didn't play out the way you thought? Speaker 700:29:49And maybe longer term, does this change your view on the opportunity set in Minneapolis in any way? Speaker 300:29:55Well, in the first part, that's exactly what happened. So our percentage growth by month year over year in the second quarter is smallest in June. And that's just because when we came into the year, we're looking at the fares of the previous comp month, so April of 'twenty three, and it looked like it could support incremental growth. And we have the capacity, we have the pilot. So it's really low cost incremental flying. Speaker 300:30:29And yes, I mean, I think that the market just couldn't support that kind of growth. And so the fare pressure was beyond what we expected. And that's because we were adding seats as along with side of all the OAs in and out of Minneapolis. We're a pretty Minneapolis centric airline in the Q1 in particular because that's sort of the bright spot in the U. S. Speaker 300:30:51Network. As we move into the summer, I mean, we're not cutting in June July. Those months look really good. August is probably mostly like we plan it to be. There's no real change in the long term opportunity in Minneapolis. Speaker 300:31:09I think long term where I've reset is an aircraft utilization. In 2019, we were producing about 9 block hours per aircraft per day. We kind of said, all right, with the fleet age and our focus on reliability, we probably need to be around 8 hours a day per aircraft in a steady state environment just based on operational restrictions. And now based on off peak performance, I think we're probably lower than that. But these things change pretty rapidly as we've been talking about and it could easily reverse itself. Speaker 300:31:48The key for us is flexibility. So it's just very important that you understand how we think about incremental capacity. If you want to understand the business is every airplane doing the best thing it can with that plane time at that moment and when we run out of things to do that contribute positively, we don't fly or we fly cargo or we fly charter. And so we're just adjusting at the margin and we were a little bit bigger than we needed to be into April May. Speaker 700:32:15Appreciate that, Jude. And Dave, I think you said in your prepared remarks and we kind of spoke about this in the Q and A, but about reducing volatility in earnings. I mean, we probably shouldn't confuse that with seasonality, right? But can you maybe elaborate a little bit more there? Speaker 400:32:32Yes. So, yes, we shouldn't confuse it with seasonality. That's going to be a part of our business. I think there are pieces of our business without getting into a ton of detail that are much more stable from an earnings perspective that we will continue to focus on and maybe emphasize more in future periods that should help reduce the volatility of earnings. And by reduce the volatility, I guess what I mean by that is somewhat less exposure to capacity adds in the scheduled service segment. Speaker 400:33:13So it's really focusing on some of these other segments filling in off peak periods and focusing on other segments that are going to be more stable and provide more stability to earnings. Speaker 700:33:26Thank you both. Speaker 100:33:29Thank you. This now concludes the question and answer session. I would now like to turn it back to Jude Brooker for closing remarks. Speaker 300:33:37Thanks for your time everybody. Have a great day and we'll talk to you in 90 days. Speaker 100:33:44Thank you for your participation in today's conference. This does conclude the program. 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