NASDAQ:SNCY Sun Country Airlines Q2 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$0.06Consensus EPS $0.05Beat/MissBeat by +$0.01One Year Ago EPS$0.40Sun Country Airlines Revenue ResultsActual Revenue$254.40 millionExpected Revenue$255.59 millionBeat/MissMissed by -$1.19 millionYoY Revenue Growth-2.60%Sun Country Airlines Announcement DetailsQuarterQ2 2024Date8/1/2024TimeAfter Market ClosesConference Call DateFriday, August 2, 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 Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 2, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Welcome to the Sun Country Airlines Second Quarter 2024 Earnings Call. My name is Crystal, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this call will be recorded. Operator00:00:19I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Speaker 100:00:27Thank you. I'm joined today by Jude Bricker, our Chief Executive Officer Dave Davis, President and Chief Financial Officer and a group of others to help answer questions. Before we begin, I'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 that are subject to risks and uncertainties. Actual results may differ materially. Speaker 100:00:47We encourage you to review our risk factors and cautionary statements outlined in our earnings release and our most recent SEC filings. We assume no obligation to update any forward looking statements. You can find our Q2 2024 earnings press release on Speaker 200:01:00the Investor Relations platform of our Speaker 100:01:01website at ir. Suncountry.com. With that said, I'd now like to Speaker 200:01:06turn the call over to Chiu Ridin. Speaker 300:01:08Thanks, 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 are able to deliver the most flexible scheduled service capacity in the industry. The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. Speaker 300:01:32We believe due to our structural advantages, we'll be able to reliably deliver industry leading profitability throughout our cycles. I want to start by acknowledging our employees that have worked so hard through this challenging summer. In both June July, we've grown scheduled service departures in excess of 15% year on year, while facing some extended aircraft out of service events and an IT outage that temporary disabled the key operational system. Our employees like usual delivered for our customers and I'm personally grateful. There's been a lot of discussion about overcapacity in our industry. Speaker 300:02:07For us, in our key market of Minneapolis, the domestic seat growth rate peaked in July and subsides through the rest of the year and into the next spring. As such, we expect lessening fare pressure as we move through the year. It's encouraging to see the industry move aggressively to right size schedules. Our reaction to changes in market environment will always be to adjust capacity. Our July Minneapolis seats were up 29% year on year. Speaker 300:02:34By September, our seats will be down 9% year on year. July scheduled service volume will be 2.25 times larger than September, September always being the most challenging month for leisure demand. As already announced, we will move capacity aggressively into our other segments, charter and cargo. We still expect a strong winter season for leisure and are planning mid single digit capacity growth for our peak upcoming winter. I want to point out that June July continued to be strong demand months for our scheduled service product. Speaker 300:03:05We had sold loads in excess of 85% during both months with unit revenues up nearly 20% versus pre COVID comps, even considering our growth. Our ability to manage off peak capacity while maintaining our unit cost advantage mostly explains the outperformance of our scheduled business as compared to other domestic leisure carriers. In cargo, we have contractual growth along with improvements through the end of 2025. For Charter, while volumes were generally flat, we've been able to manage to higher margins as we adjust our pre COVID long term contracts to the new cost environment. As mentioned before, we have fleet expansion plans to 71 aircraft from our current in service fleet of 56. Speaker 300:03:47All this growth will come from our leased out fleet, 7 aircraft, and from committed cargo deliveries, 8 aircraft, in both cases, this growth won't require additional CapEx. So we expect to continue to deliver high free cash flow yields in the near midterm. And with that, I'll turn it over to Dave. Speaker 200:04:06Thanks, Jude. We're pleased to report that Q2 was our 8th consecutive quarter of profitability and that through the first half of twenty twenty four, Sun Country was the most profitable airline in the U. S. This is despite the fact that unlike for most other carriers, Q2 was a seasonally slower quarter for Sun Country. The domestic revenue environment continues to be impacted by overcapacity and the resultant impact on fares has hit domestic focused LCCs the hardest. Speaker 200:04:34Our resilient business model has allowed us to remain profitable because of the diversity of our revenue streams. As we move through the Q3, we are slowing scheduled capacity growth. While our model allows us to make tactical capacity allocation decisions quickly, large moves require several quarters to execute. As we mentioned during our announcement of our revised agreement with Amazon, Sun Country's cargo segment will become a larger portion of our business starting in mid-twenty 25. By 2026, we expect revenue from our cargo segment to be almost 20% of our total revenue versus approximately 10% in 2024. Speaker 200:05:13The expansion of our cargo segment comes with almost no required CapEx and drives improved profitability and greater free cash flow. This is the essence of the Sun Country business model. Let me now turn to the specifics of the Q2. First to revenue and capacity. In the Q2, total revenue declined 2.6% versus the Q2 of 2023 to $254,400,000 For our passenger segment, which includes our scheduled service and charter businesses, total revenue fell 5% year over year. Speaker 200:05:47Scheduled service revenue declined 7.2% driven by a 21.3% decline in scheduled service TRASM and an 18.2% increase in ASMs. Clearly, we flew more during off peak periods than the demand environment could support. In addition, we were impacted by late June operational challenges in MSP that reduced passenger revenue by between $1,000,000 $1,500,000 In response to the soft demand environment, we're curtailing our growth in the Q3 and expect scheduled service ASMs to be up 7% to 8% year over year versus roughly 15% we were originally planning. We expect year over year growth to fall further in Q4. The pull down comes mainly from reducing off peak flying. Speaker 200:06:34Scheduled service ASMs for our full network will still grow in July by about 16% year over year, but by September they will shrink by 11%. Average total fare per passenger fell by 20.1% during the quarter. While total fares declined versus last year, the 2nd quarter was the first since COVID that we flew more ASMs in the Q2 of 2019 and Q2 2024 scheduled service TRASM was 12.3% higher than Q2 of 2019. Charter revenue in the 2nd quarter grew 2.8 percent to $51,000,000 which was a new quarterly high. This result was even more impressive as quarter charter block hours declined 10.2% year over year due to scheduling improvements, which reduced the number of ferry flights we operated. Speaker 200:07:23Ad hoc charter revenue grew significantly versus last year and was 23% of the total charter revenue versus 13% in the Q2 of last year. Our cargo segment, revenue grew by 1.7 percent to $25,400,000 and a 2.4% decrease in block hours. Cargo block hours are influenced by scheduled heavy maintenance events, which drive moderate changes in aircraft availability. We expect year over year cargo block hours to grow in both the 3rd Q4 of this year and then to inflect sharply upward in 2025 as we take on an expected 8 additional freighter aircraft throughout the year. June was the 1st month that a portion of the revised Amazon contract rates went into effect. Speaker 200:08:08The full impact of the new rates will not be in effect until the second half of twenty twenty five. Turning now to costs. 2nd quarter total operating expenses increased 7.3% and an 8.9% increase in total block hours. CASM declined by 5.1% versus the Q2 of 2023, while adjusted CASM declined 4.9%, marking our 3rd consecutive quarter of year over year declines. As our pilot availability issues have eased, we've been able to grow flying through higher aircraft utilization, which was 7.5 hours per day in the second quarter, up 11.9% versus the Q2 of last year. Speaker 200:08:52Our declining CASM came despite increases in both ground handling costs and higher airport fees. Ground handling expenses grew by 16.6 percent year over year, driven by a 20% increase in scheduled service departures, while the roll off of COVID relief payments that airports had been using to minimize rate increases contributed to a 14.9% increase in landing fees and airport rent expenses. As we move into Q3, the slowing growth in our scheduled service business is likely to result in an increase in adjusted CASM. Regarding our balance sheet, our total liquidity at the end of the second quarter was $153,000,000 Year to date, we spent $38,200,000 on CapEx. At this point, we do not need to purchase any incremental aircraft until we begin looking for 2027 capacity. Speaker 200:09:42We continue to generate strong free cash flow and we still anticipate full year 2024 CapEx to be well below $100,000,000 Our leverage remains low with our net debt to adjusted EBITDA ratio at the end of the second quarter at 2.6 times. Finally, the effective income tax rate increased substantially during the 3 months ended June 30, 2024 as compared with the prior year due to some additional tax expense related to stock compensation. Turning to our guidance, we expect 2nd quarter total sorry, 3rd quarter total revenue to be between $245,000,000 $255,000,000 on block hour growth of 5% to 8%. We're anticipating our cost per gallon for fuel to be $2.82 and for us to achieve an operating margin between 3% 5%. Our business is built for resiliency and we'll continue to allocate capacity between segments to maximize profitability and minimize earnings volatility. Speaker 200:10:44With that, I'll open it up for questions. Operator00:10:47Thank And our first question will come from Ravi Shanker from Morgan Stanley. Your line is now open. Speaker 400:11:11Thanks. Good morning, everyone. So big capacity cuts in the back half that is good to see from an overall industry perspective. But given your unique model and the ability to move around resources, kind of is there anything you guys can do to reallocate those resources to kind of offset the impact on CASM? Speaker 200:11:33Probably in the second half of the year. To some extent, the answer to that is yes, but probably not fully. We've been consistently coming in favorable to our cost projections and the company has done a great job on that front. Just given the sort of pull down that we've done fairly recently, we'll be able to offset some of the CASM impact, but probably not all of it. And we'll be looking for reallocation opportunities, particularly in the charter market as sort of much as we can here on relatively short notice. Speaker 300:12:06I also added our charter operations drive higher unit costs than do our scheduled service capacity. So it won't be apples for apples as we exchange into cargo excuse me, charter from scheduled service. And finally, really unit revenue unit costs inflect when we start operating below minimum guarantees for our crews and we won't hit that level anyway. So we'll still be in an efficient bandwidth. Speaker 400:12:43Understood. That's really helpful. And maybe as a follow-up, kind of, how would you characterize the competitive environment in Minneapolis, going to be meeting reports that Delta maybe looking to ramp up there. So has anything changed there? Speaker 300:12:56Mostly, I mean, I'm getting the information from selling schedules, which are out through March of next year. And we see July as being the peak growth rate across our network for all OAs and an improving condition all the way through the end of the year and into next spring. Speaker 400:13:16Very helpful. Thank you. Operator00:13:20Thank you. Our next question will come from Duane Pfennigwerth from Evercore ISI. Your line is open. Speaker 500:13:29Hey, good morning. Can you remind us how much liquidity you want to keep on the balance sheet? Is there any desire to build up dry powder ahead of the cargo ramp next year? And just given the free cash flow you expect to generate, how are you thinking about capacity for buybacks Speaker 300:13:49for the rest of this year? Speaker 200:13:52Yes. So we're sort of at a liquidity trough for the year at sort of this time and we'll start building liquidity as we begin selling sort of our winter schedule and peak liquidity sort of towards the end of the year. The thing about the liquidity of this business is we think we can operate this at probably relatively lower levels of liquidity than other airlines because a big chunk of our revenue stream is very predictable between our cargo and charter businesses. I hesitate to throw out an exact minimum liquidity number, but Speaker 300:14:28it's well below where we're at today. Speaker 200:14:33There's really not that much of a need to build cargo ramp because there's really no CapEx required or very, very little CapEx required. It will be continuing the stream of pilot hiring that we're doing and then reallocation of some resource from our scheduled service into the cargo business. So there's not really any kind of a significant liquidity need there. That will be a liquidity positive event for us because of the improved profitability of the new cargo flying. To your second question, we've done well over $100,000,000 in share buybacks and we'll sort of continue to look at our free cash flow profile. Speaker 200:15:14We're paying back a lot of debt and our debt balances are coming down pretty quickly. So this is something that's always on our plate and we'll probably revisit and take another look at as we move through this year and early into next. Speaker 300:15:27Just one more thing on that Duane. I mean typically airlines require a lot of working capital to transition new fleets because of crew training and things like that. I just want to remind everybody that our pilots do all the flying that we do across all three segments from a single base. So, there's really no incremental operating costs associated with the transition either. Speaker 500:15:53Yes, that's very clear. Good reminders. And just to follow-up on Charter, how do you view the opportunity set now? And maybe just operationally, what is the lead time you need to kind of tilt harder into that segment versus maybe scheduled service? Is that are you looking 1 to 2 quarters out? Speaker 500:16:13Or can you react opportunities closer in? Thanks for taking the questions. Speaker 300:16:19Hey Duane, why don't I start and I'll turn it over to Grant. So the charter comes in kind of 2 flavors. 1 is contracted charter flying, which is under long term agreements. It's about 7 aircraft worth of flying that we do that's related to that. And essentially, it's us being an airline for someone else. Speaker 300:16:39And it's the same aircraft that our passenger scheduled service fleet operates. So it's interchangeable, but it's very dependable volumes and profitability. And then there's a big section of charters that's ad hoc, which is booked relatively close in, high margin flying and mostly a way for us to allocate surplus capacity into profitable flying. And that's the domestic military market that we participate in, a significant amount of sports charters that we do for predominantly NCAA Sports and Major League Soccer. So those are a little bit harder to predict because it's close in, but we're pretty bullish on it going into this fall as we've continued to expand that market. Speaker 300:17:31Grant, any other color on that? Speaker 600:17:32Yes. The only thing I would add would be even in the Q2 when we really were biased towards scheduled service growth using up what we thought were pretty much all of our crew resources, we still were able to pivot pretty significantly as Jude mentioned There's really we don't have to wait. Those requests are coming to us. There's really we don't have to wait. Those requests are coming to us and the team is very poised to go out. Speaker 600:18:03And where there's an opportunity where we can do it profitably, we're going to do it and we have such a good reputation in the marketplace that people come to us pretty quickly when we have that capacity. And when we do things do get tight, we sort of take that capacity off, so we turn it on very, very quickly, which we're doing right now. Speaker 700:18:22Okay. Thank you. Speaker 200:18:24Thanks, Dan. Thanks, Dan. Operator00:18:26Thank you. Our next question will come from Scott Group from Wolfe. Your line is now open. Speaker 800:18:35Hey, thanks. Good morning, guys. What's the capacity you're talking about? Are you in the camp of a September RASM inflection? And then is there in your mind, is there a risk like this is just like a head fake of September's off peak and its capacity starts to reaccelerate in Q4? Speaker 300:18:58No, I think we're seeing structural change in the growth rate. I think we saw a reallocation of capacity into the domestic leisure market in 2022 and then capacity chase that demand into big market connectivity, transatlantic, the Midwest was kind of late to get those capacity growth reallocations from the post COVID environment and we saw growth rates peak in July. And everybody is selling out through April now. So I feel fairly confident that our peak winter schedule will show the kind of profitability that we're all expecting as we move into this winter. So no, I don't think that's the case. Speaker 300:19:47September for us Speaker 800:19:48The September piece? Speaker 300:19:49Is always yes, September for us is always challenging. So when we cut down capacity, obviously, we're able to identify the flights down to the very flight level that aren't going to make positive contribution and cut those out. So we're expecting a pretty good September all things equal, because we've had the time to prepare under the current environment, which is substantially different than when we planned the year out. Speaker 800:20:21Thank you. Can you just remind us the timing of the aircraft ramp with Amazon? And then you had a comment that we're seeing a partial impact of the higher rates in June, but we don't see the full impact until the second half next year. Can you just talk about that? Speaker 200:20:39Yes. So, I can't go into the details on how the rates come in, but basically we got a partial increase in rate when we signed the deal. So really that didn't have any impact Speaker 900:20:50on our Speaker 200:20:51numbers until June. So the effect of the Q2 of the new Amazon rates is very small. But there is this piece that came in when we signed the deal and then additional increases as the aircraft come in. And the aircraft right now, we expect to start arriving in March of 2025 and then to come in relatively quickly so that by the Q3, they're kind of all on board here now. Things can move left to right a little bit, but that's the instruction we've been given and sort of the path that we're on. Speaker 800:21:28And so we still get like this, I guess for lack of a better word like 2 bites of the apple next year where we get the Q1 benefit of schedule and then we get the cargo ramp in the rest of the year? Speaker 200:21:46Yes, that's exactly right. So we're look, we're really bullish on next year and part of the reasons what you just said. So we're going to be able to continue allocating all of our resources to scheduled service as much as necessary to scheduled service in Q1, which obviously is the biggest quarter for us by far and then transition very smoothly as things slow down for us into the cargo business more. So, it kind of works out really well. Speaker 800:22:16Okay. Thank you, guys. Speaker 300:22:19Thanks, Scott. Operator00:22:22Thank you. Our next question will come from Michael Linenberg from Deutsche Bank. Your line is open. Speaker 900:22:29Yes. Hey, good morning, everyone. When I look at your schedule to the winter, you talk about 55 or more than 55 cities that you're going to serve nonstop for Minneapolis. When I think about what you're going to serve and maybe what you were serving a year ago, it does seem like there are some markets that you have pulled out of. Curious what is the common denominator in some of those markets? Speaker 900:22:54Was it just they didn't ramp up well, they didn't accompany maybe some of the charter flying that you did, maybe they were sort of part of a package, or it's just the competitive response. Anything we can take away from that? Speaker 300:23:11Well, first, there's seasonal markets that happen across our network that are going to be repetitive every year. And nearly everything every market works from Minneapolis in June July. Nearly all of our winter I mean, we need more capacity in winter, and nearly everything works. I think everything works in that period of time as well, but they're very different networks, summer to winter. Okay. Speaker 300:23:42I think the thing to watch is as we go into the summer 'twenty five, some of our markets will need to be suspended through summer 'twenty five and not come back into the network till future years and that's because of reallocation into cargo. But our winter network will be intact, yes. Speaker 900:23:59Okay. That's helpful. And then just secondly, as you ramp and bring on the additional airplanes and you talk about sort of reallocating resources, where are we on pilots and staffing, 1st officers versus captains? Should we see any sort of teething issues as we ramp up into 2025 with the additional airplanes coming on for cargo, etcetera? Thanks. Speaker 900:24:25Thanks for taking my question. Speaker 300:24:28Yes. This is Greg Mays. I think with regard to pilots, we've been able to allocate resources and not be constrained by pilots or staffing really generally. So as we look out into 2025, we don't see any change to that. We see overall industry hiring is way down. Speaker 300:24:47So things look good for us. We still would love to have more captains upgrade, but at this point in time, that's not constraining our growth. We feel really, really, as Dave said, bullish about 2025. Speaker 900:25:01Great. Thanks. Operator00:25:04Thank you. And our next question will come from Tom Fitzgerald from TD Cowen. Your line is open. Speaker 700:25:30Hi, everyone. Thanks for the time. Can we just go back to capital allocation again and just given everything with where the business is going and how cheap the stock is right now, why not issue debt instead of paying down debt and use the proceeds to buy back your stock? Speaker 200:25:47Look, we've sort of considered all different avenues here. Debt isn't as sort of cheap as it could be at this point. We're kind of looking at everything. We're sort of making capital allocation decisions here, not just for the next 3 to 6 months, but for the long term. We want to continue to operate with a conservative balance sheet, and sort of loading up with more debt right now to buy back stock is probably not something that we're Speaker 800:26:19going to do in the short term. Speaker 700:26:20Okay, fair enough. That's helpful. And then just like longer term kind of as you once you kind of get on past 2026, just how are you thinking about the network and whether you need another focus study beyond Minneapolis? Thanks again for the time. Speaker 300:26:35Hey, Tom. There's not a lot of growth opportunities outside of Minneapolis, other than the stuff that we already have in the schedule like Texas origination down in Mexican Caribbean markets in the summertime. In the past, we've had a lot of success expanding our Midwest footprint into origination markets around Minneapolis. We also had a nice business in 2019 flying Hawaii. Hawaii is not a great place to be right now. Speaker 300:27:03So that with the yield environment, there's nothing that's obvious and urgent for us to move into. And so I think what we're quite frankly, what we're going to be waiting on is some of our competitors to go through some challenging times and free up some opportunity for us. And that's why we want to think about having some powder on the balance sheet and just being able to be dynamic to be able to reallocate capacity when it presents itself, which I think is going to be an opportunity that's difficult to predict as we sit here today. The best thing for us in the near term is as we talked about cargo and charter opportunities. Speaker 200:27:44Yes, this is Dave. I just completely agree with what you just said. 25 for us is a year of integrating these new cargo aircraft, taking advantage of the economics of that new deal. And then we'll look at the landscape in 2026. There's growth opportunities there could be growth opportunities here, growth opportunities elsewhere, but we'll see what the landscape looks like in 2026 and beyond. Speaker 200:28:07And I think given the state of some others, we expect it to be a different landscape than it looks like at this particular minute. Operator00:28:22Does that conclude your questions, Mr. Fitzgerald? Speaker 700:28:26Yes. Thanks very much for the time, everyone. Speaker 300:28:28Thank you. Speaker 200:28:29Thanks, Tom. Operator00:28:30One moment for our next question. And we do have a follow-up from Scott Group from Wolfe. Your line is open. Speaker 800:28:40Hey guys, thanks for the follow-up. So just I just want to make sure we're thinking about full year 2025, right, just with the moving pieces. Can you just remind us how to think about how much scheduled ASMs are going to be down? And then what you think a full year sort of block hours is for cargo? Speaker 200:29:06Yes. So, let me sort of just describe it this way. So basically, we're going to be taking these cargo aircraft in and that is going to have sort of the first call on the resources that we have here, particularly on the pilot front. Then as we have remaining resources available, we'll allocate that between scheduled service and charter depending on where the opportunity is. So part of this depends on exactly where we sit from a pilot availability standpoint, frankly, going into 25. Speaker 200:29:43Our current outlook is likely to be down high single, low double digits on a block hour basis or sorry, on an ASM basis for scheduled service, but that could move left to right depending on exactly where we sit from a pilot perspective. I think we had the block hour growth for cargo next year. Give me one second here. Yes, I don't know the 25 number right in front of me. We can follow-up with you on that, but it'll obviously be significant since we're bringing in since we're bringing in 8 new aircraft. Speaker 200:30:20But the size of our scheduled service and charter business is going to be driven by resource availability, particularly pilots. Speaker 800:30:31And any thoughts on what that mix shift should mean from a just total cost or unit cost perspective? Speaker 200:30:40Probably a little premature to sort of talk about that as to what's going to happen with CASM next year precisely. The cargo business is going to consume some of our resources here. So there's going to be some additional allocation of overhead and other things to the cargo business. So that makes just isn't sort of straightened out quite yet. Yes. Speaker 200:31:03Just ultimately got Yes. Sorry, just quickly. Yes, I think as we sit right now, we're expecting the cargo segment to be up, let's say, 60% to 63% in block hours in 2025 over 2024. Speaker 800:31:22Hopefully, so it doesn't sound like anything from what you guys laid out for us in June when you first made this announcement, doesn't sound like anything is really changing? Speaker 200:31:32Nothing is really changing significantly. I'll tell you the only trend that we're seeing a little bit is maybe a little bit of improved pilot availability, which would say maybe we could be a little bit bigger next year from a scheduled service perspective. On the call, I said down 10% to 12%, I think, percent in the scheduled service segment. Our latest numbers have us more like high single digits. So that's the number that's kind of moving left and right now. Speaker 200:31:57But the cargo delivery schedule of the aircraft they talked about on the last call is still relevant. Speaker 300:32:03Important that you called out the seasonality of the growth is really beneficial for us. So the Q1 will be intact and we'll see at least mid single digit growth January, February, March and then as we move into the year and start taking cargo airplanes, that's where we'll see a drawdown of our SCED business. Speaker 800:32:23Okay. Thank you guys. Appreciate it. Thanks Scott. Speaker 200:32:27Thanks Scott. Operator00:32:29Thank you. And our next follow-up comes from Michael Linenberg from Deutsche Bank. Your line is open. Speaker 900:32:37Yes. Hey, thanks for the follow-up. But just a quick, as we think about composition of revenue, do we get to like 35% or 40% of your revenue is cargo and or charter for next year or am I just too high? Just trying to get a better sense. Speaker 200:32:54I think that number is probably not unrealistic for 26, but that sort of 35 plus number in 25 is not going to be that high. Speaker 300:33:06I want to point out block hours, we might get something like that towards the end of next year and going into the subsequent year. But the density of revenue is a lot higher in charter and scheduled service because of fuel pass through and some other costs too. So the revenue per block hour is a lot lower in cargo just because of the way the accounting is treated fuel expenses that we don't pay and things like that. Speaker 900:33:38Yes. I'm just thinking about how that's going to impact your costs and also your fuel bill since a big chunk of your business, it is going to be this pass through. Okay, now that's helpful. Thank you. Speaker 200:33:50Thanks, Mike. Operator00:33:52Thank you. And I am showing no further questions in our phone lines. I'd now like to turn the conference back over to Jude Bricker for any closing remarks. Speaker 300:34:01Thanks for your interest guys. Three big points, capacity growth has peaked and we feel that it's going to be a constructive fair environment moving through the end of the year. Our block hour growth will continue, but we're going to shift into cargo predominantly. And we're really bullish on our free cash flow production as we have already acquired the growth for the next several years. And lastly, I'll end with just being so proud to be part of this team that executed so well through such challenging period. Speaker 300:34:32This IT interruption, the whole industry had to deal with was severe for our frontline employees and they executed beautifully and I'm just so proud of them. Thanks and we'll talk to you guys next quarter. Appreciate your interest. Operator00:34:47Thank you. This concludes today's conference call.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSun Country Airlines Q2 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. (NASDAQ:SNCY) Declines By 14.6%April 22, 2025 | americanbankingnews.comNew “Trump” currency proposed in DCAccording to one of the most connected men in Washington… A surprising new bill was just introduced in Washington. Its purpose: to put Donald Trump’s face on the $100 note. All to celebrate a new “golden age” for America. April 29, 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 Alphabet Rebounds After Strong Earnings and Buyback AnnouncementMarkets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Texas Instruments: Earnings Beat, Upbeat Guidance Fuel RecoveryMarket 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 Earnings Upcoming Earnings QUALCOMM (4/30/2025)Automatic Data Processing (4/30/2025)Microsoft (4/30/2025)Meta Platforms (4/30/2025)KLA (4/30/2025)Equinix (4/30/2025)Lloyds Banking Group (4/30/2025)Itaú Unibanco (4/30/2025)Banco Santander (4/30/2025)Equinor ASA (4/30/2025) 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 10 speakers on the call. Operator00:00:00Welcome to the Sun Country Airlines Second Quarter 2024 Earnings Call. My name is Crystal, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this call will be recorded. Operator00:00:19I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Speaker 100:00:27Thank you. I'm joined today by Jude Bricker, our Chief Executive Officer Dave Davis, President and Chief Financial Officer and a group of others to help answer questions. Before we begin, I'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 that are subject to risks and uncertainties. Actual results may differ materially. Speaker 100:00:47We encourage you to review our risk factors and cautionary statements outlined in our earnings release and our most recent SEC filings. We assume no obligation to update any forward looking statements. You can find our Q2 2024 earnings press release on Speaker 200:01:00the Investor Relations platform of our Speaker 100:01:01website at ir. Suncountry.com. With that said, I'd now like to Speaker 200:01:06turn the call over to Chiu Ridin. Speaker 300:01:08Thanks, 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 are able to deliver the most flexible scheduled service capacity in the industry. The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. Speaker 300:01:32We believe due to our structural advantages, we'll be able to reliably deliver industry leading profitability throughout our cycles. I want to start by acknowledging our employees that have worked so hard through this challenging summer. In both June July, we've grown scheduled service departures in excess of 15% year on year, while facing some extended aircraft out of service events and an IT outage that temporary disabled the key operational system. Our employees like usual delivered for our customers and I'm personally grateful. There's been a lot of discussion about overcapacity in our industry. Speaker 300:02:07For us, in our key market of Minneapolis, the domestic seat growth rate peaked in July and subsides through the rest of the year and into the next spring. As such, we expect lessening fare pressure as we move through the year. It's encouraging to see the industry move aggressively to right size schedules. Our reaction to changes in market environment will always be to adjust capacity. Our July Minneapolis seats were up 29% year on year. Speaker 300:02:34By September, our seats will be down 9% year on year. July scheduled service volume will be 2.25 times larger than September, September always being the most challenging month for leisure demand. As already announced, we will move capacity aggressively into our other segments, charter and cargo. We still expect a strong winter season for leisure and are planning mid single digit capacity growth for our peak upcoming winter. I want to point out that June July continued to be strong demand months for our scheduled service product. Speaker 300:03:05We had sold loads in excess of 85% during both months with unit revenues up nearly 20% versus pre COVID comps, even considering our growth. Our ability to manage off peak capacity while maintaining our unit cost advantage mostly explains the outperformance of our scheduled business as compared to other domestic leisure carriers. In cargo, we have contractual growth along with improvements through the end of 2025. For Charter, while volumes were generally flat, we've been able to manage to higher margins as we adjust our pre COVID long term contracts to the new cost environment. As mentioned before, we have fleet expansion plans to 71 aircraft from our current in service fleet of 56. Speaker 300:03:47All this growth will come from our leased out fleet, 7 aircraft, and from committed cargo deliveries, 8 aircraft, in both cases, this growth won't require additional CapEx. So we expect to continue to deliver high free cash flow yields in the near midterm. And with that, I'll turn it over to Dave. Speaker 200:04:06Thanks, Jude. We're pleased to report that Q2 was our 8th consecutive quarter of profitability and that through the first half of twenty twenty four, Sun Country was the most profitable airline in the U. S. This is despite the fact that unlike for most other carriers, Q2 was a seasonally slower quarter for Sun Country. The domestic revenue environment continues to be impacted by overcapacity and the resultant impact on fares has hit domestic focused LCCs the hardest. Speaker 200:04:34Our resilient business model has allowed us to remain profitable because of the diversity of our revenue streams. As we move through the Q3, we are slowing scheduled capacity growth. While our model allows us to make tactical capacity allocation decisions quickly, large moves require several quarters to execute. As we mentioned during our announcement of our revised agreement with Amazon, Sun Country's cargo segment will become a larger portion of our business starting in mid-twenty 25. By 2026, we expect revenue from our cargo segment to be almost 20% of our total revenue versus approximately 10% in 2024. Speaker 200:05:13The expansion of our cargo segment comes with almost no required CapEx and drives improved profitability and greater free cash flow. This is the essence of the Sun Country business model. Let me now turn to the specifics of the Q2. First to revenue and capacity. In the Q2, total revenue declined 2.6% versus the Q2 of 2023 to $254,400,000 For our passenger segment, which includes our scheduled service and charter businesses, total revenue fell 5% year over year. Speaker 200:05:47Scheduled service revenue declined 7.2% driven by a 21.3% decline in scheduled service TRASM and an 18.2% increase in ASMs. Clearly, we flew more during off peak periods than the demand environment could support. In addition, we were impacted by late June operational challenges in MSP that reduced passenger revenue by between $1,000,000 $1,500,000 In response to the soft demand environment, we're curtailing our growth in the Q3 and expect scheduled service ASMs to be up 7% to 8% year over year versus roughly 15% we were originally planning. We expect year over year growth to fall further in Q4. The pull down comes mainly from reducing off peak flying. Speaker 200:06:34Scheduled service ASMs for our full network will still grow in July by about 16% year over year, but by September they will shrink by 11%. Average total fare per passenger fell by 20.1% during the quarter. While total fares declined versus last year, the 2nd quarter was the first since COVID that we flew more ASMs in the Q2 of 2019 and Q2 2024 scheduled service TRASM was 12.3% higher than Q2 of 2019. Charter revenue in the 2nd quarter grew 2.8 percent to $51,000,000 which was a new quarterly high. This result was even more impressive as quarter charter block hours declined 10.2% year over year due to scheduling improvements, which reduced the number of ferry flights we operated. Speaker 200:07:23Ad hoc charter revenue grew significantly versus last year and was 23% of the total charter revenue versus 13% in the Q2 of last year. Our cargo segment, revenue grew by 1.7 percent to $25,400,000 and a 2.4% decrease in block hours. Cargo block hours are influenced by scheduled heavy maintenance events, which drive moderate changes in aircraft availability. We expect year over year cargo block hours to grow in both the 3rd Q4 of this year and then to inflect sharply upward in 2025 as we take on an expected 8 additional freighter aircraft throughout the year. June was the 1st month that a portion of the revised Amazon contract rates went into effect. Speaker 200:08:08The full impact of the new rates will not be in effect until the second half of twenty twenty five. Turning now to costs. 2nd quarter total operating expenses increased 7.3% and an 8.9% increase in total block hours. CASM declined by 5.1% versus the Q2 of 2023, while adjusted CASM declined 4.9%, marking our 3rd consecutive quarter of year over year declines. As our pilot availability issues have eased, we've been able to grow flying through higher aircraft utilization, which was 7.5 hours per day in the second quarter, up 11.9% versus the Q2 of last year. Speaker 200:08:52Our declining CASM came despite increases in both ground handling costs and higher airport fees. Ground handling expenses grew by 16.6 percent year over year, driven by a 20% increase in scheduled service departures, while the roll off of COVID relief payments that airports had been using to minimize rate increases contributed to a 14.9% increase in landing fees and airport rent expenses. As we move into Q3, the slowing growth in our scheduled service business is likely to result in an increase in adjusted CASM. Regarding our balance sheet, our total liquidity at the end of the second quarter was $153,000,000 Year to date, we spent $38,200,000 on CapEx. At this point, we do not need to purchase any incremental aircraft until we begin looking for 2027 capacity. Speaker 200:09:42We continue to generate strong free cash flow and we still anticipate full year 2024 CapEx to be well below $100,000,000 Our leverage remains low with our net debt to adjusted EBITDA ratio at the end of the second quarter at 2.6 times. Finally, the effective income tax rate increased substantially during the 3 months ended June 30, 2024 as compared with the prior year due to some additional tax expense related to stock compensation. Turning to our guidance, we expect 2nd quarter total sorry, 3rd quarter total revenue to be between $245,000,000 $255,000,000 on block hour growth of 5% to 8%. We're anticipating our cost per gallon for fuel to be $2.82 and for us to achieve an operating margin between 3% 5%. Our business is built for resiliency and we'll continue to allocate capacity between segments to maximize profitability and minimize earnings volatility. Speaker 200:10:44With that, I'll open it up for questions. Operator00:10:47Thank And our first question will come from Ravi Shanker from Morgan Stanley. Your line is now open. Speaker 400:11:11Thanks. Good morning, everyone. So big capacity cuts in the back half that is good to see from an overall industry perspective. But given your unique model and the ability to move around resources, kind of is there anything you guys can do to reallocate those resources to kind of offset the impact on CASM? Speaker 200:11:33Probably in the second half of the year. To some extent, the answer to that is yes, but probably not fully. We've been consistently coming in favorable to our cost projections and the company has done a great job on that front. Just given the sort of pull down that we've done fairly recently, we'll be able to offset some of the CASM impact, but probably not all of it. And we'll be looking for reallocation opportunities, particularly in the charter market as sort of much as we can here on relatively short notice. Speaker 300:12:06I also added our charter operations drive higher unit costs than do our scheduled service capacity. So it won't be apples for apples as we exchange into cargo excuse me, charter from scheduled service. And finally, really unit revenue unit costs inflect when we start operating below minimum guarantees for our crews and we won't hit that level anyway. So we'll still be in an efficient bandwidth. Speaker 400:12:43Understood. That's really helpful. And maybe as a follow-up, kind of, how would you characterize the competitive environment in Minneapolis, going to be meeting reports that Delta maybe looking to ramp up there. So has anything changed there? Speaker 300:12:56Mostly, I mean, I'm getting the information from selling schedules, which are out through March of next year. And we see July as being the peak growth rate across our network for all OAs and an improving condition all the way through the end of the year and into next spring. Speaker 400:13:16Very helpful. Thank you. Operator00:13:20Thank you. Our next question will come from Duane Pfennigwerth from Evercore ISI. Your line is open. Speaker 500:13:29Hey, good morning. Can you remind us how much liquidity you want to keep on the balance sheet? Is there any desire to build up dry powder ahead of the cargo ramp next year? And just given the free cash flow you expect to generate, how are you thinking about capacity for buybacks Speaker 300:13:49for the rest of this year? Speaker 200:13:52Yes. So we're sort of at a liquidity trough for the year at sort of this time and we'll start building liquidity as we begin selling sort of our winter schedule and peak liquidity sort of towards the end of the year. The thing about the liquidity of this business is we think we can operate this at probably relatively lower levels of liquidity than other airlines because a big chunk of our revenue stream is very predictable between our cargo and charter businesses. I hesitate to throw out an exact minimum liquidity number, but Speaker 300:14:28it's well below where we're at today. Speaker 200:14:33There's really not that much of a need to build cargo ramp because there's really no CapEx required or very, very little CapEx required. It will be continuing the stream of pilot hiring that we're doing and then reallocation of some resource from our scheduled service into the cargo business. So there's not really any kind of a significant liquidity need there. That will be a liquidity positive event for us because of the improved profitability of the new cargo flying. To your second question, we've done well over $100,000,000 in share buybacks and we'll sort of continue to look at our free cash flow profile. Speaker 200:15:14We're paying back a lot of debt and our debt balances are coming down pretty quickly. So this is something that's always on our plate and we'll probably revisit and take another look at as we move through this year and early into next. Speaker 300:15:27Just one more thing on that Duane. I mean typically airlines require a lot of working capital to transition new fleets because of crew training and things like that. I just want to remind everybody that our pilots do all the flying that we do across all three segments from a single base. So, there's really no incremental operating costs associated with the transition either. Speaker 500:15:53Yes, that's very clear. Good reminders. And just to follow-up on Charter, how do you view the opportunity set now? And maybe just operationally, what is the lead time you need to kind of tilt harder into that segment versus maybe scheduled service? Is that are you looking 1 to 2 quarters out? Speaker 500:16:13Or can you react opportunities closer in? Thanks for taking the questions. Speaker 300:16:19Hey Duane, why don't I start and I'll turn it over to Grant. So the charter comes in kind of 2 flavors. 1 is contracted charter flying, which is under long term agreements. It's about 7 aircraft worth of flying that we do that's related to that. And essentially, it's us being an airline for someone else. Speaker 300:16:39And it's the same aircraft that our passenger scheduled service fleet operates. So it's interchangeable, but it's very dependable volumes and profitability. And then there's a big section of charters that's ad hoc, which is booked relatively close in, high margin flying and mostly a way for us to allocate surplus capacity into profitable flying. And that's the domestic military market that we participate in, a significant amount of sports charters that we do for predominantly NCAA Sports and Major League Soccer. So those are a little bit harder to predict because it's close in, but we're pretty bullish on it going into this fall as we've continued to expand that market. Speaker 300:17:31Grant, any other color on that? Speaker 600:17:32Yes. The only thing I would add would be even in the Q2 when we really were biased towards scheduled service growth using up what we thought were pretty much all of our crew resources, we still were able to pivot pretty significantly as Jude mentioned There's really we don't have to wait. Those requests are coming to us. There's really we don't have to wait. Those requests are coming to us and the team is very poised to go out. Speaker 600:18:03And where there's an opportunity where we can do it profitably, we're going to do it and we have such a good reputation in the marketplace that people come to us pretty quickly when we have that capacity. And when we do things do get tight, we sort of take that capacity off, so we turn it on very, very quickly, which we're doing right now. Speaker 700:18:22Okay. Thank you. Speaker 200:18:24Thanks, Dan. Thanks, Dan. Operator00:18:26Thank you. Our next question will come from Scott Group from Wolfe. Your line is now open. Speaker 800:18:35Hey, thanks. Good morning, guys. What's the capacity you're talking about? Are you in the camp of a September RASM inflection? And then is there in your mind, is there a risk like this is just like a head fake of September's off peak and its capacity starts to reaccelerate in Q4? Speaker 300:18:58No, I think we're seeing structural change in the growth rate. I think we saw a reallocation of capacity into the domestic leisure market in 2022 and then capacity chase that demand into big market connectivity, transatlantic, the Midwest was kind of late to get those capacity growth reallocations from the post COVID environment and we saw growth rates peak in July. And everybody is selling out through April now. So I feel fairly confident that our peak winter schedule will show the kind of profitability that we're all expecting as we move into this winter. So no, I don't think that's the case. Speaker 300:19:47September for us Speaker 800:19:48The September piece? Speaker 300:19:49Is always yes, September for us is always challenging. So when we cut down capacity, obviously, we're able to identify the flights down to the very flight level that aren't going to make positive contribution and cut those out. So we're expecting a pretty good September all things equal, because we've had the time to prepare under the current environment, which is substantially different than when we planned the year out. Speaker 800:20:21Thank you. Can you just remind us the timing of the aircraft ramp with Amazon? And then you had a comment that we're seeing a partial impact of the higher rates in June, but we don't see the full impact until the second half next year. Can you just talk about that? Speaker 200:20:39Yes. So, I can't go into the details on how the rates come in, but basically we got a partial increase in rate when we signed the deal. So really that didn't have any impact Speaker 900:20:50on our Speaker 200:20:51numbers until June. So the effect of the Q2 of the new Amazon rates is very small. But there is this piece that came in when we signed the deal and then additional increases as the aircraft come in. And the aircraft right now, we expect to start arriving in March of 2025 and then to come in relatively quickly so that by the Q3, they're kind of all on board here now. Things can move left to right a little bit, but that's the instruction we've been given and sort of the path that we're on. Speaker 800:21:28And so we still get like this, I guess for lack of a better word like 2 bites of the apple next year where we get the Q1 benefit of schedule and then we get the cargo ramp in the rest of the year? Speaker 200:21:46Yes, that's exactly right. So we're look, we're really bullish on next year and part of the reasons what you just said. So we're going to be able to continue allocating all of our resources to scheduled service as much as necessary to scheduled service in Q1, which obviously is the biggest quarter for us by far and then transition very smoothly as things slow down for us into the cargo business more. So, it kind of works out really well. Speaker 800:22:16Okay. Thank you, guys. Speaker 300:22:19Thanks, Scott. Operator00:22:22Thank you. Our next question will come from Michael Linenberg from Deutsche Bank. Your line is open. Speaker 900:22:29Yes. Hey, good morning, everyone. When I look at your schedule to the winter, you talk about 55 or more than 55 cities that you're going to serve nonstop for Minneapolis. When I think about what you're going to serve and maybe what you were serving a year ago, it does seem like there are some markets that you have pulled out of. Curious what is the common denominator in some of those markets? Speaker 900:22:54Was it just they didn't ramp up well, they didn't accompany maybe some of the charter flying that you did, maybe they were sort of part of a package, or it's just the competitive response. Anything we can take away from that? Speaker 300:23:11Well, first, there's seasonal markets that happen across our network that are going to be repetitive every year. And nearly everything every market works from Minneapolis in June July. Nearly all of our winter I mean, we need more capacity in winter, and nearly everything works. I think everything works in that period of time as well, but they're very different networks, summer to winter. Okay. Speaker 300:23:42I think the thing to watch is as we go into the summer 'twenty five, some of our markets will need to be suspended through summer 'twenty five and not come back into the network till future years and that's because of reallocation into cargo. But our winter network will be intact, yes. Speaker 900:23:59Okay. That's helpful. And then just secondly, as you ramp and bring on the additional airplanes and you talk about sort of reallocating resources, where are we on pilots and staffing, 1st officers versus captains? Should we see any sort of teething issues as we ramp up into 2025 with the additional airplanes coming on for cargo, etcetera? Thanks. Speaker 900:24:25Thanks for taking my question. Speaker 300:24:28Yes. This is Greg Mays. I think with regard to pilots, we've been able to allocate resources and not be constrained by pilots or staffing really generally. So as we look out into 2025, we don't see any change to that. We see overall industry hiring is way down. Speaker 300:24:47So things look good for us. We still would love to have more captains upgrade, but at this point in time, that's not constraining our growth. We feel really, really, as Dave said, bullish about 2025. Speaker 900:25:01Great. Thanks. Operator00:25:04Thank you. And our next question will come from Tom Fitzgerald from TD Cowen. Your line is open. Speaker 700:25:30Hi, everyone. Thanks for the time. Can we just go back to capital allocation again and just given everything with where the business is going and how cheap the stock is right now, why not issue debt instead of paying down debt and use the proceeds to buy back your stock? Speaker 200:25:47Look, we've sort of considered all different avenues here. Debt isn't as sort of cheap as it could be at this point. We're kind of looking at everything. We're sort of making capital allocation decisions here, not just for the next 3 to 6 months, but for the long term. We want to continue to operate with a conservative balance sheet, and sort of loading up with more debt right now to buy back stock is probably not something that we're Speaker 800:26:19going to do in the short term. Speaker 700:26:20Okay, fair enough. That's helpful. And then just like longer term kind of as you once you kind of get on past 2026, just how are you thinking about the network and whether you need another focus study beyond Minneapolis? Thanks again for the time. Speaker 300:26:35Hey, Tom. There's not a lot of growth opportunities outside of Minneapolis, other than the stuff that we already have in the schedule like Texas origination down in Mexican Caribbean markets in the summertime. In the past, we've had a lot of success expanding our Midwest footprint into origination markets around Minneapolis. We also had a nice business in 2019 flying Hawaii. Hawaii is not a great place to be right now. Speaker 300:27:03So that with the yield environment, there's nothing that's obvious and urgent for us to move into. And so I think what we're quite frankly, what we're going to be waiting on is some of our competitors to go through some challenging times and free up some opportunity for us. And that's why we want to think about having some powder on the balance sheet and just being able to be dynamic to be able to reallocate capacity when it presents itself, which I think is going to be an opportunity that's difficult to predict as we sit here today. The best thing for us in the near term is as we talked about cargo and charter opportunities. Speaker 200:27:44Yes, this is Dave. I just completely agree with what you just said. 25 for us is a year of integrating these new cargo aircraft, taking advantage of the economics of that new deal. And then we'll look at the landscape in 2026. There's growth opportunities there could be growth opportunities here, growth opportunities elsewhere, but we'll see what the landscape looks like in 2026 and beyond. Speaker 200:28:07And I think given the state of some others, we expect it to be a different landscape than it looks like at this particular minute. Operator00:28:22Does that conclude your questions, Mr. Fitzgerald? Speaker 700:28:26Yes. Thanks very much for the time, everyone. Speaker 300:28:28Thank you. Speaker 200:28:29Thanks, Tom. Operator00:28:30One moment for our next question. And we do have a follow-up from Scott Group from Wolfe. Your line is open. Speaker 800:28:40Hey guys, thanks for the follow-up. So just I just want to make sure we're thinking about full year 2025, right, just with the moving pieces. Can you just remind us how to think about how much scheduled ASMs are going to be down? And then what you think a full year sort of block hours is for cargo? Speaker 200:29:06Yes. So, let me sort of just describe it this way. So basically, we're going to be taking these cargo aircraft in and that is going to have sort of the first call on the resources that we have here, particularly on the pilot front. Then as we have remaining resources available, we'll allocate that between scheduled service and charter depending on where the opportunity is. So part of this depends on exactly where we sit from a pilot availability standpoint, frankly, going into 25. Speaker 200:29:43Our current outlook is likely to be down high single, low double digits on a block hour basis or sorry, on an ASM basis for scheduled service, but that could move left to right depending on exactly where we sit from a pilot perspective. I think we had the block hour growth for cargo next year. Give me one second here. Yes, I don't know the 25 number right in front of me. We can follow-up with you on that, but it'll obviously be significant since we're bringing in since we're bringing in 8 new aircraft. Speaker 200:30:20But the size of our scheduled service and charter business is going to be driven by resource availability, particularly pilots. Speaker 800:30:31And any thoughts on what that mix shift should mean from a just total cost or unit cost perspective? Speaker 200:30:40Probably a little premature to sort of talk about that as to what's going to happen with CASM next year precisely. The cargo business is going to consume some of our resources here. So there's going to be some additional allocation of overhead and other things to the cargo business. So that makes just isn't sort of straightened out quite yet. Yes. Speaker 200:31:03Just ultimately got Yes. Sorry, just quickly. Yes, I think as we sit right now, we're expecting the cargo segment to be up, let's say, 60% to 63% in block hours in 2025 over 2024. Speaker 800:31:22Hopefully, so it doesn't sound like anything from what you guys laid out for us in June when you first made this announcement, doesn't sound like anything is really changing? Speaker 200:31:32Nothing is really changing significantly. I'll tell you the only trend that we're seeing a little bit is maybe a little bit of improved pilot availability, which would say maybe we could be a little bit bigger next year from a scheduled service perspective. On the call, I said down 10% to 12%, I think, percent in the scheduled service segment. Our latest numbers have us more like high single digits. So that's the number that's kind of moving left and right now. Speaker 200:31:57But the cargo delivery schedule of the aircraft they talked about on the last call is still relevant. Speaker 300:32:03Important that you called out the seasonality of the growth is really beneficial for us. So the Q1 will be intact and we'll see at least mid single digit growth January, February, March and then as we move into the year and start taking cargo airplanes, that's where we'll see a drawdown of our SCED business. Speaker 800:32:23Okay. Thank you guys. Appreciate it. Thanks Scott. Speaker 200:32:27Thanks Scott. Operator00:32:29Thank you. And our next follow-up comes from Michael Linenberg from Deutsche Bank. Your line is open. Speaker 900:32:37Yes. Hey, thanks for the follow-up. But just a quick, as we think about composition of revenue, do we get to like 35% or 40% of your revenue is cargo and or charter for next year or am I just too high? Just trying to get a better sense. Speaker 200:32:54I think that number is probably not unrealistic for 26, but that sort of 35 plus number in 25 is not going to be that high. Speaker 300:33:06I want to point out block hours, we might get something like that towards the end of next year and going into the subsequent year. But the density of revenue is a lot higher in charter and scheduled service because of fuel pass through and some other costs too. So the revenue per block hour is a lot lower in cargo just because of the way the accounting is treated fuel expenses that we don't pay and things like that. Speaker 900:33:38Yes. I'm just thinking about how that's going to impact your costs and also your fuel bill since a big chunk of your business, it is going to be this pass through. Okay, now that's helpful. Thank you. Speaker 200:33:50Thanks, Mike. Operator00:33:52Thank you. And I am showing no further questions in our phone lines. I'd now like to turn the conference back over to Jude Bricker for any closing remarks. Speaker 300:34:01Thanks for your interest guys. Three big points, capacity growth has peaked and we feel that it's going to be a constructive fair environment moving through the end of the year. Our block hour growth will continue, but we're going to shift into cargo predominantly. And we're really bullish on our free cash flow production as we have already acquired the growth for the next several years. And lastly, I'll end with just being so proud to be part of this team that executed so well through such challenging period. Speaker 300:34:32This IT interruption, the whole industry had to deal with was severe for our frontline employees and they executed beautifully and I'm just so proud of them. Thanks and we'll talk to you guys next quarter. Appreciate your interest. Operator00:34:47Thank you. This concludes today's conference call.Read morePowered by