Sun Country Airlines: Achieving Milestones and Overcoming Challenges
2023-08-04
Sun Country Airlines Holdings held its second quarter 2023 earnings call, where the company discussed its unique business model, impressive milestones, and positive revenue growth. One of the key topics of discussion was the challenge of pilot attrition and the need to upgrade first officers to the captain seat.
The meeting also highlighted the company's international network and its focus on southern large markets during the winter and summer seasons. CEO Jude Bricker explained that their Southern business is largely a scraping business, relying on prevailing airfare and the performance of international markets during the summer. Despite some weakness in these markets, Bricker mentioned that they are still highly profitable for the company. He also emphasized their ability to adjust capacity based on the fair environment at any given time.
Grant Whitney, EVP and Chief Revenue Officer, added that while there was some pressure this year, the results were still acceptable. He specifically mentioned the success of the Harlingen market due to less competitive impacts. Both Bricker and Whitney highlighted the company's agility and ability to adapt to different market conditions.
The company's market outlook revealed that they have observed weaker demand patterns in the Vegas market on Tuesdays compared to weekends. They have built their business model around this observation. July experiences a high level of demand, but it is more elastic compared to March, which has peak demand on specific days, especially during spring break travel patterns. To accommodate the increased demand in July, the company plans to expand and flatten its schedule by adding flights during off-peak periods, although they face a capacity constraint due to pilot availability. Despite this constraint, they believe that adding flights during off-peak days will still generate significant revenue. However, September does not offer many midweek opportunities for the company. The company also notes that larger airlines are focusing more on leisure demand, which may affect leisure carriers. Nevertheless, the company aims to grow its scheduled service networks during peak months to improve margins.
Pilot attrition and the ability to upgrade pilots to captain positions were identified as the key drivers of the business. The company expressed that they have no trouble hiring pilots, but their main challenge lies in getting pilots to upgrade to the captain seat. They plan to increase class sizes and moderate attrition to address this issue.
In terms of capital spending, the company has spent $210 million on capital expenditures year-to-date through July, primarily for aircraft growth. They expect a significant decline in capital expenditures in 2024 and 2025 as they achieve their growth objectives with higher aircraft utilization and the addition of only three net aircraft.
During the earnings call, Sun Country Airlines executives Jude Bricker (CEO), Dave Davis (President and CFO), and Chris Allen (Director of Investor Relations) were joined by others to answer questions.
In conclusion, Sun Country Airlines has achieved significant milestones, including surpassing $1 billion in revenue for the 12 months ending in June and carrying over a million scheduled service passengers for the first time in any quarter. The company attributes its success to its unique business model, which allows for flexible scheduling and low-fixed costs. Despite challenges such as pilot attrition and market fluctuations, Sun Country Airlines remains optimistic about strong demand across all its segments and expects to continue delivering industry-leading profitability.
The company's focus on international markets and seasonal flying, particularly in Mexico and the Caribbean, was also discussed. The CEO acknowledged some weakness in the southern markets but stated that they are still profitable. The company plans to wind down most of its international markets by the end of August and focus on building up winter markets in Minneapolis and other locations in the fourth quarter. The CEO also mentioned the impact of competitive capacity growth in Cancun, which led to lower fares, but believes there is still strong demand in the market.