Sun Country Airlines: Strong Performance and Optimistic Outlook for 2024
2024-02-02
Sun Country Airlines recently held its fourth-quarter 2023 earnings conference call, where key participants discussed the company's performance and future outlook. During the call, Chris Allen, the Director of Investor Relations, provided cautionary statements regarding forward-looking statements and the potential for actual results to differ. The company's fourth-quarter and full-year 2023 earnings press release can be found on their website at ir.suncountry.com.
One notable aspect of Sun Country Airlines' business model is its diversified approach, which includes charter and cargo operations in addition to scheduled service. This diversification provides the company with predictability and flexibility in its capacity offerings, giving it an advantage in delivering industry-leading profitability. Sun Country believes that its schedule flexibility and low fixed-cost model allow it to respond reliably to fluctuations in leisure demand and industry shocks.
In terms of performance, Sun Country Airlines demonstrated significant year-on-year improvement in the third quarter of 2023. This improvement was evident across every major operating metric, including on-time performance, completion factor, mishandled bag rate, and more. The company attributes this improved performance to enhanced staffing across all major labor groups, enabling additional peak capacity in scheduled service and increased operational efficiency.
During the fourth quarter, Sun Country Airlines experienced a nearly 15% increase in available seat miles (ASMs) while adjusted TRASM (total revenue per available seat mile) declined by 8%. Despite this decline, all three segments of the business (scheduled service, charter, and cargo) are experiencing strong demand. Sun Country achieved record full-year revenue, passenger volume, and operating margin in 2023.
Looking ahead to 2024, Sun Country expects scheduled service to be the primary driver of its growth capacity. The company anticipates positive revenue trends in the first quarter of 2024, primarily due to growth being heavily weighted towards peak periods and fewer staffing constraints. By the end of the second quarter, Sun Country aims to have a controlled fleet of 63 airplanes.
In terms of financials, Sun Country Airlines returned $68.6 million to shareholders in 2023 through share repurchases. Since 2022, the company has repurchased shares totaling $93.6 million. Total revenue grew 8.1% in the fourth quarter compared to the same period in 2022, while scheduled service revenue plus ancillary grew 4.6%. However, scheduled service TRASM decreased by 9.1% in the fourth quarter. The company's net debt to adjusted EBITDA ratio at the end of 2023 was 2.2 times, down from 2.7 times at the end of 2022.
Sun Country Airlines also provided insights into its staffing situation, growth capacity, and cost control measures. The company has implemented initiatives to improve the availability of captains and has seen favorable growth and attrition levels. While additional staffing is needed to support growth opportunities, the company expects to achieve flat to low single-digit CASM growth in 2024. Sun Country does not face any major challenges on the fleet side and expects mid-teen block hour growth, with most of it allocated to scheduled service.
The impact of the pandemic on pricing in peak travel periods has led to a stabilization of fares, particularly in the Mexican Caribbean markets. However, Sun Country anticipates substantial TRASM premiums to return to pre-COVID levels in the coming year. The domestic market is performing well, with a rebound in Florida and positive trends in the broader market. Close-in bookings remain strong, with a booking curve similar to pre-COVID levels but at higher fares.
Sun Country Airlines also addressed questions regarding the used aircraft market, the widening bid-ask for the airline, capacity growth, cost control measures, and capital allocation. The company is considering share buybacks and potentially paying down debt with its expected free cash flow generation. The projected capex for 2024 is $100 million.
Overall, Sun Country Airlines showcased its strong performance in the fourth quarter of 2023 and its optimistic outlook for the future. The company's diversified business model, schedule flexibility, and low fixed-cost model position it well for continued success in the industry.