In two years, Sun Country Airlines expects its scheduled departures to grow by more than 30% over 2023.
The growth would come from the addition of three net aircraft at about a $60 million cost, along with redelivery of five Boeing 737-900ERs currently on lease to Oman Air, Sun Country CEO Jude Bricker said during a 2023 second quarter (Q2) earnings call.
The remarks follow a historically strong quarter for the cargo, charter, and passenger LCC, during what is typically a seasonally weaker quarter for its Minnesota-based business. In Q2, Sun Country carried over one million scheduled service passengers—a first for any quarter in its 40-year history—and total average fares increased 2.7% to $177.33 per passenger. The uptick came on a 32.9% increase in ancillary revenue per passenger to $66.43, while the average base fare per passenger fell 9.6% year-over-year.
A common theme among largely domestic carriers in Q2 has been softened demand, which many have attributable to a surge in international travel. Bricker called it “stretch” to attribute domestic demand challenges to transatlantic yields, instead suggesting that Q2 2022’s domestic demand surge—presenting tough year-over-year comparisons—was an outlier in demand recovery. Looking ahead, he sees more consistency in the unit revenue environment month-by-month.
“That seems consistent going into all the bookings we’re seeing through the spring of next year,” he told analysts and investors. “What gets me excited is it looks like fares have permanently reset into a post-COVID environment, for our network anyway.”
Sun Country reported Q2 revenues of $261.1 million, up 19.2% year-over-year, on a 4.5% uptick in expenses to $225.5 million. Scheduled service accounted for $111.5 million, or 42.7% of total operating revenues. Net income for the quarter was $20.6 million, reversed from a $3.9 million net loss recorded in the year-ago quarter. The airline produced an adjusted operating income margin of 15.3% in Q2, and Sun Country projects total Q3 revenues to be between $240-$250 million, with an operating income margin of 6-11%. Though it has consistent profitability from charter and cargo programs—with Q2 revenues up 16.1% and 18.1%, respectively, year-over-year—its scheduled service is variable, Bricker said, and still block hour constrained.
“We’re flying our airplanes in July, one of the strongest demand months of the year, at about eight hours a day, and that number should be 10-11,” Bricker said. “Those are 40% incremental margin opportunities that we’re cutting out because of capacity constraints that don’t have anything to do with opportunity or airplanes—it’s really about staffing.”
Pilot availability remains the constraint; namely, getting pilots to upgrade to captain.
“You can look at the growth that we’re looking at here in the third quarter as a testament to the fact that we are making progress,” Sun Country President and CFO Dave Davis said. “But it’s not linear, it’s bumpy, and this is the focus.”
