Sun Country Airlines (SNCY) 1 Feb 242023 Q4 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Sun Country Airlines Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Christopher Allen, Director of Investor Relations. ahead. go Please

joined Officer; I'm and Jude our questions. Bricker, group Thank Davis, today President Executive answer help Dave others Officer and Chief of you. to by Chief a Financial

you like we may and current today beliefs, may upon to release company statements may risk to to Before forward-looking forward-looking certain I'd remind that which call, risks SEC make encourage statements.Our and no materially. subject any outlined and earnings during forward-looking to assume obligation constitute recent assumptions review results and our management's statements differ statements expectations are everyone Actual and most include and the cautionary filings. this remarks based factors begin, are We statements. update We uncertainties. in our

and Jude. our to year on that find press release ir.suncountry.com. quarter to website like said, I'd can over earnings fourth our call XXXX at With the full turn You

morning, today. everyone. us Thanks joining Thanks, Chris. Good for

low allows respond both exogenous reliably deliver us leisure all cost flexibility throughout to Our of cycles. structural airline diversified able the business model service and to most fixed due our industry we demand be to fluctuations industry. combination to flexible believe able to scheduled predictable shocks.We charter our capacity to and of cargo we'll our the are model deliver The scheduled advantages, the businesses, Due industry. the and in industry-leading is unique in predictability profitability

be the move are to we in much fading finished of period challenges XXXX. have We post-COVID Many way into proud the of the we of XXXX. as

and operating every significant showed the metric, Our year-on-year third quarter rates. operations DXXXX factor completion bang across major mishandle improvement in

increased entire points a since declining scheduled during the canceled COVID. time XX increase block without year-on-year times.In factor, service an produced completion quarter. we only for CASMx first we target in on the percentage XQ, For year-on-year flight AXX

to optimal. contributors is able staff performance closer main that improving cost of to One the to been we've airline the our and operational

we've improved in capacity fact, close-end major us to X%. ASMs TRASM has XX% seen with labor group, to additional In across XQ scheduled peak demand. charter peak take declining allocations of metrics schedule in and allowed every almost has fly allocate staffing us allowed more adjusted service better only Maintaining staffing to advantage

We I strong continue to operate revenue, the business entire few in have environment full expect feel in the delivered our year of continuing that all our segments XXXX.Congratulations scheduled things operating passenger to into highlight unit costs. volume of year trend I'm to growth full to a demand across XXXX Country service capacity, a that a excited majority X with margin. continue our control receive record we Sun of like team wanted year about good we and full I XXXX. to

heavy should with headwinds, cost going of we fleet, able continue the check lead our into we to particularly is to Demand be While up face really industry continue trends holding XXXX. well. in to will cycle the

of faced challenging 'XX,'XX. we comps the For winter environment XQ, yield exceptional we lapped as

airplanes XX as scheduled shifted in lessening days, our January. the by service days have moat of to with service expected fleet we examples, an XX% to currently XXX% ASMs our XQ X%. due These prior period In few ASMs and of to mostly part only aircraft These revenue more our the are our XX% For unit various This compared in December This positive fly of XQ, of the than month the XXXX, about constraints.A of of trends ASMs aircraft is over result capacity more cost XQ end year scheduled XXXX, business decline being flew of stages peak mid-single-digit about by 'XX. more staffing possible is are along than made March will the model.On XX scheduled we around scheduled industry XQ. X was be XX side, in XX% in with will to last the variability, delivery. weighted multi-segment controlled growth in heavily we revenues. structure have fleet during a first

in to be and help simultaneously of us That costs which revenue rebid XXXX. scanning while material rolled a passenger technology our take are solution combination in to XXXX highlight few We be in To scheduled on us should X a X process, rarely in bag operational that projects out able producing to coming XXXX, many free the happens to cash in have grow ASMs and that outstations we app more our In launched We these expect result months. trends automated to launch risk XX% keep to XXXX, better addition few, to months. flow impact returns, yields. allows our able into we exceptional industry.We lease around momentum our had give That utilization a us in which agreement, will by to MBR. with growth we during levels on That credit materially increases peak We'll versus recon has expect economics. periods. upgauging years airplanes. card should service

we've our training rostering crew are COVID.Finally, starting very seen little with will off have footprints pay risk. trends to this growth lowest year we've made since the PBS and in transition crude Our all later to investments system the training

it have with on keep able I'll growth those be We opportunities. to our customers, confidence high expect to with Dave. based cargo prior Minneapolis pace I success. with charter on service our and to that, segments discussions in turn ongoing over based scheduled Further, And expansion

our Thanks, this we adjusted XX% XXXX was Both with model. It's results, the and year going quarterly in of ahead income the of resiliency which report of our March operating including with Country unique basis understand we've well XXXX.We one an on quarter profitable is of profitability highest QX was adjusted XXXX high and X.X%. earnings every believe and higher power third the consecutive results for This the XXXX full business our exception, Sun the Jude. at diversified very fuel year the our X.X%, to net an utilization demonstrate year of guidance. opposite strong margin despite among again We're to or model carriers. year. the result in was margins since the almost adjusted operating been pretax similar important full of being highest finished to public that in industry pleased

unit and service, operations business and cargo unit are resiliency diversification our produces in passenger when resulting periods. is the less and business we unit much cycles. more in lies to revenue.Additionally, fly and costs Our improvements through revenues offset modest leads off-peak The increase by than demand highest, charter across scheduled this

fourth X.X% and have $XXX.X service QX XXXX scheduled strong shareholders $XX.X XXXX, the million. plus form revenue X.X% year grew $XX.XX of return results.First, in to to X.X% share allowed ASMs XXXX capacity. results Our and us $XX.X versus turn to Since share to Scheduled repurchases quarter, repurchases. our revenue now the grew million. to TRASM $XXX.X specifics revenue service I'll In of million. total our totaled full of by XX%. fourth Scheduled as decreased to million ancillary grew almost the quarter

revenue hours an year increase scheduled increased was million. our ASMs. plus prior revenue service by X.X% XX.X% X.X% X.X% TRASM and For and grew ancillary the block versus service increased year.XXXX than year, full Full total of higher was $X.XX scheduled XX.X% to scheduled total billion, which XXXX $XXX

revenue 'XX. quarter.Charter plus QX risk in to portion versus We're saw our forward year-over-year. for 'XX XX% our with the ASMs in of prices flying. we scheduled fourth $XX.X grew to hour scheduled QX grow QX fuel Looking growth charter service revenue fuel by changes of fourth growth we the from anticipating quarter million not A approximately service X.X% year-over-year outpacing charter fuel of do dropped on block of reimbursement of to prices ancillary take X.X% consists revenue X.X%. growth as XX% in on customers the

XX.X% full revenue revenue from and 'XX charter charter If you the QX a the year.For charter year, 'XX, increase the producing hour charter in revenue X.X% versus and XXXX. versus was million on X.X% block a during QX grew $XX.X of grew hour period, grew hours. block exceeding fuel exclude cargo last growth revenue flying $XXX.X of contracts revenue revenue easily XX.X% higher of in long-term charter the both full total per Charter year block 'XX. flying was reimbursement XX% increase X.X% Fourth quarter to block XX.X% contracted as than million, of under hours

full cargo XXXX, revenue $XX.X increase on For X.X% a year grew million hours. in XX.X% to block

'XX. hours. expenses by 'XX revenue should to block million Adjusted total total XX%, to between be increased see, you $XXX of $XXX declined As X% hours profitable quarter grow Fourth now CASM measured total pace. increase we QX X.X% expected are grow to costs. versus of X.X% at and total can while in million.Turning QX block operating on a XX.X% and between are a continuing

During company. we control across solid saw the quarter, cost the

to been our As plans, leverage business. pilot able and we're achieve the operating we've benefiting from issues in the our availability have eased, growth

paid rates availability more fewer pilot Importantly, premium and lower unit at means costs. hours

increase. with in expense driving X.X% to growth full of of increased in block X.X%, line adjusted this the total total For increases year year year, CASM with operating hour X.X%.Full half the increased the $X.X first

Regarding our sheet. balance

QX liquidity end million was repurchases the which during in total reflects share the of $XXX at Our million, $XX.X quarter.

aircraft our which million. spent was million engines. on of CapEx, January we of almost $XXX XX, million $XXX As XXXX, In total for $XXX liquidity was and

through need bulk to provide XXXX. aircraft these lift we passenger of expect We the the

carriers, we our fleet expect year in anticipate to cash XX approximately we fleet our ending count flow other Sun into free inducted XXXX. full anticipate million be to these to X XXXX. lease and year being aircraft in-service throughout to aircraft, $XXX have such, we aircraft generation As XXXX redeliver passenger addition be which strong to our to on CapEx X XXXX to and expect aircraft.In We Country

We balance sheet. a strong very maintain continue to

end burden, Since Our do a XXXX have adjusted the EBITDA flexibility in end have XXXX. our how to guidance. at to deploy not down net of at we the significant debt was of from we cash.Turning ratio debt X.Xx X.Xx, we

full macroeconomic and cost operating and and expect million be million between XX% for $X an XX%. fundamentals remain changes revenue strong achieve our X% in XX%. to of be $XXX block is between The diversified growth per conditions. for margin gallon unique business us our $XXX We're resilient total of to highly We fuel our hour quarter to to model on to anticipating to

it open growth. Our for we'll that, questions. focus With profitable on remains

Thank you. [Operator Instructions].

line Our comes of Pfennigwerth Evercore with Duane the question from ISI. first

this opportunity and in improved up say asked you differently, on segment the of across X characterize flex or your constrained margins maybe or which most the margin would is you utilization peaks, kind ability back segments? again would to Just how

by Scheduled and the service by most constraints. far staffing margin highest affected is

of amount S pushes constraints any that we about down a staffing have if a block only think period. it in produce of or curve hours because an kind So peaks we certain like And wave. sign the can given

So the as during of appropriately. yields typically these the an that constraint. monthly opportunity we really is becoming airline that's less staff expensive sort And periods issue costs peak of

That's helpful.

put so of the maybe optimal could there you more even percentages March the or is you And out capture versus think that for roll year, peak there's that through as we kind do realize? January, you

definitely March. there's latter, in more The opportunity

would per X hours weren't a XXXX day XXXX to at we look that in there's production comp constrained. So good or be aren't 'XX. about achieve in of when aircraft able And to XXXX per back we utilization versus still

older it congestion and then there's the different it airports a Now dynamics was as that. fleet in bit little like is things to relates than

aspect incremental the achieved kind to average achieve March, you compare flying. plenty but we for of that opportunity quarter, as won't is above flying, mid-week still average. of then, we for that it's the yield more what important coming So there's we And as but it's opportunity the definitely add that of

by volume peak revenues we're and growing period increasing So unit capacity.

that any makes of but That XXXX then it, forward? won't way in And incur of that feel kind premium my if I follow-up, you to frame just know in over like for time pay Any going magnitude? that you way there's you size to of Yes. sense. incurred don't terms order

go we minimum just the order this say can would any that just current of is There's is level our sort given our I'm you that of give not magnitude. in because of I forward. I outlook pay what of contract month. premium works way a as sure

like in now months we pay the higher 'XX, So in in minimum we'll need just X dialed premium XXXX just in to like we We have in pay amounts. 'XX, 'XX. did levels at right only of than did that

that we that occur and fruit would have the continue for are of to Things several So the kind bearing now us. I the of We've the on gotten the and just levels quarters situation. I'll improve captains say of initiatives need in think, that availability particular. attrition better. we're those talked about staffing comment try we've favorably I and that overall to undertaken growth significantly seeing for here kind

as premium needs of upgrade think levels is I So be of it where well pay to attrition. our as sort and

we progress. as about, talked more could Now more steady growth seeing because just here. there's really you think I But opportunity use for we're

comes Goldman with question from next Sachs. the Our of O'Brien line Catherine

on Thanks to It some of math, in cost I made the guidance. side, And level of about to getting and just year through hoping I How margin think block build for was capacity sounds some easier, know or your scheduled up guys capacity just basis, the to that X%. cost context the you or in. the you XQ, I year efficiency like a rest like couple or lead just fuel the I GAAP pilot is in performance. there. or the about should get of right operating a wasn't we the was puts overall that following there's through to to a comments growth time. in CASMx think if XXXX. growth hour should we on the much cost get takes industry I know aircraft see that availability high-level comment basis. about if looks the about better. did growth XX% think Is a midpoint you're then already locked the it on getting sure quick going the on year-over-year I'm you

Yes.

hour. me I the for cost my top don't indicators, next CASM let you numbers of Let which are the to have hour very probably block year. question block but the with just off think give start I some head, me similar

we're front, CASM On low what now to I expecting single the be is rationale. here's up the and CASM digits flat basically think to

paid into last and terms packaging and dividends in unit current quarter, underway will I bringing into costs more a which reduced of of accelerating XXXX a then and activities to but forward some significant think of spend modest in mentioned bump XXXX have have I program checks. we the maintenance CASM, sort by XXXX some and

we're to bump. bit be going looking CASM So little that's a of right forward, seeing, I now, growth. flat to single-digit I But think a low like cost said,

to And of the dealing relative the the CASM kind the my of challenges out mainly particularly on comment not performance major side point to fleet was is around with. we're that rest that subject industry

don't to don't So to don't new to performance have just your XXXX. OEM costs relative escalation expect Xs. not delays. There's turbofan. not any aircraft delivery pressure the to We our subject we We're MAX engine that We on do subject restorations, have industry. aren't in much

block would produce your be an we'll mid-teen question to basis. think most on sched capacity trends, I on think about not continue service. like on absolute maybe will So to that And generally, we then hour growth, of growth, better allocated

has impact Any on capacity is flex down. capacity periods of And has any up helpful. to Super has you it. to early a as summer encouraging. immune break the spoken which Got whack. when come out model or on this trends the your is you pricing the more domestic been to spring your But in of peak in where know out then troughs, I that toughest reads overcapacity had want flying? call competitors to find stronger lot you have your

my not year of in repeatable. comments, mentioned I last as mean spectacular I and was probably Yes. spring break

doing well. the year, substantial to quarters. And carriers really so market you've consistent several settling we've seen pre-COVID markets. we'll this in comments a bit a consistent in with domestic and levels my last comments Mexican The TRASM is heard the produce premiums make of with Caribbean as But that other

I important think a which rebound to Florida, seeing us. is in we're

of in really here anything? Florida last are As Grant's we with facing good, lap think West other consistent year that was challenges sort I with comments. broadly, things me, folks'

No. That's March. airline growth digesting And is well, the absolutely capacity the case. XX% in

we're to continue worked marketplace to definitely leisure in it that airline and in be that just our brand leading been So forward. very be for hard point, the compete the speak Minneapolis, built title has and to think I going speaks how going that to aggressively results we that to

for One question, please. moment next our

the from Shanker Morgan Stanley. line comes of question Ravi with Next

was across This floor CASM is as push helps potentially question, of but or kind you your the take curious RASM is just Catherine mentioned on to last was for this that the Ravi. in about scenario. expected up. I if that I on of you guys share industry curious price

capacity But example. for good bad, positive. maybe it's will us not tertiary like subject for the but impact reduce some of yes, the the pull make generally, machinations. we're that But the to but exposed out to not as to the fleet, capacity GTF mean capacity not also on I from our backfill of of grounding for secondary -- We're we'd less effect of like of Yes. the net industry sort and capacity unexpected of a system the margin, just is effects network just of reallocation ROAS, material. be things

just quick a And as follow-up.

behavior industry across guys, kind Country. So XXXX curious at close-in is last I of dropped and know And the you if year I'm bookings probably even bookings Sun like looking now? close-in off in look normal that really and might like 'XX. for what strong then were in What

bookings to pre-COVID of which really higher fare. booking a very at strong. is sort like any the but it's remains The made given shape levels, time, aggregate It curve, at of similar

anything the I and are past looks behavior, think it's positive. like things really the think future else Grant, So passenger lot I a that?

No.

Yes, it's good.

moment comes next next Deutsche our line question Bank. with Linenberg Mike And please. One you. question, our from of the Thank for

Duane's really it, on the here. where follow-up here, take X advantage question opportunity follow-up. about a have marginal able to talked one call being Just I actually of, questions but you've

of you fixed now that being able fact that on you've I have sort think to advantage in past, can you're take capitalize the the that. cost base, to able characterized the of

margin, think your you characterized as better asset utilize as it I you've base. operating a XX% operating margin like incremental

magnitude You were did we back in sort we're still still we where have say, going about call my here? Is we range about XXXX. hours in well, right, where think on, that somewhere been is of it, could opportunity math so. sort that the -- how to be of X it? Is incremental backtrack from XX% off should and that or come at or Does the

not what is margin. so we're a an margin, rather about there mean, I contribution Yes. talking but operating

variable profits VAC variable in is our And cost. contribution mean cost, excess excess of yes, So excess in revenue I in of of March variable XX%.

So is is so it December. back in in the it of July,

as level we that So in absolutely. grow incremental we markets, calendar, those those of periods those the grow time contribution for expect would of flights

saying I on strong was some Mike, other particularly flying the XXXX, able things, things around that there's and things military we Yes. comment, pick not We're to think utilization not the hours unique one up. really of X there were that were of were going on back variable to But X-plus unusual opportunity opportunity. not maybe contribution things. we some there's plenty high the to there of front that There's utilization flying. drive in we're opportunity, XXXX did get to because the just hours

pressure cycle come downward Dave Yes, to check mentioned the earlier. utilization that is going on from

in We have we've we requires on make to ratio past, in going sure bit real a a the of conservatism little utilization. well than had we're higher sparing and that operations, execute

question. Great. And my then just second

are, of have like about other carriers about. dealing OEMs or does the not your the the that the the and really the grounding it's going only forward, large seem back a X. But like, point that As GTF will whether lot one care appreciate of one and and that we now I people of basically airplane MAX it with that to go you're procurement fleet issues

to of of of As seems probably all picked X. you which of the and to couple ERs XXX you see the will the to a was be flights MAX obviously use it choice going in next airplane it that buy, and XXXs primary seeing upward It's X, more MAX interest up over X the that's like fly from from And even the that, to are Oman. in for the put market probably there's know, so about that used pressure lot you even XXXs. XXXs a not going What or plus in lot be the encouraging years, market? maybe

seem you are So right you identified -- pricing what maybe seeing for of Have have the It that there have you bid the airplanes these X used types on on that be constraints shells for out that would airplanes. that additional on now? given great. shells actually the those working you're growth. And OEMs. are the of moved of color like up Any would

they so going the OEMs cash the If they're you how could remain over is active. think originated airplane out for one are I having strong and on the We're trend we the do the the this residual are we're X used aircraft mean, future, say, few and for to right. to And of though, that we market covered of hands, last operating really of was last Mike, that just XX has market. and availability airline having in the we every the without comfortable aircraft may originating I continue us years and over lessors making, the is both widened in aircraft. not is This we owners and kind years. only challenges I say market foreseeable any aircraft at into pricing is there quarter, any flow is that -- favor We're for are months, months. it So ask a but one time moving value. that table, several deals. very the incremental the XX% the bid point all trading an grow we The trickling And and for then deals

next One moment for question. our

question from Barclays. next the of Oglenski Brandon line comes with Our

to April have, a in your you guys can bit out peak Minneapolis of just the the model based and be you because in do softer. talk looking first little XQ us Can scheduled quarter the on into quarter, second

out the from year profitability playing So a first how see you least perspective? half of the at do

last is I of it little a a than setting. year. just So expectation this earlier Easter lot was mean year bit

will that last a We is so And expected. year-over-year spectacular of had which effect really basis, comp on negative on have year. April April a a

I lap themselves. winter seen I we've looking really we're the at XX% recovery, these year for XX%, of won't got bullish shifts. have not same the fares that nearly reset over repeat As kind and themselves calendar COVID but mentioned, as for the kind this will to mean we now. TRASM But higher year, sort have is certainly a a and 'XX, trends itself. generally, obviously stable maintained of adjust we're that last But special really was much broadly us broadly XQ you that the of level. booking but at we're as about good as Grant XQ, where be right of

Yes. And to continued know would throughout with also we team. the that the going ability where process, closely to add be of say profitable capacity seen operating you've we sort us of work I we're a really and

second work a going can to So understand some I incremental quarter. in where we the there's add of lot on capacity say would

with and all We understand those plan we have score second the keeping yet. like I echo in And the world's sentiment. to it's huge not for a those sorts quarter, going what would and So in it. DO a there look of things,

Many allocate then scheduling schedule opposite. airlines think that and where kind really some cancel a back of the bookings happen, notice point. our that's our we business. and bookings as is I of they matriculate. kind good above And philosophy right mean down competitors as way to so That's capacity we the have I hold run it one

allocate as So percentage of get this we'll as little closer, a to a well. have bit we capacity will points in help of couple which

lower then, I too. on I on But in this that, going the to? do you can speak else have that pay expectations OpEx. you mentioned what know maybe side in And year. cost maybe you appreciate Dave, premium the

the been Well, across I cost has think solid. I mean, very company control

to there's we leverage the aircraft grow. shells XXXX as we lot So here here the level. on got basically ago, we minute Like of fly side, a operating talked a about need of we've sort the

a IT to operating that So benefit going now projects CASM also a we've we to and get that. working think lower well. from that's a leverage of are as got I been in kicks We've that CASM number contribute

With made, I in which point the we've decision the exception of across costs hand. well are control. any are I in of company just now, is right all can't costs think areas well this a that to one of maintenance sort our issue, of initiative.

for the our next line Instructions] Christopher Our Stathoulopoulos from next question. comes with One [Operator moment question of Susquehanna.

What percent And is much is of renewal currently charter contract? for how up year? your this under

our We have under about of contract. revenue right now long-term XX% is charter

and a more staffing sort right we resolve want As or issues so revenue. said, themselves, these pilots is hoc of drive I other little XX%-ish like to term. ad But now, long

up. any have we think I significant contracts

No, of closely that. working any and we're with

about portfolio, good really feel we what with them. So we they and the like we're doing and like being connected

Okay.

just in or Amazon's that question, regional a block and Is peak perhaps reflective shift of between It's carriers. hours just second in network weak cargo. the And decline the Okay. sequential a... a

with had. has what anything plan. Check entirely disruptions on comment Amazon's can't That's that -- I It a do nothing C some of the about cycle result weather we and mean I to

next our for moment question, One you. Thank please.

next line with the Catherine O'Brien comes of from Goldman Sachs. question Our

one just program. one the maybe on quick repurchase Dave, share

last active X You years. the were guys pretty

million think on I got the allocation capital there or and like changes or on, down tuned stay shareholder any to materially. you've $XX front? about million are left CapEx thinking I we how should you're guess $XX.X returns stepping just any comments is

Yes.

pay a debt of of think pay drop early company what going There that more would economical don't then sort deliver, is than mean lot half We we'll lot of definitely 'XX. free to on. lot of we First with a we're that lot to at that your we're on to flow down that's the look deliver have of If down. generation We going we at. We between a of decide really to cash don't going a debt buyback I in we free one will do have of spot that's is economical period. with generate we're share cash. exception. the have comment and more to CapEx by results 'XX to cash all, have and the kind debt don't

I do have Do pay fund will we we do go there be talked 'XX reduction We're on to million and what particularly to can. I that So that. share we cost we and the the initiatives, fully continue But forward $XXX think is, going buybacks? down revenue-generative do be as we decisions one here, IT fully piece around CapEx. should in of debt We'll been side. about reflected that for funding this

a we a in have deploy of flexibility on our 'XX. position lot cash good and in to we're 'XX So how

Thank currently at time. no remarks. Chief turn back Officer, you. further to questions the showing for Executive Bricker, closing this like call Mr. to I'd I'm

today. we'll Well, thanks, to great everybody, and Have for you in joining us XX talk Thanks. day, days. a