Sun Country Airlines Holdings, Inc. Q2 FY2024 earnings call

• Diversified business model provides flexibility, allowing response to market changes.
• In June and July, scheduled service departures grew over 15% YOY but faced operational challenges.
• In Minneapolis, seat growth peaked in July and will subside, expecting lessening fare pressure.
• Moving capacity to charter and cargo, with mid-single-digit capacity growth expected for winter.
• Cargo segment to grow significantly with almost no CapEx required, driving profitability and free cash flow.
• Second quarter total revenue $254.4M, down 2.6% YOY; CASM declined 5.1%.

In the second quarter, total revenue declined 2.6% to $254.4 million. The Passenger segment (including scheduled service and charter) had total revenue fall 5% YOY. Scheduled service revenue declined 7.2% due to a 21.3% drop in TRASM and 18.2% increase in ASMs. Charter revenue grew 2.8% to $51 million, a new quarterly high. The Cargo segment had revenue grow 1.7% to $25.4 million. By 2026, cargo revenue is expected to be almost 20% of total revenue vs ~10% in 2024.

• Third quarter total revenue expected between $245 million and $255 million with 5% to 8% block hour growth.
• Anticipate fuel cost per gallon at $2.82 and operating margin between 3% and 5%.
• Cargo revenue to be nearly 20% of total by 2026, up from ~10% in 2024.

• Operational challenges like aircraft out of service and IT outages.
• Overcapacity in the industry impacting fares.
• Pilot availability and crew minimum guarantees potentially affecting unit costs.

Q: How to reallocate resources to offset CASM impact?

A: Can offset some CASM impact, particularly in the charter market, but not fully.

Q: Competitive environment in Minneapolis?

A: July is peak growth, with improving conditions through the year and into next spring.

Q: Liquidity and capacity for buybacks?

A: At liquidity trough now, start building later; free cash flow considered for buybacks.

Q: Charter opportunity set?

A: Charter has contracted and ad hoc segments, can pivot quickly to profitable opportunities.

Q: September capacity and aircraft ramp with Amazon?

A: September is challenging but prepared; partial Amazon rate impact in June, full in second half of 2025.

Q: Network beyond Minneapolis?

A: Focus on Minneapolis, wait for competitor challenges to identify growth opportunities.