Sun Country Airlines Holdings, Inc. Q1 FY2024 earnings call

• Diversified business model offers flexibility and industry-leading profitability. - 99.7% completion factor in 1Q 2024. - Yields reset off post-pandemic highs, CASMex declined slightly despite heavy aircraft visits. - Adjusted operating margin ~18%, flat EPS vs last year. - Easter shift reduced April 2024 revenue by ~$3 million. - Fleet of 63 aircraft, 2 more in induction, CapEx expected to fall to maintenance levels ($50M-$75M).

Scheduled service: Total revenue grew 5.9% to $311.5 million in Q1 2024. Scheduled service revenue plus ancillary revenue grew 2.8% to $227.4 million, highest on record. Scheduled service TRASM decreased 11.7% to $0.122 with a 87% load factor (89% in March). Charter: Grew 2.4% to $47.3 million on a 3% block hour decline, revenue per block hour up 5.6%. Excluding fuel reimbursement, charter revenue grew 6.5% and revenue per block hour up 9.8%, ad hoc charter up 29%. Cargo: Grew 2.5% to $23.9 million on a 1.1% decrease in block hours, with cargo rates increasing annually at the end of December.

• Second quarter total revenue expected between $255 million and $265 million with block hour growth of 8% to 11%. - Fuel cost per gallon anticipated at $2.93, operating margin between 4% and 7%. - Anticipate reallocating capacity in the back half of the year to charter and cargo segments, particularly from September to November.

• Industry capacity growth in largest markets pressuring yields. - Uncertainty in fare environment and fuel price inputs affecting margin expectations. - Seasonal factors like Easter shift impacting revenue and margin projections.

Q: Dave, can you go into detail on capacity reallocation?

A: David Davis and Jude Bricker discuss reallocating capacity from scheduled service to charter in off-peak periods, with focus on Labor Day through Thanksgiving for charters.

Q: Duane Pfennigwerth on flexing up in peaks.

A: Jude Bricker talks about scheduled service network not absorbing off-peak growth as expected, with most fare variance due to more seats in markets from both Sun Country and other carriers.

Q: Helane Becker on maintenance costs and ATL.

A: David Davis says maintenance costs will stay elevated, Jude Bricker on ATL decline being due to weaker fare environment and Easter shift.

Q: Michael Linenberg on OA capacity.

A: Jude Bricker discusses domestic and overlay capacity trends, noting 6% domestic capacity growth and 10% overlay growth in Q1, consistent in Q2.

Q: Scott Group on capacity in second half.

A: Jude Bricker and David Davis on capacity tapering in scheduled service, with Q3 margins expected higher than Q2 due to normal seasonality and reduced handicaps from Easter shift and overcapacity.

Q: Brandon Oglenski on reducing earnings volatility.

A: David Davis talks about focusing on stable segments like charter and cargo to reduce earnings volatility by less exposure to scheduled service capacity adds.