Sun Country Airlines Holdings, Inc. Q3 FY2024 earnings call

• Diversified business model provides flexibility, allowing Sun Country to respond to market changes and maintain profitability.
• Domestic industry capacity growth has slowed, and Sun Country continues to expand profitably while other airlines rationalize capacity.
• Selling unit revenues are positive for future months, with Q4 TRASM expected flat and bullish unit revenue trends into 2025.
• Charter and cargo yields are contractual, with modest ex-fuel cost increases.
• Achieved 99.5% controllable completion factor since August 1 despite summer challenges.
• Q3 total revenue flat y-o-y; Passenger segment down 3%, Cargo segment up 11.9%.

Third quarter total revenue was $249.5 million, roughly flat with Q3 2023. The Passenger segment, including scheduled service and charter, saw revenue fall 3% y-o-y. Scheduled service revenue declined 5.9% due to an 11.1% drop in TRASM, impacted by industry overcapacity, CrowdStrike outage, and hurricanes. Charter revenue in Q3 grew 7% to $51 million, a new quarterly high, driven by 1.7% increase in block hours and 5% improvement in revenue per block hour. The Cargo segment had revenue up 11.9% to $29.2 million (all-time quarterly high), with cargo revenue per block hour up 16% despite a 3.6% decrease in block hours due to aircraft checks and hurricanes.

• Q4 total revenue expected between $250 million and $260 million with block hour growth 2% to 5%, fuel cost per gallon $2.47, and operating margin 7% to 9%.
• Q4 scheduled service TRASM expected flat with Q4 '23, total TRASM (including charter) up low-single digits.
• Cargo flying to sharply increase in 2025 with 8 additional freighter aircraft throughout the year, with rate changes in the Amazon agreement continuing to escalate.

• Industry overcapacity impacted Q3 scheduled service revenue and TRASM.
• OEM delivery delays and aircraft availability issues could affect operations.
• Hurricanes and IT disruptions negatively impacted Q3 performance.
• Debt levels and leverage remain considerations as the company grows.

Q: On Cargo, have you hit full run rate on existing business improvements and any update on incremental cargo aircraft growth in 2025?

A: Not all rate changes in the new agreement are included in current numbers; there will be 2 more increases in 2025 as new aircraft deliver, with first aircraft arriving late Q1/early Q2 '25 and eighth by late Q3/early Q4 '25.

Q: Any new thinking on seasonal scheduled service away from Minneapolis and industry capacity adjustments there?

A: Non-Minneapolis capacity is primarily a summer issue; Sun Country is likely shrinking scheduled service capacity summer 2025 due to cargo inductions, with non-Minneapolis flying mostly flat next summer and some markets suspended to support cargo growth.

Q: Update on Oman aircraft leased, will they be added to the fleet?

A: Will add the 5 leased aircraft to the fleet, likely extending leases into 2026 given OEM delays, which works with cargo growth plans.

Q: Should we still think double-digit declines in scheduled service capacity next year?

A: Originally thought 10% shrinkage, but with better pilot availability, it's more mid-single digits; scheduled service capacity may increase more than initially thought as plan finalizes.

Q: Booking profile and RASM impact, will fare positives translate to RASM in Q1?

A: Booked fares are positive now, but it will take time for total TRASM to catch up; the inflection in bookings happened a few months ago, and further out booking trends are bullish.