Sun Country Airlines Holdings, Inc. Q2 FY2025 earnings call

• The company reported its 12th consecutive quarter of profitability, with a diversified business model leveraging scheduled flexibility and low fixed costs.
• Rapid growth of the cargo business required pulling back scheduled service during peak summer months, impacting unit revenue and margins, particularly acute in July and affecting 3Q '25.
• Long-term outlook includes expecting ~$1.5 billion in revenue, $300 million in EBITDA, and $2.50 in EPS by 2Q '27, focusing on deploying free cash flow.
• 2Q had the industry's best completion factor, a key operating metric.

Scheduled Passenger Service: In 2Q, scheduled service ASMs declined 6.2% year-over-year. Scheduled service TRASM increased 3.7% as total fare rose 6.5%, offsetting a 1.3 percentage point drop in load factor. 3Q scheduled service ASMs are expected to contract between 9% and 10%. Charter Passenger Service: 2Q charter revenue grew 6.4% to $54.3 million on a 7.9% increase in charter block hours. About 77% of Q2 charter block hours were flown under long-term contracts. Cargo Segment: 2Q cargo revenue grew 36.8% to $34.8 million, the highest quarterly cargo revenue in history. Cargo block hours grew 9.5% with 15 cargo aircraft in service by the end of the quarter, and the company expects to have all 20 cargo aircraft in service by the end of the third quarter.

• 3Q total revenue is expected to be between $250 million and $260 million with a 5% to 8% increase in block hours.
• Anticipates Q3 fuel cost per gallon to be $2.61 and an operating margin between 3% and 6%.
• Long-term expectation: ~$1.5 billion in revenue, $300 million in EBITDA, and $2.50 in EPS by 2Q '27, dependent on cargo fleet full utilization, passenger fleet utilization recovery, and leased aircraft coming back in service.

• Rapid cargo growth has led to pullback in scheduled service during peak summer months, impacting unit revenue and margins.
• Uncertainty around induction timing, pilot upgrades, and fleet utilization recovery which could affect the timeline to reach long-term financial goals.

Q: Ravi Shanker with Morgan Stanley asks about how purely idiosyncratic versus industry macro dependent the path to $2.50 EPS is and assumptions for industry conditions in 2Q '27.

A: Jude I. Bricker responds that they use a 3% inflation tailwind and a 2-factor model of fleet utilization and absolute growth, assuming no changes in utilization versus last year.

Q: Brandon Oglenski with Barclays asks about step-up in pricing on Amazon contract.

A: Jude I. Bricker and Bill Trousdale state the new contract rates just kicked in and are at a new high level run rate.

Q: Duane Pfennigwerth with Evercore ISI asks about margin drag in the September quarter and how to think about it on a margin basis.

A: Jude I. Bricker says for the third quarter, you could see a $10 million, 4% pretax drag.

Q: Michael Linenberg with Deutsche Bank asks about consumer booking changes and current booking trends.

A: Jude I. Bricker states bookings are strong, seeing year-on-year monthly improvements in unit revenue, and peak periods remain good.

Q: Thomas Fitzgerald with TD Cowen asks about capital allocation and balancing growth opportunities and shareholder returns.

A: Jude I. Bricker and Bill Trousdale discuss continuing to build cash, considering returning to shareholders, asset deals, and having dry powder for potential low-cost space shakeup.

Q: Scott Group with Wolfe Research asks about competitive capacity and longer-term $2.50 comment.

A: Jude I. Bricker mentions continuing to execute, watching for organic growth opportunities, and the industry's overcapacity situation.

Q: Catherine O'Brien with Goldman Sachs asks about lease extensions and gating factor for passenger fleet utilization.

A: Jude I. Bricker says it's an intersection of growth not absorbing fleet and operators wanting to keep airplanes.

Q: Christopher Stathoulopoulos with SIG asks about utilization delays with Amazon aircraft and peak season impact.

A: Jude I. Bricker states delays are due to internal issues with plane induction and expects schedule to correct itself.