Q4 2022 Sun Country Airlines Holdings Inc Earnings Call
Okay.
Good day and welcome to the Sun Country Airlines fourth quarter and full year 2022 earnings call. My name is Chris and I will be your operator for today's call.
At this time all participants are in a listen only mode.
His presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded and I will now turn the call over to Chris Allen Director of Investor Relations.
Ellen you may begin.
Thank you I'm joined today by Jude Bricker, our Chief Executive Officer, Dave Davis, President and Chief Financial Officer, and a group of others to help answer questions before we begin I'd like to remind everyone that during this call. The company may make certain statements that constitute forward looking statements. Our remarks. Today may include forward looking statements, which are based upon management's current beliefs expectations and assumptions and are subject to risks and uncertainties.
Actual results may differ materially we encourage you to review the risk factors and cautionary statements outlined in our earnings release and most recent SEC filings, we assume no obligation to update any forward looking statement you can find our fourth quarter and full year earnings press release on the Investor Relations portion of our website at IR Dot Sun country Dot com with that said I'd like to now turn the call over to Jerry.
Thanks, Chris good morning to everybody.
To review, our multi segment business is unique in the airline industry due to the predictability of our charter and cargo business as we're able to deliver the most flexible schedule service capacity in the industry.
A combination of our schedule flexibility and low cost model allow us to respond to both predictable leisure demand fluctuations and exogenous industry shocks.
We believe due to these structural advantages will be able to reliably deliver industry, leading profitability throughout all cycles and execution of our multi segment business. It's critical that we're able to deliver industry, leading operational performance I'm, especially proud that in 2022, San country delivered the industry's best completion factor.
The challenging December period, we delivered 99 six completion factor also best in the industry. So proud of our whole team that continues to come through for our customers every day.
We continued to see strong demand for all segments of our business business and scheduled service currently selling through August we're seeing consistently strong yields even compared to an already strong 2022.
First quarter, notably.
Year over year Trasimene improvement implicit implicit in our guide is mostly a result of a strong recovery in international demand as compared to omicron impacted first quarter 2022.
This outperformance is overcoming west, Florida demand, which is still recovering from hurricane Ian.
All indications are that unit revenues will continue to remain strong through the summer, including observable bookings overall industry capacity across our network loyalty spend contracted distribution agreements and local economy metrics.
And scheduled service through the next year, we expect to continue to build out our MSP operation to its natural share to that end, we've decided to postpone the restart of our summer Hawaiian operations until 2024 keep in mind that in the first quarter.
Which is typically our strongest of the year.
Keep in mind that the first quarter is typically our strongest of the year under constant deal of normalized demand.
I expect charters to put a big growth numbers in 2023, mostly were focused on long term contracted charter revenue, we've expanded our casino operation to five aircraft and added a second aircraft to our VIP operation.
I expect to have eight aircrafts committed to contracted charter flying by the end of 2023 counting our 12 cargo aircraft that brings our contracted fleet to 20 aircraft of 55, we have in service all of these aircraft fly it consistently operate consistent operational levels with pass through economics. This operating base allows us maximum.
Flexibility with our scheduled business.
I expect our sports business to grow this year as well focused on collegiate sports at Major League soccer.
Charter demand remains strong and we believe its generally underserved by the industry.
Our cargo business will improve this year due to contracted escalation, but we expect volumes to be consistent year over year as we focus on building out our scheduled in charter businesses.
On the fleet, we will continue to be opportunistic buyers I expect most of our 2023 growth to come through utilization increases, which remain well below 2019 levels. This will allow us to deploy to deploy capital for debt repayments through amortization consider share buybacks and some prudent infrastructure investment like our new.
Raining centers that opened in <unk> and technology to support our operations.
And that will continue to find the growth aircraft that we need as we need them and with that I'll turn it over to Dave.
Thanks Jude.
We're pleased to report strong Q4 results, which I'll detail in a minute near the upper end of our guidance range for both revenue and operating margin adjusted pre tax income for the quarter was $10 3 million or 39% improvement over Q4 of 'twenty one despite an increase in fuel prices of nearly 44% and the impact of the new pilot agreement.
That we signed near the end of 2021.
Although we are now comparing our results to prior year. It is important to note that our Q4 adjusted pre tax income is nearly 26% higher than it was in Q4 of <unk> 19.
Additionally, we grew Q4 2022 year over year capacity on both the system block hour and ASM basis by 10% and 14% respectively.
Q4 system block hours were 37% higher than they were in Q4 of 19.
Let me start with a discussion of revenue and capacity.
As you noted the revenue environment remains very strong Q4 of 22 total operating revenue of $227 2 million was 31, 6% higher than the year ago quarter.
The scheduled service business is particularly strong as <unk> grew 27% versus last year, and an almost 14% growth in scheduled service ASM.
Ticket plus ancillary revenue grew 45% year over year as we saw an increase in total fair to $177 36.
Combined with an increase in load factor from 76, 6% last year to.
84, 4% in Q4 of 'twenty two.
This strength in unit revenue shows no signs of abating as we move into the first quarter.
The story is the same for the full year 2022 with scheduled service track some growing almost 37% on an increase in scheduled ASM of 16%.
Both total fare of $175 29, and load factor of 83, 5%, where the highest full year result, since 2018, when we began our conversion to a single class configuration.
We finished 2022 with full year revenue of $894 4 million, a 44% increase over 2021 and a record for Sun country.
Charter revenue grew in the fourth quarter by 11% as we saw another quarter of strong growth in flying under long term contracts referred to as program charter and steady improvement in our AD hoc business.
AD hoc charter revenue doubled versus Q3 of 2022 and is showing steady progress as we continue to add pilots to pursue these opportunities.
We've made a concerted effort to grow the amount of our charter business under long term contracts and we've been very successful so far.
For the full year program charter revenue was $121 $7 million nearly at nearly two five times higher than it was in 2021, and we feel there remains room to grow.
We added the equivalent of a third aircraft, serving our Caesars contract in the fourth quarter of 2022 full.
Full year revenue for the AD hoc charter business is still about 60% below its peak in 2019, but as we continue to add pilot resources, we expect to see steady growth in this segment.
Cargo revenue grew 5% in the fourth quarter on a small decline in capacity for the full year of cargo revenue declined 1% on a 4% decrease in cargo block hours. During the first half of the year, we had numerous Amazon aircraft and heavy maintenance, which drove the block hour decrease.
Our cargo flying remains a consistent source of revenue in all environments and we do not expect this to change in the future.
Let me turn now to costs, our fourth quarter, adjusted CASM increased 7% versus last year for.
For the full year, adjusted CASM increased 9% year over year.
Similar to what we've been saying all year. The main drivers of this cost increase had been twofold.
First we have been smaller than we had initially planned to be due to labor and aircraft constraints.
In 2022 results reflect the cost of the new pilot agreement, we signed at the end of 2021. This is an important point as our results as the results of many of our competitors have yet to fully incorporate the cost of our recently completed our upcoming new pilot contracts.
Two additional aircraft are expected to enter service in Q1 of 'twenty three as.
As we grow into our expanded fleet throughout 2023, we expect to see a deceleration in unit cost increases.
Let me say a few words now about our strong balance sheet. We finished 2022 with $289 $4 million in total liquidity, including $264 7 million in unrestricted cash and short term investments our.
Our year end net debt to adjusted EBITDA was two 7%.
During January of 2023, we completed the $25 million ASR portion of our share buyback program.
Purchasing approximately one 4 million shares at an average price of $18 23.
We still have $25 million in board approved share repurchase authority and will execute any buybacks under the program opportunistically considering the liquidity needs of the business.
Let me switch now to our Q1 2023 guidance.
As I said previously we're seeing very strong demand with approximately 80% of our planned Q1 passenger revenue already booked and we expect this strength the strength to continue throughout the quarter. Total Q1, 2023 revenue is expected to be between 280 and $290 million, which would be 24%.
88% higher than Q1 of 2022.
We expect total block hour growth of three 5% to six 5% we're.
We're expecting an operating margin of between 15% and 20% assuming a fuel price of $3 58 per gallon.
Just a quick reminder, Q1 is historically, our strongest quarter of the year and we expect to see seasonal trends similar to previous years.
<unk> of our unique diversified business remains strong and our model is highly resilient to changes in macroeconomic conditions, our focus remains on profitable growth.
With that I'll open it for questions.
Thank you.
As a reminder to ask a question. Please press star one on your phone and wait for your name to be announced to withdraw. Your question. Please press star one again the asset for the Q&A. If you. Please yes have one question and one follow up.
One moment for our first question.
Our first question will come from Ravi Shanker of Morgan Stanley . Your line is open.
Hi, Thanks, good morning, everyone.
Great to hear the strong commentary for <unk>. If you can just kind of give us a little more detail there how far out the booking curve can you see can you see box spring break maybe into early summer as well.
Does it feel like even the tail end of that.
Booking curve continues to remain strong just trying to get a better sense of what the rest of the year might look like.
Hey, Ravi good morning as Jude.
So the main thing Thats impacting the first quarter relative to the first quarter of last year is going to be the recovery in international demand.
We have a sizable international network traditionally during the first quarter last year is affected heavily by omicron.
We're seeing strong demand across the Caribbean Mexican market Central American markets.
This sort of unprecedented from my experience.
Looking at traffic down there.
We have really good insight as Dave mentioned, we're over 80% sold for the first quarter. So.
Theres not a lot of variance there most of the variance in our first quarter revenue will come from how much charters, we're able to sell into the March period.
Looking past the first quarter April is pretty well clear at this point and it continues the same trend of fairly dramatic year over year unit revenue improvements.
This summer we have a little less insight on just because.
This summer relative to the first quarter tends to book more close in.
And we shipped our network to more domestic markets and shorter haul markets also tend to book more close in.
But if we all were looking at is unit revenue in fares and ancillary production things like that for the bookings that we can see which again for the summer period as well below 20% of our volume.
It is very very strong I don't see anything that would indicate I can't find any weakness across the network I was.
I was concerned about <unk> impact because fort Myers is a big item.
A big part of our network in March in particular in that area of the country is mostly recovered it's still lagging the strength in other areas but.
There's really no weakness that I can find anywhere aircrafts are scheduled service network.
Got it that's that's a pretty definitive statement and so maybe as a follow up to that kind of sounds like you are at.
The biggest impediment to kind of growing into that strength is going to be capacity can you just comment on what the pilot availability situation is like.
And then what do you expect in terms of.
Maybe any headwinds there are kind of easing in the next 12 months.
Hey, Ravi it's it's Dave.
Yes, so our pilot situation continues to get better as we've detailed in talks through a number of times we've had.
Some particular issues in our training pipeline.
We continue to have no issues with sort of recruiting pilots.
To come to the company so Thats Thats continues to hold.
Steady progress.
Identifiable improvement in pilots that are going to the line here, especially over the last two or three months, we expect that positive momentum to continue in the back half of the year I think I mentioned, three 5% to six 5% block hour growth for.
For the first quarter I think were looking now at block hour growth for the year of around 10%. So we will be accelerating as we move into the summer months and then into the back half of the year.
Particularly positive because we'll be putting up.
In excess of double digit growth rates by June .
Which is so we'll be able to catch most of the.
The growth rate will align with where the peak opportunities there.
Fantastic Thanks, Bob.
Thank you.
One moment please for our next question.
Okay.
Okay.
Our next question will come from the line of Duane <unk> of Evercore. Your line is open.
Hey, Thanks, Good morning, Hey.
Hey, Duane Duane.
Just just to follow up on on the last question and I know, we had a interesting couple of years to say the least and prior to that you had significantly restructured this business, but that 80%.
80% booked for <unk> do you have any feel for how that compares to kind of normal if there is such a thing as normal.
Yeah. So we'll probably ahead just on an estimation that of about five points relative to history.
We're booking we are booking ahead.
A lot of that is just us.
Aligning our algorithms to the demand environment, we need to load higher fares from the beginning.
Recall that pricing heuristic algorithms, so bookings determined fares and a lot of that depends on our expectation going into the selling period, we just.
We're aligning to the new environment. So we're probably ahead of by about five points.
That's great and then.
On Capex can you just remind us.
How are you thinking about 2023 and 2024.
Maybe versus the year, just ended and where do those plans stand today and.
Are you seeing any signs that the used 737 market is loosening up.
As Max deliveries finally take take the appropriate pace here.
Yes without going into precise numbers, let me give you some color on capex. So.
We grew we added between seven and eight aircrafts last year I should say than in.
'twenty two.
This year, we are not going to add as many planes as Jude mentioned, the fact that we're that we're going to get growth most mostly through utilization, but I would expect us to add probably one or two aircraft into the fleet. This year, so that capex will be down significantly.
We're already lining up deliveries right now for 2023, and even into I'm, sorry for 2024 and even into 2025. So we expect to resume growth in 'twenty for probably seven to nine aircrafts in the same in 2025, so we're going to take a little.
Bit of a pause here, which I'll bring capex down.
In 'twenty three.
And on the market I'm pretty comfortable not being a buyer right at the moment.
The opposite has happened Duane.
A pretty strong market for 737 to 800 values.
The airlines across the world extend leases to accommodate delays in their Max order stream.
There's also a sort of a broad rebound in demand across the globe, we're still seeing some spot bankruptcies that flyer.
In Norway last week.
Or this week.
These plans get absorbed fairly quickly so we're not going to get in my view.
Lot of price relief, but I'm confident we'll get the claims we need.
Makes sense. Thank you very much.
Thank you.
And one moment. Please next question.
Our next question will come from Catherine O'brien of Goldman Sachs. Your line is open.
Hey, good morning, everyone.
Paul.
Okay.
I know unit costs have been lumpy.
You saw for unit cost in <unk> based on revenue and operating margin and maybe taking scheduled later for you Sam we get the CASM ex growth high teens year over year, I guess first correct me if I'm wrong, but then you alluded to like a lot more block hours coming online you are doing that via higher utilization, which I'm guessing is pretty accretive.
On the CASM X side.
I don't know if theres, maybe like some efficiencies, we're getting as we move through the pilot contract.
Find it helpful. If you guys could talk about like the level of deceleration on CASM ex we should expect from maybe that high teens in the first quarter.
Yes first of all I think I'm not sure what the math is there we can go through it but but that number is too high it's not going to be sort of close to the high teens from a CASM basis for the first quarter.
I would expect probably a number high single digits very low double digits and then as we continue growing here through the first quarter into the back half of the year that should moderate significantly as we get to the back half of the year.
So.
I talked a bit about CASM year over year, we should see any increases that we see in 2023 will be significantly lower than what we saw from 'twenty one to 'twenty two.
Hey, Catherine welcome back one other bit of color.
Is that just.
Recall, we did a pilot contract a year ago. The rest of the industry is rolling through pilot agreements now.
So our cost trends will look really good relative to the industry based on that fact.
Yes for sure.
And then maybe this is my follow up.
Really strong growth on the ancillary side for you guys can you walk us through where the future opportunities lie there is that going to be optimizing for you are there any step function changes the offering thanks a lot.
Sure, Yes, I mean, so first of all.
We continue to guide you to look at total revenue per passenger.
Ancillary initiatives that increase ancillary unit revenues have.
A an effect on the airfare, but increased total revenue per passenger so.
Always keep looking at it like that particularly bag fees in seat assignment revenue convenience fees and things like that that most airlines are pushing really heavily on raising right now.
But we're focused on in contrast is on new products, we launched our bundled solution in the back half of last year, which is performing as expected. We're also.
Like most airlines getting a lot of uplift through our loyalty program, which is setting records in every quarter certainly in the last quarter.
<unk> was consistent with that and then what's exciting for me in particular is our third party products, which is us selling hotels and cars and travel insurance to our customers.
And that is purely accretive.
Every bit of revenue, it's incremental doesn't affect the airfare for those products.
So we're really excited to see that in those on a unit basis are increasing by triple digits.
As we rollout.
Our car solution for the first time really.
Which is really really exciting so I think youre going to see significant we're going to continue to have a tailwind on unit.
Ancillary revenues.
And for US in particular, I think that's going to drive continued tailwind on.
That's great color really appreciate it.
Sure. Thank you.
Thank you one moment for our next question.
Okay.
Our next question will come from Helane Becker of Cowen Your line is open.
Alright, thanks, very much operator, hi, everybody. Thanks for.
The time this morning.
On Capex maintenance.
Maintenance Capex.
You mean like a total absolute dollar amount of maintenance capex.
Yes.
Probably for the year.
Depending on exactly what we call maintenance Capex. We include some of our engine purchases in there probably on the order of 40 million to $50 million.
Okay and that will be financed through cash I guess.
That would be financed through cash here.
Okay. Thank you and then just my other question as you think about aircraft are you just looking at the eight.
<unk> hundred mgs or <unk>.
737, seven hundreds make any sense for you what's what's the like your optimal size that you would be looking for.
We think that 900, good work as well the 800 to 900.
Perfect. Okay. Thank you.
Thanks Helane.
Thank you.
And one moment for our next question.
Our next question will come from Michael Lindenberg of Deutsche Bank. Your line is open.
Hey.
Good morning, everyone, yeah, good good numbers and outlook.
Just on the aircraft I want to clarify.
I thought you said you are taking two airplanes in the March quarter, and then Dave said.
We'll be taking one to two this year is that one to two that are incremental to the two because maybe those two showed up last year and they're being put in service.
I wanted a clarification around that yes, it's what you just said so the two that are coming in in the first quarter.
Were purchased last year.
And going through induction there'll be entering service and then the one to two that I mentioned are incremental to those two.
And then.
These airplanes theyre, all being cash financed or debt finance right I mean, there is.
Youre moving you've moved away from leases right.
Yes, I mean, we.
We don't do it we haven't done any operating leases and we don't intend to do any operating leases, we've either debt finance things pay cash for them or enter into finance leases, which give us basically a purchase option.
So yes, that's how we finance all of them and then just from a modeling perspective, you were down to like just over $1 million of rentals does that does that go to zero sometime this year or is it next year or is there always going to be a little residual there.
We have a couple of more aircraft that are on operating leases I think probably 2026 to.
2020 for 2024 for both of them, yes. So after that I guess, a Reynolds will go <unk>.
Zero, Yeah, there might be some engine leases from time to time, but yes, a few miscellaneous things like that that line should drive zero. Okay. Good and then just lastly.
Judy you have made some interesting comments about how things have sort of shifted and changed through COVID-19 in Q.
Few comments, maybe a month Hello. This is actually several months ago about.
How demand was shifting through the weekend.
Less business travel or more leisure I think he made a comment about the fact that the fares were so high during peak period that it was pushing more.
More demand into like Tuesday, Wednesday, and helping out with sort of <unk>.
Volatility on demand and pricing through the week.
Any.
Any additional thoughts around that.
Interesting. Thank you.
Yes.
As it relates maybe to your March quarter demand.
<unk>.
So I think.
There's been a lot of commentary about leisure and travel patterns being kind of pushed into a more flexible.
Customer base, where you could travel on Tuesdays you can travel in off season.
In my commentary was mostly that I see the same uplift in off peak periods, but I don't have any reason I can't I can't go as far as Scott Kirby for example, the jaw causal relationship and I think we should be careful about it. So what we're seeing is dollar improvement.
Roughly the same across.
All periods.
But on a percentage basis then.
It's a bigger percentage increase in off peak.
There is an opportunity for us to expand utilization into off peak periods, but were.
But I am very careful about.
Adjusting that entire strategy towards taking advantage of these opportunities because I think a big reason off peak has been expanding the way. It has is because payers are so high and so you get that value shoppers that are that are adjusting their schedules to find lower fares.
<unk>.
I don't know if thats really a permanent shift in behavior.
But it sounds like you will take advantage of it when you can rate, yes. So if you look at.
Monthly year over year percentage growth.
We will show the highest percentage growth in September of two.
<unk> 2023, that's our weakest month, yes, and Thats a function of us just having more opportunity in those months because payers are generally higher.
Sure.
Great.
Very good thanks, Thanks, Charlie.
Yes, Thanks, Mike.
Thank you.
One moment please for our next question.
The next question will come from Scott Group of Wolfe Research. Your line is open.
Hey, Thanks, Good morning, guys, Hey, Scott.
Pretty much everyone else has given us some thoughts on full year.
I'm wondering if you could do the same I understand Q1 seasonally be the best margin quarter, but do you feel good about double digit operating margins. This year can we get back to the 12 12 five we did in 2019 just any thoughts.
Yes, we're obviously not giving full year guidance yet but.
We feel very good about the entire year.
Our 2023 plan is is very strong.
I don't want to give specific operating.
Income information, but.
We will be largely back on track in 2023 is our plan.
Historical margin levels.
Okay.
And then as other airlines get their labor deals done.
Do you worry that.
Rates reset higher that.
Maybe some attrition issue start to.
Emerge again.
I think it's it's it's a concern maybe less attrition issues and more like availability issues.
But there's.
Theres been a number of new deals we haven't really seen.
We haven't really had any problems so far are attracting folks.
<unk>.
So we're not overly concerned about that and are actually.
Our attrition figures continue to underperform, what we forecast them to be so attrition is actually lower than we've been planning.
<unk>.
So intuitively you would say, yes that as others increased wages theres going to be some competitive pressure, we haven't seen any impact of that so far.
To the extent it emerges at some point or are there mechanisms in place where you can make adjustments if needed would you think about that.
We just signed a new deal at the end of 2021.
We'd make spot tweaking here and there if we needed to to solve particular issues, but we don't contemplate any wholesale changes in.
And also the contract that we have had.
Correct escalators.
Daniel.
Greg.
Changes as well.
Our pilots will get raises irrespective of amendments to the contract.
Thanks, Scott Thanks, Scott.
Thank you.
Again to ask a question. Please press star one on your phone and wait for your name to be announced to withdraw. Your question. Please press star one again and also we ask that you. Please limit yourself to one question and one follow up.
One moment, please while on next question.
The next question will come from Brandon Glinski of Barclays. Your line is open.
Hey, good morning, Judy and Dave Thanks for taking the question I guess, Hey, Brendan yes.
Hey, guys I'm not looking for specific guidance, but.
Coming out of the IPO, we understood the business make sure you guys do have a unique model relative to your competitors.
The Amazon fire and the charter flying.
And hypothetically you guys should probably be generating margins towards the top end of the group.
Guess, what is the impediment as you look forward in 'twenty three or do you think.
The pilot deal done last year was the biggest issue.
Yes.
Call. It two thanks to your attention one is that Amazon has low margins right at the moment, because we increased pilot.
Pay rates faster than the escalation in the contracts that <unk> margins were.
That will be a temporary issue and it will be better this year.
And then it will be even better in 2024 et cetera. So there's escalators built into the Amazon contract exactly and then the second thing is right now the highest margin opportunities are constrained mostly today by pilots.
And as we as we've talked about as we bring.
Our staffing up then we'll be able to add particularly during those periods of time so.
That was what impacted us most strongly during the summer 2022, which we talked about as we were kind of under allocated into the markets that saw the biggest rises, namely big city connectivity in Minneapolis in our network. We are under allocated there because we didn't have the group that will be different this summer.
Margins will continue to expand as we look forward into 'twenty four yes, I think I think it sort of more broadly in answer to your question. The thesis that we had in place. When we went public remains and we think we can generate either the top or one of the very near the top of the industry margins on a go forward basis, and our 2023 plan reflects that.
<unk>.
As Judy said.
Some temporary things out there.
<unk> growth as we can continue to <unk>.
Continue to hit our growth targets.
Plenty of opportunities out there, we don't think we're at sort of marginal fare levels, yet and there is plenty of growth opportunity for us.
We actually think that 2023 growth plan is achievable and actually somewhat modest and if we hit those numbers. We will be we will be we believe near the near the top of the industry again.
Okay I appreciate that and then maybe as a quick follow up on the Amazon comment do you guys have built in.
Cost indexes there so like if your pilot wages go up and the Amazon contract will adjust or is that just the normal rate increase that you guys had negotiated previously.
David.
It's normal.
And pilot escalation has been lumpy so.
Yeah.
They eventually will align but sometimes we're ahead, sometimes we're behind exactly.
Okay. Thank you Bob.
Thank you.
One moment please for the next question.
Yeah.
Our next question will come from Christopher <unk> with Susquehanna. Your line is open.
Good morning, everyone.
Could you comment.
Comment in your prepared remarks on the 20 aircraft that are contracted out of the active fleet.
55 is that do you have a.
Target level for that piece of the fleet that you want a coupon.
Contracted or charter or is that just going to move around in response to the market and then could you just.
Just remind us of the economics here.
Utilization.
Minimums are there if any and escalators that are built into those contracts. Thank you.
So I would look at it on a black hour basis, and we would be optimized it around a quarter of our block hours allocated to fixed fee contracts.
And thats because of the men's and Max is associated with our pilot contract. So if.
If those contracts service minimum our obligations to our crews than were optimized for being peak off peak on our <unk> service. So we wanted to keep it around 25 now.
Those opportunities.
Our reliably presented to us and we didn't Kansas plug come out whenever we want so we're going to continue to take those opportunities as they come and build up that side of the business and try to keep scheduled service.
Growing as we can and.
That's basically the philosophy, so about a quarter of our block hours now.
Now each of these contracts are different.
Talking about economics in the case of the Amazon contract. For example, there is a fixed component and then a variable component.
So margins expand as utilization goes down actually.
Most of our fixed fee contracts have something similar where there is a minimum our obligation from the customer.
Customer.
And then a variable component beyond that and that variable component in many cases actually gets cheaper for them to incentivize more flying.
All of these businesses are going to produce really high margins and the stability of that operation is really what we're after.
I don't know, Chris I don't know what else I can tell you on those.
Okay.
Thank you and then on a follow up so you said utilization driven growth this year could.
Could you just put a finer point there on the moving pieces stage gauge departures and then peak versus off peak. Thank you.
I mean, our peak utilization numbers are going to be the nature of the business is a very peaky business, our peak utilization numbers will be.
<unk> 13 hours a day, our trough utilization numbers will be.
Mid to high single digits.
Okay, Brian Thank you Amit on Asia.
Yes.
We do see it coming down a little bit in the summer.
As we take advantage of the growth opportunities that we talked about our new markets out of Minneapolis, which I would say are all booking expectations feel good about those so there will be a little bit of seasonality in terms of the stage length, where we do longer in the first quarter and then we shorten it up a little bit.
The.
Summer, but.
Corresponds with what Dave was saying.
Okay. Thank you.
Thank you.
One moment please for our next question.
And for our next question, we have a follow up from Duane <unk> of Evercore. Your line is open.
Hey, thanks.
Maybe a small percentage of your business, but.
For large tour operators.
Apple leisure as an example.
Can you talk about it in this backdrop, how willing you are to sell blocks of inventory to an apple leisure and how that maybe compares to.
For the past and how you think about that business.
When the fare environment and the demand environment are so strong.
Keep in mind that we had.
Two network strategies that are fairly different we have minneapolis origination and thats been expanding into the upper Midwest.
And those markets in Minneapolis in particular, we're creating a really strong brand we're investing in the brand through marketing, we intend to originate the maximum amount of that capacity as possible through direct distribution.
Not having any issue with that and so that's our strategy in partnering with an apple or any kind of tour operator in those markets isn't that exciting to us and.
In contrast, though we're also.
Augmenting our winter peak with summer opportunities, most notably out of Dallas, but also Houston, and Central Texas and South Texas.
Yeah.
Many other markets in the future because some are such a strong peak for most markets.
With.
What we would say is a price driven consumer where we're going to be competitive during peak periods.
Generating an average fare that's higher than the incumbents, because we're only capitalizing on those very peaky opportunities in those markets.
We are very open to block sales.
Our capacity with two.
<unk> operators Otas other distribution partners.
And in my initial comments.
Pacifically called out contracted flying that's kind of what I'm talking about and we're negotiating those rates.
Now our recently and we're seeing a lot of demand from them that we're more than happy to to offload some of our capacity into those markets.
Do those partners channels.
Really interesting Jude thank you.
Sure.
Thank you.
And then I am seeing no further questions in the queue I would now like to turn the conference back to Jude Bricker for closing remarks.
Thanks for your time, everybody, we're really excited about where we're headed it's good to kind of get.
Some of the challenges of the last year behind us and focus on growth and execution.
Thanks for joining us on the call without in about 90 days. Thanks, everybody.
This concludes today's conference call. Thank you all for participating you may now disconnect have a good day and enjoy your weekend.
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The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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