Sun Country Airlines Holdings Inc. Q1 2023 Earnings Call
Speaker 2: As soon as Andrew and I'll be your operator for today's call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question and answer session.
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Speaker 2: I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin.
Speaker 3: Thank you. I'm joined today by Jude Breaker, Chief Executive Officer, Dave Davis, President and Chief Financial Officer in 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 and constitutes for a living statement. Our arcs today may include four looking statements who are based upon management's current release expectations and assumptions and are subject to risk in the 30s.
Speaker 3: Actually, results make different material. We encourage you to review the risk factors in the cautionary statements that are on in our earnings release and our most recent F&D guidelines. We assume no obligation to update any poor look of statements. You can find a first quarter earnings, press release on the Investor Relations portion of our website at highr.soncountry.com. With that said, I now like to turn the call over to choose.
Speaker 3: made different materially. We encourage you to review the risk factors and cautionary statements on when and our earnings release and our most recent FACC violence. We assume no obligation to update any poor looking statements. You can find a first quarter earnings press release on the Invest Relations portion of our website at highr.tuncountry.com. With that said, I now like to turn the call over to you. Thank you, Chris. Good morning, everyone.
Speaker 3: Our diversified business model is unique in the airline industry due to the predictability of our charter and cargo businesses were able to deliver the most flexible schedule service capacity in the industry. The combination of our schedule, flexibility and low fixed cost model allows us to respond to both predictable leisure, demand fluctuations and exogenous interests.
Speaker 3: winter. We finished the quarter with 99.9% controllable completion factor in our scheduled service. Thank you to all our team members working every day to deliver for our customers. I'm proud to announce our first quarter adjusted operating margin of 20%. I get plenty of questions from the investment community about what some country results would look like in a normalized...
Speaker 3: percent of our flying has fuel as a pass through. I want to point out, however, that during peak periods like March, we fly as much as we're able. So fuel prices during that time are passed through directly to results.
Speaker 3: Today we're buying fuel about 60% cheaper than we were in the first quarter average price.
Speaker 3: Secondly, we had particularly challenging weather this winter in Minneapolis. Challenging weather isn't rare, but our network is focused on Minneapolis this time of year in the Twin Cities had one of the top snowfall winners on record. That's probably good for demand, but drives a lot of costs in our business. We had two major snowstorms that shut down Minneapolis Airport, which is rare.
Speaker 3: The resulting cancels from these closures negatively affected results by several million dollars. Some regions of our network posted uncommon results that I don't think we should expect to be recurring. West Florida is a big part of our network this time of year. The region continues to recover from Hurricane Ian.
Speaker 3: We expect the region to be back next year with higher unit revenues and capacity.
Speaker 3: Minneapolis International in contrast was particularly strong this year. One Q22 was affected by Hama Kron so year-over-year improvement was dramatic.
Speaker 3: in the future.
Speaker 3: Finally, in most impactful, we remain block hour constrained due to staffing. In 1Q19, we flew our aircraft 9.7 block hours per aircraft day on average. This quarter, our utilization was 7.3. Increasing flying on the same fleet will have substantial positive impact on results.
Speaker 3: And so I expect future 1Q margins to exceed 1 Q2 3 more often than not.
Speaker 3: Looking at the rest of 2023, we continue to see strong, leisure demand across our network, which is currently selling through mid-December. Of particular note, we expect the recent increase in Ancillary Revenue to continue to drive positive transoms, even as we lap the COVID recovery and increase schedule service growth rates going into the back of the year.
Speaker 3: I also want to call out a fleet deal that we announced about a month ago. We purchased five 737-900ERs that are currently leased to another operator until their return in induction in our fleet. We're not opening a new line of business. This is just a way for us to guarantee future capacity growth and get scale in a new variant.
Speaker 3: We expect these aircraft to contribute more to our results in our operation while we're leasing them out. However, in the meantime, we expect a positive impact of about a million dollars a month in operating income due to the five leases.
Speaker 3: And with that, I'll turn it over to Dave.
Speaker 3: Thanks Jude. We're pleased to report very strong Q1 results, which I'll detail in a minute, that were the highest in Sun Country's current history. Total revenue, op income, adjusted pre-tax and adjusted net income were the highest they've been since we transitioned Sun Country to the airline that it is today, starting in 2017.
Speaker 3: Despite an increase in fuel prices of nearly 8%, adjusted pre-tax income for the quarter increased 235% versus Q1 of 22 to $52.5 million.
Speaker 3: The adjusted pre-tax margin for the quarter was 18%. I'll start now with the discussion of revenue and capacity.
Speaker 3: The revenue environment remains very strong. Q123 total operating revenue of 294.1 million was 30% higher than the year ago quarter. Total block hours grew by nearly 4% year over year and system ASMs were up 1%. Scheduled service business remains particularly strong. Scheduled service trasm 35%
Speaker 3: and a nearly 9 percentage point growth in load factor to 88.1%.
Speaker 3: We see signs of revenue strength in the second quarter, even as we start to lapse on strong gains last year.
Speaker 3: Charter revenue grew rapidly year over year with a 41% increase in the first quarter versus Q1 of 22. Our program Charter Business, which is flying down under long-term contracts, drove the growth as program block hours increased 52% versus last year.
Speaker 3: The bulk of this increase was due to increased flying under our seizures and MLS contracts.
Speaker 3: Ad hoc Charter Flying, which was 14% smaller than Q1 of 22, continues to be undersized versus both the potential opportunity and its historic level at Sun Country.
Speaker 3: Demand in the scheduled service business led us to allocate our limited capacity there versus picking up ad hoc trips.
Speaker 3: As our capacity continues to increase, we expect ad hoc flying to grow substantially. As a whole, we expect charter block our growth to continue throughout the year.
Speaker 3: Cargo revenue grew 11% in the first quarter on a 5% increase in cargo block hours. As a reminder, annual rate escalations for this contract go into effect in mid-December in every year of the agreement. The cargo business remains a steady cash-generated business for Sun Country that serves to smooth the peaks and valleys in our passenger service schedule.
Speaker 3: Turning now to costs. Our first quarter adjusted chasm increased 14% and then, versus last year.
Speaker 3: which negatively impacted unit costs. Our average aircraft count in Q1 of 23 was 21% higher than last year, while total block hours grew by 4% over this period. We're undersized for the fleet we have in place, and future growth should come at very high marginal profitability. An important thing to note is that lower utilization levels are not necessarily a drag on overall profitability. Our schedule is highly peaked and designed to maximize unit revenue, so having aircraft available during periods when demand is strongest is important, even if the utilization are off peak times is low.
Speaker 3: For instance, aircraft utilization in March was 8.2 hours per day, while at average 13 hours per day on peak days in the month.
Speaker 3: Adjusted chasm was also impacted by a 26% increase in pilot costs as a contractual increase in pay rates took place January 1st and staffing levels have increased to support our future growth.
Speaker 3: Turning to the balance sheet, we finished the first quarter with 261.6 million in total liquidity, including 236.9 million in unrestricted cash and short-term investments.
Speaker 3: Our net debt to trailing 12-month adjusted EBITDA was 2.6 times. During the quarter, we also reproached 750,000 shares of our stock at a price of $19.75 is part of an Apollo Global Management Secondary offering.
Speaker 3: We still have 10.2 million in board approved Sherry Purchase Authority and will opportunistically execute any future buybacks.
Speaker 3: This includes the revenue that we expect to receive from the aircraft that are on lease to Oman Air. We expect total block hour growth of 11 to 14 percent. We're expecting an adjusted operating margin of 11 to 16 percent, assuming a fuel price to $2.85 per gallon. The fundamentals of our unique diversified business remain strong and our model is highly resilient to changes in macroeconomic conditions. Our focus remains on profitable growth. Without we'll open it for questions. Thank you. As a reminder to ask a question you will need to press star R11 on your telephone. Please stand by while we compile the Q&A roster.
Speaker 2: And our first question comes from the line of doing Fending Worth with Evercore ISI.
Speaker 4: Hey, good morning. Thank you. Just on the cadence of capacity growth recovery for the balance of the year, and I guess that's mainly a scheduled service question, but maybe you could talk about it. You know.
Speaker 4: on a block hours basis across your segments and maybe specifically for
Speaker 4: You know, the scheduled service business as well. Are you getting kind of the acceleration at the rate that you previously hoped?
Speaker 3: Yeah, we're seeing
Speaker 3: We are definitely seeing acceleration. So growth in the second quarter versus the second quarter of 22 will be higher than first quarter growth. Third quarter should be a substantial growth quarter. We're expecting strong summer and we're gearing up to grow pretty substantially.
Speaker 3: Fourth quarter, a grouple taper a little bit, not for any capacity constraint reasons, just because of demand patterns. But we're seeing...
Speaker 3: We're seeing the increase in capacity that we had planned for 2023, you know.
Speaker 3: We're not growing as fast as we would like or really as fast as the opportunity presents itself, but growth will be substantial, particularly in Q3 and more so to come in Q2 as well. Just a few more comments. You know, let airlines have philosophies about over scheduling and then cutting down when they have a lot of daily frequencies.
Speaker 3: or under scheduling and then adding in this case for us where we see certainly certainty developing in our staffing.
Speaker 3: So we, if you look forward in our selling schedules to the end of the year, we load a smaller schedule than we hope to be able to operate. Additionally, at Sun Country, we have a lot of close-in charter sales and charters continue to grow as well with about the same pace as what we're seeing in our SCED service business.
Speaker 4: Okay, great. And then just with respect to variability of your scheduling, just by the nature of the model, you kind of have to make a bet on seasonality and you're shaping your schedule pretty aggressively. Any surprises in seasonal demand patterns, in other words,
Speaker 4: Are the off peaks as off-peaky as you're scheduling to? Or maybe what do you make of comments from some of the industry competitors that the off peaks are kind of worse?
Speaker 3: Thanks, Duane. Yeah, I mean, from my perspective, the surprise is that it's kind of like it was before COVID, where we had an incredibly strong spring break travel season that begins for us in mid-February and goes to Easter. And it was as good as anything we've seen.
Speaker 5: And then the last half of January and the first half of February , you know.
Speaker 5: We as weak as they had been in the past also. Now what I'd say, because there's been a lot of discussion about bleager, and let me just define that term as I would think about it. It's not people going on a business trip that then tack on a couple days of leisure. It's people that can work from anywhere, and therefore,
Speaker 5: can travel a little more frequently or go to different destinations. So what I've seen in our network is
Speaker 5: a really substantial increase in secondary destinations. Leisure, as I kind of grew up in the space, was always about Orlando and Vegas, and now it's really diverse with particular expansions in smaller markets like the Northern Rockies and Tucson and Hilton Head, Savannah and Charleston and Asheville and Destin.
Speaker 5: up pretty well for our business model.
Speaker 6: Okay, appreciate the thoughts.
Speaker 6: Yep. Thank you.
Speaker 7: And our next question comes from the line of Ravi Shankar with Morgan Stanley . Thank you, Morning, gentlemen. Maybe just continuing on that line of conversation, but looking far out at the new set that your booking curve extends out to almost December right now. So what does the forward curve look like? Any signs of cracks in the mound, particularly kind of maybe post-labor day?
Speaker 7: and that posts summer travel search.
Speaker 5: It's really a robby issue. It's just too early to comment on.
Speaker 5: post-labor day. I mean we wouldn't sell that. Historically that time of year anyway sells close in and there's no difference really.
Speaker 5: Broadly across the network we're selling well ahead of 2019 levels. So in other words, the percentage of our seats that are sold as we sit here today looking forward into the advances is higher than we were in the same time in 2019 and fairs are substantially higher.
Speaker 5: then they wore that period and they remained higher than they were in the summer peak of last year, which was a pretty strong demand environment.
Speaker 5: You know, we're growing again really rapidly into that peak period. But I'd say broadly.
Speaker 5: strength everywhere. I'd call out areas of strength. International continues to remain strong. That's been sort of echoed by other airlines on their earnings calls. We turn our international network to originate out of the south in the summertime, and that's doing really well. The Pac Northwest is looking really, really good.
Speaker 5: With the resurgence of like Alaskan travel, I think that plays into the leisure thesis. Last summer was really about big city destinations from Minneapolis for us. And that's coming back really nicely.
Speaker 5: You know, we're trying a lot of new things on the network and probably, you know, I'd like to see, you know, 20% of them.
Speaker 5: things and on the network and probably, you know, I'd like to see, you know, I don't know, twenty percent of them.
Speaker 5: fail, which is to say that we're trying things that might not work and we have other better opportunities. So I think that won't be any different from years past where we...
Speaker 5: cycle capacity into 2024 that we tried this year that didn't work out. But it looks really, really good. I honestly, there's nothing I look to try to find weakness.
Speaker 5: and it's difficult right now.
Speaker 7: That's a great comment. I might steal that from you. Maybe also a good starting point for a follow-up question, which is a little more of a theoretical question. Given your unique network and the reasons why a passenger flies an airline, given the MSP connectivity to the rest of the country and the world, just how macro-sensitive?
Speaker 7: or demand elastic or inelastic or your passengers do you think?
Speaker 5: Well, they're elastic for price, that's for sure. But that's no difference from other leisure customers. If what you're really asking is kind of how sensitive the Minnesota leisure customer is to the macro environment, then I would rather be in Minnesota anywhere if there was going to be a
Speaker 5: disruption because the economy is incredibly stable here and that's been proved out to many cycles of the past with really high affluent high propensity for travel and very stable economy that has industry dependencies that are food and healthcare and the like.
Speaker 5: You know, and we kind of demonstrated that through COVID a little bit where we outperformed the industry pretty dramatically, even on our sketch service business. But I don't think the key should be attributed to solely to the Minneapolis market, really the secret sauce is. I want to thank you guys for hanging out with us today with us.
Speaker 5: is being able to cut and add capacity without much change to your unit cost so that we can always find these opportunities of positive margin.
much change to your unit cost so that we can always find these opportunities of positive margin flying.
log out.
Very helpful, thank you sir. Yep.
Thank you. And our next question comes from the line of Catherine O'Brien with Goldman Sachs. Good morning, everyone. Thanks for the time. Hey, Catherine. Hey, Catherine. Sorry, probably I was in advance, like a multi-part cost one for my first one. And it's a story. And I don't know. You know? So people are into the Though I already told you the woman. I didn't know anything that didn't come back. It's them didn't come back. What's the
Can you just give us some more color on the cost outlook underlying your second quarter margin guidance? I think, you know, on my math, it implies some slowing in the growth year over year, but a step up in growth on both the Casimex and cost ex-fuel per block hour basis. You know, was there something about the 2Q19 comp that we should be remembering, or was there just some lumpiness and timing this year? I guess just, you know, I'm just trying to get a better sense of like, how we should think about this.
a cost per block our basis when you get back to that targeted utilization. Appreciate you letting me ramble on a bit here. Thanks.
Yeah so I would think I would think of it this way. First of all if you're looking back to 2019 obviously a lot has happened. It's like you said we've added a whole new line of business. We signed a new pilot agreement. We've had other wage pressures that everyone else has had. I think the story on the CASMx front is a pretty straightforward one for us. I mentioned during our during the prepared remarks that you know our aircraft utilization is dropped fairly dramatically. The number of average aircraft in our fleet is up substantially.
The number of pilot bodies is up substantially. Essentially, I would think of us right now as a little bit oversized for how much flying we're doing. So we've been steadily hiring. We've been steadily adding aircraft.
There's an opportunity for us as we add really pilot production capabilities here and we're making a lot of progress on that front to sort of grow into the size that we are now sized for.
The result should be high marginal profitability going forward. Not a need to add a substantial number of aircraft nor a substantial number of pilots in the near term.
That's really the underlying story on the Casim X front for us.
What we should see, what our plan is, is if you look at sort of on a quarter by quarter basis, that year over year pressure should ease a bit next quarter and then begin to ease substantially in the back half of the year as the strong third quarter growth kicks in.
You know, I'm a little hesitant to give sort of a long run chasm number at this point, but suffice it to say we expect the number to be trending down as we go forward.
Thanks so much for all that color. Super helpful. I guess maybe just on the ad hoc charter flying, when do you think you'll have enough slack in the system to pursue that more aggressively? Not to say that having all that contractual long-term charter locked isn't a bad thing by any means, but just trying to get a sense of when you think you'll have the slack.
So first, that there is ad hoc or not ad hoc is mostly about the certainty of our staffing, less about.
absolute staffing. So, you know, when we're going into a peak month and there's some, you know, we're dependent on some assumptions around attrition or hiring or any or training or something like that, then we're going to schedule to the low end of where we think we might end up and then we'll fill that gap with ad hoc.
So you're still going to see ad hoc flying grow through the year. But kind of what we really want to get to is where we're scheduling to the capability of the fleet and then filling off peak. T
with additional ad hoc opportunities as they as they become available and we're ways off from that but I would like to have Grant comment a little bit it runs through again as well with new
Yeah, thanks Jude. It's exactly right. The team does a really good job of sort of looking at into the future, placing our bets in terms of where we expect the most value and optimizing revenue and ad hoc as we've talked about has been the thing that's sort of been spilled off lately. I will tell you right now,
customers are very willing to talk to us and ready to talk to us because we have a proven track record. Thank you. I might just try to squeeze one more in. You know just coming back to something you mentioned Dave, answering the cost question you noted that you're you know a little bit maybe overstaffed and over fleeting for what you're growing today.
Is unlocking the utilization, is that about getting captains upgraded? Or what really is the barrier to kind of getting that utilization back up and running if it's not necessarily pilot bodies, to steal your phrase? Yeah. It's continuing to make progress on.
on our training pipeline.
Like I said before, we have a lot more pilots on board from a number of perspective and we're moving them quickly through the training pipeline. Just a quick statistic. So if I look at January through April of 2023, compare it to January of April of 2022, we're producing about 33% more pilots than we did year over year.
reiterate though this issue that I tried to mention on the call, you know, it's not all about utilization here. It's making sure we have shell count available when the demand is there because peak time.
right though this issue that I tried to mention on the call, you know, it's not all about utilization here. It's making sure we have shell count available when the demand is there because peak time, day of week.
trasms, average fares are so high we need to make sure we have all the aircraft we need to pick up that demand. And if we have to suffer a little bit on overall utilization because the aircraft are parked you know during off-peak times, so be it because the overall profitability trade-off is there and I think it reflects itself in the Q1.
profitability numbers that we put up. Thank you very much.
Thank you very much. Thank you.
And our next question comes from the line of Helene Baker with Cowan. Thanks, it's Helene Becker. And it's TD Cowan, but thanks very much guys for the time. Quick question. Why is your air traffic liability down?
Fourth quarter to first? I feel like it should have gone up. But obviously I missed something here. Well, remember we're burning, we're doing a whole bunch of flying in the first, a bunch of tickets are purchased in the fourth quarter. We're doing a whole bunch of flying in the first quarter that the people purchase tickets for in the fourth quarter. It's all about days out. Yeah.
So our winner capacity is sold earlier than our summer capacity. And that's historically been consistent.
Right, so that's and that's all the all the close-in bookings that you tend to get right people tend to be closer on your airline than on the PR group.
No, no, no, it's really comparing us to ourselves. So our summer schedule books closer in because it's shorter haul. You know, it's just the kind of markets that we serve. But if you think about the kind of vacation that Minnesotans take in March, it's planned months and months in advance.
Fairly high fare environment, people, you know, these are just very important trips to people. So they plan it really in advance. So when you look at our end of December , it's reflective of those first quarter bookings as compared to if you look at the end of March. Our deals are reflective of bookings going into this summer, which will be sold later.
Okay, thank you. I appreciate that. And then my other question has to do with the comment about the price hike every December on the cargo business. Does that fluctuate year to year or is it a fixed?
And then my other question has to do with the comment about the price hike every December on the cargo business. Does that fluctuate year to year or is it a fixed amount?
Yeah, so we don't want to get into. Yeah, we probably don't want to get into too many details, but suffice it to say there's various line items in our agreement that change at different numbers. But it's contractually laid out. Okay. All right. That's really helpful.
I have other questions, but I'll follow up later. Thank you. Thanks, Elaine.
And our next question comes from the line of Mike Lindenberg with Deutsche Bank.
Oh hey, good morning guys. I want to just go back to, hey, you know, Judy had mentioned about certainty of staffing and how that had been maybe a potential gating issue. What are the pain points there and where are we, and not just pilots, I'm looking in mechanics, flight attendants, ground people.
you know, any issues that you're running into, attrition rates, etc.
Well, the technician staff is tight, but it's okay. Generally, we're able to respond.
Well, the technician staff is tight, but it's okay. And generally we're able to respond.
To all the rest of our staffing to how things are going on the pilot side. So the dependency remains with our pilots and as Dave outlined the challenge is really about the training pipeline now. So we don't have a problem with attrition or with hiring. It's really about trying to get people through the training pipeline to the simulator to the upgrade process.
a lot of difficulty in airport staffing, that's eased tremendously. I mean, that constraint is gone. There's no constraint on the flight attendant side. We're staffed where we wanna be on the mechanic side. So as you'd point out, it's a little tight. It's hard to get some of those guys, but that's not an issue. Those groups are not gating items.
Do you, with the pilots and the training, do you have a sense that the light at the end of the tunnel is 2023 or does this continue beyond that? I mean is this going to be a multi-year that you're just going to always be playing catch-up?
Well, with these margins, we'll add aircraft so that we're always constrained. Okay. Yeah. Yeah. I mean, we have substantial growth plans in the next few years in our long-range plan. We're going to be constantly...
adding training capacity and adding production capacity. So it's kind of not a caught up point for us. You know, we're thinking right now, how are we gearing up for Q1 of 24? We're gonna need staff for that and then into the summer of 24. So it's kind of a never ending thing. I mean, I think about it like long range. We wanna be in kind of the.
and adding production capacity. So it's kind of not a caught up point for us. We're thinking right now, how are we gearing up for Q1 of 24? We're gonna need staff for that and then into the summer of 24. So it's kind of a never ending thing. I mean, I think about it like long range, we wanna be in kind of the mid team range.
Consistent growth, you know, maybe a little bit more some years a little bit less other years, but we want to be able to accomplish that. When you say mid-teen, Jude, is that ASMs or that's block hours? Block hours for us is what counts just because that's the unit of measure across our segments. Yep, so and we're going to start hitting that towards the back of this year. So, you know, we're kind of to the production levels that we would like to be and it's going to get, you know, as the airline grows, we're going to need to produce more pilots every month to kind of keep that rate.
still being studied a little bit is that we go to 200 on the 900. The 900s have almost the same.
departure costs. There's a little bit more fuel, a little bit higher landing fees, same crew complement. So it's nearly identical departure costs, and so those incremental 14 seats are just...
Very, very profitable as you'd imagine. Yeah, no, that's a great airplane for us. And I was going to say that plane has the legs to make Hawaii without penalty off the West Coast. Yes, it's a little bit, it's a little bit longer range actually than the 800, the 900 ERs. About 150 nautical longer, so it can do everything we do with the 800.
And then some. There's no real markets though that we would open up because of that small incremental range. But yeah, we can do just about anything. It's got a little bit of field performance.
There's no real markets, though, that we would open up because of that small incremental range. But yeah, we can do just about anything. It's got a little bit of field performance. There's some problems potentially with that.
challenging airfields that we fly into now to what the 800 that the 900 can't go into. But it's a good, it effectively does everything we want to do with it with the 800 on the 900. Great, if I could just sneak in one last one on, it is interesting about your scheduling versus your peers where...
There is a schedule out there and we constantly see, you know, sort of the reduction of revisions with a downward bias and you're right, it's interesting, here's schedules. You see the video only Karen where you put a schedule out there and then as you get closer in, you know, you're adding frequency at the last minute. What? And I'm just thinking...
Over the last couple quarters, what has been that upward bias? Is it about a half a point of ASM growth, a point of ASM growth in the scheduled business? I just haven't actually done the math, but I have noticed it. I'm just curious. It does seem like there's that upward bias, and it helps obviously on the cost side as well as the revenue side.
I mean, two to 3%, I would guess and just keep in mind, there's a lot going on there. So, one thing is we don't oversell currently any flights and we have low frequency into markets.
So when we put a flight for sale, we need to commit to that flight because there's not a lot of re-accom opportunities for our passengers.
And the airlines, they're adding a lot, tend to cut down multiple daily frequencies to little bit less frequencies. So there's reaccom embedded in their network for those passengers. We just don't have our luxury. So we buy us towards laid-ads, it's supposed to lay cuts. Mike, I would just this grant, I would just add that, and you've heard us talk about this quite a bit at conferences and the light. The schedule integration topic.
You know, a shout out to the team here. We have really capable schedulers. And so as we put out the charter schedule and the charter schedule adjusts, the team goes in and strategically adds flying. Great example. Big partner of ours. Here's the University of Minnesota. They went to the Frozen 4 hockey tournament. We chartered them down there.
And then we found ways to be strategic with that schedule or we opened up capacity close in for fans and it really, you know, good prices relative to the market, still really good yields, filled up all the airplanes and it was just a win-win for everyone. Yes, so if you're looking at our schedule, there's a lot of really weird frequencies in there that you might...
month to try to fill the airplane but
it's still better. And so that calculus is happening all the time and that leads to, as Grant mentioned, a lot of other late ads in the sketch service.
Yeah, I was just gonna say notwithstanding the few days in many, you guys don't cancel flights. I mean, as far as I can go back, you don't cancel. It's impressive.
I don't think there's anybody who has a record of equals here at present.
Well, thank you. I mean, we got a great team here. I think it's the number one operating metric that we strive for.
And this winter was a tough one for us, but you know, and some people had to call a lot later, but Yeah, but we do everything we can not to bring a flight down Thanks for answering my questions Thanks Mike. Good to talk to you Thank you no next question comes from the line of Christopher's that the Lopolis with Susquehanna Good morning everyone. Thanks for taking my question. So two questions on on that
And then two, how much in advance do you get the flight schedule? So meaning do you know what you're flying for Amazon in the second half of this year or peak season at this point? Thank you.
How much in advance do you get the flight schedule? So meaning, do you know what you're flying for Amazon in the second half of this year or peak season at this point? Thank you.
Yeah, I mean, so, you know, Amazon's obviously been striving to improve overnight delivery is for as long as we've been involved.
we have seen kind of no changes or minimal changes in there in the scheduling. We haven't seen any significant reductions in block hours or in, if anything, it's been a little bit of pressure in the other way. So it's been sort of steady Eddie from a scheduling perspective from Amazon.
So without going too much into the details of our agreement, it's not really minimum block hours, but the contract is constructed such that there's a fixed component and a variable component. So you can kind of say that the fixed component is a minimum block hour number, but it's just a fixed number that we get. So.
It's structured that way from a schedule perspective. We're working on schedules right now through the back of the year. Here's how I think about Amazon. It is a fixed input into the capacity plan. It's almost
precisely reliable. We're doing about 38 dailies today. I expect to do about 38 dailies.
at the end of the year, this time next year, et cetera. What changes though is the markets we fly to and.
That's what some countries really really good at we're always opening and closing airports for them And that's that's why they hired us. We're really really flexible Okay Second question if you could comment on what you're seeing with respect to used aircraft prices Today and perhaps your thoughts
already very common discussion about the delays in the max and the effect that that's having on the NG market. We have the capacity, you know, with this 900 deal kind of laid out for the next couple years. We remain in the spot market and when planes pop up to fit our spec and they're at good prices, we'll still be buying from time to time, but we're talking really small quantities. And that is why we want to Reserve everyone interested in lost
you know, and then this is still growing 15, whatever, 20%, whatever we get to going into next year. Here's one more comment on the NG prices. So there's, when we think about a used NG, we kind of attribute value to the maintenance value that we transfer from the prior operator, then the piece parts.
that we're going to sell when we retire the airplane. And then finally, the difference is an operator premium. And that operator premium has been around zero. So no premium. And now it's like a million or so.
And so it just doesn't really move the needle. The midlife NG is still an incredible investment for us. And we'll be looking for 900 ERs and 800s that are in the...
you know, eight to twelve year range, I think probably for the next five, ten years. Yeah, I mean one of the reasons that we're a little oversized from an aircraft perspective is because we're opportunistically buying and we're going to grow into it. So when the deals are there with the economics we want, we buy the aircraft.
Ownership costs for these planes is pretty low. So we're gonna continue to buy aircraft when we see great deals and we'll grow into it. Now financing costs will spread, you know, base rates have moved up obviously higher than where they were last year. But you know, we have the balance sheet to continue to execute the fleet plan in respect to the financing.
Okay, and if I could give you one more in the recent deal, the 737-900 deal with Ominare.
So, that looks at least until you take, I guess, possession of these. Is it late 2024 to 2025? And then, meanwhile, should we think about that as sort of like a dry lease? And, you know, dry leasing is perhaps something that you could look to, you know, determine what two weeks agoahu ONC Sevard was sinking,
Moving to, opportunistically, or more on a sort of go-forward basis, thank you. I mean, think of us for the Oman Aircraft world less or we lease the aircraft to Oman. We stepped into somebody else's shoes. That's the extent of the relationship. So we're collecting lease income. Um.
We own the aircraft, it's standard lessor, lessee relationship for the duration of these leases.
I don't see us really beginning very active in the dry leasing world. I mean, back again, sort of to what I was saying on utilization earlier.
There's plenty of opportunity to fly all of these aircraft at peak times, so we can't really have them dry leased to somebody else because we want them when we need them, even if they're going to sit around a little bit more, then it would be optimal.
Requiring an airplane with a lease attached, I think that makes sense. Taking an airplane that we own and leasing it out and remarketing lease airplanes.
That's not really a core competency that we want to focus on. Got it. Okay. Thank you. Thanks, Chris.
Thank you. Our next question comes from the line of Dwayne Feningworth with Evercore ISI. Hey, thanks for the follow-up. That was actually the question I was going to ask was on fleet, but maybe you could just put a finer point on.
When those aircraft come into revenue service for you, in other words, how long will you be collecting that lease revenue, and how many aircraft do you need to go out and acquire to support 2024 growth? And thanks for taking the questions.
Yeah, so the aircraft, think of it this way. The aircraft come off of lease beginning in, I think it's November of 24 and extend through like November of 25. So then we need to take the aircraft, reconfigure them and so forth. So I would be thinking the first Oman aircraft come into service here probably. …
you know, second quarter of 2025 kind of a thing, and then sort of going out from there. So we've done a couple of other aircraft deals in recent weeks.
quarter of 2025 kind of a thing and then sort of going out going out from from there. So we have a we've done a couple of other aircraft deals in recent weeks that'll deliver
Mid this year, they'll go into service mid this year and. Early 2024. We probably from an operational perspective right now. Don't need additional aircraft, maybe 1, but we don't need additional aircraft going into the 1st quarter of 2024.
So I think we're properly sized from a fleet perspective. As I mentioned earlier, if a great deal comes along, we'll probably do it, but we don't really need to do it right now. Okay, thank you very much.
from a fleet perspective. As I mentioned earlier, if a great deal comes along, we'll probably do it, but we don't really need to do it right now. Okay, thank you very much. Thanks, Dwayne.
Thank you. I'm showing no further questions. So with that, I'll hand the call back over to CEO Jude Bricker for any closing remarks. Thanks for joining us this morning, everybody. We'll talk to you again in 90 days. Have a great day.