Q4 2023 Sun Country Airlines Holdings Inc Earnings Call
Good day and thank you for standing by welcome to the Sun Country Airlines fourth quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
Ask a question during this session you need to press Star one on your telephone you will then hear an automated message advising your hand is right.
George a question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Christopher Allen Director of Investor Relations. Please go ahead.
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 based upon current beliefs.
Patients and assumptions 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, our most recent SEC filings, we assume no obligation to update any forward looking statements you can find our fourth quarter and full year 2023 earnings press release on our website.
At IR Dot Sun country Dot com with that said I'd like to turn the call over to Jerry.
Thanks, Chris Good morning, everyone and thanks for joining us today, our diversified business model is unique in the airline industry due to the predictability of our charter and cargo businesses, we were able to deliver the most flexible scheduled service capacity in the industry.
Combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages will be able to reliably deliver industry, leading profitability throughout all cycles.
We have much to be proud of and the way. We finished 2023 many of the challenges that the post COVID-19 period are fading as we move into 2020 for our operations in the third quarter showed significant year on year improvement across every major major operating metric. These zero, a 14 completion factor and mishandled bag right.
For our completion factor, we only cancer one scheduled service flight during the entire quarter, a 14 increased 13 percentage points year on year without an increase in target block times and <unk>, we produced a declining year on year CASM ex for the first time since Covid one of the main contributors to our improving cost and operational performance.
<unk> is that we've been able to staff the airline closer to optimal.
<unk> fact, we've seen better staffing metrics across every major labor group improved staffing has allowed us to allocate additional peak capacity and scheduled service and to take advantage of close in charter demand maintaining speed peak schedule allocations.
Loud us to fly almost 15% more ASM and for Q with adjusted traveling declining or only 8%. We continue to operate in a strong demand environment across all three segments of our business with scheduled service continuing to receive the majority of our growth capacity a trend we expect to continue into 2012.
Four congrats.
Congratulations to the entire San country team that delivered record full year 2023 revenue full year passenger volume and full year operating margin.
I wanted to highlight a few things that I'm excited about in 2024 I feel like we have good control of our unit cost, while we will continue to face headwinds, particularly with the heavy check cycle of our fleet, we should be able to continue to lead the industry and cost trends going into 2024.
Demand is holding up really well for <unk>, we faced challenging comps as we lap the exceptional yield environment of winner 'twenty two 'twenty three.
<unk>. We are currently scheduled to fly over 15% more ASM than prior year with only unexpected mid single digit decline in unit revenues. These positive revenue trends are mostly a result of growth being heavily weighted to peak period due to lessening staffing constraints a few examples and discern.
2023, we flew a 120% more ASM and scheduled service during the last 14 days of the month as compared to the first 14 days industry capacity shifted about 3% in <unk> 2024 March we'll have about 60% more scheduled service ASM than January.
This was 47% and <unk> of 23 this schedule variability along with our cost structure is the moat around our business and is made possible by our multi segment model.
On the fleet side, we have three aircraft in various stages of delivery. These aircraft will be part of our control fleet of 63 airplanes by the end of <unk>.
We expect to be able to grow ASM by around 40% versus 2023 levels with lease returns utilization increases and up gauging. In addition to these airplanes that should give us two to three years of growth while simultaneously producing exceptional free cash flow yields.
That combination rarely happens in our industry.
We have many projects that should help us keep momentum on operational costs and revenue trends into 2024 to highlight a few in 2024, we were able to rebate, we are able to rebid our credit card agreement, which we expect to result in materially better economics in 2023, we launched bag scanning.
Knowledge that has had a material impact on MBR that solution will be rolled out to outpatient in the coming months, we automated our passenger Ria com process, which allows us to take more schedule service risk during peak periods, we'll launch our app in a few months our crew Rastering system will transition to PBS later this.
Year and all the investments we've made in crude training are starting to pay off with the lowest training footprints we've seen since COVID-19.
Finally, our growth brands have very little risk, we have high confidence in our Minneapolis expansion based on prior success further based on ongoing discussions with charter and cargo customers I expect those segments to be able to keep growth pace with our scheduled service opportunities.
I'll turn it over to Dave.
Thanks, Jude we're pleased to report strong Q4 results, including an adjusted operating margin of seven 4%, which was well ahead of our guidance.
Both our quarterly and full year 2023 results again demonstrate the resiliency and earnings power of our unique diversified business model.
2023 was the third consecutive year of profitability for Sun country and on an adjusted net income basis with one exception, we have been profitable in every quarter since going public in March of 2021.
We believe we finished the year with the highest are among the highest adjusted pretax margins in the industry at nine 9%.
This result was very similar to 2019, despite fuel being 38% higher this year.
It is important to understand that our operating model is almost the opposite of the high utilization carriers, our passenger business wise when demand and unit revenues are highest and we fly much less in off peak periods. The modest increase in unit cost. This produces is more than offset by the resulting improvements in unit revenue.
Additionally, our diversification across scheduled service charter in cargo operations leads to resiliency through business cycles.
Our strong 2023 results allowed us to return $68 $6 million to shareholders in the form of share repurchases. Since 2022, our share repurchases have totaled $93 $6 million I'll turn now to the specifics of our fourth quarter and full year results.
First revenue and capacity in the fourth quarter total revenue grew eight 1% versus Q4 of 2022 to $245 $5 million.
Scheduled service revenue plus ancillary grew four 6% to $163 $8 million.
Scheduled service <unk> decreased nine 1% to 10 730, <unk> as scheduled ASM grew by almost 15%.
For the full year total block hours increased by nine 8% versus 2022, and our total revenue was 1.05 billion, which was $17, 3% higher than prior year.
2023 scheduled service plus ancillary revenue grew 15, 7% to $730 million full.
Full year scheduled service <unk> increased seven 6% and an increase of seven 2% scheduled ASM.
Looking forward to Q1 of 'twenty four we're anticipating scheduled service ASM to grow approximately 15% versus Q1 of 'twenty three with scheduled service plus ancillary revenue growth outpacing the four 6% year over year growth, we saw in the fourth quarter.
Charter revenue in the fourth quarter grew eight 8% to $46 $9 million on block hour growth of seven 8%.
A portion of our charter revenue consists of reimbursement from customers for changes in fuel prices as we do not take fuel risks on our charter flying.
Q4 fuel prices dropped by 14% year over year. If you if you exclude the fuel reimbursement revenue from both Q4 of 23 in Q4 of 'twenty two charter flying revenue grew 11, 1% during the period easily exceeding block hour growth and producing a three 1% increase in charter revenue.
Per block hour versus last year.
For the full year charter revenue was $190 1 million 17, 6% higher than full year of 2002.
Charter revenue under long term contracts with 80% of the total charter block hours, it's contracted charter flying grew 25, 7% versus 2022.
Fourth quarter cargo revenue grew three 6% to $25 $3 million on a one 8% increase in block hours for full year 2023 cargo revenue grew 10, 4% to $99 $7 million on a five 8% increase in block hours.
As you can see we are continuing to grow at a profitable measured pace Q1 of 24 total block hours are expected to grow between eight and 11% while total revenue should be between 310 and $320 million.
Turning now to costs.
Fourth quarter total operating expenses increased seven 7% on a 10, 4% increase in total block hours.
Adjusted CASM declined by two 2% versus Q4 of 'twenty two during.
During the quarter, we saw solid cost control across the company as our pilot availability issues have eased we've been able to achieve our growth plans and we're benefiting from the operating leverage in the business importantly, more pilot availability means fewer hours paid at premium rates and lower unit costs.
The full year total operating expense increased nine 9% in line with total block hour growth of nine 8%.
Full year adjusted CASM increased six 4% to seven five.
With increases in the first half of the year driving this increase.
Regarding our balance sheet, our total liquidity at the end of Q4 was $205 million, which reflects $13 5 million in share repurchases during the quarter.
As of January 31, our total liquidity was $234 million.
In 2023, we spent $218 million on Capex, almost $200 million of which was for aircraft and engines.
We expect these aircrafts to provide the bulk of the passenger lift we need through 2025 as.
As such we anticipate our full year 2020 for capex to be approximately $100 million.
And our 2024 year ending in service passenger fleet count to be 44 aircraft.
In addition to these aircraft we expect to have three aircrafts being inducted into our fleet and four aircraft on lease to other carriers, which we expect to redeliver to Sun country throughout 2025, we.
We anticipate strong free cash flow generation in 2024.
We continue to maintain a very strong balance sheet, our net debt to adjusted EBITDA ratio at the end of 2023 was two two times down from two seven times at the end of 2022.
Since we do not have a significant debt burden, we have flexibility in how we deploy our cash.
Turning to guidance, we expect full quarter total revenue to be between $310 million to $320 million on block hour growth of 8% to 11%.
We are anticipating our cost per gallon for fuel to be $3 and for us to achieve an operating margin between 17% and 21%.
The fundamentals 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 we'll open it for questions.
Thank you as a reminder to ask a question you will need to press star one one telephone to withdraw your question.
Question. Please press Star one again, please wait for your name to be announced one moment for your first question.
Our first question comes from the line of Duane <unk> with Evercore ISI. Your line is now open.
Yes.
Hey, good morning, Thank you.
Just on the <unk>.
This improved utilization and your ability to kind of flex back up again in the peaks.
Which segment would you say is is most constrained.
Or maybe asked differently, how would you characterize margins or margin opportunity across the three segments.
Our scheduled services by far the highest margin and most affected by.
Staffing constraints, so think about it like they can ask carryover assigned wave and if we have staffing constraints that kind of pushes the peaks down because we can only produce a certain amount of block hours in any given period monthly it's typically the constraint.
And that yields these.
Really expensive opportunity costs during peak periods, it's sort of becoming less of an issue as we staff the airline appropriately.
That's helpful and so this the percentages that you put out there for March versus January is that.
Optimal or do you think as we kind of roll through the year. There is maybe even more peak capture you could realize.
The latter there is definitely more opportunity in March so.
Good comp would be to look back at utilization in 2019, when we werent constrained and there is still about two hours per aircraft per day of production that we arent able to achieve in 2023 or 2024 versus.
Versus 19 now the fleet is older than it was then.
A little bit different dynamics as it relates to congestion in airports and things like that so well.
We won't achieve what we achieved in but there is definitely plenty of opportunity for incremental flying and the important aspect of that is that as we add more flying it coming kind of mid week March but as you compare that opportunity to the average yield for the quarter, it's still above average.
So, we're increasing volume and unit revenues by growing peak period capacity.
Operator: Good day, and thank you for standing by. Welcome to the Sun Country Airlines fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Yes that makes sense and then just for my follow up I know, if theres any way to frame it but in terms of premium pay overtime.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your handage rates. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Christopher Allen, Director of Investor Relations. Please go ahead.
Incurred in 2023 that you feel like you're warning curve kind of going forward in any way to size that order of magnitude.
I'm not sure I can give you order of magnitude I would just say that this is sort of what our current outlook is as we go forward. There is a minimum level of premium pay just because of the way that our contract works in any given month.
So we will need to pay that in 2004, just like we did in 2003, just like we did in 'twenty two.
Chris Allen: 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 forelooking statements. Our remarks today may include forelooking statements, which are based upon people'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 our most recent SEC filings. We assume no obligation to update any forward-looking statements.
We only have two months right now dialed in at higher levels of premium pay in 2024, then the minimum amounts so I think.
I'll just comment on the overall staffing situation.
Things have gotten significantly better.
We've talked now for several quarters about the initiatives that we've undertaken here to try and improve the availability of captains in particular I would say that those are bearing fruit.
Chris Allen: You can find our fourth quarter and full year 2023 earnings press release on our website, at ir.suncountry.com. With that said, I'd like to turn the call over to Chris. Good morning, everyone.
And we're seeing the kind of growth that we need in the kind of attrition levels that continue to.
Occur favorably for us so I think premium pay is sort of where it needs to be as well as.
Jude Bricker: Thanks for joining us today. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we are able to deliver the most flexible scheduled 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 industry shocks. We believe due to our structural advantages we'll be able to reliably deliver industry-leading profitability throughout all cycles. We have much to be proud of in the way we finished 2023. Many of the challenges of the post-COVID period are fading as we move into 2024. Our operations in the third quarter showed significant year-on-year improvement across every major operating metric, D0, A14, completion factor, and mishandled bag rate. For a completion factor, we only canceled one scheduled service flight during the entire quarter. A14 increased 13 percentage points year-on-year without an increase in target block time.
Our levels of upgrade and an attrition now we could we could use more because as you just talked about there is more opportunity for growth here, but I think we're seeing that really steady progress.
Okay nice to see it come through I appreciate the time.
Thanks Duane.
<unk> for your question. Our next question comes from the line of Catherine O'brien with Goldman Sachs. Your line is now open.
Hey, good morning, everyone. Thanks for the time.
Hey.
Just hoping to get some high level puts and takes on 2024.
How should we think about scheduled capacity growth through the rest of the year or just capacity growth overall fall in that 15% growth in one queue. Just in the context of you already have locked you already have aircraft locked in it sounds like pilot availability is getting much better.
And then on the cost side I did some quick math and look.
I'd like to get some Midland on your operating margin guidance I'm getting the cask ex fuel on a block hour basis up about 4%.
Jude Bricker: In 4Q, we produced a declining year-on-year CASM-X for the first time since COVID-19. One of the main contributors to our improving cost and operational performance is that we've been able to staff the airline closer to optimal. In fact, we've seen better staffing metrics across every major labor group.
Is that the right level to think about through the year should we see efficiency build in or if he is there I know you guys made the comments about you think youre going to lead the industry on the CASM ex thesis I wasn't sure if that was a cost gap comment or a year over year performance and there's a couple in there but thank you.
Jude Bricker: Improved staffing has allowed us to allocate additional peak capacity in scheduled service and to take advantage of close-in charter demand. Maintaining peak schedule allocations has allowed us to fly almost 15 percent more ASMs in 4Q with adjusted TRASM declining only 8 percent. We continue to operate in a strong demand environment across all three segments of our business, with scheduled service continuing to receive the majority of our growth capacity, a trend we expect to continue into 2024. Congratulations to the entire Sun Country team that delivered record full-year 2023 revenue, full-year passenger volume, and full-year operating margin. I wanted to highlight a few things that I'm excited about in 2024.
Yes, let me start with the with the cost question for next year I don't have the block hour numbers off the top of my head, but let me give you give you just some some CASM indicators, which I think are probably very similar to block hour.
On the CASM front I think what we're expecting now is CASM to basically be flat to up low single digits and here's here's the rationale.
I think I mentioned last quarter, we have a program underway of accelerating some maintenance spend into 2024.
We'll have a modest bump to CASM, but pay significant dividends in 2025 and 2026 in terms of reduced unit costs.
I sort of bringing some more activities forward and packaging them into into the current checks so thats going to be a little bit of a cost bump, but I think right now looking forward, we're seeing like I said flat to low single digit CASM growth.
Jude Bricker: I feel like we have good control of our unit costs. While we will continue to face headwinds, particularly with the heavy check cycle of our fleet, we should be able to continue to lead the industry in cost trends going into 2024. Demand is holding up really well. For 1Q, we face challenging comps as we lap the exceptional yield environment of winter 22-23.
And my comment around relative CASM performance was mainly to identity to kind of point out that we're not subject to the major challenges, particularly on the fleet side that the rest of the industry is dealing with so we don't have geared turbofan, we're not subject to new aircraft delivery delays, we don't expect to do any engine perform.
Jude Bricker: For 1Q, we are currently scheduled to fly 15% more ASMs than the prior year with only an expected mid-single-digit decline in unit revenue. These positive revenue trends are mostly a result of growth being heavily weighted to peak periods due to lessening staffing constraints, a few examples. In December 2023, we flew 120% more ASMs in scheduled service during the last 14 days of the month as compared to the first 14 days. Industry capacity shifted by about 3%. In 1Q2024, March will have about 60% more scheduled service ASMs than January. This was 47% in 1Q of 23.
<unk> restorations arent subject to Oems collation in 2024, we don't have Max nines.
There's just not that much pressure on our cost relative to the industry. So I think we will continue to.
To produce better trends.
Maybe not on an absolute basis.
And then on your question on capacity growth.
Generally we would think about.
Mid teen block hour growth most of that will be allocated to <unk> service.
Okay.
Okay got it Super helpful and then.
Jude Bricker: This schedule variability, along with our cost structure, is the cornerstone of our business and is made possible by our multi-segment model. On the fleet side, we have three aircraft in various stages of delivery. These aircraft will be part of our controlled fleet of 63 airplanes by the end of 2Q. We expect to be able to grow ASMs by around 40% versus 2023 levels with lease returns, utilization increases, and up gauging in addition to these aircraft. That should give us two to three years of growth while simultaneously producing exceptional free cash flow yields. That combination rarely happens in our industry.
A lot of your competitors has spoken to stronger domestic trends as capacity has come down I know your model is more immune to overcapacity in the trough, one which has been the roughest periods.
Capacity is out of whack.
But has this had any impact on pricing in the peak footwear, you flex up you're flying and any early reads on spring break or somewhere that you want to call out the final encouraging thanks for your time.
Yes, I mean as I mentioned in my comments.
Spring break of last year was spectacular and probably not repeatable.
So we've seen a bit of a settling consistent with comments that <unk> heard other carriers make in the Mexican Caribbean markets, but.
Jude Bricker: We have many projects that should help us keep momentum on operational costs and revenue trends into 2024. To highlight a few, in 2024, we were able to re-bid, and we are able to re-bid, our credit card agreement, which we expect to result in materially better economics. In 2023, we launched bag scanning technology that has had a material impact on MBR. That solution will be rolled out to outstations in the coming months.
This year will produce substantial trazadone premiums to pre COVID-19 levels is consistent with my comments.
And the last several quarters the domestic market is doing really well I think we're seeing a rebound in Florida, which is important to us.
As we lap the eon challenges that west, Florida was facing last year.
Sort of broadly I think things are really good consistent with other folks' comments grants here with me anything.
Jude Bricker: We automated our passenger reacom process, which allows us to take more scheduled service risk during peak periods. We'll launch our app in a few months. Our crew rostering system will transition to PBS later this year. And all the investments we've made in crew training are starting to pay off with the lowest training footprints we've seen since COVID. Finally, our growth friends have very little risk.
Okay.
K R and the airlines digesting, well, 20% capacity growth and Mark so to speak.
The brand has been built in Minneapolis, we definitely continue to be and work very hard to be the leading leisure airline in that marketplace that I think our results speak to that point and we're going to compete aggressively for that title going forward.
Jude Bricker: We have high confidence in our Minneapolis expansion based on prior success. Further, based on ongoing discussions with charter and cargo customers, I expect those segments to be able to keep up with the growth pace with our scheduled service opportunities. And with that, I'll turn it over to Dave. Thanks, Jude.
Great. Thanks for the time.
Thank you.
One moment for our next question please.
Our next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is now open.
Dave Davis: We're pleased to report strong Q4 results, including an adjusted operating margin of 7.4%, which was well ahead of our guidance. Both our quarterly and full year 2023 results again demonstrate the resiliency and earnings power of our unique diversified business model. 2023 was the third consecutive year of profitability for Sun Country, and on an adjusted net income basis, with one exception, we've been profitable in every full quarter since going public in March of 2021.
Good morning, everyone. This is Katherine on for Ravi. Thank you for taking my question I was just curious.
About.
You kind of mentioned this in your last question, but as the floor of CASM across the industry is expected to potentially push RASM up I was curious if that helps you guys take price our share in that scenario.
Yes, I mean, generally, yes, but the things that make us less subject to capacity.
Dave Davis: We believe we finished the year with the highest, or among the highest, adjusted pre-tax margins in the industry at 9.9%. This result was very similar to 2019, despite fuel being 38% higher this year. It's important to understand that our operating model is almost the opposite of the high utilization carrier. Our passenger business flies when demand and unit revenues are highest, and we fly much less in off-peak periods. The modest increase in unit costs this produces is more than offset by the resulting improvements in unit revenue.
Okay.
<unk> also reduced the impact of sort of unexpected grounding of the GTS Lee for example.
We're just not ready yet.
For good and for bad we're just not as exposed.
To the industry machinations.
But.
Capacity out of the system as a net positive I think.
Would be like the secondary tertiary effect of like reallocation of capacity to backfill with Paul.
On the margins and capacity of our network maybe from Rois.
But it's not material.
And just as a quick follow up.
So I know close in bookings across the industry, we're really strong in <unk> last year, and even probably 'twenty, one and then kind of dropped off in 'twenty three what is that looking like now and I'm curious if you guys.
Dave Davis: Additionally, our diversification across scheduled service, charter, and cargo operations leads to resiliency through business cycles. Our strong 2023 results allowed us to return $68.6 million to shareholders in the form of share repurchases. Since 2022, our share repurchases have totaled $93.6 million.
What normal behavior might look like for close in bookings at some country.
Well, it's it remains really strong I mean, we at the shape of the booking curve, which is sort of like aggregate bookings made any given time is very similar to pre COVID-19 levels, but at a higher fare.
So.
Dave Davis: I'll turn now to the specifics of our fourth quarter and full year results. First, revenue and capacity. In the fourth quarter, total revenue grew 8.1% versus Q4 of 2022 to $245.5 million. Scheduled service revenue plus ancillary grew 4.6% to $163.8 million. Scheduled service TRASM decreased 9.1% to 10.73 cents, as scheduled ASMs grew by almost 15%.
I think the future looks a lot like a path.
In passenger behavior I think.
Things are really positive.
Grant anything else.
Yeah good.
Thank you.
Thank you.
For next question please.
And our next question comes from the line of.
Mike Lindenberg with Deutsche Bank, one moment. Please for your question.
Dave Davis: For the full year, total block hours increased by 9.8% versus 2022, and our total revenue was $1.05 billion, which was 17.3% higher than the prior year. 2023 scheduled service plus ancillary revenue grew 15.7% to $730 million. Foliar Scheduled Service TRASM increased 7.6%, and an increase of 7.2% in scheduled ASM. Looking forward to Q1 of 24.
About.
Can you guys hear me.
I got to know now again.
Alright.
Just just a follow up.
Two questions here, but one follow up on Duane question, where you've talked about.
Being able to take advantage of.
The marginal opportunity here.
I think in the past you've characterized that being able to.
Now.
The advantage of the fact that you can.
The fixed cost base, you're able to sort of capitalize on that I think you've characterized it as like a 40% operating margin incremental.
Dave Davis: We're anticipating scheduled service ASMs to grow approximately 15% versus Q1 of 23, with scheduled service plus ancillary revenue growth outpacing the 4.6% year-over-year growth we saw in the fourth quarter. Charter revenue in the fourth quarter grew 8.8% to $46.9 million on block hour growth of 7.8%. A portion of our charter revenue consists of reimbursement from customers for changes in fuel prices, as we do not take fuel risk on our charter flying. In Q4, fuel prices dropped by 14% year-over-year.
Operating margin.
As you better utilize your asset base, you did sort of sort of backtrack and say well, we're still going to be off about two hours from where we could have been or where are we.
Where we were back in 2019 is that.
Does that magnitude on.
The incremental opportunity here does that still come at it or is my math right somewhere in the 40% range or so is that how should we should think about it.
Yeah.
So what we're talking about there is not an operating margin, but rather a contribution margin so mhm profits in excess of variable cost.
Revenue in excess of variable cost and yes, our March.
Zach variable contribution is in excess of 40%. So is it in July so is it in the back of December so as we grow those markets.
Dave Davis: If you exclude the fuel reimbursement revenue from both Q4 of 23 and Q4 of 22, charter flying revenue grew 11.1% during the period, easily exceeding block hour growth and producing a 3.1% increase in charter revenue per block hour versus last year. For the full year, charter revenue was $190.1 million, 17.6% higher than the full year of 22. Charter revenue under long-term contracts was 80% of the total charter block hours as contracted charter flying grew 25.7% versus 2020. Fourth quarter cargo revenue grew 3.6% to $25.3 million on a 1.8% increase in block hours. For full year 2023, cargo revenue grew 10.4% to $99.7 million on a 5.8% increase in block hours. As you can see, we are continuing to grow at a profitable, measured pace. Q1 of 24 total block hours is expected to grow between 8 and 11 percent, while total revenue should be between $310 and $320 million. Turning now to cost, fourth quarter total operating expenses increased 7.7% on a 10.4% increase in total block hours.
Grow those periods of time in the calendar, we would expect that level of contribution for those incremental flights absolutely. Yes, I think I think what I think one of the things on the utilization comment 2019, there were some unique things, particularly around military flying was really strong and other things that we that we were able to pick up we're not saying that theres not two hours of opera.
<unk>, where there is opportunity, we're just not maybe going to get back to the nine plus hours that we did in 2019, because there were some unusual things, but theres plenty of opportunity on the utilization front to drive high variable contribution flying yes downward pressure on utilization is going to come from the check cycle that Dave mentioned earlier.
We have a higher sparing ratio than we've had in the past.
We're getting we're going to make sure we execute real well and operations and that requires a little bit of conservatism on utilization.
Great and then just my second question.
If we go back to fleet procurement and the like and I. Appreciate your point about that youre not dealing with the issues that a lot of other carriers or whether it's the GTS for the grounding of the Max nine.
Now it does seem like that going forward one of the large Oems basically will really only have one airplane that people care about.
Theres not a lot of interest in the Max nine it's going to be all about the Max eight and it seems like that that's probably going to be the primary airplanes of choice over the next couple of years, which will probably put a lot of upward pressure in the used market for eight hundreds and even use 900, <unk> or maybe even seven hundreds.
What are you seeing in the market and it was obviously encouraging to see that you picked up two more eight hundreds.
Dave Davis: Adjusted chasm declined by 2.2% versus Q4 of 22. During the quarter, we saw solid cost control across the company. As our pilot availability issues have eased, we've been able to achieve our growth plans, and we're benefiting from the operating leverage in the business. Importantly, more pilot availability means fewer hours paid at premium rates and lower unit costs. For the full year, total operating expenses increased 9.9% in line with total block hour growth of 9.8%.
From <unk>.
Fly to buy so that plus the five from Aman. So you have seven shelter growth have you identified additional shelf out there that are maybe.
That you think youre working on right now.
What are you seeing on the pricing for these used airplanes.
Seemed like that.
For those types of airplanes that have actually moved up given the the <unk>.
Strength at the Oems.
Color on that would be great. Thanks.
So Mike I think you covered the operating that doors every quarter. They say how strong the market is for residual value. This is one time that there right.
Dave Davis: Full-year adjusted CASM increased 6.4% to 7.5 cents, with increases in the first half of the year driving this increase. Regarding our balance, our total liquidity at the end of Q4 was $205 million, which reflects $13.5 million in share repurchases during the quarter. As of January 31st, our total liquidity was $234 million.
Eric.
So all the challenges that the Oems are having is kind of trickling into the used aircraft market and availability and pricing are both moving in the favor of owners of aircraft.
And.
We are comfortable then not having to do any deals for a few years.
And just cash flow in.
We remain in the market, we're very active in airplanes out there trading hands. We are at the table, but are the bid ask for US has really widened over the last several months.
Dave Davis: In 2023, we spent $218 million on CapEx, almost $200 million of which was for aircraft and engines. We expect these aircraft to provide the bulk of the passenger lift we need through 2025. As such, we anticipate our full year 2024 CapEx to be approximately $100 million, and our 2024 year-ending in-service passenger fleet count to be 44 aircraft. In addition to these aircraft, we expect to have three aircraft being added to our fleet and four aircraft on lease to other carriers, which we expect to redeliver to Sun Country throughout 2025. We anticipate strong free cash flow generation in 2024 and continue to maintain a very strong balance. Our net debt to adjusted EBITDA ratio at the end of 2023 was 2.2 times, down from 2.7 times at the end of 2020. Since we do not have a significant debt burden, we have flexibility in how we deploy our cash.
And.
We only originated one aircraft over the last 12 months and we may continue on that trend for the foreseeable future say two years.
I was making though is that we can grow this airline 40% without any incremental originating.
Sure.
Aircraft deals.
That's great that's great color. Thanks, thanks, everyone.
Thank you one moment for our next question.
Our next question comes from the line of Brandon.
<unk> with Barclays. Your line is now open.
Hey, good morning, guys and thanks for taking my question.
Dave I guess.
Can you talk to us.
Into April in the second quarter.
Because you guys do you have just based on the model and your peak sketch.
Scheduled out in Minneapolis in first quarter <unk> can be a little bit softer. So how do you see at least.
First half of the year, playing out from a profitability per sector.
So.
Yes.
A little bit.
Sure.
Expectation setting.
Easter is a lot earlier this year than it was last year and so that will have a negative effect on April on a year over year comp basis, which is expected.
Operator: Turning to guidance, we expect full quarter total revenue to be between $310 and $320 million on block hour growth of 8 to 11 percent. We're anticipating our cost per gallon for fuel to be $3, and for us to achieve an operating margin between 17 and 21%. 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. With that, we'll open it up for questions. Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again.
We had really spectacular April of last year as I mentioned the winter of last year was really special.
And that won't repeat itself, but the trends that we've seen is we kind of lap the COVID-19 recovery have broadly maintain themselves.
Sure.
We're looking at 25%, 30% <unk>.
Sort of broadly over 19.
You've got to adjust for these calendar shifts, but generally fares have kind of reset themselves. It is stable, but at much higher level.
<unk> for us is not nearly as good as <unk> and that obviously would be the same this year, but.
We're certainly.
Really bullish about where we're booking right now granted and I would also say that you.
<unk> seen continued ability of us to add capacity, where we know we're going to be profitable.
Dwayne Finneworth: Please wait for your name to be announced. One moment for our first question. Her first question comes from the line of Dwayne Finneworth with Evercore ISI. Your line is now open. Hey, good morning.
Throughout the process and we work really closely with the operating team. So I would say there is a lot of work going on to understand where we can add some incremental capacity in the second quarter. So those keeping score with BDO and those sorts of things it's not all in there yet.
Jude Bricker: Thank you. Just on this improved utilization and your ability to kind of, you know, flex back up again in the peaks, which segment would you say is most constrained? Or, maybe asked differently, how would you characterize margins or margin opportunity across the three segments? Scheduled service is by far the highest margin and most affected by staffing constraints.
I would echo <unk> sentiment, we understand what the world's going to look like in the second quarter and we have a plan for it so.
Yes. It is.
That's a really good point I mean, so our scheduling philosophy is one where we hold back some capacity and kind of allocated at bookings matriculate and I think that that's the right way to run our business. Many airlines schedule above set of competitors notice and then they kind of cancel down as bookings that we have the opposite so we will have this little bit.
Jude Bricker: So think about it like an S-curve or a sine wave, and if we have staffing constraints, that kind of pushes the peaks down because we can only produce a certain amount of block hours in any given period, so monthly is typically the constraint, and that yields really expensive opportunity cost during peak periods that's sort of becoming less of an issue as we staff the airline appropriately. That's helpful. And so the percentages that you put out there for March versus January, is that optimal, or do you think as we kind of roll through the year, there's maybe even more peak capture you could realize? The latter, there's definitely more opportunity in March, you know, so a good comparison would be to look back at utilization in 2019 when we weren't constrained.
A couple of percentage points of capacity allocated as we get in closer which will help as well.
Okay I appreciate that and then Dave maybe on weight.
Expectations and the offsets I know you mentioned.
Maybe lower premium pay this year.
Else, we have going on on the cost side that you can speak to.
Well I mean, I think I think cost control across the company has been <unk>.
Very solid.
On the so there's a lot of operating leverage here sort of as we grow like we just talked about a minute ago here on the aircraft side was basically got the shelves, we need to to fly 2024 level.
Jude Bricker: And there's still about two hours per aircraft per day of production that we aren't able to achieve in 2023 or 2024 versus 19 because now, you know, the fleet's older than it was then, and there are a little different dynamics as it relates to congestion in airports and things like that. We won't achieve what we achieved then, but there's definitely plenty of opportunity for incremental flying. And the important aspect of that is that as we add more flying, it's coming kind of midweek in March. But as you compare that opportunity to the average yield for the quarter, it's still above average.
So thats.
Operating leverage kicks in and we get a CASM benefit from that we've also got a number of projects that we've been working now that I think are going to contribute to a lower CASM as well.
With the exception of this maintenance issue, which is sort of a decision that we've made.
Costs are well in control.
I can't point to any one initiative I just think across all of the areas of our company right now.
<unk>.
Costs are well in hand.
Thank you.
Jude Bricker: So we're increasing volume and unit revenues by growing peak period capacity. Yeah, that makes sense. And just for my follow-up question, I don't know if there's any way to frame it.
Thanks, Brandon. Thank you one moment for our next question Andrew.
As a reminder, ladies and gentlemen, this star one wanted to ask your question and please wait for your name to be announced our next question comes from the line of Christopher step Alaska's.
Jude Bricker: But in terms of premium pay or overtime that you incurred in 2023, that you feel like you won't incur in any way going forward in any way to size that or magnitude. I'm not sure I can give you an order of magnitude. I would just say that this is sort of what our current outlook is as we go forward. There's a minimum level of premium pay just because of the way that our contract works in any given month.
With.
Susquehanna Your line is now open.
Good morning, Thanks for taking my question.
What percent of your charters currently under contract and how much is up for renewal this year.
We have about 85% of our charter revenue right now is under long term contract.
Dave Davis: So we'll need to pay that back in 24, just like we did in 23, just like we did in 22. We only have two months right now dialed in at higher levels of premium pay in 2024 than the minimum amounts. So I think I'll just comment on the overall staffing situation. You know, things have gotten significantly better. We've talked now for several quarters about the initiatives that we've undertaken here to try and improve the availability of captains in particular. I would say that those are bearing fruit, and we're seeing the kind of growth that we need and the kind of attrition levels that continue to occur favorably for us. So I think premium pay is sort of where it needs to be as well as our levels of upgrade and attrition. Now, we could use more, because, as you just talked about, there's more opportunity for growth here, but I think we're seeing really steady progress. Okay, nice to see you through. I appreciate the time. Thanks, Duane.
As these pilot and other staffing issue to sort of resolve themselves, we want to drive a little more AD hoc revenue.
But right now like I said, 85% ish or so is is is long term I think we have any significant contracts up now and we're working closely with any of that or so we feel really good about the portfolio and they like what we're doing and we like being connected with them.
Okay.
Hey.
The second question to the sequential decline in block hours and cargo is that just reflective of a weak peak or perhaps.
A regional shift in Amazon's network between carriers.
Okay.
That's a result of entirely of.
Katherine O'Brien: Thank you for your question. Our next question comes from the line of Katherine O'Brien with Goldman Sachs. The line is now open. Hey, good morning, everyone. Thanks for the time.
Of the <unk> cycle, and some weather disruptions that we had.
It has nothing to do with it.
I mean, I can't comment on anything about what Amazon plant Okay.
Katherine O'Brien: Hey, I was just hoping to get some high-level puts and takes on 2024. You know, how should we think about scheduled capacity growth through the rest of the year or just capacity growth overall following that 15% growth in 1Q, you know, just in the context of you already have aircraft locked in? It sounds like pilot availability is getting much better. And then on the cost side, I did some quick math, and it looks like to get to the midpoint of your operating margin guidance, I'm getting the cost of X fuel on a block hour basis up about 4%. Is that the right level to think about through the year, or should we see efficiency build?
Okay great.
Okay.
Thank you.
One moment for our next question please.
Okay.
Our next question comes from the line of Catherine O'brien with Goldman Sachs. Your line is now open.
Hi, again, thanks, so much I'll follow up.
Maybe just one quick one on on the share repurchase program you guys are pretty active the last two years. Thank you, Doug 11 million 11, and a half left.
And Capex is stepping down materially.
Dave Davis: Or if it's easier, you know, I know you guys made the comment about you think you're going to lead the industry on a CASMEX basis. I wasn't sure if that was a cost gap comment or year-over-year performance. I know there's a couple in there, but thank you.
I guess any comments on are there any changes to how you're thinking about capital allocation or how should we just stay tuned on the shareholder returns front. Thanks, so much.
Yes first of all your comment on the free cash flow generation is spot on I mean cap.
Dave Davis: Thank you. Yeah, let me start with the cost question for next year. I don't have the block hour numbers off the top of my head, but let me give you just some chasm indicators, which I think are probably very similar to block hours.
Capex at the company or dropped by more than half between 'twenty, three and 'twenty four.
Dave Davis: On the chasm front, I think what we're expecting now is chasm to basically be flat to up in the low single digits. And here's the rationale. I think I mentioned last quarter that we have a program underway of accelerating some maintenance spend into 2024, which will have a modest bump to the chasm but pay significant dividends in 2025 and 2026 in terms of reduced unit costs by sort of bringing some more activities forward and packaging them into the current checks. So that's going to be a little bit of a cost bump. But I think right now, looking forward, we're seeing, like I said, flat to low single-digit chasm growth. And my comment around relative chasm performance was mainly to kind of point out that we're not subject to the major challenges, particularly on the fleet side, that the rest of the industry is dealing with. So we don't have geared turbofans, we're not subject to new aircraft delivery delays, we don't expect to do any engine performance restorations, so we aren't subject to OEM escalation in 2024. We don't have max nines, you know; there's just not that much pressure on our costs relative to the industry.
If we deliver the kind of results that we think we're going to deliver we're going to generate a lot of free cash and then we will have to decide what we're going to do with.
Where that cash there is more share buyback is that we would definitely look at we don't have a lot of debt that's economical to pay down we don't have a lot of that period. We don't have a lot of debt that's economical to really pay down early with one exception. So what I think is as we go forward here there will be <unk>.
<unk> around do we do share buybacks do we pay down this one piece of that.
We can.
We're going to fully fund and we have been fully funding cost reduction and revenue generative initiatives.
Particularly on the it side, we will continue to do that but that should be reflected in the 100 million I talked about for 2000 and for Capex. So.
We're in a good position to have a lot of flexibility around what we do how we deploy our cash in 'twenty four 'twenty five.
That's great. Thanks, so much.
Thank you I am currently showing no further questions at this time I'd like to turn the call back to Mr Breaker, Chief Executive Officer for closing remarks.
Well, thanks to everybody for joining us today have a great day, and we'll talk to you in 90 days.
Jude Bricker: So I think we'll continue to produce better trends. Maybe not on an absolute scale, but And then on your question on capacity growth, you know, like, generally, we would think about, you know, mid-teen block hour growth, most of that will be allocated to SCED service. Got it. Super helpful.
Yes.
Jude Bricker: And then, you know, a lot of your competitors have spoken to stronger domestic trends as capacities come down. But I know your model is more immune to, you know, overcapacity in the troughs, which have been the roughest periods when capacity is out of whack. But has this had any impact on pricing in the peaks where you flex up your flying? You know, any early reads on spring break or summer that you want to call out that you find encouraging? Thanks for the time. Yeah, I mean, as I mentioned in my comments, you know, spring break last year was spectacular and probably not repeatable.
Okay.
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Jude Bricker: And so we've seen a bit of a settling, consistent with comments that you've heard other carriers make in the Mexican-Caribbean markets, but this year will produce substantial TRASM premiums to pre-COVID levels, consistent with my comments in the last several quarters. The domestic market's doing really well. I think, you know, we're seeing a rebound in Florida, which is important to us as we face the Ian challenges that West Florida was facing last year. Generally, I think things are really good, consistent with other folks' comments. Grant's here with me, anything?
Unnamed Speaker: And the airline is digesting well, 20% capacity growth in March, so that just speaks to how the brand has been built in Minneapolis. We definitely continue to be and work very hard to be the leading leisure airline in that marketplace, and I think our results speak to that point, and we're going to compete aggressively for that title going forward. Great. Thanks for your time.
Katherine O'Brien: Thank you. One moment for our next question. Our next question comes from the line of Ravi Shankar with Morgan Stanley. Your line is now open. Good morning, everyone. This is Catherine on behalf of Robbie.
Catherine: Thank you for taking my question. I was just curious about, we kind of mentioned this in your last question, but as the floor of the chasm across the industry is expected to potentially push RASM up, I was curious if that helps you guys take price or share in that scenario. Yeah, I mean, generally, yes, but the things that make us less subject to capacity. The effects also reduce the impact of the unexpected grounding of the GTF fleet, for example.
Jude Bricker: No, we're just not. For good and for bad, we're just not as exposed to the industry. But, you know, capacity out of the system is a net positive, I think, you know, but we'd be like the secondary tertiary effect of like reallocation of capacity to backfill, pool, on the margin, some capacity off our network maybe from our OAs, but it's not material. And just as a quick follow-up. So I know close-in bookings across the industry were really strong last year and probably 2021, and then kind of dropped off in 23. What is that looking like now?
Jude Bricker: And I'm curious if you guys, you know, what normal behavior might look like for close in bookings in some countries? remains really strong. I mean, we, the shape of the booking curve, which is sort of like aggregate bookings made at any given time, is very similar to pre-COVID levels, but at a higher fare. And so, you know. I think the future looks a lot like the past; in passenger behavior, things are really positive. Anything else?
Unnamed Speaker: No. Yeah. Yeah. Good. Thank you. Thank you.
Unnamed Speaker: One moment for our next question, please. And our next question comes from the line of, with Deutsche Bank. One moment, please, for your question, called out. Oh, you guys hear me?
Unnamed Speaker: I actually have two questions here, but one is a follow-up to Dwayne's question where you talked about really being able to take advantage of the marginal opportunity here. I think in the past you characterized that as being able to now take advantage of the fact that you can have the fixed cost base; you're able to capitalize on that. I think you've characterized it as like a 40% operating margin, incremental operating margin as you better utilize your asset base. But you did sort of backtrack and say, well, we're still going to be off about two hours from where we could have been or where we were back in 2019.
Jude Bricker: Is that magnitude of the incremental opportunity here still coming at, as my math shows, somewhere in the 40% range or so, is that how we should think about it? Yeah. I mean, what we're talking about there is not an operating margin, but rather a contribution margin. So profits in excess of variable costs, revenue in excess of variable costs.
Jude Bricker: And yeah, I mean, our March back growing those periods of time in the calendar. We would expect that level of contribution for those incremental flights. Absolutely. Yeah, Mike, I think one of the things on the utilization comment, 2019 there were some unique things, particularly around military flying, which was really strong, and other things that we were able to pick up. We're not saying that there aren't two hours of opportunity; there's opportunity. We're just not maybe going to get back to the nine plus hours that we did in 2019 because there were some unusual things, but there's plenty of opportunity on Yeah, downward pressure on utilization is going to come from the check cycle that Dave mentioned earlier. We have a higher spareing ratio than we've had in the past. We're going to make sure we execute real well in operations, and that requires a little bit of conservatism from you.
Unnamed Speaker: And then just my second question, as we go back to, you know, fleet and procurement and the like, and I appreciate your point about that you're not dealing with the issues that a lot of other carriers are dealing with, whether it's the GTF or the grounding of the MAX 9. But now it does seem like that going forward, one of the large OEMs will basically only have one airplane that people care about. As you know, there's not a lot of interest in the MAX 9, it's going to be all about the MAX 8.
Unnamed Speaker: And it seems like that that's probably going to be the primary airplane of choice over the next couple years, which will probably put a lot of upward pressure on the used market for, you know, 800s and even used 900 ERs, or maybe even 700s. What are you seeing in the market? And it was, you know, obviously encouraging to see that, you know, you picked up two more 800s from fly to buy, so that plus the five from OMEN, you have seven shells of growth.
Jude Bricker: Have you identified, you know, additional shells out there that are maybe, you know, that you're working on right now? And what are you seeing in the pricing for these used airplanes? It would seem like the bid for those types of airplanes has actually moved up given the constraints at the OEMs. Any color on that would be great.
Jude Bricker: Thanks. I think you covered the operating lessors, and every quarter they say how strong a market it is for residual value. Thanks, everybody.
Jude Bricker: We are comfortable then not having to do any deals for a few years and just cash flow. We remain in the market. We're very active. If an airplane is out there trading hands, we're at the table.
Jude Bricker: But the bid-ask for us has really widened over the last several months, and I, you know, we only originated one aircraft over the last 12 months, may continue on, and that trend for the foreseeable future, say, two years. The point I was making, though, is that we could grow this airline 40% without any incremental originating, the Aircraft Deal. That's great. That's a great color.
Brandon Oglinski: Thanks. Thanks, everyone. Thank you. One moment for our next question. Our next question comes from the line of Brandon Oglinski with Barclays. Your line is now open. Hey, good morning, guys, and thanks for taking the question. Peter, Dave, I guess.
Unnamed Speaker: Can you talk to us, you know, looking into April and the second quarter? Can you guys have, you know, just based on the model on your peak Ka, you know, scheduled out of Minneapolis in the first quarter? QQ can be a little bit softer. So how do you see at least the first half of the year laying out from a profitability perspective? So just, a little bit, expectation setting. I mean, Easter's a lot earlier this year than it was last year, and so that'll have a negative effect on April on a year-over-year comparison basis, which is expected because we had a really spectacular April last year. As I mentioned, the winter of last year was really special, and that won't repeat itself. But just the trends that we've seen as we kind of lap the COVID recovery have broadly maintained themselves. I mean, we're.
Jude Bricker: You know, we're looking at 25-30% TRASM, sort of broadly over 19. You know, you got to adjust for these calendar shifts, but, generally, fares have kind of reset themselves at a stable but much higher level. 2Q for us is not nearly as good as 1Q, and that ought to be the same this year, but We're certainly, really bullish about where we're booking right now. Yeah, and I would also say that you've seen a continued ability for us to add capacity where we know we're going to be profitable sort of throughout the process, and we work really closely with the operating teams, so I would say there's a lot of work going on to understand where we can add some incremental capacity in the second quarter. So those keeping score with DO and those sorts of things, it's not all in there yet, and I would echo It's a that's a really good point.
Unnamed Speaker: I mean, our scheduling philosophy is one where we hold back some capacity and kind of allocate it as bookings matriculate. And I think that's, you know, that's the right way to run our business. Many airlines schedule above so that competitors notice, and then they kind of cancel down as bookings happen. We have the opposite.
Jude Bricker: So we'll have this little bit, you know, a couple percentage points of capacity to allocate as we get closer, which will help as well. I appreciate that too. And then, Dave, maybe on expectations and the offsets, I know you mentioned, you know, maybe lower premium pay this year, but what else do you have going on in the cost? Well, I mean, I think cost control across the company has been very solid. You know, on the so there's a lot of operating leverage here sort of as we grow, you know, like we just talked about a minute ago here on the aircraft side, we basically got the shells we need to fly the 2024 level. So that's, you know, Operation Leverage kicks in, and we get a CASM benefit from that.
Dave Davis: We've also got a number of IT projects that we've been working on now that I think are going to contribute to a lower CASM as well. You know, with the exception of this maintenance issue, which is sort of a decision that we've made, costs are well in control. I can't point to any one initiative.
Dave Davis: I just think across all of the areas of our company right now, costs are well enough. Thank you. Thank you. One moment for our next question. As a reminder, ladies and gentlemen, use the star 1-1 to ask your question, and please wait for your name to be announced. Our next question comes from the line of Christopher Stapalafos, with Susquehanna. Your line is now open. Good morning.
Christopher Stapalafos: Thanks for taking my question. What percent of your charter is currently under contract, and how much is up for renewal this year? We have about 85% of our charter revenue right now under long-term contracts, um, you know. As these pilot and other staffing issues sort of resolve themselves, we want to drive a little more ad hoc revenue, but right now, like I said, 85% or so is long-term. I don't think we have any significant contracts up yet, but we're working closely with any that are.
Jude Bricker: So we feel really good about the portfolio. And they like what we're doing, and we like being connected with them. Okay, okay. The second question is the sequential decline in block hours in cargo. Is that just reflective of a weak peak, or perhaps not?
Unnamed Speaker: a regional shift in Amazon's network between carriers. No, that's all I need. That's the result entirely of the sea check cycle and some weather disruptions that we had. It has nothing to do with me.
Unnamed Speaker: I can't comment on anything about what Amazon is planning. OK. OK. Great. Thank you. One moment for our next question, please. The next question comes from the line of Katherine O'Brien with Goldman Sachs. Your line is now open. Hi again.
Katherine O'Brien: Thanks so much for the follow-up. Dee, maybe just one quick question on the share purchase program. You guys were pretty active in the last two years.
Katherine O'Brien: I think you've got like $11 million, $11.5 million left. And CapEx is stepping down materially. I guess any comments on are there any changes to how you're thinking about capital allocation, or should we just stay tuned on the shareholder returns front? Thanks so much.
Dave Davis: Yeah, first of all, your comment on the free cash flow generation is spot on. I mean, the capex at the company will drop by more than half between 23 and 24. If we deliver the kind of results that we think we're going to deliver, we're going to generate a lot of free cash, and then we'll have to decide what we're going to do with that cash. You know, there is more share buybacking that we would definitely look at. We don't have a lot of debt that's economical to pay down. We don't have a lot of debt, period. We don't have a lot of debt that's economical to really pay down early, with sort of one exception.
Dave Davis: So, what I think is, as we go forward here, there will be decisions around do we do share buybacks, do we pay down this one piece of debt that we can. You know, we're going to fully fund, and we have been fully funding cost reduction and revenue generative initiatives, particularly on the IT side. We'll continue to do that, but that should be reflected in the $100 million I talked about for 24 CAPEX. We're in a good position to have a lot of flexibility around how we deploy our cache in 24 and 25.
Jude Bricker: That's great, thanks so much. Thank you. I'm currently showing no further questions at this time. I'd like to turn the call back to Mr. Bricker, Chief Executive Officer, for closing remarks. Thank everybody for joining us today. Have a great day, and we'll talk to you in 90 days.