Q1 2024 Sun Country Airlines Holdings Inc Earnings Call
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Operator: Welcome to the Sun Country Airlines first quarter 2024 earnings call. My name is Jill, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. We will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin.
Joe: Welcome to the Sun country Airlines first quarter 'twenty 'twenty four earnings call. My name is Joe and I will be your operator for today's call.
Joe: Time, all participants are in a listen only mode.
Joe: After the speaker's presentation, there will be a question and answer session did you ask a question during the session you will need to press star one one on your telephone.
Joe: You will then hear an automated message that I think that your handsets rates.
Joe: Your question. Please press star one again.
Joe: Please be advised that today's conference is being recorded.
Joe: Now I'll turn the call over to Chris Allen Director of Investor Relations. Mr. Allen you may begin.
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 forward-looking statements. Our remarks today may include forward-looking statements that are based upon management's current beliefs, expectations, and assumptions and are subject to risks and uncertainties. However, actual results may differ materially.
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 that will answer your questions before we begin like to remind everyone that during this call. The company may make certain statements that constitute forward looking statements. Our remarks. Today may include forward looking statements, which are based upon management's current beliefs expectations and assumptions and are subject to risks and uncertainty.
Chris Allen: Actual results may differ materially we encourage you to review the risks and cautionary statements outlined in our earnings release and our most recent SEC filings.
Chris Allen: We encourage you to review the risks and cautionary statements outlined in our earnings release and our most recent SEC filing. We assume no obligation to update any forward-looking statement. You can find our first quarter 2024 earnings press release on the investor relations portion of the website at ir.suncountry.com. With that said, I'd like to turn it over to
Chris Allen: We assume no obligation to update any forward looking statement you can find our first quarter of 2024 earnings press release on the Investor Relations portion of the website.
Chris Allen: So I'm kind of your dot com with that said I'd like to turn it over to Jay.
Jude I. Bricker: Thank you, Chris. Good morning, everyone.
Jay: Thanks, Chris Good morning, everyone.
Jude I. Bricker: Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we're 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're able to reliably deliver industry-leading profitability throughout all cycles.
Jay: Our diversified business model is unique in the airline industry due to the predictability of our charter and cargo business as we're able to deliver the most flexible scheduled service capacity in the industry the.
Jay: The combination of our schedule flexibility and low fixed cost model allows us to respond about predictable leisure demand fluctuations and exogenous industry shocks, we believe due to our structural advantages, we're able to reliably deliver industry leading profitability throughout all cycles.
Jude I. Bricker: Operational excellence is a core tenet of our product. It's critical to our scheduled service customers and justifies our growth with our charter and cargo customers. Among the 11 public mainline carriers, Sun Country again had the best completion factor at 99.7% for one queue.
Jay: Operational excellence is a core tenant of our product it's critical to our scheduled service customers and justifies our growth with our charter and cargo customers. Among the 11 public mainline carriers Sun country again had the best completion factor at 99, 7% for <unk> congratulations to our employees.
Jude I. Bricker: Congratulations to our employees, especially our front lines, for delivering excellence this past quarter. In the first quarter, we saw yields reset off their post-pandemic highs. These fair declines were partially absorbed by our continued momentum on cost. Our CASM-X declined slightly in 1Q in spite of a significant increase in heavy aircraft. Diligent cost control, scheduled service growth, along with the effects of our buyback program produced flat EPS for last year. Our adjusted operating margin of just over 18% was at the lower end of our expectations coming into the quarter.
Jay: Especially our frontline for delivering excellence this past quarter.
Jay: In the first quarter, we saw yields reset off their post pandemic highs. These fair declines were partially absorbed by our continued momentum our costs. Our CASM ex declined slightly at <unk> in spite of significant increase in heavy.
Jay: Aircraft visits diligent cost control scheduled service growth along with the effects of our buyback program produced flat EPS versus last year.
Jude I. Bricker: This variance is mostly due to close-in March bookings finishing less strong than in 2023. March is still a great month for us. We had gross margins, profit success in excess of variable costs, approaching 50%. However, March bookings from May through January would have indicated an even stronger month. As lows remain high, most of the variance can be attributed to industry capacity growth across our largest market.
Jay: Alright, adjusted operating margin of just over 18% was at the lower end of our expectations coming into the quarter. This variance is mostly due to close in March bookings, finishing less strong than in 2023 March is still a great month for it but for US we had gross margins profits et cetera and access.
Jay: Variable costs approaching 50%. However March bookings made through January would have indicated and an even stronger months at Lowe's remained high most of the variance can be attributed to industry capacity growth across our largest markets.
Jude I. Bricker: Our response to changes in the fare environment or fuel price inputs is to adjust marginal capacity so that we continue to produce positive and industry-leading results. When possible, we may allocate surplus capacity to our charter and cargo sectors. So, looking into the rest of the year, we're currently allocating too much capacity growth and off-peak periods based on selling fares. While we're committed to May, I expect us to make some significant capacity cuts in September through November.
Jay: Our response to changes in the fair environment or fuel price inputs as to adjust marginal capacity. So that we continue to produce positive and.
Jay: <unk> industry, leading results when possible, we may allocate surplus capacity into our charter and cargo segments.
Jay: So looking into the rest of the year. We're currently allocating too much capacity growth in off peak periods based on selling fares. While we're committed to may I expect us to make some significant capacity trends in September to November.
Jude I. Bricker: Some of that displaced capacity will provide growth opportunities and opportunities for cargo and charter. Summer peak continues to sell well and should remain mostly as scheduled. Also, a quick note on the Easter shift: an early Easter reduces the peak winter season and explains about ten percentage points in fare drop in April 2024, or about three million dollars. This revenue isn't recoverable in March because it's already at peak capacity.
Jay: Some of that displaced capacity will provide growth opportunities and cargo and charter summer peak continues to sell well and should remain mostly as scheduled.
Jay: A quick note on the Easter shift and early Easter reduces the peak winter season, and explains about 10 percentage points in fair drop in April 2024, or about $3 million.
Jay: This revenue isn't recoverable in March because it's already at peak capacity.
Jude I. Bricker: Finally, on fleet activities. With our recent aircraft purchase, we now have a controlled fleet of 63 aircraft. Seven of these aircraft remain on operating lease, and two more are in the induction process to enter service in late 2Q. Once all these aircraft are in operation, by late 2025, we'll have fleet capacity to produce about 40% more block hours than we currently operate. As we've already paid for that growth, we won't require any aircraft CAPEX, and so expect CAPEX to fall to maintenance levels, which is about $50 to $75 million per year. With that, I'll turn it over to Dave.
Jay: Finally on fleet activities.
Jay: With our recent aircraft purchase we now have a control fleet of 63 aircrafts seven of these aircraft remain out on the operating lease and two more are in induction process to enter service in late two Q.
Jay: Once all these aircrafts are in operation by late 2025, we will have fleet capacity to produce about 40% more block hours than we currently operate as we already paid for that growth, we won't require any aircraft capex and so expect capex to fall to maintenance levels, which is about 50% to 75.
Jay: Million dollars per year.
Jay: With that I'll turn it over to Dave.
David M. Davis: Thanks Jude. We're pleased to report strong Q1 results, including record revenue and an adjusted operating margin of 18.2 percent, which we expect to be at the top of the industry. Our quarterly results again demonstrate the resiliency and earnings power of our diversified business model, as this is our seventh consecutive quarter of profitability. The staffing-driven constraints we've experienced for over a year now have eased, and we were able to grow our scheduled service business as rapidly as we intended to.
David M. Davis: Thanks, Jude we're pleased to report strong Q1 results, including record revenue and an adjusted operating margin of 18, 2%, which we expect to be at the top of the industry our quarter results. Our quarterly results again demonstrate the resiliency and earnings power of our diversified business model as this is our seventh consecutive quarter of profitability.
David M. Davis: The staffing driven constraints, we've experienced for over a year now have eased and we were able to grow our scheduled service business as rapidly as we intended to.
David M. Davis: Year over year unit costs fell for the second consecutive quarter despite significant increases in maintenance and airport-related expenses. It's important to keep in mind that our unique operating model is the opposite of high utilization carriers.
David M. Davis: Year over year unit costs fell for the second consecutive quarter, despite significant increases in maintenance and airport related expenses.
David M. Davis: Our diversification across scheduled service, charter, and cargo operations leads to resiliency through business cycles. Well, we've seen large increases in capacity in some of our markets, which has pressured yields. There are significant opportunities for accretive growth in our charter and cargo businesses, and we'll continue to allocate capacity to the segments generating the highest returns. Now, I turn now to the specifics of the first quarter.
David M. Davis: It is important to keep in mind that our unique operating model is the opposite of the high utilization carriers, our diversification across scheduled service charter and cargo operations leads to resiliency through business cycles.
David M. Davis: While we've seen large increases in OA capacity in some of our markets, which has pressured yields there are significant opportunities for accretive growth in our charter and cargo businesses and we will continue to allocate capacity to the segments generating the highest returns.
Speaker Change: Let me turn now to the specifics of the first quarter.
David M. Davis: First, on revenue and capacity. In the first quarter, total revenue grew 5.9% versus Q1 of last year to $311.5 million. This is our highest quarterly total record revenue on record. Scheduled service revenue plus ancillary revenue grew 2.8% to $227.4 million, also the highest on record. However, scheduled service TRASM decreased 11.7% to 12.2 cents as scheduled service ASMs grew by more than 16%. The total fare declined 11.3% to $196.41 while we maintained an 87% load factor. For the month of March, we saw our scheduled service load factor hit 89%.
David M. Davis: First on revenue and capacity in the first quarter total revenue grew five 9% versus Q1 of last year to $311 $5 million. This is our highest quarterly total record revenue on record scheduled service revenue plus ancillary revenue grew two 8% to $227 4 million.
David M. Davis: <unk> is also the highest on record.
David M. Davis: Scheduled service <unk> decreased 11, 7% to 12 <unk> as scheduled service Asm's grew by more than 16%.
David M. Davis: Total fair declined 11, 3% to $196 41, while we maintained at 87% load factor for.
David M. Davis: For the month of March we saw our scheduled service load factor at 89%.
David M. Davis: The first quarter is historically our strongest, and we expect to see a seasonally driven fall in unit revenue from Q1 to Q2, exacerbated by the Easter shift into Q1, and the nearly 20% growth in scheduled service ASMs we're expecting to see in Q2. Charter revenue in the first quarter grew 2.4 percent to $47.3 million on a block hour decline of 3 percent, driving charter revenue per block hour up 5.6 percent. If you exclude changes in fuel reimbursement revenue from both Q1 of this year and Q1 of last year, charter revenue grew 6.5 percent over the period, and revenue per block hour was up 9.8 percent. Ad hoc charter revenue grew 29% versus Q1 of last year, and charter flying under long-term contracts with 75% of total charter revenue versus 80% last year.
David M. Davis: First quarter is historically, our strongest and we expect to see a seasonally driven fall in unit revenue from Q1 to Q2 exacerbated by the Easter shift into Q1, and then nearly 20% growth in scheduled service ASM as we're expecting to see in Q2.
David M. Davis: Charter revenue in the first quarter grew two 4% to $47 $3 million on a block hour decline of 3% driving charter revenue per block hour up five 6%.
David M. Davis: If you exclude changes in fuel reimbursement revenue from both Q1 of this year in Q1 of last year charter revenue grew six 5% over the period and revenue per block hour was up nine 8%.
David M. Davis: AD hoc charter revenue grew 29% versus Q1 of last year and charter flying under long term contracts with 75% of total charter revenue versus 80% last year.
David M. Davis: First quarter cargo revenue grew 2.5% to $23.9 million on a 1.1% increase in block hours. As a reminder, our cargo rates in, sorry, 1.1% decrease in block hours. As a reminder, our cargo rates increase annually at the end of December. Let me turn now to costs. Our first quarter total operating expenses increased 7.5% on a 9.6% increase in total block hours. However, chasm declined by 5.4% versus Q1 of 23, while adjusted chasm declined by 0.1%, marking our second consecutive quarter of year-over-year chasm decline.
David M. Davis: First quarter cargo revenue grew two 5% to $23 $9 million on a one 1% increase in block hours as a reminder, our cargo rates in sorry, one 1% decrease in block hours.
David M. Davis: As a reminder, our cargo rates increase annually at the end of December.
David M. Davis: Let me turn now to costs, our first quarter total operating expenses increased seven 5% on a 9.6% increase in total block hours.
David M. Davis: CASM declined by five 4% versus Q1 of 'twenty three while adjusted CASM declined by 0.1%, marking our second consecutive quarter of year over year CASM declines.
David M. Davis: As our pilot availability issues have eased, we've been able to grow flying through higher aircraft utilization, which was eight hours per day in Q1, up 9.6% versus Q1 of last year. Our declining chasm came despite increases in both maintenance expenses and higher airport costs.
David M. Davis: As our pilot availability issues have eased we've been able to grow flying through higher aircraft utilization, which was eight hours per day in Q1 up nine 6% versus Q1 of last year.
David M. Davis: Our declining CASM came despite increases in both maintenance expenses and higher airport costs.
David M. Davis: Maintenance expenses grew by 29% year over year, driven by an increase in the number of airframe and engine overhaul events from three in Q1 of 'twenty, 3% to 8% this quarter, while the rolling off of Covid relief payments to airports helped to drive a 34, 6% increase in rent and landing fees.
David M. Davis: Maintenance expenses grew by 29% year-over-year, driven by an increase in the number of airframe and engine overhaul events, from three in Q1 of 2023 to eight this quarter, while the rolling off of COVID relief payments to airports helped to drive a 34.6% increase in rent and landing fees. Now, let me turn now to the balance sheet. Our total liquidity at the end of Q1 was $179 million, which included $11.5 million in share repurchases that we made during the quarter and $29.7 million in CapEx.
David M. Davis: Now, let me turn now to the balance sheet. Our total liquidity at the end of Q1 was $179 million, which incorporates 11 5 million in share repurchases that we made during the quarter and $29 7 million in Capex spend.
David M. Davis: At this point, we do not expect to purchase any incremental aircraft until we begin looking for 2026 capacity at the very earliest. We anticipate full year 2024 CAPEX to be well below $100 million. We continue to maintain a very strong balance sheet on our net debt to adjust the EBITDA ratio at the end of Q1 was 2.5 times. Since we do not have a significant debt burden, we have flexibility in how we deploy our cash.
David M. Davis: At this point, we do not expect to purchase any incremental aircraft until we begin looking for 2026 capacity at the very earliest we.
David M. Davis: We anticipate full year 2020 for capex to be well below $100 million.
David M. Davis: We continue to maintain a very strong balance sheet and our net debt to adjusted EBITDA ratio at the end of Q1 was two five times.
David M. Davis: Since we do not have a significant debt burden, we have flexibility in how we deploy our cash.
David M. Davis: Turning now to guidance, we expect second quarter total revenue to be between $255 and $265 million, on block hour growth of 8 to 11 percent. We're anticipating our cost per gallon for fuel to be $2.93 and for us to achieve an operating margin between four and seven percent. Our business is built for resiliency and will continue to allocate capacity between our lines of business to maximize profitability and minimize earnings volatility. With that, we will open it up for questions. Thank you.
David M. Davis: Turning now to guidance, we expect second quarter total revenue to be between 255 and $265 million on block hour growth of 8% to 11%.
David M. Davis: We're anticipating our cost per gallon for fuel to be $2 93.
David M. Davis: And for us to achieve an operating margin between 4% and 7%.
David M. Davis: Our business is built for resiliency and we will continue to allocate capacity between our lines of business to maximize profitability and minimize earnings volatility.
Speaker Change: With that we will open it up for questions.
Operator: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw that question, please press star 1-1 again. Please stand by while we compile the list of questions. The first question comes from Ravi Shankar with Morgan Stanley. Go ahead, Ravi. Your line is open.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Speaker Change: Minder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw that question. Please press star one again.
Speaker Change: Please standby, while we compile the roster.
David M. Davis: First question comes from Ravi Shanker with Morgan Stanley Go ahead Ravi Your line is open.
David M. Davis: Thanks, good morning everyone. Dave, can I just start with where you ended off and talk about the difference between a segment realignment or reallocation of capacity? Can you go into a little more detail on kind of what you guys are doing in terms of specific actions to absorb some of that excess capacity in some of your oversupplied markets and kind of how long that'll take?
Ravi Shanker: Thanks, and good morning, everyone. Dave can I, just start with where you ended off and talk about the.
Ravi Shanker: The different segment realignment the reallocation of capacity can you go into little more detail on kind of what you guys are doing in terms of specific actions to.
David M. Davis: Absorb some of that excess capacity and some of you are oversupplied markets and kind of how long that will take.
David M. Davis: Yeah, I'll let Jude speak to that mainly, but let me just say it at a high level here. So I think basically our capacity is committed for Q2, and that explains part of the part of the margin pressure that we're seeing into the second quarter. There'll be opportunities in the back half of the year to reallocate some of that capacity, particularly in off-peak times, away from our scheduled service business and into our charter businesses, in the longer term to the medium term.
Speaker Change: Yes, I'll, let I'll, let you speak to that mainly but let me just say at a high level here. So I think basically our capacity is committed for Q2 and that explains part of that.
David M. Davis: Part of the margin pressure that we're seeing into the second quarter there'll be opportunities in the back half of the year to reallocate some of that capacity, particularly in off peak times.
David M. Davis: From our scheduled service business and into our charter businesses in the longer term say.
David M. Davis: We continue to look for opportunities to allocate the resources we have across all our segments. There are opportunities in the cargo business that present themselves. We're going to pursue them. We're going to put our pilot capacity, our training capacity, the capacity of our company between the segments based on profitability. If there's continued pressure in the scheduled service business, we're going to allocate resources to the other segments, and we think there are opportunities in both of our other lines of business.
David M. Davis: Say the medium term, we continue to look for opportunities to allocate the resources, we have across all our segments.
David M. Davis: There's opportunities in the cargo business that present themselves, we're going to pursue them, we're going to put we're going to allocate our pilot capacity our training capacity the capacity of our company between the segments based on profitability. If Theres continued pressure in the scheduled service business, we're going to allocate to the other segments that we think there are opportunities in both.
David M. Davis: Of our other lines of business.
Jude I. Bricker: Yeah, the focus is on the Labor Day through Thanksgiving period to try to pick up more charters. But it usually is that way. So, you know, incremental allocations are going to be marginal. So it's mostly going to be capacity cuts of scheduled service flights that don't make variable contributions.
David M. Davis: Yes, the focus is in the labor day through Thanksgiving period to try to pick up more charters.
David M. Davis: But it usually is that way so incremental allocations are going to be marginal.
David M. Davis: So, it's mostly going to be capacity cuts of.
David M. Davis: Scheduled service flights that they'll make variable contribution.
David M. Davis: Got it. And maybe just to follow up on that, kind of how do we think about modeling from 2Q to 3Q, kind of the relative and normal seasonality given the kind of extremely low starting point for 2Q?
Speaker Change: Got it and then maybe just a follow up on that kind of how do we think about.
David M. Davis: Modeling from Q3, Q kind of relatively normal seasonality given the extremely low starting point for <unk>.
David M. Davis: As a fair point, I mean, typically, we would see 2Q and 3Q perform equally. This 2Q has both overcapacity in April and May and an Easter shift. So, you know, I, our expectation is that we outperform 2Q and 3Q.
Speaker Change: That's a fair point I mean, typically we would see <unk> and <unk> perform equally.
David M. Davis: This <unk> has both overcapacity in April and May and an Easter shift.
David M. Davis: So.
David M. Davis: Our expectation is we outperform it.
David M. Davis: <unk> and <unk>.
Operator: Understand? Thanks, guys. One moment while we prepare the next.
Speaker Change: Understood. Thanks, guys.
Operator: One moment while we prepare the next question, which comes from Duane Pfennigwerth with Evercore ISI.
Speaker Change: Yes.
Speaker Change: One moment.
Speaker Change: The next question.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Next question comes from Duane <unk> with Evercore ISI.
Duane: Your line is open.
Jude I. Bricker: Hey, good morning. Thanks. So if we just play back your ability to kind of flex up in the peak periods. You're obviously constrained for an extended period of time. Those constraints started to ease, and now you have a greater ability to kind of flex up in these peaks, which theoretically was going to be at higher incremental rasm. And so, relative to your expectations going in, how has that gone? And, I guess, more importantly, what do you take with you going forward? So how are you thinking about flexing up in future peaks, maybe relative to how you managed the peaks in the first quarter?
Duane: Hey, good morning. Thanks.
Duane: So if we just play back your ability to kind of flex up in the peak periods.
Duane: Youre, obviously constrained for for an extended period of time.
Duane: Those constraints started to ease and now you have a greater ability to kind of flex up in these in these peaks, which theoretically was going to be at higher incremental RASM and so I guess.
Duane: Relative to your expectations going in.
Duane: Has that gone and I guess more importantly, what do you take with you going forward. So how are you thinking about flexing up and future peaks.
Duane: Relative to how you managed.
Duane: Peaks in the first quarter.
Jude I. Bricker: The biggest surprise is that the Scheduled Service Network didn't absorb the growth in the off-peak periods the way we expected it to do. Keep in mind, we designed the network based on its performance, largely of the prior year at a granular level. So, this flight on this day did well; let's add another. You know, this market was cut right at the end of the peak period but was performing strongly. So, maybe it can go into the off-peak period and still contribute.
Duane: The biggest surprise is that the scheduled service network didnt absorb the growth in the off peak periods. The way we expected it to do keep in mind, we design the network based on its performance largely of the prior year on a granular level. So this slide on this day did well let's add another.
Duane: This market was cut right at the end of the peak period, but was performing strongly so maybe it can go into the peak period and still contribute.
Jude I. Bricker: And those decisions on the margin didn't produce the results that we thought they would. So, you know, most of the difference between where we expected fares to be and where they actually turned out to be can be explained through more seats in markets, not just from us, but from OAs. And there's a really strong correlation between them.
Duane: And those decisions on the margin.
Duane: Didn't produce the results that we thought they would.
Duane: So most of the difference between where we expected <unk> to be and where they actually turned out to be it can be explained through more seats in markets not just from us but from my ways.
Duane: And there's a really strong correlation between.
Jude I. Bricker: The downward pressure on fares, the change in unit revenue in a market and its sea growth, as you would expect, and in off-peak periods when there just isn't a lot of margin to give, those markets, you know, those flights should have been out of the schedule. The change, you know, what's really interesting about this time is that the change in the selling fair environment didn't really start until mid-February. And then we're looking at 2Q and saying, OK, well.
Duane: The change in the downward pressure on fares the change in unit revenue in a market and its and its seat growth as you would expect.
Duane: And in off peak periods. When there just isn't a lot of margin to give those those markets. Those flights should have been not in the schedule.
Duane: The change was.
Duane: It's really interesting about this time is that the change in the selling fare environment didn't really start until <unk>.
Duane: Mid February.
Duane: And then when we're looking at <unk> and saying, okay well.
Jude I. Bricker: You know, these fares are coming down. Some of these flights aren't going to be. You know, positively contributing, but we should leave them in there to protect the sold seats on those flights and further, you know, like, fair fluctuations are pretty common. This one. You know, it just lasted all the way through the selling period. So, you know, I think we made the right decision in 2Q to keep these markets going, and then, you know, we'll adjust to the new environment in the post-summer trough.
Duane: These fares are coming down.
Duane: Some of these flights arent going to be.
Duane: Positively contributing but we should leave them in there to protect the solid seats on those flights.
Duane: And further like fair fluctuations are pretty common this one.
Duane: Just lastly through the selling period so.
Speaker Change: I think we made the right decision and <unk>.
Duane: These markets going and then.
Duane: We will adjust to the new environment and the and the post summer trough.
Jude I. Bricker: That's great. So basically, the learnings that you're taking here from your approach to off-peak, 2Q is not really the period to measure that change. It's more of a 3Q second half. Is that fair?
Speaker Change: That's great. So basically the learnings that you are taking here from your approach to off peak.
Duane: <unk> is not really the period to measure that change it's more kind of <unk> second half is that fair is that fair.
Jude I. Bricker: Yeah, but Duane, I mean, keep in mind that we're always adjusting utilization based on the inputs of fair environment and fuel. So, you know, this can reverse itself as well.
Speaker Change: Yeah, but Duane I mean keep in mind, we're always adjusting utilization.
Speaker Change: Based on the inputs of fare environment and fuel so yes.
Jude I. Bricker: But the marginal capacity that comes in or out of this schedule largely resides in the off-peak period. So think of our business as there's one awesome month: that's March. There are about six good months. February, April, June, July, and December. August, and then there's a really bad month in September, and then there's kind of a couple that are meh, four. And you know, when we think about variable capacity, it's always allocated to those shoulder months that can absorb or not, based on the fuel price and fair environment. Yeah, but it is fair to say so.
Speaker Change: This can reverse itself as well, but the marginal capacity that comes in or out of the schedule largely resides.
Jude I. Bricker: In the in the off peak periods I think of our business is theres one offs a month that's March theres about six good months.
Jude I. Bricker: February April June July December.
Jude I. Bricker: August and then there is.
Jude I. Bricker: Ban month in September and then there's kind of a couple that are may four.
Jude I. Bricker: And when we think about variable capacity, it's always allocating into like those shoulder months that can absorb or not based on the fuel price and fair environment.
David M. Davis: Yeah, but it is fair to say, Duane, obviously, we have more of the second quarter sold than we do of the third quarter or the fourth quarter, so our ability to adjust the schedule gets better the further out we go, and it's somewhat limited
Speaker Change: But it is but it is fair to say Duane obviously, we have more of the second quarter sold than we did the third quarter the fourth quarter. So our ability to adjust the schedule gets better the further out we go and it's somewhat limited.
David M. Davis: In Q2 at this point.
David M. Davis: That's all. That's all great. And just my follow-up question, any outlook or, you know, update, you can provide us with your outlook for new wins in the cargo segment. Thanks for taking the question.
Speaker Change: That's all that's all great and just my follow up.
David M. Davis: Any outlook.
David M. Davis: Update you can provide us your outlook for new wins in the cargo segment. Thanks for taking the questions.
David M. Davis: I have nothing to talk about right now. Yeah, we probably don't have much to talk about at this point.
Speaker Change: Nothing to talk about right now, we probably don't have much to talk about at this point.
Operator: Okay, thank you. One moment. Okay. Thank you. Okay.
Speaker Change: Okay. Thank you.
Operator: One moment for our next question. The next question comes from Helane Becker with T.D. Cohen. Go ahead. Your line is open.
Speaker Change: One moment for our next question.
Operator: Okay.
Operator: The next question comes from Helane Becker with TD Cowen go ahead. Your line is open.
Helane Renee Becker: Thanks very much, Operator. Hi, team. Thanks for the time. Just a couple of clarification points. Are you expecting maintenance costs then to continue to be at this level for the rest of the year, or is this just a one-quarter event?
Helane Renee Becker: Thanks, very much operator, hi team thanks for the time.
Helane Renee Becker: Just a couple of clarification points or are you expecting maintenance cost than to continue to be at this level for the rest of the year or is this just a one quarter event.
David M. Davis: No, maintenance costs are going to stay a bit elevated like this through the rest of the year. You know, we talked about in Q1, or the call we did at the end of 23, about some intentional changes to our maintenance program that we made in 24 that are going to keep costs higher. And that's going to likely persist, or it will persist based on our plan through 24. Okay.
Helane Renee Becker: No maintenance costs are going to stay a bit elevated like this through the rest of the year.
David M. Davis: I think we talked about on the Q1.
David M. Davis: Carl we get at the end of 'twenty three about some intentional changes to our maintenance program that we made in 'twenty four.
David M. Davis: That a good nap keep costs higher and that's going to likely persist or it will persist based on our plan through 'twenty four.
David M. Davis: Okay, that's very helpful. Thanks, Dave.
Speaker Change: Okay. That's very helpful. Thanks, Steve and then the other question I have is with respect to the decline in air traffic liability and maybe you explained it.
Speaker Change: Through the changes in bookings, but usually it doesn't decline as much as it seems to have declined.
David M. Davis: From the.
Helane Renee Becker: And then the other question I have is with respect to the decline in air traffic liability, and maybe you explained it through the changes in bookings, but usually it doesn't decline as much as it seems to have declined, from the year end, you know, from the fourth quarter to the first quarter, but it was down 24%. So how are you thinking about that? Or have you already explained that?
David M. Davis: From the year end from the fourth quarter to the first clutter.
Helane Renee Becker: It was down 24%. So how are you thinking about that or did you explain that already.
David M. Davis: I don't think we explained it already, but I mean, the ATL is going to drop as we go through Q1. You know, a little bit of the decline this time because of the weaker fair environment in the second quarter, but there's nothing unusual in the ATL.
Speaker Change: I don't think we explained it already but I mean, the AGL is going to drop as we as we go through Q1.
David M. Davis: A little bit of a decline this time might be the weaker fare environment in the second quarter, but theres nothing nothing.
David M. Davis: Unusual in the AGL drop.
David M. Davis: Okay, well, that's very helpful. There is a lot of seasonality in our ATL just based on the volatility of our schedule and the fair environment. So going into the first quarter, we'll have the highest ATLs of the year. Right, that's what I would expect, but I wouldn't expect it to decline as much as it did from January to March. But I guess it all has to do with not having as many bookings for the second quarter, the Easter shift, and all the other things you've already explained, right? Is that how we should sort of think about it?
David M. Davis: Okay.
Speaker Change: That's fair.
David M. Davis: There is a lot of seasonality in our ATL just based on that.
David M. Davis: The volatility of our schedule and fare environment.
David M. Davis: So going into the first quarter, we will have to ISC <unk> of the year.
David M. Davis: That's what I would expect but I wouldn't expect it to decline as much as it did from January to March, but I guess it all has to do with not having as many bookings for the second quarter, the Easter shift and all the other things you've already explained trade is that how we should sort of think about it.
David M. Davis: Yeah, to the extent that it's a little bit unusually large, it would be the fair issues you're talking about, and Easter's a big part of it.
David M. Davis: Yes.
David M. Davis: And it's a little bit unusually large it would be the fair issues Youre talking about an Easter is a big part of it.
Helane Renee Becker: Perfect. Okay. Thanks for your help. I appreciate it. Thanks for that.
Speaker Change: Perfect Okay.
Helane Renee Becker: Thanks for your help I appreciate it.
Helane Renee Becker: Thanks a lot. Thanks a lot. [inaudible]
Helane Renee Becker: Thanks for that thanks for later.
Operator: Thank you. One moment while we bring up our next question. Our next question comes from Michael Linenberg with Deutsche Bank. Go ahead. Your line is open.
Helane Renee Becker: Okay.
Speaker Change: Thank you one moment.
Michael John Linenberg: Our next question.
Michael John Linenberg: Our next question comes from Michael Lindenberg with Deutsche Bank Go ahead. Your line is open.
Michael John Linenberg: Oh, yeah. Hey, good morning, everyone.
Michael John Linenberg: Yeah, Hey, good morning, everyone.
Michael John Linenberg: In the release and include even sort of mentioned.
Michael John Linenberg: <unk> by competitors OA capacity.
Michael John Linenberg: Can you give us a sense of maybe what OA capacity look in the June quarter.
Michael John Linenberg: In your market year over year changes made in September maybe how that trends maybe it was better in the March quarter any color on that would be great.
Jude I. Bricker: You know, in the release, and I think Judy even sort of mentioned capacity by competitors, OA capacity. Can you give us a sense of maybe what OA capacity looks like in the June quarter? You know, in your markets, year-over-year changes, maybe June, September, maybe how that trends. Maybe it was better in the March quarter.
Jude I. Bricker: Any color on that would be great.
Jude I. Bricker: Domestic capacity was up 6% and overlay capacity was up about 10 in the first quarter those trends are basically consistent in the second quarter as well.
Jude I. Bricker: Messick capacity was up six percent, and overlay capacity was up about ten percent in the first quarter. Those trends are basically consistent in the second quarter as well. Keep in mind our network is dramatically different from quarter to those two quarters, but I mean, we're just seeing a lot of seats in our markets. In the back of the year, you know, we become really concentrated between Labor Day and Thanksgiving because, you know, as we trim out markets that are seasonal, so that's where the concentration resides. So then we have a lot of capacity on major trunk routes out of Minneapolis, and that's where you see a lot of sea pressure.
Jude I. Bricker: Keep in mind, our network is dramatically different from quarter to those two quarters.
Jude I. Bricker: But I mean, we're just seeing a lot of seats in our in our markets.
Jude I. Bricker: In the back of the year.
Jude I. Bricker: We've become really concentrated between.
Jude I. Bricker: Labor day, and Thanksgiving, because as we trim our markets that are seasonal so.
Jude I. Bricker: That's where the concentration resides. So then we have a lot of capacity into major trunk routes out of Minneapolis, and Thats, where you see a lot of pressure.
Jude I. Bricker: Okay, and then just my second question is, you've obviously identified the issue and you'll respond, as you mentioned in sort of the off-peak periods from September through Thanksgiving. But how much of what's going on reflects some of the other churn going on in the industry? When I think about the network changes being made by many of the other carriers, and I would say it's really the smaller carriers, not the big three.
Jude I. Bricker: Okay and then just my second question is you've obviously been a fight.
Jude I. Bricker: The issue and you will respond.
Jude I. Bricker: As he mentioned in sort of.
Jude I. Bricker: Peak periods from September through Thanksgiving, how much of what's going on reflects some of the other churn going on in the industry. When I think about the network changes being made by many of the other carriers and I would say, it's really the smaller carriers not the big three I mean, they are very well established.
Jude I. Bricker: I mean, they're very well established. The churn that we're seeing in network changes is, quite frankly, it's nothing like I've seen before when I look at the number of additions and deletions. And so how much of this may be just more of this sort of structural change going on in the industry where it just may be that more difficult to respond to? because of the dramatic shifts in networks that we're seeing. What are your thoughts on that? Thanks.
Jude I. Bricker: The churn that we're seeing in network changes.
Jude I. Bricker: Quite frankly, it's nothing like I've seen before when I look at the number of additions in duration and so how much of this is maybe just more of the sort of structural change going on in the industry, where it just maybe that more difficult to respond to.
Jude I. Bricker: Because of the.
Jude I. Bricker: The dramatic shifts in networks that we're seeing.
Jude I. Bricker: It's difficult to give a long-term read-through based on a very limited amount of input, but my view would be that Speed and Frontier are challenged more with when they fly than where they fly. In the same way that we're having these off-peak weaknesses, they're experiencing the same, and so the network churn isn't addressing the issue. Our response to this is going to be to look at incremental capacity and shave it down, as it always has been.
Jude I. Bricker: Your thoughts on that thanks.
Jude I. Bricker: It's difficult to give a long term read through based on a very limited amount of input.
Jude I. Bricker: My view would be that.
Jude I. Bricker: Spirit and frontier challenge more with when they fly them, where they fly.
Jude I. Bricker: Same way that we're having these off peak weaknesses, there expanding the same and so the network churn as it is and.
Jude I. Bricker: <unk> the issue.
Jude I. Bricker: Our response to this is going to be look at incremental capacity and shape it down.
Jude I. Bricker: It has been.
Jude I. Bricker: [inaudible] You know, so like, and then on competitive encroachment, most of what we're seeing is from Delta, quite frankly. And it seems like they're just kind of building out Minneapolis in the post-COVID recovery a little later than they've done in some of their other hubs, and then there has been some encroachment, speaking specifically about Minneapolis from Frontier, but those markets... You know, like Cleveland or ones that they had done pre-COVID and canceled because it didn't work.
Jude I. Bricker: And then on the competitive encroachment most of what we're seeing is from Delta quite frankly.
Jude I. Bricker: And it seems like Theyre, just kind of building out Minneapolis.
Jude I. Bricker: In the post Covid recovery, a little later than they've done in some of their other hubs.
Jude I. Bricker: And then there has been some encroachment speaking specifically of Minneapolis from frontier, but those markets like.
Jude I. Bricker: Like Cleveland or ones that they had done pre COVID-19 and canceled because they didn't work.
Jude I. Bricker: So, you know, I don't think it's mainly just, you know. Our markets had really high fares through the comp period that people were scheduling into, and they attracted a bunch of seats, and it'll sort of equivocate over time.
Jude I. Bricker: Sure.
Jude I. Bricker: So.
Jude I. Bricker: I think it's mainly just.
Jude I. Bricker: Our markets had really high fares.
Jude I. Bricker: Through the comp period that people are scheduling into and they attracted a bunch of seats.
Jude I. Bricker: And then it will sort of equivocate overtime.
Michael John Linenberg: Yeah, that makes sense. All right, great. Thanks. Thanks for answering my questions. Thanks, Mike.
Speaker Change: Yes makes sense.
Michael John Linenberg: Great. Thanks, Thanks for answering my questions.
Operator: One moment for our next question. The next question comes from Scott Group with Wolf. Go ahead. Your line is open.
Michael John Linenberg: Thanks, Mike.
Speaker Change: One moment for our next question.
Scott H. Group: Hey, thanks. Good morning.
Operator: Your next question comes from Scott Group with Wolfe Go ahead. Your line is open.
Scott H. Group: So I just want to make sure I understand some of the monthly commentary. I get sort of weaker close to March, April, and Easter. But as you look at May and June, are things getting incrementally worse? Is it stabilizing, and are there any signs of things getting better? I know June seasonally is a better month, but just seasonally adjusted. Do you feel like things are getting incrementally better or worse?
Scott H. Group: Hey, Thanks, Good morning, So I just wanted to make sure I'm understanding some of the monthly commentary I got sort of some weaker close in March April had Easter but.
Scott H. Group: As you look at May and June are things getting incrementally worse is it stabilizing at any signs of things getting better I know June seasonally is a better month, but just seasonally adjusted do you feel like things are.
Scott H. Group: Getting incrementally better or worse.
Jude I. Bricker: But I guess it depends, Scott, on what the expectation basis is. So when we went into the quarter, when we built the quarter last year, we're way below that. And then we had this period of resetting through late February into March for selling fares into the second quarter. And now, in the last couple weeks, they've come up slightly. So it's been an evolution, but I'd say, you know, fares. Our selling fair expectation has bottomed and is recovering slightly, but we're talking about a recovery that is, small numbers relative to where we expected it to be when we built the schedule.
Speaker Change: But I guess it depends Scott on what what the expectation basis is so when we went into the quarter.
Jude I. Bricker: When we built the quarter last year were way below that.
Jude I. Bricker: And then we had this period of resetting through late February and March for selling fares into the second quarter and now in the last couple of weeks they've come up slightly.
Jude I. Bricker: So it's been an evolution, but I'd say.
Jude I. Bricker: First of all.
Jude I. Bricker: Selling fair expectation has bottomed and is recovering slightly but we're talking about.
Jude I. Bricker: Recovery that.
Jude I. Bricker: Small numbers relative to where we expect it to be when we built the schedule.
Jude I. Bricker: Okay, that's helpful. And then where do you ultimately think you're going to take capacity in the second half? And did I hear right that you think that your margins in Q3 will be higher than Q2?
Jude I. Bricker: Okay. That's helpful and then where do you ultimately think youre going to take capacity in the second half and did I hear right that you think that your margins in Q3 will be higher than Q2.
Jude I. Bricker: On the second part, yes. You know, because typically, second and third quarters produce about the same margin, and in this particular second quarter, it will be handicapped by the Easter shift and some overcapacity in April and May. I don't, so the first part of your question is difficult to say at this point.
Speaker Change: On the second part yes.
Jude I. Bricker: Because typically second and third quarter I would produce about the same margin and in this particular second quarter will be handicapped by the Easter shift and some overcapacity in the April and May.
Jude I. Bricker: I mean, we have some time to make these adjustments. But post Labor Day, you know, I would expect us to be mostly focused on scheduled service flying in, you know, markets that typically have a good third quarter. There are about a handful of those. And then scheduled service flying in support of positioning airplanes and crews for our charter business. So, you know, there's not a whole lot of opportunity in September, so it's going to be pretty low.
Jude I. Bricker: Then the first part of your question is difficult to say at this point I mean, we have some time to make these adjustments.
Jude I. Bricker: But post labor day.
Jude I. Bricker: I would expect us to be mostly focused on scheduled service flying.
Jude I. Bricker: In markets that typically have a good third quarter. There is about a handful of those and then scheduled service flying in support of positioning airplanes and crews for our charter business.
Jude I. Bricker: So there is.
Jude I. Bricker: There's not a whole lot of opportunity in September so it's going to be pretty small yeah.
David M. Davis: Yeah, Scott, just let's say from a planning perspective that we had sort of, in the scheduled service segment, year-over-year capacity growth peaking in the second quarter, tapering in the third quarter, and then tapering significantly more into the fourth quarter. So the second quarter was our peak year-over-year growth. And as we pointed out here, we'll kind of revisit that given this off-peak weakness, so it's probably going to be even more dramatic than it was in our plan.
David M. Davis: So Scott just just let's say from a planning perspective, we had sort of in the scheduled service segment year over year capacity growth, peaking in the second quarter.
David M. Davis: Tapering in the third quarter, and then tapering significantly more into the fourth quarter. So second quarter was our peak year over year growth and as we pointed out here what kind of revisit that given this off peak weakness. So it's probably going to be even more dramatic than it was in our in our plan.
Scott H. Group: Great. And then just last last question. I thought I heard 65 million at CapEx. Is that a rest of the year comment, or is that a full year comment? And then is 25 a similar number? It sounds like it's another very low number. I just want to make sure we're thinking that's right.
Speaker Change: Okay, Great and then just last question I thought I heard 65 million of Capex is that the rest of the year comment or is that a full year comment and then does.
Scott H. Group: It's 25 are similar it sounds like its another very low number I just wanted to make sure we're thinking about right yes.
David M. Davis: Yes, so my commentary was about a run rate basis. And so we completed an aircraft purchase. A couple months ago, that was the last airplane that we're committed to buy will still be in the market, also for engines. So I'm just trying to give a little bit of a sense of what we would expect on maintenance capex of 50 million to 75 million dollars, and the lumpiness is largely going to be about opportunistic buys for engines that would replace an overhaul. Yes, Scott, so this year too.
Scott: Yes. So my commentary was about a run rate basis. So we completed that in aircraft purchase couple.
David M. Davis: A couple of months ago, that's the last airplane that we're committed to buy.
David M. Davis: There'll be in the market also for engines. So I'm, just trying to give a little bit.
David M. Davis: Sense of what we would expect on maintenance capex $50 million to $75 million and the Lumpiness is largely going to be about opportunistic buys for engines that would add.
David M. Davis: That would replace an overhaul yes, Scott so so this year.
David M. Davis: We will be on pace to do well under 100 million in CapEx. I would expect 25, barring what Jude's saying here in terms of some opportunistic purchases here and there, to be less than 24. From a cash flow perspective, the calls on cash or on CapEx are minimal for several.
David M. Davis: We will be on pace to do well sub $100 million in capex.
David M. Davis: I would expect 25, barring what Jude, saying here in terms of some opportunistic purchases here and there to be less than 24.
David M. Davis:
David M. Davis: The from a cash flow perspective, the calls on cash around Capex are minimal for several years to come.
David M. Davis: And that's why I love growing up in Newcastle. Yeah, with growth, too, which is
David M. Davis: And Thats why loan growth free cash flow.
David M. Davis: Yes with growth too which is.
David M. Davis: No.
David M. Davis: Unusual.
Scott H. Group: Okay, thank you for your time, guys. I appreciate it. Thanks, Scott.
Speaker Change: Okay makes sense.
Speaker Change: Okay. Thank you for the time guys I appreciate it.
Speaker Change: On swap.
Operator: One moment for our next question. And as a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by. Now, we have Brandon Oglenski with Barclays. Go ahead. Your line is open.
Scott H. Group: One moment for our next question and as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Operator: Please standby and now we have Brandon <unk>.
Brandon Robert Oglenski: <unk> with Barclays Your.
Brandon Robert Oglenski: Your line is open.
Brandon Robert Oglenski: Hey, gentlemen, good morning, and thanks for taking the question. Jude, I guess I want to come back to the comment about Delta, you know, adding capacity in Minneapolis and, you know, the challenges you guys are seeing in off-peak because I thought that was kind of the strength of your model that you guys tried to target peak travel periods. Can you just put this in context? Did you guys go after a little bit more off-peak this summer, and it just didn't play out the way you thought? And maybe longer term, does this change your view on the opportunity set in Minneapolis in any way? Well, in the first part.
Brandon Robert Oglenski: Hey, gentlemen, good morning, and thanks for taking my question.
Brandon Robert Oglenski: Jude I guess I wanted to come back to the comment about delta, adding capacity in Minneapolis and.
Brandon Robert Oglenski: The challenge that you guys have seen in off peak, because I thought that was kind of the strength of your model that you guys have tried to target the peak travel period, but can you just put this in context.
Brandon Robert Oglenski: Could you guys go after a little bit more off peak.
Brandon Robert Oglenski: This summer and it just didn't play out the way you thought it.
Brandon Robert Oglenski: And maybe longer term does this change your view on the opportunity set in Minneapolis in any way.
Jude I. Bricker: Well, in the first part, that's exactly what happened. So our percentage growth, by month, year over year, and the second quarter is the smallest in June, and that's just because when we came into the year, we were looking at the fares of the previous Cop Month, so April of 23.
Jude: But in the first part that's exactly what happened so our percentage growth.
Jude I. Bricker: By months year over year in the second quarter is smallest in June.
Jude I. Bricker: And Thats just <unk>.
Jude I. Bricker: Because when we came into the year, we're looking at the payers of the previous comp months. So.
Jude I. Bricker: And it looked like it could support incremental growth. And we have the capacity, we have the pilots. So, you know, it's really low cost incremental flying. And yeah, I mean, I think that the market just couldn't support that kind of growth. And so the fair pressure was beyond what we expected.
Jude I. Bricker: April of 'twenty, three and it looked like it could support incremental growth and we have the capacity we have the pilots.
Jude I. Bricker: It's.
Jude I. Bricker: Really.
Jude I. Bricker: Low cost incremental flying.
Jude I. Bricker: And yes, I mean, I think that the market just couldnt support that kind of that kind of growth and so the fare pressure was beyond what we expected and thats, because we were adding seats as along with side.
Jude I. Bricker: And that's because we were adding seats as along with the side of all the OAs in and out of Minneapolis. We're a pretty Minneapolis-centric airline in the first quarter in particular, because that's sort of the bright spot in the US network. As we move into the summer, I mean, we're not cutting back in June and July; those months look really good. August is probably mostly like we plan it to be. There's been no real change in the long-term opportunities in Minneapolis.
Jude I. Bricker: And then Minneapolis.
Jude I. Bricker: We're pretty Minneapolis centric airline in the first quarter in particular, because thats sort of a bright spot in the U S network.
Jude I. Bricker: As we move into the summer I mean.
Jude I. Bricker: We're not cutting in June and July those months look really good August is probably mostly like we planned it to be.
Jude I. Bricker: There is no real change in the long term opportunity in Minneapolis, I think long term.
Jude I. Bricker: I think long-term, where I've reset, aircraft utilization. You know, in 2019, we were producing about nine block hours per aircraft per day. We kind of said, all right, with the fleet age and our focus on reliability, we probably need to be around eight hours a day per aircraft in a steady state environment just based on operational restrictions and now based on off-peak performance. I think we're probably lower than that.
Jude I. Bricker: Reset is in aircraft utilization.
Jude I. Bricker: 2019, we were producing about nine block hours per aircraft per day.
Jude I. Bricker: You kind of said alright, with the fleet age in our focus on reliability, we probably need to be around eight hours a day.
Jude I. Bricker: Per aircraft.
Jude I. Bricker: In a steady state environment, just based on operational restrictions and now based on off peak performance I think we are probably lower than that.
Jude I. Bricker: But, you know, these things change pretty rapidly, as we've been talking about, and it could easily reverse itself. The key for us is flexibility. So it's just very important that you understand how we think about incremental capacity. If you want to understand the business, every airplane is doing the best thing it can with that plane time at that moment. And when we run out of things to do that contribute positively, we don't fly, or we fly cargo, or we fly charter. And so we're just adjusting at the margin, and we were a little bit bigger than we needed to be in April and May.
Jude I. Bricker: But these things change pretty rapidly as we as we've been talking about and it could easily reverse itself.
Jude I. Bricker: But the key for US is flexibility. So it's just very important that you understand how we think about incremental capacity. If you want to understand the businesses every airplane doing the best thing I can with that plane time at that moment and when we run out of things to do they contribute positively we don't fly where we fly cargo OE fly charter and so we're just.
Jude I. Bricker: Adjusting at the margin and we were a little bit bigger than we needed to be into April and may.
Brandon Robert Oglenski: And Dave, I think you said in your prepared remarks, and we kind of spoke about this in the Q&A, but about reducing volatility in earnings. I mean, we probably shouldn't confuse that with seasonality, right? But could you maybe elaborate a little bit more on that? Yeah, so
Speaker Change: I appreciate that.
Brandon Robert Oglenski: And Dave I think you said in your prepared remarks, and we kind of spoke about this in the Q&A, but about reducing volatility in earnings.
Dave: We probably shouldnt confuse that with seasonality right, but can you maybe elaborate a little bit more there.
David M. Davis: Yeah, so yeah, we shouldn't confuse it with seasonality. That's going to be a part of our business. I think there are pieces of our business, without getting into a ton of detail, that are much more stable from an earnings perspective that we will continue to focus on and maybe emphasize more in future periods that should help reduce the volatility of earnings. And by reducing the volatility, I guess what I mean by that is, somewhat less exposure to capacity ads in the scheduled service segment. So it's really focusing on some of these other segments, filling in off-peak periods and focusing on other segments that are gonna be more stable and provide more stability to earnings.
Dave: Yes, so we shouldnt confuse that with seasonality that's going to be a part of our business I think there are.
David M. Davis: There are pieces of our business without getting into a ton of detail that are much more stable from a from an earnings perspective that we will that we will continue to focus on and maybe emphasize more in future periods that should help reduce the volatility of earnings and reduce the volatility.
David M. Davis: <unk> I guess, what I mean by that is.
David M. Davis: Somewhat less exposure to capacity adds.
David M. Davis: Sure.
David M. Davis: In in the scheduled service segment. So it's really focusing on some of these other segments filling in off peak periods and focusing on other segments that are going to be more stable and provide more stability to to earnings.
Speaker Change: Alright, Thank you both.
Speaker Change: Thank you.
Jude I. Bricker: This concludes the question and answer session. I would now like to turn it back to Jude Bricker for closing remarks. Thanks for your time, everybody.
David M. Davis: Now concludes the question and answer session.
Jude I. Bricker: I'd now like to turn it back to David Parker for closing remarks.
Jude I. Bricker: Thanks for your time, everybody. Have a great day, and we'll talk to you in 90 days.
Jude I. Bricker: Thanks for your time, everybody have a great day, and we'll talk to you in 90 days.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Jude I. Bricker: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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