Q4 2024 Sun Country Airlines Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to the Sun Country Airlines fourth quarter and full year 2024 earnings call. My name is Michelle and I will be your operator for today's call.
At this time, all participants are in the listen-only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during this session, you would need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.
I will now 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.
Chris Allen: Our remarks today may include forelooking statements which are based upon a man's current beliefs, expectations, and assumptions, and are subject to risks and uncertainties.
Actual results made different materially.
Chris Allen: We encourage you to review the risk factors and cautionary statements outlined in our earnings release and our most recent SEC file.
Speaker Change: We assume no obligations update any forward-looking statement. You can find our fourth quarter and full year 2024 earnings press release on the investor relations portion of our website at IR.SunCountry.com. With that said, I'd like to turn the call over to you.
Thanks, Chris. Good morning, everyone.
Speaker Change: Before we get into our financial results, I want to take a moment to address the tragic accident last week in Washington, DC. Our thoughts are with the families and loved ones affected by this event. Our industry is highly competitive, but we've always worked together with other airlines, the OEMs, and regulators to make sure we deliver the safest possible operations.
Speaker Change: Once all the facts are gathered, there will surely be lessons that will be applied across the industry. We will continue to maintain the highest safety standards across our operations to earn and keep the trust of our passengers and the public.
Speaker Change: 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.
Speaker Change: The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations.
Speaker Change: and exogenous industry shocks. We believe, due to our structural advantages, we will be able to reliably deliver industry-leading profitability throughout all cycles.
Speaker Change: I want to first highlight a few developments. First, last month we reached agreements in principle with the unions of both our flight attendants and our dispatchers.
Speaker Change: We expect these agreements to go to vote among the respective work groups in the next month or so. I'm excited to be able to deliver improved rates and work rules to all these team members.
Speaker Change: Also we took delivery of our first cargo aircraft from our latest agreement with Amazon. This aircraft is yet to enter service but by summer we will have all eight aircraft growing the cargo fleet to 20. I expect cargo revenue will roughly double by this time next year.
Thank you.
Speaker Change: We also executed a re-delivery off-lease of our first 737-900. This aircraft will also go into service this summer. We still have six aircraft that we own that are out on lease, re-delivering through the end of 2026.
Speaker Change: These aircraft will provide the growth in our passenger fleet in the coming years. Including the freighters, we'll be able to grow block hours by about 30% through 2027 without a change in utilization or additional aircraft acquisitions.
Speaker Change: In scheduled service, and similar to the rest of the industry, we are seeing capacity rationalization starting to inflect unit revenues to the positive.
Speaker Change: Our TRASM was flat year-on-year for the fourth quarter, however in December we saw a Scheduled Service TRASM increase almost 5%, which is where January is.
Speaker Change: Capacity trends remain positive through the selling schedule. As underlying demand remains strong, I expect unit revenues continue to perform well.
Speaker Change: Our staff continues to deliver for our customers. Of note, our completion factor and mishandled bag rate operational metrics that are particularly important to our low frequency model are near the best in the industry.
Speaker Change: After a strong 2024, you should expect more of the same from us in 2025. Margins at or near the top of the industry, high levels of free cash production.
healthy growth at about 10% black hour increase.
Operational Excellence
Speaker Change: and continued balance sheet strengthening. With that, I'll turn it over to Dave. Thanks, Jude.
Dave Davis: We're pleased to report that Q4 was our 10th consecutive quarter of profitability. Both total revenue of $260.4 million and adjusted operating margin of $10.6 were the highest on record for Sun Country.
Speaker Change: With the exception of the second quarter of 2022, on an adjusted net income basis, we've been profitable in every quarter since our IPO in March of 2021.
Speaker Change: Additionally, 2024 was our fourth consecutive full year of profitability. Total revenue of $1.08 billion was our highest full year on record, driven by strong revenues in the charter line of business and the cargo segment.
Speaker Change: Operating margin for the year was 9.9 percent and adjusted operating margin was 10.4 percent.
Speaker Change: Adjusted diluted EPS for the year was a dollar and five cents.
Speaker Change: These results speak directly to the resilience of the uniquely diversified Sun Country model.
Speaker Change: Industry overcapacity prevailed through much of 2024, but the capacity picture changed quickly in Q4 and we were very active in adjusting scheduled service capacity to match demand.
Speaker Change: While scheduled service ASMs in the first half of the year grew 17%, we trimmed growth in the second half of the year to less than 5%.
Speaker Change: Despite the significant removal and scheduled service flying, we're still able to hold growth in adjusted chasm to only 1.3 percent for the year.
Speaker Change: Unit revenues rebounded in the second half of the year as Q4 Scheduled Service TRASM was down only 1% on three and a half percent growth in Scheduled Service ASMs.
Speaker Change: As industry capacity continues to rationalize, we are seeing a stronger pricing environment into Q1 of 2025. I'll now turn to the specifics of the fourth quarter.
Speaker Change: First, to revenue and capacity. Fourth quarter total revenue of $260.4 million was 6.1 percent higher than last year. Revenue for our passenger segment, which includes our scheduled service and charter businesses, grew 2.2 percent year over year.
Average scheduled service fare also grew 2.2% year-over-year to $159.88.
Speaker Change: Scheduled service TRASM steadily improved during the quarter with December up 5.8 percent year-over-year. As we turn our focus to Q1-25, we're expecting scheduled service unit revenues to be roughly flat with Q1 of 24 and 7 percent growth in scheduled service ASMs.
Speaker Change: Charter revenue in the fourth quarter grew 2.3 percent to 48 million dollars on five percent growth in charter block hours.
Speaker Change: As a reminder, a portion of charter revenue is a reconciliation of fuel expense caused by the variance of fuel prices to the amount specified in our longer-term charter contracts.
Speaker Change: As Q4 fuel prices were down 20%, we received less revenue tied to fuel reconciliation.
Speaker Change: Excluding the spiel reconciliation, Q4 charter revenue grew approximately 10% over last year. Ad hoc charter revenue growth was also significant as we saw it increase by 27% in the quarter versus last year.
Speaker Change: Excluding the fuel reconciliation Q4 charter revenue per block hour was up 4.6 percent versus Q4 of 23.
Speaker Change: For our cargo segment, revenue grew by 13.1% in Q4 to $28.6 million, which was an all-time quarterly high. This growth came despite a 2.5% decrease in cargo block hours.
Speaker Change: Q4 cargo revenue per block hour was up 16% driven by the impact of a portion of the rate changes implicit in our extended Amazon agreement as well as annual rate adjustments.
Speaker Change: We continue to expect cargo flying to inflect sharply upward in 2025 as we take on an anticipated eight additional freighter aircraft throughout the year.
Speaker Change: One of the freighters has already been delivered and we expect it to enter service in late Q1. The revised Amazon contract rates will continue to escalate as we receive additional aircraft and will not be in full effect until the second half of 2025.
Speaker Change: Turning now to costs. Q4 total operating expense grew 2.6% on 2.7% growth in total block hours.
Speaker Change: We continue to remain well-disciplined as demonstrated by full-year 2024 adjusted chasm, only increasing by 1.3% versus 2023.
Speaker Change: For full year 2025, we expect our X-fuel operating expenses to grow in line with our total block hours, which are expected to increase between 9 and 10 percent versus full year 2024.
Speaker Change: As a reminder, our eight additional Amazon aircraft will drive most of the growth in 2025, and we expect full-year scheduled service ASMs to decline between 3 and 5 percent, with the reductions occurring in Q2 through Q4.
Speaker Change: The lower ASM productions will put pressure on adjusted chasm, which we currently anticipate to increase mid to high single digits in 2025.
Speaker Change: This decline will happen from Q2 through the rest of 2025 as we are anticipating Schedule Service Revenue growth in Q1.
Speaker Change: Regarding our balance sheet, our total liquidity at the end of the year was $205.6 million. As of February 3rd, total liquidity stood at $226.7 million.
Speaker Change: Full year 2024 CapEx was $88 million, which includes the acquisition of three aircraft previously on finance leases.
Speaker Change: At this point, we do not need to purchase any incremental aircraft until we begin looking for 2027 or 2028 capacity. We expect 2025 capex to be between $70 and $80 million, with much of this spent on spare engines.
Speaker Change: During the quarter, we appended a new C-tranch to our existing 2019 EETC, raising 60 million dollars.
Speaker Change: This was used to pay down a significant portion of the term loan financing of our 5737-900ER aircraft.
Speaker Change: This is expected to drive savings of approximately $800,000 in 2025 interest expense.
Speaker Change: Our leverage continues to improve and we finished 2024 with a net debt to adjusted EBITDA ratio of two times.
Speaker Change: Additionally, we have extended the lease return dates on three of the four 737-900 ERs currently on lease to another carrier.
Speaker Change: We had one 737-900ER returned to us in November 2024, and we expect this aircraft to enter revenue service in mid-25. These extensions provide continued lease revenues as we focus our 2025 growth on our cargo business.
Speaker Change: As the lease 737-900ER is returned to us, they'll provide the passenger service growth we expect in 26 and 27.
Speaker Change: We're anticipating our fuel cost per gallon to be $2.76, and for us to achieve an operating margin between 17 and 21 percent.
Speaker Change: Our business is built for resiliency and will continue to allocate capacity between segments to maximize profitability and minimize earnings volatility.
With that, we'll open it up for questions.
Speaker Change: Thank you. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced.
Process the roster.
Speaker Change: And our first question will come from Ravi Shankar with Morgan Stanley. Your line is now open.
Speaker Change: Great, thank you. Good morning. A couple of here just to kick off. There's been some commentary on other airline calls about just strength in Europe in the first quarter, kind of just unusual, probably driven by effects and such.
Speaker Change: How does that kind of impact you guys? Does it kind of help with feeder? Does it potentially redirect some traffic away from domestic winter destinations to to Europe? Just obviously given how important 1Q is for you guys.
Speaker Change: Yeah, just to start with the obvious, we don't fly there, so I think the secondary effect is that there's a reallocation of capacity into the transatlantic market that positively affects us.
Speaker Change: You know, we're selling really well in the Mexican-Caribbean destinations. It certainly doesn't appear that there's a shift.
Speaker Change: in demand out of those markets into the transit landing market. So I think on the whole, it's a positive. I mean, we would like to see strength everywhere for U.S. airlines.
So there's no downside risk there.
Chris Allen: Got it. That's really helpful. And yes, I was referring to the indirect impact. And maybe as a follow-up, Dave, thanks for the specific guidance there, but can you just help us, given the moving parts here, frame the trajectory of margin and chasm evolution through the year, please?
Speaker Change: and Chris Allen. Thanks for tuning in. We'll see you next time.
Speaker Change: You know, first quarter, we expect to be really strong. We gave guidance. I think as sort of revenues come in, we're very confident in that guidance. You know, I think we'll follow sort of a typical seasonal pattern. A lot of how the year plays out is going to be driven by the exact
Speaker Change: delivery dates of the of the Amazon cargo aircraft. You know we expect them to start service in March.
Speaker Change: and then enter service throughout the year. They should all be in by late summer into the fourth quarter.
Speaker Change: But, you know, I don't see anything abnormal from a seasonal profitability perspective for the company. One thing of note would be the
Speaker Change: The things that we were dealing with last year, primarily, were competitive encroachment into our network, and that negatively affected the second and third quarter the most. As you can see, in the fourth quarter, we did quite well, the best we've ever done in the fourth quarter.
Speaker Change: That variance, you know, where capacity is now a tailwind as opposed to a headwind, is the strongest in the second quarter combined with the Easter shift into April.
Speaker Change: You know, all else equal, we're not giving guidance into the second quarter. The second quarter has the most upside relative to the prior year comps.
Speaker Change: And from a capacity perspective, Robbie, probably you can anticipate Q3 being the biggest drawdown in scheduled service capacity for the year. Right now it's looking to be around 10% reduction in Q3 and then starting to rebound in Q4.
Very helpful, thank you.
Thanks for having me.
Speaker Change: And the next question will come from Duane Finnegwerth with Evercore. Your line is open.
Duane Finnegwerth: Hey guys, good morning. Maybe you could just speak to bookings patterns in the fourth quarter. It looked like there was a nice build in your ATL.
Well
Duane Finnegwerth: So, I just want to make sure that when we look at ACLs, we should look at it on a year-on-year basis, not a sequential.
Duane Finnegwerth: because we have such strong seasonality. I'm assuming that you're doing that. We are, sorry. We are, but I guess that sequential move is much stronger than it has been for the last few years, it looks like to us.
Yep
Duane Finnegwerth: So a couple of things. We're bigger in the first quarter than we were the prior year. That affects ATLs. As we mentioned, we got some trash and tailwind. One of the changes that we're inflicting ourselves on our own booking is just holding capacity further out. So we're, you know.
Duane Finnegwerth: We're seeing less variability in our pricing as the as a particular flight sells. So we're building load factor early on and then as it moves close in
Duane Finnegwerth: In the mid-range, we get less bookings because we see such strong demand close in these days, particularly in our larger EDU markets.
anything else?
Speaker Change: Okay yeah so like that's a complicated answer but I'd say generally the output of that is higher fares and slightly lower load factors.
Speaker Change: Got it. Thank you. And then just to the extent that you can on the cargo expansion, can you just remind us of, I guess, the cadence of the aircraft that you're taking on?
Speaker Change: How that may have changed and and relatedly the cadence of maybe the you know rate improvement as as that business rolls on Thank you for taking the questions
Speaker Change: Yeah, I think as we sit now, there's really no significant change from the guidance we've been giving for a while. The first aircraft now looks like it's probably going to be in service in late March. Mid to late March. And then they should all be in service by Q4.
Speaker Change: by the end of August. End of August, yes. So the rate of delivery is really fast and the rate of the escalations, the two additional escalations in our rate is basically similar to what we've been talking about before.
Okay, thank you.
Brandon Oglinski: And the next question will come from Brandon Oglinski with Barclays. Your line is open.
Brandon Oglinski: Good morning and thanks for taking the question. Jude or Dave, do you guys mind talking about network priorities as you get into the summer months, especially as you flip some pilot capacity into the cargo business? And actually, should that help shape a better margin profile, you know, in those softer quarters for you guys?
Brandon Oglinski: I'll take that one. So it's pretty simple. I mean the stuff that was on the margin last summer is going to be cut from the schedule.
Brandon Oglinski: And that's going to be, the cuts are going to be a combination of, in particular, last summer we had a lot of markets that we put in to repel competitive incursion.
Brandon Oglinski: Many of those will be suspended, and then there's going to be some carbon, you know, some capacity reductions in same-source markets that
you know, that had particularly low yields, so it's...
Brandon Oglinski: It's a pretty easy schedule to write from a capacity planning perspective. And yes, we expect fares to be substantially higher based on those capacity moves and then a general reduction in OA capacity across our network.
Brandon Oglinski: and, you know, underlying strong demand. Yeah, we're forecasting some pretty strong, you know, revenue productions.
Speaker Change: Appreciate that, Jude. And then as you think about it going into 2026, I know it's far out there, but should we be thinking scheduled capacity remains down at the beginning of next year as well?
I think probably by...
Speaker Change: to where we were, let's say, at the end of the first quarter of 25. So, in other words, shrink Q2, shrink Q3, and then start to rebound in Q4, grow into the first quarter of 26.
Speaker Change: So sometime between there and the middle of 26, we should be sort of back and then growing again.
Okay, thank you guys.
Thank you. Thank you.
Thank you.
Speaker Change: And our next question will come from Katherine O'Brien with Goldman Sachs. Your line is open.
Good morning, everyone.
Speaker Change: Just one on the margin outlook here, and we've already given some details, but your fourth quarter operating margin up just over 300 basis points year-over-year. Midpoint of the first quarter guide implies 100 basis points decline. Obviously the fuel tail end is smaller year-over-year.
Speaker Change: But just sound of that, the capacity environment continues to improve, further upside on Amazon. On the 1Q year over year versus 4Q year over year margin comparison, is that just fuel? Or maybe the new flight attendant deals in there? Perhaps some conservatism around industry uplift? Any color there would be really helpful. Thanks.
Speaker Change: Yeah, so first of all, the new flight attendant deal is in there for part of the quarter. There was a little bit more significant increase in pilot pay in 2025.
Speaker Change: You know, I would say, just speaking generally, probably the first quarter of 25, we see at least as strong as the first quarter of 24. You know, we put a ranger on the guidance. Everything looks good at this point.
Thank you. Bye-bye.
Speaker Change: You know, to get you through your growth plan for the rest of the decade, and do you feel confident being able to find opportunistic purchases for that volume of aircraft? Thanks.
Speaker Change: You know, the answer is yes. There's two pieces that are out there to provide growth in the 26, 27, and 28, and those two pieces are the redelivery of the aircraft that are on lease with Oman, the 737-900s.
Speaker Change: Those five aircraft and then a couple other ones that we have out on lease 737-800 So those come back into the fleet and then we still think there's room on the utilization front
Speaker Change: You know, we're in the seven hours range-ish. We think there's upside to that as well. So, there's probably 30 to 40 percent growth just on the metal that we have right now, and that gets us into 28 most likely.
Speaker Change: Used aircraft are expensive right now. We continue to be in the market and will buy opportunistically.
Speaker Change: But with very little activity in the market, we think there's significant growth left in the airline.
Thank you.
Speaker Change: enough to get us through the end of the decade. Just a couple more comments. It's good not to be dependent on Airbus, Boeing, CFM, or Pratt & Whitney the way they're executing right now. So I'd rather have our fleet land than sort of anybody else's.
And then, you know, also we have a very reliable.
Speaker Change: aircraft. So like we're not having to deal with any of the out-of-service issues that other airlines are dealing with associated with the new technology equipment.
Speaker Change: So, you know, I mean, we already own these aircraft that Dave mentioned that are going to provide growth. I just feel really good about where we are on the fleet side.
Speaker Change: Yeah, definitely a great spot to be in. Thanks for all that color.
Yeah.
Speaker Change: And the next question will come from Michael Linenberg with Deutsche Bank. Your line is open.
Oh, hey, good morning, guys.
Speaker Change: I guess a couple here, you know, Jude you talked about encroachment capacity and I do see that as you guys scale back pretty meaningfully in, you know, called spring, early summer.
Speaker Change: We are seeing some additional capacity come into your markets by, you know, some of those who are probably just there skimming. And so I guess the question is, you know, as you scale back, does it, does it open up, you know, opportunities for others and maybe to, you know, establish share sort of thoughts on that?
Speaker Change: and Mike. Let me take this opportunity to talk a little bit better.
Speaker Change: about how we think about capacity. I think the innovation that Sun Country brings to the market is that we basically say, at any moment in time, what's the best thing a plane can do right now?
Speaker Change: And then we fill out the schedule until we either run out of things to do, and in which case we park airplanes or we run out of planes.
Speaker Change: So when we look at summer markets, for example, that we're going to be pulling out, those markets work for us but don't work for anybody else, even if we're not in them.
Speaker Change: We're talking about like Cleveland, Minneapolis, that can be supported by a carrier, a leisure carrier like ours, because there's leisure demand between Memorial Day and Labor Day sufficient to support a twice-weekly service pattern. But if you're going to fly it daily with a 321...
Speaker Change: You know, at the back of the clock, it's going to be empty at zero fares, and so I'm just not at all, I don't lose any sleep about it.
Speaker Change: Some of the backfill opportunities that might happen for other airlines
We are keeping our footprint down.
Speaker Change: and these really, what I would consider strategically important markets that call out like JetBlue leaving Minneapolis, Boston.
Speaker Change: If you go way back in time to 2017, we used to serve that market up to three daily in the summertime. We're going to keep a healthy level of capacity in that market.
So I think markets, they can sustain.
Speaker Change: are going to be the kind of markets that we're going to be pulling back on for the summer of next year. Great. Summer of this year. Oh, great. Very helpful. And then just, thanks for that, my second, you know, just with all the headlines around tariffs and, you know,
Speaker Change: going all in on cargo and I realize, you know, there's, it's more about knock-on effects, secondary or second-order effects from, you know, tariff and the impact to overall cargo.
Speaker Change: and Commerce and Freight. With your Amazon contract, do you have minimums, whether it's block hours or revenues, and so, you know, the plane flies, and if, whether the plane is 90% full or 60% full, you're going to get, you're going to get compensated. Can you just talk about maybe, you know, downside risk protection? Thanks.
Yeah, so the way the contract...
Speaker Change: Maybe before speaking broadly about tariffs which are difficult to sort of assess especially given that we have one customer
Speaker Change: There's no set minimums, but the way this contract is constructed is there is a fixed rate per aircraft and then a block hour rate on top of that. So it operates as sort of a de facto minimum.
you know, because we get paid for each aircraft.
Speaker Change: Generally speaking, the lower the utilization of the cargo fleet, the better the margins are for us.
Speaker Change: because we can redeploy that pilot capacity most of the calendar into more high-margin flying.
Speaker Change: And then you mentioned the load on the airplane. I want to call out, we can fly empty or full. It doesn't matter. The rates are the same.
Speaker Change: and it's passed through economics on fuel and so any any other secondary effects of a full airplane that doesn't
Speaker Change: doesn't impact profitability of the cargo market for us. Perfect. That's what I wanted to hear. Thanks. Nice quarter.
Thanks.
Speaker Change: And our next question will come from Scott Group with Wolf Research. Your line is open.
Speaker Change: for the quarter. Scheduled service unit revenue flat. Did I hear that right? Is that... I just want to understand that. So yes, January is doing about what December did. We haven't closed January yet, but it looks like along the lines. February is going to be a softer month this year.
Speaker Change: So kind of the wash and march is about in line, so that's kind of where we're at.
on a quarterly basis, roughly flat.
Speaker Change: What's driving the weaker February and flattish March while to a strong January?
Speaker Change: So March has, there's the Easter shift, we should talk about a flat March with 5% unit revenue with 5% or 6% ASM growth I think is a pretty good result.
In February, the weakness.
Speaker Change: I think some of it moving into sort of that April time frame last year was so concentrated with the early holidays.
Speaker Change: And we have some strategic capacity growth out of Milwaukee into the Caribbean, which we feel really good about meeting expectations, but there's just some year-over-year comp on that as well.
Speaker Change: I'd say yeah, just more color would be the Caribbean's a little bit softer than previous year But our core markets are really strong. So those are the markets that you would see called trunk wrap for us. So Phoenix Vegas
Okay.
With last week, UPS announced.
Speaker Change: a 50% cut in their volume with Amazon. So Amazon maybe has got to look somewhere else. Is this an opportunity for you, or is this what you're doing for Amazon is pretty different than what?
Speaker Change: The UPS is involved with so I don't know it's just an opportunity a risk.
Speaker Change: Yeah, I think, I don't see it as a risk in any way. You know, here's sort of the issue.
The
Speaker Change: Amazon operates 20 narrowbodies and we're going to have them. So unless we sort of go to a different fleet type where they, you know, grow that narrowbody fleet, there's probably not a short-term opportunity to take advantage of.
Speaker Change: grow the operation and also keep the kind of performance that we expect. So we want to be able to absorb this growth.
Speaker Change: allocate more growth into our scheduled service and then before we talked about cargo growth if we could have it our way that's how we do it with pause on cargo growth after this 20 airplane expansion and then
you know, for a couple of years at least.
Speaker Change: And then, just lastly, if I can, I think you said $78 million of CapEx this year. What are the other puts and takes for free cash flow, and how are you thinking about the buyback right now?
Speaker Change: Yeah, so, yeah, your CapEx number's right. We'll be paying back a fair amount of debt in 2025, and a buyback is always on the table, and we are looking at it, and as we see sort of
Speaker Change: How the numbers come in, cash flow looks strong now, we'll kind of make decisions, but we're not announcing a buyback right now, but we'll continue to be sort of assessing it.
Thank you guys.
Thanks, guys.
Tom Fitzgerald: And the next question comes from Tom Fitzgerald with TV Co. and your line is open.
Tom Fitzgerald: Hi, everyone. Thanks so much for the time. Did I hear that right that you said 30% block hour growth through 2027? And would you mind just breaking that up between scheduled charter and cargo?
Tom Fitzgerald: Well, that's just simple arithmetic of saying 2024 utilization applied to the in-service fleet that we will have after all the committed fleet is redelivered into the operation. Yeah, so that by definition is passenger growth.
Tom Fitzgerald: Yes, yes, so the 30% is basically that you just set the delivery delivery of the leased aircraft and then improved utilization
Okay, thanks. That's really helpful. And then ...
Speaker Change: Just like longer term, how are you thinking about, I know in August you talked about with some of the volatility that other airlines are facing, wanting to keep your powder dry to invest opportunistically. How are you thinking longer term about, you know, adding other focus cities or adding like another, something else in addition to Minneapolis? Thanks again for the time.
Well, we want to do it.
Speaker Change: You know, I'd say we're putting in, we're making the investments into markets that we think can support, over time, a sun country type operation, so we have
Speaker Change: You know, we've expanded into the upper Midwest with origination service out of Milwaukee. We continue to support our summer Mexican-Caribbean service out of Dallas and Central Texas.
Speaker Change: So I think those are the kind of markets that we're going to be able to expand into at the end of the decade. But quite frankly, you know, the next two years, it's going to kind of be.
getting the network back to what it was in 24.
Speaker Change: Yes, I mean, I think if you just look a little bit sort of longer term 25 is all cargo right and then 26
Speaker Change: Cargo, basically the full-year effect of these new aircraft will be hitting the hitting the growth of the airline as well, and then 26, probably 27, are refilling in Minneapolis and then some of these other focus cities. As we move to later in the decade,
Speaker Change: We think we can take this model to a lot of different cities. Grant mentioned one where we're doing some strategic growth now.
Speaker Change: but that's definitely on the table but we got our hands full with with all of our sort of programmed in growth here over the next couple years. I think also the point would be that it's difficult to predict where those opportunities are going to be because of the
where they end up in their restructuring so
you know, and then Southwest is.
You know, it.
Speaker Change: I think the main point is our growth capacity outside of Minneapolis isn't going to be available.
Speaker Change: About two years, and when that happens, it's going to be probably a different network.
James Kirby: And our next question comes from James Kirby with JP Morgan.
James Kirby: Hey, good morning guys. Most of my questions have been asked. Maybe just on the ad hoc charter segment, I think you mentioned in the prepared remarks that has been growth in the fourth quarter. I guess, what drove that? Was that just kind of better efficiency or demand? And I guess going forward, should we expect the charter segment to kind of be proportionally down with scheduled service for the cadence of the year?
James Kirby: Yeah, so the growth on a percentage basis in ad hoc charter in the fourth quarter was significant. Now remember, most of our flying 80% plus is on the program side, so that percentage growth is off a relatively low base.
James Kirby: But we did have a lot of football flying in the fourth quarter that really drove that growth and we sort of
James Kirby: see that ad hoc growth continuing into the year, into 2025.
James Kirby: The cargo that charter business sorry is Not going to be down on the order of the scheduled service business Maybe flat to up the low single digits kind of a number
James Kirby: God, that's helpful. And there's no significant contract roll-offs in the next two years, I believe, right? I think MLS was...
2027 or is that
Incorrect.
James Kirby: Yeah, we did work with them this year, so we feel really good about that contract.
into the future.
James Kirby: And then I would just say, for the fourth quarter, I would just add to what Dave said. I think it's just a very good illustration of the power of our motto.
James Kirby: said that when we brought scheduled service down, we had the ability to be more proactive on the ad hoc charter basis.
Okay, got it. Thanks for the questions.
James Kirby: As a reminder to ask a question please press star 1 1 on your telephone.
Speaker Change: And our next question will come from Christopher Stapalapas with Susquehanna. Your line is now open.
Christopher Stapalapas: Thank you, operator. Good morning, everyone. I want to go back to the Amazon. Good morning, Amazon business.
The dates, March and then mid to late August.
full, you'll have the full fleet in place. So.
Christopher Stapalapas: I want to go back to the economics here. So there's a fixed rate per aircraft, which I'm guessing covers all insurance and things like that, and block hour rate on top of that, which is utilization agnostic. And then how much visibility do you have?
Christopher Stapalapas: into the block hours. So is it sort of as your schedule is given a week, a month in advance, and then is the flying going to be concentrated out of
Christopher Stapalapas: DBG or more ad hoc point-to-point, just want to understand the more nuances here between the fixed block hour rate piece and then the commitments and how that kind of network looks and will ultimately shape over time. Thanks.
Schedule development is a two-month
Christopher Stapalapas: schedule that gets approved roughly, you know, six times a year. They come in and, you know, we try to work together to optimize the schedule for utilization inputs, but ultimately it's their network and they fly where they want. I can't really comment on...
Christopher Stapalapas: where we expect the planes to go because I don't really know and that's the value some country brings is that we can do sort of anything with the airplane based on our our charter DNA really.
Christopher Stapalapas: So, you know, but your comments about the rate structure are accurate.
and that there's there's a fixed component that includes
Christopher Stapalapas: margin and sort of everything else and then and then the variable costs associated with the operation are passed through in a fee basis so you know from our perspective it doesn't matter so much what the network looks like.
Speaker Change: Okay, so I heard a couple of people, go ahead. Yeah, so two-month approval process, so you have visibility into what March and through spring flying might look like at this point?
Speaker Change: Yeah, now this is going to be a messy period just because the...
Speaker Change: the dates that we get the airplane on the certificate. So we take a delivery, then we'll do some work to the airplane, get it on the certificate, and then schedule it. So there's going to be a little bit of noise about the fleet count, and the utilization, and the schedule as we integrate these aircraft.
Okay.
Speaker Change: And my second question, so you spoke to the favorable supply-demand balance here in the U.S. We've heard that from the peers, but as we look at a map of your network, are there areas or regions that are perhaps
doing better or worse.
Speaker Change: versus what, you know, kind of sort of looks like a low single digit domestic seed growth, or at least the first half, and a point or two of demand on top of that. Just want to understand if there are pockets that are doing better or worse than as we think about domestic system as a whole. Thanks.
Speaker Change: On the scheduled side, we're seeing, you know, as I mentioned earlier, really strong demand into our really leisure trunk routes.
Speaker Change: I'd say the things that were uncertain going into this period are West Florida, they've had a lot of impact from storms down there and we've got a ton of seeds. We have five markets on the West Coast and they're doing really well.
I'll take Southern California's off a little bit.
Speaker Change: and then Caribbean as I mentioned earlier but the Mexican markets are doing really really well. That was a point of uncertainty just with all the geopolitical stuff going on.
Thank you. Bye.
Speaker Change: I think you nailed it. The traditional spring break routes look really good year over year, just the capacity rationalization. And as we've mentioned, the Caribbean, there's pressure in the Caribbean, but it's because it's a strategic growth opportunity for us. We've done exceptionally well there. So we've added some, you know, these were single weekly free markets. We've added some to twice a week. That's a significant capacity adjustment.
Speaker Change: These are really strong markets. So there was always gonna be some impact to that and some competitors have seen that too, but.
Speaker Change: We will continue to be in these markets for the long run and the customers are responding to what we've added. Yeah, that's a good point, Grant. I should clarify. It's in the schedule because it's going to...
Achieved
Speaker Change: really high-level profitability. When I say weak, it's a year-over-year trace of decline, but it's from such a high level in the prior year, yeah.
Okay, thank you.
Speaker Change: I show no further questions in the queue at this time. I would now like to turn the call back over to Jude Bricker for closing remarks.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.
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