Q1 2025 Sun Country Airlines Holdings Inc Earnings Call
Operator: Hello, and welcome to Sun Country Airlines' first quarter 2025 earnings call. My name is Carmen, and I will be your operator for today's call. At this time, all participants are in a listen-only mode.
Okay.
Carmen: Hello, and welcome to Sun Country Airlines first quarter 2025 earnings call. My name is Carmen and I will be your operator for today's call.
Carmen: 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 participate you will need to press star one one on your telephone you walked in here and message of Dicing. Your hands. This race to withdraw your question simply press Star one one again please.
Operator: After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again.
Operator: Please be advised that today's conference is being recorded.
Carmen: Today's conference is being recorded.
Chris Allen: I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Thank you.
Carmen: I will now turn the call over to Chris Allen Director of Investor Relations. Mr. Allen you may begin.
Chris Allen: I'm joined today by Jude Bricker, our Chief Executive Officer, Bill Trousdale, Chief Financial Officer, and a group of others to help answer questions.
Carmen: Thank you I'm joined today by Jude Bricker, our Chief Executive Officer, Bill trials Dal, Chief Financial Officer, and a group of others to help answer your questions before we begin I would 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 that are subject to risks and uncertainties actual results may day.
Chris Allen: Before we begin, I would like to remind everyone that during this call, the company may make certain statements that constitute forelooking statements. Our remarks today may include forelooking statements which are based on management's current beliefs, expectations, and assumptions that are subject to risks and uncertainties. Actual results may differ materially.
Chris Allen: We encourage you to review the risk factors and cautionary statements outlined in our earnings release on our most recent SEC filings. We assume no obligation to update any forelooking statements.
Carmen: Materially we encourage you to review the risk factors and cautionary statements outlined in our earnings release on our most recent SEC filings, we assume no obligation to update any forward looking statements you can find our first quarter 2025 earnings press release on Investor Relations portion of our website at IR dots on copyright com with that said I would like to turn the call over to Gerry Thanks, Chris.
Bill Trousdale: You can find our first quarter 2025 earnings press release on the investor relations portion of our website at IR.SunCountry.com. With that said, I would like to turn the call over to Bill. Thanks, Chris. Good morning, everyone. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we are able to deliver the most flexible scheduled service capacity in the industry. The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages, we will be able to reliably deliver industry leading profitability throughout all cycles.
Gerry: Morning, everyone.
Gerry: 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.
Gerry: Combination of schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exaggerates industry shocks, we believe due to our structural advantages, we will be able to reliably deliver industry, leading profitability throughout all cycles during the first quarter our flight attendants.
Bill Trousdale: During the first quarter, our flight attendants and our dispatchers ratified new contracts. I want to start by congratulating them on their raises. I'm proud of this team and the service we deliver.
Gerry: And our dispatches ratified new contract I want to start by congratulating them on their raises I'm proud of this team and the service we deliver March is a particularly important month for us. It's a time when we stress operations trying to meet the demand of our home market in March we delivered controllable completion factor of 99, 4%.
Bill Trousdale: March is a particularly important month for us. It's a time when we stress operations, trying to meet the demand of our home market. In March, we delivered controllable completion factor of ninety nine point four percent in our scheduled business and over ninety eight percent on time in our cargo business, both key metrics for us. Additionally, we had a mishandled bag rate of one point three, a record. Our folks continue to deliver for our customers.
Gerry: Our scheduled business and over 98% on time in our cargo business both key metrics for us. Additionally, we had a mishandle bag right at 1.3, a record for us our folks continue to deliver for our customers.
Bill Trousdale: Our first quarter is typically our strongest quarter of the year. This quarter, we're reporting quarterly records for revenue and earnings. Additionally, we outperform the next best mainline carrier by a wider margin than we've seen since COVID. While we're certainly subject to industry conditions, I expect us to outperform by a greater margin during times of stress. This is due to the strength of our diversified model and the reliability of demand in our home market. Execution on the previously announced cargo expansion continues at pace with three of the eight additional committed aircraft having been inducted into the program.
Gerry: Our first quarter is typically our strongest quarter of the year. This quarter, we're reporting quarterly records for revenue and earnings. Additionally, we outperformed the next best mainline carrier by a wider margin than we've seen since COVID-19, while were certainly subject to industry conditions I expect us to outperform by a greater margin during times of stress.
Speaker Change: Yes. This is due to the strength of our diversified model and the reliability of demand in our home market.
Speaker Change: Execution on the previously announced cargo expansion continues at pace with three of the eight additional committed aircraft having been inducted into the program. We plan to have all eight aircraft in service by the end of the summer, bringing our total cargo fleet to 20. Additionally, the unit revenues does that business have been expanding.
Bill Trousdale: We plan to have all eight aircraft in service by the end of the summer, bringing our total cargo fleet to 20. Additionally, the unit revenues of that business have been expanding, with 1Q revenue per block hour growing by about 20 percent versus the same time last With growth in unit revenue and volumes, we project our cargo revenue should be roughly double compared to prior year comp by September. In that month, two-thirds of our flights will be under committed contracts, both charter and cargo. For 2025, our system block hours will continue to grow by about 8% year-on-year.
Speaker Change: With <unk> revenue per block hour growing by about 20% versus the same time last year with growth in unit revenue and volumes. We project our cargo revenues should be roughly double compared to prior year comp by September in that month, two thirds of our flights will be under committed contracts both.
Speaker Change: Charter in cargo.
Speaker Change: For 2025.
Speaker Change: Our system block hours will continue to grow by about 8% year on year.
Bill Trousdale: However, with cargo growth outpacing system growth, we expect to draw down scheduled service temporarily as we absorb the opportunity in cargo. This should provide a tailwind for scheduled service unit revenues on a year-on-year basis through at least the end of 1Q26. In 1Q25, we produced about 7% scheduled service ASM growth on a 4.5% transit. For 2Q, we'll be shrinking scheduled service ASMs by about 7% and expect to see about a 3% TRASM improvement. That's below where we would expect to be based on capacity in the Easter ship. However, close-in fares accelerated into April. That's a positive indicator for the summer, which for us is generally characterized by close-in bookings.
Speaker Change: However, with cargo growth out pacing system growth, we expect to dropdown scheduled service temporarily as we observe absorb the opportunity in cargo. This should provide a tailwind for scheduled service unit revenues on a year on year basis to at least the end of <unk> 26, and <unk> 25, we produced about <unk>.
Speaker Change: 7% scheduled service ASM growth on a four 5% <unk> decline for <unk> will be shrinking scheduled service say it sounds by about 7% and expect to see about a 3% <unk> improvement that's below where we would expect to be based on capacity and the Easter shift however.
Speaker Change: Close in fares accelerated into April that's a positive indicator for the summer, which for US is generally characterized by close in bookings.
Bill Trousdale: 1Q25 also set a record for charter revenue. We built buffers into the timing of our cargo growth, so we'll have surplus passenger aircraft and crew time that we expect to be able to allocate into the charter market. For this reason, I expect our charter segment to perform well for the rest of the year. On the fleet side, we've redelivered our first 900 for passenger service and expect the second to arrive this quarter. We've decided to postpone the induction of this aircraft until later this year as we have a temporary surplus in our passenger fleet. Even with this deferral, we'll experience some unit cost pressures associated with lower utilization of our passenger fleet until we're able to catch up our staffing to our fleet, which should occur around the second quarter of 26.
Speaker Change: <unk> 25 also set a record for charter revenue, we build buffers into the timing of our cargo growth. So it will have surplus passenger aircraft and crew time that we expect to be able to allocate into the charter market for this reason I expect our charter segment to perform well for the rest of the year.
Speaker Change: On the fleet side, we've re delivered our first 900 for passenger servicing and expect the second to arrive this quarter, we've decided to postpone the adoption of this aircraft until later this year as we have a temporary surplus in our passenger fleet, even with this deferral will experience some unit cost pressures associated with lower users that utilization.
Speaker Change: <unk> of our passenger fleet until we're able to catch up our staffing to our fleet, which should occur around the second quarter 'twenty six.
Bill Trousdale: Further, temporary cost pressure will come from cargo growth in the form of staffing surpluses built into the induction buffer. We've made the decision to retire one of our older 800s, which will help us alleviate some of the tightness we're experiencing in the NG components market. The company continues to deliver high levels of free cash yield. Currently, we plan to continue to de-lever with net debt levels expected to fall below zero at some point in 2028. However, we have the liquidity and balance sheet headroom to take advantage of any opportunities, including share repurchases using the $25 million of repurchase authority recently granted by our.
Speaker Change: Other temporary cost pressure will come from cargo growth in the form of staffing surplus is built into the induction buffers we've.
Speaker Change: We've made the decision to retire one of our older eight hundreds which will help us alleviate some of the tightness, we're experiencing in the N G components market.
Speaker Change: Company continues to deliver high levels of free cash yield currently we plan to continue to Delever with net debt levels expected to fall below zero at some point in 2028. However, we have the liquidity and balance sheet headroom to take advantage of any opportunities including share repurchases using the 25.
Speaker Change: Million dollar of repurchase authority recently granted by our board a.
Bill Trousdale: A few other notes about the quarter, we're excited to be awarded Air Transport World's Airline Leader of the Year for 2025, and 1Q also marked the end of Apollo's ownership here at Sun Country with the sell-down of their remaining share.
Speaker Change: A few other notes about the quarter, we're excited to be awarded air Transport Worlds airline leader of the year for 2025, and one <unk> also marked the end of Apollos ownership here some country with the sell down of their remaining shares now want to introduce bill trials dose the earnings call Bill has been in <unk>.
Bill Trousdale: Now I want to introduce Bill Trousdale to the earnings call. Bill's been an officer of the company serving in finance since 2018. I'm excited to have him here and congratulate him on his new role.
Bill: Officer of the company serving in finance since 2018, and I'm excited to have him here and congratulate him on his new role and with that I'll turn it over to you Bill.
Bill Trousdale: And with that, I'll turn it over to you, Bill. Thanks, Jude, for those kind words. I'm grateful for the support of yourself and the board as I transition to the CFO seat here at Sun Country.
Bill: Thanks to first kind words, Greg.
Speaker Change: Grateful of the sport of yourself and the board as I transition to the CFO seat here some country.
Bill Trousdale: And with that, we are very pleased to report that the first quarter was our 11th consecutive quarter of profitability. Total revenue of $326.6 million was the highest of any quarter on record for Operating margin for the quarter was 17.2%, and adjusted operating margin was 18.3%, which we expect to be among the highest in the Diluted adjusted EPS for the quarter was $0.72.
Speaker Change: And with that we are very pleased to report that the first quarter was our 11th consecutive quarter of profitability.
Speaker Change: Total revenue of $326 6 million was the highest of any quarter on record for Sun country.
Speaker Change: Operating margin for the quarter was 17, 2% and adjusted operating margin was 18, 3%, which we expect to be among the highest in the industry diluted.
Speaker Change: Diluted adjusted EPS for the quarter was 72.
Bill Trousdale: These results speak directly to the resilience of our diversified business model. First quarter total revenue $326.6 million with 4.9% higher than Q1 of 2024. Revenue for a passenger segment, which includes scheduled service and charter businesses, grew 4.1% year-over-year. Average scheduled service fare grew 1% year-over-year to $198.44, offset by a 3.9% percentage point decline in load factor. Scheduled Service TRASM declined 4.7% as Scheduled Service ASMs increased 6.7%.
Speaker Change: These results speak directly to the resilience of our diversified business model at Sun country.
Speaker Change: First quarter total revenue of $326 6 million was four 9% higher than Q1 of 2024.
Speaker Change: Revenue for our passenger segment, which includes scheduled service in charter businesses grew four 1% year over year.
Speaker Change: Average scheduled service fair grew 1% year over year to $198 44.
Speaker Change: Offset by a three 9% percentage point decline in load factor.
Speaker Change: Scheduled service <unk> declined four 7% as scheduled service Asm's increased six 7%.
Bill Trousdale: As we turn our focus to the second quarter of 2025, we are expecting scheduled service ASMs to decrease approximately 7% as we allocate pilot resources to allow for the planned growth of our cargo fleet. Charter revenue in the first quarter grew 15.6% to $55 million on 10.7% growth in charter blockouts. Excluding the revenue reconciliation of fuel expenses, charter flying revenue increased 21%. Ad Hoc Charter Revenue growth, which included March Madness Flying, was also significant in the quarter, as we saw an increase by 55% versus last year, and now represents about 34% of total charter revenue for the quarter, as compared to 25% in Q1 of 2024.
Speaker Change: As we turn our focus to the second quarter of 2025, we are expecting scheduled service asm's to decrease approximately 7% as we allocate pilot resources to allow for the planned growth of our cargo segment.
Speaker Change: Charter revenue in the first quarter grew 15, 6% to $55 million on 10, 7% growth in charter block hours.
Speaker Change: Excluding the revenue reconciliation of fuel expenses charter flying revenue increased 21%.
Speaker Change: At hoc charter revenue growth, which included March Madness spine was also significant in the quarter as we saw increased by 55% versus last year and now represents about 34% of total charter revenue for the quarter as compared to 25% in Q1 of 2024.
Bill Trousdale: Our ability to reallocate resources to take advantage of ad hoc opportunities such as these helps us mitigate the impact of changes in demand in other parts of the business. For our cargo segment, revenue grew by 17.6% in Q1 to $28.2 million. This growth came despite a 1.1% decrease in cargo blockage. Q1 cargo revenue per block hour was up 18.9%, driven by the impact of the rate changes in our amended Amazon agreement, as well as standard annual rate adjustment.
Speaker Change: Our ability to reallocate resources to take advantage of AD hoc opportunities such as these helps us mitigate the impact of changes in demand in other parts of the businesses.
Speaker Change: For our cargo segment revenue grew by 17, 6% in Q1 to $28 $2 million.
Speaker Change: This growth came despite a one 1% decrease in cargo block hours.
Speaker Change: Q1 cargo revenue per block hour was up 18, 9% driven by the impact of the rate changes in our amended Amazon agreement as well as standard annual rate adjustments.
Bill Trousdale: We continue to expect cargo flying to inflect sharply upward in 2025 as we take on eight additional freighter aircraft throughout the year. Three of those eight were delivered in the first quarter, with the first of those entering service in late March, and we continue to expect the remaining five to be delivered and enter in service by the end of Q3.
Speaker Change: We continue to expect cargo flying to influx sharply upward in 2025 as we take on eight additional freighter aircraft throughout the year.
Speaker Change: Three of those were delivered in the first quarter was the first of those entering service in late March and we continue to expect the remaining five to be delivered and enter into service by the end of Q3.
Bill Trousdale: Turning now to COT. Q1 total operating expense grew 5.5% on 5.8% growth in total block. Adjusted chasm increased by 3.5% versus Q1 last year. The increases in salaries and wages put the most pressure on Q1 costs as pilot headcount grew about 7% to support the dramatic growth of our cargo fleet in 2025. as well as a 6% contractual pay rate increase for our pilots at the end of 2024. Operational challenges during the quarter, as well as rate increases and outsourced ground handling and airport costs, drove the bulk of the increase we saw in the ground handling and landing fees expense flight items. While an increase in non-routine maintenance events helped drive the 12.2% increase in maintenance expenses.
Speaker Change: Turning now to costs Q1, total operating expense grew five 5% on five 8% growth in total block hours.
Speaker Change: Adjusted CASM increased by three 5% versus Q1 last year.
The increases in salaries and wages put the most pressure on Q1 costs as pilot head count grew about 7% to support the dramatic dramatic growth of our cargo fleet in 2025.
Speaker Change: As well as a 6% contractual pay rate increase for our pilots at the end of 2024.
Speaker Change: Operational challenges during the quarter as well as rate increases and outsource ground handling and airport costs drove the bulk of the increase we saw in the ground handling and landing fees expense line items.
Speaker Change: While an increase in non routine maintenance events helped drive.
Speaker Change: The 12, 2% increase in maintenance expenses.
Bill Trousdale: As a reminder, the growth in our cargo segment during the remainder of 2025 will cause us to reallocate pilot resources from our scheduled service flying. Thus, we expect full-year scheduled service ASMs to decline between 3 and 5 percent, with those reductions occurring from Q2 through Q4. The lower ASM production will put pressure on adjusted chasm, which we anticipate increasing mid to high single digits for the full year of 2025. Regarding cash flows in our balance sheet, our total liquidity at the end of Q1 was $227.1 million. At the end of March, we entered into a four-year, $75 million revolving credit facility, which was an increase of $50 million over our previous revolvers.
Speaker Change: As a reminder, the growth in our cargo segment during the remainder of 2025 will cause us to reallocate pilot resources from our scheduled service flying this year.
Speaker Change: Thus, we expect full year scheduled service ASM to decline between 3% and 5% with those reductions occurring from Q2 through Q4.
Speaker Change: The lower ASM production will put pressure on adjusted CASM, which we anticipate increasing mid to high single digits for the full year of 2025.
Speaker Change: Regarding cash flows and our balance sheet, our total liquidity liquidity at the end of Q1 was $227 $1 million.
Speaker Change: At the end of March we entered into a four year $75 million revolving credit facility, which was an increase of $50 million over our previous revolver.
Bill Trousdale: Given our focus on Amazon growth in 2025 and into 2026, coupled with the six aircraft currently on lease to third party airlines, we do not anticipate a need to purchase any incremental aircraft until we begin looking for 2027 capacity. We expect 2025 CAPEX to be between $70 million and $80 million. which much of this spent on spare engines and inductions of our new cargo aircraft, as well as the aircraft returning to us off lease in 2025. In addition, during the quarter, we paid a total of $19.7 million in debt and finance lease obligations. enabling us to continue to maintain low levels of debt with a net debt to adjusted EBITDA ratio of 2.0X at the end of the first quarter, which was an improvement from 2.4X at the end of Q1 of 2024.
Speaker Change: Given our focus on Amazon growth in 2025 and into 2026, coupled with the six aircraft currently on lease to third Party Airlines, we do not anticipate a need to purchase any incremental aircrafts until we begin looking for 2027 capacity.
Speaker Change: We expect 2025 capex to be between $70 million and $80 million.
Speaker Change: Which much of this spent on spare engines and inductions of our new cargo aircraft as well as the aircraft returning to us off lease in 2025.
Speaker Change: In addition, during the quarter, we paid a total of $19 $7 million in debt and finance lease obligations.
Speaker Change: Enabling us to continue to maintain low levels of debt with a net debt to adjusted EBITDA ratio of 2.0 X at the end of the first quarter, which was an improvement from two four <unk> at the end of Q1 of 2024.
Bill Trousdale: For the full year of 2025, we expect to pay a total of $108 million towards these debt obligations. Furthermore, during the quarter, we repurchased $10 million of shares in conjunction with the secondary public offering in which Apollo Global Management exited their position in Sun Country. And we just received, as Jude mentioned, an additional $25 million of share repurchase authorization from our Board of Directors. Turning to guidance, we expect the second quarter total revenue to be between $250-260 million on a reduction of block hours between 1% and 3%. We are anticipating our fuel cost per gallon to be $2.44 and for us to achieve an operating margin between 4 and 7%.
Speaker Change: For the full year of 2025, we expect to pay a total of $108 million towards these debt obligations.
Speaker Change: Furthermore, during the quarter, we repurchased $10 million of shares in conjunction with the secondary public offering in which Apollo global management exited their position in some country.
Speaker Change: And we just receive as Jude mentioned, an additional $25 million of share repurchase authorization from our board of directors.
Jude Bricker: Turning to guidance, we expect the second quarter total revenue to be between 250 and $260 million on a reduction of block hours between 1% and 3%.
Jude Bricker: We are anticipating our fuel cost per gallon to be $2 44.
Jude Bricker: And for us to achieve an operating margin between 4% and 7%.
Bill Trousdale: Our business is built for resiliency and will continue to allocate capacity between segments to maximize profitability and minimize our earnings volatility.
Jude Bricker: Our business is built for resiliency and will continue to allocate capacity between segments to maximize profitability and minimize our earnings volatility.
Operator: With that operator, we can now open the call up for questions.
Operator, we can now open the call up for questions. Thank.
Operator: Thank you so much. And as a reminder, to ask a question, simply press star 11 on your telephone and wait for your name to be announced. One moment for our first question.
Speaker Change: Thank you so much and as a reminder to ask a question simply press star one one.
Speaker Change: Your telephone and wait for your name and to be announced one moment for our first question.
Duane Pfennigwerth: And it's coming from Duane Pfennigwerth with Evercore ISI. Please proceed. Hey, good morning. Thank you.
Duane: And his comment from Duane <unk> with Evercore ISI. Please proceed.
Speaker Change: Yes.
Speaker Change: Hey, good morning, Thank you.
Jude Bricker: Can you talk a little bit about the ramp of aircraft and utilization and, frankly, profitability or margins on the cargo side? You know, how has maybe the change of that slope, or how has the slope of that kind of changed versus your expectations at maybe the outset of the year? Hey, Duane. Good morning. The right way to think about it is we're going to grow. pilot credit hours by 10% a year. The flying that we do in cargo uses more credit hours to produce a block hour. So even though we're growing credit hours by 10%, total system block hour growth will be below that as we expand into cargo.
Speaker Change: Can you talk a little bit about the ramp.
Speaker Change: Of <unk>.
Speaker Change: Aircraft.
Speaker Change: And utilization.
Speaker Change: And frankly profitability your margins on the cargo side.
Speaker Change: Hi, as maybe the change of that slope or how is the slope of that kind of change versus your expectations and maybe the outside of the year.
Duane: Hey, Duane good morning.
Speaker Change: The way to think about it is we're going to grow.
Duane: Pilot credit hours by 10% a year.
Duane: The flying that we do in cargo uses more credit hours to produce a block hours. So even though we're growing credit hours by 10% total system block hour growth will be below that as we expand in the cargo and then once we've absorbed a cargo growth, we will be adding back really efficient flying into.
Jude Bricker: And then once we've absorbed the cargo growth, we'll be adding back really efficient flying into SCED service. And so growth will exceed that 10% level.
Duane: <unk> service and so growth will exceed that 10% level. So this will be about a three year process to go into all the aircraft that we've already committed to both from the leased out fleet and.
Jude Bricker: So this will be about a three year process to go into all the aircraft that we've already committed to, both from the lease out fleet and the cargo expansion. More near term, we're taking on these eight airplanes and there's a lot of variability in the induction timing because we have part dependencies, sometimes record inconsistencies during the transition from prior operator, all the things you face with the induction of a used airplane. And so we staff up an expectation of that. What's expensive today that we're experiencing. is that we staff up for an airplane that may come in late, but we can't really backfill that with other opportunities on the passenger side because we need, you know, 120 days at least to schedule a flight and we need you know, a little bit of warning to get the end, you know, demand dependent to get it into the ad hoc charter market.
Duane: And the cargo expansion more near term, we're taking on these eight airplanes and there is a lot of variability in the induction timing because we have part dependency.
Duane: Times record and consistency.
Duane: The transition from prior operator, all the things you face with the induction of a used airplane.
Duane: And so we staff up in expectation of that what's expensive today that we're experiencing.
Duane: Is that we staff up for an airplane that may come in late but we can't really backfill that with other opportunities on the passenger side, because we need 120 days at least to schedule a flight and we need.
Duane: A little bit of a warning to get in.
Duane: Demand dependent to get it into the AD hoc charter market. So.
Jude Bricker: So We'll have a little bit of tail headwinds on cost, but you know, this is a 10% growth airline and probably will be for the next three years. The airplanes that are going to support that are already either on the balance sheet or committed to contract. and don't require any CapEx. and we're just here.
Duane: We will have a little bit of tail of headwinds on cost, but this is a 10% growth.
Duane: Airline and probably will be for the next three years. The airplanes that are going to support that are already on the balance sheet are committed through contract.
Duane: And don't require any capex so.
Speaker Change: Where do you see your execution.
Jude Bricker: Great, and then just for my follow-up, this might be a little bit of an unfair question, but you know your model contemplates peaks and off-peaks in scheduled service and obviously the scheduled service capacity is pretty tight for the foreseeable future given this ramp into cargo, but I guess hypothetically as we hear about all this peak versus off-peak and softer troughs, I guess looking at the rest of the world, you know, what do you think these other carriers are going to need to do because we're always going to have weeks that have Tuesdays and Wednesdays, so what do you think the natural evolution will be to all this, you know, continued conversation about softer Tuesdays, Wednesdays, etc.?
Speaker Change: Great and then just for my follow up.
Speaker Change: This might be a little bit of an unfair question, but your model contemplates.
Speaker Change: Peaks in off peaks in scheduled service and obviously all.
Speaker Change: The scheduled service capacity is pretty tight.
Speaker Change: For the foreseeable future given this ramp into cargo, but it gets hypothetically as we hear about all of this.
Speaker Change: Peak versus off peak.
Speaker Change: And softer troughs I guess looking at the rest of the world.
Speaker Change: What do you what do you think these other carriers are going to need to do because we're always going to have we could have tuesdays and wednesdays.
Speaker Change: So what do you think the natural.
Speaker Change: Evolution will be to all this.
Speaker Change: Continued conversation about softer Tuesdays Wednesdays et cetera.
Jude Bricker: Uh, I don't think that's an unfair question. I think that the, uh... that the leisure space needs to get smaller in the U.S. in order for us to get back pricing power. And that'll either be done through RE-ORGS or MNAIC. Make sense.
Speaker Change: I don't think that's in that first question I think that the.
Speaker Change: The leisure space needs to get smaller in the U S in order for us to get back pricing power.
Speaker Change: And that will either be done through <unk>.
Speaker Change: M&A activity.
Duane Pfennigwerth: Thank you Thank you.
Speaker Change: Makes sense. Thank you.
Michael Linenberg: One moment for our next question, please. It comes from the line of Michael Linenberg with Deutsche Bank. Please proceed. Yeah, hey, good morning, everyone. Jude, I want to go back to just sort of what you saw with respect to demand through the quarter and as you head into April. You only called out February as being, you know, off-peak and it sounded like it was a bit challenging on the demand side. You know, a fellow low-cost carrier yesterday talked about a real tough March and a really, you know, not a great Easter either, not a great April.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: It comes from the line of Michael Lindenberg with Deutsche Bank. Please proceed.
Michael Lindenberg: Yeah, Hey, good morning, everyone.
Speaker Change: Jude I wanted to go back to just.
Speaker Change: Sort of what you saw with respect to demand through the quarter and as you head into April you only called out February as being off peak and it sounded like it was a bit challenging on the demand side.
Speaker Change: A fellow low cost carrier yesterday talked about a real tough March and it really not a great Easter either not a great April it sounds like that you didn't see that and you talked about acceleration of person.
Jude Bricker: It sounds like that you didn't see that. You talked about acceleration of close-in and maybe on the pricing side. Can you just elaborate on the March? And I realize with April, you're obviously benefiting from the fact that you're really starting to scale back your capacity.
Speaker Change: And maybe on the pricing side can you just elaborate on the margin and I realize.
Speaker Change: You are obviously benefiting from the fact that youre really starting to scale back your capacity.
Jude Bricker: Yeah, hey, Mike. Well, here's what we're seeing. We had Just to start off with, we report an 18% margin. So things are pretty good. I didn't want to call that out. So, you know, but relative to where we thought we would be, we're below. And what had happened was January was really strong. All the airlines probably saw the same thing. So we held fares high in the booking path going into February and March, and we missed on load factor, because as things slightly weakened, we weren't able to catch up. April will be up by about 5%, you know, probably, I'm talking unit revenues, I'd say 3% to 4% in May and probably, you know, 2% to 3% in June.
Mike: Yeah, Hey, Mike.
Mike: Well, here's what we're seeing we had.
Mike: Just to start off with we reported 80% margins so things are pretty good.
Mike: So all of that out so.
Mike: But relative to where we thought we would be we're below.
Mike: And what had happened.
Mike: January was really strong all the airlines probably.
Mike: I saw the same thing so we held the fares high and the booking path going into February and March and we missed on load factor because as things slightly weekend, we werent able to catch up.
Mike: Sure.
Mike: April would be up by about 5%.
Mike: Probably I am talking to unit revenues.
Mike: I'd say, 3% to 4% in May and probably.
Mike: 2% to 3%.
Jude Bricker: But what's happened more recently is that these close-in fares have really accelerated rapidly. Keep in mind, our winter network and summer network are totally different. So we're talking about leisure market demand when we speak winter. So Florida, Mexican Caribbean, Southern California, Southwest desert destinations like Vegas and Phoenix. And then when we move into the summer, it's Minneapolis connecting the big cities plus Texas origination and Mexican Caribbean markets. So when we talk about Minneapolis big city markets, which is a big thing for us in the summer, those fares have accelerated really dramatically in the last couple of weeks.
Mike: In June.
Mike: But what's happened more recently is that these close in fares.
Mike: I have really accelerated rapidly keep in mind our.
Mike: Winter network in summer network are totally different so we're talking about.
Mike: Leisure market demand when we speak winter, So, Florida, Mexican Caribbean Southern California.
Mike: Southwest Desert destinations like Vegas, and Phoenix, and then when we move into the summer.
Mike: Minneapolis connecting the big cities plus.
Mike: Texas origination and Mexican Caribbean market. So when we talk about Minneapolis Big City markets, which is a big thing for us in the summer.
Mike: Those fares it accelerated really dramatically in the last couple of weeks and the capacity looks really promising both because we're drawing down in that and the OE backdrop is rationalizing really rapidly so.
Jude Bricker: And the capacity looks really promising, both because we're drawing down and the OA backdrop is rationalizing really rapidly. So, you know, we're guiding conservatively. I'm certainly seeing more positivity in bookings than what we're baking into our forecast.
Mike: Yes.
Mike: We're guiding conservatively.
Mike: Certainly seeing more positivity in bookings than what we're baking into our forecast.
Michael Linenberg: Great. And then that's super helpful.
Speaker Change: Great and then that's Super helpful. And then just my second question to Bill can you talk about the reason behind tripling your revolver I don't know if it's as much opportunistic I know you had mentioned about the leisure space has to get smaller and there may be re org slash M&A and so maybe it's.
Bill Trousdale: And then just my second question to Bill, can you talk about the reason behind tripling your revolver? I don't know if it's as much opportunistic. I know Jude mentioned about, you know, that the leisure space has to get smaller, and there may be reorgs slash M&A. And so maybe it's the opportunity to build some dry powder. When I look out at your CapEx needs, they're de minimis over the next couple years.
Mike: The opportunity to build some dry powder.
Speaker Change: When I look at it as your Capex needs there.
Bill Trousdale: So can you talk about the thinking behind expanding that and how you think about, you know, managing that?
Mike: De Minimis over the next couple of years. So can you talk about the thinking behind.
Speaker Change: Adding that in.
Speaker Change: How do you think about <unk>.
Bill Trousdale: Thank you. Yeah, thanks. Thanks, Mike. So so I would I would say that was a more of Microtranscripts, Season 1 Episode 4 coming due at the end of, basically in Q1 of 2026. And so we went to market at the end of last year, looking to upsize that in general. And as we went through the process, it was a bit opportunistic to get it to $75 million. It wasn't specifically designed to generate specific dry powder or anything like that. It's just a growth relative to the size of the airline.
Speaker Change: Managing that thank you.
Speaker Change: Yeah. Thanks, Thanks, Mike So so I would say that was.
Speaker Change: More of.
Speaker Change: A function of the fact that our prior revolver was put in place at the time of our IPO and the time of our IPO, our annual revenue was $600 million ish.
Speaker Change: Nearly double that so we went to market knowing that that revolvers was.
Speaker Change: Coming due at the end of it basically in Q1 of 2026 right. So we went to market at the end of last year looking to upsize that in general and as we went through the process it was bit opportunistic to get it to $75 million. It wasn't specifically designed to generate.
Speaker Change: Specific dry powder or anything like that.
Speaker Change: Our growth relative to the size of the airline type of thing you think about strategic uses of capital in three ways first would be asset buys. So this would be opportunistic purchases of aircraft.
Bill Trousdale: You think about strategic uses of capital in three ways. First would be asset buys. So this would be opportunistic purchases of aircraft. We haven't done that in a while because planes have been expensive, but we hope to see some opportunities here with some disruption. Second is share buybacks, which we've authorized $25 million and we'll do that opportunistically. And then the third is, you know, M&A. and I think we're going to see some opportunities out there.
Speaker Change: <unk> done that in a while because claims has been expensive, but we hope to see some opportunities here.
Speaker Change: With some disruption that we're seeing.
Speaker Change: Second is share buybacks, which we bought the right $25 million and we will do that Opportunistically and then the third is.
Speaker Change: M&A.
Speaker Change: And.
Speaker Change: I think we're going to see some opportunities out there.
Bill Trousdale: Great.
Bill Trousdale: Thanks, everyone.
Speaker Change: Thanks, everyone.
Speaker Change: Mike.
Tom Fitzgerald: Thank you. Our next question comes from Tom Fitzgerald with TD Collin. Please proceed.
Unknown individual: Thank you. Our next question comes from Tom Fitzgerald with TD Cowen. Please proceed.
Jude Bricker: Everyone, thanks so much for the time. Could you talk about the new credit card deal with Synchrony? It seems like it could be pretty exciting for your model, but I'd just love to hear how investors think about how incremental it could be to growth and remuneration. Yeah, we're excited about it. So the background was we inherited a Credit Card Agreement. These typically are about seven year deals. So this is kind of our first opportunity since I've been at Sun Country to really leverage our relationship with our co-brand partner. Synchrony is gonna become our co-brand, you know, we're implement the program in the third quarter.
Tom Fitzgerald: Everyone. Thanks, so much for the time could you talk about the new credit card deal with synchrony. It seems like it could be pretty exciting for your model, but just love to hear how investors should think about how incremental it could be to growth remuneration.
Speaker Change: Yes, we're excited about it so.
Unknown individual: The background was we inherited that.
Unknown individual: Credit card agreement. These typically are about seven year deal. So this is kind of our first opportunity since I've been in some countries.
Unknown individual: Really leverage our relationship with our co brand partner.
Unknown individual: Synchrony is going to become our co brand.
Unknown individual: We're implement the program in the third quarter.
Jude Bricker: There's gonna be some headwinds in the meantime because the credit card transition limits our ability to build the credit card issuer base during this period. But the most substantial benefit is just an increase in rates for us. We're going to load a lot more technology to make it a better program for our consumers, but our revenue share is going to improve fairly dramatically. So, yeah, this is going to be a really positive development for us.
Unknown individual: There's going to be some headwinds in the meantime, because the credit card transact transition limits, our ability to build the credit card issuer base.
Unknown individual: During this period.
Unknown individual: But the most substantial benefit is just an increase in rates for us.
Unknown individual: We're going to load a lot more technology to make it a better program for our consumers.
Unknown individual: But our revenue share is going to improve fairly dramatically. So yes. This is going to be a really positive development for us.
Jude Bricker: But it's not going to really hit the P&L until 26 and beyond. Thanks.
Unknown individual: But it's not going to really hit the P&L until 2006 and beyond.
Speaker Change: Okay. Thanks, that's really helpful color.
Speaker Change: And I just had a kind of a multi part question on labor, but I was wondering if I know moving pilots from the right feet to the lessee had been a challenge for a little bit.
Speaker Change: Curious about that but it also seems like you have a lot of fixed costs that you should be able to leverage.
Speaker Change: With the Amazon deal and then just curious how we should be thinking about the flight attendant contract in terms of modeling the P&L the rest of the year. Thanks again for the time.
Jude Bricker: So I'll give you some thoughts and then turn it over to Bill. So the flight attendant contract is done, and those costs will be in the second quarter and basically steady state. I think that generally we'll see hiring keep the, you know, juniorization accrues. about, you know, second quarter should be run rate based. Our pilots got a raise this year and that, and then we'll be open by the end of the year on an amendment. I think it's going to take a little while. Your question is really material. It's about how upgrades are looking. And I'll start off with the backdrop.
Bill: Thanks, So I'll give you some thoughts and then turn it over to Bill.
Speaker Change: So the flight attendant contract is done and those costs will be.
In the second quarter and.
Speaker Change: Basically steady state I think that generally we will see hiring keep.
Speaker Change: <unk> accrued should be.
Speaker Change: About second quarter should be run rate basis.
Speaker Change: Our pilots got a raise this year and that and then will be opened by the end of the year on an amended an amendment I think it's going to take a little while.
Speaker Change: Your question is really material, it's about how upgrades are looking and I'll start off with the backdrop. We spent a lot of time talking about pilot shortage that is over we have a lot we haven't.
Jude Bricker: You know, we spent a lot of time talking about pilot shortage. That's over. We haven't lost, we haven't pilot hasn't left Sun Country in like 90 days. And. You know, so this. That's just not an issue anymore. We still are constrained by upgrades, which mainly has to do with quality of life transition, you know, the quality of schedule that you can hold as a junior pilot, as a junior captain versus senior FO. So, we're doing a lot of things to improve that. We have PBS rolling out in the third quarter, trying to open a base this year, which I expect to have to get done.
Speaker Change: The pilot had left Sun country in 90 days.
Speaker Change: And.
Speaker Change: So this is.
Speaker Change: That's just not an issue anymore now we still are constrained by upgrades, which mainly has to do with quality of life transition the quality of schedule that you can hold as a junior pilot as a junior captive versus senior at Po.
Speaker Change: So we're doing a lot of things to improve that we have PBS rolling out in the third quarter trying to open a base this year, which I expect to have.
To get done.
Jude Bricker: So, I think there's a lot of improvement heading there. And with the backdrop of no attrition, I think. We're very comfortable with the 10% credit hour growth that we're putting in and I would I would think that there's upside to that because you're right we do have the airplanes to operate more particularly during peak periods to the extent that crew growth exceeds our expectations.
Speaker Change: So I think theres, a lot of improvement heading there and with the backdrop of no.
Speaker Change: Attrition I think.
Speaker Change: We're very comfortable with the 10%.
Speaker Change: Credit hour growth that we're putting in and I would I would think that there is upside to that.
Speaker Change: You are right, we do have the airplanes to operate more particularly during peak periods.
Speaker Change: To the extent that crew growth exceeds our expectations.
Bill Trousdale: I would just add, if you're looking from a modeling perspective, and you spoke to some of the fixed costs vis-a-vis our Amazon growth, when we look at, we typically speak in terms of CAVs, and obviously that poses some challenges there, but if you look at total costs. sort of excluding fuel per block hour, the growth in cost of that. Thank you.
Speaker Change: Anything to add Bill I mean, I would just that maybe youre looking at from a modeling perspective.
Speaker Change: And you spoke to some of the fixed costs and kind of vis vis.
Speaker Change: Our Amazon growth when we look at.
Speaker Change: Typically speaking in terms of CASM, obviously that that poses some challenges there, but if you look at total costs.
Speaker Change: Sort of excluding fuel per block hour.
Speaker Change: And cost of that is going to be for the years.
Speaker Change: Low single digits for the year so.
Speaker Change: Thank you.
Speaker Change: When we look at our costs, we feel like they're in good shape as always we're always going keep a focus on them but.
Speaker Change: We're pretty pleased ovens in aggregate just.
Katherine O'Brien: One moment for our next question. It comes from Katherine O'Brien with Goldman Sachs. Please proceed. Good morning, everyone. Thanks for the time. Hey. Maybe one more on just on the cargo revenue ramp this year and next. You know, you've taken delivery of three of the eight incremental aircraft here to date by, I think, one QN, but only two of those were flying and one really late in the quarter. Jude, you said you expect to see a doubling of revenue by September. So should that inflection really be more back half-weighted? And then if I take you literally, that 4Q could be double year over year.
Speaker Change: Thank you one moment for our next question.
Speaker Change: It comes from Catherine O'brien with Goldman Sachs. Please proceed.
Catherine O'brien: Good morning, everyone and thanks for the time.
Speaker Change: Hey.
Speaker Change: Maybe one more on just on the cargo revenue ramp this year and next.
Speaker Change: You've taken delivery of three of the incremental aircraft year to date by I think one QM, but but only to those are flying and one really late in the quarter. Do you said you expect to see a doubling of revenue by September so should that inflection really be more back half weighted and then if I take you literally that <unk> could be double year over year, that's about $60 million.
Jude Bricker: That's about $60 million, and then you get that December rate step up. So next year, should we be thinking about something in like the mid-$200 million range? Just anything on how we should think about that ramp would be super helpful. Yeah, I mean, so the rate increase of 20% per revenue block hour and then the block hour production of eight incremental airplanes, the math works out to about 100% increase. By September, those airplanes are coming in. Just as rapidly as we can, we can put them in there, but there's a process of putting it on the certificate, getting the transition mods completed, and then getting them scheduled.
Speaker Change: And then you get that December rate step up next.
Speaker Change: Next year should we be thinking about something in like the mid $200 million range.
Speaker Change: Just anything on how we should think about that ramp would be super helpful.
Speaker Change: Yes.
Speaker Change: Yes, I mean so.
Speaker Change: The rate increase of 20% per revenue block hour and then the block hour production of eight incremental airplanes. The math works out to about a 100% increase.
Speaker Change: By September those airplanes are coming in.
Speaker Change: Just as rapidly as we can we can put them in there, but there is a process of putting it on the certificate getting the transition Matt's completed and then getting them scheduled.
Jude Bricker: And we're running behind for reasons beyond our control. So it's going to be a little lumpy as we move through the transition, but I expect September to be operating eight, twenty airplanes and, you know, revenues September year on year should be about double. And that should roughly hold through. you know, till we lap ourselves on that metric.
Speaker Change: And we're running behind for reasons beyond our control.
Speaker Change: It's going to be a little lumpy as we move through the transition, but I expect September to be opt.
Speaker Change: Operating 820 airplanes.
Speaker Change: Revenues September year on year should be about double in that should roughly hold.
Speaker Change: Through.
Speaker Change: Until we lap ourselves on that metric.
Jude Bricker: I don't think though it's 250. I think double would be more like... Yeah, 220, something like that.
Speaker Change: I don't think that its $2 50.
Speaker Change: I think Doug what would be more like.
Speaker Change: 200 <unk>.
Speaker Change: 20, something like that.
Speaker Change: Okay for the Starz over here.
Speaker Change: Got you.
Jude Bricker: And maybe just one more to follow up on your commentary on the short-term trends you're seeing that sound rosier than some of your peers, realize you're shrinking, so I'm sure that's helpful on a relative basis. But then as you were talking about your summer network, it's a lot of Minneapolis and Texas originating traffic, and one of your peers recently noted they were seeing a more noticeable pressure in Northeast and to some extent West Coast demand. I know you're small in both those regions, and they're more destination markets versus origin markets, but anything you could add, maybe just regionally, that might be explaining why this sounds like a very different call than some of the ones we've listened to regionally?
Speaker Change: Okay.
Speaker Change: And maybe just one more follow up on your commentary on the short term trends youre seeing that the town rosier than some of your peers realize youre shrinking so sure thats helpful on a relative basis.
Speaker Change: But then as you were talking about your summer network, it's a lot of Minneapolis, and Texas originating traffic and one of your peers recently noted that they were seeing a more noticeable pressure in northeast and to some extent west coast demand.
Speaker Change: Small in both those regions and they're more destination markets versus the origin markets, but any anything you could add maybe just regionally.
Speaker Change: Might be explaining why.
Speaker Change: This sounds like a very different call.
Speaker Change: We've listened to you Emily.
Jude Bricker: I get it. Yeah, I think it's all capacity-based. The East Coast had a lot of capacity going in, particularly in the Northeast and New England areas. But, you know, we serve Boston and Providence. and a few others in the region, and they're doing quite well because those markets into Minneapolis don't have a lot of capacity, and those are some of our strongest markets. So I think if you're on the East Coast, moving people North, South, or transcon, it's gonna be a challenging summer. In the Midwest, where we serve, it looks really good. Our Dallas market, you know, leisure markets are doing really well.
Speaker Change: I get it yet, but I think it's all capacity base.
Speaker Change: 100 <unk>.
Speaker Change: The East coast.
Speaker Change: A lot of capacity go in and particularly in the northeast.
Speaker Change: New England areas.
Speaker Change: But we serve Boston and Providence.
Speaker Change: A few others in the region and they are doing quite well because those markets into Minneapolis don't have a lot of capacity.
Speaker Change: Those are some of our strongest markets. So I think if you're on the east coast moving people, north south or transcon, it's going to be a challenging summer.
Speaker Change: In the Midwest, where we serve it looks really good our Dallas market.
Speaker Change: Leisure markets are doing really well.
Jude Bricker: There's not a lot. I mean, California is a little down from Minneapolis, as I look across the network, underperforming our expectation, but. I'd struggle to find, you know, really outlier weakness.
Speaker Change: Theres not a lot I mean, California is a little down from Minneapolis, as I look across the network underperforming our expectation but.
Speaker Change: I had struggled to find really outlier weakness across our network. This grant I would just add that we don't have anything speculative we like everything we do we have a pretty good sense of it, especially as we're shrinking.
Grant Whitney: This is Grant. I would just add that we don't have anything speculative. We, like everything we do, we have a pretty good sense of, and especially as we're shrinking, and the rigor that goes into this, we're on a trip-by-trip basis. We have a very good sense for where it's coming in, so I echo Jude's commentary that we feel really good about where things are going, and even as we look back to the first quarter, the February weakness can be highly attributed to sort of Caribbean growth out of Minneapolis specifically, and it's a highly profitable segment for us.
Speaker Change: And the rigor that goes into this were on a trip by trip basis. So we have a very good sense of where it's coming in so I Echo Julie's commentary that we feel really good about where things are going and even as we look back to the first quarter. The February weakness can be highly attribute it to sort of Caribbean growth out of Minneapolis, specifically and.
Jude Bricker: It's a highly highly profitable segment for US we grew it others grew it. So there is a little bit of pressure there. The absolute returns were still consistent with the rest of our network that will get adjusted as we go forward and then in March there was a little bit of pricing pressure, but it was completely connected to what Jude said just where the.
Grant Whitney: We grew it. Others grew it. So, there's a little bit of pressure there. The absolute returns were still consistent with the rest of our network. That'll get adjusted as we go forward, and then in March, there was a little bit of pricing pressure, but it was completely connected to what Jude said, just where the expectations of March in the booking curve were really strong, and as things changed, fares came down a little bit, but we still delivered really good results. And I don't want to say that international was all bad for us. We did grow in Milwaukee, so if you go and look what we did in Milwaukee, we had a pretty substantial international growth in Milwaukee this year, and that paid dividends for us.
Spectation of March in the booking curve are really strong and as things change players came down a little bit, but we still delivered really good result, and I don't want to say that international was all bad for US we did grow in Milwaukee.
Jude Bricker: So if you go and look what we did in Milwaukee, we had a pretty substantial international growth in Milwaukee This year.
Grant Whitney: It certainly met expectations and gives us a nice little baseline off of which to grow in Wisconsin, because we operate out of Madison, Green Bay, and Milwaukee, and we're really pleased with those results.
Jude Bricker: And thats paid dividends for us it certainly met expectations and.
Jude Bricker: And gives us a nice little baseline off of which to grow.
Speaker Change: In Wisconsin, because we operate out of Madison Green Bay in Milwaukee.
Speaker Change: And we're really pleased with those results. So our call is a little different and it's for good reason why another tailwind, it's a little bit more nuanced.
Jude Bricker: So, our call is a little different, and it's for good reason. Well, one other tailwind that's a little bit more nuanced in unit revenues is that we got Some infrastructure boost here in Minneapolis with more gates, so you think about trying to pack flying in in a peak period. If your gate constraint, you have to smooth it out and we have plenty of planes and plenty of gates. So we're able to really pack peak periods with a lot of. even though we're block hour constrained because of cargo. Great, I really appreciate all that call.
Speaker Change: Unit revenues is that we got.
Speaker Change: Some infrastructure boost here in Minneapolis with more gates. So you think about trying to pack flying in in a peak period, if you're gay constrained yet smoothed it out and we have plenty of planes and plenty of gates and.
Speaker Change: So we're able to really pack.
Speaker Change: Peak periods with a lot of seats, even though we're black hour constrained because of cargo growth.
Tom Fitzgerald: That's great I really appreciate all that color Jen thanks.
Operator: Thank you.
Speaker Change: Sure.
Brandon Oglenski: Our next question is from Brandon Oglenski with Barclays. Please proceed.
Speaker Change: Thank you.
Speaker Change: Our next question is from Brandon Glinski with Barclays. Please proceed.
Jude Bricker: Hey, good morning, Jude. And congrats, Bill. I guess, Jude, you talked about pilot productivity, or like having some downtime built into the schedule, I think, as you ramp up the cargo side, you did see good charter growth this quarter, was that more of a contracted basis or more, you know, ad hoc business that you came across? I guess, how do you look to overseas? We're seeing an expansion in the production of our charter. So unit revenues are increasing in charters, and that's because of the contract mix. Yeah, I mean, we have more more availability close in to be able to take opportunities as they come up.
Brandon Glinski: Hey, good morning, Jude and congrats bill.
Speaker Change: I guess, you talked about pilot productivity or like having some downtime built into the schedule I think as you ramp up the cargo side.
Speaker Change: Did see good charter growth this quarter was that more of a contracted basis or more.
Speaker Change: AD hoc business that you came across.
Speaker Change: I guess, how do you look towards that.
Speaker Change: We're seeing an expansion in that.
Speaker Change: Production of our charter.
Speaker Change: So our unit revenues are increasing in charters and thats because of the contract mix.
Speaker Change: Yes, I mean, we have more more availability close in to be able to take opportunities as they come up in years past, we schedule the airline for the tightness and then we didn't have.
Jude Bricker: In years past, we kind of schedule the airline for the tightness and then we didn't have We had to forego a lot of those opportunities. I'd say generally the cargo market is... is actually under a little bit of pressure because there's a lot of folks coming into it. And we got some tailwind from bankruptcies through COVID like IARO, I'd call out. So, yeah, you know, as we sit here today, I'm confident that we're going to outperform just because we have contract. Carter Revenue that is going to happen. And then we have close in demand so we can be really flexible.
Speaker Change: Close in availability and we had to forgo a lot of those opportunities I would say generally the cargo market is.
Speaker Change: It's actually under a little bit of pressure, because theres a lot of folks coming into it.
Speaker Change: We got some tailwind from bankruptcies through Covid like Arrow I'd call out.
Speaker Change: So yes, as we sit here today.
Speaker Change: Confident that we're going to outperform just because we have contracted.
Speaker Change: Charter revenue that is going to happen and then we have close in demand. So we can be really flexible. It is something we're really good at.
Grant Whitney: This is something we're really good at.
Grant Whitney: Grant runs our charter business. Any other commentary? Yeah, the team's done a really good job. So I think in the quarter, it was sort of ad hoc in nature where the year-over-year strength came from. But it's really important to understand that there's been a concerted effort to sort of engage with our customers. So those relationships that we form, the reliability that we offer to customers, when the NCAA needs to fulfill things, and we have that availability, they look to us because they really trust the team and the capability. I definitely give a shout out to our ops team because we expect, we knew we were going to fly March really hard.
Speaker Change: Grant runs our charter business any other commentary yes. The team has done a really good job. So I think in the quarter. It was sort of AD hoc in nature, where the year over year strength came from but it's really important to understand that there has been a concerted effort to sort of engage with our customers. So those relationships that we have.
Speaker Change: <unk> forms the reliability that we offer to customers when the NCAA needs to fulfill thing and we have that availability they look to us because they really trust the team and the capability I definitely give a shot out to our ops team as we expect we knew we were going to fly March really hard.
Grant Whitney: And our crew staffing, the folks who schedule our pilots, plan our pilots, we should give them credit because they did an excellent job of facilitating March. But the team is in a really good place. The relationships with our customers are in a really good place. So I completely agree. As we look forward, we will adjust to the business as the competitive environment says we should. But the relationships with our customers are strong, and the team's really innovative. Jude mentioned it, but our ability to integrate scheduled service with charter service to come up with creative solutions, it is unparalleled in the business and it is muscle we've been working on for years and we're really good at it.
Speaker Change: And our crew staffing the folks who schedule their pilot plan our pilots.
Speaker Change: Chuck give them credit because they did an excellent job of facilitating March but the team has done a really good place the relationships with our customers are in a really good place. So I completely agree as we look forward.
We will adjust to the business.
As the competitive environment says, we should but the relationships with our customers are strong and the teams really innovative Jude mentioned, it but our ability to integrate schedule.
Speaker Change: Service with charter service to come up with creative solutions.
Speaker Change: It is unparalleled in the business and it is muscle we've been working on for years and we're really good at it and so it almost harkens back to a previous question about as carriers talk about hey, sculpting off peaks not as good as peak and we'll do that it's one thing to talk about that it's another to deliver upon it and to build that muscle.
Grant Whitney: And so it almost harkens back to a previous question about as carriers talk about, hey, sculpting off peaks, not as good as peak and we'll do that. It's 1 thing to talk about that. It's another to deliver upon it and to build that muscle and the capability to execute upon moving schedules, levels of ops that move around. It's easier said than done and I think it's just a testament to the team here at Sun Country that we're able to do it. First quarter charter shows it, but we're not done. There's a lot of innovation that we're gonna continue to bring on.
Speaker Change: And the capability to execute upon moving schedule levels. The box that move around it's easier said than done and I think it's a testament to the team here at Sun country that we're able to do it first quarter charter shows it but we're not done there's a lot of innovation that we're going to continue to bring on.
Grant Whitney: And from a charter perspective, there's some business development that's in the works too. So we're excited about taking the brand out. People like us, they know us, they respect us. So it's, we're starting to have discussions with folks and I'd say the team's in a really good place.
Speaker Change: And from a charter perspective, there is some business development. That's in the works too. So we're excited about taking the brand out people like us they know us they respect us.
Speaker Change: Starting to have discussions with folks in.
Speaker Change: So the team's done a really good place.
Speaker Change: For success.
Brandon Oglenski: I appreciate the thorough response, and Judah, just clarification, I think, did you mention doubling cargo revenue by the third quarter, or should we be thinking about that into next year? September. So it will lap that metric in the fourth quarter. Okay, got it.
Speaker Change: I appreciate the thorough response and Jude just clarification I think did you mentioned doubling cargo revenue by the third quarter should we be thinking about that into next year.
Speaker Change: September so we'll.
Speaker Change: We will lap that metric in the fourth quarter.
Bill Trousdale: And then real quick, I know you mentioned the buyback. I don't know if we elaborated on the here in q&a. I mean, 25 million, I guess not that sizable, but maybe more, you know, more signaling from the board? Or can you maybe expand on that? We're just going to take it opportunistically and see what's out there. And, you know, our stock got hit pretty hard recently, and we don't want to be. just sitting on the sideline if that were to happen.
Speaker Change: Okay got it and then real quick I know you mentioned the buyback I don't know if we elaborated here in Q&A.
Speaker Change: I mean $25 million I guess not that sizable but maybe more.
Speaker Change: More signaling from the border can you maybe expand on that.
Speaker Change: We're just going to take it opportunistically and see what's out there.
Speaker Change: Our stock got hit pretty hard recently, and we don't want to be.
Speaker Change: Just sitting on the sideline if that were to happen again.
Bill Trousdale: Okay, appreciate it, thank you. Thank you.
Speaker Change: Okay I appreciate it thank you.
James Kirby: Our next question comes from James Kirby with J.P. Morgan. Please proceed. Hey, good morning, guys. You know, there's been low cost carriers in the market that are making significant changes to their product offerings, as well as, you know, off peak, peak flying. Have you seen any share shift? Or are you seeing any start of a share shift in where we're changing buyer behavior from this? I think that's a really interesting question. We spent a lot of time thinking about it. We did the cabins that we and the product revision in 2018 cabins last about seven years, eight years.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from James <unk> with J P. Morgan. Please proceed.
James: Hey, good morning, guys.
James: Yes, there has been low cost carriers in the market that are making significant changes to their product offerings.
James: As well as off peak flying.
Speaker Change: Have you seen any share shift or are you seeing any.
James: The start of a share shift.
Speaker Change: Change in buyer behavior from this.
Speaker Change: I think that's a really interesting question, we spend a lot of time thinking about it we did the cabins that we and the product revision in 2018 cabins lasts about seven years eight years.
Jude Bricker: We're not planning anything now, but I think we have a great product. We do a nice job, in my view, of kind of saying these are things that are affordable to give away for free and have high value to the consumer, other things we can't get a return on, we don't give away. You know, there's been a lot of talk about the premium for premium. We have a premium economy product that is, as a percentage of our cabin, higher than any other airline in leisure in the US. So I think we're well positioned in that regard.
Speaker Change: We're not planning anything now, but I think we have a great product, we do a nice job in my view of kind of saying. These are things that are affordable to give away for free and have high value to the consumer.
Speaker Change: Things, we can't get a return on we don't give away.
Speaker Change: There's been a lot of talk about the premium for premium we have premium economy product that is as a percentage of our cabin higher than any other airline in leisure in the U S. So I think we're well positioned in that regard.
Jude Bricker: We have a really strong brand presence in the Twin Cities, which is really valuable. But the premium versus, you know... of our premium economy versus basic economy is essentially. hasn't expanded enough to justify adding more of those seats. I mean, we're still running high 80s load factor during peak periods. I think we have the right product. Now we spend a lot of time talking about onboard connectivity. I think probably at some point in the future we're going to need to do that. But we've got a nice solution right now with a captive Wi-Fi offering. So I think we got the right product for the leisure customer here in the Twin Cities, really high quality seats so you can sit in them for the look, you know, relatively long stage length.
Speaker Change: We have a really strong brand presence in the twin cities, which is really valuable.
Speaker Change: But the premium versus.
Speaker Change: Of our premium economy versus basic economy essentially.
Speaker Change: It hasnt expanded enough to justify.
Speaker Change: Adding more of those seats I mean, we're still running high load factor during peak periods. So.
Speaker Change: I think we have the right product.
Speaker Change: Now it's been a lot of time talking about onboard connectivity I think probably at some point in the future we're going to need to do that.
Speaker Change: But we got a nice solution right now with the captive Wi Fi offering.
Speaker Change: I think we got the right product for the leisure customer here in the twin cities really high quality seats, you can say that for the.
Speaker Change: Relatively long stage lengths.
James Kirby: So we don't have anything in pending changes, but we're studying it quite a lot, actually. God, that's helpful.
Speaker Change: So we don't have anything impending.
Speaker Change: Changes, but.
Speaker Change: We're studying it quite a lot actually.
James Kirby: I appreciate the color.
Speaker Change: Got it that's helpful. I appreciate the color.
Jude Bricker: And then for my second question, you know, I know generally asking about M&A is a moot point, but, you know, maybe coming from a different angle, is there any guidelines that you wouldn't breach in terms of M&A in terms of leverage, liquidity, or, you know, or maybe that's not even M&A dependent, but maybe just remind us of kind of your, your feelings on on leverage or liquidity. Thank you.
Speaker Change: And then for my second question I know generally asking about M&A as a moot point, but.
Speaker Change: Maybe coming from a different angle is there any guidelines that you wouldn't reach in terms of M&A in terms of leverage liquidity or.
Speaker Change: Maybe that's not even M&A dependent but.
Speaker Change: Maybe just remind us of kind of.
Speaker Change: Your feelings on leverage or liquidity.
Jude Bricker: Well, more on the M&A side, we have to be able to protect what makes us special, which is the ability, the ability to peak up and down and combine these segments into a single operation. A lot of that could be. I think it's going to be hinged if the work rules in the future of a JCBA change that, you know, so that's something we're very conscious of.
Speaker Change: Well more on the M&A side, we have to be able to protect what makes us special which is the ability the ability to peak up and down.
Speaker Change: And combined these segments into a single operation a lot of that.
Speaker Change: Could be.
Speaker Change: Hinged if the work rules in the future, but Jay CBA.
Speaker Change: That so that's something we're very conscious of.
Jude Bricker: Yeah, I mean, on the liquidity side, I'll let Bill comment in a second. We're more than comfortable where we are. So much of our revenue is contracted that liquidity. isn't as sensitive here at Sun Country as it is across the industry. The goal is always to think about, you know, the part of the scheduled service that we always have and have for 40 years, always shows up these very peak days, combined with contracted flying both in cargo and in charter, if we can get that to contribute to cover our fixed costs. And that's the perfect airline model, in my view.
Speaker Change: Yes, I mean on the liquidity side I'll, let bill comment and second.
Speaker Change: We're more than comfortable where we are keep in mind.
Speaker Change: So much of our revenue is contracted that liquidity.
Speaker Change: Isn't as sensitive here, it's on country as it is across the industry.
Speaker Change: The goal is always to think about.
Speaker Change: Part of that scheduled service that we always have and have for 40 years always shows up these very peak days combined with contracted flying both in cargo and in charter if we can get that to contribute to cover our fixed cost in that.
Speaker Change: The perfect airline model in my view, we can fly when we want it don't have to fly when we can't and that just.
Bill Trousdale: Fly when we want and don't have to fly when we can't. you know, so. I'm very comfortable where we are on the liquidity front. I think we have the headroom and assets. We have about half a billion dollars of appreciated asset value in excess of our debt levels. So we have lots of headroom on the balance sheet to raise capital if there's an opportunity. So, you know, we're just going to be responsive to what we see. I mean, I would just add to that, I mean, right now, our liquidity is a percentage of annual revenues sits a little north of 20%.
Speaker Change: So.
Speaker Change: I'm very comfortable where we are where we are on the liquidity front I think we have the headroom and assets we have about half a billion dollars of appreciated asset value in excess of our debt levels. So we have lots of headroom on the balance sheet to raise capital if there is an opportunity.
Speaker Change: And so we're just going to be responsive to what you're seeing.
Speaker Change: Yes, I mean, I would just add I mean, right now our liquidity.
Speaker Change: Our liquidity as a percentage of annual revenues sits well north of 20%.
Ryan Capozzi: You know, we probably can operate, you know, lower than that we have in the past, pretty safely, given the sort of the mix of business that we have. And the fact that only 60% of our revenue is, you know, 65% of our revenue is traditional passenger revenue. It's a lot more sort of under contract that sort of comes in very much very methodically. So, we're like, as Jude says, we're really comfortable at our current liquidity position and and, you know, good shape. Got it. I appreciate the commentary. Thanks for the time. Thanks. Thank you.
Speaker Change: He can operate.
Speaker Change: Lower lower than that and we have in the past pretty safely given sort of the mix of business that we have and the fact that only 60% of our of our revenues 60, 65% of our revenue is traditional passenger revenue.
Speaker Change: It's a lot more sort of under contract that sort of comes in very much very methodically.
Speaker Change: So <unk> says, we're really comfortable with our current liquidity position.
Speaker Change: Good.
Speaker Change: Good shape.
Speaker Change: Got it I appreciate the commentary thanks for the time.
Bill Trousdale: And as a reminder, if you do have a question, simply press star 11 to get in the queue. Our next question comes from Ryan Capozzi with Wolf Research. Please proceed. Hey, good morning, guys. Maybe just more of a high-level question here, but, you know, 1Q margins were roughly flat year-over-year, and your 2Q margin guidance is also flat year-over-year at the midpoint. Do you see a path to margin expansion in the back half of the year here as your mix starts to shift quite a bit? Absolutely. Yeah, no doubt about it. So obviously, it's dependent on where the demand environment goes, and I think there's a lot of questions around that.
Speaker Change: Thanks, Thank you and as a reminder, if you do have a question simply press star one one to get in the queue.
Speaker Change: Our next question comes from Ryan <unk> with Wolfe Research. Please proceed.
Ryan Wolfe: Hey, good morning, guys, maybe just more of a high level question here, but.
Speaker Change: <unk> margins were roughly flat year over year and your <unk> margin guidance is also flat year over year at the midpoint.
Ryan Wolfe: Do you see a path to margin expansion in the back half of the year here.
Speaker Change: Your mix starts to shift quite a bit.
Speaker Change: Absolutely yeah, no doubt about it.
Speaker Change: So obviously, it's dependent on where the demand environment goes I think there's a lot of questions around that.
Bill Trousdale: But yeah, this is just about us absorbing the opportunity and. Cargo, and then being able to bring our utilization at least back to what it was the prior year. So utilization is down about 10%. on the passenger fleet, and we'd like to grow that back to where it was. And that's very accretive flying, and it doesn't require us to add new markets or off. So, yeah, I mean, I think we should have some tailwind on margins as we move into the back of the on a year-over-year basis. Got it. That's that's helpful there.
Speaker Change: Yes. This is just about us absorbing the opportunity in.
Speaker Change: <unk>.
Speaker Change: Cargo and then being able to bring our utilization at least back to what it was the prior year. So utilization is down about 10%.
Speaker Change: On the passenger fleet and we'd like to grow that back to where it was and that's very accretive flying and theirs and it doesn't require us to add new markets or off peak.
Speaker Change: Stuff. So yes, I mean, I think we should have some tailwind on margins as we move into the back of the year.
Speaker Change: On a year over year basis.
Speaker Change: Got it got it that's helpful. There and then maybe just back to the scheduled service business and I know you touched on this earlier, but how.
Bill Trousdale: And then maybe just back to the scheduled service business. And I know you touched on this earlier, but how should we think about the load factor and yield dynamic in an environment of less scheduled service capacity going forward? I think You know, we schedule, we want to run high load. And we're able to do that predominantly because of the way we schedule. So, if you think about our TRASM premium to Spirit Frontier, for example, it comes in a couple of different, for a couple of different reasons. We have a better product. That's because we fly a longer stage length and we invested a little bit more in it.
Speaker Change: How should we think about the load factor and yield dynamic in an environment of less scheduled service capacity going forward.
Speaker Change: Dynamic I think.
Speaker Change: We schedule that.
Speaker Change: We wanted to run high load factors.
Speaker Change: And we're able to do that predominantly because of the way we schedule. So if you think about our trasimene premium to spirit and frontier. For example, it comes in a couple of different for a couple of different reasons, we have a better product.
Speaker Change: Thats, because we fly longer stage length that we invested a little bit more in it.
Speaker Change: Fly only when there is demand and so we.
Bill Trousdale: We fly only when there's demand. So we lower utilization positively affects unit revenues. And then we have brand presence. So they have a strategy of being thin everywhere and we have a strategy of being strong where it matters. And, you know, our strategy is proving to be better. So. You know, I think our outperformance will widen. and we'll continue to focus on high load factor stimulative fares, but we're not gonna have anything in the schedule that doesn't. Coverage Variable Cost at a Minimum. So, you know, if you think about fair volatility going forward, if demand falls, we're going to try to maintain our margins by cutting our weakest flights, so absolute profitability may suffer, but, you know, we'll deliver the margins.
Speaker Change: Lower utilization positively effects.
Speaker Change: Unit revenues and then we have brand presence. So they have a strategy of being thin everywhere and we have a strategy of being strong where it matters.
Speaker Change: And our <unk>.
Speaker Change: Strategy is proving to be better.
Speaker Change: So.
Speaker Change: I think our outperformance of wide.
Speaker Change: And we will continue to focus on high load factor Stimulative fares.
Speaker Change: But we're not going to have anything in the schedule that doesn't.
Speaker Change: Cover its variable cost at a minimum.
Speaker Change: So if you think about fair volatility going forward if demand falls, we're going to try to maintain our margins by cutting our weakest flights.
Speaker Change: So absolute profitability may suffer, but we will deliver the margins that you expect.
Bill Trousdale: Contrast is fine as well if you see if we see a rally in fares likely perhaps, but if it happens, then we have a lot of capacity that we can add into the shoulder period. Helpful. Thanks for the time here guys. Thanks.
Speaker Change: Contrast, this time as well if you see if we see a rally in fairs.
Speaker Change: Likely perhaps but if it happens then we have a lot of capacity.
Speaker Change: Capacity that we can add it to the shoulder periods.
Speaker Change: Helpful. Thanks for the time guys.
Chris Stathoulopoulos: Thank you. Our next question comes from the line of Chris Stathoulopoulos with Susquehanna International. Please proceed. Good morning. Jude, could you remind us of the The timing of the rate increases as they relate to the deliveries of the remaining aircraft for Amazon. And then also... The economics with the contract, apologies, I think I ask this question on every call, but given all the concerns here around tariffs. tangible goods and things like that, just want to better understand how utilization is reflected here in these contracts. So I know that I get in the life of. Yeah, volume and audio is gone.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Chris <unk> with Susquehanna International. Please proceed.
Speaker Change: Hey, good morning, Q could you remind us of the.
Speaker Change: The timing of the rate increases as they relate to the.
Speaker Change: Deliveries of the remaining.
Speaker Change: Aircraft for Amazon and then also.
Speaker Change: The the economics with the contract apologize I think I asked this question on every call, but given all the concerns here on tariffs.
Speaker Change: Tangible goods and things like that.
Speaker Change: Want to better understand.
Speaker Change: How utilization.
Speaker Change: Bob.
Speaker Change: As reflected here in these contracts.
Speaker Change: I know that the LIFO, yes.
Speaker Change: Volume in our LIFO right, yes.
Jude Bricker: Okay, yeah, so just to touch on the structure of the contract, there's a fixed component and a variable component. Generally speaking, the variable component covers our cost. The margin for the program is in the fixed component. So lower utilization drives higher margin. Cargo, for Sun Country. So I'm not at all concerned about it. And look, I mean, this is a long day to contract. This will be here contributing for us for a really, really long time. So no concerns there with utilization in the fleet. In fact, we'd prefer, particularly during peak periods, to have lower utilization because we could deliver more on time and deploy those pilots to more productive flying.
Speaker Change: Okay, Yeah, so just to touch on that.
Speaker Change: Structure of the contract there is a fixed component and a variable component generally speaking the variable component covers our cost the margin for the program is in the fixed component so lower utilization drives higher margins for cargo for Sun country.
Speaker Change: So I'm not at all concerned about it and look.
Speaker Change: This is a long dated contract.
Speaker Change: There'll be here contributing for us for a really really long time.
Speaker Change: So no concerns there with utilization in the fleet in fact, we'd prefer particularly during peak periods to add lower utilization, because we could deliver more on time and deploy those pilots to more productive flying on the rate increases I will turn it over to Bill if you have some timing on that actually.
Bill Trousdale: On the rate increases, I'll turn it over to Bill if you have some timing on that. I'd have to look that up to be brutally honest, when the next, there is one more general rate increase, which is dependent on the timing of certain aircrafts, which I don't have off the top of my head. And then we, you know, we have our, our standard increases, which is, you know, between three and five percent a year. occurs in December... We're mostly bank. when we signed the deal and started this progress, it's mostly there. There's one more rate increase that's going into effect based on growth that's gonna happen probably in the third quarter.
Speaker Change: I'd have to look that up to be brutally honest when that when the next there is one more general rate increased which is dependent on the timing of certain aircrafts, which I don't have the top of my head and then we yes, we have our standard increases which is between 3% and 5% on a year.
Speaker Change: Occurs in December of every year.
Speaker Change: We're mostly baked.
Speaker Change: When we sign a deal and started this progress it's mostly there there's one more.
Speaker Change: Rate increase thats going into effect based on growth that's going to happen probably in the third quarter I guess.
Bill Trousdale: Okay, as a follow-up, I don't think you mentioned in your prepared remarks anything on the CMI. We said I think there's four or five aircraft. If you could just remind us of the timing of those. Yeah, so those are those are standard operating leases. I think that's what you're talking about. We have Yeah, yeah. So we have five. We had had five 900s out on lease and two 800s took back one of those and those will roll off lease mostly towards the end of this year and a few into next year and then the induction timing is taking quite a long time these days with availability of parts and engineering support from the OEM so you know we'll introduce at least one 900 we expect in the third quarter and then the passenger fleet growth will kind of be dependent on You know, how quickly we can staff up.
Speaker Change: Yes.
Speaker Change: Okay and as a follow up I don't think you mentioned in your prepared.
Speaker Change: Marks.
Speaker Change: Anything on the CMI recently, I think there's four or five aircraft. If you could just remind us of the timing of those.
Speaker Change: Yes. So those are those are standard operating leases I think thats, what youre talking about.
Speaker Change: Yes, we have yes, yes, so we have five.
Speaker Change: We had had $5 nine hundreds out on lease and $2 eight hundreds.
Speaker Change: Look back one of those.
Speaker Change: And those will roll off lease mostly towards the end of this year.
Speaker Change: Few into next year and then the induction timing is taking quite a long time these days.
Speaker Change: With availability of parts and engineering support from the Oems So.
Speaker Change: We will introduce.
Speaker Change: At least $1 900, we expect in the third quarter and then the passenger fleet growth.
Speaker Change: We'll kind of be dependent on.
Speaker Change: How quickly we can staff up.
Bill Trousdale: But there's no constraint on going out and buying used airplanes in this relatively tight market. We have them already, as you point out, coming off lease. with deals we've done. last couple of years. But, but I think it's an important as you model the airline, this is important because we, you know, they generate pretty good returns on lease and we take them back and relative to an airline that's buying in the open market and inducting it. That airplane doesn't go into whip. I mean, so we're still experiencing DNA costs associated with airplanes that we put into storage awaiting induction.
Speaker Change: But there is no constraint on going out and buying used airplanes in this relatively tight market. We have already as you point out coming off lease with deals we've done.
Speaker Change: Last couple of years.
Speaker Change: But I think it's an important as you model. The airlines this is important because.
Speaker Change: They generate pretty good returns on lease and we take our back and relative to an airline that's buying in the open market and adapting it that airplane doesn't go into web. So we're still experiencing DNA costs associated with airplanes that we put into storage awaiting induction.
Bill Trousdale: So, there'd be some transition friction as we move the airplanes from their lessee onto our. Got it. Okay. Thank you.
Speaker Change: So there'll be some transition transition friction as we move the airplanes from there lessee onto our certificate.
Speaker Change: Got it okay. Thank you.
Speaker Change: Thanks.
Michael Linenberg: And our last question comes from Michael Linenberg with Deutsche Bank. Please proceed. Oh, yeah. Hey, hey, thanks for the follow-up. You know, Jude, you made a comment that intrigued me about, you know, getting additional gates in Minneapolis. And the question is, are these newly built gates? And how many? Or were these gates that were maybe vacated by a competitor or competitors? Thanks for taking my question. Hey, Mike, a little bit of both. We got two new gates built. And then we're absorbing more of the availability because of the drawback in competitors. I want to remind everybody, we have our own term.
Speaker Change: Thank you.
Michael Lindenberg: And our last question comes from Michael Lindenberg with Deutsche Bank. Please proceed.
Speaker Change: Hey, thanks for the follow up.
Michael Lindenberg: You made a comment that and treat me about getting additional gate in Minneapolis and the question is are these newly built capes and.
Speaker Change: And how many or where these gates that were maybe vacated by a competitor or competitors. Thanks for taking my question.
Michael Lindenberg: Mike a little bit of both we got two new gate built.
Michael Lindenberg: And then we're absorbing more of the availability because of the drawback in competitors.
Michael Lindenberg: Remind I want to remind everybody we have our own terminal.
Michael Lindenberg: And it's just a great set up here and a strategic advantage I love it as a traveller and as the CEO.
Jude Bricker: great set up here and a strategic advantage. I love it as a traveler and as a CEO. And we added two gates to our facility that are new and then we'll continue to absorb gates from competitors that we push out of our market. Jude, how many gates total are you currently operating out of the Hubert Humphrey Terminal? We have the ability to peak up to 10. And those are, you know, some of those are common use that we kind of push people around on, in and out of. They've added too, and they have plans to add that we got, and then they have plans to add more than that.
Michael Lindenberg: And we added two gates to our facility that are new and then and then we'll continue to absorb.
Michael Lindenberg: Gates from competitors that we push out of our market.
Michael Lindenberg: How big.
Speaker Change: Total are you currently operating out of the Hubert Humphrey terminal.
Speaker Change: We have the ability to peak up to 10.
Speaker Change: And those are some of those are common use that we kind of push people around on.
Speaker Change: Sure.
Dave added to and they have plans to add that we got and then they have plans to add more than that.
Jude Bricker: And then, I don't have the number off the top of my head, but in the next couple of years, and we're trying to continue to absorb that because, because we need it.
Speaker Change: And then I have the number off the top of my head, but in the next couple of years and we're trying to continue to absorb that because because we need it.
Michael Linenberg: Are the, just one more, I apologize, are the per-employment costs at your terminal lower than the main terminal, or if they're the same, I know that Minneapolis actually has some of the lowest employment costs of any terminal in the country. Yeah, it's a better deal. It's a better deal. But, but, but these capital projects. We're not immune from them. They are pushing north. Okay. Thank you. Thanks, Mike.
Speaker Change: I just one more I apologize I'm just are the per employment costs at your terminals lower than the main terminal or stay.
Speaker Change: At the same I know that Minneapolis actually has some of the lowest in payment cost of any terminal in the country.
Speaker Change: Yes, it's a better deal, it's a better deal but.
Speaker Change: These capital projects.
Speaker Change: We're not immune from them.
Speaker Change: We are pushing notice.
Speaker Change: Okay. Thank you.
Chris Allen: Thank you, and this concludes our Q&A session for today.
Speaker Change: Thanks, Mike.
Speaker Change: Thank you and this concludes our Q&A session for today I will turn it back to Mr. <unk> for final comments.
Jude Bricker: I will turn it back to Mr. Bricker for final comments. Hey guys, thanks for joining us today. We're really excited about where we are. And thanks for your interest in the company. Have a great day.
Speaker Change: Hey, guys. Thanks for joining us today, we're really excited about where we are.
Speaker Change: Thanks for your interest in the company have a great day.
Operator: Thank you, and with that, we thank you all for participating, and you may now disconnect.
Speaker Change: Thank you and with that we thank you all for participating and you may now disconnect.
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