Q3 2025 Sun Country Airlines Holdings Inc Earnings Call
Speaker #2: Welcome to the Sun Country Airlines . Third quarter 2020 Earnings call . My name is Marvin , and I'll be your operator for today's call .
Speaker #2: At this time , all participants are in . Listen only mode . After the speaker's presentation , there will be a question and answer session .
Speaker #2: To ask a question during this session , you will need to press star one on your telephone . You will then hear automated message advising your hand is raised .
Speaker #2: To withdraw your question , please press star one one again . Please be advised that today's conference is being recorded . I'll now turn the call over to Chris Allen , Director of Investor Relations .
Speaker #2: Mr. Allen, you may begin.
Speaker #3: Thank you . I'm joined today by Jude Bricker , our Chief Executive officer . And financial officer , and a group of others .
Speaker #3: Help answer 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 .
Speaker #3: Our remarks today may include forward looking statements , which are based on management's current beliefs , expectations and assumptions and are subject to risks and uncertainties .
Speaker #3: Actual results may differ materially . We encourage you to review the risk factors and cautionary statements outlined in our earnings release and our most recent SEC filings .
Speaker #3: We assume no obligation to update any forward-looking statements. You can find our third quarter 2020 earnings press release on the Investor Relations portion of our website.
Speaker #3: With that said , I'd now like to turn the call over to Jude .
Speaker #4: Thanks , Chris . Good morning everyone . Thanks for joining us . Our diversified business model is unique in the airline industry , as demonstrated by our 13 consecutive profitable quarters .
Speaker #4: Due to the predictability of our charter and cargo businesses , we're able to deliver the most flexible scheduled service capacity in the industry .
Speaker #4: 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 .
Speaker #4: We believe due to our structural advantages , we'll be able to reliably deliver industry leading profitability throughout all cycles . As discussed on prior calls in 2025 , Sun Country is focused on cargo expansion .
Speaker #4: As we execute on the planned growth of the cargo fleet to 20 aircraft today , all 20 aircraft are in operation . Our third quarter cargo revenue for September is up 60% year on year , and we expect it to move to over 75% by December based on the current schedule , consistent with our plans , cargo growth has displaced some scheduled service flying the year on year cuts and scheduled service were largest in three Q and will be focused on recovering those levels in the next several quarters .
Speaker #4: I expect to be able to show positive year on year scheduled service growth by three . Q 26 . For me , the most positive news in the quarter was the inflection in scheduled service .
Speaker #4: Trazem three Q Trazem was up 1.6% . However , for September it was up over 7% . Currently , we expect for Q Trazem to be up over 6% with one Q 2026 advances .
Speaker #4: Even stronger . Our revenue strength is across all regions of our network , and based on our current industry selling schedules , I don't see any reason that those trends shouldn't continue .
Speaker #4: I continue to expect to achieve $300 million of run rate EBITDA after the second quarter of 2027 , operating the fleet . We currently have on our balance sheet the timing of full implementation may be delayed by many factors , some beyond our control .
Speaker #4: The aircraft that we lease out will be redelivered through the end of next year , and we project that utilization will continue to increase as we train crews to increase block hours .
Speaker #4: Another positive in three Q was charter production . We had an all time record volume while also growing revenue per block hour by 4% year on year .
Speaker #4: In the backdrop of a strong of strong demand for charters , we're able to allocate surplus capacity into this segment . This helps offset some of the underlying of scheduled service .
Speaker #4: Our ability to flex capacity between charter and scheduled service continues to be a competitive advantage , especially in this environment . Finally , and perhaps most important for our long term success , we continue to execute a safe and reliable network with three Q controllable completion factor of 99.3% .
Speaker #4: Operations as varied as ours are difficult . It's a team sport . I continue to be impressed by all our employees that make it happen for our customers every day .
Speaker #4: With that , I'll turn it over to talk . Thank you June .
Speaker #5: As Jude mentioned , this quarter marked completion of our cargo expansion with all 20 aircraft now operating under the contract for Amazon , adding eight additional aircraft to our fleet was truly a team effort .
Speaker #5: And represents a 14% increase in our total fleet . As such , we remain in a transition period while we begin to annualize our cargo growth and then begin to grow back .
Speaker #5: GAAP EPs Our for the third quarter was $0.03 . And while our while our adjusted EPs was $0.07 . GAAP pre-tax margin was 8% .
Speaker #5: While adjusted pre-tax margin was 2% . Our fourth consecutive quarter of year over year adjusted margin expansion , third quarter total revenue was 255.5 million , a 2.4% higher than Q3 2024 on a 3.8% increase .
Speaker #5: In total block hours . Revenue for our passenger segment , which includes our scheduled service and charter business , was down 3.2% year over year , primarily on a greatly reduced schedule and service operation .
Speaker #5: As we complete our transition to the increased cargo fleet , our scheduled service business strengthened throughout the quarter . August . Total fare increased 2.6% versus last year , while August load factor increased 2.7 percentage points to 87% , which was the highest monthly load factor .
Speaker #5: This year . September saw an even better performance as total fare was up 4.5% versus last year , and load factor increased 3.2 percentage points to 83% .
Speaker #5: Scheduled service Asms were down 10.2% in the third quarter as we shifted resources to facilitate the dramatic growth in our cargo segment . While we will not be adding additional cargo aircraft in the fourth quarter , we will still be annualizing the new growth thus scheduled service asms are still expected to decline between 8 and 9% in Q4 2025 versus last year .
Speaker #5: Third quarter revenue continued to show strength . Charter revenue grew 15.6% , while charter block hours increased 11.1% . Excluding the impact of fuel revenue reconciliation , charter flying grew 16.7% .
Speaker #5: The flexible nature of our charter business was on full display as block hours dedicated to ad hoc charter opportunities grew 31% , which helped offset the slower build in the third quarter , cargo block hours .
Speaker #5: Charters flown under long term contracts still account for 77% of the charter block hours , which was down from 80% last year . Revenue in our cargo segment , 50.9% in Q3 to 44 million , which was the highest quarterly cargo revenue in our history .
Speaker #5: Cargo block hours grew 33.7% in the third quarter as all 20 cargo aircraft were in service by late August . This transition was a bit slower than we expected going into the process .
Speaker #5: As such , it drove pilot costs higher as we hired up for a greater level of block hours in the quarter cost . Now , turning to costs .
Speaker #5: Our Q3 total operating expenses grew 3.6% on a 3.8% increase in block hours . If you exclude fuel and special items , our operating expense in Q3 was actually lower than it was in Q2 .
Speaker #5: Despite having 1.3% more block hours in Q3 than in Q2 . Chasm in the quarter was up 10.3% versus the same period in 2024 .
Speaker #5: While our adjusted Casm increased 5.2% , both heavily influenced by the 10.2% drop in scheduled service , Asms salaries grew in Q3 , 15% , in large part driven by a 10.6% increase in employees .
Speaker #5: The increase in pilot contractual rates from the beginning of the year and flight attendant contracts ratified in Q1 . Maintenance in the quarter increased 13.5% , due mostly to the occurrence of unplanned maintenance events .
Speaker #5: Now , regarding the balance sheet at the end of the quarter , we closed on $108 million term loan facility with a fixed rate of 5.98% per annum .
Speaker #5: This allowed us to pay off the March 23rd term loan , which had a materially higher interest rate and refinance our five seven , 37 900 air aircraft .
Speaker #5: We still have not drawn down the entire 108 million and expect to receive the remaining 54 million by the end of 2025 . Our total liquidity of 298.7 million in the earnings release includes this amount .
Speaker #5: In addition , we spent 10 million for share repurchases in the quarter and have 15 million remaining in our previously announced share purchase authority .
Speaker #5: Year to date , we have completed a total of 20 million in share repurchases . We have also spent 29.1 million through the year in CapEx , and expect to spend between 80 and 90 million for the full year of 2025 .
Speaker #5: As a reminder , we do not expect to have meaningful aircraft CapEx until later in 2027 as we still have owned aircraft on lease to other carriers that will deliver to us throughout 2025 and 2026 .
Speaker #5: These five aircraft will drive growth in the passenger segment for the next couple of years . Net debt at the end of third quarter was 406.1 million , down from 438.2 million at the beginning of the year .
Speaker #5: Now , turning to guidance . We expect the fourth quarter total revenue to be between 270 and 280 million on an increase in block hours of 8 to 11% .
Speaker #5: We are anticipating our fuel cost per gallon to be 2.2 and a half cents for us to achieve an operating margin of 5 to 8% .
Speaker #5: Our fourth quarter is also burdened by an acceleration of some heavy maintenance costs that we plan to pull forward from 2026 , to manage the maintenance of our fleet .
Speaker #5: Our business is built for resiliency , and we will continue to allocate capacity between segments to maximize profitability and minimize earnings volatility . With that , I'll open it up to questions .
Speaker #2: Thank you . At this time we'll take the question and answer session . As a reminder to ask a question , you will need to press star one on your telephone and wait for your name to be announced .
Speaker #2: To withdraw your question , please press star one one again . Please limit yourself to one question and a follow up . Please stand by while we compile the Q&A roster .
Speaker #2: And our first question comes from the line of Brandon Oglenski of Barclays . Your line is now open .
Speaker #6: Hey , good morning , gentlemen , and thanks for taking the question . Jude . How do we think ? And I don't mean this to be a near-term question , but just given that cargo is going to be a bigger mix going into early 2026 , how does that impact the seasonality of the business ?
Speaker #6: Because traditionally , you guys get a pretty big margin in the first quarter with folks leaving Minneapolis .
Speaker #4: Hey , Brandon . Yeah . So I'll answer that a couple of ways . First is the ramp up has been slower than we expected for cargo .
Speaker #4: We're rostering December in a couple of weeks , and we're planning a block our production in the cargo fleet of over 5000 hours .
Speaker #4: And that's about what we would expect . The run rate to be on a permanent basis , subject to out of service time related to planned maintenance .
Speaker #4: So that's going to be the effect of the cargo operation through , you know , most months in 2026 , we still will have a really seasonal operation because the value of cargo , you know , whether it's the scale that it was last year or the scale it's going to be next year , is that we can fly a higher peaks and the negative effects of the cargo implementation in the third and fourth quarters has been that we had to cut down peak period flying in order to accommodate cargo growth , and that will be rebuilt in the subsequent quarters .
Speaker #4: And so we'll be peaking the schedule , which will actually , you know , potentially increase seasonality of our business as we expand , March into March of 26 and March of 27 .
Speaker #4: So I don't think there's going to be much to change . The seasonality of our business . Our first quarter is always going to be massive .
Speaker #6: Okay . I appreciate that . And talk on the new role here . I guess it'd be great to get your impressions . You know , being there for a while now .
Speaker #6: And also , I think you made some commentary around maintenance costs in the third and fourth quarter . So maybe if you could elaborate on that .
Speaker #6: Thank you .
Speaker #5: Yeah , we just when we talk about our maintenance costs , that's really driven by the fleet that we have , we've expanded fleet and there's more maintenance required in there .
Speaker #5: I don't know , Steve , if you want to .
Speaker #7: Yeah . It's a it's an opportunity to pull it into 2025 to stabilize the maintenance demand . And provide a more predictable platform to run our business .
Speaker #4: The lumpiness of maintenance will always be heavy checks , including engine repairs . And this is a relatively high period for us .
Speaker #6: Okay . Thank you .
Speaker #4: Thanks , Brandon .
Speaker #2: Thank you . One moment for our next question . Our next question comes from the line of Catherine O'Brien of Goldman Sachs . Line is now open .
Speaker #8: Hey , good morning everyone . Thanks for the time . Hey , so you guys noted that fares and loads were strong in August .
Speaker #8: September accelerated from August , I guess . Is that continuing into the fourth quarter ? I know there's some pretty tough comps on an industry basis .
Speaker #8: In late November and December , but you've got capacity down year over year . Just any color you can provide us on how you see Rasrm progressing through the months of your four Q outlook and any read on holiday bookings would be great .
Speaker #8: Thanks so much .
Speaker #4: Yeah , I mean , certainly listening to earnings calls across the industry appears we're on an island and and it looks really strong .
Speaker #4: I don't I don't have any negatives . I mean , we had over as I mentioned earlier , we had over 7% improvement in scheduled service in September .
Speaker #4: Off peak periods will be more responsive to capacity changes for impact . In other words , cutting down September has a greater impact on trazem than it would in a peak period when all the flying is strong .
Speaker #4: For example . But we're moving into our winter peak season sales look really , really strong into the winter period . Our guide reflects an over 6% year on year improvement for the third quarter .
Speaker #4: You know , I mean , there's just nothing worrisome in advances right now across the network . I'm not seeing any competitive movements that give me pause or or any year over year weaknesses .
Speaker #4: Minneapolis is , you know , becoming a two airline market , as we talked about in the past with the removal of Allegiant and Spirit from our home market .
Speaker #4: I don't know , it just looks really good . I don't have negative to speak of .
Speaker #8: Hey , happy to hear it . I'll take it . I guess maybe one for talk or someone else and and welcome talk on my math fuels accelerating quite a bit into the fourth quarter .
Speaker #8: I'm getting to like mid-teens inflation . But then on a block hour basis , closer to 5% year over year , I guess first , lots of moving pieces .
Speaker #8: So can you correct me if I'm wrong and then give us some color on the impact of that maintenance ? Pull forward is having on the fourth quarter and and then and then maybe just , you know , higher level as cargo inductions are behind you .
Speaker #8: And the start of service for the behind you . Any preliminary thoughts on what 2026 capacity and unit cost inflation could look like ?
Speaker #8: High level ? I know last quarter , you mentioned you expected cost pressure to persist through first half . So sorry . That's kind of a twofer for my second one .
I give you my initial thoughts and thought over to torque. I mean we have a lot of liquidity and uh and we're producing a lot of free cash flow. Um, we'd love to be really opportunistic in buying metal.
But we've been trying, and there's not a lot out there that, that meets our price expectations. So I don't expect us to find
a lot of capex opportunities, so this is going to be BuyBacks.
That's where we are.
Talking anything now on it? Yeah, I can just think of, you know, when we have we have Capital available and if there's opportunities to deploy that um,
we'll be looking for those and and as, um,
as Judith mentioned, it's really
The Market's tight, for for aircraft and engines and those are, those are our primary areas, we're looking for Investments.
Thank you. 1 moment for our next question.
Our next question comes from the line of Michael lindenberg of touch Bank. Your line is now open
Out of the Minneapolis Market. Um December and I know even as recently as earlier this year, they were serving probably like a half a dozen cities.
does that free up any potential gate space or or you know is there real estate there um for you
To take advantage of, um, and maybe any other airports that, you know, I know that they rejected leases at about a dozen airports. Are there opportunities there for you and as well as kind of answering the competitive capacity, question in your, you know, in your key markets. Yeah, Minneapolis domestic capacity, actually North American capacity, which is a better comp for us, um, through the selling schedule, which we just extended out through, uh, Labor Day, 2026 is flat to down, um, and you point out airlines leaving the market and spirit isn't, you know, sorry to see them go um, isn't serving Minneapolis beginning here real soon they serve out of T1 and it's not, you know, we have our own terminal, okay? So it doesn't really change the dynamic here. I just want to point out, we're not capacity, constraint in Minneapolis whatsoever, okay? Um, and that's 1 of the strengths of the business, we can park airplanes as many airplanes as we need to. We can we, we have plenty of gate space. There's really no constraints. We do have
Have capacity, constraints in some of our major busiest airports in outstation. So Boston, Logan, we have trouble, extending the schedule, past 1 pm. We serve Newark and JFK both capacity, constraints LAX, Etc. So, you know, I mean, some pullbacks from Spirit will be healthy there and might provide more opportunities. I think primarily the impacts of spirit, because we don't have a lot of direct overlap with them. We'll be secondary. In other words, Frontier, we'll move into their markets and
You know, they they have big operations in Detroit and Atlanta.
Obviously that's impactful for Delta and perhaps displaced some capacity here in Minneapolis so I consider it a secondary effect. We're not at the top of the list of the list of airlines that are going to be the most beneficial from the cuts that we're seeing at Spirit.
Okay, that's helpful. Thanks dude. And then just a second, um, this goes back to your initial comments where you talked about
Tasm kind of running over 6% in the fourth quarter. And then you went on to say that the 1 Q 2026 advances or even stronger at this point in time. Like, how much are you booked up in the March quarter?
What's January 12th to 35% loads today? Um, we as advances go, our first quarter sales further in advanced than the rest of our schedule. Um, but it's not, it's not material enough to, to make a strong call on the first quarter. In other words, we're not sold enough to where we can be, certain about the strength, we're seeing. But the, you know, we're selling ahead on load factor and fair.
Um, so PM, you know, which again when we're looking out this far, with low load relatively low low sold, loads can be very volatile, but we're up about 25% in January today.
now, that's gonna that's going to moderate because you can't, you know, you can't have a load Factor increase of 10 points, I mean, it's just not possible so, you know, I mean, but we're going to be
That's higher than it was for December and higher than it was in November. So it continues to get stronger.
Yeah, no that's that's 35% that's a bit higher than I realized that your big quarter and it it runs higher than your other quarters, but that is a bit higher than what it would be for any other carrier. You're probably 10 15 percentage points, 20 percentage points,
Above your competitors.
Yeah, my that gets to the core of the strategy. I mean, we're relevant in this community. We're a small Airline, but relevant to the community we serve and we have a differentiated model. So if you want to go non-stop to Mexico,
South Florida, south, uh, Southern California, Caribbean, destinations where the, uh, where the carrier Choice here in the Twin Cities.
Great can be small and relevant and big and irrelevant everywhere. And I think, you know, kind of playing that out.
Yeah, that's right. 1-1 last 1 just to squeeze them. Kind of a wonky question. Um, I see the 900 ERs are now scheduled. Obviously, they give you more capacity, so it's going to work in markets probably like Orlando and Phoenix. But is there anything interesting or unique? I mean, I know they have the range for Hawaii, which you used to serve. Is there anything that we...
Takin my questions.
So I'm excited to disappoint. I think those those airplanes are just going to go on trunk wraps.
Okay. So, you can take a look at our largest, our largest markets by volume, and they're going to be 900 markets.
So, you know, just to call out a couple um Minneapolis to Fort Meyers La Vegas, uh MCO, Boston SeaTac. Those kind of markets.
Great, great. Thanks.
Thanks Mike.
Thank you. 1 moment for our next question.
Our next question, comes online of Ravi Shanker of Morgan. Stanley, your life's not open.
Hi, good morning. This is Katherine Bell on for Robbie. Thank you for taking my question. Um I was curious how we should be thinking about Charter in 2026. I know you mentioned a bit um on 3Q but just curious what you guys are seeing for next year.
Hey Katherine. Um,
So, Charter comes in a couple of different flavors. I'll just kind of call them out. We have track programs that are committed contractual flying for counterparties, and that consumes about 6 aircraft. We have a VIP operation, Casino operations, and Major League Soccer.
Um, separate from those. We have a military program, that's a committed program, and also a lot of ad hoc flying. I just want to point out that, with the government shutdown, that flying has been unaffected, it continues to be strong.
And then the third is ad hoc which mostly is sports programs. So, you know this time of year NCA football, um, and that's hard to predict because it shows up close in.
You know, we set a record as I mentioned in the third quarter on volumes.
Um there's been a lot of airlines that have left the market like I arrow and then there's a huge new customer to Charters and Ice. We don't work for ice but um they're consuming a lot of Charter capacity. So there's a lot of demand growth and there's fewer people providing that lift and uh and it's been a really good thing for us. We still look at ad hoc opportunities primarily as a way to offload available capacity.
So, we'd rather commit capacity to scheduled service. Um, but if we have the excess capacity, then we then we, uh, then we've been on Charter opportunities and
Thus far it's been really strong. I can't give you more material guidance, though, into 26, because, you know, first quarter is always kind of a trough, there's not like going on but the summer should be
Really strong, if things continue the way they're going.
Got it. That's really helpful and just a quick follow-up. I think in your prepared remarks, you had said Charter under long-term contracts came down from, I think it was 80% last year. Um, I was just curious why that became lower were some of those contracts just up and do you go out and like look for contracts? Do people come to you? Just curious how that works?
Greater. So it took down the mix. Oh, okay. Yeah, no. No. Our. Our track programs continue. They haven't grown much except for the rate um volumes for our Casino programs, Major League Soccer and our VIP program are pretty flat. I think what's happening? What Chris tells me is what what's changed is that ad hoc grew faster and therefore the mix of contracted flying is lower.
Got it. Thank you.
Thank you. 1 moment for our next question.
Our next question. Comes a line of Christopher. Tata is now open.
Morning everyone. Um, do you
Talk about the puts and takes around your operating margins for next year. So,
We have the maintenance pool forward into 4 q, you've given us given us. A lot of color.
On how you expect cargo, um, to move. I think December's when you really see that I I think spooling up or or or hitting a run rate um
maybe talk to uh I I guess for scheduled service that puts and takes around costs and timing to kind of get back to those pre- Amazon margins. And also on the
The the the charter piece, uh, there are some events, uh, the question before referenced I think soccer World Cup next year, America's 250. So that would seem that there's some opportunity there. So at a high level and really, but kind of focus on scheduled puts and takes around, uh, op margins next year, I guess, net of this maintenance. Pull forward into the um the fourth quarter. Thanks.
2 primary inputs versus going to be, um, the tram continued to improve and the rate that we've seen, I don't see any reason that that should change. And then the second 1 is, we should hit an inflection point on unit cost.
and that's because,
We don't have a lot open on Labor. Um, and so those
Uh, rate increases will have good comps and therefore also are efficiency initiatives will start to take hold, uh, like I mentioned earlier, PBS and incremental basing. So, um, we should start to see an inflection point and then you have the lumpiness of our maintenance program specifically heavy checks,
Um, we don't do engine overalls Here. We Buy in lie of and then replace and lie over repair. So that should be pretty constant. Those costs flow through our DNA.
Um,
You know, we're getting a lot of cost pressure like all Airlines from airports.
I I don't see that abating much. Um, everybody's did massive Capital programs just sort of everywhere.
So you know, that'll continue to pressure us. But I think overall, what we're expecting um, year on year
Chasm X.
To hit kind of a zero, you know, flat levels in the, in the middle of next year.
And late next year and then proof from there. So
I feel really good about unit cost Trends. We should finally start to see.
You know the postco inflationary pressures kind of run their course. And that's the kind of stabilize. I think it's going to be really good.
To work in any of that on that. Yeah.
It it's so block our dependent because there is the charter piece that I you mentioned that is ad hoc there's what Amazon's going to do peak season of course. But do you think for the full year on a per block, our basis, that unit costs could be down
No, because the mix is going to change, right? So,
It it costs a lot more for Block hour to fly, scheduled service, flying because fuel fuel costs and ground handling and all that stuff is in there.
So, we're going to continue to have pressure on that because we're just a segment mix.
Okay, and then, uh, it's a follow-up on the, um, the Visa I realize it's still early, um, response, thus far, and if you could remind us of any, um, renewer targets, you've communicated. Thanks.
I've mentioned publicly that that that our credit card program, produces about 20 million dollars annually. Um that that would be full implementation of the synchrony contract.
Uh we're on Pace. Um you know it's going to take us
I don't know, maybe a year to kind of get
So synchrony has been great. I've been really, really pleased with the technology outlay.
Um, passengers, I mean our customers, are picking it up really rapidly. So, they, you know, they're transitioning over to the new car.
Um, beyond what we expected, everything's looking green on that program.
Okay, thank you.
Yeah.
Thank you. One moment for our next question.
Our next question comes from a line of twin fitting worth of evercore Si and I now open
Hey, good morning. This is Jake, gunning on for Dwayne. Thanks for taking my question. It looks like you've generated very strong free cash flow in the third quarter. Would you consider that normal seasonality? And, if not, did the ramp in any other segments maybe contribute on the working capital side?
Let me give you a general comment there. There's a lot of seasonality in our business, and therefore there's a lot of seasonality in our ATL's. So, a lot of our free cash flow.
By quarter is going to be based on ATL expansion. And as we talked about earlier, we're selling now into our winter peak season, uh, with higher volumes and higher fairs. So, there's a lot of ATL pickup in that
torch, and the other color.
No, I think.
first off, and, uh, you know, the, the Builder where we expect them to be, so,
It will be in good shape. Okay.
Great, that makes sense. Um, and then just on the aircraft side, you alluded to it earlier, but are you seeing any movement in used aircraft values for the 737?
No, we haven't done a deal in a long time. It's been pretty brutal. Um,
You know, fortunately, we did a lot of transactions, coming out of Co and buying out. Stub lease, aircraft
Um and are on the balance sheet but 7 of them. At the beginning of the year were leased out and those redeliver will fund our scheduled service growth or passenger Network growth uh, going into 26 and 27. So we don't have to buy anything and we could kind of hold the line on price.
But it's been tight out there. Boeing was here yesterday, we were talking about their rate increases, you know, I think the the NG availability is going to be mostly dependent on Max production rates.
Which unfortunately have been slowed to kind of pick up so I mean we're not sitting on our hands here. We, we're looking at hundreds of airplanes literally and um and right now, owners of airplanes have better options than to take
the Jude breaker price I guess.
Great. Well, thank you.
Thank you. 1 moment for our next question.
Our next question comes from James Curry of JP Morgan. Your line is now open.
Yeah, good morning. This is actually Jamie Baker, uh, filling in for James. Um, so first question, if it, you know, just look, yeah, it feels a little weird. Um, so just looking at the fourth quarter schedule on the west coast, it looks like the capacity Cuts there are a little bit steeper, you know, than the overall domestic average.
Anything to read into West Coast, fundamentals, from that. Or, or is that just
You know how it played out as as you're pivoting, you know, more towards cargo.
um, not really much to re, I mean we talked earlier about in past calls about Minneapolis La being kind of a weak
Uh, weaker Market than the rest of our Network that kind of continues. But as you look at the West Coast broadly as we look at it. It also includes Palm Springs, San Diego and San Francisco um Portland and and SeaTac which aren't operated in the wintertime. But you know, those Southern cow markets that aren't LA are doing really, really well.
Okay, Palm Springs in particular I'd call out. So this is like, you know, the the Leisure Market is strong.
Um and there's not a lot of capacity growth and so it's materializing in higher fairs.
That's really good to me.
Um,
and then I also had a Boeing question since you brought up that Jude breaker price.
Um, you know again I recognize that you guys are not, you know, pounding the pavement but you obviously have your ears to the ground. So how would you describe, you know, having that with with Boeing? Where do you think the market is today relative to however, you calculate?
You know, on a, on a age adjusted basis.
The values that you were able to get coming out of Co because from Atomic perspective, it it does seem like the uplift on on Max's will provide some relief on the youth side by the time that you guys are really out there actively shopping around.
Yeah, Jamie possibly. This is
Yeah, so it does me to rant for a second. We have
Kind of always looked at the at the it, an airline, as a core bit of like a bucket of parts, right? That are the end of the life. Um, realization, you know that number has been about 2 million dollars for the airframe and 2 million dollars for each engine. So let's call that 6 million bucks and then there's the maintenance value that's transferred over from the prior operator from new. Um and and that's you know, can be full life to 16 or zero and then there's an operator premium kind of availability metric. And so all the 3 of those metrics kind of go in
now the the the residual value that $6 million dollars has been you know,
Pretty constant. It's, it's higher than it was during Co, but it's not you it's not out of whack. I mean, we're selling, uh, airframe we part out airframe we sold for about I think, 2 7, 5,
Probably $3.5 million relative to $2 million, so it's up, but it's still kind of, I don't know, ballpark-y.
where we really seen a, a massive value expansion is in, engine maintenance, value transfer,
And that's because shop as it costs are just through the roof. I mean, probably twice what they were.
um, at the bottom of Co
Uh, to give you a sense. We we did an engine.
It was, uh, $500 a cycle. No, no monthly fees, nothing like that. We don't usually lease, but they just really wanted this lease to happen.
Um now when we're valuing engines, the inherent cyclic value is over a thousand say 1100 or so. So that value metric is almost doubled and that's the that's the largest proportion in the value of a used airplane.
mhm, so it it really is challenged the market
All right. Definitely appreciate that. Insight, thanks for the color. Take care.
This is Jamie. See you, man.
Thanks.
Thank you. 1 moment for our next question.
Our next question, because the line of Scott, group of wolf research and I is not open.
Hey, good morning. This is Ryan, kaposi on for Scott. Um, so just kind of harping on some previously asked questions, but, um, I guess, you know, with the reduced scheduled service capacity in MSP. Have you seen any degree of backfilling, from your competitors in some of your markets?
No.
No, no, we haven't. I mean, there's been um, a guy. I can't even think of a single market that we serve that has...
Capacity increase in the first quarter.
I can't think of a single one. Uh, no. No. It's been, uh,
It looks really good. I don't have anything else to add.
Okay, no, that's that's helpful and then I guess maybe just building off that, right? As you as you start to add back some of the scheduled service in 2026, just curious kind of you know, what is that capacity? Growth look like exactly. Is it, is it just adding back frequency or is there any sort of change to the network strategy next year?
Yeah, so if we, if we bring...
Fleet utilization of the passenger fleet can reach up to 7.5 hours per day on an annualized basis.
And induct all the lease airplanes to get to 50 aircraft and passenger operations.
That operation is about 30% bigger than we are today.
So,
You know, we're going to we're going to expand next year into kind of what we had already lost and then we'll expand beyond that.
So, you know, I mean, what's what's most important? And what's I think really exciting is that that growth can be realized in Peak periods
So we cut down September, massively.
Um, to support cargo growth, our September scheduled service Block hours.
In 2025 is smaller than it was in 2017. When we had 40% of the fleet,
And the reason is there's just not that much opportunity in those periods of time. So when we think about growth, what's exciting is that we can expand because of more aircraft and having a larger cargo operation that buffers Peaks and troughs we can be adding into June July.
Um, August December and most importantly, March. And that's going to keep um, you know, our growth will pressure naturally unit revenues, but it's not going to it's going to be pretty muted because we're going to be focused on Peak periods, where there's excess demand
And um, and so it just looks, it's setting up really nicely for us.
Great. Thanks for the color, dude.
Sure.
Thank you. 1 moment for our next question.
Our next question comes from a line of cat and O'Brien from Goldman Sachs, and I is not open.
Hey, thanks for the follow up, appreciate the time. Um, I just was just was thinking about some of your comments on margins and seasonality, you know, you've made over the course of the call. Um, as they pertain to the first quarter schedules are showing capacity down year over year in WQ. So so I'm guessing that'll put pressure on margins year-over-year to your point, you know, on, you know, taking taking Peak flying down as a margin drag but you're also talking about a lot of momentum on the demand side, you know, I guess will the capacity Cuts just be too difficult to overcome, from a year-over-year margin perspective or or based on what you're seeing today. Understanding that could change on the demand side.
Do you think you could be potentially setting up for margin expansion? Just any any initial? Absolutely. No. No, I want to be super clear. Absolutely.
Yeah, I mean, you know, there's, there's inputs like Fuel and all that stuff that's normal but um the the the the the maximum impact on our scheduled service was in the third quarter of this year. So it's behind us.
And um and you know, we'll be, as I mentioned December, we're fully implemented on our cargo. And then from there all incremental um, credit hours will be allocated into scheduled service growth and
yeah, we should be uh,
You know, I think we're going to have a Tailwind in the 26. It looks pretty good just to be clear 1 1 Q margin year over year. Uh is the absolutely comment.
Yeah again we're not ready to go but you don't have to look at it today based on what we see today.
Yeah, I'm pretty bullish on 1.
Okay, awesome. Thank you so much.
Yeah.
Thank you very much.
Thank you. I'm showing no further questions at this time. I'll now turn it back to Jude Bricker for closer remarks.
Thanks for joining us today. We're really excited about where we are and where we're headed and um we'll talk to you guys in about 90 days. Have a great day. Thank you for your participation. In today's conference, this concludes the program, you may now disconnect