Minneapolis-based Sun Country Airlines has reported a third-quarter profit of $14 million. A sizable amount for the size and model the airline operates, the carrier is expressing optimism in its current strategy and is continuing its hunt for more aircraft as it seeks a disciplined expansion coming out of the crisis.
Sun Country turns a third-quarter profit
Sun Country Airlines reported a third quarter net income of $13.9 million, including special items like government support. The airline recorded total quarterly revenue of $173 million, which was higher than the carrier's third-quarter 2019 revenue, and the first time since the crisis hit that Sun Country's revenue beat out 2019.
The overall revenue for the third quarter of 2021 was over double that of the third quarter of 2020. And, the carrier's net income was nearly four times that of the third quarter of 2020. For reference, the airline reported a profit of $2.9 million in the third quarter of 2020.
The greatest bulk of revenue came from scheduled passenger service, with about $80 million stemming from the sale of fares. Ancillary revenue clocked in at $33.7 million, just under the $33.8 million Sun Country received from its charter services. Cargo brought in $24.4 million in revenue.
Jude Bricker, CEO of Sun Country, stated the following:
“We had a great third quarter. We posted our highest adjusted operating margin, adjusted pre-tax margin and adjusted net income since the first quarter of 2019. As a reminder, the third quarter is historically not our strongest quarter of the year."
He further explained that the airline had hit its third consecutive quarter of positive adjusted operating margins. Dave Davis, President and Chief Financial Officer, detailed that Sun Country, despite cutting scheduled service capacity by 16% compared to the same quarter of 2019, produced total revenue per available seat mile (TRASM) that was positive versus 2019 for each month this quarter, indicating that Sun Country was able to generate greater revenue from its passengers on less capacity. He attributed this to higher average base fares and ancillary revenue per passenger, both of which beat out 2019 levels.
Sun Country Airlines operates on an ultra-low-cost (ULCC) model. It sells unbundled fares and encourages passengers to buy up with options like seat selection, extra-legroom, baggage, and more. However, unlike other ULCCs, Sun Country is focused very specifically on the Midwestern-originating travelers. It offers some traditional Midwestern staples onboard its aircraft, like Caribou Coffee and Fulton Brewing products, and orients its network to fly to places those customers want to fly to.
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An optimistic outlook
Sun Country's strategy thus far has worked and kept it profitable. During the third quarter, the airline secured two additional Boeing 737s, one of which already began flying for the carrier in August. The second is set to start flying in 2022. These two planes mark the fourth and fifth aircraft acquired by the airline this year.
Sun Country set an aircraft procurement target of five planes in 2021. It has now met them, but that does not mean it is done. It is still looking at the used aircraft market and is being strategic about the aircraft it acquires. The airline traditionally acquires used, mid-life Boeing 737 aircraft, though it has not ruled out an order for new aircraft at the right price.
The airline now has 35 Boeing 737s in passenger service. It has a goal of reaching a fleet of 50 Boeing 737s by the end of 2023. It is not looking at a rapid uptake of these aircraft but rather pacing itself at a maximum of one new aircraft induction a month. At present, the airline is just 15 planes shy of that goal, which it should be able to meet in the next two years.
Sun Country's strategy has relied heavily upon diversified operations. It flies a large charter operation for several different entities, including sports teams and the US government. Recently, the airline announced a five-year agreement to provide charter flights for all Major League Soccer (MLS) teams, which will be a steady source of guaranteed revenue.
Separately, it also has a deal with Amazon to fly cargo Boeing 737s. The airline flies freighters to support Amazon's freight operations. Sun Country does not have its own dedicated cargo arm where it independently flies cargo, something that other airlines have. The benefit for Sun Country is that the Amazon deal gives the airline enough flying opportunities and steady income to make it through the low seasons of passenger operations.
Growing passenger operations
With its expanded fleet and room to push up some utilization on its existing fleet, Sun Country has added new nonstop routes to its network for summer 2022. The airline typically orients itself around peak-day flying, with only a few flights per week targeting leisure-oriented travelers.
Sun Country's diversified model makes it less risky for the airline to acquire aircraft and put it into scheduled service. If the airline deems it only wants to put a plane in service on a couple of days flying, that would typically discourage an airline from adding a new aircraft. However, Sun Country can put the aircraft in its charter pool for the remainder of the days it is not scheduled for passenger operations. This brings in some incremental revenue and helps make the business case for expansion.
Passenger operations are the airline's bread and butter. While charter and cargo are nice boosts for the low points of the year when traffic is down, the carrier's financial results are abundantly clear that the airline will not be giving up its focus on passengers. Those customers are set to benefit from more routes and nonstop service. Next summer, the airline will fly to over 70 airports from Minneapolis. It will also be flying new routes from other cities in the upper midwest, like Rochester, Minnesota, where it previously offered service via a bus connection up to Minneapolis.