Photo credit: Flickr / Colin Brown
Sun Country Airlines isn’t interested in stimulating demand amid unprecedented demand for air travel. Instead, it is canceling flights and routes that do not book well, CEO Jude Bricker said May 5 on the airline’s first-quarter earnings call.
But with high fuel prices, a tight supply of pilots and robust demand, Sun Country only wants to place its aircraft in winning markets on peak days. And there have been plenty of both since the first U.S. Omicron wave peaked in mid-winter, executives said.
“The average airfare sold every day gets higher and higher as we push into the summer,” Bricker told analysts. “It’s very rare. From mid-February, we saw this inflection point and there are no signs of slowing down.”
Even better for Sun Country, the airline is betting its competitors can’t fly enough capacity this summer to satisfy demand and drive down prices. Many larger airlines retired aircraft during the pandemic. Others are having trouble sourcing pilots and flight attendants, while some have struggled with the reliability of their regional operations.
“You’re going to pay a lot to travel because there’s not enough seats out there,” Bricker said. “I can’t imagine it turning around anytime soon.”
Sun Country was one of relatively few airlines to turn a profit last summer, when it made $13.9 million in net income as travel demand began to rebound. It should do well this spring and summer too, but is unlikely to lead the industry, Bricker told analysts.
The reason is Sun Country’s unique model. It flies 38 airplanes in passenger service and another 12 carrying cargo for Amazon, which pays Sun Country a fixed fee for the service.
With the long-term Amazon contract, Sun Country has guaranteed revenue and protection against spikes in fuel costs. But it cannot chase demand and increase prices on the spot as it does with scheduled service. Sun Country has a similar arrangement with some of its charter customers, including Caesars Entertainment and Major League Soccer.
“The right way to think about our margins is when it’s as good as they can get for everybody else, we’ll be right there with them,” Bricker said. “And in all other circumstances we will lead the industry.”
Bricker said the airline is in “no rush” to grow its Amazon business, saying the airline is more interested in “pushing” peak period scheduled service.
Sun Country typically turns in one of its strongest quarters of the year in the first three months, as it specializes in taking people from colder destinations to Arizona, Florida, California, the Caribbean and Latin America. This year wasn’t quite as strong, likely because the Omicron variant limited demand for air travel through February and because fuel costs per gallon increased 68 percent, year-over-year.
Sun Country reported net income of $3.6 million for the quarter, 70 percent lower than a year earlier. Its $227 million in revenue represented a quarterly high, though the airline is considerably larger now than in the recent past. Private equity firm Apollo Global Management bought the airline in 2018 and took it public in 2021, giving it cash to grow.