“We are pleased to be reporting our quarterly results for the first time as a public company following our successful IPO in March. The IPO strengthened our balance sheet and better positions Sun Country for long-term profitable growth,” said Jude Bricker, Chief Executive Officer of Sun Country. “While we remain in an unpredictable environment, our business is continuing to recover from the impact of COVID-19 on industry demand. I am encouraged by the recent improvement we are seeing in forward bookings. Demand really picked up in mid-February, and that momentum continues. As of today, our summer schedule is sold to a higher load factor as compared to the same time in 2019. Our charter business is recovering quickly, and we are flying a full twelve aircraft schedule in our cargo business.”
First Quarter 2021 Highlights
On March 19, 2021, the Company successfully completed its initial public offering, with its stock trading on the NASDAQ under the symbol SNCY. A total of approximately 10.5 million shares were issued by the Company, raising approximately $225 million of net proceeds, after deducting underwriting discounts and commissions and offering fees and expenses.
Repaid the U.S. Treasury loan received through the CARES Act program with $46.3 million of proceeds received from its initial public offering.
Received $32.2 million grant from the CARES Act Payroll Support Program (PSP) 2 during the first quarter. On April 22, the Company received an additional $4.8 million true-up of the PSP-2 grant program.
Continued focus on reducing aircraft ownership costs by purchasing five aircraft previously on operating leases at Sun Country. To execute the transaction, the Company borrowed $68 million through a delayed draw term loan facility. A sixth aircraft was purchased off lease in the second quarter of 2021, also using the delayed draw term loan facility.
Announced continued expansion of the Company’s route network including service to nine new airports: Bradley International Airport (BDL), John Wayne Airport (SNA), George Bush Intercontinental Airport (IAH), Raleigh-Durham International Airport (RDU), Glacier Park International Airport (FCA), Fairbanks International Airport (FAI), Jackson Hole Airport (JAC), Indianapolis International Airport (IND) and Cincinnati/Northern Kentucky International Airport (CVG).
Announced 16 new nonstop routes to begin flying in the second quarter 2021, including nine nonstop routes from Minneapolis-St. Paul International Airport (MSP), two new nonstop routes from Dallas Fort Worth International Airport (DFW) and George Bush Intercontinental Airport (IAH) and one additional nonstop route from San Antonio International Airport (SAT), Indianapolis International Airport (IND) and Bradley International Airport (BDL).
Expanded partnership with Landline, adding connecting bus service from five additional Midwest cities: Brainerd, MN, Rochester, MN, St. Cloud, MN, La Crosse, WI, and Eau Claire, WI
Capacity
On a total departure basis, the Company grew 12% in the first quarter vs prior year, as its new cargo services segment more than offset the 22% decline in passenger service (scheduled plus charter) segment departures. On an available seat mile (“ASM”) basis, the Company saw scheduled service capacity decline 23% in the first quarter as it reduced flying to align with the reduced demand due to the COVID-19 pandemic. Scheduled passenger load factor declined to 67% versus 76% last year. Cargo and charter flying have proven to be more resilient during the pandemic, demonstrating the flexibility that has been built into the Company’s business model.
Overview of First Quarter
| Three Months Ended March 31, | ||||||
| (unaudited) (in millions, except share amounts) | 2021 | 2020 | % Change | |||
| Total operating revenue | $127.6 | $180.3 | (29.2 | ) | ||
| Operating income | 24.9 | 15.2 | 63.7 | |||
| Income before income tax | 17.8 | 9.7 | 83.8 | |||
| Net income | 12.4 | 7.3 | 71.2 | |||
| Diluted earnings per share | $0.24 | $0.15 | 60.0 | |||
| Three Months Ended March 31, | |||||||
| (unaudited) (in millions, except share amounts) | 2021 | 2020 | % Change | ||||
| Adjusted operating income (1) | $1.2 | $15.6 | (92.3 | ) | |||
| Adjusted income (loss) before income tax (1) | (4.7 | ) | 10.1 | (146.5 | ) | ||
| Adjusted net income (loss) (1) | (4.9 | ) | 7.6 | (164.5 | ) | ||
| Adjusted diluted earnings (loss) per share (1) | ($0.09 | ) | $0.16 | (156.3 | ) | ||
Revenue
For the first quarter of 2021, the Company reported total revenue of $127.6 million which was $53 million, or 29%, lower than the $180.3 million recorded in the first quarter of 2020. Sun Country primarily generates operating revenue from Scheduled service passenger revenue and ancillary sales, Charter service revenue, and Cargo revenue. The Company’s average base fare in the first quarter of 2021 declined 30% to $98.77 versus $140.34 in the same period last year, which was less impacted by COVID-19. The Company saw demand improve during the first quarter of 2021 as the number of vaccinations in the country increased and normal seasonal leisure demand patterns began to return. In contrast to the decline in base fare, ancillary revenue per passenger was little changed from $43.04 in the first quarter of 2020 to $42.98 in the first quarter of 2021.
Charter service revenue is primarily generated through service provided to collegiate and professional sports teams, the U.S. Department of Defense, casinos and other customers. In the first quarter of 2021, the Company’s charter service revenue was $25.8 million, down 12% versus $29.2 million in the first quarter of 2020, as the return of March Madness flying was offset by a decline in its Casino business.
Cargo revenue consists of revenue earned from flying cargo aircraft under the Air Transportation Services Agreement (“ATSA”) with Amazon. In the first quarter of 2021, cargo revenue was $21.6 million. Flying under the ATSA began in May 2020.
Cost
For the first quarter of 2021, total GAAP operating expenses decreased 38% year over year. First quarter 2021 operating expense includes a net Special Items credit of $26.9 million, consisting primarily of a $32.2 million credit from the CARES Act Payroll Support Program (“PSP2”), offset by certain one-time items related to the purchase of five aircraft that were previously under operating leases. Excluding these Special Items, total operating expenses decreased 22%.
The Company continues to focus on reducing its unit operating costs including reducing aircraft ownership, ground handling, and distribution expenses. Adjusted CASM is a non-GAAP measure derived from CASM by excluding fuel costs, Special Items described above, non-cash management stock compensation expenses, costs allocated to its cargo operations (starting in 2020 when the Company launched cargo operations), certain commissions and other costs of selling its vacations product from this measure. In the first quarter of 2021, Adjusted CASM was 6.15(2) cents.
Balance Sheet and Liquidity
The Company finished the first quarter with a strong balance sheet as it reduced net debt(3) to $236 million during the quarter versus $475 million at the end of 2020, primarily due to the proceeds of its initial public offering as discussed above. On March 24, 2021 the Company used a portion of the proceeds from the initial public offering to repay the U.S. Treasury loan it received through the CARES Act program. The Company received a $45 million loan through this program in October 2020. Sun Country has now fully repaid the loan along with accrued interest.
On April 29, 2021, the Company received its first installment of $17.3 million of the PSP-3 grant from the US Treasury. As of the end of April 2021, the Company had total liquidity of $325 million, consisting of $300 million in cash and equivalents and access to $25 million through an undrawn revolver.
Fleet
The Company currently operates 31 aircraft in passenger service, consisting of 30 Boeing 737-800s and one 737-700, and 12 737-800 freighter aircraft in its cargo operation. In April 2021, the Company entered into certain arrangements to take delivery of an additional three growth aircraft during the year and expects to acquire additional aircraft in the upcoming months.
Here are the results in full.
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