Revenue of $294 million, Sun Country’s highest on record
Sun Country Airlines this week reported financial results for its first quarter ended March 31, 2023.
“Sun Country’s unique, diversified business model continues to deliver strong results,” said Jude Bricker, Chief Executive Officer of Sun Country. “The revenue environment remains resilient, as we saw a 20.8% increase in total average fare and a gain of 8.6 percentage points in load factor in the first quarter versus 2022. This demand strength helped deliver a first quarter GAAP operating income margin of 19.0% and an adjusted operating income margin of 19.9%(2), easily exceeding the first quarter of last year by over 9 percentage points. We delivered these outstanding results despite a winter season at our Minneapolis-St. Paul base that was the third snowiest on record. I want to thank our dedicated team of employees for their extraordinary efforts this winter.”
For the quarter ended March 31, 2023, Sun Country reported net income of $38 million and income before income tax of $50 million, on $294 million of revenue. Adjusted income before income tax for the quarter was $53 million(2). GAAP operating income during the quarter was $56 million, while adjusted operating income was $58 million(2).
“We continue to see strength across our scheduled service, charter and cargo businesses,” said Dave Davis, President and Chief Financial Officer. “Total revenue was up nearly 30% year-over-year, with Scheduled Service TRASM(3) up 34.7% and TRASM(4), including charter revenue, up 30.6% versus the first quarter of 2022. GAAP operating income increased 155% while adjusted operating income was up 157% year-over-year, generating a GAAP operating margin of 19.0% and an adjusted operating income margin of nearly 20% in our seasonally strongest quarter. During the first quarter, our unit costs were negatively impacted by decreased aircraft utilization levels. In the second quarter, we expect total block hour growth of at least 11% versus last year, and pressure on non-fuel CASM should ease during the year. We are also excited to have acquired five 737-900ER aircraft which are currently on lease to Oman Air. We will obtain the lease revenue from Oman Air until the expiration of the leases and the aircraft are delivered to us beginning in late 2024 and continuing through 2025. The 737-900ER is a new fleet variant for Sun Country and we expect it to create new opportunities for our network.”
Notable Highlights
As of early April, the Company acquired five 737-900ER aircraft which are currently on lease to Oman Air. The aircraft will remain on lease to Oman Air until the leases expire in late 2024 and through 2025. Sun Country will take delivery of one aircraft in late 2024 and the other four throughout 2025.
Extended the flight schedule through December 2023 to include 120 routes serving 90 airports.
The Company repurchased 750,000 shares at a price of $19.75 from the underwriters of the Apollo Global Management secondary offering. The Company also completed its $25 million accelerated share repurchase program resulting in the repurchase of 480,932 additional shares. It still has $10.2 million authorized by the board of directors available for share repurchases.
Named Jennifer Vogel as chair of the board of directors, the Company’s first female chairperson. She oversees a diverse board that is comprised of 50% women.
Capacity
System block hours flown during the first quarter of 2023 grew by 3.8% year over year. Cargo and charter block hours grew 5.2% and 32.9% respectively year over year, as more Amazon aircraft were available to fly and our contract charter business continues to expand. Scheduled service flying declined by 2.2% year over year and is expected to resume year over year growth in the second quarter.
Charter block hours under long-term contracts comprised 81% of the total charter flying performed in the first quarter of 2023. As the Company begins to normalize its aircraft utilization, it intends to pursue more ad-hoc charter flying.
Revenue
For the first quarter of 2023, the Company reported total revenue of $294 million, which was 29.8% more than the first quarter of 2022. The Company’s scheduled service TRASM(3) of 13.8 cents in the first quarter of 2023 increased 34.7% year over year while scheduled service ASMs decreased 3.5%. The first quarter 2023 average total fare of $221 exceeded first quarter 2022 by 20.8% and included strong average ancillary revenue per passenger of $69. In the first quarter of 2023, the Company’s charter service revenue was $46 million, an increase of 40.5% year over year. On a rate basis, first quarter 2023 charter revenue per block hour was 5.7% higher than the rate in the first quarter of 2022.
In the first quarter of 2023, cargo revenue was $23 million, a 11.0% increase versus the first quarter of 2022. The variance was primarily driven by a 5.2% increase in block hours and the annual rate escalation which went into effect in mid-December 2022.
Cost
For the first quarter of 2023, total GAAP operating expenses increased 16.4% year over year, primarily due to a 12.0% increase in aircraft fuel expense and a 26.5% increase in salaries, wages, and benefits compared to first quarter 2022. Adjusted CASM(5) in the first quarter increased 14.3% versus the first quarter 2022 on a decrease in daily aircraft utilization of 15.1% for the same period.
Balance Sheet and Liquidity
Total liquidity(7) was $262 million on March 31, 2023, while the Company’s net debt(6) was $449 million.