Sun Country Airlines Reports Third Quarter 2023 Results

Sun Country Airlines

November 8, 2023

1305

Revenue of $249 million, highest third quarter on record⁽¹⁾

GAAP diluted EPS of $0.13 and operating income of $19 million

Adj. diluted EPS⁽²⁾ of $0.14and adjusted operating income⁽²⁾ of $20 million_,

Sun Country Airlines Holdings, Inc. (“Sun Country Airlines,” “Sun Country,” the “Company”) (NASDAQ: SNCY) today reported financial results for its third quarter ended September 30, 2023.

“Sun Country’s diversified business model continued to deliver strong results in the third quarter, as evidenced by our strong GAAP operating results and our third consecutive quarter of year over year improvement in adjusted operating margin, adjusted pre-tax margin and adjusted earnings per share,” said Jude Bricker, Chief Executive Officer of Sun Country. “Total revenue was up by 12.3% versus the third quarter 2022 and we produced GAAP operating income of $19 million, operating margin of 7.6%, and adjusted operating margin⁽²⁾ of 8.1% for the quarter. The revenue environment continues to stay healthy as demonstrated by scheduled service TRASM⁽³⁾ declining only 5.0%, while scheduled service ASMs grew 15.1%. This helped to drive GAAP diluted EPS of $0.13 and Adjusted diluted EPS⁽²⁾ of $0.14 in the third quarter. In addition to our excellent performance, our board of directors has authorized an additional $25 million for repurchases of Sun Country shares.”

Overview of Third Quarter

	Three Months Ended September 30,
(unaudited) (in millions, except per share amounts)	2023	2022	% Change
Total Operating Revenue	$ 248.9	$ 221.7	12.3
Operating Income	19.0	15.4	23.5
Income Before Income Tax	10.1	12.9	(22.1)
Net Income	7.6	10.7	(28.9)
Diluted earnings per share	$ 0.13	$ 0.18	(27.8)

	Three Months Ended September 30,
(unaudited) (in millions, except per share amounts)	2023	2022	% Change
Adjusted Operating Income ⁽²⁾	$ 20.0	$ 15.9	26.2
Adjusted Income Before Income Tax ⁽²⁾	11.1	9.7	14.8
Adjusted Net Income ⁽²⁾	8.4	7.4	13.9
Adjusted diluted earnings per share ⁽²⁾	$ 0.14	$ 0.12	16.7

	Nine Months Ended September 30,
(unaudited) (in millions, except per share amounts)	2023	2022	% Change
Total Operating Revenue	$ 804.1	$ 667.3	20.5
Operating Income	110.4	40.6	171.9
Income Before Income Tax	86.5	14.5	496.3
Net Income	66.5	10.4	540.3
Diluted earnings per share	$ 1.12	$ 0.17	558.8

	Nine Months Ended September 30,
(unaudited) (in millions, except per share amounts)	2023	2022	% Change
Adjusted Operating Income ⁽²⁾	$ 118.5	$ 42.6	178.4
Adjusted Income Before Income Tax ⁽²⁾	94.9	22.7	317.7
Adjusted Net Income ⁽²⁾	72.9	17.9	308.1
Adjusted diluted earnings per share ⁽²⁾	$ 1.23	$ 0.29	322.5

For the quarter ended September 30, 2023, Sun Country reported net income of $8 million and income before income tax of $10 million, on $249 million of revenue. Adjusted income before income tax⁽²⁾ for the quarter was $11 million. GAAP operating income during the quarter was $19 million, while adjusted operating income⁽²⁾ was $20 million, operating margin was 7.6% and adjusted operating margin⁽²⁾ was 8.1%_.

“For the fourth consecutive quarter, we have seen year-over-year revenue growth across our scheduled service, charter and cargo businesses,” said Dave Davis, President and Chief Financial Officer. “Year-to-date, we have continued to see unit revenue strength with scheduled service TRASM⁽³⁾ up 13.6% versus the same time period last year, and we do not see demand abating through the rest of 2023. Sun Country continues to generate strong margins and our outlook for 2024 capital expenditures falls sharply from 2023 levels driving an expected, significant increase in free cash flow next year⁽⁴⁾. As such, our board of directors has authorized another $25 million to repurchase Sun Country shares. This is on top of the $80 million that has already been used to repurchase shares. Since November 2022, we have repurchased 4.7 million shares of Sun Country common stock.”

Notable Highlights

Announced the extension of our schedule through September 10, 2024 including eight new domestic seasonal nonstop routes from Minneapolis and new flying to Montreal and Toronto Canada (pending final approval from the Canadian airports).
The Company repurchased 2.1 million shares at an average price of $15.30 during the third quarter. The board of directors approved an additional $25 million of buyback authority which brings the current repurchase authorization to $25 million.

Capacity

System block hours flown during the third quarter of 2023 grew by 14.4% year-over-year. Cargo block hours grew in the third quarter by 6.3% year-over-year as Amazon flying was constrained last year due to scheduled maintenance events. Scheduled service block hours and charter block hours increased by 17.6% and 14.1%, respectively year-over-year on a 14.1% increase in average passenger aircraft.

Charter block hours under long-term contracts comprised 82.2% of the total charter flying performed in the third quarter of 2023. As the Company continues to normalize its aircraft utilization, it intends to pursue more ad-hoc charter flying.

Revenue

For the third quarter of 2023, the Company reported total revenue of $249 million, which was 12.3% more than the third quarter of 2022. The Company’s scheduled service TRASM⁽³⁾ of 11.72 cents in the third quarter of 2023 decreased 5.0% year-over-year, while scheduled service ASMs increased 15.1%. The third quarter 2023 total fare per scheduled passenger of $153 was lower than thirdquarter 2022 by 8.7% as scheduled service revenue passengers grew 19.9%. As a component of total fare, ancillary revenue per passenger continues to show strength at $65, a growth rate of 16.9% versus the same time period last year. In the third quarter of 2023, the Company’s charter service revenue was $47 million, an increase of 10.6% year-over-year. On a rate basis, third quarter 2023 charter revenue per block hour was 3.1% lower than the rate in the third quarter of 2022 as lower fuel prices reduced the fuel reimbursement amount that we received from our charter customers.

In the third quarter of 2023, cargo revenue was $26 million, a 10.0% increase versus the third quarter of 2022. The variance was primarily driven by a 6.3% increase in block hours and the annual rate escalation which went into effect in mid-December 2022.

Cost

For the third quarter of 2023, total GAAP operating expenses increased 11.4% year-over-year, primarily due to a 23.7% increase in salaries, wages, and benefits and a 39.1% increase in maintenance expense. Fuel expense decreased by 5.7% compared to third quarter 2022. This combination drove adjusted CASM⁽⁵⁾ in the third quarter to increase 2.6% versus the third quarter 2022.

Balance Sheet and Liquidity

Total liquidity⁽⁶⁾ was $198 million on September 30, 2023, while the Company’s net debt⁽⁷⁾ was $544 million.

(in millions – amounts may not recalculate due to rounding)	September 30, 2023	December 31, 2022
	(Unaudited)
Cash and Cash Equivalents	$ 27.0	$ 92.1
Available-for-Sale Securities	146.5	172.6
Amount Available Under Revolving Credit Facility	24.7	24.7
Total Liquidity	$ 198.1	$ 289.4

(in millions – amounts may not recalculate due to rounding)	September 30, 2023	December 31, 2022
	(Unaudited)
Total Debt, net	$ 435.1	$ 352.2
Finance Lease Obligations	263.3	251.3
Operating Lease Obligations	19.4	26.1
Total Debt, net, and Lease Obligations	717.8	629.6
Cash and Cash Equivalents	27.0	92.1
Available-for-Sale Securities	146.5	172.6
Net Debt	$ 544.3	$ 364.9

Fleet

As of September 30, 2023, the Company had 42 aircraft in its passenger service fleet, operated 12 freighter aircraft in its cargo operation, and had five aircraft held for operating lease.

Guidance for Fourth Quarter 2023

	Q4 2023	H/(L) vs Q4 2022
Total revenue – millions	$242 to $252	7% to 11%
Economic fuel cost per gallon	$3.20	(11%)
Operating income margin – percentage	3% to 5%	(4pp) to (2pp)
Effective tax rate	23%
Total system block hours – thousands	36 to 37	11% to 15%