Sun ntry Airlines (SNCY)

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Sun ntry Airlines (SNCY) - 2022 Q4 - Annual Report
2023-02-15 21:02
[Table of Contents](index=2&type=section&id=Table%20of%20Contents) [Glossary of Terms](index=3&type=section&id=GLOSSARY%20OF%20TERMS) This section provides definitions for key terms used throughout the annual report, such as 'Adjusted CASM,' 'Available seat miles (ASMs),' 'Ancillary revenue,' 'Block hours,' 'CASM,' 'CMI service,' 'Load factor,' 'Revenue passenger miles (RPMs),' 'TRASM,' and various regulatory and organizational acronyms. These definitions are crucial for understanding the company's operational and financial metrics - Key operational and financial terms are defined to ensure clarity throughout the report[13](index=13&type=chunk)[14](index=14&type=chunk) - Definitions include metrics like CASM (Cost per Available Seat Mile), ASMs (Available Seat Miles), RPMs (Revenue Passenger Miles), and TRASM (Total Revenue per Available Seat Mile)[23](index=23&type=chunk)[27](index=27&type=chunk)[46](index=46&type=chunk)[49](index=49&type=chunk) - Important business model terms such as 'Ancillary revenue' (baggage fees, seat selection, etc.) and 'CMI service' (crew, maintenance, and insurance for cargo operations, primarily for Amazon) are explained[19](index=19&type=chunk)[30](index=30&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=6&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section advises readers that the annual report contains forward-looking statements, which involve known and unknown risks and uncertainties that could cause actual results to differ materially from expectations. It emphasizes that these statements are based on assumptions and are subject to risks detailed in the 'Risk Factors' section, and the company undertakes no obligation to update them - The report contains forward-looking statements identified by terms like 'anticipate,' 'believe,' 'expect,' 'intend,' 'may,' 'plan,' 'project,' 'will,' and 'would'[53](index=53&type=chunk) - These statements are subject to known and unknown risks, uncertainties, and important factors that may cause actual results to differ materially from those expressed or implied[54](index=54&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, and the company does not commit to updating them publicly unless required by law[54](index=54&type=chunk) [Summary of Principal Risk Factors](index=7&type=section&id=SUMMARY%20OF%20PRINCIPAL%20RISK%20FACTORS) This section provides a high-level overview of the main risks and uncertainties that could impact the company's business, results of operations, financial condition, or stock price. Key risks include the ongoing effects of COVID-19, economic conditions (including inflation), fuel price volatility, competitive industry pressures, factors beyond company control (weather, air traffic), regulatory changes, labor shortages, and reliance on technology and third parties - The business is subject to risks from COVID-19 variants, travel restrictions, and decreased demand for air travel[58](index=58&type=chunk) - Economic conditions, including inflationary pressures and the volatile price/availability of aircraft fuel, pose significant risks[58](index=58&type=chunk) - Operational challenges include intense industry competition, factors beyond control (weather, air traffic congestion), security concerns, and labor shortages (especially pilots and technicians)[58](index=58&type=chunk) - Regulatory changes, particularly those related to ancillary services, GHG emissions, and international market presence, could adversely affect operations[58](index=58&type=chunk) [PART I](index=8&type=section&id=PART%20I) [Item 1. Business](index=8&type=section&id=Item%201.%20Business) Sun Country Airlines operates a hybrid low-cost model, integrating scheduled passenger service, charter, and cargo businesses to achieve high growth, margins, and cash flows. The company leverages shared resources, particularly flight crews, across these segments to optimize capacity and mitigate seasonality. As of December 31, 2022, it operated a fleet of 54 Boeing 737-NG aircraft, serving leisure and VFR passengers, charter clients (DoD, sports teams, casinos), and providing CMI services to Amazon. The business model emphasizes low costs, a high-quality product, and an agile scheduling strategy to adapt to demand fluctuations [Overview](index=8&type=section&id=Overview) - Sun Country Airlines operates a hybrid low-cost model across scheduled service, charter, and cargo businesses[60](index=60&type=chunk) - The model aims for high growth, margins, and cash flows by dynamically deploying shared resources like flight crews[60](index=60&type=chunk) - As of December 31, 2022, the fleet consisted of 54 Boeing 737-NG aircraft (42 passenger, 12 cargo for Amazon)[61](index=61&type=chunk) [Our Unique Business Model](index=8&type=section&id=Our%20Unique%20Business%20Model) - The scheduled service combines low costs (comparable to ULCCs) with a high-quality product (superior to ULCCs, consistent with LCCs) to achieve best-in-class unit profitability[62](index=62&type=chunk) - Ancillary revenue is a key component, generated from services like baggage fees, seat selection, and on-board sales, complementing low base fares[64](index=64&type=chunk) Scheduled Service Passenger and Ancillary Data | Metric | 2022 | 2021 | 2020 | | :----------------------------- | :--------- | :--------- | :--------- | | Scheduled Service Passengers | 3.6 million | 2.7 million | 1.7 million | | Average Base Fare per Passenger | $121.80 | $102.21 | $114.96 | | Average Ancillary Revenue per Passenger | $53.49 | $42.89 | $40.53 | - The charter business is one of the largest narrow-body operations in the U.S., providing diversification, downside protection, and synergy with other businesses. Customers include casino operators, the U.S. Department of Defense, and sports teams[71](index=71&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - The cargo business, primarily CMI service for Amazon under a six-year ATSA (with two two-year extensions), is asset-light for Sun Country as Amazon supplies aircraft and covers many operating expenses. It provides consistent cash flows and leverages existing operational expertise[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - The COVID-19 pandemic significantly impacted demand in 2020 and 2021, but demand increased in 2022, making results not fully comparable to prior periods[78](index=78&type=chunk)[79](index=79&type=chunk) [Our Competitive Strengths](index=11&type=section&id=Our%20Competitive%20Strengths) - Diversified and Resilient Business Model: Unique in the airline sector, combining leisure/VFR passengers, charter, and e-commerce cargo to mitigate economic downturns[80](index=80&type=chunk) - Agile Peak Demand Scheduling Strategy: Capacity is flexed by day, month, and business line to capture most profitable flying opportunities, including 'Power Patterns' combining scheduled and charter legs[81](index=81&type=chunk)[84](index=84&type=chunk) - Tactical Mid-Life Fleet with Flexible Operations: Acquires mid-life Boeing 737-800s for lower ownership costs, allowing lower utilization during low demand and no large future capital expenditures from aircraft orders[85](index=85&type=chunk) - Superior Low-Cost Product and Brand: Offers a cabin experience with generous legroom, complimentary beverages, in-flight entertainment, and in-seat power, along with an improved digital booking experience (71% direct bookings in 2022)[86](index=86&type=chunk)[87](index=87&type=chunk) CASM and Adjusted CASM Trends | Metric | 2022 | 2020 | | :---------------- | :----- | :----- | | CASM (cents) | 12.39 | 8.91 | | Adjusted CASM (cents) | 7.04 | 7.57 | - Strong Position in MSP Home Market: Largest ULCC at Minneapolis-St. Paul International Airport (MSP), with growing nonstop destinations and a preferred Terminal 2 presence[88](index=88&type=chunk) - Seasoned Management Team: Led by CEO Jude Bricker and President/CFO Dave Davis, with extensive aviation industry experience[89](index=89&type=chunk) [Competition](index=13&type=section&id=Competition) - The airline industry is highly competitive, with principal factors including ticket prices, flight schedules, amenities, customer service, and frequent flyer programs[90](index=90&type=chunk) - Scheduled service competitors include legacy network airlines (Delta, American, United, Hawaiian) and low-cost carriers (Alaska, Allegiant, Frontier, JetBlue, Southwest, Spirit)[91](index=91&type=chunk) - Charter business competitors include charter-only operators (Swift/iAero Airways) and other scheduled passenger carriers (Delta Air Lines)[91](index=91&type=chunk) - Cargo business competitors include ATSG, Southern Air, and Hawaiian Airlines, with Sun Country maintaining a stable position with Amazon due to operational performance[92](index=92&type=chunk) - Sun Country's competitive advantages include its diversified business model, agile scheduling, mid-life fleet, low-cost product, strong MSP market position, and seasoned management[93](index=93&type=chunk) [Seasonality](index=14&type=section&id=Seasonality) - The airline industry experiences significant seasonal demand fluctuations, which Sun Country's network strategy is designed to leverage by concentrating flying in strong demand seasons[97](index=97&type=chunk) - Passenger business is highly seasonal, with strongest travel in winter months (north to south from MSP) and a focus on VFR traffic and leisure travelers from non-MSP markets in summer[98](index=98&type=chunk) - Cargo operations help mitigate seasonal troughs in the passenger business by maintaining consistent and growing service until Christmas[97](index=97&type=chunk) [Distribution](index=14&type=section&id=Distribution) - Scheduled service flights are sold through direct channels (website, call center) and indirect channels (travel agents, OTAs, GDSs)[99](index=99&type=chunk) - Direct channels are preferred for lower costs and more opportunities to sell ancillary products[100](index=100&type=chunk) Direct vs. Indirect Distribution Channel Sales | Channel Type | 2022 | 2021 | 2020 | | :------------- | :--- | :--- | :--- | | Direct Channels | 73% | 75% | 71% | | Indirect Channels | 27% | 25% | 29% | - Charter services are sold via an internal sales team focused on long-term relationships, while cargo business is dedicated to Amazon under the ATSA[102](index=102&type=chunk) [Marketing](index=14&type=section&id=Marketing) - Marketing focuses on direct-to-consumer strategies for leisure and VFR travelers, emphasizing affordable and convenient flight options with low base fares[103](index=103&type=chunk) - Marketing tools include an email distribution list of over one million addresses, the Sun Country Rewards program, and advertisements across various media[104](index=104&type=chunk) - A business development team handles charter customer relationships; cargo business is not currently marketed[105](index=105&type=chunk) [Loyalty Program](index=15&type=section&id=Loyalty%20Program) - The Sun Country Rewards program encourages scheduled service customer loyalty, allowing points to be applied towards air travel purchases[106](index=106&type=chunk) - The co-branded credit card is the primary vehicle for earning points, which do not expire for cardholders[106](index=106&type=chunk) - The program offers award travel on every flight without blackout dates, making it valuable for less frequent leisure travelers[106](index=106&type=chunk) [Customers](index=15&type=section&id=Customers) - Primary customers are price-sensitive leisure and VFR travelers who respond to low base fares and appreciate choice in purchasing products/services[107](index=107&type=chunk)[108](index=108&type=chunk) - Charter operations serve repeat customers like casinos, college, and professional sports teams, offering tailored schedules and reliable service[109](index=109&type=chunk) - The cargo business is dedicated to Amazon, with potential for future growth with Amazon and new customers[110](index=110&type=chunk) [Operational Performance](index=15&type=section&id=Operational%20Performance) - The company prioritizes excellent operational performance, especially in extreme weather, to support its peak demand model and strengthen customer loyalty[111](index=111&type=chunk) - Completion factor is the primary operational metric due to less-than-daily market operations[111](index=111&type=chunk) Completion Factor (Percentage) | Year | Completion Factor | | :--- | :---------------- | | 2022 | 98.8% | | 2021 | 99.4% | | 2020 | 96.8% | - Sun Country's completion factor compares favorably to key competitor airlines[111](index=111&type=chunk) [Aircraft Fuel](index=16&type=section&id=Aircraft%20Fuel) - Aircraft fuel is a major expense, representing a significant portion of total operating costs[114](index=114&type=chunk) Aircraft Fuel Costs and Consumption | Metric | 2022 | 2021 | 2020 | | :------------------------------------------ | :------- | :------- | :------- | | Fuel Gallons Consumed (in thousands) | 71,690 | 60,739 | 43,844 | | Fuel Cost per Gallon (excluding derivatives) | $3.75 | $2.19 | $1.58 | | % of Total Operating Costs | 32% | 25% | 22% | - Fuel prices are volatile due to global economic and geopolitical factors[114](index=114&type=chunk) - The company may use fuel derivative contracts to mitigate price volatility but had no hedges in place as of December 31, 2022, and no plans to hedge going forward, as charter and cargo operations have pass-through fuel provisions[115](index=115&type=chunk) [Technical Operations: Maintenance, Repairs and Overhaul](index=16&type=section&id=Technical%20Operations%3A%20Maintenance%2C%20Repairs%20and%20Overhaul) - The company has an FAA-approved maintenance program, with technicians holding two licenses (Airframe and Powerplant)[116](index=116&type=chunk) - Maintenance is categorized into line maintenance (performed by employees and contractors), heavy maintenance (outsourced for engines, landing gear, airframes), and component maintenance (outsourced)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Heavy maintenance for cargo aircraft is a pass-through expense to Amazon[118](index=118&type=chunk) [Human Capital](index=17&type=section&id=Human%20Capital) - As of December 31, 2022, the company had 2,510 employees, with approximately **53%** represented by labor unions[120](index=120&type=chunk)[122](index=122&type=chunk) Union Representation and Agreement Status (as of Dec 31, 2022) | Employee Group | Number of Employees | Union | Status of Agreement/Amendable Date | | :--------------- | :------------------ | :---- | :--------------------------------- | | Pilots | 571 | ALPA | Amendable in December 2025 | | Flight Attendants | 547 | IBT | Currently amendable (commenced Dec 2019) | | Dispatchers | 32 | TWU | Amendable in November 2024 | | Technicians and related craft employees | 177 | AMFA | New contract in negotiations | - Fleet service employees (cargo, commissary/catering, ramp agents, bag room agents) elected IBT representation on January 4, 2023, with negotiations not yet begun[125](index=125&type=chunk) - Labor relations are governed by the Railway Labor Act (RLA), which outlines a multi-stage bargaining process for amendable agreements[126](index=126&type=chunk) [Safety and Security](index=18&type=section&id=Safety%20and%20Security) - Safety and security are the company's top priorities, guided by procedures and policies, with annual safety culture surveys to identify improvements[127](index=127&type=chunk)[128](index=128&type=chunk) - Program investments include Flight Operations Quality Assurance (FOQA), CEFA animation software for pilot training, new training devices, Line Operations Safety Audit (LOSA), and ProSafeT for anonymous reporting[129](index=129&type=chunk)[135](index=135&type=chunk) - Information from safety programs is used to monitor the health of the Safety Management System (SMS) and Security Management System (SeMS)[131](index=131&type=chunk) [Insurance](index=19&type=section&id=Insurance) - The company maintains customary airline industry insurance policies, including liability coverage for public/passenger injury, property damage, flight equipment loss, and war risk (terrorism)[132](index=132&type=chunk) [Foreign Ownership](index=19&type=section&id=Foreign%20Ownership) - Federal law and DOT policy require the company to be owned and controlled by U.S. citizens, with restrictions on non-U.S. citizen voting stock (no more than **25%**) and total stock ownership (no more than **49%** from 'open skies' countries)[133](index=133&type=chunk) - The company is currently in compliance with these ownership provisions[133](index=133&type=chunk) [Government Regulation](index=19&type=section&id=Government%20Regulation) - The airline industry is heavily regulated by federal authorities, primarily the DOT (economic operating authority, consumer protection) and the FAA (safety of flight operations)[134](index=134&type=chunk)[135](index=135&type=chunk)[137](index=137&type=chunk) - International flights are subject to air transport agreements and foreign government regulations, with Mexico flights governed by a liberalized bilateral agreement[136](index=136&type=chunk) - Airport access is regulated by the FAA, which allocates take-off and landing slots. The company operates at Level 2 airports (SFO, LAX, ORD, EWR) and will operate at Level 3 JFK in April 2023[138](index=138&type=chunk) - Consumer protection regulations by the DOT cover advertising, denied boarding, refunds, baggage liability, and disability transportation[140](index=140&type=chunk) - Security is regulated by the TSA and CBP, including passenger/baggage screening and international prescreening[141](index=141&type=chunk) - Environmental regulations include laws on air emissions (GHG), noise emissions, water discharges, and hazardous materials. ICAO and EPA are developing new CO2 and GHG emissions standards[143](index=143&type=chunk)[145](index=145&type=chunk) - CORSIA, a global market-based emissions offset program, will increase operating costs for international flights, implemented in phases from 2019 to 2027[146](index=146&type=chunk) - Noise regulations, including local abatement procedures and potential ICAO restrictions, could impact operations[147](index=147&type=chunk) [Available Information](index=22&type=section&id=Available%20Information) - The company makes its annual, quarterly, and current reports (10-K, 10-Q, 8-K) available free of charge on its website (www.suncountry.com) and through the SEC's website (www.sec.gov)[149](index=149&type=chunk) [ITEM 1A: RISK FACTORS](index=22&type=section&id=ITEM%201A%3A%20RISK%20FACTORS) This section details significant risks that could materially and adversely affect Sun Country Airlines' business, financial condition, and results of operations. These risks span industry-specific challenges like the lingering impact of COVID-19, economic sensitivity, fuel price volatility, intense competition, and regulatory burdens. Business-specific risks include the concentration of cargo business with Amazon, reliance on a low-cost structure, dependence on the Minneapolis-St. Paul hub, potential for accidents, cybersecurity threats, reliance on third-party providers, and labor relations. Financial risks involve liquidity, access to capital, maintenance costs, and fixed obligations. Ownership-related risks include stock price volatility, 'emerging growth company' status, foreign ownership limitations, and the influence of the Apollo Stockholder [Risks Related to Our Industry](index=22&type=section&id=Risks%20Related%20to%20Our%20Industry) - The COVID-19 pandemic and its variants have significantly impacted demand for air travel, leading to material declines in results and ongoing uncertainty[151](index=151&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Demand for airline services is highly sensitive to economic conditions; a recession or downturn would weaken demand for both passenger and cargo services[160](index=160&type=chunk) - Inflationary pressures can increase operating expenses and negatively impact customer demand for air travel[162](index=162&type=chunk) - Aircraft fuel price volatility is a major risk, as fuel is one of the largest operating expenses (**32%** in 2022). The company may not be able to fully pass on increased fuel costs[163](index=163&type=chunk)[165](index=165&type=chunk) - Terrorist attacks or security concerns could cause substantial revenue losses and increased security costs, negatively impacting demand[169](index=169&type=chunk) - The airline industry is exceedingly competitive, facing new entrants, ULCCs, LCCs, and legacy network airlines, leading to potential price discounting and fare wars[170](index=170&type=chunk)[171](index=171&type=chunk)[179](index=179&type=chunk) - Factors beyond control, such as air traffic congestion, adverse weather, government shutdowns, and disease outbreaks, can cause flight delays, cancellations, and increased costs[180](index=180&type=chunk)[182](index=182&type=chunk) - A shortage of qualified pilots, mechanics, and other personnel due to retirements, increased competition, and stricter regulations could adversely affect operations and increase costs[183](index=183&type=chunk) - Operating in international markets exposes the company to political/economic instability and the need to comply with diverse legal requirements[184](index=184&type=chunk)[186](index=186&type=chunk) - Increases in insurance costs or reductions in coverage, especially for war risk, could materially affect financial condition[187](index=187&type=chunk)[188](index=188&type=chunk) - The airline industry is heavily taxed, with various government fees and taxes potentially reducing demand and profitability[189](index=189&type=chunk)[190](index=190&type=chunk) - Restrictions or increased taxes on ancillary products and services, a core part of the business strategy, could harm revenue and financial condition[191](index=191&type=chunk) - Climate change concerns are leading to increased regulation and taxation of aircraft emissions (e.g., ICAO CO2 standards, CORSIA), potentially increasing operating costs[192](index=192&type=chunk)[194](index=194&type=chunk)[196](index=196&type=chunk) - Competition from air travel substitutes, such as bus, train, or video teleconferencing, could limit demand, especially for leisure travelers[197](index=197&type=chunk) - Compliance with extensive regulations from the FAA, DOT, TSA, and other agencies can increase costs and affect operations, including potential grounding of aircraft or new consumer protection rules[198](index=198&type=chunk)[201](index=201&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk) [Risks Related to Our Business](index=33&type=section&id=Risks%20Related%20to%20Our%20Business) - Failure to successfully implement the business strategy, including fleet growth, market expansion, ancillary offerings, and charter service growth, could materially affect the business[215](index=215&type=chunk) - Challenges in growth include maintaining low unit costs, optimal aircraft utilization, sufficient staffing, airport access, and operational performance[216](index=216&type=chunk) - The cargo business is highly concentrated with Amazon, making it vulnerable to decreases in flying volumes, cost increases, or termination of the ATSA[220](index=220&type=chunk)[224](index=224&type=chunk) - Inability to control costs, such as fuel, insurance, aircraft acquisition, and labor, could erode the primary competitive advantage of a low-cost structure[225](index=225&type=chunk) - Business is significantly tied to the Minneapolis-St. Paul (MSP) hub, making it vulnerable to local economic/geophysical factors, increased competition, or disruptions[226](index=226&type=chunk)[227](index=227&type=chunk) - An accident or public incident involving aircraft or personnel could lead to significant losses, adverse publicity, and reputational harm[229](index=229&type=chunk)[230](index=230&type=chunk) - Cybersecurity breaches or unauthorized use of IT infrastructure could compromise sensitive information, leading to liability, reputational damage, and increased costs[231](index=231&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) - Reliance on third-party providers for critical functions (ground handling, maintenance, reservations) exposes the company to risks if these providers fail to perform or cease to serve[236](index=236&type=chunk)[237](index=237&type=chunk) - Dependence on third-party distribution channels (GDS, OTAs) for ticket sales can lead to higher costs and less flexibility compared to direct channels[238](index=238&type=chunk) - Heavy reliance on technology and automated systems means disruptions or failures (e.g., reservation system, operational control) could materially affect business[239](index=239&type=chunk)[240](index=240&type=chunk) - Inability to grow or maintain unit revenues or ancillary revenues could harm financial performance, as these are key to the business strategy[243](index=243&type=chunk)[244](index=244&type=chunk) - Operating a single aircraft type (Boeing 737-NG) makes the company vulnerable to design defects, mechanical problems, or negative public perception related to that specific aircraft[245](index=245&type=chunk) - Increased labor costs, union disputes, strikes, or inability to attract/retain qualified personnel could adversely affect the business, especially with a significant unionized workforce[246](index=246&type=chunk)[249](index=249&type=chunk)[252](index=252&type=chunk) - Efficient daily aircraft utilization, while a strategy, makes the company vulnerable to flight delays or cancellations during peak demand periods due to limited recovery options[250](index=250&type=chunk) - Fluctuating maintenance costs, including substantial periodic costs for scheduled overhauls and unpredictable unscheduled repairs, can negatively affect operating results[262](index=262&type=chunk)[263](index=263&type=chunk) - Inability to expand or operate reliably/efficiently out of airports due to actions by authorities (e.g., increased fees, slot limitations) could harm the business[254](index=254&type=chunk)[255](index=255&type=chunk) - Inability to protect intellectual property rights, particularly branding, could diminish competitiveness[256](index=256&type=chunk) - Negative publicity, especially through social media, regarding customer service or operational issues, could harm reputation and brand[257](index=257&type=chunk)[258](index=258&type=chunk) - High dependence on cash, investments, operating cash flows, and the Revolving Credit Facility means insufficient funds could lead to default on obligations[259](index=259&type=chunk) - Imposition of holdback restrictions by credit card processors could significantly impact liquidity[260](index=260&type=chunk) - Limited ability to obtain financing or access capital markets could hinder aircraft acquisition and growth plans[261](index=261&type=chunk) - Significant aircraft and other fixed obligations could impair liquidity and financial condition[265](index=265&type=chunk)[266](index=266&type=chunk) - Dependence on Delta Air Lines as a sole-source supplier for most aircraft parts creates vulnerability to supply disruptions or performance issues[267](index=267&type=chunk) - Reduction in demand or operating capacity limitations in key markets (U.S., Canada, Mexico, Caribbean) or for charter/cargo operations could harm the business[268](index=268&type=chunk) - Loss of key personnel, particularly senior management, could materially adversely affect the business[269](index=269&type=chunk) - Quarterly results fluctuate due to seasonality, competitive responses, fuel prices, and maintenance expenses, making comparisons unreliable[270](index=270&type=chunk) - Failure to realize estimated cost savings from operational improvements and initiatives could negatively impact results[271](index=271&type=chunk) - Involvement in litigation, including consumer complaints, can be costly, time-consuming, and divert management attention[272](index=272&type=chunk)[273](index=273&type=chunk) [Risks Related to Our Indebtedness](index=46&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) - The Credit Agreement and future indebtedness may contain restrictive covenants limiting flexibility in business activities, financing, and capital needs[274](index=274&type=chunk) - Failure to comply with covenants could lead to acceleration of indebtedness[274](index=274&type=chunk) - Participation in governmental programs like the CARES Act imposes restrictions (e.g., on executive compensation until April 1, 2023) that could affect operations and ability to retain management[275](index=275&type=chunk)[276](index=276&type=chunk)[278](index=278&type=chunk) [Risks Related to Ownership of Our Common Stock](index=47&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) - The market price of common stock may fluctuate significantly due to operating performance, market conditions, competitor actions, and general economic factors[280](index=280&type=chunk) - As an 'emerging growth company,' the company benefits from reduced disclosure requirements, which might make its common stock less attractive to some investors[281](index=281&type=chunk) - Operating as a public company incurs significant legal, accounting, and compliance costs, especially after losing 'emerging growth company' status[282](index=282&type=chunk)[286](index=286&type=chunk) - The certificate of incorporation and bylaws limit ownership and voting by non-U.S. citizens to comply with federal law, potentially impacting stock price[288](index=288&type=chunk)[289](index=289&type=chunk) - The Apollo Stockholder (beneficially owning **~43%** of voting power) has significant influence, and its interests may conflict with other stockholders[290](index=290&type=chunk)[291](index=291&type=chunk) - As a holding company, reliance on dividends and distributions from subsidiaries to meet obligations, which can be restricted by debt agreements, poses a risk[292](index=292&type=chunk) - Warrants granted to Amazon (exercise price **~$15.17/share**, **25%** vested as of Dec 31, 2022) could dilute existing stockholders' ownership and affect stock price upon exercise[293](index=293&type=chunk) - Future sales of common stock by existing stockholders (e.g., Apollo, Amazon) or the perception of such sales could reduce the stock price[294](index=294&type=chunk)[295](index=295&type=chunk) - The company does not anticipate paying dividends in the foreseeable future, meaning capital appreciation is the only source of gain for stockholders[296](index=296&type=chunk) - Obligation to pay pre-IPO stockholders for certain tax benefits under a Tax Receivable Agreement (TRA) could be material (estimated **$103.8 million** as of Dec 31, 2022) and impact liquidity[297](index=297&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) - A material weakness in internal control over financial reporting (specifically in accounting for complex, non-routine transactions like aircraft purchases under ASC Topic 842) was identified, which could affect the accuracy and timeliness of financial reporting[303](index=303&type=chunk)[304](index=304&type=chunk)[306](index=306&type=chunk) [Item 1B. Unresolved Staff Comments](index=52&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - No unresolved staff comments were reported[307](index=307&type=chunk) [Item 2. Properties](index=53&type=section&id=Item%202.%20Properties) Sun Country Airlines operates a fleet of 54 Boeing 737-NG aircraft, comprising 42 passenger aircraft (mostly owned or finance leased) and 12 cargo freighters subleased from Amazon. The company's facilities strategy emphasizes flexible common use agreements at most airports, with a primary hub at MSP Terminal 2, where it has priority access to gates and leases two hangars for maintenance and corporate headquarters [Aircraft Fleet](index=53&type=section&id=Aircraft%20Fleet) - As of December 31, 2022, the fleet consisted of 54 Boeing 737-NG aircraft (53 Boeing 737-800s and one Boeing 737-700)[308](index=308&type=chunk) - The passenger fleet comprises 42 aircraft, with an average age of approximately **15 years**; 13 are leased (operating or finance leases), 26 are financed owned, and 3 are unencumbered owned[309](index=309&type=chunk) - The company has a commitment to lease three additional aircraft for delivery in late 2023 and early 2024[310](index=310&type=chunk) - The cargo fleet consists of 12 Boeing 737-800 freighters, with an average age of **20 years**, subleased from Amazon and not recognized as lease assets under ASC 842[311](index=311&type=chunk) [Facilities](index=53&type=section&id=Facilities) - Most airport facilities are used under flexible common use agreements or on a per-use basis, supporting the strategy of entering and exiting markets[312](index=312&type=chunk) - The primary hub is MSP Terminal 2, where the company operates out of eight of 14 gates, with five assigned on a priority basis[313](index=313&type=chunk) - Leased facilities at MSP include a **108,000 sq ft** maintenance hangar and a **90,000 sq ft** office/hangar facility converted into corporate headquarters[314](index=314&type=chunk)[315](index=315&type=chunk) [Item 3. Legal Proceedings](index=54&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in commercial litigation and administrative/regulatory proceedings as part of its normal business operations. Management believes the ultimate outcome of these matters will not have a material adverse effect on its financial position, liquidity, or results of operations - The company is subject to commercial litigation and administrative/regulatory proceedings in the normal course of business[316](index=316&type=chunk) - Management believes these proceedings will not materially adversely affect financial position, liquidity, or results of operations[316](index=316&type=chunk) [Item 4. Mine Safety Disclosures](index=54&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Sun Country Airlines Holdings, Inc - This item is not applicable[317](index=317&type=chunk) [PART II](index=54&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=54&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Sun Country Airlines' common stock began trading on Nasdaq under 'SNCY' on March 17, 2021. As of December 31, 2022, there were 57,325,238 shares outstanding. The company has not paid cash dividends and does not anticipate doing so in the foreseeable future, prioritizing reinvestment and debt repayment. The Board authorized a $50 million stock repurchase program in October 2022, under which $25 million was executed via an accelerated share repurchase, resulting in 1,371,518 shares repurchased by January 2023 [Market Information](index=54&type=section&id=Market%20Information) - Common stock began trading on the Nasdaq Global Select Market under the symbol 'SNCY' on March 17, 2021[318](index=318&type=chunk) - As of December 31, 2022, there were **57,325,238** shares of common stock outstanding, held by approximately **60** stockholders[318](index=318&type=chunk) [Dividend Policy](index=54&type=section&id=Dividend%20Policy) - The company has not paid cash dividends and does not intend to in the foreseeable future, prioritizing earnings for business operations, debt repayment, and general corporate purposes[319](index=319&type=chunk) - Any future dividend payments will be at the discretion of the board and subject to factors like earnings, cash flows, capital requirements, and debt agreement restrictions[319](index=319&type=chunk)[320](index=320&type=chunk) [Securities Authorized for Issuance under Equity Compensation Plans](index=54&type=section&id=Securities%20Authorized%20for%20Issuance%20under%20Equity%20Compensation%20Plans) - The Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan authorizes **3,600,000** shares, with **3,276,169** remaining available as of December 31, 2022[321](index=321&type=chunk) Equity Compensation Plan Summary (as of Dec 31, 2022) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | | :------------------------------------------------ | :-------------------------------------------------------------------------- | :-------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------ | | Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan | 76,605 | $32.87 | 3,276,169 | | Sun Country Airlines 2018 Equity Incentive Plan | 4,458,450 | $6.08 | — | | Total | 4,535,055 | $6.53 | 3,276,169 | [Purchases of Equity Security by the Issuer and Affiliated Purchasers](index=55&type=section&id=Purchases%20of%20Equity%20Security%20by%20the%20Issuer%20and%20Affiliated%20Purchasers) - On October 31, 2022, the Board authorized a stock repurchase program for up to **$50,000** of common stock[323](index=323&type=chunk) - During Q4 2022, the company entered a **$25,000** accelerated share repurchase program, initially receiving **890,586** shares at **$19.65/share**[325](index=325&type=chunk) - By January 2023, a total of **1,371,518** shares were repurchased at an average price of **$18.23/share**[325](index=325&type=chunk) - As of December 31, 2022, **$25,000** of Board authorization remained for repurchases[324](index=324&type=chunk)[325](index=325&type=chunk) [Stock Performance Graph](index=56&type=section&id=Stock%20Performance%20Graph) Cumulative Total Return (March 17, 2021 = $100) | Index | 3/17/2021 | 3/31/2021 | 6/30/2021 | 9/30/2021 | 12/31/2021 | 3/31/2022 | 6/30/2022 | 9/30/2022 | 12/31/2022 | | :---------------------- | :-------- | :-------- | :-------- | :-------- | :--------- | :-------- | :-------- | :-------- | :--------- | | SNCY | $100.00 | $94.23 | $101.73 | $92.19 | $74.90 | $71.96 | $50.41 | $37.41 | $43.60 | | NYSE Arca Airline Index | $100.00 | $93.13 | $86.51 | $82.96 | $71.28 | $70.34 | $48.69 | $43.43 | $46.12 | | NASDAQ Composite Index | $100.00 | $97.94 | $107.24 | $106.83 | $115.67 | $105.14 | $81.54 | $78.19 | $77.39 | - The stock performance graph compares SNCY's cumulative total return against the NASDAQ Composite Index and the NYSE ARCA Airline Index from March 17, 2021, through December 31, 2022[327](index=327&type=chunk) [Item 6. [Reserved]](index=56&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - This item is reserved[329](index=329&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=56&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed analysis of Sun Country Airlines' financial condition and results of operations for the years ended December 31, 2022 and 2021, with comparisons to 2020 incorporated by reference. It highlights the company's hybrid low-cost model, recovery from the COVID-19 pandemic, and operational challenges such as fuel price increases and staffing issues. The discussion covers operating revenues (scheduled, charter, ancillary, cargo, other), operating expenses (fuel, salaries, maintenance, etc.), non-operating items, and income taxes. It also includes key operating statistics, segment information, non-GAAP financial measures (Adjusted Operating Income, Adjusted Net Income, Adjusted EBITDA, Adjusted CASM), and an analysis of liquidity and capital resources, including debt, leases, and critical accounting policies [Business Overview](index=57&type=section&id=Business%20Overview) - Sun Country is a hybrid low-cost air carrier with synergistic scheduled service, charter, and cargo businesses, aiming for high growth, margins, and cash flows[331](index=331&type=chunk) - The scheduled service combines low costs with a high-quality product, generating higher TRASM than ULCCs and lower Adjusted CASM than LCCs[332](index=332&type=chunk) - The charter business provides diversification and downside protection with stable demand and pass-through fuel costs, serving casino operators, DoD, and sports teams[333](index=333&type=chunk) - The cargo business, primarily CMI service for Amazon, is asset-light and leverages existing operational expertise, contributing to profitability and growth[334](index=334&type=chunk) [Operations in Review](index=58&type=section&id=Operations%20in%20Review) - The company aims to be a high-growth, low-cost carrier by attracting customers with low fares and a high-quality passenger experience (state-of-the-art interiors, free in-flight entertainment, seat reclining, seat-back power)[335](index=335&type=chunk) - Demand recovered in 2022 from the COVID-19 pandemic, impacting comparability with prior periods, but future demand remains uncertain[336](index=336&type=chunk)[337](index=337&type=chunk) - Operational challenges in 2022 included training throughput issues, pilot staffing uncertainties, fuel price increases, and macroeconomic inflationary pressures[338](index=338&type=chunk) [Operating Revenues](index=58&type=section&id=Operating%20Revenues) - Operating revenues are categorized into Scheduled Service (base fares, expired credits), Charter Service (DoD, sports, casinos), Ancillary (baggage, seat fees, on-board sales), Cargo (Amazon ATSA), and Other (Sun Country Vacations, co-branded credit card, mail)[340](index=340&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk) [Operating Expenses](index=58&type=section&id=Operating%20Expenses) - Operating expenses include Aircraft Fuel (volatile, includes mark-to-market gains/losses), Salaries, Wages, and Benefits (salaries, bonuses, equity comp, benefits), Aircraft Rent (monthly lease charges, maintenance reserves, lease return costs), Maintenance (parts, materials, third-party fees), Sales and Marketing (credit card fees, commissions, advertising), Depreciation and Amortization (fixed assets, finance leases, deferred maintenance), Ground Handling, Landing Fees and Airport Rent, Special Items (non-recurring), and Other Operating (travel, IT, insurance, legal)[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk) [Non-operating Income (Expense)](index=59&type=section&id=Non-operating%20Income%20%28Expense%29) - Non-operating items include Interest Income (cash, investments), Interest Expense (debt, finance leases), and Other, net (e.g., changes in TRA Liability)[351](index=351&type=chunk) [Income Taxes](index=60&type=section&id=Income%20Taxes) - Income taxes are accounted for using the asset and liability method, recognizing deferred taxes based on differences between financial statement and tax bases of assets and liabilities[352](index=352&type=chunk) [Prior Periods' Financial Statement Revisions](index=60&type=section&id=Prior%20Periods%27%20Financial%20Statement%20Revisions) - Previously issued financial statements were revised to correct an immaterial misstatement related to the application of ASC Topic 842, Leases, specifically regarding the capitalization of acquisition costs for purchased leased aircraft[353](index=353&type=chunk) [Operating Statistics](index=61&type=section&id=Operating%20Statistics) Key Operating Statistics (Year Ended December 31) | Metric | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | | Departures (Total System) | 43,686 | 38,317 | | Block hours (Total System) | 127,361 | 114,106 | | ASMs (thousands) (Total System) | 6,771,340 | 5,826,827 | | Revenue passengers carried (Scheduled Service) | 3,598,584 | 2,733,364 | | Load factor (Scheduled Service) | 83.5% | 74.7% | | Average base fare per passenger | $121.80 | $102.21 | | Ancillary revenue per passenger | $53.49 | $42.89 | | Charter revenue per block hour | $9,086 | $8,508 | | Fuel gallons consumed (thousands) | 71,690 | 60,739 | | Fuel cost per gallon, excluding derivatives | $3.75 | $2.19 | | Employees at end of period | 2,510 | 2,181 | | CASM (cents) | 12.39 | 8.77 | | Adjusted CASM (cents) | 7.04 | 6.48 | [Results of Operations](index=63&type=section&id=Results%20of%20Operations) Consolidated Results of Operations (Year Ended December 31, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--------- | :--------- | :--------- | :--------- | | Total Operating Revenues | $894,444 | $623,015 | $271,429 | 44% | | Total Operating Expenses | $838,736 | $511,068 | $327,668 | 64% | | Operating Income | $55,708 | $111,947 | $(56,239) | (50)% | | Total Non-operating Income (Expense), net | $(31,726) | $(11,617) | $(20,109) | 173% | | Income before Income Tax | $23,982 | $100,330 | $(76,348) | (76)% | | Income Tax Expense | $6,306 | $19,082 | $(12,776) | (67)% | | Net Income | $17,676 | $81,248 | $(63,572) | (78)% | - Total Operating Revenues increased **44% to $894.4 million** in 2022, primarily due to continued recovery in passenger demand from the COVID-19 pandemic[360](index=360&type=chunk) - Scheduled service revenue increased **57% to $438.3 million**, driven by a **32% increase in passengers**, a **19% increase in average base fare**, and an **8.8 percentage point increase in load factor**[362](index=362&type=chunk) - Charter service revenue increased **27% to $161.6 million**, driven by increased rates and a **19% increase in block hours** due to recovery and new agreements[363](index=363&type=chunk) - Ancillary revenue increased **64% to $192.5 million**, with average ancillary revenue per passenger up **25% to $53.49**, also boosted by a new ancillary product reclassifying **$30.4 million** from scheduled service[364](index=364&type=chunk) - Cargo revenue slightly decreased by **1% to $90.4 million**, despite a **3% increase in departures**, due to shorter flights, heavy maintenance, and a one-time revenue benefit in 2021[365](index=365&type=chunk) - Aircraft Fuel expense increased **108% to $268.4 million**, driven by a **71% increase in fuel cost per gallon** and an **18% increase in gallons consumed**[368](index=368&type=chunk) - Salaries, Wages, and Benefits increased **38% to $245.9 million**, due to a new pilot collective bargaining agreement, increased per unit costs, and a **23% increase in average employee headcount**[369](index=369&type=chunk) - Aircraft Rent decreased **50% to $8.8 million**, as the fleet composition shifted from operating leases to owned aircraft or finance leases[370](index=370&type=chunk) - Maintenance expense increased **16% to $46.6 million**, driven by increased departures, block hours, and contract labor costs[371](index=371&type=chunk) - Sales and Marketing increased **41% to $31.1 million**, primarily due to higher credit card processing, GDS, and OTA fees from increased passenger revenue[372](index=372&type=chunk) - Depreciation and Amortization increased **19% to $67.6 million**, reflecting the shift to more owned aircraft and finance leases[373](index=373&type=chunk) - Special Items, net, showed no expense in 2022 compared to a **$72.4 million net benefit in 2021**, which was primarily from CARES Act payroll support[376](index=376&type=chunk) - Interest Income increased significantly to **$4.5 million** in 2022 due to a change in investment strategy and purchase of debt securities[378](index=378&type=chunk) - Interest Expense increased **18% to $31.0 million**, due to a larger mix of financed owned aircraft and finance leases[379](index=379&type=chunk) - Other, net, decreased by **$19.9 million** to a net expense of **$5.2 million**, mainly due to a **$5.0 million adjustment** to increase the TRA liability in 2022, compared to a **$16.4 million decrease in 2021**[380](index=380&type=chunk) [Segment Information](index=67&type=section&id=Segment%20Information) - The company has two operating and reportable segments: Passenger (Scheduled Service and Charter combined) and Cargo[382](index=382&type=chunk)[666](index=666&type=chunk) Segment Operating Income (Year Ended December 31, in thousands) | Segment | 2022 Operating Income (Loss) | 2021 Operating Income | | :-------- | :--------------------------- | :-------------------- | | Passenger | $55,847 | $71,163 | | Cargo | $(139) | $40,784 | | Total | $55,708 | $111,947 | - Passenger operating income decreased by **$15.3 million** in 2022, primarily due to allocated CARES Act payroll support in 2021, increased aircraft fuel expense, and higher salaries/wages/benefits[382](index=382&type=chunk) - Cargo segment incurred an operating loss of **$139 thousand** in 2022, a decrease of **$40.9 million** from 2021, mainly due to allocated CARES Act support in 2021, a prior-period revenue benefit, increased pilot salaries, and decreased block hours[383](index=383&type=chunk) [Non-GAAP Financial Measures](index=68&type=section&id=Non-GAAP%20Financial%20Measures) - Non-GAAP measures like Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted Net Income, and Adjusted EBITDA are used to provide a meaningful comparison of results within the airline industry[385](index=385&type=chunk)[386](index=386&type=chunk) Adjusted Operating Income Reconciliation (Year Ended December 31, in thousands) | Metric | 2022 | 2021 | | :-------------------------- | :--------- | :--------- | | Operating Income | $55,708 | $111,947 | | Special Items, net | — | $(72,419) | | Stock compensation expense | $2,774 | $5,562 | | TRA expenses | — | $320 | | Other Adjustments | — | $3,015 | | Adjusted Operating Income | $58,482 | $48,425 | | Operating Income Margin | 6.2% | 18.0% | | Adjusted Operating Income Margin | 6.5% | 7.8% | Adjusted Net Income Reconciliation (Year Ended December 31, in thousands) | Metric | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | | Net Income | $17,676 | $81,248 | | Special Items, net | — | $(72,419) | | Stock compensation expense | $2,774 | $5,562 | | (Gain) Loss on asset transactions, net | $(318) | $3 | | Early pay-off of US Treasury loan | — | $842 | | Loss on refinancing credit facility | $1,557 | $382 | | Secondary Offering Costs | — | $1,763 | | TRA expenses | — | $320 | | TRA adjustment | $5,000 | $(16,400) | | Other Adjustments | — | $3,015 | | Income tax effect of adjusting items, net | $(923) | $13,922 | | Adjusted Net Income | $25,766 | $18,238 | Adjusted EBITDA Reconciliation (Year Ended December 31, in thousands) | Metric | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | | Net Income | $17,676 | $81,248 | | Special Items, net | — | $(72,419) | | Stock Compensation expense | $2,774 | $5,562 | | (Gain) Loss on asset transactions, net | $(318) | $3 | | Secondary Offering Costs | — | $1,763 | | TRA expenses | — | $320 | | TRA adjustment | $5,000 | $(16,400) | | Interest Income | $(4,527) | $(85) | | Interest expense | $31,018 | $26,326 | | Provision for income taxes | $6,306 | $19,082 | | Depreciation and Amortization | $67,641 | $57,075 | | Other Adjustments | — | $3,015 | | Adjusted EBITDA | $125,570 | $105,490 | - Adjusted CASM excludes fuel costs, cargo operation costs, stock-based compensation, certain commissions, and special items to improve comparability and focus on controllable cost drivers[402](index=402&type=chunk)[403](index=403&type=chunk)[404](index=404&type=chunk) CASM to Adjusted CASM Reconciliation (Year Ended December 31, in cents per ASM) | Metric | 2022 (cents per ASM) | 2021 (cents per ASM) | | :------------------------------------ | :------------------- | :------------------- | | CASM | 12.39 | 8.77 | | Less: Aircraft Fuel | 3.96 | 2.22 | | Less: Stock Compensation expense | 0.04 | 0.10 | | Less: Special Items, net | — | (1.25) | | Less: TRA Expense | — | 0.01 | | Less: Cargo expenses, not already adjusted above | 1.33 | 1.15 | | Less: Sun Country Vacations | 0.02 | 0.01 | | Less: Other Adjustments | — | 0.05 | | Adjusted CASM | 7.04 | 6.48 | [Liquidity and Capital Resources](index=72&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary sources of liquidity as of December 31, 2022, included **$92.1 million** in cash and cash equivalents, **$178.9 million** in short-term investments, and **$24.7 million** available from the Revolving Credit Facility[411](index=411&type=chunk) - Primary uses of liquidity include operating expenses, capital expenditures (aircraft acquisition), lease rentals, maintenance reserve deposits, and debt repayments[412](index=412&type=chunk) - The company believes current liquidity and expected cash flows will be sufficient for the next twelve months, but external factors like fuel prices and economic conditions pose risks[413](index=413&type=chunk) - During 2022, seven incremental aircraft were acquired (five financed by 2022-1 EETC, two by finance leases), and two operating leases were reclassified to finance leases, and two operating leases were purchased[414](index=414&type=chunk)[415](index=415&type=chunk) - Lessor Maintenance Deposits totaled **$33.7 million** as of December 31, 2022, held as collateral for lessors[417](index=417&type=chunk) - Investments include **$172.6 million** in highly liquid debt securities and **$6.3 million** in Certificates of Deposit as of December 31, 2022[418](index=418&type=chunk)[419](index=419&type=chunk) - The company received **$71.6 million** in CARES Act grants in 2021; a **$45.0 million** CARES Act Loan was repaid in March 2021[419](index=419&type=chunk) - The Credit Agreement includes a **$25.0 million** Revolving Credit Facility (with **$24.7 million** available) and a **$90.0 million** Delayed Draw Term Loan Facility (DDTL), which was repaid and terminated in March 2022[422](index=422&type=chunk)[423](index=423&type=chunk) - Debt financing includes 2019-1 EETC (**$248.6 million** face amount) and 2022-1 EETC (**$188.3 million** face amount) for aircraft financing[424](index=424&type=chunk)[425](index=425&type=chunk) - The Tax Receivable Agreement (TRA) liability, estimated at **$103.8 million** as of December 31, 2022, requires payments to pre-IPO stockholders for **85%** of realized tax savings from Pre-IPO Tax Attributes, with payments expected to start in 2023[299](index=299&type=chunk)[427](index=427&type=chunk)[428](index=428&type=chunk) Financial Condition and Liquidity Indicators (in thousands) | Metric | December 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------------ | :------------------ | | Cash and Cash Equivalents | $92,086 | $309,338 | | Available-for-Sale Securities | $172,635 | — | | Amount Available Under Revolving Credit Facility | $24,650 | $25,000 | | Total Liquidity | $289,371 | $334,338 | | Total Debt, net | $352,235 | $277,426 | | Finance Lease Obligations | $251,296 | $192,155 | | Operating Lease Obligations | $26,132 | $76,041 | | Total Debt and Lease Obligations | $629,663 | $545,622 | | Stockholders' Equity | $492,712 | $490,589 | | Total Invested Capital | $1,122,375 | $1,036,211 | | Debt-to-Capital | 0.56 | 0.53 | Sources and Uses of Liquidity (Year Ended December 31, in thousands) | Activity | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :--------- | :--------- | :--------- | :--------- | | Total Operating Activities | $127,440 | $158,976 | $(31,536) | (20)% | | Total Investing Activities | $(349,330) | $(123,936) | $(225,394) | 182% | | Total Financing Activities | $7,033 | $212,382 | $(205,349) | (97)% | | Net (Decrease) Increase in Cash | $(214,857) | $247,422 | $(462,279) | (187)% | - Operating cash flow decreased by **20%** in 2022, impacted by lower net income (due to 2021 CARES Act grants), increased fuel expense, and higher air traffic liabilities[433](index=433&type=chunk)[434](index=434&type=chunk)[435](index=435&type=chunk)[436](index=436&type=chunk) - Capital expenditures increased **52% to $187.9 million** in 2022, primarily for aircraft purchases, spare engines, and a flight simulator[438](index=438&type=chunk) - Financing activities in 2022 included **$188.3 million** from the 2022-1 EETC issuance and **$25.1 million** in common stock repurchases[440](index=440&type=chunk)[444](index=444&type=chunk) - Off-balance sheet arrangements include indemnities in leases, pass-through trusts for EETC financings, and participation in fuel consortia[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk) - Commitments include debt, aircraft leases, TRA payments, and future aircraft/engine purchases (e.g., three aircraft for 2023-2024, one engine for **$4.5 million** in Jan 2023)[450](index=450&type=chunk)[451](index=451&type=chunk) [Critical Accounting Policies and Estimates](index=79&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Critical accounting policies involve significant judgment and assumptions, including Revenue Recognition, Loyalty Program Accounting, Asset Impairment Analysis, and Valuation of the Tax Receivable Agreement (TRA) Liability[454](index=454&type=chunk)[455](index=455&type=chunk) - Revenue recognition for scheduled passenger service and most ancillary revenues occurs when the flight happens; unused non-refundable tickets are deferred as air traffic liability and recognized as revenue upon expiration or use of travel credit, with an estimate for breakage[456](index=456&type=chunk)[457](index=457&type=chunk)[458](index=458&type=chunk) - Loyalty program accounting defers revenue for points earned through travel purchases and co-branded credit card programs, recognizing it upon redemption, net of estimated breakage[461](index=461&type=chunk)[462](index=462&type=chunk)[463](index=463&type=chunk)[465](index=465&type=chunk) - Asset impairment analysis reviews long-lived assets (Property & Equipment, Intangible Assets) for recoverability based on undiscounted cash flows and fair value, with no impairment losses recognized in 2020-2022[467](index=467&type=chunk)[468](index=468&type=chunk)[470](index=470&type=chunk) - Valuation of the TRA Liability involves estimating future tax savings from Pre-IPO Tax Attributes, with adjustments recorded in Other Non-Operating Income (Expense). The liability increased by **$5.0 million** in 2022 due to lower actual pre-tax income[471](index=471&type=chunk)[472](index=472&type=chunk)[473](index=473&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=80&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Sun Country Airlines is exposed to market risks primarily from aircraft fuel price volatility and interest rate fluctuations. While the company has historically used fuel derivative contracts, it had no hedges in place as of December 31, 2022, and no current plans to hedge, relying on pass-through provisions for charter and cargo. Interest rate risk primarily affects variable-rate debt under the Revolving Credit Facility and short-term investment securities, though the impact on liquidity is not anticipated to be material due to high liquidity and investment quality - The company is subject to commodity price risk (aircraft fuel) and interest rate risk[474](index=474&type=chunk) - Aircraft fuel prices are volatile; a one-cent per gallon increase in Q1 2023 is estimated to increase aircraft fuel expense by approximately **$213 thousand** (excluding reimbursed cargo fuel)[475](index=475&type=chunk) - The company had no fuel hedges in place as of December 31, 2022, and no current plans to hedge, as charter and cargo operations have pass-through fuel cost provisions[475](index=475&type=chunk) - Interest rate risk primarily relates to the **$25.0 million** Revolving Credit Facility; a **100 basis point** increase in interest rates would increase annual interest expense by approximately **$250 thousand** if fully drawn[476](index=476&type=chunk) - Short-term investment securities (fixed-rate debt) with a fair value of **$172.6 million** as of December 31, 2022, are highly liquid, and fluctuations in their fair value are not anticipated to materially impact liquidity[477](index=477&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=82&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements of Sun Country Airlines Holdings, Inc. for the years ended December 31, 2022, 2021, and 2020, prepared in conformity with U.S. GAAP. It includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Changes in Stockholders' Equity, and Cash Flows, along with comprehensive notes detailing company background, significant accounting policies (including revisions to prior statements), impact of COVID-19, revenue, earnings per share, aircraft, goodwill and intangible assets, debt, leases, stock-based compensation, 401(k) plan, fuel derivatives, investments, fair value measurements, income taxes, stockholders' equity, special items, commitments and contingencies, operating segments, parent company financial statements, and subsequent events [Report of Independent Registered Public Accounting Firm (ID 185)](index=86&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20%28ID%20%23185%29) - KPMG LLP, the independent registered public accounting firm, audited the consolidated financial statements for the three-year period ended December 31, 2022[481](index=481&type=chunk)[484](index=484&type=chunk) - In their opinion, the consolidated financial statements present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP[481](index=481&type=chunk) [Consolidated Financial Statements](index=87&type=section&id=Consolidated%20Financial%20Statements) Consolidated Balance Sheets (as of December 31, in thousands) | Asset/Liability/Equity | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | | Total Current Assets | $345,490 | $375,443 | | Total Property & Equipment, net | $785,667 | $578,518 | | Total Other Assets | $393,255 | $426,461 | | Total Assets | $1,524,412 | $1,380,422 | | Total Current Liabilities | $377,128 | $281,651 | | Total Long-term Liabilities | $654,572 | $608,182 | | Total Liabilities | $1,031,700 | $889,833 | | Total Stockholders' Equity | $492,712 | $490,589 | | Total Liabilities and Stockholders' Equity | $1,524,412 | $1,380,422 | Consolidated Statements of Operations (Year Ended December 31, in thousands) | Revenue/Expense/Income | 2022 | 2021 | 2020 | | :------------------------------------ | :--------- | :--------- | :--------- | | Total Operating Revenue | $894,444 | $623,015 | $401,486 | | Total Operating Expenses | $838,736 | $511,068 | $384,101 | | Operating Income | $55,708 | $111,947 | $17,385 | | Total Non-operating Income (Expense), net | $(31,726) | $(11,617) | $(22,067) | | Income (Loss) before Income Tax | $23,982 | $100,330 | $(4,682) | | Income Tax Expense (Benefit) | $6,306 | $19,082 | $(778) | | Net Income (Loss) | $17,676 | $81,248 | $(3,904) | | Basic Net Income (Loss) per share | $0.31 | $1.47 | $(0.08) | | Diluted Net Income (Loss) per share | $0.29 | $1.37 | $(0.08) | Consolidated Statements of Comprehensive Income (Loss) (Year Ended December 31, in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------ | :--------- | :--------- | :--------- | | Net Income (Loss) | $17,676 | $81,248 | $(3,904) | | Other Comprehensive Loss | $(807) | — | — | | Comprehensive Income (Loss) | $16,869 | $81,248 | $(3,904) | Consolidated Statements of Cash Flows (Year Ended December 31, in thousands) | Activity | 2022 | 2021 | 2020 | | :--------------------
Sun ntry Airlines (SNCY) - 2022 Q4 - Earnings Call Transcript
2023-02-03 18:11
Financial Data and Key Metrics Changes - The total operating revenue for Q4 2022 was $227.2 million, a 31.6% increase compared to the same quarter last year [114] - Full year revenue for 2022 reached $894.4 million, marking a 44% increase over 2021 and setting a record for the company [115] - Adjusted pretax income for Q4 2022 was $10.3 million, a 39% improvement over Q4 2021, despite a nearly 44% increase in fuel prices [86] Business Line Data and Key Metrics Changes - Scheduled service TRASM grew 27% year-over-year, with a 14% increase in scheduled service ASMs [87] - Charter revenue increased by 11% in Q4, driven by strong growth in long-term contracts and improvements in ad hoc business [88] - Ad hoc charter revenue for the full year remained about 60% below its peak in 2019, but growth is expected as pilot resources are added [89] Market Data and Key Metrics Changes - The recovery in international demand is a significant factor for Q1 2023, with strong demand observed across Caribbean, Mexican, and Central American markets [20] - Approximately 80% of planned Q1 passenger revenue was already booked, indicating strong demand trends [91] Company Strategy and Development Direction - The company plans to focus on long-term contracted charter revenue and expects significant growth in this area in 2023 [84] - The strategy includes postponing the restart of Hawaiian operations until 2024 to concentrate on building the MSP operation [83] - The company aims to maintain a balance of approximately 25% of block hours allocated to fixed fee contracts to optimize operations [147] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving double-digit growth rates by June 2023, aligning growth with peak opportunities [21] - The company anticipates a deceleration in unit cost increases as it grows into its expanded fleet throughout 2023 [90] - Management remains optimistic about the overall demand environment and believes the fundamentals of the diversified business model are strong [92] Other Important Information - The company finished 2022 with $289.4 million in total liquidity, including $264.7 million in unrestricted cash [76] - The expected operating margin for 2023 is between 15% and 20%, assuming a fuel price of $3.58 per gallon [77] - The company completed a $25 million share buyback program in January 2023, repurchasing approximately 1.4 million shares [118] Q&A Session Summary Question: Can you provide more detail on the booking curve and future expectations? - Management indicated that bookings for April are strong, with dramatic year-over-year revenue improvements expected [8] Question: What is the pilot availability situation and expected growth? - Management noted improvements in pilot training and recruitment, expecting block hour growth of around 10% for the year [9] Question: How does the company view its capital expenditures for 2023? - The company plans to add one or two aircraft in 2023, with a significant decrease in CapEx compared to previous years [12] Question: What are the expectations for operating margins in 2023? - Management expressed confidence in returning to historical margin levels, with a focus on achieving double-digit operating margins [36] Question: How does the company plan to manage pilot costs relative to competitors? - Management highlighted that their pilot contract includes rate escalators, which should help manage costs effectively [52]
Sun ntry Airlines (SNCY) - 2022 Q3 - Quarterly Report
2022-11-02 15:05
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Commission File Number 001-40217 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 2005 Cargo Road Minneapolis, Minnesota 55450 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area co ...
Sun ntry Airlines (SNCY) - 2022 Q3 - Earnings Call Transcript
2022-11-02 01:13
Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) Q3 2022 Earnings Conference Call November 1, 2022 4:30 PM ET Company Participants Chris Allen - Director, Investor Relations Jude Bricker - Chief Executive Officer Dave Davis - President and Chief Financial Officer Conference Call Participants Ravi Shanker - Morgan Stanley Duane Pfennigwerth - Evercore ISI Thomas Fitzgerald - Cowen Michael Linenberg - Deutsche Bank Christopher Stathoulopoulos - Susquehanna Operator Welcome to the Sun Country Airlines Third Q ...
Sun ntry Airlines (SNCY) - 2022 Q2 - Earnings Call Transcript
2022-08-13 03:34
Financial Data and Key Metrics Changes - Revenue in Q2 2022 totaled $219.1 million, a 29% increase compared to Q2 2019, driven by strong demand and block hour growth of 23% [18][7] - Adjusted operating profit for the quarter was $4 million, with an adjusted EPS loss of $0.03 per share, resulting in an adjusted operating margin of 1.8% [16][17] - Average fare increased to $173, which is 22% higher than Q2 2019 [19] - Non-fuel costs per block hour increased by only 3.6% compared to Q2 2019, while adjusted CASM rose by 15% due to reduced capacity [24][25] Business Line Data and Key Metrics Changes - Scheduled service revenue reached $152.6 million, a 22.5% increase over Q2 2019, with scheduled service TRASM growing by 29% [18] - Charter revenue was $42.7 million, a 25% increase over Q2 2019, with over 90% of charter flying under long-term contracts [21][22] - Cargo revenue was $21.2 million, flat compared to Q1 2022 and down 4% versus Q2 2021 due to increased aircraft maintenance [23] Market Data and Key Metrics Changes - Scheduled service TRASM for June was 44% higher than June 2019, and July finished over 40% higher than July 2019, indicating strong revenue trends [18][26] - The company experienced a decline in aircraft utilization relative to pre-COVID periods, with a 30% reduction in passenger fleet utilization in June compared to 2019 [13][28] Company Strategy and Development Direction - The primary focus is to staff the airline to return to 2019 utilization levels as quickly as possible while maintaining operational excellence [7][8] - The company aims for profitable growth, with a projected 20% block hour growth rate for 2023, contingent on high-margin opportunities [52][53] - The company is actively seeking additional aircraft to support growth plans, with advanced discussions on acquiring three more aircraft for late 2023 [54][55] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges such as record-high fuel prices, a tight labor market, and inflationary pressures but emphasized the resilience of their business model [9][27] - The company expects scheduled service TRASM to exceed 40% higher than Q3 2019, with total revenue projected to increase by 25% to 28% compared to 2019 [26][29] - Management expressed confidence in achieving industry-leading margins as crew constraints are expected to be temporary [14][68] Other Important Information - The company closed Q2 with $308 million in liquidity, including $283 million in cash and $25 million in undrawn revolver [29] - Free cash flow generated during the quarter was over $15 million, excluding aircraft CapEx, indicating strong cash generation despite high fuel prices [29] Q&A Session Summary Question: Can you summarize the training throughput and staffing expectations for Q4? - Management noted significant increases in pilot output and resolved bottlenecks in training, expecting to be fully staffed in the next quarter or two [33][34] Question: Which markets outperformed or underperformed in Q2? - Management identified large markets like Minneapolis to Denver and Dallas as under-capacity allocations that showed significant revenue improvements, while leisure markets did not perform as well [36][37] Question: Was the reduction in long-haul markets due to staffing or fuel prices? - Management confirmed that both factors played a role, but staffing constraints were a significant reason for not adding capacity in high-demand markets like Hawaii [44][46] Question: What are the long-term capacity plans considering current constraints? - Management aims for a 20% block hour growth rate in 2023, focusing on high-margin opportunities and building out training capacity [52][53] Question: When will the preferential bidding system for pilots be implemented? - Management indicated that the system is not yet in place but is expected to be implemented early next year, which will enhance productivity [49] Question: What are the expectations for achieving double-digit operating margins? - Management believes that returning to pre-COVID utilization levels will be key to achieving double-digit margins, with significant opportunities lost due to current constraints [68][70]
Sun ntry Airlines (SNCY) - 2022 Q2 - Quarterly Report
2022-08-10 20:17
```markdown [PART I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of Sun Country Airlines Holdings, Inc., including balance sheets, statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, significant transactions, and financial impacts [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | **$1,506,738** | **$1,380,422** | | Total Liabilities | **$1,010,850** | **$889,833** | | Total Stockholders' Equity | **$495,888** | **$490,589** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Dollars in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Operating Revenue | **$219,067** | **$149,189** | **$445,591** | **$276,802** | | Operating Income | **$3,369** | **$49,789** | **$25,201** | **$80,387** | | Net Income (Loss) | **$(3,922)** | **$52,177** | **$(285)** | **$68,955** | | Basic EPS | **$(0.07)** | **$0.91** | **$0.00** | **$1.30** | | Diluted EPS | **$(0.07)** | **$0.84** | **$0.00** | **$1.20** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Comprehensive Income (Loss) (Dollars in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) | **$(3,922)** | **$52,177** | **$(285)** | **$68,955** | | Other Comprehensive Loss | **$(220)** | **$0** | **$(220)** | **$0** | | Comprehensive Income (Loss) | **$(4,142)** | **$52,177** | **$(505)** | **$68,955** | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Condensed Consolidated Statements of Changes in Stockholders' Equity (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Total Stockholders' Equity | **$495,888** | **$490,589** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Dollars in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | **$37,060** | **$96,804** | | Net Cash Used in Investing Activities | **$(198,961)** | **$(74,151)** | | Net Cash Provided by Financing Activities | **$61,106** | **$222,469** | | Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash | **$(100,795)** | **$245,122** | | Cash, Cash Equivalents and Restricted Cash—End of the Period | **$216,990** | **$315,485** | [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [1. Company Background](index=10&type=section&id=1%20Company%20Background) Sun Country Airlines Holdings, Inc. operates scheduled passenger, air cargo, and charter services, with key equity transactions including its March 2021 IPO and a six-year cargo services contract with Amazon - **Initial Public Offering (IPO)** in **March 2021** generated net proceeds of **$225,329 thousand** from the issuance of **10,454,545 shares** at **$24.00 per share**[20](index=20&type=chunk) - **Amazon Agreement** for cargo services, signed **December 2019**, includes warrants for up to **9,482,606 common shares** at **~$15.17 per share**[24](index=24&type=chunk)[25](index=25&type=chunk) Amazon Warrants Vested | Period | Warrants Vested | | :-------------------------------- | :-------------- | | Six Months Ended June 30, 2022 | **379,304** | | Six Months Ended June 30, 2021 | **379,304** | | Cumulative Vested Warrants (as of June 30, 2022) | **2,022,963** | [2. Basis of Presentation](index=11&type=section&id=2%20Basis%20of%20Presentation) The financial statements are prepared under U.S. GAAP, consolidating Sun Country and its subsidiaries, with management making significant estimates and correcting an immaterial misstatement from 2021 related to lease accounting - An **immaterial misstatement** in 2021 financial statements was identified and corrected, related to improper application of **ASC Topic 842 (Leases)** where aircraft acquisition costs were incorrectly expensed instead of capitalized[29](index=29&type=chunk)[30](index=30&type=chunk) Impact of Revision on 2021 Financials (Dollars in thousands) | Metric (as of Dec 31, 2021) | As Previously Issued | Correction | As Revised | | :-------------------------------- | :------------------- | :--------- | :--------- | | Aircraft and Flight Equipment | **$440,356** | **$6,963** | **$447,319** | | Total Property & Equipment, net | **$573,611** | **$4,907** | **$578,518** | | Retained Earnings | **$594** | **$3,778** | **$4,372** | | Metric (Six Months Ended June 30, 2021) | As Previously Issued | Correction | As Revised | | :-------------------------------- | :------------------- | :--------- | :--------- | | Special Items, net | **$(65,392)** | **$(6,963)** | **$(72,355)** | | Net Income | **$64,169** | **$4,786** | **$68,955** | | Net Cash Provided by Operating Activities | **$89,841** | **$6,963** | **$96,804** | | Purchases of Property & Equipment | **$(66,736)** | **$(6,963)** | **$(73,699)** | - Adopted **ASU 2021-04** (Earnings Per Share, Debt, Compensation, Derivatives) and **ASU 2021-10** (Government Assistance) as of **January 1, 2022**. **ASU 2021-04** had no financial statement impact upon adoption[41](index=41&type=chunk)[42](index=42&type=chunk) [3. Impact of the COVID-19 Pandemic](index=15&type=section&id=3%20Impact%20of%20the%20COVID-19%20Pandemic) The **COVID-19 pandemic** caused a significant decline in passenger demand in 2021, negatively impacting financial results, though demand recovered in **Q2 2022** compared to 2021, with future impact remaining uncertain - Continued recovery in demand from the **COVID-19 pandemic** during **Q2 2022** relative to 2021, but future impact remains uncertain[44](index=44&type=chunk) - Received and recognized **$71,587 thousand** from **PSP2** and **PSP3**, and **$780 thousand** from **CARES Employee Retention Credit** during the six months ended **June 30, 2021**[46](index=46&type=chunk) - The **$45,000 thousand CARES Act Loan** was repaid in full on **March 24, 2021**, using **IPO** proceeds[46](index=46&type=chunk) - As of **June 30, 2022**, the Company was in compliance with all **CARES Act** provisions, including prohibitions on share repurchases and common stock dividends[48](index=48&type=chunk) [4. Revenue](index=16&type=section&id=4%20Revenue) Sun Country generates revenue from Scheduled, Charter, Ancillary, Cargo, and Other services, with total operating revenue seeing significant increases in **Q2** and **YTD 2022** due to passenger demand recovery, while cargo revenue slightly decreased due to maintenance events Total Operating Revenue (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$219,067** | **$149,189** | **47%** | | Six Months Ended June 30 | **$445,591** | **$276,802** | **61%** | Passenger Revenue (Scheduled, Charter, Ancillary) (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$195,362** | **$125,130** | **56%** | | Six Months Ended June 30 | **$397,394** | **$229,325** | **73%** | Cargo Revenue (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$21,190** | **$22,098** | **-4%** | | Six Months Ended June 30 | **$42,243** | **$43,684** | **-3%** | Contract Liabilities (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Air Traffic Liabilities | **$123,958** | **$118,562** | | Loyalty Program Liabilities | **$16,604** | **$19,718** | | Amazon Deferred Up-front Payment | **$3,726** | **$4,200** | | Total Contract Liabilities | **$144,288** | **$142,480** | [5. Earnings per Share](index=18&type=section&id=5%20Earnings%20per%20Share) The company reported a **Net Loss** for both **Q2** and **YTD 2022**, resulting in negative basic and diluted earnings per share, with anti-dilutive securities excluded from diluted **EPS** calculations Net Income (Loss) and EPS | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Net Income (Loss) | **$(3,922)** | **$(285)** | | Basic EPS | **$(0.07)** | **$0.00** | | Diluted EPS | **$(0.07)** | **$0.00** | - Due to the **Net Loss**, **3,529,406** (**Q2 2022**) and **3,676,847** (**YTD 2022**) stock options, restricted stock units, and vested warrants were anti-dilutive and excluded from diluted **EPS** computation[61](index=61&type=chunk) [6. Aircraft](index=19&type=section&id=6%20Aircraft) As of **June 30, 2022**, Sun Country operated a fleet of **53 Boeing 737-NG aircraft**, including **41 passenger** and **12 cargo aircraft** for Amazon, with **six incremental aircraft** acquired and one owned aircraft retired due to damage - As of **June 30, 2022**, the fleet consisted of **53 Boeing 737-NG aircraft** (**41 passenger**, **12 cargo** for Amazon)[64](index=64&type=chunk) Aircraft Fleet Activity (Six Months Ended June 30, 2022) | Type | Dec 31, 2021 | Additions | Reclassifications | Removals | June 30, 2022 | | :-------------------------------- | :----------- | :-------- | :---------------- | :------- | :------------ | | Owned Passenger | **21** | **5** | **1** | **(1)** | **26** | | Finance Leases Passenger | **9** | **1** | **1** | — | **11** | | Operating Leases Passenger | **6** | — | **(2)** | — | **4** | | Cargo Aircraft for Amazon | **12** | — | — | — | **12** | | Total Aircraft Operated | **48** | **6** | — | **(1)** | **53** | - **Aircraft Rent expense** decreased by **42%** (**Q2**) and **43%** (**YTD**) due to the shift from operating leases to owned or finance-leased aircraft[166](index=166&type=chunk)[188](index=188&type=chunk) - One owned aircraft was retired due to damage beyond economic repair, with no financial impact on operations as of **June 30, 2022**[68](index=68&type=chunk)[107](index=107&type=chunk) [7. Debt](index=21&type=section&id=7%20Debt) The company's debt structure includes credit facilities and **EETC**, with the **$90,000 thousand Delayed Draw Term Loan Facility (DDTL)** fully repaid in **YTD 2022** using proceeds from the new **2022-1 EETC**, while the **$25,000 thousand Revolving Credit Facility** remains undrawn - The **$90,000 thousand Delayed Draw Term Loan Facility (DDTL)** was fully repaid in **YTD 2022** using proceeds from the **2022-1 EETC**, resulting in a **$1,557 thousand** loss on extinguishment of debt[76](index=76&type=chunk) - The **$25,000 thousand Revolving Credit Facility** remained undrawn and available as of **June 30, 2022**[76](index=76&type=chunk) - Issued **2022-1 EETC** in **March 2022** for **$188,277 thousand** to finance/refinance **13 aircraft**. Received **$172,507 thousand** for **12 aircraft**, with the remaining **$15,770 thousand** expected by **September 15, 2022**[78](index=78&type=chunk) Long-term Debt (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | 2019-1 EETC Notes Payable | **$194,884** | **$202,984** | | 2022-1 EETC Notes Payable | **$172,507** | **$0** | | Delayed Draw Term Loan Facility | **$0** | **$77,481** | | Other Notes Payable | **$0** | **$466** | | Total Debt | **$367,391** | **$280,931** | | Total Long-term Debt | **$319,733** | **$248,014** | [8. Fuel Derivatives and Risk Management](index=23&type=section&id=8%20Fuel%20Derivatives%20and%20Risk%20Management) Sun Country periodically uses fuel option and swap contracts to manage economic risks from volatile aircraft fuel prices, but as of **June 30, 2022**, there were no outstanding fuel derivative contracts, and the company does not apply hedge accounting - No outstanding fuel derivative contracts as of **June 30, 2022**, or **December 31, 2021**[85](index=85&type=chunk) - **Fuel derivative gains** (non-cash) were **$3,599 thousand** for the six months ended **June 30, 2021**, with none in 2022[87](index=87&type=chunk) [9. Investments](index=24&type=section&id=9%20Investments) The company's investments primarily consist of debt securities and Certificates of Deposit, with **$70,391 thousand** in debt securities purchased in **Q2 2022** and classified as current assets, and unrealized losses considered temporary due to market interest rate increases Investments (June 30, 2022) (Dollars in thousands) | Security Type | Amortized Cost | Fair Value | | :-------------------------------- | :------------- | :--------- | | Municipal Debt Securities | **$26,263** | **$26,180** | | Corporate Debt Securities | **$44,161** | **$43,958** | | Total Available-for-Sale Securities | **$70,424** | **$70,138** | | Certificates of Deposit | **$6,586** | **$6,586** | | Total Investments | **$77,010** | **$76,724** | - Purchased **$70,391 thousand** of debt securities during the quarter ended **June 30, 2022**, classified as current assets due to high liquidity[37](index=37&type=chunk) - Unrealized losses on **Available-for-Sale securities** are considered temporary, resulting from market interest rate increases, not credit quality, and the company intends to hold them to maturity[91](index=91&type=chunk) [10. Fair Value Measurements](index=24&type=section&id=10.%20Fair%20Value%20Measurements) The company measures financial instruments at fair value, classifying cash equivalents, available-for-sale securities, and derivative instruments primarily within Level 2, while non-financial assets are measured at fair value on a nonrecurring basis for impairment assessments using Level 3 inputs Assets Measured at Fair Value on a Recurring Basis (June 30, 2022) (Dollars in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :------ | :------ | :------ | | Cash & Cash Equivalents | **$96,096** | **$116,762** | **$0** | **$212,858** | | Available-for-Sale Securities | **$0** | **$70,138** | **$0** | **$70,138** | | Total | **$96,096** | **$186,900** | **$0** | **$282,996** | - Non-financial assets (**Property & Equipment**, Goodwill, Other Intangible Assets) are measured at fair value on a nonrecurring basis for impairment assessments, using Level 3 inputs[96](index=96&type=chunk)[97](index=97&type=chunk) [11. Income Taxes](index=25&type=section&id=11.%20Income%20Taxes) The effective tax rate for **Q2 2022** was **19.0%** (up from **15.5%** in **Q2 2021**) and for **YTD 2022** was **118.1%** (up from **19.1%** in **YTD 2021**), primarily due to a non-deductible expense related to the **Tax Receivable Agreement (TRA)** liability adjustment Effective Tax Rate | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **19.0%** | **15.5%** | | Six Months Ended June 30 | **118.1%** | **19.1%** | - Increase in effective tax rate primarily due to a non-deductible expense related to the **Tax Receivable Agreement (TRA)** liability adjustment, partially offset by stock compensation benefits[99](index=99&type=chunk) - **TRA liability balance** as of **June 30, 2022**, was **$107,300 thousand**, up from **$98,800 thousand** at **December 31, 2021**[101](index=101&type=chunk) - An **$8,500 thousand** adjustment to the estimated **TRA liability** was recorded in **YTD June 30, 2022**, impacting **Other, net Non-Operating Income (Expense)**[103](index=103&type=chunk) [12. Special Items, net](index=26&type=section&id=12.%20Special%20Items,%20net) **Special Items, net, were $0** for both **Q2** and **YTD 2022**, contrasting with significant net benefits in **Q2** and **YTD 2021** primarily from **CARES Act** grant recognition and employee retention credits Special Items, net (Dollars in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | CARES Act grant recognition | **$0** | **$(39,378)** | **$0** | **$(71,587)** | | CARES Act employee retention credit | **$0** | **$(446)** | **$0** | **$(780)** | | Total Special Items, net | **$0** | **$(39,819)** | **$0** | **$(72,355)** | [13. Commitments and Contingencies](index=26&type=section&id=13.%20Commitments%20and%20Contingencies) The company has various contractual obligations, including lease arrangements, debt repayments, **TRA** payments, and future aircraft purchases, with an owned aircraft retired due to damage and new commitments for a **flight simulator** and an aircraft expected in **Q3 2022** - An owned aircraft was retired due to damage beyond economic repair during the six months ended **June 30, 2022**, with no financial impact on operations as of that date[107](index=107&type=chunk) - Executed an agreement to purchase a **flight simulator** for **$9,745 thousand**, with installments paid in **H1 2022** and **July 2022**[108](index=108&type=chunk) - Gave irrevocable notice to purchase a **finance-leased aircraft** for approximately **$12,000 thousand**, expected to be complete in **September 2022**, financed by **2022-1 EETC** proceeds[109](index=109&type=chunk) [14. Operating Segments](index=27&type=section&id=14.%20Operating%20Segments) Sun Country operates **two segments**: **Passenger and Cargo**, with **Passenger operating income decreased significantly** in **Q2** and **YTD 2022** due to higher aircraft fuel expense, and **Cargo operating income decreased** to a loss in **Q2 2022** and significantly reduced income in **YTD 2022** due to the absence of **CARES Act** payroll support and increased pilot salaries Operating Income (Loss) by Segment (Dollars in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Passenger Operating Income | **$3,633** | **$34,408** | **$23,751** | **$52,846** | | Cargo Operating Income (Loss) | **$(264)** | **$15,381** | **$1,450** | **$27,541** | - **Passenger operating income decreased significantly** primarily due to increased Aircraft Fuel Expense[201](index=201&type=chunk)[205](index=205&type=chunk) - **Cargo operating income decreased** due to the absence of **CARES Act** payroll support (a benefit in 2021), increased Salaries, Wages, and Benefits (new **CBA**), and decreased block hours from heavy maintenance events[203](index=203&type=chunk)[206](index=206&type=chunk) [15. Subsequent Events](index=27&type=section&id=15.%20Subsequent%20Events) The company evaluated subsequent events from the balance sheet date through **August 10, 2022**, with further details provided in Notes 6 (Aircraft) and 13 (Commitments and Contingencies) - Subsequent events were evaluated through **August 10, 2022**[113](index=113&type=chunk) - Refer to Note 6 and Note 13 for additional information on subsequent events[113](index=113&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, including critical accounting policies, business overview, operational review, and detailed analysis of operating results for **Q2** and **YTD 2022** compared to 2021, along with non-GAAP financial measures and a discussion of liquidity and capital resources [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management identifies key accounting policies requiring significant judgment and estimates, including revenue recognition, asset impairment analysis, and valuation of the **Tax Receivable Agreement (TRA)** liability, noting revisions to previously issued financial statements for an **immaterial misstatement** - Identified critical accounting policies include Revenue Recognition (Scheduled passenger service, Loyalty Program), Asset Impairment Analysis, and Valuation of the **TRA Liability**[116](index=116&type=chunk) - Estimated travel credit breakage of **$5,617 thousand** was recorded in Passenger Revenue for the six months ended **June 30, 2022**. A **10%** change in this rate would impact Passenger Revenue by approximately **$445 thousand**[118](index=118&type=chunk)[120](index=120&type=chunk) - Estimated loyalty points breakage of **$780 thousand** was recognized within Passenger Revenue for the six months ended **June 30, 2022**. A **10%** change in this rate would impact Passenger Revenue by approximately **$99 thousand**[126](index=126&type=chunk) - No impairment was recorded on long-lived assets for any periods presented, and no triggering events were identified during the six months ended **June 30, 2022**, or for the year ended **December 31, 2021**[130](index=130&type=chunk) - A **$10,000 thousand** increase in forecasted taxable income would decrease the **TRA Liability** by approximately **$1,200 thousand**[133](index=133&type=chunk) [Business Overview](index=31&type=section&id=Business%20Overview) Sun Country operates as a hybrid low-cost carrier, strategically deploying resources across its scheduled service, charter, and cargo businesses to achieve high growth, margins, and cash flows, focusing on leisure and VFR passengers, charter customers, and providing **CMI** services to Amazon - Operates as a hybrid low-cost air carrier, dynamically deploying shared resources across scheduled service, charter, and cargo businesses[136](index=136&type=chunk)[137](index=137&type=chunk) - Focuses on leisure and visiting friends and relatives (**VFR**) passengers, charter customers, and providing crew, maintenance, and insurance (**CMI**) services to Amazon[137](index=137&type=chunk) - Maintains a single-family fleet of **Boeing 737-NG aircraft**[138](index=138&type=chunk) - Charter business provides diversification and downside protection with stable demand and pass-through fuel costs, serving customers like the U.S. Department of Defense and sports teams[139](index=139&type=chunk) - Cargo business involves flying **12 Boeing 737-800 cargo aircraft** for Amazon under a **CMI** service model, where Amazon supplies aircraft and covers many operating expenses[140](index=140&type=chunk) [Operations in Review](index=32&type=section&id=Operations%20in%20Review) The company experienced a recovery in demand in **Q2 2022** from the **COVID-19 pandemic**, but operational challenges, including training throughput issues and pilot staffing, along with higher fuel prices, continue to impact the business, though its flexible model allows for service adjustments - Continued recovery in demand from the **COVID-19 pandemic** during **Q2 2022** relative to 2021, but future impact remains uncertain[143](index=143&type=chunk) - Operational challenges, driven by training throughput issues and uncertainties in pilot staffing, along with higher fuel prices, have impacted the Company and the industry[143](index=143&type=chunk)[144](index=144&type=chunk) - The flexible business model allows the company to adjust services in response to market conditions to produce the highest possible returns[144](index=144&type=chunk) [Operating Statistics](index=34&type=section&id=Operating%20Statistics) Operating statistics for **Q2** and **YTD 2022** reflect a strong recovery in scheduled service, with significant increases in departures, passengers, **RPMs**, **ASMs**, and **TRASM** compared to 2021, alongside increased charter block hours and revenue per block hour, despite sharply rising fuel costs and decreased cargo block hours Key Operating Statistics (Three Months Ended June 30) | Metric | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Scheduled Service Departures | **5,674** | **4,921** | **15%** | | Scheduled Service Passengers | **884,088** | **700,019** | **26%** | | Scheduled Service TRASM (cents) | **11.55** | **8.19** | **41%** | | Charter Revenue per Block Hour | **$9,349** | **$7,904** | **18%** | | Fuel Cost per Gallon | **$4.39** | **$2.07** | **112%** | | Total Aircraft Operated (end of period) | **53** | **45** | **18%** | Key Operating Statistics (Six Months Ended June 30) | Metric | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Scheduled Service Departures | **11,901** | **9,244** | **29%** | | Scheduled Service Passengers | **1,806,740** | **1,253,051** | **44%** | | Scheduled Service TRASM (cents) | **10.82** | **7.57** | **43%** | | Charter Revenue per Block Hour | **$9,028** | **$7,829** | **15%** | | Fuel Cost per Gallon | **$3.76** | **$1.99** | **89%** | | Adjusted CASM (cents) | **6.64** | **6.28** | **6%** | | Total Aircraft Operated (end of period) | **53** | **45** | **18%** | [Results of Operations](index=36&type=section&id=Results%20of%20Operations) For **Q2** and **YTD 2022**, **total operating revenues increased significantly** due to passenger demand recovery, but **operating income and net income decreased substantially**, turning into losses, primarily driven by a sharp increase in aircraft fuel expense and higher salaries and wages, with **Special Items, net, were $0** Total Operating Revenues (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$219,067** | **$149,189** | **47%** | | Six Months Ended June 30 | **$445,591** | **$276,802** | **61%** | Net Income (Loss) (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$(3,922)** | **$52,177** | **-108%** | | Six Months Ended June 30 | **$(285)** | **$68,955** | **-100%** | Aircraft Fuel Expense (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$76,947** | **$29,709** | **159%** | | Six Months Ended June 30 | **$141,492** | **$53,984** | **162%** | Salaries, Wages, and Benefits (Dollars in thousands) | Period | 2022 | 2021 | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | | Three Months Ended June 30 | **$60,298** | **$42,316** | **42%** | | Six Months Ended June 30 | **$119,915** | **$86,392** | **39%** | - **Special Items, net, were $0** for **Q2** and **YTD 2022**, compared to a net benefit of **$39,819 thousand** (**Q2 2021**) and **$72,355 thousand** (**YTD 2021**) primarily from **CARES Act** payroll support[172](index=172&type=chunk)[195](index=195&type=chunk) [Segments](index=46&type=section&id=Segments) **Passenger operating income decreased significantly** in **Q2** and **YTD 2022** due to increased aircraft fuel expense, while **Cargo operating income decreased** to a loss in **Q2 2022** and significantly reduced income in **YTD 2022**, mainly due to the absence of **CARES Act** payroll support and higher pilot salaries from a new **CBA** Operating Income (Loss) by Segment (Dollars in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Passenger Operating Income | **$3,633** | **$34,408** | **$23,751** | **$52,846** | | Cargo Operating Income (Loss) | **$(264)** | **$15,381** | **$1,450** | **$27,541** | - **Passenger segment's operating income decrease** was mainly driven by the increase in Aircraft Fuel Expense[201](index=201&type=chunk)[205](index=205&type=chunk) - **Cargo segment's operating income decrease** was primarily due to the absence of **CARES Act** payroll support (a benefit in 2021), increased Salaries, Wages, and Benefits from a new pilot **CBA**, and decreased block hours due to heavy maintenance events[203](index=203&type=chunk)[206](index=206&type=chunk) [Non-GAAP Financial Measures](index=49&type=section&id=Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP financial measures such as **Adjusted Operating Income**, **Adjusted Net Income (Loss)**, **Adjusted EBITDA**, and **Adjusted CASM** to provide a more comparable view of its operating performance, excluding certain non-recurring or volatile items to enhance comparability Adjusted Operating Income (Dollars in thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **$3,944** | **$10,765** | | Six Months Ended June 30 | **$26,696** | **$11,960** | Adjusted Net Income (Loss) (Dollars in thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **$(1,838)** | **$3,921** | | Six Months Ended June 30 | **$10,504** | **$(998)** | Adjusted EBITDA (Dollars in thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **$20,719** | **$24,967** | | Six Months Ended June 30 | **$58,722** | **$38,772** | Adjusted CASM (cents) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | **7.14** | **6.40** | | Six Months Ended June 30 | **6.64** | **6.28** | - **Adjusted CASM** excludes fuel costs, costs related to cargo operations, special items, stock compensation expense, and Sun Country Vacations costs to improve comparability[221](index=221&type=chunk)[224](index=224&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity sources include cash, short-term investments, and its **Revolving Credit Facility**, while primary uses are operating expenses, capital expenditures, and debt repayments, with **Total Liquidity decreased** from **December 31, 2021**, to **June 30, 2022**, and **Operating cash flow decreased significantly** in **YTD 2022** Financial Condition and Liquidity (Dollars in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Cash and Cash Equivalents | **$212,858** | **$309,338** | | Available-for-Sale Securities | **$70,138** | **$0** | | Amount Available Under Revolving Credit Facility | **$25,000** | **$25,000** | | Total Liquidity | **$307,996** | **$334,338** | | Long-term Debt | **$363,543** | **$277,426** | | Finance Lease Obligations | **$249,621** | **$192,155** | | Operating Lease Obligations | **$31,582** | **$76,041** | | Total Debt and Lease obligations | **$644,746** | **$545,622** | | Debt-to-Capital | **0.57** | **0.53** | Sources and Uses of Liquidity (Six Months Ended June 30) (Dollars in thousands) | Activity | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Total Operating Activities | **$37,060** | **$96,804** | | Total Investing Activities | **$(198,961)** | **$(74,151)** | | Total Financing Activities | **$61,106** | **$222,469** | | Net (Decrease) Increase in Cash | **$(100,795)** | **$245,122** | - **Operating cash flow decreased significantly** in **YTD 2022**, impacted by the absence of **CARES Act** grants (a benefit in 2021) and higher fuel costs[246](index=246&type=chunk)[249](index=249&type=chunk) - **Capital expenditures** were **$137,647 thousand** for **YTD 2022**, primarily for aircraft and spare engines, and a **flight simulator**[250](index=250&type=chunk) [Off Balance Sheet Arrangements](index=57&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company's **Off Balance Sheet Arrangements** primarily include indemnities in aircraft and equipment leases, and participation in fuel consortia, with **Pass-through trusts** for **EETC financings** not being direct obligations of Sun Country - Aircraft, equipment, and other leases typically contain **indemnification provisions**[255](index=255&type=chunk) - **Pass-through trusts** for **EETC financings** are not direct obligations of Sun Country, but the underlying equipment notes are[256](index=256&type=chunk)[257](index=257&type=chunk) - Participation in **fuel consortia** at various airports, which are not **variable interest entities (VIEs)** or where the company is not the primary beneficiary, are not reflected on the balance sheet[258](index=258&type=chunk) [Commitments and Contractual Obligations](index=58&type=section&id=Commitments%20and%20Contractual%20Obligations) The company's **Commitments and Contractual Obligations** include aircraft leases, debt repayment, payments under the **TRA**, and **probable future purchases of aircraft**, with recent commitments for a **flight simulator** and an aircraft expected to finalize in **Q3 2022** - **Contractual obligations** include aircraft leases, debt repayment, payments under the **TRA**, and **probable future purchases of aircraft**[260](index=260&type=chunk) - Agreement to purchase a **flight simulator** for **$9,745 thousand**, with initial installments paid in **H1 2022** and **July 2022**[262](index=262&type=chunk) - Irrevocable notice to purchase an aircraft currently under finance lease for approximately **$12,000 thousand**, expected to be completed in **September 2022**[263](index=263&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from aircraft fuel prices and interest rates, with no fuel derivatives in place as of **June 30, 2022**, and a **1-cent per gallon** increase in fuel price would raise aircraft fuel expense by **$172 thousand** per quarter, while a **100 basis point** increase in interest rates would increase annual interest expense by **$250 thousand** if the **Revolving Credit Facility** is fully drawn - No fuel derivative contracts were in place as of **June 30, 2022**[266](index=266&type=chunk) - A **one cent per gallon** increase in the average aircraft fuel price would increase aircraft fuel expense by approximately **$172 thousand** per quarter (excluding reimbursed cargo fuel)[266](index=266&type=chunk) - Exposure to interest rate risk from variable-rate debt (**Revolving Credit Facility**) and short-term investment securities[267](index=267&type=chunk) - Assuming the **$25,000 thousand Revolving Credit Facility** is fully drawn, a **100 basis point** increase in interest rates would result in a corresponding increase in interest expense of approximately **$250 thousand** annually[267](index=267&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) The **CEO** and **CFO** concluded that **disclosure controls and procedures were not effective** as of **June 30, 2022**, due to a **material weakness** in internal control over financial reporting related to accounting for complex non-routine transactions, specifically the application of **ASC Topic 842 (Leases)** to aircraft purchases, though management has performed additional analyses and is implementing a remediation plan - **Disclosure controls and procedures were not effective** as of **June 30, 2022**, due to a **material weakness** in internal control over financial reporting[270](index=270&type=chunk) - The **material weakness** is specifically related to controls over the accounting for complex non-routine transactions, including the application of **ASC Topic 842, Leases**, to the purchase of aircraft subject to an existing operating lease[273](index=273&type=chunk) - Despite the **material weakness**, management concluded that the consolidated financial statements present fairly the company's financial position, results of operations, and cash flows[271](index=271&type=chunk) - Remediation plan includes engaging third-party experts, providing additional internal training, enhancing risk assessment for complex transactions, strengthening review/approval controls, and establishing a technical accounting checklist for lease-related transactions[275](index=275&type=chunk) [PART II. OTHER INFORMATION](index=58&type=section&id=Part%20II.%20Other%20Information) [ITEM 1. LEGAL PROCEEDINGS](index=61&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various commercial litigation claims and administrative/regulatory proceedings in the normal course of business, with management believing the ultimate outcome will not have a **material adverse effect** on its financial position, liquidity, or results of operations - Subject to commercial litigation claims and administrative and regulatory proceedings in the normal course of business[277](index=277&type=chunk) - Management believes the ultimate outcome of these proceedings will not have a **material adverse effect** on financial position, liquidity, or results of operations[277](index=277&type=chunk) [ITEM 1A. RISK FACTORS](index=61&type=section&id=Item%201A.%20Risk%20Factors) The company highlights an updated risk factor concerning the identified **material weakness** in internal control over financial reporting, where failure to remediate this weakness could impair accurate and timely financial reporting, adversely affecting investor confidence, business decisions, and potentially leading to regulatory actions or stock delisting - Identified a **material weakness** in internal control over financial reporting, specifically regarding controls over accounting for complex non-routine transactions (e.g., **ASC Topic 842** for aircraft leases)[279](index=279&type=chunk)[280](index=280&type=chunk) - Failure to remediate this **material weakness** could impair the ability to produce accurate financial statements, adversely affect business decisions, harm results of operations, and lead to loss of investor confidence[281](index=281&type=chunk) - Potential consequences include investigations or sanctions by regulatory authorities, delisting actions by Nasdaq, and stockholder lawsuits[281](index=281&type=chunk)[284](index=284&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) For the quarter ended **June 30, 2022**, the company **repurchased 1,823 shares** of common stock at an **average price of $28.74 per share**, reflecting shares withheld from employees to satisfy exercise price and taxes due in connection with stock option exercises Common Stock Repurchases (Quarter Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :------------------------------- | :--------------------------- | | May 1-31, 2022 | **1,823** | **$28.74** | | Total (Quarter Ended June 30, 2022) | **1,823** | **$28.74** | - Shares were **repurchased** as shares withheld from employees to satisfy the exercise price and taxes due in connection with exercises of stock options[285](index=285&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=62&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were **no defaults upon senior securities** reported for the period [ITEM 4. MINE SAFETY DISCLOSURES](index=62&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is **not applicable** to the company [ITEM 5. OTHER INFORMATION](index=62&type=section&id=Item%205.%20Other%20Information) **No other information was reported** under this item [ITEM 6. EXHIBITS](index=62&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including **certifications by the Chief Executive Officer and Chief Financial Officer**, and various **Inline XBRL Instance Document** for financial data - Includes **certifications by Sun Country's Chief Executive Officer and President and Chief Financial Officer** (Exhibits 31.1, 31.2, 32)[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) - Includes **Inline XBRL Instance Document** and Taxonomy Extension Documents (Schema, Calculation, Definition, Labels, Presentation Linkbase Documents, and Cover Page Interactive Data Files)[292](index=292&type=chunk) [SIGNATURES](index=64&type=section&id=Signatures) The report is officially **signed by Dave Davis**, **President and Chief Financial Officer**, on **August 10, 2022** - The report was **signed by Dave Davis**, **President and Chief Financial Officer**, on **August 10, 2022**[294](index=294&type=chunk) ```
Sun ntry Airlines (SNCY) - 2022 Q1 - Earnings Call Transcript
2022-05-08 00:34
Financial Data and Key Metrics Changes - In Q1 2022, the company reported adjusted pretax earnings of $15.7 million and adjusted EPS of $0.20, with revenue reaching a record $226.5 million [15][16] - The adjusted operating margin for Q1 was 10%, which is considered industry-leading [15] - The company achieved a 30% increase in block hours compared to Q1 2019, while ASMs increased by 6.3% [11][16] - The average fare in Q1 was $183, a 7% increase from Q1 2019, with ancillary revenue per passenger at $49, the highest in the company's history [16] Business Line Data and Key Metrics Changes - Charter revenue for the quarter was $32.9 million, with charter revenue per block hour higher than in 2019 [18] - Cargo revenue was $21.1 million, slightly down from the previous year due to planned maintenance checks [21] - Scheduled service TRASM was down 1% compared to Q1 2019, but increased by 4% in March 2022 [17] Market Data and Key Metrics Changes - The company expects total revenue in Q2 2022 to be up 24% to 30% compared to Q2 2019, with block hours projected to be 22% to 26% higher [24] - The company anticipates scheduled service TRASM growth of 25% to 34% over the same period [24] Company Strategy and Development Direction - The company focuses on leveraging synergies between cargo, charter, and scheduled service segments to enhance profitability [9] - Future CapEx can be adjusted based on aircraft prices and interest rates, with plans to acquire 8 aircraft in 2022, 7 of which have already been financed [10][26] - The company aims to maximize profitability in a high-fuel environment while addressing staffing challenges [25] Management's Comments on Operating Environment and Future Outlook - Management noted that demand for air travel has returned to pre-pandemic levels, with strong demand observed since President's Day [6][14] - The company remains profitable and is not reliant on growth to maintain consistent profitability and cash flow [7] - Management expressed confidence in the future, expecting to continue delivering over 20% growth without future CapEx [11][12] Other Important Information - The company ratified a new pilot contract in December, which has helped attract talent and provides cost certainty [12] - The balance sheet remains strong, with $297 million in liquidity and positive free cash flow of approximately $15 million during the quarter [26] Q&A Session Summary Question: Impact of excess capacity from primary cargo customer - Management indicated that cargo schedules remain unchanged and margins are expected to widen as pilot rate increases are outpaced by contract escalations [29][30] Question: Flexibility in charter contracts - Management explained that the charter business has a fixed component under contract, while ad hoc flying provides flexibility based on resource availability [32][34] Question: Composition of block hours - Scheduled service block hours accounted for 66% of total in Q1, with a shift expected towards charter business in Q2 [36] Question: Scheduled service growth and margin protection - Management clarified that capacity adjustments were made in response to high fuel prices, focusing on peak opportunities [39] Question: Pilot hiring and attrition - The company is hiring about 20 pilots per month, with new hire classes full, and attrition has moderated since the new pilot contract [46][50] Question: Ancillary revenue per passenger outlook - Management expects ancillary revenue per passenger to increase due to new products, with a potential rise to over $60 [64] Question: Demand environment amid rising COVID cases - Management reported no changes in demand despite an uptick in COVID cases, with steady increases in average airfare sold [69]
Sun ntry Airlines (SNCY) - 2022 Q1 - Quarterly Report
2022-05-06 16:51
Part I. Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The financial statements for Q1 2022 show total assets increased to $1.42 billion, operating revenue grew 78% to $226.5 million, but net income decreased to $3.6 million due to higher fuel costs and the absence of prior-year CARES Act grants [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects a significant increase in total assets to $1.42 billion, primarily driven by investments in property and equipment, while total liabilities also rose to $926.3 million Balance Sheet Summary (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and Cash Equivalents | $272,402 | $309,338 | | Total Current Assets | $349,243 | $375,443 | | Total Property & Equipment, net | $675,649 | $573,611 | | Total Assets | $1,419,592 | $1,376,644 | | **Liabilities & Equity** | | | | Total Current Liabilities | $301,476 | $281,651 | | Total Liabilities | $926,301 | $889,833 | | Total Stockholders' Equity | $493,291 | $486,811 | | Total Liabilities and Stockholders' Equity | $1,419,592 | $1,376,644 | - Total assets increased to **$1.42 billion**, primarily due to a **$102 million** increase in net Property & Equipment, reflecting aircraft acquisitions[10](index=10&type=chunk) - Total liabilities rose to **$926.3 million**, driven by increases in finance lease obligations and long-term debt associated with fleet financing[11](index=11&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Operating revenue increased 78% year-over-year to $226.5 million, but net income decreased significantly to $3.6 million due to a 166% surge in aircraft fuel expense and the absence of prior-year special items Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total Operating Revenue | $226,525 | $127,611 | | Total Operating Expenses | $204,692 | $102,678 | | Operating Income | $21,833 | $24,933 | | Net Income | $3,637 | $12,416 | | Diluted EPS | $0.06 | $0.24 | - Operating revenue increased by **78% YoY**, driven by a strong recovery in passenger demand[12](index=12&type=chunk) - Aircraft fuel expense surged **166%** to **$64.5 million** from **$24.3 million** in the prior-year quarter, significantly impacting profitability[12](index=12&type=chunk) - Net income declined significantly, influenced by higher operating costs and the absence of the **$26.9 million** net benefit from 'Special Items' (primarily CARES Act grants) recorded in Q1 2021[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations remained stable at $18.2 million, while investing activities focused on property and equipment purchases, and financing activities shifted from IPO proceeds to debt management Cash Flow Summary (in thousands) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $18,213 | $15,839 | | Net Cash Used in Investing Activities | ($49,628) | ($54,552) | | Net Cash (Used In) Provided by Financing Activities | ($5,883) | $243,968 | | Net (Decrease) Increase in Cash | ($37,298) | $205,255 | - Investing activities primarily consisted of purchases of property and equipment, totaling **$49.7 million** in Q1 2022[16](index=16&type=chunk) - Financing activities in Q1 2021 were dominated by **$235.9 million** in cash received from the company's stock offering (IPO); in Q1 2022, financing activities included **$78.0 million** in proceeds from borrowings, offset by **$77.9 million** in repayments[16](index=16&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail a 78% YoY revenue increase, fleet expansion to 50 aircraft, new debt financing of $188.3 million, and an increased effective tax rate of 43.3% due to a non-deductible TRA expense - The company's fleet grew from **43 aircraft** at the end of Q1 2021 to **50 aircraft** at the end of Q1 2022, with a shift towards more owned and finance-leased aircraft[52](index=52&type=chunk) - In March 2022, the company arranged for the issuance of Class A and Class B pass-through trust certificates (2022-1 EETC) with an aggregate face amount of **$188.3 million** to finance or refinance **13 aircraft**[65](index=65&type=chunk) - The effective tax rate for Q1 2022 was **43.3%**, up from **30.3%** in Q1 2021, primarily due to a non-deductible expense related to the Tax Receivable Agreement (TRA) liability[76](index=76&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes a 78% revenue growth to strong passenger demand recovery, despite a 12% decrease in operating income and a 71% fall in net income due to surging fuel costs and increased salaries, while maintaining strong liquidity and continuing fleet expansion [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Total operating revenues increased 78% to $226.5 million, driven by a 127% rise in scheduled service revenue, while total operating expenses increased 99% to $204.7 million, leading to a 12% decrease in operating income and a 71% decrease in net income Operating Revenues Comparison (in thousands) | Revenue Source | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Scheduled Service | $124,068 | $54,620 | 127% | | Charter Service | $32,879 | $25,805 | 27% | | Ancillary | $45,086 | $23,770 | 90% | | Cargo | $21,053 | $21,585 | (2)% | | **Total Operating Revenues** | **$226,525** | **$127,611** | **78%** | Operating Expenses Comparison (in thousands) | Expense Category | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Aircraft Fuel | $64,544 | $24,274 | 166% | | Salaries, Wages, and Benefits | $59,617 | $44,075 | 35% | | Special Items, net | $0 | ($26,871) | (100)% | | **Total Operating Expenses** | **$204,692** | **$102,678** | **99%** | - The increase in scheduled service revenue was driven by a **44%** increase in departures, a **67%** increase in passengers, and a **36%** increase in the average base fare per passenger, reflecting a strong recovery from the COVID-19 pandemic[115](index=115&type=chunk) [Segment Performance](index=32&type=section&id=Segments) The Passenger segment's operating income increased to $20.1 million due to strong revenue recovery, while the Cargo segment's operating income sharply decreased to $1.7 million, primarily due to the absence of prior-year CARES Act payroll support Segment Operating Income (in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Passenger | $20,118 | $12,774 | | Cargo | $1,715 | $12,159 | - Excluding special items from 2021, the Passenger segment's operating income of **$20.1 million** in Q1 2022 compares to an adjusted operating loss of **($5.4) million** in Q1 2021, highlighting the significant operational improvement[135](index=135&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with $272.4 million in cash and $25.0 million available under its Revolving Credit Facility, while securing $188.3 million in new EETC financing for fleet expansion and repaying its $80.5 million DDTL facility Key Liquidity Indicators (in thousands) | Indicator | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $272,402 | $309,338 | | Amount Available Under Revolving Credit Facility | $25,000 | $25,000 | | Total Debt and Lease obligations | $581,466 | $545,622 | - The company plans to grow its passenger fleet to an estimated **50 aircraft** by the end of 2023[167](index=167&type=chunk) - In March 2022, the company arranged for the issuance of the 2022-1 EETC with an aggregate face amount of **$188.3 million** to finance or refinance **13 aircraft**, using the initial proceeds to repay its DDTL facility[175](index=175&type=chunk)[173](index=173&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks primarily from aircraft fuel price volatility and interest rate fluctuations on variable-rate debt, with no fuel hedges in place as of March 31, 2022 - The company's main market risks are **aircraft fuel price volatility** and **interest rate fluctuations**[197](index=197&type=chunk) - As of March 31, 2022, the company had no fuel derivative contracts in place to hedge against fuel price volatility[198](index=198&type=chunk) - A **100 basis point** increase in interest rates would result in an approximate **$250,000** annual increase in interest expense on its variable-rate debt, assuming the revolving credit facility is fully utilized[199](index=199&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[200](index=200&type=chunk) - No changes were made in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[201](index=201&type=chunk) Part II. Other Information [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the normal course of business, but does not anticipate a materially adverse effect on its financial position or operations - The company states that the ultimate outcome of current legal proceedings is not expected to have a material adverse effect on its financial position, liquidity, or results of operations[203](index=203&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, were reported - No material changes to the risk factors disclosed in the 2021 10-K were reported[204](index=204&type=chunk)
Sun ntry Airlines (SNCY) - 2021 Q4 - Annual Report
2022-02-18 18:55
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-40217 Sun Country Airlines Holdings, Inc. (Exact name of registrant as specified in its charter) Delaware 82-4092570 (State or other jurisdiction of incorporati ...
Sun ntry Airlines (SNCY) - 2021 Q4 - Earnings Call Transcript
2022-02-08 18:03
Sun Country Airlines Holdings, Inc. (NASDAQ:SNCY) Q4 2021 Earnings Conference Call February 8, 2022 8:30 AM ET Company Participants Jude Bricker - CEO Dave Davis - President & CFO Gregory Mays - COO & EVP Grant Whitney - Chief Revenue Officer & EVP Chris Allen - Director, IR Conference Call Participants Hunter Keay - Wolfe Research Duane Pfennigwerth - Evercore ISI Brandon Oglenski - Barclays Catherine O'Brien - Goldman Sachs Chris Stathoulopoulos - Susquehanna Financial Group Operator Welcome to the Sun Co ...