Sun ntry Airlines (SNCY) - 2022 Q2 - Earnings Call Transcript

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]