Sun Country Cites Industry Overcapacity As 2Q Pax Revenue Shrinks 21%

Summary

  • Airlines facing overcapacity and dropping fares as they critically evaluate routes in response to challenging market conditions.
  • Sun Country Airlines adapting with diversified revenue streams, leading to strong financial results despite overcapacity pressures.
  • Company’s unique model includes expanding cargo services with Amazon, adjusting scheduled service to accommodate growth.

As airlines worldwide report their quarterly and half-yearly results, it’s clear that the industry is at an inflection point, with capacity outstripping supply and fares dropping. If 2023 was the year of the big ramp-up, then 2024 is turning into the big ramp-down, with airlines critically evaluating their routes and weeding out the unprofitable ones.

Overcapacity at Sun Country

Last week, Minneapolis-based Sun Country Airlines released its financial results covering the three and six months ending June 30, highlighting how this scenario is playing out. For the quarter ended June 30 (2Q24), the airline reported scheduled service revenue falling year-on-year (YoY) by 21.0% while capacity, as measured by available seat miles (ASM), increased by 18.2% and the average base fare per passenger plummeted by 31.9%.

A Sun Country Airlines Boeing 737-800 flying overhead.

Photo: Joe Kunzler | Simple Flying

Sun Country Airlines (Sun Country) is a diversified business operating scheduled, charter and cargo services, insulating itself to some extent from the vagaries of the commercial airline market. The benefit of having a range of revenue streams is that despite those falls, the company reported 2Q24 total revenue of $254.4 million, which is just 2.6% less than in 2Q23.

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Analysis: Why Sun Country Airlines Shifted To A Low-Cost Model

After being bought out, Sun Country has switched to an ultra-low-cost business model with a twist.

The airline reported net income of $1.8 million and income before tax of $3.1 million, while adjusted income before tax was $4.7 million. Sun Country CEO Jude Bricker said the airline’s financial results remain among the industry leaders at a particularly challenging time for low-cost airlines. Bricker attributes that to the unique, diversified model that the airline has built over the last six years.

Unit revenue down

Sun Country said that in 2Q24, the market continued to be impacted by overcapacity, which pressured unit revenue. In response it is slowing scheduled service ASM growth to an expected 7-8% increase YoY in the third quarter. The second quarter continued Sun Country’s two-year run of profitable quarters, and 2Q24 was the third consecutive quarter in which unit costs declined year-over-year.

A Sun Country Airlines Boeing 737 parked at Dallas Fort Worth

Photo: Austin Deppe | Shutterstock

Sun Country President and Chief Financial Officer Dave Davis said the strength of the Sun Country model is driven by the diversified revenue streams, which other carriers cannot readily duplicate. He added that the airline moves capacity to the lines of business that will maximize profitability, pointing to its revised deal with Amazon as a great example of the power of this diversification.

“As new Amazon aircraft come into service starting in the late-first quarter of 2025, we intend to moderately shrink our scheduled service business to accommodate Amazon growth. Our intent is to begin growing the scheduled service business again in 2026.”

In June, Sun Country signed an Amended and Restated Air Transport Services Agreement with Amazon, extending the contract through 2030 with options to extend through 2037. The airline currently operates 12 Boeing 737-800 freighters, which will progressively increase to 20 starting in early 2025, with all eight deployed by the third quarter of 2025.

Sun Country Airlines Boeing 737-800

Photo: Joe Kunzler | Simple Flying

In the three months ended June 30, Sun Country carried 1.7 million revenue passengers at a load factor of 83.1% on its scheduled services. The average base fare was $75.47, and the average ancillary revenue fare was $66.24, giving a total fare revenue of $141.71. In 2Q23, those numbers were $110.90, $66.43 and $177.33, showing a fare drop of 32%, while ancillary revenue is virtually unchanged.

Related

42 Years Since Its Foundation: The Story Of Sun Country Airlines

From its early years as a full-service leisure carrier to its modern-day ULCC and cargo operations, Sun Country Airlines has a varied history.

At the end of the second quarter, the airline operated 44 aircraft, including 12 cargo jets, and has seven aircraft currently on lease to unaffiliated airlines. These aircraft are expected to return to Sun Country in May 2025 and November 2025 and will be inducted into the airline’s fleet.

Sun Country also announced a new international service from Milwaukee, WI, to the Dominican Republic and Jamacia, and now offers the most international destinations from Milwaukee.

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