Source: Sun Country Airlines
- Q3 2022 GAAP diluted EPS of $0.18 and operating income of $15 million
- Q3 2022 Adjusted diluted EPS of $0.12(1) and adjusted operating income of $16 million(1)
Sun Country Airlines Holdings, Inc. (“Sun Country Airlines,” “Sun Country,” the “Company”) reported financial results for its third quarter ended September 30, 2022.
“The leisure demand environment remains very strong, as our third quarter scheduled service unit revenue increased 39% versus third quarter 2021,” said Jude Bricker, Chief Executive Officer of Sun Country. “Despite fuel prices that were higher than expected and the impact of Hurricane Ian on our Florida operations, we produced a GAAP operating margin of 6.9% and an adjusted operating income margin of 7.2%(1). Our business model continues to demonstrate its inherent resiliency. Even with fuel prices 83% higher than last year and staffing-driven constraints on our capacity, we generated a year-to-date GAAP and adjusted operating income margin of 6%(1).”
Overview of Third Quarter
| Three Months Ended September 30, | ||||||
| (unaudited) (in millions, except per share amounts) | 2022 | 2021(7) | % Change | |||
| Total Operating Revenue | $ | 221.7 | $ | 173.7 | 27.7 | |
| Operating Income | 15.4 | 21.3 | (27.8 | ) | ||
| Income Before Income Tax | 12.9 | 15.5 | (16.7 | ) | ||
| Net Income | 10.7 | 13.4 | (20.2 | ) | ||
| Diluted earnings per share | $ | 0.18 | $ | 0.22 | (18.2 | ) |
| Three Months Ended September 30, | ||||||
| (unaudited) (in millions, except per share amounts) | 2022 | 2021(7) | % Change | |||
| Adjusted Operating Income (1) | $ | 15.9 | $ | 22.2 | (28.6 | ) |
| Adjusted Income Before Income Tax (1) | 9.7 | 16.0 | (39.4 | ) | ||
| Adjusted Net Income (1) | 7.4 | 13.5 | (45.2 | ) | ||
| Adjusted diluted earnings per share (1) | $ | 0.12 | $ | 0.22 | (45.5 | ) |
| Nine Months Ended September 30, | ||||||
| (unaudited) (in millions, except per share amounts) | 2022 | 2021(7) | % Change | |||
| Total Operating Revenue | $ | 667.3 | $ | 450.5 | 48.1 | |
| Operating Income | 40.6 | 101.7 | (60.1 | ) | ||
| Income Before Income Tax | 14.5 | 100.8 | (85.6 | ) | ||
| Net Income | 10.4 | 82.3 | (87.4 | ) | ||
| Diluted earnings per share | $ | 0.17 | $ | 1.40 | (87.9 | ) |
| Nine Months Ended September 30, | |||||
| (unaudited) (in millions, except per share amounts) | 2022 | 2021(7) | % Change | ||
| Adjusted Operating Income (1) | $ | 42.6 | $ | 34.2 | 24.5 |
| Adjusted Income Before Income Tax (1) | 22.7 | 16.0 | 41.9 | ||
| Adjusted Net Income (1) | 17.9 | 12.5 | 43.2 | ||
| Adjusted diluted earnings per share (1) | $ | 0.29 | $ | 0.21 | 38.1 |
For the quarter ended September 30, 2022, Sun Country reported net income of $11 million and income before income tax of $13 million, on $222 million of revenue. Adjusted income before income tax for the quarter was $10 million(1). GAAP operating income during the quarter was $15 million, producing an operating margin of 6.9%, while adjusted operating income was $16 million(1), resulting in an adjusted operating income margin of 7.2%(1).
“Unit revenue has continued to strengthen throughout the quarter,” said Dave Davis, President and Chief Financial Officer. “Scheduled service TRASM(3) increased 39% year over year and 46% versus the third quarter of 2019 while TRASM(2), including charter revenue, increased 32% year over year and 38% versus third quarter 2019. We continue to make significant progress in expanding our pilot training pipeline and have hired 91 pilots in 2022, a 20% increase in the number of pilots at Sun Country. While we have seen substantial improvement in our training throughput, we still have work to do to generate the pilots that we need to support our growth plans. In the third quarter, we were smaller than we would like to be, putting pressure on unit costs. As we increase utilization closer to historical levels in 2023, we anticipate these pressures to ease. Third quarter performance was also impacted by Hurricane Ian, which reduced total revenue by an estimated $1 million.”
Notable Highlights
- Sun Country’s board of directors has authorized management to repurchase up to $50 million worth of SNCY shares. The Company’s intent in the near term is to enter into a $25 million Accelerated Share Repurchase (ASR) agreement with our brokering bank to allow the rapid retirement of acquired shares.
- Announced service to Destin-Fort Walton Beach, the 11th nonstop destination in Florida, from Minneapolis beginning in February 2023 and Melbourne, the 12th nonstop destination in Florida beginning in February 2023.
- Announced the expansion of service to Orlando, Florida from Eau Claire, Green Bay, and Madison, Wisconsin beginning in April 2023.
Capacity
System block hours flown during the third quarter of 2022 grew by 2% year over year. Training issues still challenged growth in our scheduled service flying with scheduled service block hours declining 2% year over year. Both cargo and charter block hours grew 2% and 21% respectively year over year.
Charter block hours under long-term contracts continue to remain the bulk of the charter flying performed in the third quarter. This comprised 80% of total charter flying versus 92% in the second quarter of 2022. As the Company begins to normalize its aircraft utilization, it should be able to pursue more ad-hoc charter flying.
Revenue
For the third quarter of 2022, the Company reported total revenue of $222 million, which was 28% more than the third quarter of 2021. The Company’s scheduled service TRASM(3) of 12.3 cents in the third quarter of 2022 increased 39% year over year while scheduled service ASMs decreased 3%. The third quarter 2022 total fare of $168 exceeded third quarter 2021 by 16% and included strong ancillary revenue per passenger of $55.
Charter service revenue is primarily generated through service provided to collegiate and professional sports teams, the U.S. Department of Defense, casinos, and other customers. In the third quarter of 2022, the Company’s charter service revenue was $43 million, an increase of 27% year over year. On a rate basis, third quarter 2022 charter revenue per block hour was 5% higher than the rate in the third quarter of 2021.
Cargo revenue consists of revenue earned from flying cargo aircraft under the Air Transportation Services Agreement (“ATSA”) with Amazon. In the third quarter of 2022, cargo revenue was $24 million, a 3% decrease versus the third quarter of 2021. The variance was primarily driven by a revenue benefit recognized in the prior year, slightly offset by a 2% increase in block hours.
Cost
For the third quarter of 2022, total GAAP operating expenses increased 35% year over year, primarily due to a 77% increase in aircraft fuel expense in the quarter. Adjusted CASM(1) in the third quarter increased 18% versus the third quarter 2021 on flat total ASMs and a decrease in daily aircraft utilization of 9% for the same period. Third quarter 2022 was also impacted by the new pilot agreement that was signed at the end of 2021.
Balance Sheet and Liquidity
Total liquidity(6) was $285 million on September 30, 2022, while the Company’s net debt(5) was $393 million.
| (in millions) | September 30, 2022 | December 31, 2021 | |||
| (Unaudited) | |||||
| Cash and Cash Equivalents | $ | 131.9 | $ | 309.3 | |
| Available-for-Sale Securities | 128.6 | — | |||
| Amount Available Under Revolving Credit Facility | 24.7 | 25.0 | |||
| Total Liquidity | $ | 285.2 | $ | 334.3 | |
| (in millions) | September 30, 2022 | December 31, 2021 | |||
| (Unaudited) | |||||
| Long-term Debt | $ | 370.2 | $ | 277.4 | |
| Finance Lease Obligations | 255.1 | 192.2 | |||
| Operating Lease Obligations | 27.8 | 76.0 | |||
| Total Debt and Lease Obligations | 653.1 | 545.6 | |||
| Cash and Cash Equivalents | 131.9 | 309.3 | |||
| Available-for-Sale Securities | 128.6 | — | |||
| Net Debt | $ | 392.6 | $ | 236.3 | |
Fleet
As of September 30, 2022, the Company had 42 aircraft in its passenger service fleet, and operated 12 freighter aircraft in its cargo operation.
Guidance for Fourth Quarter 2022
| Q4 2022 | H/(L) vs Q4 2021 | |
| Total revenue – millions | $220 to $230 | 27% to 33% |
| Economic fuel cost per gallon | $3.75 | |
| Operating income margin – percentage | 4% to 8% | |
| Effective tax rate | 23% | |
| Total system block hours – thousands | 32 to 33 | 9% to 12% |
Conference Call & Webcast Details
Sun Country Airlines will host a conference call to discuss its third quarter 2022 results at 4:30 p.m. Eastern Time on Tuesday, November 1, 2022. A live broadcast of the conference call will be available via the investor relations section of Sun Country Airlines’ website at https://ir.suncountry.com/news-events/events-and-presentations.
The online replay will be available on the same website approximately one hour after the call. The conference call can also be listened to live by accessing: https://register.vevent.com/register/BI679d9e5501af453b94af349d8dfc9784.