Sun Country Airlines Holdings, Inc.

Welcome to the Sun Country Airlines first quarter 2021 earnings call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then 1 on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Mr. Chris Allen, Director of Investor Relations. Mr. Allen, you may begin.

Thank you, and good morning, everyone. We issued our first quarter earnings press release last night to the Investor Relations portion of our website at ir.suncountry.com. Our first quarter 10Q is also expected to be filed tonight after the close. On the call with me, I'm joined today by Jude Bricker, our Chief Executive Officer, Dave Davis, President and Chief Financial Officer, and a host of others to help answer questions. Before we begin, I would like to remind everyone that during this call, the company may make certain statements that constitute forward-looking statements. Our remarks today may include forward-looking statements which are based upon management's current beliefs, expectations, and assumptions and are subject to risk and uncertainty. Actual results may differ materially. We encourage you to review the risk factors and the cautionary statements outlined in our earnings release and our most recent SEC filing. We assume no obligation to update any forward-looking statements. With that said, I would now like to turn the call over to Jude.

Thanks, Chris. Good morning, everyone. Welcome to Sun Country's first quarterly earnings call as a public company following the successful completion of our initial public offering in March. It's great to have all our new shareholders on board. I'll start with some brief commentary about our operational performance and then provide some color about the demand environment. During the first quarter, we had a perfect controllable completion factor. In fact, we had over 250 consecutive days without a controllable cancellation. This was done while also delivering first quarter on time of 85% and industry-leading baggage performance. It's been a really tough year for our people, and I'm so proud to have been a part of this team that delivered these impressive results through such adversity. Thank you to all our employees. I'm also proud of our financial results for the first quarter as we delivered positive operating margin, even adjusting out special items, which includes the Benefit of CARES grant. While we remain in an unpredictable demand environment, I'm encouraged by recent improvements that we're seeing in forward bookings. Demand really picked up around mid-February, and that momentum continues today. So first, for our scheduled service business, here are a few data points that give me confidence in a continued recovery. As of today, our summer schedule is sold to a higher load factor as compared to the same time in 2019. Also, we all know fares have been depressed throughout the pandemic. However, beginning in mid-March, our sole fares for summer travel have been in line with the same period in 2019, while ancillary unit revenues continue to trend well ahead. Our summer network is much more focused on VFR traffic than is our winter schedule, which tends to focus on vacationers. For the first time in the pandemic, we're starting to see VFR traffic returning. I think this is the progression of the recovery, which began with vacationers primarily to domestic Sunbelt destinations. A willingness to visit friends and relatives demonstrates increased comfort with the COVID situation. Our no-show rates have returned to pre-COVID levels, again demonstrating a traveler confidence. In March and April, our credit card sign-ups and credit card spend exceeded pre-COVID comps. This indicates consumer desire for future air travel with us. Finally, we're seeing substantial booking demand for far future itineraries. During the pandemic, we experienced extremely compressed booking curves, understandably. Recently, however, we've been taking substantial bookings throughout our selling schedule, including into the first quarter of 2022. Based on these inputs, we're planning a continued recovery of scheduled service through the end of the year. Separately, our charter business continues to improve. We focus on three broad charter areas, starting with our track programs, which consist of three dedicated aircraft. Two of our aircraft in track programs are up and running, with the third scheduled to restart in the third quarter. Next, our sports programs, which have recently produced pre-COVID volumes as March Madness has returned, and our Major League Soccer program picked up in April. And finally, our military flying, which is yet to recover. However, military tends to peak during summer months. Lastly, our cargo business continues to perform well. First quarter 2021 marks the first quarter where we flew a full cargo schedule with all 12 committed aircraft. The program only began in May of last year, and it's a testament to our operations professionals that we're able to stand up that program so rapidly in the middle of a pandemic. We expect stable volumes from our cargo business going forward. While we're obviously not through with the pandemic, our financial performance and balance sheet allow us to now focus on making smart investments in our future. Broadly, that means taking advantage of the used aircraft market, finding network growth opportunities, and making the appropriate investments so that we can continue our operating performance as we grow into the recovery. Along those lines, there are a few highlights from the first quarter. We went public and paid back our government loan. We've committed to the purchase of three growth aircraft through a finance lease structure. We announced two separate major network expansions, a summer 21 expansion focused on Minneapolis VFR markets like Indianapolis and Houston, plus more Cancun service out of summer peak origination markets like San Antonio. Then last month, we announced a major expansion for our winter 21-22 schedule, which was focused on expanding our footprint for leisure travelers across the Upper Midwest, highlighted by our launch of service from Milwaukee, Green Bay, Duluth, and Rochester, Minnesota, and also new Minneapolis service to destinations like Grand Cayman and Turks, plus an expansion of our popular bus connecting service branded as Landline to smaller cities across Minnesota. I'll now turn the call over to Dave who will discuss our financial results and outlook.

Thanks, Jude. I'll review our financial first quarter results in more detail and provide an update on our balance sheet and liquidity position before we move into Q&A. For the three months ended March 31st, 2021, total operating revenue was $127.6 million, a decrease of $52.7 million, or 29% compared to Q1 of 2020, and 35% compared to Q1 of 19. The decrease was driven largely by a 52% drop to $54.6 million in scheduled service revenue versus Q1 20, resulting from the ongoing impact from the COVID-19 pandemic, particularly in January and February. The company saw improving demand during the quarter as the number of vaccinations in the country increased and normal seasonal leisure demand patterns began to return. Average fare in the first quarter of 2021 declined 30% to $98.77 versus $140.34 in the same period last year. Despite the decline in base fare, ancillary revenue per passenger was essentially flat, going from $43.04 in the first quarter of 2020 to $42.98 in the first quarter of 2021. Charter service revenue held up relatively well and decreased by only $3.4 million or 12% to $25.8 million versus Q1 of 20. The return of some of our sports charters offset continued weakness among casino operators. Our first quarter results were greatly strengthened by 21.6 million in revenue from our cargo services segment which commenced in May of 2020 and therefore wasn't present in last year's first quarter numbers. Our cargo service revenue comes from our air transportation services agreement with Amazon. Total operating expenses for the quarter decreased by 38% compared to the prior year period. Operating expense includes a net specialized items credit of $26.9 million consisting primarily of $32.2 million from the CARES Act payroll support program, offset by certain one-time items related to the purchase of five aircraft that were previously under operating leases here at Sun Country. Excluding these special items, we still had a positive operating income of $1.2 million and adjusted EBITDA of $19.4 million in the quarter. Of note, salaries, wages and benefits were up 16% and maintenance expense was up 42% primarily due to increased flying to support our cargo services business which did not exist at the same time last year as well as the timing of certain maintenance events. Aircraft rent expense dropped by 49% while depreciation increased 20% versus last year due to a double ETC financing we undertook in 2020 and the purchase of five aircraft in Q1 that were previously on lease. These purchases allowed us to further reduce our aircraft ownership costs and were financed using a delayed draw term loan facility. We also purchased the sixth aircraft off lease in the second quarter using the same financing facility. For all six aircraft, the total amount financed using this new facility was $80.5 million. As Jude mentioned, we successfully completed our IPO during Q1, which resulted in net proceeds of $224.7 million and the issuance of more than 10.4 million shares of common stock. With some of these proceeds, we repaid the $45 million CARES Act loan from the US Treasury that we originally took out in October of 20. The company ended the first quarter with liquidity of $295 million, which consisted of $269.6 million in existing cash and cash equivalents and a $25 million undrawn revolver. On April 29th, we received the first installment of $17.3 million from the third PSP grant program. Our total liquidity at the end of April was $325 million, consisting of $300 million in cash and $25 million in an undrawn revolver. We expect to receive the remainder of the third PSP grant, which we think will be around $17 million in May. Our strong balance sheet will allow us to fund our fleet growth plans. We're actively in the market for 737NGs that fit our cost parameters. We've seen a lot of aircraft coming available in recent months at attractive terms. As a reminder, Sun Country has no committed aircraft order book. and were able to fund our growth with low-cost aircraft purchased opportunistically in the used market. Turning now to our outlook, we saw a strong improvement in demand as we moved through the first quarter, and our base case assumption is that demand will return to pre-COVID levels steadily throughout 2021. Due to the seasonal nature of our business, the first quarter is typically the strongest of the year. Under normal conditions, our average fares and ASMs are typically lower in the second quarter than the first quarter, and CASM is typically higher in the second quarter than the first quarter. We expect the second quarter of 2021 to follow our typical pattern, with second quarter revenue down 20 to 24% versus 2019, capacity to be between 1.4 and 1.45 billion ASMs, and our adjusted chasm to come in between 6.4 and 6.7 cents. Assuming current demand trends continue, we're highly confident that we will meet our initial expectations for 2021 and beyond, even in an environment of higher expected fuel costs. As a reminder, total revenue in the second quarter of 2019 was $169.4 million, and details on 2019 can be found in our S-1. With that, I'll open it up to any questions.

Thank you. If you have a question, please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, please pick up the handset first before pressing the numbers. Once again, with your question, please press star, then 1. We have our first question from Hunter K. with Wolf Research. Please go ahead.

Good morning, everybody. Congratulations on the IPO.

Thanks, Hunter.

Of course. So how do we think about the long-term partnership with Amazon? I guess one way of asking this question, Jude, is if you were me, what would be the best way to model out revenue growth for the next three to five years?

Internally, for the next two to three years, we're looking at it as an annuity with a stable aircraft fleet of 12 aircraft that continue to produce reliable results with pass-through economics for fuel and heavy maintenance. So it's basically an annuity in our business. You're kind of angling for some guidance on growth of that fleet, and we don't have any plans for that to happen in the near future. You know, we continue to produce, I think, great results for them, and, you know, hopefully that results in some growth opportunities for us in the future, but we don't have anything that we can commit to. I think one of the challenges in interpreting the results, which we've yet to demonstrate, is the synergies between that business and our SCED business. Some countries always had a really seasonal business, and when we entered the contract before COVID had happened, the real value of that contract was to de-seasonalize our business so that we can be even more responsive to peak season demand in times like March and summer and the holidays. I'm excited to be able to demonstrate those results as we move forward. As you look at it on a segment basis, I think that understates the value of the cargo business as we look to grow out of the pandemic.

I got you. Thank you. And to that point, Jude, on the seasonality, this has always been a very 1Q, heavy EBIT margin business for some country. You mentioned that in the prepared remarks, too. But is there going to be a goal over the next few years to get a little more balance on a quarter-to-quarter basis, or are you pretty much just in the first quarter always? Yeah, go ahead.

Yeah, I mean, that's not really a stated goal. I think, you know, as we brought down our unit costs, More of summer should be good for us. I mean, we'll do a really nice business between Memorial Day and Labor Day. And that's just because the cost structure of the business relative to 18 and 17 and earlier is just substantially different today. So we'll be able to stimulate a lot of demand during that period. And then we've also found a lot of success in non-Minneapolis network opportunities. which tend to concentrate around the summer period. So our Hawaii network is doing quite well. Our Mexican Caribbean source markets, destination markets out of source markets in the south in the summertime are doing really well. So, yeah, I think the business will de-seasonalize, but there's nothing we can do to get people to travel in September or just be flying boxes.

Yeah, and that's actually a good lead to my last question is, How are you going to sell in ONDs where you don't have a strong point-of-sale presence? You mentioned San Antonio, for example. Is there a way to compete there in any other way other than price and just gunning for spill traffic?

No, it's price. I think over time we'll build a brand in the market like what we've done here. But people get on the airplane for price first, and that's why we're participants in the GDS distribution platforms, and meta will be really important to us for people to find our airfares. And in many of these cases, we shouldn't understate the value of having a peak schedule. So price is important, but averages are deceiving because we can have a higher average fare than most of the competitors in the market that would be low-cost carriers by competing with them on price, but only during the peakiest times.

Okay, great. Okay, thanks again. Thanks, Anna.

And we have our next question from Catherine O'Brien with Goldman Sachs. Please go ahead.

Hey, good morning, everyone. Congrats on the first call to public company. Thanks, Heather. So you guys, you know, you spoke to how attractive the used aircraft market is right now. We heard some pretty interesting numbers from one of your competitors just a couple days ago. Should we be expecting to see you guys be pretty active acquiring aircraft this year? I know we're still in the throes of COVID, but things looking a little better. You know, do you guys have a dry pattern in your balance sheet, or if not, would you consider raising capital this year?

Yeah, so this is Dave. I think the trends that you're hearing about in the used market for 737-800s are very similar to what we're seeing. And we have already signed up three incremental growth aircraft in the first quarter, and we're actively in the market for additional aircraft. I mean, we have a We have a growth plan built out into the future, and it's likely that we may accelerate some of those aircraft acquisitions into this year, just given sort of what we're seeing in the market. That's one of the advantages that we gained through the IPO was, you can look at our balance sheet, we got a really healthy liquidity position, so we got the powder to grow. That's not to say that we're just going to simply use cash off the balance sheet to do that. I think financing is available to us at pretty attractive terms as well, so we'll look at the most economic way to finance the aircraft, but we're very active in the used markets.

Great. And then maybe just like a quick shorter-term question. You know, some of your ultra-low-cost peers that we've heard from so far are planning on adding back more capacity in the second quarter. I think one's just north and the other one's just south of flat versus 2019. You know, are you seeing something in the demand environment that is driving your relatively more conservative capacity plans or is that some sort of structural constraint? We'd love to hear from you, Colleen. Thanks.

Well, we're getting higher fares than them for that reason. Look, I mean, the point is just that, you know, if you've got a bunch of pilots sitting on their hands, then you probably want to add some flying because it's, you know, you're chasing cash. All our pilots are fully employed right now because of our cargo business. So our block hour production is well above what it was in pre-COVID levels. And we have the metal to grow into a recovery when it's worthwhile. But in order to add substantially back the same scheduled service volumes as what we had, we're going to need to hire more crews. And so, you know, it's just different dynamics here for the add-backs to happen.

Got it. So maybe it would be fair to say, you know, just since your pilots are already busy, that allows you, and generating revenue on those, Amazon Flights allows you to perhaps be a little more focused on yield management versus load into the summer?

Absolutely. Yeah, that's accurate.

Great. Thank you so much for your time, everyone.

Sure.

And we have our next question from Mike Linenberg with Deutsche Bank. Please go ahead, sir.

Oh, yeah. Hey, good morning. Hey, Mike. Hey, Mike. Hey. To echo everybody else, congrats. Hey, on the ancillary... That's held up well. In fact, you indicated that it was sort of trending, you know, better than previously. How much of that is that you just have a more robust ancillary product or, you know, is some of that just additional uptake in, you know, sort of what it was previously, either better uptake, more robust program? And when we think about, you know, the innings on ancillary, I know that you guys did have sort of a later start than a lot of other ULCCs, LCCs. Sort of what inning are we in on ancillary and sort of rolling out the various elements?

Yeah, we're kind of in the seventh inning stretch right now. We really kicked off our ancillary growth with the migration over to the Navitare platform, which happened in the summer of 2019. And most of the momentum that we picked up immediately thereafter was in seat assignment and bag revenue. And that continues to grow, though at a much slower pace. Those product offerings will expand through machine learning and best practices with merchandising on the website. However, our recent growth is more focused on launching new products like our insurance product and getting our third-party sales, which are car rentals and hotels, back to, you know, what we had had in 2017, for example. And so, you know, and those are really value-add initiatives because they have very little impact on the airfare. If I raise bag fees, there's going to be a negative impact on airfare, so... you know, I'm just really bullish on ancillary. And there's, you know, we have some headroom left to go. It's, you know, I don't know, $4 or $5 that we're going to get over the next, you know, I don't know, year or two. But it's going to be largely focused on non-bag and seat unit revenue expansions.

Great, great. And then just a question to Dave. You know, we've seen, you know, some of the more profitable carriers that have had good profitability in the past under the CARES Act to be able to utilize the benefit of NOLs and go back four or five years. Now I know that there was a tax sharing agreement here with your primary shareholder. Should we anticipate that you do get some cash tax refunds in subsequent quarters from here? Is that out there as we think about liquidity? Can you just shed some light on that, if there's anything? Thanks.

Yeah, as I think is pretty typical with a private equity ownership like us, we have a tax receivable agreement with our owner. You know, I think you pointed it out. Given restrictions in the CARES Act, we really don't pay out anything under the TRA. While the CARES Act restrictions are in place, those go through March of 23 right now. Okay. Yeah. Yeah. So, you know, essentially during that period, we're going to get the benefit of our NOLs. Post that period, you should think of us for the most part as a kind of a full cash taxpayer as the benefit of the NOL will accrue to the owners.

Okay. Fair enough. Thanks, Dave. Thanks, everyone.

Thanks, Mike.

We have our next question from Brandon Oglenski with Barclays.

Hey, good morning and congrats, guys, on your first quarter as a public company. Thanks, Brandon. Jude, I wonder if you could just give us some clarification here. You did say the summer schedule is sold to a higher load factor, but I'm assuming you're relating that to the same period in time in the booking curve in 2019. And I think you also said fares are also coming in higher, but is that also in relation to the same time in the booking curve?

Yeah, so for clarity, as we... If we were to compare today versus the same period in 2019 and looking at summer bookings, which for us are between Memorial Day and Labor Day, our load factors for that period now are about a little bit higher than what they were in 2019, but there's less capacity. Fares for the last roughly 45 days have been selling at the same level as they were selling in the same period of 2019, but we've been selling the summer schedule for much longer than that, and the fares that we sold in advance of that period were lower. So we've seen a recovery in fares. We've seen a willingness of consumers to pay what they were paying in pre-COVID environment, but it just started about 45 days ago for the summer travel period. The color there also is that we're selling at a much higher ancillary level today as well, which is good.

Okay. This question is coming from a novice, but I would assume that in this type of environment where you're getting up in the booking curve, you're actually able now to revenue manage, and maybe that wasn't even possible 45 days ago.

Yeah, I mean, it's just such a dynamic environment. We don't expect the kind of close-in fair premiums that we had achieved like going into March period. So we expect a much flatter booking curve, if I had to guess. But it really depends on kind of what OA capacity does across the industry for the summer months. Thus far, carriers have been pretty controlled and restrained. Summer looks really good, but, you know, it's just been a really dynamic environment for the last year, so I can't make any predictions about what close and fair you're going to look like.

Okay, appreciate that. And, Dave, this is kind of a specific question, but are you guys going to be providing any block hour disclosure on the cargo business?

Yeah, so the queue will come out this afternoon, and there will be more of a breakdown about block hours by segment in that document.

Okay, great. So I guess more importantly then, do you view the Amazon contract as fully up and running now, so at the profitability levels you want to see? Or I guess what could potentially drive profitability of that business higher?

Yeah, I think you should probably think about it as fully up and running in the first quarter. We really got fully up and running at the end of last year. You know, there's an opportunity for some profit growth going forward. Obviously, if we grow the fleet at some point, there's an opportunity there, but there's also some escalators built in in later years. But I think for the time being, you should think about first quarter as kind of our number.

Okay. Appreciate it.

Thanks, guys. I just want to clarify one other thing from the last comment, Mike. So the CARES Act grants, The restrictions on exec comp go through March of 23. The restrictions on dividends only go through September of 22.

And thank you. I see that we have a follow-up question from Hunter K. with Wolf Research. Please go ahead, sir.

Thanks, Kim. So just, I guess, a couple more sort of just like philosophical questions for you guys here. You know, when you contemplate buying a used plane using cash versus debt or finance lease, whatever it might be, what are the things that you factor in other than just obviously just the pure economics? Is there anything philosophically attached? Is there a bias towards using cash and you have to be convinced of some other vehicle to use that, like overusing cash? What's the default way to think about buying planes?

I guess up until the IPO, the default way was thinking about how can we finance the aircraft. So we're in a bit of a new world. Look, I mean, for us, it's legitimately just sort of straight up what the economics are. We're obviously going to be a little bit more biased towards cash than we have been in the past. So if really attractive financing is available, you know, previously we were looking at really high LTV, you know, financings. That had an impact on the rate that we paid. Now, we don't need to do that anymore, and we can look at lower LTVs with better pricing. So that world is a little bit more open to us now, but I think you'll see us move forward with some combination of cash and financing. It's just we're seeing attractive financing out there, and as long as that's available, we're probably going to tap it.

Right now we're seeing, honestly, the structure being dictated more by the seller managing their book values than by, you know, whatever we prefer, which we're happy to do.

Yeah, I'm assuming that there's sort of like a, you know, they're an aversion to debt, you know, the corporate philosophy, but let's try to just keep our debt down and let's view buying a plane with cash as sort of having a de facto revolver available because it's an uncovered asset that we would buy or is it more just like, you know, we're not afraid to lever up your which folds into the next sort of philosophical question I have for you, Dave, is how do you think about the balance sheet philosophically? Is there a minimum cash balance you feel comfortable with? What are your general views on debt? Just tell us how you're going to think about managing the balance sheet over the next few years.

Yeah, I think our general philosophy overall is to keep our leverage ratio relatively low, particularly compared to our peers. We don't have an appetite for really leveraging up the balance sheet. I think we're probably pretty conservative in that respect. We've run the business with pretty low levels of cash before, and I'm confident in our ability to do that. We have ample cash on the balance sheet at this point. And as I said, we're going to use some of it to grow. But we don't have plans to significantly lever up the balance sheet here.

I mean, that's driven, in my mind, by a pursuit for the absolute flexibility, which is the core of our fundamental core, is to be able to be absolutely flexible with our capacity, and that is a fixed cost.

Yeah, okay. And, Jude, from your time at Allegiant, I think there were a couple of times where Allegiant got, I'm not saying this was your decision, but a little over its skis in terms of growth. Is there a maximum number of airplanes or capacity growth that you'd feel comfortable doing? pursuing in a year?

Well, last year was pretty big for us. I mean, we took on 15 airplanes. Greg's sitting here next to me sweating a little bit in my answer. You know, I think we can do about one a month pretty sustainably. But I think the important message there is that we're going to find airplanes that add values where we can generate the returns we think we should get. And if we don't get those airplanes, we're not going to buy them and not going to grow at the same rate. And if we do, we'll grow more rapidly. So, you know, the market prices of aircraft will be an input into our growth profile.

Yeah, I mean, I think we have a pretty well-structured growth plan over the next three years here, which is driven by a network plan and a knowledge of where we want to grow this business. So it's not... We're not just adding aircraft just for the sake of growth. As Jude pointed out, we need the kind of returns that we need in order to add aircraft. When I was talking about growing more quickly before, it's sort of pulling some of that forward just given the pretty unprecedented market for used aircraft right now.

Yeah, I mean, one of the problems the industry has is an airplane isn't always the same amount of production. If we get the right value, we can do the same amount of flying with more aircraft generating higher unit revenues because of our peak strategy.

Can I ask another question? Are there more people in the queue?

I'll lean into it. I think we... All right.

No, that's cool. I'm not trying to fill time. I legitimately think this is a good use of time. But the... Help us understand charter a little bit. It's an industry that, I understand what charter is, but I don't really know a lot about how it works in terms of how you sell the business and what the barriers to entry are. We saw United take some airplanes and start flying non-hub point-to-point, Columbus, Myrtle. What's preventing one of these network airlines from taking five airplanes and just throwing them into the charter business if their SCAD stuff doesn't recover as well as they want it to? What makes you guys have a competitive advantage in that market, and how does it generally work? What can you tell us about charter that we might not know about in terms of, like, maybe how relationships drive business and things like that?

Let me introduce Grant, who runs our charter business. Hey, Hunter, this is Grant. And I have some background in that space. So, you know, one of the things, they absolutely could devote the airplanes, but – What's really unique about the charter department is you need to have really close relationships, both internally and externally. Your customers sort of come to you late. They can change on the fly. And our organization handles that well. I think we do it as well as anyone in the industry. But big airlines, you know, those close-in changes and that, it can sometimes throw the operating side of the airline into a little bit of flux. So we do that really, really well. And you also mentioned relationships. Relationships with customers, they're just key in this business. And this airline has a long track record. And we've doubled down on that. We're doing a lot of work to just make sure we have great existing relationships. and then taking our brand on the road and introducing ourselves to new customers. I think there's a lot of opportunity in this space.

I mean, pure charter airlines haven't historically done very well financially because of the volatility in the charter space. And then pure SCAD carriers that are of scale are challenged with charters because of the required flexibility from the customers. So we're kind of uniquely positioned with both the flexibility and also the financial wherewithal to handle the variations in the business.

Yeah, and I think that comes back to our overall business model and the flexibility we talk about between these three segments. The unpredictability leads to the fact that we need to maintain lower costs, that somewhat lower utilization to be able to sit an airplane when we need to, so we're buying in the used market. We've tried to build sort of a holistic business model.

Yeah. Okay. Well, thanks for all the time, everybody. Appreciate it. Sure.

Thank you. We now have a follow-up from Brandon Oglenski with Barclays.

Hey, guys. I figured we could ask one, too. But I did want to touch on, you know, growing outside of Minneapolis and You know, Jude, does that create any difficulties going forward? Because I think MSP is your only base, right?

That's right. Yeah, I mean, you know, operationally we look at it as a strength. You know, I think as we mature as an airline, say, you know, four to five years from now, we might need to revisit this. But the flexibility of being able to fly a Hawaiian network and only doing it between Memorial Day and Labor Day without having to move crews around on a permanent basis is really valuable. Our Dallas network to the Mexican Caribbean markets is substantial, but it's really concentrated, again, Memorial Day to Labor Day. And we are effectively able to do it here out of Minneapolis. There's a little bit more cost because we position crews, but then we don't have to burden the operation in those markets with the shutdown in September. So I view it, you know, again, The next three to four years, we may need to revisit this, but right now it's working really well that we can be really efficient in seasonal markets. We also have the advantage of having a winter peak so that we're deploying capital or deploying assets when it's in most demand in other markets. So it's just really powerful right now. Those growth opportunities are just working really well.

But I would assume, you know, your Minneapolis opportunities probably have a little bit lower hurdle given, you know, your brand power in the market. Is that challenging outside of many?

In the upper Midwest, our brand is pretty strong. I mean, I think we've seen ads in Madison and other places that have worked really well for us. So I think there's definitely the strongest brand affinity is here in the Twin Cities, but you get into the upper Midwest in general, you know, I think the brand is still recognized.

Yeah, and this is Grant Brandon. One of the other benefits is Minneapolis is a big market, so you actually can do non-mini by being connected to the mini franchise as well. Think of Houston this summer. We turn on Houston, Cancun, which, as Jude mentioned before, we're going after the peak days of the peak season, and that's going to be a really successful plan for us. But we've also tied Minneapolis to Houston, which is a viable market as well. So we sort of get the benefits on both sides.

Okay. Thanks for the follow-up.

Sure.

And now we have a follow-up question from Catherine O'Brien with Goldman Sachs. Please go ahead.

Hey, guys. This is great. We always have more questions. So one for me. A longer-term one. As we think about, you know, the balance sheet from here, obviously, Dave, I know you just mentioned, like, there's no dividends allowed until 2022. we've seen growth airlines take different tacks with capital returns. Should we think about kind of for the medium term for you guys, even beyond that 2022 official restriction that the best piece of capital is going to be growth, or would you guys consider like share buybacks, special dividend? How are you guys thinking about that?

Here's honestly how we're thinking about it. Share buybacks aren't in my radar screen right now. I mean, we're focused on... on growing the airline, and we're restricted anyway for what, you know, another year and a half or so. So, you know, we're going to manage the balance sheet prudently, but at this point, we think we've got opportunity in front of us. The business model's working, so that's our focus.

Got it. And then maybe one on cost that sprung to mind when we talked about pilots already being fully employed. You know, across the industry, we're seeing a lot of other carriers who have, you know, costs stepping up in the first half of this year around getting, you know, pilots that were furloughed or on leave, retrained at the summer peak, putting aircraft back into the shop that's been in storage. You know, how do we think about that for you guys? I know, obviously, you were able to fly a bit more than the industry throughout, just given cargo and some of the charter opportunities. You know, should we see any pressure on those line items or have you really been fully, like that already happened a couple quarters ago? Thanks.

Yeah, I mean, one of the things to think about for Sun Country is we were actually bigger in the fourth quarter of 20 than we were at the beginning of 20 because of the Amazon business. So we didn't go through furloughs. I mean, I've been at network carriers before with multiple fleet types and you get into furloughs and shrinking and you're training down the system and it's turning a battleship to regrow it. We don't have any of that. First of all, our fleet's obviously one fleet type. And then we didn't get any smaller. So we didn't... We didn't furlough people. You know, going forward, the challenge is just going to be to continue to hire pilots and grow at the rate that we want to grow.

Yeah, and also juniorage is really valuable. So we're continuing to hire a new staff, and that keeps unit rates relatively moderate, which is going to be a standout in the industry as other carriers have, you know, done the opposite.

Got it. Thanks for the extra time.

Yep. And thank you. We have no further questions. I will now turn the call over to Jude Bricker for closing remarks.

Well, thanks for your participation in our first ever earnings call. We're excited to have our new investors and we're excited about the future and talk to you guys again in 90 days. Thank you. Thanks.

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.