Sun Country Airlines Holdings, Inc.

Welcome to the Sun Country or Alliance first quarter 2022 earnings call. My name is Cherry and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star 0. I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin.

Thank you. I'm joined today by Jude Bricker, our Chief Executive Officer, Dave Davis, President and Chief Financial Officer, and a ton of the group of others to help answer questions. Before we begin, I'd 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 that are based on 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 cautionary statements outlined in our earnings release and our most recent SEC filings. We assume no obligation to update any forelooking statements. You can find our first quarter earnings press release on the investor relations portion of our website at ir.suncountry.com. With that said, I'd like to turn the call over to Jude.

Thanks, Chris. Good morning, everyone. After nearly two years since the onset of the COVID pandemic, demand for air travel in the first quarter returned to pre-pandemic levels. While it's been a long and challenging time for our industry and its employees, the last two years have shown the resiliency of Sun Country and what makes us truly unique. We believe we have the best people in the industry, and I'm proud of them on a daily basis serving our growing leisure, charter, and cargo customer base. While the industry now faces a certain challenge, I want to take a few minutes to highlight some differences here at Sun Country versus the broader industries. First, we're already profitable. We were profitable in the first quarter. We've been profitable through most of the pandemic. Although we're tremendously excited about our growth prospects, we're not reliant on growth to deliver consistent profitability and cash flow. Second, our charter and cargo segments produce strong results and predictable cash flow in all demand and fuel environments. These businesses are primarily under long-term contracts with premier partners such as Major League Soccer, Caesars, and Amazon. We pass through fuel costs. to the consumer. Third, and importantly, the synergies between our cargo, charter, and scheduled service segments have never been more apparent as they are today. Because of the consistency of charter and cargo, we have the flexibility to adjust our scheduled service operations to deliver in all circumstances. So in the second quarter, in response to the fuel environment, We've been able to focus our growth on peak periods where fares can be achieved that compensate us for our fuel costs. And because of that peak focus, we expect to be able to deliver much stronger schedule of service unit revenue growth in 2Q versus the industry. While it's great the industry is seeing a resurgence in demand, our improved unit revenue will be as much a result of our own doing and design. Fourth, we deleveraged through the pandemic. Our future CapEx can be adjusted for aircraft prices, interest rates, and the opportunity to deploy the asset. The pandemic produced many opportunities for us to purchase growth aircraft at attractive prices. Today, we have seven aircraft that have been purchased and financed that will enter the fleet over the next nine months. In the first quarter, we grew block hours by 30% versus the same quarter in 2019. Through this time next year, we expect to continue to deliver over 20% growth without future CapEx while deleveraging as our debt amortizes and producing positive cash flow, adding to our already strong liquidity position. Finally, as you all know, we ratified a contract with our pilot group in December. This has allowed us to attract the quality and quantity of talented aviators needed to support our growth. But it also gives us more certainty in our costs as compared to having an open contract in this environment. Again, I'm so proud of all our team members here in Sun Country and what we've achieved to date and excited about the future. With that, I'll turn it over to Dave.

Thanks, Jude. Q1 was another profitable quarter at Sun Country, including our sixth consecutive quarter of greater than 15% EBITDA margins. We're very pleased with these results, given high fuel prices throughout the quarter and Omicron-driven demand softness prior to President's Day. Our numbers demonstrate, again, the benefits of Sun Country's unique and highly resilient business model. We can quickly adjust our capacity and the allocation of our flying between segments in reaction to exogenous factors like the much higher fuel costs that we're experiencing today. Adjusted pre-tax earnings for the quarter were $15.7 million, and adjusted EPS was $0.20 a share on revenue of $226.5 million, a record for Sun Country. Q1 adjusted operating margin was 10%, which we believe to be industry-leading. Our total Q1 block hours were up 30%, and ASMs were up 6.3% versus Q1 of 19. The quarter was a tale of two halves. Bookings were soft in January, but since President's Day, we have seen some of the strongest demand in our history. Our total average fare in Q1 of $183 was 7% higher than the comparable number in Q1 of 19. Included in this is ancillary revenue per passenger of $49, which was the highest in the history of our company. In terms of quarterly unit revenue, scheduled service TRASM was down 1% on a 10% increase in scheduled service ASMs. when compared to the first quarter of 19. However, scheduled service TRASM in March increased 4% versus 2019, while scheduled service capacity was up 8%. Charter revenue for the quarter was $32.9 million. Q1 was the third consecutive quarter where charter revenue per block hour was higher than in 2019, and flying done under longer-term contracts made up over 70% of the charter flying we did during the quarter. Flying under our agreements with MLS and Caesars was ramping up during Q1 and will be fully operating in Q2. Charter block hours for the quarter were down 14.3% in total versus Q1 of 2019 due to reduced ad hoc flying as we chose to prioritize scheduled service and cargo while we ramp up pilot hiring under our new contract. For example, we're typically one of the largest charter carriers for the NCAA basketball tournament, but we didn't participate this year due to capacity constraints. We'll return to this type of flying in the future as our staffing picture steadily improves, again illustrating the unique optionality that our three-prong model affords us. Cargo revenue in the quarter of $21.1 million was down slightly when compared to the first quarter of last year due to the timing of planned heavy maintenance checks. Recall, we did not begin cargo flying until May of 2020. On the cost front, we continued to maintain solid cost discipline in the first quarter. Despite Q1 being the first full quarter of operating under our new pilot agreement, our adjusted chasm of 6.21 cents was only 0.6% higher than Q1 of 2019. Excluding fuel and special items, total cost per block hour in the first quarter was 5.9% below Q1 of 19, despite the cost of our new pilot agreement. We paid an average of $3.20 per gallon for fuel during the quarter, which was significantly higher than our initial Q1 plan, and almost a dollar per gallon higher than it was in the first quarter of 19. In March, which was our heaviest flying month of the quarter, Fuel costs were $3.58 per gallon, yet we still produced an operating margin of greater than 20%. As we enter our seasonally weaker second quarter, we're pleased with how the quarter is shaping up. Demand continues to be robust with historically strong revenue trends. We expect total revenue to be up 24% to 30% versus the second quarter of 2019 on 22% to 26% higher block hours. These growth trends imply scheduled service TRASM growth of a remarkable 25% to 34% over the same period. We expect operating margin to be in the plus 5% to 9% range for the quarter, even in spite of forecasting a fuel price of $3.50 per gallon and facing some unit cost headwinds in Q2. We're right-sizing our capacity to maximize profitability in a high-fuel environment while responding to staffing challenges. We continue to see strong application numbers from prospective new pilots, and we are filling all of our new hire classes. As we implement our new agreement, we're expanding our training capacity and plan to increase the size of our new hire classes, allowing us to grow faster in future quarters. Finally, our balance sheet remains very strong. We closed the quarter with $297 million in liquidity and completed a double ETC aircraft financing for $188 million with an average interest rate of just over 5%. We expect the refinancing to save us over $2 million per year in ownership costs. We had approximately $15 million of positive free cash flow during the quarter, excluding aircraft capex. We expect to generate strong free cash flow for the year. Of the eight aircraft we plan to acquire this year, we've already closed on seven. Additionally, no significant non-aircraft capital expenditures for the remainder of 2022 are expected. With that, I'll open it up to questions.

As a reminder, to ask a question, you will need to press star one on your telephone keypad. Again, that's star and the number one on your telephone. Your first question comes in the line of Ravi Shankar from Morgan Stanley. Your line is now open.

Thanks, gentlemen. First question on the cargo side. Obviously, we heard from your primary cargo customer recently that they may actually have some excess capacity in their fulfillment network for the first time in a long time. Does this have any impact on the schedule they're flying with you guys and how full the aircraft are, etc.? ?

No, we fly the same amount now as we did when we fully stood up the airplanes to 12 aircraft. And for the foreseeable future, the schedules that we see continue to have the same volume. A little commentary on cargo, though, is keep in mind it's a long-term contract with escalation annually that's fixed. One of the biggest costs associated with it as fuel is passed through then is pilots. And our pilot contract went into effect in January. So, you know, the margins of that business are tighter now than they were last year and will widen as the escalation outpaces pilot rate increases and the juniorization as we hire more pilots. So we expect those margins to widen as we look forward into the future.

Thanks for that detail. What is the timing of the escalator going into effect? Like, what time of the year is that?

The calendar year.

Calendar, okay, got it. And follow-up question is, just on the charter side, I mean, you said that you didn't fly the NCAA planes this time because of availability, and that makes sense. I'm just wondering kind of how much flexibility you guys have in your charter contracts, because I think one of the Good things about those contracts is that they're long-term contracts and they're pretty sticky. But you guys do have the flexibility to not fly them if you didn't want to?

I think – hey, Ravi, it's Dave. I think the way to think about it is this way. Remember, our charter business is composed of a fixed component, or basically a component under contract, I'll call it, which we fly and we want to continue to fly and we will. And then we have this ad hoc segment. The NCAA basketball, for instance, fell in the ad hoc segment. That stuff we pick up on a near-term basis. That's where all of our flexibility resides. And as we're prioritizing the use of our resources, let's say pilots, whatever the constraining resources is at any time, that's sort of the last thing on the totem pole because we don't need to bid it if we don't have the pilot hours available.

Yeah, a little bit more on that. So we have 17 airplanes in track and cargo. Those are fixed. production, margin, businesses. And then the rest of it we adjust for the yield environment or for fuel prices. Most of that's in schedule. And then ad hoc, which comes at the very end of our planning horizon, we can adjust for the staffing situation at the time, the opportunity cost from sketch service, anything really.

Got it. That makes sense. Thank you.

Your next question comes from the line of Dewan Fenningworth from Evercore. Your line is now open.

Hey, Dewan here. Nice to speak to you. Just on the block hours, can you put a finer point on the composition within there? Understand, you know, 1Q is a bigger quarter for you historically than on scheduled service, but wonder if you could sort of give any color on the composition sequentially, and I guess any high-level thoughts about the balance of the year.

I actually just happen to have a couple of those numbers in front of me, Duann. So, scheduled service block hours were 66% of our total in the first quarter. Charter was 11%, and cargo was 22%. As we move into the year, I mean, remember, Q1 is our big quarter, particularly from a scheduled service perspective. So as we move into the year, particularly in Q2, there will be a modest shift away from the scheduled service business into the charter business, you know, as we reallocate resources there. Also, our MLS and caesar's contracts i think caesar's didn't get really started until march um so that's really ramping up now and that'll that'll be a bigger piece of our flying in the second quarter as well the cargo business the number i gave you it's you know plus or minus percent or two on a quarterly basis okay that that's helpful and then just on um

on scheduled service, you know, it's natural in the face of, like, what fuel did that you'd pull back on that and protect your margins. And obviously, the revenue environment has played out such that, you know, it's been a lot stronger, certainly a lot stronger than what we were looking for. So, you know, if it's possible, can you talk about, you know, for the growth that we see in the schedules, how much of that was sort of proactively protecting your margins, and maybe in an ideal world you'd actually have, you know, more of that out there than what's been cut versus, you know, this idea of constraint. Is it constraint that's driving what's in SCED service, or was it just maybe being overly aggressive and taking down growth?

Yeah. So first, I mean, keep in mind that we're still having a distribution of opportunities that include weak and strong flights. So the response to higher fuel prices is now and will always be that we cut these weaker flights. Now, we're seeing broad-based demand improvements. So, you know, weak is better, but peak periods are even better. And so, you know, Most of the cuts that we did are a response to the high fuel prices. We certainly have looked at, you know, really peak opportunities where we can, you know, we're tight on crews and, you know, we're thinking always about how we can allocate those across the opportunity set. Keep in mind also fuel prices overly expense long haul. So you look at some of the cuts we made, you know, that's because of, fuel prices we're just trying to get those flights out of the out of the sketch service business so you know we can't give you an exact answer but we're just always modifying the schedule based on inputs to include the yield environment and the fuel prices and you know trying to continually hit a hurdle rate in every given period that makes that makes sense and um

As we look out to maybe the third quarter, you know, what is, you know, sort of planned and baked? And, you know, if we looked at what's in the schedules for third quarter, would we be taking, you know, the over on that at this point based on how strong revenue is? And I appreciate you taking the questions.

Yeah, I mean, our third quarter plan, we think, is appropriate at today's forward curve. which is in backwardation. So if we don't get a decline in fuel prices, we'll probably have to cut a little bit more. And if fuel falls faster than we expect, then we'll probably have some opportunities to add. The seasonality in Minneapolis tends to go all the way through Labor Day. And also we have a big Texas operation with travel to Mexico. And all of that looks really, really strong. But I don't see it improving from where we are today. In other words, you know, I think we're probably about right. Yeah.

Okay. Very clear. Thank you.

Your next question comes to the line of Brandon Oglansky from Barclays. Your line is now open.

Hey, good afternoon, Jude and Dave. Thanks for taking the question. I guess maybe to be more explicit, if we look at 2Q schedules right now, ASMs are down about 6%. Does that sound about right?

Yeah, that's about right.

Okay. Jude, I think you mentioned, you know, some constraints as well, though, on the staffing side. Can you talk to, you know, the new pilot contract and if that's helped you on attrition or not? And I think you mentioned new hire classes are full as well.

Yeah, our new hire classes remain full for pilots. We're hiring about 20 a month. That began in the winter and continues on today. The company, we have, you know, Sun Country has been around for a long time and traditionally was hiring five or so a month on a, you know, lumpy basis. And now we're growing sort of at unprecedented rates. And we're starting to hit bottlenecks across you know, the training production timeline to include SIMS, which we have, we went from one to two, we need to go to three, check airmen, which we're in the process of training more and getting more approval from the FAA for more of those. So we're eliminating these bottlenecks, but, you know, we're just, you know, we're growing at 30%, and that's difficult to do in this environment.

The other thing, hey, Brandon, it's Dave. The other thing I want to point out is, you know, you can look at sort of our ASM production relative to 2019. That's one metric, but a more relevant metric for us is total block hours because we've got this big cargo business now that we didn't have two years, three years ago or whatever. You know, when you look on that metric, we're up 25% in terms of total capacity in the second quarter. So, you know, the growth continues to be very robust. You know, Jude pointed out sort of what we're doing on the pilot front. I mean, I think this is the, this has sort of been the trend. I said on the last call, we experienced high levels of attrition in like the October, September, October timeframe of last year. We did the deal. Attrition has moderated and come down. It hasn't come down to what it was before, which we wouldn't expect it to given all the hiring at Legacy Carriers. So what we've done is we have increased the size of our new hire classes, and the good news is applications continue very strong, and we're filling our new hire classes. So it's not a front end of the funnel anymore. That looks to be solved. What we're working on now diligently is expanding the size, the aperture of that funnel, so that we can get our classes up even larger and continue the growth sort of going forward. We're making good progress on that.

Gotcha, Dave. And one last one for me. I think you said, you know, rates were up like 30% with the new contracts, but you had a lot of efficiency offsets that you expected with it. Is that coming through as you expected?

Here's where that's going to come through. So we haven't seen a lot of it yet, so we expect some cost reductions in the future. One of the biggest ones is PBS, so preferential bidding, which most other airlines have, we didn't have. That is not slated to come online until really the first quarter of next year. So that'll be, we think, a pretty big step change in efficiency. There's some of the other stuff that we're seeing that is bearing some fruit, some of the commuter stuff, but that PBS change is going to be the big benefit to us.

Okay, thank you.

Thanks, Brandon.

Your next question comes from the line of Catherine O'Brien from Goldman Sachs. Your line is now open.

Hey, good afternoon, everyone. Hey, Katie. Hey, guys. So I'm going to stick on this cost question. So, you know, I'm sure the 30% increase in block hours help drive efficiencies across fixed costs, but you do have the new pilot contracts, and you just said one of the biggest productivity offsets isn't coming until next year, but you still saw cost tax fuel on a per block hour basis down 6% from 19. Could you just give us some more color on, like, what line items are helping you drive that result? Thanks.

Yeah, I mean, there's a few things. One is just we're bigger, so we're spreading costs, overhead over more block hours, which is also reflected in our CASM number. We've done a lot of work, as we've talked about a number of times here on the fleet front over the last few years and driven our ownership costs, which is one of our biggest cost items, clearly. down significantly in excess of 25% over the last several years. So that's bearing fruit. We've taken our distribution costs down through a number of initiatives that we've sort of had in work. So it's really sort of all over the map. We're working hard on reducing our maintenance costs. We've got an active program now buying green time engines as opposed to expensive overhauls, which is another benefit of our older fleet strategy. So it's items like that.

Got it. And so is there maybe just as we think about, you know, I think you said over the next year you're going to keep growing like 20% plus just with the aircraft you've got locked in. So should we continue to see that? Obviously, I know it's a little lumpy quarter to quarter, but just in general, like the versus 19, should we continue to see that, you know, the efficiency build versus 19? So... to drive that cost even lower? Just, you know, we've got PBS on the horizon, a couple other things, and then obviously more overhead spread.

Yeah, I mean, I can't give you the exact numbers in the quarters ahead, but all those concepts are absolutely still there. And particularly as we continue to grow and add flying, we'll continue to spread our costs out over more block hours.

Yeah, I think the input is fuel that we don't know, and how that affects ex-fuel chasm is that we will cut out some flying, you know, and grow less fast if fuel doesn't mean revert.

Yeah, that's the big wild card is how, you know, as we talked about before, we're very targeted in where we fly. We do it economically. We don't fly when we can't make money. So, you know, part of it is our growth is going to be tempered by both staffing as well as, you know, fuel costs.

Got it. That makes sense. And maybe just one quick last one on a related, just kind of going on, pulling on the same string. You know, as you said, fuel is obviously significantly higher than in 2019 and anyone's best guess where we're at next year. But just as we think about some of the changes to the business, I would think they would improve your run rate profitability, you know, adding the cargo business. I understand, you know, pilot costs maybe took a little bite out of margins this year, but but that improves going forward. And then, you know, while charter block hours are lower, your revenue per charter block hour is higher, you know, for these new contracts. Do you think if we get to the back half of the year, we could see margins surpass 2019 levels if fuel and demand stay relatively stable to where they are today? Thanks for all the time, Jen.

Yes, is the answer. I mean, I think the right way to think about our margins is when it's as good as it can get for everybody else, we'll be right there with them. And in all other circumstances, we'll lead the industry.

Very clear, Jude. Thank you.

Yep.

Your next question comes to the line of Scott Grew from Wolf Research. Your line is now open.

Thanks. Afternoon, guys. Hey. You talked about $49 of ancillary revenue per passenger. Where do you see that going from here, rest of the year or longer term?

I want to be careful here because we just launched a new product called the Passenger Interface Charge, which is going to displace fare pretty substantially. The ancillary products that are most relevant are ones that are accreted to total revenue per passenger. We think we have about $5 to $7 of upside in there based on third-party products, increased efficiency, effectiveness of our pricing in bags and seat assignments, and we're rolling out bundles, which is going to be really effective. But what you're going to see in our financials, just to warn you, is pretty rapid acceleration of our ancillary revenue per passenger because of that PIF. and that's just going to be a displacement of the airfare. So, you know, we're probably going to finish, you know, over 60.

But you're saying a lot of that is just a shift from one to the other.

Yeah, you know, all the ULCCs have a product like that, and we're doing one. That's all that it is. So, you know, you just need to be careful as you interpret comparisons across the industry for ancillary revenue for passenger, the stuff that matters is the stuff that is accretive to total revenue. And that is particularly, you know, you think about the stack of ancillary products, bag fees, people kind of expect to have to bring a bag and therefore it's priced into the airfare, seat assignment a little less so you don't have to buy one, onboard sales completely irrelevant to the airfare, Third-party product sales you're going to buy anyway, those are totally accretive. So, you know, there's a spectrum of incremental value associated with the product categories. The PIF, I think Allegiant calls it a customer convenience fee. It's a CIC, customer interface charge. It's frontier. I can't remember what Spear calls it, but they all have one, and it's basically just a fee that moves money from fare. Okay.

You know, as Jude pointed out, sort of the object here is obviously accretive to total revenue. So, you know, we've talked about $3 to $5 of upside in sort of truly accretive stuff. You know, yield management of seat pricing, getting more heavily involved in third-party products, which we started doing in the rental car business. So that's sort of coming down the road as well.

Okay. I know that... Follow-up on the Amazon cargo question from earlier. So I get no change in the business today. Do you think – does Amazon maybe having some excess capacity in the network change your timing of when you could get additional aircraft in your mind?

We've remained in discussion with them about growth opportunities, and I continue to believe that there are some. I mean, right now – Scheduled service is doing really well. We're not in a big rush to grow our cargo business, quite frankly. I mean, we need to try to continue to push peak period scheduled service, which is really strong today. It's our best thing right now.

Okay. And then just lastly, as we're seeing a little bit of an uptick in cases, are you seeing any changes in the demand environment as cases move a little higher?

No, none at all. It's a steady hill of average airfare sold every day. It gets higher and higher as we push into the summer. It's linear. This kind of inflection point, I know you're hearing all the CEOs across the airline say it, but it's very rare. I can't think of another circumstance where we've seen this variance from mid-February where we Saw this inflection point and no signs of slowing down. And the capacity backdrop in the U.S. looks really accretive. You're going to pay a lot to travel because there's not enough seats out there. I can't imagine it turning around anytime soon.

Okay. Thank you, guys. Appreciate the time. Thanks, Scott.

Again, everyone, if you have questions, please press star 1 on your telephone keypad. Again, that star is in the number 1 on your telephone. Your next question comes in the line of Mike Linenberg from Douche Bank. Your line is now open.

Oh, hey. Hey, good afternoon, guys. I guess just a quick one here on fuel days, 350 per gallon. Presumably that's the strip. What's the date? And maybe are you benefiting from better prices, Chicago mid-con? You're not dealing with New York Harbor. That did seem to be a bit lower.

Yeah, that's the strip, along with some assumption for some crack spread narrowing, to be honest with you. That's probably, I don't know, four or five days, six days old, something like that. You know, we think racks are going to come in. You know, obviously the bulk of the fuel we buy is here in Minneapolis. So our exposure to the Northeast is very minimal, but that continues to be where most of our fuel comes from.

Probably more relevant as you compare our fuel price to the rest of the industry is the seasonality of our business within the volatile fuel environment. So if you look to the first quarter, we probably paid a little higher fuel price, a significantly higher fuel price than comps. And that's because the majority, as compared to them, more of our flying happened in March when fuel was higher, which is, you know, that's our business plan. And the same exists in the second quarter where we're going to be really heavy in June relative to the other two months of the quarter. You know, it's the reverse in the third quarter, etc.,

Okay, now that's helpful. And then, you know, this last quarter, I mean, you did make a pretty meaningful shift to your scheduled capacity, and it's, look, it's the right thing. I mean, you know, pulling down things like Minneapolis to Fairbanks and obviously West Coast to Hawaii, I mean, you know, it starts getting really expensive, Jude, as you said, some of these longer-haul flights, and given the fact that, you know, you're carrying fuel, you know, to carry the fuel to get you to that destination with these 7-3s. I'm curious... You know, two, three months ago, sort of on a block hour basis, where that mix was. I know you said you were 66% in the March quarter. June quarter, it looks like it's going to be a little bit less than for scheduled. Two, three months ago, what were you, above 70? And maybe there was less for charter. And now you've been able to shift. And it's not just airplanes, but I guess it's shifting pilots from scheduled maybe to backfill pilots on reserve at the cargo business.

Yeah, let me first just talk about pilots. I mean, our pilot group supports all lines of flying always. So we integrate it in particular trips, and we have a single crew base, and they go out and fly SCAD, and then they might fly a charter, and then they may fly a cargo, and then all in one trip. So it's very integrated, and that gives us a lot of the efficiencies. And so optimally we're at about 25%. fixed flying 75% SCED, we think, which gives us the ability on a typical seasonality that we would expect September versus March to draw down our SCED service to about a third of what it is in March and September. So, you know, and then there's all the variations of that inputs associated with the yield environment or fuel prices or anything else, competitive backdrop, aggressive or benign or whatever. But I think over time, we're going to kind of correct into that place where it's about 75-25 sked versus track and cargo, which basically operate the same in our business. And Grant, anything else?

Hi, Mike. This is Gray. Yeah, all I would say is the team does a really good job of optimizing based on forecasted best margins. And so, if you would have stepped back in time, we definitely made the adjustments you commented on from a scheduled service, which were absolutely the right ones done through a strategic framework. And then on the charter side, we absolutely, as Dave mentioned, we have these ad hoc customers that are relatively close in, and we can pick and choose there as well. So, you'll see a little bit of reduction there, but still executing and operating at a high level for our biggest customers. But, you know, this team does a really good job of optimizing to drive the most amount of value.

Very good. Thanks. Thanks for your time, everyone. Thanks, Mike.

Thanks, Mike.

Your next question comes in the line of Chris Estatulo-Tullo from Susquehanna. Your line is now open.

Hey, good afternoon. Thanks for taking my question. So I just want to get to this demand or perhaps TRASM outlook in a different way. So mask mandates off here, summer travel around the corner. If you could give some color with respect to what the zero to 60 day booking window looks like and how does it compare to this time last year and then let's say three to five years on average pre-pandemic and then further out so Let's say 60-plus days, are you having to stimulate a discount, excuse me, to stimulate demand, or is marketing and whatever you normally do around with your RMS teams sufficient to fill out your kind of required load factors into the second half? Thank you.

Hey, Chris, let me make a couple of general comments, and I'll throw it over to Grant. Right now, we're not doing any stimulation pricing. It is a – if there's low prices and a flight is cut, we just won't fly it. You know, one of the things I think you may be getting at is kind of when we went into this new pricing environment after Omicron, kind of how quickly are we going to react to the new environment? And so mid-February is when we saw the change in booking behavior and demand really recovered strongly. You know, we just came through COVID with all its ups and downs, and I'd probably give us a grace of about two weeks to the end of February to kind of, all right, this is real and different and good, where we would say, okay, now we're pricing in the new environment. And, you know, we had sold in the second quarter about a third of our segments by the end of February with two-thirds yet to be priced into the new environment, and it's about 15%. at the third quarter. So yields will go up just because more of the seats will be sold into the new environment. But of fairs sold post-March 1st, it's kind of on a year-over-three-year basis, you know, high but, like, steady. And the days out of bookings are basically what they were back in the day. It's just, you know, back in 2019, it's just we're selling – a lot, um, a lot higher fares and fares up, you know, I would say like 50%. I mean, it's a big move. Um, one other comment is that, you know, fares are on a heuristic algorithm. So, you know, activity, booking activity creates higher fares by nature. And, um, So our algorithms just sort of naturally adjust, and so we're able to take advantage of it even in advance of kind of realigning our expectations. Grant, anything to add?

No, and the only thing I would add to that, Jude, is the team. We have teams, the revenue management, the yield management team, especially these are folks who know these markets really, really well. They manage these on a flight-by-flight basis, day-by-day basis. So they're seeing this, and they're doing a really good job of making sure that we are selling fares at the highest level that the market will bear, being cognizant of other things. The other thing is I would just echo Jude's sentiment. When we put schedules out, we absolutely expect every flight to drive value for the airline. So we're not doing any stimulation whatsoever. And the schedules we have out in the future, there's been a lot of thought and just input from stakeholders on what's the best schedule for some country.

Great. Good call. Thanks for the time.

Thanks, Chris.

Your next question comes in the line of Dwayne Fenningworth from EveryCore. Your line is now open.

Hey, thank you for the follow-up. So when we look at kind of the model historically in scheduled service, you've had good revenue. You've had decent fares. You've had decent yields. It hasn't been as much of a sort of push all the way on loads. But just given how tight you are with capacity right now, actively deciding to be tight with capacity, should we be thinking about loads a little bit differently for the balance of this year?

It's a good question, and I'll let Grant answer it, but I just want to highlight a couple differences that we have. We do a lot of seasonal flying. The nature of seasonal flying, when it begins and ends, is that there's a naked leg, right? So, you know, your first round trip to Central America, the plane's full down but empty back because nobody was able to fly down and be on that return flight. So, you know, I would say probably our... steady state load factors is a touch lower than what you would expect to see in Southwest, for example.

Yeah, but we do cater the schedule to fly when people want to fly. So a lot of the unit revenue increases are certainly going to come through fair. But it's really, you know, the team's doing a good job getting people on the airplanes. We fly when people want to fly, so we're getting the ancillary benefit from that as well. And if you do sort of take a step down into the depths of where we're allocating capacity, we're still doing that in a very strategic way. So while at a system level we may be down, you can absolutely look at markets that we're really excited about, and we're making strategic cuts there. So I feel really good about how things are coming in for us. Helpful. Thank you.

Thanks, Dwayne.

All right. I am showing no further questions at this time. I would now like to turn the conference back to Jude Breaker.

Well, thanks for your interest, everybody, and thanks for spending the time with us. Talk to you next quarter.

This concludes today's conference call. Thank you all for your participation. You may now disconnect.