Sun Country Airlines Holdings, Inc.

Hello and welcome to the Sun Country Airlines first quarter 2023 earnings call. My name is Andrew and I'll be your operator for today's call. At this time, all participants are on a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand has been raised. To lower your hand, Press star 1-1 again. Please be advised that today's conference is being recorded. 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, Chief Executive Officer, Dave Davis, President and Chief Financial Officer, and a 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 and constitute poor-looking statements. Our remarks today may include forward-looking statements that were based upon management's current beliefs, expectations, and assumptions, and are subject to risk and certainty. 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 forward-looking 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 now like to turn the call over to Jude.

Thank you, Chris. Good morning, everyone. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we're able to deliver the most flexible scheduled service capacity in the industry. The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages, we'll be able to reliably deliver the industry leading profitability throughout all cycles. Our low frequency model is being able to deliver excellent operational results. And again, we've done that and through a difficult winter. We finished the quarter with 99.9% controllable completion factor in our scheduled service. Thank you to all our team members working every day to deliver for our customers. I'm proud to announce our first quarter adjusted operating margin at 20%. I get plenty of questions from the investment community about what Sun Country results would look like in a normalized environment. I thought it would be helpful to highlight some of the conditions in the first quarter, which are rare historically. First, fuel prices in the quarter were high. I'm not taking a market position on fuel. We manage fuel prices with our variable capacity model. Further, about 40% of our flying has fuel as a pass-through. I want to point out, however, that during peak periods like March, we fly as much as we're able. So, fuel prices during that time are passed through directly to results. Today, we're buying fuel about 60% cheaper than we were in the first quarter average price. Secondly, we had particularly challenging weather this winter in Minneapolis. Challenging weather isn't rare, but our network is focused on Minneapolis this time of year, and the Twin Cities had one of the top snowfall winters on record. That's probably good for demand, but drives a lot of costs in our business. We had two major snowstorms that shut down Minneapolis Airport, which is rare, The resulting cancels from these closures negatively affected results by several million dollars. Some regions of our network posted uncommon results that I don't think we should expect to be recurring. West Florida is a big part of our network this time of year. The region continues to recover from Hurricane Ian. We expect the region to be back next year with higher unit revenues and capacity. Minneapolis International, in contrast, was particularly strong this year. 1Q22 was affected by Omicron, so year-over-year improvement was dramatic. I expect international capacity growth to moderate this region's TRASM in the future. Finally, and most impactful, we remained block hour constrained due to staffing. In 1Q19, we flew our aircraft 9.7 block hours per aircraft day on average. This quarter, our utilization was 7.3. Increasing flying on the same fleet will have substantial positive impact on results. In sum, I expect future 1Q margins to exceed 1Q23 more often than not. Looking at the rest of 2023, we continue to see strong leisure demand across our network, which is currently selling through mid-December. Of particular note, we expect the recent increase in ancillary revenue to continue to drive positive TRASM trends even as we lap the COVID recovery and increase scheduled service growth rates going into the back of the year. I also want to call out a fleet deal that we announced about a month ago. We purchased five 737-900ERs that are currently leased to another operator until their return and induction in our fleet. Without opening a new line of business, this is just a way for us to guarantee future capacity growth and get scale in a new variant. We expect these aircraft to contribute more to our results in our operation than while we're leasing them out. However, in the meantime, we expect positive impact of about a million dollars a month in operating income due to the five leases. And with that, I'll turn it over to Dave.