Sun Country Airlines Holdings, Inc.

welcome to the sun country airline second quarter 2023 earnings call my name is josh 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 please press star 1 1 on your telephone and wait for your name to be announced to withdraw your question please press star 1 1 again please be advised that today's conference is being recorded I would now like to 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 group 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, 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 filing. We assume no obligation to update any forelooking statement. You can find our second quarter earnings press release on the investor relations portion of the website at ir.suncountry.com. With that said, I'd 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 are able to deliver the most flexible schedule service capacity in the industry. The combination of our schedule flexibility and low fixed cost model allow us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages, we will be able to reliably deliver the industry leading profitability throughout all cycles. We crossed a few milestones since our last call that I wanted to highlight. First, Sun Country surpassed a billion in revenue for the 12 months ending in June, a first for our 40-year-old company. In 2Q, we carried over a million scheduled service passengers for the first time in any quarter. We regained our position as the top margin carrier among the 11 carriers for the 12 months ending in second quarter. Recall that we were the first into this pilot contract cycle. In July, we executed a record number of flights in a day. Being able to deliver quality operations during peak days is a key priority for us as we execute our variable capacity model. This growth and performance is a testament to all our frontline employees that deliver for our customers every day. Consistent with the theme of the last several calls, we remain in an environment where demand across all our segments is strong. As it's been a common topic around the industry, I wanted to give some color on the revenue environment for our scheduled business. Our second quarter scheduled service TRASM was up 10% year-on-year on ASM growth of 6%, certainly very positive results. We expect to be able to accelerate schedule service ASM growth into the third quarter to mid-teens, and we expect TRASM to be down slightly year on year. However, I want to point out that schedule service TRASM versus 2019 was up in one Q and two Q by 34 and 43% respectively. We expect three Q to fall between those bounds. So we're seeing unit revenues stabilize at a substantially higher level versus pre-COVID levels. This reset seems to be persistent based on sales into our selling schedule currently out through April 2024. Minneapolis, by far our largest market, has been particularly robust through the COVID recovery. This summer we launched 15 new markets. All are performing well. Since I've been at Sun Country, we haven't had any MSP markets that didn't have a positive contribution. It's pretty amazing. One thing I'd like to call out is future cash flow. This year we'll produce about 50% more flights than were performed in 2019. In two years, I expect departures to grow versus this year by over 30%. We can produce those growth figures with the addition of only three net aircraft to the fleet at about a $60 million cost, along with the re-delivery of our 900s currently leased out. All three of the expected deliveries already have committed financing. So this free cash flow gives us the confidence in executing on the share buyback recently approved by our board.