Sun Country Airlines Holdings, Inc.

Welcome to the Sun Country Airlines third quarter 2023 earnings call. My name is Crystal Love and I will be your operator for today's conference. 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 one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please 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 Ricker, 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 risks and uncertainties. Actual results may differ materially. We encourage you to review the risk factors and cautionary statements outlined in our earnings release and most recent SEC filings. We assume no obligation to update any forward-looking statement. You can find our third quarter earnings press release and investor relations portion on our website at ir.fundcountry.com. With that said, I'd like to turn the call over to Jude.

Thanks, Chris. Thanks for joining us this afternoon, 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 scheduled service capacity in the industry. The combination of our scheduled 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 will be able to reliably deliver industry-leading profitability throughout all cycles. Today, we're announcing three key results, including an adjusted operating margin of over 8% on 18.5% year-on-year departure growth. We know now these results produce the highest trailing 12-month pre-tax margin of any of the 11 public mainline U.S. carriers. The same was true at the end of the second quarter. Demand remains strong across all segments of our business, highlighted by scheduled service TRASM, down 5% on 15% ASM growth first prior year. Since the beginning of the year, every month scheduled service TRASM has reset to around 35% higher than pre-COVID comps, with this trend generally continuing into bookings on future travel. Also, our charter block hour production, critical during the fall scheduled service demand trough, was up over 14% year-on-year. Recall that the third and fourth quarters typically produce margins well below our annual production. We continue to deliver a high-quality product. In the third quarter, our controllable completion factor was 99.4% while delivering the highest D0 among U.S. mainline carriers. I'm so grateful to all our team members that worked so hard to take care of our customers every day. Unfortunately, the cause of our variance of performance to potential remains crew staffing levels. Due to captain availability, we flew about 3,500 fewer block hours in third quarter, mostly in July, than the demand environment would have supported with our fleet and the fuel price input. We continue to see staffing levels improve, albeit more slowly than we would like. Looking ahead, we recently extended our schedule through the summer of 2024 and announced 10 new Minneapolis markets. I think this is representative of our growth for the next few years as we continue to expand into our Minneapolis opportunity during peak periods, supported by modest off-peak growth in our charter business. As our growth has moderated based on pilot staffing, we've decided to lease out two additional aircraft that were scheduled to enter our fleet in Q4, this will delay the entry into service of two 737-800s planned for the fourth quarter of 2023 until the first quarter of 2025. Aircraft are generally in high demand as much of the aviation industry deals with production delays on new narrowbodies and service disruptions from the GTF. So, we'll make good returns on these aircraft until we're able to fully utilize them.