Sun Country Airlines Holdings, Inc.

Hello and welcome to Sun Country Airlines' first quarter 2025 earnings call. My name is Carmen 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 participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply 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, our Chief Executive Officer, Bill Trousdale, 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 forelooking statements which are based on management's current beliefs, expectations, and assumptions and are subject to risks and certainties. Actual results may differ materially. We encourage you to review the risk factors and cautionary statements outlined in our earnings release on our most recent SEC filing. We assume no obligation to update any forelooking statements. You can find our first quarter 2025 earnings press release on the investor relations portion of our website at ir.suncountry.com. With that said, I would like to turn the call over to Jude.

Thanks, 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 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 will be able to reliably deliver industry-leading profitability throughout all cycles. During the first quarter, our flight attendants and our dispatchers ratified new contracts. I want to start by congratulating them on their raises. I'm proud of this team and the service we deliver. March is a particularly important month for us. It's a time when we stress operations, trying to meet the demand of our home market. In March, we delivered controllable completion factor of 99.4% in our scheduled business and over 98% on time in our cargo business, both key metrics for us. Additionally, we had a mishandled bag rate of 1.3, a record for us. Our folks continue to deliver for our customers. Our first quarter is typically our strongest quarter of the year. This quarter, we're reporting quarterly records for revenue and earnings. Additionally, we outperform the next best mainline carrier by a wider margin than we've seen since COVID. While we're certainly subject to industry conditions, I expect us to outperform by a greater margin during times of stress. This is due to the strength of our diversified model and the reliability of demand in our home market. Execution on the previously announced cargo expansion continues at pace with three of the eight additional committed aircraft having been inducted into the program. We plan to have all eight aircraft in service by the end of the summer, bringing our total cargo fleet to 20. Additionally, the unit revenues of that business have been expanding, with 1Q revenue per block hour growing by about 20% versus the same time last year. With growth in unit revenue and volumes, we project our cargo revenue should be roughly double compared to prior year comp by September. In that month, two-thirds of our flights will be under committed contracts, both charter and cargo. For 2025, our system block hours will continue to grow by about 8% year-on-year. However, with cargo growth outpacing system growth, we expect to draw down scheduled service temporarily as we absorb the opportunity in cargo. This should provide a tailwind for scheduled service unit revenues on a year-on-year basis through at least the end of 1Q26. In 1Q25, we produced about 7% scheduled service ASM growth on a 4.5% TRASM decline. For 2Q, we'll be shrinking scheduled service ASMs by about 7% and expect to see about a 3% TRASM improvement. That's below where we would expect to be based on capacity in the Easter shift. However, close-in fares accelerated into April. That's a positive indicator for summer, which for us is generally characterized by close-in bookings. 1Q25 also set a record for charter revenue. We built buffers into the timing of our cargo growth, so we'll have surplus passenger aircraft and crew time that we expect to be able to allocate into the charter market. For this reason, I expect our charter segment to perform well for the rest of the year. On the fleet side, we've redelivered our first 900 for passenger service and expect the second to arrive this quarter. We've decided to postpone the induction of this aircraft until later this year as we have a temporary surplus in our passenger fleet. Even with this deferral, we'll experience some unit cost pressures associated with lower utilization of our passenger fleet until we're able to catch up our staffing to our fleet, which should occur around the second quarter of 26. Further, temporary cost pressure will come from cargo growth in the form of staffing surpluses built into the induction buffers. We've made the decision to retire one of our older 800s, which will help us alleviate some of the tightness we're experiencing in the NG components market. The company continues to deliver high levels of free cash yield. Currently, we plan to continue to delever with net debt levels expected to fall below zero at some point in 2028. However, we have the liquidity and balance sheet headroom to take advantage of any opportunities, including share repurchases using the $25 million of repurchase authority recently granted by our board. A few other notes about the quarter. We're excited to be awarded Air Transport World's Airline Leader of the Year for 2025, and 1Q also marked the end of Apollo's ownership here at Sun Country with the sell-down of their remaining shares. Now I want to introduce Bill Trousdale to the earnings call. Bill's been an officer of the company serving in finance since 2018. I'm excited to have him here and congratulate him on his new role. And with that, I'll turn it over to you, Bill.