Sun Country Airlines said it expects to double cargo revenue within 12 months after integrating eight additional 737-800 converted freighter aircraft provided by Amazon into its dedicated fleet by August, CEO Jude Bricker said.
2024 was a banner year for the carrier’s cargo business, and management envisions an even better future as a new contract to operate package freighters for Amazon kicks in.
“I expect cargo revenue will roughly double by this time next year,” Bricker said during a teleconference with analysts about the company’s fourth-quarter earnings.
Executives said Sun Country (NASDAQ: SNCY) recently took delivery of its first new Boeing 737-800 and plans to deploy it by mid-to-late March. The seven other aircraft provided by Amazon will be in commercial service by August, bringing Sun Country’s Amazon fleet to 20 aircraft.
The Minneapolis-based leisure carrier has operated a dozen standard cargo jets in Amazon’s air logistics network since early 2020. Last summer, Amazon decided to transfer eight leased 737-800s under its control from vendor Atlas Air to Sun Country as part of a new transportation services agreement that extends until 2030. Amazon relies on the aircraft to help fulfill e-commerce orders in less than two days.
Sun Country’s fourth-quarter cargo revenue increased 13% year over year to $28.6 million – the highest ever for the period – despite a 2.5% decline in aircraft utilization. The improvement was primarily driven by an annual rate escalator in the existing contract and the first phase of the new Amazon contract, which went into effect in June and provides higher rates. Revised Amazon contract rates will continue to escalate as Sun Country receives aircraft and won’t be in full effect until the second half of the year.
For the entire year, cargo revenue grew 7.5% to $107.2 million, a record.
Cargo flying is expected to ramp up sharply from the second quarter onward as Sun Country receives more freighters from Amazon.
“We love the Amazon business. The margins are great. So we think there’s probably more growth ahead,” said Chief Financial Officer Dave Davis.
But the company plans to pump the brakes on fleet growth in 2027 to make sure it can manage the Amazon flying without impacting reliability and to restore passenger services being suspended so there are enough pilots for the new freighters.
“The Amazon growth is coming faster than we can grow the operation and also keep the kind of performance that we expect. We want to be able to absorb this growth, allocate more growth into our scheduled service before we talk about cargo growth,” Bricker said. “If we could have it our way, that’s how we do it. We pause on cargo growth after this 20-airplane expansion” for at least a couple of years.
Cargo grows in importance
Sun Country’s diversification strategy has served it well as most low-cost carriers struggle with rising costs and competition from mainline airlines that can offer lower passenger fares with basic economy class with better overall service levels, network connections and loyalty programs. In addition to scheduled passenger service to beach and tourist destinations, Sun Country provides charter services for sports teams, travel agencies and other groups.
Charter and contracted cargo flying are a stabilizing influence over the more market-sensitive passenger segment. One of Sun Country’s cost advantages is that it can move pilots between the different operating segments as needed since the company’s entire fleet consists of 737-800s.
Record revenue of $260.4 million in the fourth quarter was up 6% year over year, while costs were lower than expected. Sun Country had an adjusted operating margin of 10.6%. Full-year results included record revenue of $1.1 billion and a 26% decline in pretax income to $69.6 million as the airline reduced passenger flying to prepare for the influx of Amazon business.
And cargo is becoming a bigger portion of the pie, with management projecting the Amazon business to represent 20% of total revenue next year.
Under the transportation contracts, Amazon pays a fixed rate per aircraft plus a per-hour rate for the duration of each flight. It also covers fuel and other major expenses. That means Sun Country is effectively guaranteed a minimum amount no matter how full the plane is or how often it flies.
Bricker said Sun Country actually benefits from lower utilization of the cargo fleet, because pilots can be redeployed into more high-margin charter or scheduled passenger flying.
Amazon sets the routes and schedule that Sun Country operates in its network. Bricker said the company hasn’t been informed yet where the new cargo jets will be deployed.
The incoming aircraft have to go through a rigorous application process with U.S. aviation authorities to be added to Sun Country’s air operating certificate and will undergo touch-up maintenance before they go to work for Amazon.
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