Cargo flight hours at Sun Country Airlines were slightly lower than expected during the second quarter because of extra procedures needed to commission additional freighters supplied by Amazon, but all the aircraft will be available to haul packages in time for peak shipping season, executives said Friday.
Minneapolis-based Sun Country (NASDAQ: SNCY) grew its cargo fleet by three aircraft during the quarter, driving up cargo revenue by 37% year over year to $35 million, according to earnings reported Thursday.
Five of eight Boeing 737-800 converted freighters transferred by Amazon (NASDAQ: AMZN) from previous contractor Atlas Air are now in service with Sun Country. The company plans for the remaining three aircraft to enter service by the end of August, but the timeline could slip to late September if there are further delays integrating new aircraft into the operating fleet, management said during an earnings presentation.
Aircraft utilization increased 9.5% during the quarter. That was lower than expected because the timing of aircraft deliveries was slightly thrown off by extra steps necessary to absorb the used 737-800s into the fleet. CEO Jude Bricker said on the first-quarter call on May 5 that Sun Country was experiencing some difficulties getting parts for maintenance checks, reconciling incomplete maintenance records, and fulfilling other regulatory requirements necessary to add aircraft to the operating certificate.
Bringing aircraft into a certificated airline’s fleet involves many steps to meet safety, regulatory and operational requirements, as well as company standards. The process includes reviewing the maintenance history; conducting thorough inspections of the engines, systems and airframe; updating operational manuals; training pilots, technicians and ground personnel; customization; and obtaining approval from civil aviation authorities.
“We’re taking airplanes, doing work to get them ready for service. They’re entering service later than we expected, and by virtue of that happening, the fleet isn’t as committed [to a full Amazon schedule] because we want to make sure we’re executing well. And so it’s just taking a little bit longer to get the terminal velocity on that fleet,” Bricker said Friday.
The fourth quarter is traditionally the busiest season for online retailers and parcel carriers, including Amazon.
Sun Country has been supporting Amazon’s parcel distribution network with a dozen 737-800 freighters since 2020. By September, the airline will have 20 aircraft in its cargo fleet. Chargeable hours to Amazon will be up 40% to 50% in the third quarter, said Bill Trousdale, the interim chief financial officer.
The company, which also operates scheduled passenger service to leisure destinations and group charter flights, has repeatedly said that the additional aircraft along with rate increases in the Amazon contract, will double cargo revenue to about $215 million per year.
Sun Country enjoys an annual rate escalator in its existing contract and the contract for the eight new aircraft, which is kicking in now, starts at a higher rate.
The airline has temporarily reduced scheduled passenger flights this year to ensure there are adequate pilots and resources for a smooth expansion of the Amazon business. It offset the lag in expected cargo flights during the quarter with increased charter business.
Overall, Sun Country’s hybrid business model delivered a twelfth consecutive profitable quarter, with adjusted earnings per share of 14 cents and record second-quarter revenue of $264 million, beating estimates. Adjusted operating income was $18 million, with a margin of 6.8%.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
Write to Eric Kulisch at [email protected].
RELATED STORIES:
Sun Country faces slight delays integrating additional Amazon cargo jets
The post Sun Country to operate 20 Amazon cargo jets by peak season appeared first on FreightWaves.
