Sun Country Airlines is in discussions with Amazon about expanding their air cargo partnership to include special charter flights for dedicated customers, CEO Jude Bricker said on a media call Thursday to discuss the carrier’s financial results.
Sun Country (NASDAQ: SNCY), a hybrid low-cost carrier, operates 12 Boeing 737-800 converted freighters on a daily basis within Amazon’s scheduled domestic air network to support next-day and two-day package delivery.
Amazon’s (NASDAQ: AMZN) air logistics unit recently unveiled a for-profit line of business that sells excess cargo capacity on its aircraft to 3PLs and other businesses seeking to move general cargo by air. Among the options available to shippers is renting an entire aircraft when it isn’t busy flying for Amazon. Freight forwarding powerhouse Kuehne+Nagel last week said it is using the Amazon Air Cargo service to relay e-commerce shipments from China to the United States.
Most of Amazon’s fleet, which numbers about 100 aircraft, consists of widebody Boeing 767 converted freighters. Amazon also has six Airbus A330-300s, which are slightly larger than the 767s.
Bricker’s comment indicates that Amazon intends to utilize the narrowbody fleet for charter operations as well.
Sun Country executives have long said the Amazon cargo business provides stable revenue growth and a buffer against fluctuations in the passenger segment. They project cargo’s share of total revenue to double to 20% in the second half of 2025.
Q3 cargo performance
Sun Country Airline’s cargo segment generated its first positive adjusted pre-tax profit margin since the first quarter of 2022. A rate bump in its parcel transportation contract with Amazon helped the company grow cargo revenue 12%, to $29.2 million, year over year in the third quarter, more than offsetting a decrease in flight hours from the prior quarter.
Total cargo flight duration in the third quarter declined 3.6% due to scheduled heavy maintenance for some aircraft and the impact of hurricanes Helene and Milton on cargo operations in the Southeast, according to the Minneapolis-based carrier’s earnings report on Wednesday. Bricker said Amazon had to cancel many flights to its Lakeland, Florida, hub because of the storms.
Sun Country’s other primary operations centers for Amazon are the superhub at Cincinnati/Northern Kentucky International Airport and Alliance Field in Fort Worth, Texas.
Sun Country’s cargo revenue per trip grew by 16% from the same period in 2023, while margins were up 8%, thanks to an annual rate escalation on the Amazon contract that went into effect in mid-December and the beginning of new Amazon contract rates that were executed in June. Cargo revenue per trip increased 7% from the prior quarter.
Sun Country has a six-year contract with Amazon that lasts until May 2026 and can be renewed for two to four years at Amazon’s option. The cargo fleet will grow to 20 aircraft next year when Amazon delivers eight more leased aircraft for Sun Country to fly in its domestic air logistics network under a new transportation services agreement that runs until October 2030.
The retail giant is reassigning the aircraft from all-cargo carrier Atlas Air to Sun Country. Chief Financial Officer Dave Davis said in the earnings release that the first aircraft is expected to enter service in late March or early April. Previous guidance projected the first arrival would happen sometime in March. All eight aircraft are expected to be in operation by the end of the third quarter in 2025.
The revised Amazon contract rates will continue to escalate as the airline receives additional aircraft and will not be in full effect until the second half of 2025.
Cargo operating income improved from a $609 million loss last year to a positive $2.3 million in the third quarter, which Sun Country attributed to the higher Amazon payments and scheduling efficiency improvements among the cargo, charter and scheduled passenger segments, which offset contractual pay increases for pilots.
Cargo revenue for the first nine months of the year was up 5.5% to $78.6 million.
Sun Country management previously planned to suspend scheduled passenger service in some markets next year to ensure a smooth expansion of the Amazon cargo fleet, but Davis told analysts on a conference call Thursday that the schedule may only shrink about 5% instead of 10% because pilot availability has improved.
Overall, Sun Country’s net income fell 69% to $2.3 million, the company’s ninth consecutive quarter of profitability. The airline achieved record third-quarter revenue of $249 million, roughly flat from a year ago, despite the impact of the CrowdStrike IT outage and hurricanes. Revenue for the passenger segment, which includes scheduled charter flying, fell 3%.
Management said passenger booking activity is strong through the winter season and fares are rising after the domestic industry weeded out some capacity.
The airline continues to contain costs better than other carriers, with cost per available seat mile up 1.9%. While fuel costs are down, landing fees and airport rent increased 14.5% due to the expiration of COVID assistance that airports had used to limit rate increases. The company continues to produce free cash flow and bring down debt levels.
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