CEO chat: Sun Country Airlines fears a ‘rough’ September as travel uptick plateaus

Jul 7, 2020

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Sun Country Airlines would appear set to benefit from the return of leisure flyers even as the majority of the airline industry continues to struggle during the coronavirus pandemic.

The Minneapolis-based discounter is known for its sun runs between the Upper Midwest and warm weather destinations in places like California and Florida. Places with open spaces and beaches are just the types of places that airlines say are luring back travelers, even as fears of COVID-19 remain.

And Sun Country has seen some travelers return. The airline plans to fly about 60% of what it flew last July this year, according to Cirium schedules. This is a significant improvement over the roughly 30% of last year’s schedule that it flew in June, and includes a number of new route additions to its map that were planned before the pandemic.

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“We’re hanging in there,” Sun Country CEO Jude Bricker told TPG in an exclusive interview.

Normally an optimistic realist, Bricker had an uncharacteristic cautious demeanor that suggested concerns about what lies ahead.

His concerns lie in the recovery rather than the virus. The airline is following industry norms to keep passengers and crews safe onboard its Boeing 737s. It has done everything from stepping up cleaning measures to requiring masks onboard and adjusting its boarding procedures. Still, all the safety updates in the world may not be enough to convince some people to fly right now.

To that point, Sun Country has seen new bookings plateau since the beginning of July, Bricker said. This coincides with the rise in COVID-19 cases in the South and West, as well as multiple airlines’ publishing expanded schedules for August that give potential travelers more flight options even as the overall number of U.S. passengers remains well off the pace from a year ago.

“With COVID and other airlines’ expansion, I’m pretty bearish on the fall,” he said. “The passenger side is going to be pretty challenged.”

Related: State-by-state guide to coronavirus reopening

Bricker is not the alone in sounding alarm bells. United Airlines executives cited a “tapering” in new bookings during an interview earlier in July. And on Wall Street, Raymond James analyst Savanthi Syth has pointed to multiple signals of a plateau in the recovery of consumer demand that does not bode well for airlines trying to coax travelers back onto planes.

All of this is leading up to what J.P. Morgan analyst Jamie Baker is calling a possible “autumn of discontent.” Leisure travel traditionally falls off after Labor Day, typically replaced by corporate flyers traveling to meetings after the summer vacation seasons ends. However, with many companies still barring most work travel, airlines again face the prospect of empty planes after summer ends.

“September is going to be rough,” said Bricker.

Of course a “rough” September for airlines could be good news for flyers. More seats in the skies than travelers to fill them could lead to fare wars and other deals aimed at tempting would-be travelers out of their homes — or cars — and onto planes. In recent weeks, Alaska Airlines, American Airlines, JetBlue Airways and Southwest Airlines have all launched promotions aimed at doing just that.

Related: Airlines may face a tough fall after that summer uptick

Sun Country is generally well positioned to weather the crisis. While its passenger and charter businesses are down significantly, the pandemic coincided with the launch of a new cargo division that flies 737-800 freighters for e-commerce giant Amazon. The deal aimed to stabilize the airline’s traditionally cyclical passenger business — Sun Country’s schedules often fluctuate by as much as 75% between the winter peak and summer trough — but has instead diversified its revenues at a time when few vacationers want to fly.

The cargo business has performed “great” since Sun Country’s first freighters took to the skies in May, Bricker said. The airline aims to have 10 freighters flying by the end of the summer.

“We’re probably in a better financial position than almost any other U.S. airline, we’re actually building cash,” he said. The carrier generated an operating profit — it still lost money after depreciation, interest and taxes — in May and June, a time when most other carriers were reporting millions of dollars in daily losses.

Related: Which US airlines are blocking middle seats and requiring masks?

 

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Flying Amazon packages has not completely insulated Sun Country. The carrier may still be forced to furlough or layoff staff once the protections under the U.S. government’s coronavirus aid package, or CARES Act, expire on Sept. 30. Bricker described the situation as a “wait and see” in terms of what further changes to the business will be needed.

In addition to its employment protections, the CARES Act required recipients to continue serving nearly all of their U.S. domestic destinations until Oct. 1. This has many airlines flying more than what some in the industry think is needed for what remains a very depressed air travel market.

“I’m pretty hopeful that at the end of CARES things will be more rational,” said Bricker. Airlines can cancel service and cull their maps as the market dictates — as Air Canada has done north of the border — once the protections lift.

Related: TSA screenings spiked over July 4 weekend, but it’s still a long road to recovery

But Sun Country, like many of its discount peers, sees an opportunity in the crisis. The airline’s main challenges before — acquiring more used 737s and finding the crews to fly them — are no longer issues, said Bricker. The pandemic has idled thousands of jets, leading to a buyer’s market for used planes. And with many U.S. pilots expected to receive furlough notices in coming months, no problems are anticipated hiring crews.

The carrier flies 38 737s, including six freighters, with a target of a 60 jet fleet in the next few years.

In terms of where Sun Country could fly the jets it acquires, Bricker sees potential opportunities at both its Minneapolis/St. Paul (MSP) home and the four airports it targeted for growth prior to the pandemic. Those airports include Dallas/Fort Worth (DFW); Madison, Wisconsin (MSN); Portland, Oregon (PDX) and St. Louis (STL).

Related: Sun Country Airlines stretched to ‘seams’ with rapid growth

In the Twin Cities, Sun Country is eyeing the plans of its competitors and watching them for any signs of pullback. Bricker has no illusion that the airline’s largest adversary there — Delta Air Lines —will make any significant changes to its Minneapolis/St. Paul hub. However, smaller carriers that are less established in the market may reduce schedules, creating an opening for the hometown airline.

For example, JetBlue Airways singled out Minneapolis/St. Paul as a market where it was being forced to fly mostly empty planes in one of its applications for air service waivers from the U.S. Department of Transportation. The airline suspend flights to the Twin Cities for much of May and June and resumed service on July 1. It plans to add new service between Minneapolis and New York John F. Kennedy (JFK) in August.

Southwest Airlines and Spirit Airlines also shrank slightly in Minneapolis from 2017 and 2019, Cirium schedules show.

Related: On board Sun Country’s first Landline connection

Of course every one of these carriers — from JetBlue to Southwest and Spirit — are looking for opportunities to grow out of the crisis. Sun Country’s leg up, at least in the Twin Cities, is that none of its competitors have the loyal local customer base it has in the Minneapolis area. This is not to mention its larger catchment in the Upper Midwest that is supplemented by its Landline bus partnership.

“We’re still long-term bullish,” said Bricker of the future. “We just need to get through this.”

Related: Spirit geared to ‘win the recovery,’ eyes return to growth

This is the fourth in our “CEO chat” series of interviews with airline executives on how they are navigating the recovery from the coronavirus pandemic. Read the our interviews with the leaders of Cape Air, Frontier Airlines and Spirit Airlines.

Featured image courtesy of Sun Country Airlines.

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