Along in the afternoon sessions, our next airline up is Mesa Air Group. Mesa is a small regional carrier here within the U.S., now transitioning all of their flying into the United Network. With us today from Mesa is Torque Zubeck, their Chief Financial Officer. Maybe I'll turn it over to Torque for some introductory remarks because I know there's been a lot of moving parts at Mesa over the past, yeah, 6 to 12 months. Yeah. No, that's. There has been a lot of moving parts. No pun intended. You know, one of the big things that, you know, the big headline for us is the fact that we went from operating 80 E175s for United and 40 CRJ900s for American. We've since we went through a restructure and we now have all of our large regional jets are being operated for United now. We negotiated a wind down with American, and we've moved all of the CRJ900s over to the United contract. With United, you know, their requirements are they can fly max move 80 large regional jets. We're sort of balancing out our capacity with them, flying, the E-Jets as well as the CRJs so they get a full schedule from us. Got it. I guess the, you know, one of the big conversations at the conference today so far has just been from a, you know, pilot perspective. Mm-hmm. Right? Whether it's pilot hiring, pilot training, a lot of open pilot contracts out there that are being negotiated. You guys have seen the step up in your pilot wage rates. Right. Right? You moved those, what was that? Maybe six months ago. Yeah, September. Yep. Yeah. In line with some of the other regional carriers. They may talk to. Since you've gotten your new deal across, how has attrition trended? Mm-hmm. Do you still have problems kind of hiring and keeping that net pilot base where you need? Yeah. No, so the good news is, you know, with the increase in pilot pay, as well as, now that we're all United, all of our pilots are flowing through the United Aviate program, which is something that we're the only large regional jet operator that offers that. It really gives us a recruiting advantage because it's really one of the fastest ways if you want to get to a mainline carrier. If you come to Mesa, you're here with us for four years, two years as a captain, and then you're on to United. That's something that's very attractive for new pilots that are coming into the industry and want one of the fastest ways to get to a major carrier. Right. Can you maybe quantify a little bit some of that and just in terms of, you know, is pilot attrition down from its peak? Yes. Do you continue to lose pilots today? Yeah, we still have some attrition, but it's really kind of. Normalized? Yeah, normalized. Definitely normalized. We're, you know, in the teens right now, which is great. Okay. On a monthly basis. You know, it goes up and down a little bit, but that's been relatively stable over the last few months. You know, it's come down dramatically from what we saw, you know, before the pay raise and the all moving to United. We think it's definitely, at least at this point, it's. What's your kinda monthly hire rate? Oh, gosh. Well, right now, well, we are still hiring, but really our pipeline for pilots is full. We've got a lineup of people that are signed up and ready to go, not only to Mesa Mainline, but also, you know, we have our Mesa Pilot Development Program, which allows, you know, pilots to come in and fly a highly efficient aircraft and build time so they can get up to their 1,500 hours that are required. We have, you know, like 1,700 people lined up for that program as well. Okay. How long does it take, those signees to kind of work their way and actually begin flying with Mesa? Yeah, you know, our first class was that we had was back in gosh, October is our initial class in there. We already have 15 pilots that have come-gone to Mesa Mainline. Okay. Yeah. Okay. We have more in the train. We're actually adding another facility. We're planning to open up another training center in Arizona because there's so much demand out there, and we're taking more aircraft, the Pipistrel aircraft for it. Okay. How many pilots do you have in the company now? Oh, gosh. I don't have the exact number off the top of our head, but you know, 600, 700 roughly. Okay. We have. I'm just trying to do the math. If you have, call it 600-700 pilots at a kind of teens type of. Mm-hmm. Attrition rate. On a net basis, are you down pilots each month, or are you increasing your pilot count? No. Our, you know, our pilot production is well above. We're in the, you know, 50/50 range every month. You're bringing in a net 50 pilots a month, or? No, no. We're Pilots coming out of training is. Okay. About $50 a month. Got it. We have attrition of roughly, you know, in the teens. In the teens. Okay. The net number is what. Net number is better. Yeah. Yeah. Yeah. Got it. Okay. Okay. That, helpful. That's what I was getting at. Sure. You're bringing on a net pilots each month. How has the training process changed over the past year? Have you been able to shrink that training time? Yeah. Okay. Yeah. Yeah. No, we have been able to shrink the training time. One of the challenges we had, early on was that, you know, with the massive amount of attrition that was happening when, you know, the mainline carriers were out, rapidly hiring pilots, we had a lot of our instructor pilots that got hired and moved on. Yeah. That's one of the things is we've restocked and have gotten the, you know, the instructor pilots, the trainers involved in there. We've added additional training capacity, some capacity. Our production has improved dramatically from where it was six months ago. Got it. You've brought on, what is it? Two more sims? I forget the number. Yeah. We've got We have 2 sims, 2 CRJ sims, and 2 E175 sims, and we have access to additional sim time if we need. Got it. Yeah. Okay. When I think about, okay, so if you're adding net pilots, training is coming in more normal now. Your block hour production is still down, what am I? I I forget the exact number, 20%+ from where it was kind of. Yeah. You know, earlier on in the pandemic. I know you've just transitioned a lot of your flying to United. They've been maybe a little bit more conservative in the way they're building back their regional network. When do you anticipate, you know, your block hour production and your utilization to get, you know, kind of get back to 2019 levels? Yeah, no, That's really where we make money is. Yeah. We're flying 10 and a half hours a day. That's the spot we want to get back to, 'cause that's where we become very profitable in there. Yeah. What we said on the call was, you know, we had about, we were anticipating about 46,000 block hours in this next quarter. Yeah. Looking to get back up to about 55,000. Yeah. In the following quarter. We'll continue to build up from there. I think the goal is to be somewhere around 65,000. We're on the pathway to do that, and, but that's not, that's not going to happen, you know. It's hard to accelerate that, right? Quarter-wise, we'll be building up, and moving forward with United and making sure that we're running a great operating for them. What has to happen for you to get up to the $65,000 a quarter, right? Is that just proving to United that you can fly what they need? Yeah. W hat's the bridge from the 46 to the 65? Yeah. It's just getting the pilots available so we can maximize the per aircraft utilization. Right now, we're roughly around 6 on our E-jets, as an example, right? Yeah. Right. We have a lot of room to maximize the E-Jet capacity. Mm-hmm. If we do that, and get the maximum, you know, 80 aircraft with that kind of utilization, we'll be at the target numbers we're looking for. I guess the question is, in your conversations with United, do they want to get to that level of flying? Yeah. You know, United wants as much capacity as we can provide to them. There's really. At this point, we've not had any, you know, they want, you know, that's one of the reasons why we brought the CRJ900s over. It's because we're able to immediately provide them more capacity in there. It's, you know, 100 flights. Yeah. A day that we're profiting. They want more capacity, and we want to give it to them. Got it. How has your operation evolved over this whole period, right? At first, like, one of the reasons why you moved to United were there were. Not all your, you know, your issues. It was, you know, certain things with American as well, just in terms of, you know, the operation wasn't optimal there. Right. What has changed between then and now, and how have you helped mitigate some of that operational risk? Yeah. Well, you know, when you think about, where we were, we were operating, you know, with, you know, two different partners, in two different, you know, in different hub locations. Right now, as we come down, the good news is we're all under, you know, one contract and one program. We only have to deal with one partner when we talk about flight frequency and location in there. Mm-hmm. That has simplified that because we're not dealing with two separate major partners, and kind of what they need. We can focus on United, and really try to provide the best product for them that's out there. You know, there's still, you know, this transition, moving, you know, the 900s they never had before in their network. Right. This is a new deal for them. There's lots of work that we're still doing. We're not done with the transition. We're still working through that. you know, we have everybody focused on this with a goal to provide a really great product for them and to operate reliably. Yeah. When you kind of, you know, meet in Phoenix, do kind of the rundown on what has transpired over the past year or two. When the team thinks back, like, what do you think you could have done to help maybe mitigate some of the, you know, kind of the issues that you've encountered? Yeah. Well, you know, let's get back to one of the challenges we have, you know, the 1,500-hour rule. We knew there was going to be a pilot shortage coming, right? When the pandemic hit, that just accelerated all the retirements. You know. Yeah. I think it was basically five years of retirements that got, you know, compressed into, you know, a year and a half, roughly. That was the context that we were in, right? When we think about how we managed through that, I mean, we were trying to build through it. I think knowing what you know now, what could we have done differently? It's hard to say exactly, but I think the big thing that we have done is we've, you know, we've focused on pilot pay. We were able to, you know, with this transition, we were able to, you know, increase our pilot pay to competitive rates, which when we had two partners, it was a little bit of an issue because one was willing and one wasn't. Okay. That was part of our challenge as we had to work through. That was really complicated. There was lots of negotiations and, you know, eventually it led to the fact that United was willing and, American wasn't. Yeah. I don't know if we would've played that out any differently. You know, in hindsight, you could say, "Oh, we should have moved faster," right? I don't necessarily think that, we, you know, we would've moved any differently if we had we known. There's some things we could have done. I think we could have pushed up, you know, going to a higher pilot pay sooner. If we knew now, we would've said, "No, we got to double and match American Eagle's new wages," right? Yep. We tried other things to say what could do and tried to align partners, and that took time. Yeah, there are things we could have done differently. We could have worked harder and tried to prepare for more pilot training capacity. We were coming out of a pandemic where we were just ramping up capacity. We were at a historic trough. Yeah. There's a lot of moving parts to it. Certainly we could have done some things better. Yeah. This year, clearly a transition year as you move everything. Mm-hmm. Into United. What does that mean for 2024 and beyond? Yeah. Well, really, you know, 2023 is the transition year. Where we expect in 2024 is to get to what we want to get to, kind of the optimized capacity with them. That's where we want to get. Okay. Get there. really, 2025 is where we expect to get back to kind of the single-digit profitability we've historically had. Okay. That's kinda where we're thinking. That's like the 6%-8% pre-tax margin. Yes, roughly. Something like that? Yeah. Okay. Yeah. That's sort of what we're thinking at this point. You know, obviously, there's a lot of things that could change in the part of that. You know, we had heard a number of folks talking about hiring more pilots. You know, that's something we recognize. You cringe when you hear it. I don't know. I think, you know, I think with the pilot production, with the MDP program that's allowing us to accelerate pilots that don't have 1,500 hours, we've got some insurance around that. Got it. You have the passenger operation. Mm-hmm. You also have, what? 3 cargo. Four. Four now. Yeah. Four cargo- Yeah. Aircraft running today with. Yes. With DHL. Mm-hmm. Maybe talk a little bit about how the team decided to branch out into cargo, what you had to do in order to get a cargo operation up and running, and how do you think about the growth of the cargo business, right? 'Cause it wasn't too long ago you had 2 aircraft with DHL. Correct. Now it's 4. Mm-hmm. Like, where can it go? Yeah. Well, I think, you know, there's been a little bit of a decline in air cargo demand. I think you've seen that. Mm-hmm. Across the board there. One of the things that we're really glad about is that, you know, DHL gave us the 737. It's actually an 800 as opposed to the other 4 are 400. This gets us into the next-gen aircraft. Yeah. Which is the preferred cargo aircraft, which we think is a vote of confidence in there. You know, air cargo will come back. You know, I mean, there's a lot of, you know, As demand continues to build, I'm sure we'll see a resurgence in that. We want to be positioned to be able to be a great operator for DHL. It's not grown as fast as maybe we originally anticipated, but we're continuing to get aircraft. You know, if we do our job and operate well for them, I think that we'll be a preferred carrier to get, you know, the next aircraft that they have available for us. Okay. I know you've also had a little bit of a focus in Europe. Mm-hmm. And building out. I haven't heard an update on that in a while. I think probably some of the other. Yeah, yeah. Other issues have been, you know, kind of more paramount here. Yeah. What's the status in Europe? Yeah. Yeah. Our Air Carriers flight, and it's based out of Malta. We are getting ready to get the AOC at this point. The one thing that we're looking for is to get the first customer for them to launch with. They had a customer lined up, and then that backed off. That's really kinda where we're at with that. We're ready to go. We've got an aircraft set up. We've got all the documentation ready. It's just getting that first customer and getting that AOC signed, and then we'll be off. First customer meaning, a major airline over there? No. Yeah. What we have to do is, in order to get your certification with the, IOSA. Yeah. You need to operate basically as a charter operator for at least six months. Got it. Then they can go in and validate your certificate and if you're doing what you're doing and verify that. It's sort of a minimum of six months. We're looking for a charter customer to begin with. Okay. We had one line up. The, you know, market got a little bit. Okay. Things in Europe got a little bit soft. You know, we expect it to go. We've got things lined up and working on it actively. Okay. As soon as we can get somebody lined up, we'll be ready to hit the button and launch it. Okay. Yeah. That's helpful. I wasn't aware of that dynamic. There's a lot of dynamics. Yeah. Yeah. It is, you know... Like I said, this is a, you know... We're a, you know, 49% owner over it, but. Yeah. We're not running the day-to-day operations. Yeah. We are helping with the technical expertise with it. Yeah. Got it. Okay. I guess you guys, outside of a lot of operational issues, I know, I think I've got the CFO sitting up here. Avo had a. It's very complicated. You have a lot of different asset disposal programs. Yes. Going on right now in terms of planes, engines, you know, what have you? Can, you know, lease wind downs, things like that? Can you kinda give a high-level summary of kind of what's, you know, what's left, you know, and the timing of that, and then both in terms of what that could mean to cash infusion? Mm-hmm. Into the company, but also kind of debt to fee, like kind of debt pay down or kind of debt wipe out. Yeah. Because of the program. Yeah, no, we've been paying down a lot of debt, which is great. As a CFO, it makes me very happy. Yeah. To be doing that. We have been doing it, but we have had a lot of assets that are going out there. The one that we did, we sold our 18 CRJ-550s that we were had on lease to GoJet. We sold those aircraft to United. There was a tranche in September, and there was a second tranche that we sold in January. Yep. Yeah. 10 the first tranche, 8 the second tranche in there. we've also. I forget that rate was. How much did that-. Oh, yeah, there was. That was mostly a, kind of a debt deal, right? Yeah. We generated a fair amount of cash on the first transaction, about $30 million, roughly. We paid down a significant amount of debt. The other one was owned by Treasury. That's right. amount of debt to Treasury. Yep. On that. Yeah. We have another 11 CRJ900s that we have a third party that we have a purchase agreement with. We transacted on 4 of those aircraft in Gosh, it was March timeframe. We have 7 more that we're going to sell to them, probably 3 more this quarter, and then the follow-up 4 later in the quarter, or later in the, in the year. Year. Okay. Yeah. In this fiscal year is what we're looking at right now. Okay. That's been a good transaction. Those are aircraft that are under the Treasury loan. Those will all pay down Treasury loan, and we'll net about $8 million, roughly $8 million or $10 million off of that. Okay. Will that take care of the Treasury loan? No, we still have a fair amount of the Treasury loan that we'll be continuing to pay down. I don't have the number off the top of my head. Uh-huh. It's continuing to pay down. We did have 30 engines also that we are selling to United. That's a combination of engines that we have with a third party, also engines that were under the Treasury loan as well. We sold 6 to the Treasury loan, and those sold 6 of those that went to Treasury, that all went to pay off the debt on those. Yep. That's, you know, there's 6 more engines that we've sold, and we've reduced our debt. Okay. The more recent thing that we've done is that, you know, we were forecasting around to be $535, roughly like that, I think at the end of the prior quarter. This time, we guided to $470. Yeah. That's because we've got a signed LO, letter of intent with a third party for seven additional CRJ900s. net after that, the net proceeds from that will be about $68 million. that will pay down from the $535 million. That takes the big chunk and it gets us down to about $470 million. Got it. Yeah. After all this is said and done, what's going to be the number of aircraft in the. Oh, what we'll have left? Yeah. We'll be operating, you know, we've got 80 E175s that we're not. That none of that. Those are. They're not. Those are not being disposed of there. When we finish with that, I think we'll have about, gosh, that number off the top of my head. I think we're going to have, let's see, 15. We have 15 RASPRO that will be left. Gosh, I think we'll be somewhere around 30 aircraft, potentially. I need to go back and. Okay. Double-check the numbers, but, yeah. Got it. In terms of cash needs. Mm-hmm. Coming up, seems like minimal CapEx on the horizon. Yeah. We're not doing a lot of capital, like, just nominal amount. We're not making any big purchases. Mm-hmm. Between, you know, in the near future right now. I mean, I mean, you know, we are spending some money right now in the transition with United. United's been funding all the transition costs up. Mm-hmm. To this point. There's some stuff that we pick up, but really nothing on the horizon that's a big capital outlay. Okay. Yeah. I know you have, you know, your investments in Archer and ART. Mm-hmm. Right? Any stipulations in those agreements whereby you might be on the hook for any potential additional funding? Yeah. With those, right now, we don't anticipate any kind of additional cash need in there. There may be some opportunities that could come up where we would, you know, maybe have an opportunity to purchase a stock. There's no requirements for us to put any more cash into those right now. You didn't commit to future funding periods or anything? No, nothing like that. Okay. Yeah. Got it. Got it. Any questions from the room before I go on? Got one upfront here. Bring a mic. Let's see. I had a couple of questions. The first one is, can you walk us through deferred revenue accounting? Okay. How you doing? Secondly. I love deferred revenue accounting. Yeah, it's tricky with your business. Mm-hmm. Second thing is, with this United contract, can you discuss what they're paying for, what you're paying for, if this is like a fixed anything that may be cost plus or is all fixed price? Let me take the United question first, and we can talk about the deferred revenue accounting. On the with United, they're paying for during the transition, they were paying for infrastructure, direct costs, repainting aircraft. That's sort of what they were paying for. If we had to put aircraft through heavy check or something like that, those are things that they would pick up as part of the transition if it was involved with that. That's really what they've been doing 'cause suddenly we had to rent additional facilities temporarily. Those things like that would get covered under the program. Yeah. That's basically it. Yeah. Yeah. On the deferred revenue, what happens is the revenue gets deferred, and it has to get kinda marked every quarter, depending on what the anticipated timeline is of when you're going to complete the flying. To the extent that your aircraft, your forecasted flying changes, that can actually change your deferred revenue, either positive or negative. You know, you could recognize more if, hey, the timelines come in, like for American as example. Oh, hey, the revenue we deferred for American, oh, that's going to get closed up 'cause we finalized our deal. That would drive more recognized revenue to the extent that our revenue for United changed, for example, and went out further than, you know, we'd defer more revenue to recognize it over that period. That's basically how it works. I guess what I don't get from the deferred revenue perspective because don't they just pay you based on their on block hour production? Yeah, this has nothing to do with cash. we get the cash. Yeah. From United and previously American. Yeah. When we fly, right, and do that. Our recognition of that revenue has to, you know, the accounting requires you to look over the length of the contract to say how much of that can you recognize now? How much of that revenue do you need to defer? I was always under the assumption it was so short-term oriented that they paid you pretty close to when you flew the block hours. I don't know why there would be. Yeah. A peril. We get the cash. This is all about accounting recognition. Yeah. When we fly, we get paid. That's not it. It's just a matter of when do you do this? It's a, it's one of those odd accounting functions. They're just trying to recognize revenue in the period in which it's earned, and if part of that revenue is, is, you know, considered to be further out. Mm-hmm. Should be recognized later, then you have to make that determination. We do it every quarter. When big things change, like, you know, the American contract ending, then that's a big revenue recognition that we had, that we recognized. Yeah. Right. Right. So. Right. Okay. How much of deferred revenue is recognized generally each quarter? Thanks, Steve. You know, It's been variable, to be honest, and it can change. Okay. I can't give you an exact number, on that. Yeah. We can look at the variation over there, and we can point it out for you. Okay. Yeah. Got it. Yeah, it's a great question. Not many people ask that question. It's a question, I didn't come prepared to go through the details on this. The reality is, you know, when you think about the revenue, there's a current component, and then there's, you know, kind of what you're recognizing from an activity perspective and then what might be fixed amount. When you recognize that fixed amount, do you have to spread that out over the whole contract? That's sort of what they're assessing, right? To say, "You know, I'm flying today. I'm going to recognize X amount of revenue. This revenue, though, that actually ought to be spread over the whole contract. That's the accounting with it. The exact piece, though, you know, I can have your controller call you, and we can bore you to death. Got it. Going forward, Like, what are the biggest risks to the current plan? You know, it's a great question. The current plan, I mean, one of the things that, you know, even though we have great pilot supply right now, and I think we're in a really good position from pilots being sticky as far as, you know, being involved in there, to the extent that we go through another massive wave of hiring by the major carriers, that's a general concern, right? Mm-hmm. We think we're a better off relative because of the flow through to United that's very attractive for pilots, and they'd be willing to sit around there. That's probably one of the bigger things. In a shorter term basis, you know, there's also, we have a little bit of a pilot imbalance right now, where we have, we need to build more captains up. Need captains, yeah. Until you get that resolved, and we've worked with United on this as well, where United's requiring pilots to upgrade and be a captain for two years before they move to United. Previously, they didn't have that requirement, and so now there's an incentive for FOs to upgrade as soon as possible, so they can get that done. Previously, they're like, "Oh, you know, hey, I'm making great money now. My wages have already doubled. Maybe I don't want to upgrade to captain because- Mm-hmm. I'm going to flow through anyway, and I, you know, I don't want to take a risk of another training failure," for instance. Understood. Yeah. That's part of the dynamic that's in play there. You know, the extent that we see another massive hiring from the, from the major carriers, that's going to impact everybody. I think we're relatively better off because of the, you know, what we mentioned as far as the, you know, the United program, our flow through from the Mesa pilot development, so we can take those pilots that aren't 1,500 hours and accelerate them and have them come to our. Yeah. Our company, so. It's, you know, it'll impact everybody in the regional side, so, if they do that. Yeah. Yeah. lastly from me, what worries you about the balance sheet? Yeah. Not enough cash. Okay. Yeah. No, I mean, that. Anything from maturity-wise? No. I mean, when we think about, you know, we've restructured our debt as part of some of the... You know, we went through to our partners. We've made some changes on that. I feel pretty comfortable about where we're at, but, you know, for us, cash is king, and making sure that we're, you know, we're flying high, getting that done and start, you know, generating positive cash flow. That's really what I'm focused on right now. Yep. Yep. Are there any other assets that you could sell? Well, yeah. There's aircraft. We have 15 aircraft that are on long-term lease with RASPRO. We have a buyout provision in there. Yeah. Those are assets that we. That's what was, like, recently renegotiated, right? Yes. Yeah. Yeah. We'll purchase those. We'll probably sell those. We also have like 20 engines, some of them that are relatively new, that we aren't going to need because we'll be. You know, these are CRJ engines, and since we'll be doing primarily E-jet flying moving forward, those are assets that we could sell as well. Okay. Yeah. From me, any last questions from the audience? We'll leave it there. Yeah. Thank you. Thank you much, Andrew. Appreciate it. Last but not least today, we have, Dave Davis, the Chief Financial Officer of Sun Country Airlines. Dave, appreciate you coming to the conference again this year. Thanks for having me. Absolutely. You know, maybe let's start on everyone's favorite topic, that's just kind of the demand revenue environment. You know, Jude was talking about on the last call that you're certainly expecting a strong summer season. You're gearing up to grow substantially. I think every other airline sort of echoes that sentiment. You know, I know 3Q for you is sort of peak, but can you maybe talk a little bit about maybe some of the structural differences that you're seeing in terms of peak versus off-peak demand and what you're doing to address that? Yeah. Let me sort of describe as I answer the sort of our airline for those of you who aren't that familiar with it, whether they're here or online. Actually, the first quarter is our biggest quarter. Third is almost the same size. Yeah. First quarter is our biggest just because September is so low for us. We've heard a lot of this about the peak versus off-peak demand differentials. This airline is designed to operate in very peaky environments. We are. Our schedule at off-peak periods is about half the size that it is in peak periods, just in normal times. We really haven't seen any softness in off-peak periods, and if we did, we would just pull it down and pull it down more. Pull it down more. Yeah. There's been really no TRASM weakness other than what you would normally see at off-peak periods for us or demand weakness. There's a lot of strength on the in the peak periods, like, you know, tremendous strength for us. The other thing is, you know, our business operates through 3 segments. We've got a scheduled service business, we've got a charter business, we've got a cargo business. What we tend to do is fill in some of those trough periods with more charter flying. The cargo stuff is pretty flat. Our peak to trough capacity allocation, like I said, for scheduled service, it's about half, off-peak months versus peak months. If you add charter and cargo to that, it's more like 75% of the trough months versus 100%. Okay. The peak months. We can live with scheduled service weakness in trough periods and fill it in with more charter flying of which there's a ton to do. Got it. Would you be willing to share what your RASM differentials are between peak versus off-peak? I think Frontier was saying today there used to be like a 19% differential, and it's moved to like 25%-26%. Has it moved meaningfully for you? Because of your model, you've always flown that way, has it been a little bit more stable? That's interesting that they said that. The difference between our peak and off-peak, you know, revenue is about 25%. Okay. That's typically what it's always been. Okay. Interesting. I guess what's your take? Everyone knows summer is going to be good. I've been writing in some of the data that I see is just like in the domestic market, just kind of a general kind of sluggishness in bookings. It's not rolling over. It's not letting meaningfully worse. It's just maybe coming off of peak a little bit. Do you see any evidence of that? We have a schedule published now through the third quarter. We'll be sort of rolling that out further, soon. There's really no weakness. I mean, we're not going to continue to see 30% unit revenue increases. Right On top of every strong quarter that we've had in the past. Mm-hmm. If I look sort of forward into 2Q bookings and into 3Q bookings, both loads and unit revenue are at or better than they were at the same time in 2022 looking forward. Yeah. We're not seeing any weakness. I mean, if anything, the issue for us is just we're smaller than we should be. But there's sort of no revenue in. Sorry, no weakness in any of our- Okay Any of our markets. The charter business, who's your typical customer there? We sort of operate our charter business through, it's a number of different customers, but sort of the main customers would be sports teams, casinos, U.S. military, then a bunch of ad hoc customers and a whole, you know. Okay Variety of things. The business. There's sort of two sections to our charter business. There is the portion that is business under contract. Yep. There's what we call ad hoc. Business under contract would be four or five-year deals that we have with various folks to basically do their charter flying for them. Mm-hmm. On the ad hoc side of the business, it would be sort of U.S. military stuff, a lot of, let's say, football charters, basketball charters, stuff that you'd sort of pick up on a fairly year-end basis. Okay. We used to be split 50/50 between the ad hoc business and the... Contracts Business under contract. The business under contract for us has grown substantially. We're probably 80% under contract right now, 20% ad hoc. We now have MLS Soccer, who we do all the flying for. Okay. We've grown our casino contracts. Those with local kind of regional casino operators? No, they're with Caesars and other national chains. It's not like, you know, we have a 186 seat configuration in a 737. This isn't high rollers, you know, heading to the suites in Vegas. Yeah. It's people, in the Midwest flying to, like, secondary properties. Yeah That these casino company. Interesting. You said the only problem that you have right now is that you're not flying enough. What are your capacity constraints? Yeah. The largest capacity constraint that we've had at the company now for probably 9 months to 1 year has just been pilot production. I want to differentiate that between pilot production and pilot availability, because we signed a brand new pilot deal at the end of the fourth quarter of 2021. Since then, our attrition is down massively. We're able to hire all the pilots we need. Our problem that we've been working through and making a lot of progress on is just production, the training pipeline, getting guys through that training pipeline and onto the line flying. Why is that? There's some fairly technical reasons for it, but I think you can think of it largely as an instructor availability issue. Okay. We've had issues in two places. One is instructor availability, and the second is getting people to upgrade to captain positions, which you would think would be very straightforward given the pay change. We've had a little difficulty there, too. This line check airman issue is sort of the pivotal issue for us. We only had five line check airmen last year. We now have 19. We're trying to drive that number to the high 30s. What was it in 2019? Probably around five. Oh, really? Yeah. That's how many pilots you're putting through training. Well, that's how many instructor pilots we have to. Mm-hmm To instruct pilots and put them through training. That's a bottleneck in the pipeline. Mm-hmm. That number was relatively small, and it's sort of been consistent. Our pilot production is we've ramped drastically sort of in terms of how many pilots we need. Really post-COVID, we've ramped. Mm-hmm. Remember, in 2019 we were a certain size. In 2020 we shrunk the passenger service business, grew the cargo business. Mm-hmm. In 2021, we sort of had everything going, and we've been kind of growing since then. We're up to 19 line check airmen. I said, we want to get that to the high 30s, that's our, that's our top constraint on growth rate. Got it. Anything changed of late on in terms of attrition? I think one of your ultra-low-cost peers talking about on their call that they've recently saw maybe a little bit of a tick up. They didn't know if it was a blip yet or not. It seems like attrition across the industry has normalized a little bit. Are you seeing the same thing or are you seeing that blip? We are not seeing that blip at all. I mean, if I look at our attrition rates, we're actually running below what our plan was. Attrition from, let's say, the first quarter of 2023 back to the first quarter of 2022 is down significantly. It's even down sequentially. From Q4 2022 to Q1 2023, it's down. Mm-hmm. Attrition has been a bright spot for us and has sort of partially offset that, sort of glitch in production right now. Got it. If you have gone from 5 to what, 19? Mm-hmm check airmen, you would think some of these training issues would get themselves worked out. What's the timeline there? Like, when can you get through and get back to more. You know, I was teased earlier today at talking about normal levels of utilization because there's probably some level of new normal. Based on your plan, when can you get back to those. Yeah. That level of production? First of all, we've made a lot of progress. We produced about 35% more pilots in the first quarter of this year than we did in the first quarter of last year. The production's happening. And we're making a lot of progress, and it's sort of accelerating. Mm-hmm. I think we've said that publicly that our growth rate this year will be between sort of, let's say, low double digits. A lot of that is centered around Q3, some of it in Q2, and we're on track to hit those. Okay. Significant growth in the next couple of quarters for us. Yep. From a utilization perspective, this sort of gets into, I think, cost issues and other thing, or let's just say CASM issues. We have been taking aircraft, in getting our utilization to where we need it to be or where we want it to be, probably a mid-2024. Okay. Kind of an issue. You know, our utilization is lower than we need it to be. We have a new pilot deal in place. We were the number one performing airline in the country in the first quarter. We're generating high margins. When I look at the rest of the year, it looks very strong. Growth for this airline should come at very high incremental margin. Mm-hmm. We have the aircraft in place. We actually have a lot of the pilot bodies in place. We just have to get them through training, which means that incremental growth comes at very high margin on top of the margins that we're already generating. Yeah. with this quote, unquote, "significant growth" that you have coming for the next few quarters, I think other airlines have a similar type of mentality, largely because of the pilot training backlogs that a lot of these, you know, these airlines have right now. Given what you're seeing in demand, do you think the industry can handle the incremental growth, not just from you, but from the industry at large? I guess it depends on what the actual growth turns out to be. Yeah. You know, as I said, we have a schedule loaded for the third quarter that's reflective of this growth, and it's selling very well. Fair. Yep. At high fares. In our markets where we fly, it seems like it's not an issue. Like I said, we are smaller than we need to be, underserving a number of markets, both from a frequency perspective and from a number of markets perspective where we should be bigger. Right. Okay. What are some of the markets that you feel like you should be bigger in? Believe it or not, despite all the capacity ads, there's almost an insatiable demand for Florida flying. Really? Yeah. Even today. Okay. Like, yeah, Fort Myers. Fort Myers has been rebounding you know, really nicely from the hurricane. Yep. The other places that we fly in the West Coast of Florida have been very strong. Some of the big city stuff, like, you know, we really don't target business traffic at all. Some of the larger East Coast markets for us, like New York, Boston, markets like that, have been fairly strong. I think what's happening there is legacy fares have gotten so high that, like, small business. Okay. Are kind of, like, trading down to us Interesting. Flying on us to some of these big business markets. Interesting. Yeah. One of my next questions would be like, do you feel like that we're at a point in the industry where maybe the consumer is pushing back on price a little bit, right? I mean, I've, you know, in my years of covering this space, granted, they're not very long years, but, like, we've gone a full year now of consumer zero pushback on, you know, on these, on these higher fares. Maybe that's showing that, you know, to some extent, the consumer is pushing back and trading down a little. Yeah, maybe that's- Okay. maybe that's true to some respect. You know, if you like, if you look at, like I said, unit revenue, we're not going to see 30%. There's a sort of. Yeah. Flattening, right? Mm-hmm. I don't think that these big fare increases keep coming forever, but so far all I can do is look at the evidence. There's no weakness in demand. Yep. What's your core demographic? Maybe when you think about your business, right? Predominantly leisure, right? What, you know, how much is leisure versus maybe some of that smaller corporate, if you can tell the difference. Historically, it's probably been 97/3. Okay. Leisure business. You know, maybe it's a little bit larger than that now. Yep. You know, I don't have the exact number. Yeah. The airline, it, like I said, it's very day of week-focused, very month of year-focused. You're a business person who wants multiple frequency. Yeah. Or multiple days, you're not going to be searching the Sun Country website. Mm-hmm. For flights. Exactly. That's fine. Yep. We operate out of a separate terminal out of, out of Minneapolis. You know, other leisure carriers are there. We're just fine with that sort of separation of operations. Mm-hmm. At the airport. Yep. Makes sense. Of that leisure customer, what's kind of general demographics? So. You know, particularly, you know, these days, I get a lot of questions with regards to income cohorts and, you know, in our Bank of America kind of credit and debit card data, our econ team has been talking about a little bit more of a slowing it in the higher end. You know, last year, they were talking about a little bit of a slowing in the lower-end consumer and kind of the, you know, I always told them, like, travel, it's not low. Like, it's not lower end. Like, travel. Right. Is typically a mid to higher end income cohort. Just given your model, what's your kind of typical demographic? If you look at sort of, let's just say, demographic cohort, like age and this kind of stuff, it's actually pretty evenly spread. The business, think of it as families going to Florida, families going to Cancun, that kind of stuff. Yeah. Single people flying to visit family and relatives at cities around the country. It spans a wide age thing. Yep. The data that we've seen on sort of average income, it's probably a little south of $100,000 a year average household income. Again, there hasn't been any sort of slowdown in that. We're not exposed to much higher income business traffic. You know, people. That's right. Yep. Yep. Who are paying a lot of money or. Yep. I don't know if there's any weakness in that, in that world or not. Right. There isn't in our. Okay. Sort of middle-income world. Yep. Understood. How do you think about just longer term growth, right? You know, how do you source aircraft for that growth potential? We've sort of said, you know, on a steady state basis, vary from year to year. If we're looking at sort of 15% block hour growth, on an annual basis, some years a little more, some years a little less, that's sort of where the airline. Okay. Needs to be. You know, we're not just pursuing growth for growth's sake. It needs to be cash flow generative. Wanna protect our margins. Here's the interesting thing, fleet perspective. We take one more aircraft this month, one more aircraft in December, okay, of this year, then we are good for 2023. With the exception of maybe another aircraft, we're good for 2024. Really? Okay. Yeah. Our aircraft utilization is probably 15% below where. Right. Where it needs to be. Right. Our shell count in the first quarter of 2023 is about 20% higher than it was in the first quarter of 2022 on a 4% increase in block hours. Utilization is down. Okay. There's a lot of utilization to be had to get back. When we get into 2025, we just did this Oman aircraft deal. I was going to ask you about that next. Yeah. Pretty unique. Yeah. That's 2025 lift. Mm-hmm. We're probably three, four more aircraft in 2025, and then we'll be back on more eight, nine, 10 aircraft. Right. Our CapEx numbers are low. Right. For the next few years. Yeah. Great. How did that Oman deal come about? We're always sort of in the market looking for lift, you know, because our fleet model is, low cost, mid-life, 737-. Yep. NGs. That's what we buy. We look at dozens of aircraft for every aircraft that we sort of purchase. One of the things we were sort of trying to do is how do we get a little bit maybe chunkier instead of 2 airplanes here or 1 airplane there. We sort of approached a lessor in Germany. It's actually a group of lessors, but the manager of the leases. Mm-hmm. We approached about buying out some end-of-life leases that sort of e-expired over the next year. We basically struck a very economically advantageous deal with them to buy 5 737-900ERs, which is a bigger aircraft for us, which is perfect for some of our markets. Now we're a lessor until end of 2024. Right. Into the end of 2025. Basically, we will be a lessor. The aircraft will redeliver to us, we will induct them into our fleet, and then. Got it. It's an accretive deal now because the lease income is high. Mm-hmm. It'll be even better once they're... I see. I see. What are some of the other ways you're looking into or thinking about sourcing aircraft? We literally talk to lessors, other airlines. Okay. Yeah. You name it. Whoever around the world, we have a list of potential prospects. Okay. The market for used 737s is tightened up a little bit. It's sort of good that we've got most of our fleet in. The used aircraft market is a little tougher than it was, let's say, a year ago. Prices are just a little bit higher. I think. And the other issue you've got is. Do you think that's because Boeing can't deliver on time? Yeah. There's basically delivery issues there. Yeah. People are extending leases. Got it. Not getting rid of their aircraft, all that kind of stuff. Yep. Okay. In our model, we do not enter into operating leases on what exceptions, but we buy the aircraft. We're going to operate them till end of life. We're going to manage the maintenance program. We're going to manage the engine maintenance program, so we need to own the airplane. We're looking for aircraft we can buy. Mm-hmm. Into our. Mm-hmm. Changing gears a bit and moving on to costs, right? No surprise, cost inflation has been the key theme over the past year or so. Do you see that continuing? Do you see things easing right now? What are still, like, the biggest kind of pain points that you see from an inflation perspective? I think from our perspective, which might not be the same as everybody's perspective, we sort of hit kind of a rough cost plateau. The biggest issue for us over the last couple of years, a year, let's say last year, has been our new pilot agreement. Yeah. The wages at this company were very low. There was a significant catch-up. Yeah, exactly. That's now in our numbers fully. The work rules that had to change are in our numbers fully as of the first quarter of this year. There, there's maybe some wage pressure which would like our flight attendant group, but it's a rounding error. Yeah Compared to what? Compared to the pilot numbers. I think a lot of those costs are baked in. The issue for us is back to the thing I was talking about before. Yeah. We're oversized. Right. Our shell count is up 20%, our pilot heads are up 20%, and our block hour growth is much lower than that. Yeah. We need to get the pilots through training and not pay them training guarantee and get the aircraft utilized. As we grow into our size, obviously CASM won't increase. We should see nice high margin growth. Yeah. Do you think you're in a position over the next few years where you can, with that productivity, drive CASM down a little bit? Potentially, yeah. I think you're going to see, particularly in Q3, some pretty drastic change year-over-year changes will get much, much smaller as we move into the year. We don't have the 2024 plan done yet, but there shouldn't be a reason if we hit our growth targets, that we can't drive that number lower. See some negative year over. Any questions from the room before I move on? Mike is coming. Let's see. I had a couple more macro questions. One is, with lower fuel prices, do you see any new markets that you might be able to go into that of a few months ago? Then two, on, with higher interest rates, are you seeing leases becoming more expensive? Is that getting passed on? First of all, on the new market front, I would just say maybe marginally. The issue for us is not new market opportunities, it's having the capacity to be able to deploy into markets. Marginally lower fuel prices is going to mean maybe frequency ads or a few new markets, but I don't think it's substantial enough yet or permanent enough yet to make those decisions. From a lease rate perspective or let's just broaden it and say from a financing perspective, since we don't do any operating leases. On the financing side, it's more expensive. Almost all of our deals are done. Our fleet is largely in. We did do some financing on these five aircraft from Oman. I think we got a very nice deal, but it's higher cost than it was for the aircraft we bought a year ago. Yeah. You know. It hasn't substantially changed the equation of profitability or where we buy. I have just a couple more before we finish up and get you to the airport. Maybe avoid some of the Boston traffic. I guess maybe on the cargo side, right? I know up until recently, I think the cargo operation from a profitability perspective, there was kind of that timing mismatch between the... Right, you're paying your pilots more, but the Amazon rate contract didn't reset. Is that on the horizon? Is that reset? What's kind of We just had a reset. Just think of every December, there's a. Okay. an escalator. We just had an escalator in December. In December. Okay. Our pilot costs are up. That's the biggest cost component in our Amazon business. Yeah Because they pay for the fuel, they pay for the aircraft. It's really pilots. Yeah. That's what the whole cost is there. That has diminished the profitability of that business. Yeah. It's going to take a couple of years for us to catch up to that. It's a couple of years. Yeah, it is. Okay. I mean, because when you look at the increase in pilot costs. That said, it's a very cash flow accretive business for our company. Mm-hmm. It is a good, very steady base of business. Very predictable, known revenues. Yeah On what is otherwise you know, volatile schedule. It's a nice stabilizing factor for us. Got it. Okay. Do you think there's opportunity to do more with Amazon? Would you want to do more with Amazon? I think probably the answer to is yes to probably both of those. Given sort of where we are and what the passenger landscape based on the passenger perspective, that's a future decision for us. In other words, I don't think we're very interested in taking on significant additional capacity on the Amazon side now. Okay. You know, maybe in sort of 2024, 2025 timeframe. When you get more planes maybe? Well, when we get more pilots. Yeah That kind of stuff, you know, when we're sort of let's say fully steady state. Mm-hmm. We get to you know, talk about growing into that. I don't think that's right now. Got it. Last one for me. When you're at conferences like this, meeting with investors, what do you think is, like, the biggest maybe misperception that investors might have on Sun Country? I don't think people understand sort of the stability and the design of the model because it's pretty unique. You know what I mean? I mean, when we state growth figures, we state them in block hours instead of ASMs because we have a cargo business that doesn't generate any ASMs. I think it's really the fundamental understanding of this very peaky business model diversified across three different businesses. Mm-hmm That maybe isn't understood as it sort of could be. We're fairly unique from other carriers. Right. People who've done a lot of work on us understand the model, understand the resilience of the model, but others maybe not as much. Right. I mean, you've done a great job with the balance sheet. You're one of the few airlines doing any sort of meaningful capital returns. Yeah. Do you think you'll continue to be active in that respect? We announced, what was it? Third quarter or fourth quarter of probably third quarter of last year, that we were going to do a $50 million buyback. We're almost all through that. I think our stock is really low. I think we believe it's too low, so we think it's a good buy for us. This hasn't been something we've vetted with the board yet, but I think there's probably an opportunity to buy back more of our equity. Any last questions from the audience? Great. Dave, thank you. Thank you. Appreciate it. Thanks everybody.