All right, well, good afternoon. Welcome to, I think, the last session, at least fireside chat session, here at Barclays' 41st Annual Industrial Select Conference. I'm Brandon Oglendski, airline and transport analyst. Thank you. With us, on stage, Dave Davis from Sun Country Airlines, airline based out of Minneapolis. A lot of you probably don't know it unless you live or fly around Minneapolis, but we're definitely gonna have a good chat here. I think we'll just skip over the air on stuff, but so Dave, thanks for coming down. Really appreciate you. Yeah, thanks for having me. Having you here. Appreciate it. Tell us about we've actually been hearing a vibe at this conference about airlines, people finally investors interested in the sector. I think that goes hand in hand with a pretty strong outlook from you guys for the first quarter, so. Yeah. And you know, so a little bit of context for people who don't know us as well. I mean, we operate 54 aircraft right now, a number of aircraft on the way in the next 24 months. We were the most profitable carrier on a pretax basis in the U.S. last year. And I think we put out some strong guidance for the first quarter, and you know, we expect to continue to see the kind of results we've put up. So our ASM growth in the first quarter will probably be sort of mid-double-digit teen kind of numbers, and we'll put up strong margins as well. So I think for us, leisure markets remain strong, some markets in particular, but sort of steady as you go. We expect to put up good numbers for the quarter and for the year. Yeah. I mean, your operating margin guides, I think, is 17%-21%. Is that right? Yeah. That's very healthy. Now, you do have some seasonality in the business. Can you talk to, you know, the peak period? 'Cause I think first quarter is your strongest. Yeah. So the airline, the airline operates through three segments. We have a scheduled service business, we have a charter business, and we have a cargo business that operates for Amazon. All three of them, 737 NG aircraft, we cross-utilize our pilots, cross-utilize aircraft between scheduled service and charter. Our business specializes in flying leisure passengers, basically from Northern Tier cities to sun destinations in southern U.S., Mexico, the Caribbean, is where this airline flies. People are traveling in the winter, so our first quarter is our strongest. You know, demand is very strong right now, in Q1, but it's, it's seasonally our strongest quarter. June and July for us have been getting a lot stronger as well, particularly July as we build out the network. But yeah, it's Q1 is our, our bread and butter quarter. Well, Dave, how much, of your scheduled passenger service, 'cause that's about 70% of your revenue. Is that right? Yeah. How much of that is, based on origin Minneapolis, demand? Yeah. So the airline, for the scheduled service business, not for the charter or cargo business, but for the scheduled service business, is fairly Minneapolis-centric right now. So 55%-60% of our traffic is Minneapolis-originating. Then the rest of it, we move aircraft around a lot. The schedule is highly peaked. We schedule a lot in periods when demand are high and very little in periods when demand is low. So for instance, March, we'll fly probably 60% more ASMs than we flew in January. That's how the business is. Even day of week, 'cause I think I've been through Minneapolis on a Tuesday, and I see a big number of your fleet parked outside. Is that correct? Yeah. So it's very day of week specific, and it's very month of year specific, and it's very geographically variable. So we move the aircraft around the country. We fly different cities different times of the year. We emphasize charter flying more in certain off-peak periods, less in high-peak periods. So the beauty of the model and the whole point of it is not to necessarily drive CASM as low as possible through high utilization. It's to fly when demand is strongest and capture high unit revenues. We're tight on cost control as well, but it's not a utilization-focused model. It is a high unit revenue-focused model, and that's what's sort of driven the success of the business. Just running again, how much are you planning to grow in the first quarter, and what should we be thinking about for the full year? So our plans right now are to grow sort of high single digit to low double digit, let's just say 8%-10% a year from a block hour perspective in 2024 over 2023. Most of that growth will be allocated to our scheduled service business. So we'll probably see ASM growth in the first quarter around the order of, let's just say, 12%-14%. I think that's a more elevated growth rate than we've seen in the past couple of years. Just remind me, I think you had some challenges with first pilot training, issues and then pilot upgrade issues. Has that been resolved? Yeah. So the challenge or one of our biggest challenges over the last, let's say, 12-18 months has been staffing, particularly on the pilot side. And it hasn't been, pilot hiring, which we've sort of, been able to bring as many pilots in as we need. Attrition's been relatively low. It's really been getting people to upgrade into the captain's seat. And there's a long variety of reasons for that complexity, which I could go into, but I think we're largely through that problem. There's more progress that we need to make, but we, we are largely able to grow pretty close to where we wanna grow at this point. How far back on schedule did that pilot issue put you before you wanna be in the network today? That's a good question. We're probably, if I look at sort of our original IPO plan, we're a year or so behind, from a growth perspective. Remind me, how many aircraft do you have in passenger service? So here's our fleet today. As of year-end 2023, we operate 54 aircraft. 12 of them are freighters. The other 42 are passenger aircraft. We also control another seven aircraft that we have on lease to two carriers. We are expecting delivery of two incremental aircraft in 2024. Then in 2024 and 2025, those seven aircraft will come off lease and go into our fleet. By mid to late 2025, our fleet should be at around 63 aircraft. So how many more incremental would that be? Sorry. Or is that just taking? It's two more new aircraft to the fleet and then the seven incremental that are currently on lease coming back into our fleet. Can you remind us how that's impacting the P&L? 'Cause I think we have a lease revenue line right now. Is that correct? We have a lease revenue line. From a P&L perspective, we expect the aircraft to be at least as accretive to the P&L when we're operating them as they are when they're leased. Yeah. I think for the industrial audience here too, we care a lot about aircraft, and Boeing's obviously a hot topic. But what are you operating the next generation type, so the prior gen 737 family? Yeah. Yeah. So the fleet philosophy of the aircraft, sorry, of the airline is mid-life 737 NGs. That's what we specialize in acquiring, and that's the totality of our fleet. We don't have a dedicated order book. We haven't brought any new aircraft. It's all mid-life 737 that we've brought in the open market. I think a really important thing about our company as we move into 2024 and 2025 is sort of where we sit from a fleet perspective. So the company does about $1 billion in revenue, a little bit more than that, on an annual basis. In 2023, our CapEx is about $225 million. We bought a number of airplanes. Those airplanes are now on lease, and they'll come back to us over the next 18 months, as I said. But our CapEx budget is gonna drop from, say, $225 to probably sub-$100 in 2024 and 2025. The business is a strong cash flow-generating business, and our operating cash flow is strong. So that drop in CapEx basically will drop to the bottom line. We've been actively buying back shares now since the end of 2022, when they, you know, cash deployment decisions as we move through 2024, but the business will generate a lot of free cash flow. I mean, I feel like you guys don't get a lot of respect with your valuation, but these are pretty good numbers. In fact, I think last year you guys did have close to, if not the highest operating margin in the industry. Is that right? Right. From a pretax perspective, we had the highest margin in the industry. I'd have to go back and look at operating, but we were probably number one or close. Right. From a pretax perspective, we were top of the industry. So we, we put this new model in place. We really started this in 2018, when we were a private company. In 2023, we were the most profitable airline in the country. In 2021, we were the most profitable airline in the country. In 2020, we lost the least of any airline in the country during COVID. So I think our track record sort of speaks for itself so far. Yep. And in terms of Minneapolis and the network and growth, how many new markets do you see on the horizon, you know, through 2025? We just sort of put out our summer and the fall schedule. So we'll have close to 100 destinations from Minneapolis right now that we fly. There's still substantial growth that we can in Minneapolis as well. But here's the again, this is sort of the secret sauce of the airline. We're not these aren't, like, multiple destinations multiple times daily, all year round, very highly specific day-of-week markets, specific months of the year. So it's a lot of destinations, but very few of them are flown on a year-round basis. That's the specialty of the airline. Right. The way you distribute is different from other low-cost carriers as well, right? So it's, again, it's very bifurcated. In, like, our home market of Minneapolis on the scheduled service side, around 70% of our tickets, a little more than that, are sold direct through our website. Then in other markets, since we're in and out of these markets so quickly, we really don't spend much on building brands in these cities. So we're in all the GDSs. So basically, we compete around the country based on sort of during periods of peak demand, we sell through GDSs. And in Minneapolis, it's mostly direct. How much has ancillaries actually become a bigger source of revenue, right? Yeah. Yeah. And I mean, ancillaries grown significantly for us. Our ancillary production now is roughly on par with the other ULCCs. There's probably more upside in that in that, probably $5 per passenger just through some largely through some automation and different sort of methods of merchandising that we have underway. We do get this question from some shareholders or potential shareholders. What about Delta? Because they're obviously in one of the bigger hubs and compete directly with them on a lot of these routes. But can you speak to the peak aspect of your network? Yeah. So first of all, the airline is 100% or, let's say, as close as you can get, 100% leisure traffic. So we're not involved in business markets. The schedule's not set up for that. So we're really not competitors there. It's also point-to-point. For the most part, we have some connect, but it's point-to-point. So the Delta flows a lot over Minneapolis. The other thing, as I said, is we are focused on periods of peak leisure demand and not another period. So, just to give you a statistic, from 2019 to 2023, our passenger share of Minneapolis grew from about 11.5% to almost 20% over that period. Delta actually grew a little over that period as well. What happened is everybody else dropped by almost 10 points. So really, we've been able to sort of, you know, consolidate this market to some extent between the two of us. We operate in a different terminal than Delta. And, like, as I said, have a much different schedule and philosophy. Well, for those that maybe aren't in Minneapolis, it's hard to envision. But the terminal access is actually one thing that your customers probably appreciate. Is that right? Yeah. So the airport there is set up. There's a main terminal, which is a very large terminal set up for connecting traffic. Yep. You know, set up back in for Northwest Airlines and then through the Delta acquisition. Then there's a separate terminal, which is not even connected by a, you know, a simple people mover. It is really set up for low-cost carriers, where the dominant carrier in the terminal by far, much smaller. Parking is right there, very quickly through security. So it's super convenient for passengers. We hear good, good things about it all the time. Well, 'cause we just had Glen Hauenstein up here a little bit earlier. Oh, okay. Talking about premium demand and segmentation of his customers. But. Yeah. Yeah. That's something that you guys are focused on as well, right? I mean, so like I said, our business is a leisure business. The model is focused on diversification of revenue streams and cross-utilization of assets. So we have the scheduled service business. We also have a significant charter business. 90% of that charter business is long-term contracts, be it with Major League Soccer, with various casino companies. That so that is a solid, very profitable business. And then we operate 12 freighter aircraft for Amazon. Right. Pilots cross-utilized across all the assets, aircraft cross-utilized between scheduled service and charter. So what, what allows us to operate this very peaked scheduled service business is that we have other businesses that are either countercyclic, like the charter business, or very steady, like the cargo business. So we get the advantages of, of peak scheduling from a revenue perspective and the cost advantages of, higher utilization because we have these other segments. John, do you have a question? Yeah. I have a question around premium pay for your, your pilots. You mentioned it on your last call as well. You said it kind of was a drag TPS over the past year. How is that progressing through this year? And as you said, attrition is very low, but as you come up on into pilot contract, will higher wage rates basically supplement the premium pay? Yeah. So I wouldn't sort of look at it this way. In 2023, we were short pilots mostly on the captain side. What that forced us to do is to fly the schedule. We offered a lot of premium pay, so time and a half, double time to get pilots to pick up trips. That works fine, but it's expensive. We have largely come through that problem. So our premium pay numbers are down significantly in 2024, and we're able to grow the airline at the level that we wanna grow it. It's been a lot of hard work, but I think we're largely through that. We could always see more, but it's not the headwind it was. From a new pilot contract perspective, we're a little bit in a different place than some of the other airlines. We signed a new deal in December of 2021. So we're not, there's no, you know, upcoming cost increases here in the very near term. It's a four-year deal, so it would be up at the end of 2025 and then however long it takes to negotiate a new deal. So there's something in the horizon down the horizon, but for the next few years, we're just gonna operate under a current contract. Follow-up. People are really good at extracting high yields on high-peak, high-demand routes. But then on the cost side as well, are there other efficiencies you can kinda take out of your operating model to expand your margins? Yeah. So I think on the cost front, like I said, our CASM's just by the very nature of our business gonna be higher than it is for some of the other ULCCs because we're not seeking maximized utilization of the aircraft. As a result, we need to become really cost-conscious elsewhere, and our fleet strategy is one of the major ways that we've done that. We don't have brand-new aircraft that we've gotta keep flying in order to justify the ownership costs. As I said, it's an older fleet, mid-life 737s. That's a key part of the strategy. Then as we sort of work through the business, there's more opportunity for us to take additional costs out. There's a lot of automation that still needs to be put in at the company. For instance, we don't have a pilot preferential bid system, which almost all other airlines have. We're in the process of putting that into place. That'll drive efficiencies. There's more efficiency to be driven on the maintenance side of our company. You know, we outsource all of our heavy work. There's a lot more we can do on that front. And I think we'll see that start to bear fruit, really, in the 2025, 2026 timeframe. That should be a maintenance should be a cost a unit cost tailwind for us. Well, and the aircraft they have on lease with other airlines that are gonna come into the fleet, that's the 900 variant, is it not? So we have seven aircraft on lease two of them are 800s, and five of them are 900ERs. So that'll allow us basically to it'll provide us some upgauging opportunities in peak markets at peak times of the year. So, let's say Minneapolis to Fort Myers, those kinda markets, which are almost insatiable in the March timeframe, we can, you know we can upgauge and get more seats in the market. Is that like 15-20 more seats, and you're configured? That's about exactly what it is. Yeah. Okay. And you get a CASM benefit as well. There'll be a CASM benefit as well. Exactly. The overall operating cost per ASM are almost the same, but there's a CASM benefit. Okay. How scalable is the charter market, though, going forward? You know, if the ambition is to make Sun Country 50%, 100% bigger a few years down the road, can, can it scale? Yeah. So ideally, we would continue to grow. I can't say this is gonna happen every year because it doesn't; it sort of doesn't work that straight. But basically, we wanna grow all three segments kind of roughly proportionally as we go forward. In some years, more with one segment, and some years, less. There's more opportunity on the charter side. There are more long-term contracts for us to win. There's more premium flying we can do, which we don't do today, like VIP type flying. Then there's also a market that we have largely gotten out of just due to our pilot situation in the past, which is ad hoc charter flying. That is charter flying that is not under long-term contract, but you bid on, like, a month out. Mm-hmm. That used to be 50% of our charter business. It's now about 15% of our charter business. That business is still out there. As we continue to build up our pilot resource, we'll get back into more ad hoc charter flying. So there's plenty of growth opportunity there as well. And probably good to highlight, too, your charter flying, you don't take the fuel risk. Yeah. So basically, we don't do any fuel hedging anymore. But roughly 30% of our fuel consumption is sort of perfectly hedged. Both on the cargo business and on the charter business, we don't take fuel risk. On the charter on the cargo business, it's literally paid for by our customer. On the charter business, if fuel goes up, there's an offset, a true-up that's done at the end of the month. Got it. And on the Amazon contract, I think when it was struck, pretty healthy profitability that we could see on the P&L. But you did get the reset in pilot rates with the new contract. It's been, from an operating perspective, closer to break-even the way we can see it on the P&L. Now, I know there's allocation of fixed costs going on there, but can you talk to, longer term, the outlook with Amazon? Yeah. So the business is a solid cash flow generated from us for us. You know, on the P&L, we report two segments, passenger cargo. There's some fixed overhead and stuff allocated to the cargo business. But all that said, the profitability of our cargo business has deteriorated since we first got into the business in 2020. I believe there will probably be an opportunity for us to grow that business in the quarters ahead, quarters and years ahead. But, you know, we need to do something on the economic front, to get it performing like the rest of the businesses. So I would take that as sort of a key initiative for our company, as we move forward into 2024 and 2025. Okay. So coming back to scheduled passenger, because I think that's where you and Jude would say we would most like to allocate our resources today if we could. Yeah. Again, coming back to growth, this year, what about markets outside of Minneapolis? So I think for the foreseeable future, you will see us continue with this we call it sort of a scraping strategy. There's really sort of two ways to grow. One is to establish a brand recognition in a given market, invest in advertising, put some aircraft there, you know, year-round, and really sort of grow it. The other is what we call sort of scraping, which is moving the aircraft around to capture peak demand, capture peak pricing at periods of peak demand. I think the next few years for us are gonna continue to be that scraping strategy 'cause there's a lot of opportunity out there. So I think that's sort of where the growth will be. Now, that said, some of the markets that work particularly well for us, as maybe you would expect, are sort of upper Midwestern markets. So the Madison, the Milwaukee, cities like that, they're not as big as Minneapolis, but the, the brand, there's some brand recognition, and they work very well. So I think you'll continue to see growth in those markets. And then we also have a small operation, small right now, that we operate in Dallas, which is we move some aircraft there in the summer, fly basically people to Texas, to Caribbean and beach destinations. I think there's probably more opportunity there as well. So for the next few years, you're gonna see us continue to pursue this moving the aircraft around strategy. Maybe at some point, we try to establish more dominance in a given city, but that's a few years down the road. Well, I know we touched on this, but used aircraft values, especially given production challenges of rolling in Airbuses. How has it impacted the NG market? And I know you have capacity planned for 2025, but beyond that. Yeah. You know, I can't tell where it's gonna go beyond 2025, but it's tightened up. I mean, used aircraft values have gone up, let's say in the last year to 18 months. You know, we're fortunate to have locked these aircraft in at the prices we wanna pay. We stay active in the market. We scour literally hundreds of deals to find the few aircraft that we need to grow. So we'll continue to be aggressive, but our used aircraft pricing has firmed, you know, and I think that'll probably remain the case until we see production rates increase at Boeing, basically. Got it. Good job. Talk about all the opportunities that you see over the next, like, year or two, but you're also growing, like, low double digits annually. Where is Sun Country in, like, five, seven years? Do you see yourself opening a new crew base or kinda replicating what you did in Minneapolis, in Dallas, or Milwaukee? And do you also have, like, a longer-term margin target that you're looking for? Yeah. Yeah. So, I if you're looking sort of five-seven years down the road, there probably is another focus city for us on the horizon. As I said, let's say we end 25 with 2025 with, let's say, 63 aircraft operating. You know, that number could probably increase by 10% a year for the foreseeable future. And it'll be in fits and starts. There's probably, as I said, maybe more flying to do on the cargo front, definitely more charter flying to do. You know, from a target margin perspective, our adjusted pretax in '23 was around 10%. I don't think there's a reason we can't drive that number consistently to be low-to-mid-teens pretax margins. And then you touched on the capital side of the balance sheet. You have financed these aircraft, right? Yeah. So the balance sheet of the company is pretty strong. We finished 2023 with a leverage ratio of 2.2x. That should fall to sub-2x here as we move through 2024 relatively rapidly. But again, all the aircraft that we need, we've already sort of purchased. We already have the financing lined up for it. We only have three pieces of debt. We have two EETCs and a term loan, on our balance sheet right now. So we just don't really have financing needs or new aircraft needs over the next couple of years. Like I said, roughly, we'll spend $100 million or so on CapEx. That is sort of systems development, some maintenance CapEx. And then we have a very active green time engine strategy where we haven't been doing overhauls of engines, but we've been in the market actively buying engines with green time on them. We put those on wing. When the engine is run out, we tear it down. We have a consignment agreement. We keep the parts we want, sell the parts we don't want. We've been. That's sort of been underway for three years or so now, and it's working really well. So that's what our CapEx is over the next couple of years. It's, it's engines and automation. As we're winding down here, I guess, as you look out over the near term, and again, we heard this from a few of the other carriers, but environment's still holding pretty positive. In fact, I think others have said maybe a little bit better than it. But what, what do you guys see in your booking trends? I think the environment remains sort of overall constructive. You know, first quarter of last year was really, really strong. I think first quarter of this year looks good. So overall, we see a great environment. I mean, I don't see any massive acceleration, but not deceleration either. It's very steady, steady growth. It'd be good for Sun Country. Okay. Really appreciate you being here, and really appreciate everyone coming, to the part of this conference. Thank you all. Thanks, Brandon. Appreciate it..