Welcome to the Sun Country Airlines first quarter 2024 earnings call. My name is Jill, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. We will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Thank you. I'm joined today by Jude Bricker, our Chief Executive Officer, Dave Davis, President and Chief Financial Officer, and a group of others to help answer questions. Before we begin, I'd like to remind everyone that during this call, the company may make certain statements that constitute forward-looking statements. Our remarks today may include forward-looking statements, which are based on management's current beliefs, expectations, and assumptions, and are subject to risks and uncertainties. Actual results may differ materially. We encourage you to review the risks and cautionary statements outlined in our earnings release and our most recent SEC filing. We assume no obligation to update any forward-looking statement. You can find our first quarter 2024 earnings press release on the investor relations portion of the website at ir.suncountry.com. With that said, I'd like to turn it over to Jude. Thank you, Chris. Good morning, everyone. Our diversified business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we're able to deliver the most flexible scheduled service capacity in the industry. The combination of our schedule flexibility and low-fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages, we're able to reliably deliver industry-leading profitability throughout all cycles. Operational excellence is a core tenet of our product. It's critical to our scheduled service customers and justifies our growth with our charter and cargo customers. Among the 11 public mainline carriers, Sun Country again had the best completion factor at 99.7% for 1Q. Congratulations to our employees, especially our front lines, for delivering excellence this past quarter. In the first quarter, we saw yields reset off their post-pandemic highs. These fare declines were partially absorbed by our continued momentum on costs. Our CASM-e x declined slightly in 1Q in spite of significant increase in heavy aircraft visits. Diligent cost control, scheduled service growth, along with the effects of our buyback program, produced flat EPS versus last year. Our adjusted operating margin of just over 18% was at the lower end of our expectations coming into the quarter. This variance is mostly due to close-in March bookings finishing less strong than in 2023. March is still a great month for us. We had gross margins, profit success in excess of variable costs approaching 50%. However, March bookings made through January would have indicated an even stronger month. As loads remained high, most of the variance can be attributed to industry capacity growth across our largest markets. Our response to changes in the fare environment or fuel price inputs is to adjust marginal capacity so that we continue to produce positive and industry-leading results. When possible, we may allocate surplus capacity into our charter and cargo segments. So looking into the rest of the year, we're currently allocating too much capacity growth in off-peak periods based on selling fares. While we're committed to May, I expect us to make some significant capacity trims in September through November. Some of that displaced capacity will provide growth opportunities in cargo and charter. Summer peak continues to sell well and should remain mostly as scheduled. Also, a quick note on the Easter shift. An early Easter reduces the peak winter season and explains about 10 percentage points in fare drop in April 2024, or about $3 million. This revenue isn't recoverable in March because it's already at peak capacity. Finally, on fleet activities. With our recent aircraft purchase, we now have a controlled fleet of 63 aircraft. Seven of these aircraft remain out on operating lease, and two more are in induction process to enter service in late 2Q. Once all these aircraft are in operation by late 2025, we'll have fleet capacity pro- to produce about 40% more block hours than we currently operate. As we already paid for that growth, we won't require any aircraft CapEx, and so expect CapEx to fall to maintenance levels, which is about $50-$75 million per year. With that, I'll turn it over to Dave. Thanks, Jude. We're pleased to report strong Q1 results, including record revenue and an adjusted operating margin of 18.2%, which we expect to be at the top of the industry. Our quarterly results again demonstrate the resiliency and earnings power of our diversified business model, as this is our seventh consecutive quarter of profitability. The staffing-driven constraints we've experienced for over a year now have eased, and we were able to grow our scheduled service business as rapidly as we intended to. Year-over-year unit costs fell for the second consecutive quarter, despite significant increases in maintenance and airport-related expenses. It's important to keep in mind that our unique operating model is the opposite of the high-utilization carriers. Our diversification across scheduled service, charter, and cargo operations leads to resiliency through business cycles. While we've seen large increases in OA capacity in some of our markets, which has pressured yields, there are significant opportunities for accretive growth in our charter and cargo businesses, and we'll continue to allocate capacity to the segments generating the highest returns. Let me turn now to the specifics of the first quarter. First on revenue and capacity. In the first quarter, total revenue grew 5.9% versus Q1 of last year to $311.5 million. This is our highest quarterly total record on revenue on record. Scheduled service revenue plus ancillary revenue grew 2.8% to $227.4 million, also the highest on record. Scheduled service TRASM decreased 11.7% to $0.122, as scheduled service ASMs grew by more than 16%. Total fare declined 11.3% to $196.41, while we maintained an 87% load factor. For the month of March, we saw our scheduled service load factor hit 89%. First quarter is historically our strongest, and we expect to see a seasonally driven fall in unit revenue from Q1 to Q2, exacerbated by the Easter shift into Q1, and the nearly 20% growth in scheduled service ASMs we're expecting to see in Q2. Charter revenue in the first quarter grew 2.4% to $47.3 million on a block hour decline of 3%, driving charter revenue per block hour up 5.6%. If you exclude changes in fuel reimbursement revenue from both Q1 of this year and Q1 of last year, charter revenue grew 6.5% over the period, and revenue per block hour was up 9.8%. Ad hoc charter revenue grew 29% versus Q1 of last year, and charter flying under long-term contracts was 75% of total charter revenue versus 80% last year. First quarter cargo revenue grew 2.5% to $23.9 million on a 1.1% decrease in block hours. As a reminder, our cargo rates increase annually at the end of December. Let me turn now to costs. Our first quarter total operating expenses increased 7.5% on a 9.6% increase in total block hours. CASM declined by 5.4% versus Q1 of 2023, while adjusted CASM declined by 0.1%, marking our second consecutive quarter of year-over-year CASM declines. As our pilot availability issues have eased, we've been able to grow flying through higher aircraft utilization, which was 8 hours per day in Q1, up 9.6% versus Q1 of last year. Our declining CASM came despite increases in both maintenance expenses and higher airport costs. Maintenance expenses grew by 29% year-over-year, driven by an increase in the number of airframe and engine overhaul events from three in Q1 of 2023 to eight this quarter, while the rolling off of COVID relief payments to airports helped to drive a 34.6% increase in rent and landing fees. Now, let me turn now to the balance sheet. Our total liquidity at the end of Q1 was $179 million, which incorporates $11.5 million in share repurchases that we made during the quarter and $29.7 million in CapEx spend. At this point, we do not expect to purchase any incremental aircraft until we begin looking for 2026 capacity at the very earliest. We anticipate full year 2024 CapEx to be well below $100 million. We continue to maintain a very strong balance sheet, and our net debt to adjusted EBITDA ratio at the end of Q1 was 2.5x. Since we do not have a significant debt burden, we have flexibility in how we deploy our cash. Turning now to guidance. We expect second quarter total revenue to be between $255 million and $265 million on block hour growth of 8%-11%. We're anticipating our cost per gallon for fuel to be $2.93, and for us to achieve an operating margin between 4% and 7%. Our business is built for resiliency, and we'll continue to allocate capacity between our lines of business to maximize profitability and minimize earnings volatility. With that, we will open it up for questions. Thank you. At this time, we'll conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw that question, please press star one one again. Please stand by while we compile the roster. First question comes from Ravi Shanker with Morgan Stanley. Go ahead, Ravi, your line is open. Thanks, morning, everyone. Dave, can I just start with where you ended off and talk about the difference in the segment realignment or reallocation of capacity? Can you go into a little more detail on kind of what you guys are doing in terms of specific actions to absorb some of that excess capacity and some of your oversupplied markets and kind of how long that'll take? Yeah, I'll let Jude speak to that mainly, but let me just say it at a high level here. So I think basically our capacity is committed for Q2, and that explains part of the margin pressure that we're seeing into the second quarter. There'll be opportunities in the back half of the year to reallocate some of that capacity, particularly in off-peak times, away from our scheduled service business and into our charter businesses. In the longer term to the medium term, we continue to look for opportunities to allocate the resources we have across all our segments. If there's opportunities in the cargo business that present themselves, we're going to pursue them. We're going to allocate our pilot capacity, our training capacity, the capacity of our company between the segments based on profitability. If there's continued pressure in the scheduled service business, we're gonna allocate to the other segments, and we think there are opportunities in both of our other lines of business. Yeah, the focus is in the Labor Day through Thanksgiving period to try to pick up more charters. But it usually is that way, so, you know, incremental allocations are gonna be marginal. So it's mostly gonna be capacity cuts of scheduled service flights that don't make variable contribution. Got it. So maybe just to follow up on that, kind of, how do we think about modeling from 2Q to 3Q, kind of, the relative and normal seasonality, given the kind of extremely low starting point for 2Q? It's a fair point. I mean, typically, we would see 2Q and 3Q perform equally. This 2Q has both overcapacity in April and May, and an Easter shift. So, you know, our expectation is we outperform 2Q and 3Q. Understood. Fantastic. Yep. One moment while we prepare the next question. Next question comes from Duane Pfennigwerth with Evercore ISI. Duane, your line's open. Hey, good morning. Thanks. So if we just play back your ability to kind of flex up in the peak periods, you were obviously constrained for an extended period of time. Those constraints started to ease, and now you have a greater ability to kind of flex up in these peaks, which theoretically was gonna be at higher incremental RASM. And so I guess, relative to your expectations going in, how has that gone? And, I guess more importantly, what do you take with you going forward? So how are you thinking about flexing up in future peaks, maybe relative to how you managed, you know, peaks in the first quarter? The biggest surprise is that the scheduled service network didn't absorb the growth in the off-peak periods the way we expected it to do. Keep in mind, we designed the network based on its performance, largely of the prior year, on a granular level. So this flight on this day did well, let's add another. You know, this market was cut right at the end of the peak period but was performing strongly, so maybe it can go into the off-peak period and still contribute. And those decisions on the margin, you know, didn't produce the results that we thought they would. So, you know, most of the difference between where we expected fares to be and where they actually turned out to be, can be explained through more seats in markets, not just from us, but from OAs. There's a really strong correlation between the change in the downward pressure on fares, the change in unit revenue in a market and its, and its seat growth, as you would expect. In off-peak periods, when there just isn't a lot of margin to give, those, those markets, you know, those flights should have been not in the schedule. The change. You know, what's really interesting about this time is that the change in the selling fare environment didn't really start until mid-February. Then we're looking at 2Q and saying: Okay, well, you know, these fares are coming down. Some of these flights aren't gonna be, you know, positively contributing, but we should leave them in there to protect the sold seats on those flights. Further, you know, like, fare fluctuations are pretty common. This one, you know, just lasted all the way through the selling period. So, you know, I think we made the right decision in 2Q, keep these markets going, and then, you know, we'll adjust to the new environment in the post-summer trough. So that's great. So basically, the learnings that you're taking here from your approach to off-peak, 2Q is not really the period to measure that change. It's more kind of 3Q, second half. Is that fair? Is that fair? Yeah, but Duane, I mean, keep in mind that we're always adjusting utilization based on the inputs of fare environment and fuel, so- Yep. You know, this can reverse itself as well, but the marginal capacity that comes in or out of the schedule largely resides in the off-peak period. So think of our business as there's one awesome month, that's March. There's about six good months, February, April, June, July, December, August, and then there's a really bad month in September, and then there's kind of a couple that are, meh, four. And, you know, when we think about variable capacity, it's always allocating into, like, those shoulder months that can absorb or not based on the fuel price and fare environment. Yeah, but it is, but it is fair to say, Duane, obviously, we have more of the second quarter sold than we do the third quarter or the fourth quarter, so our ability to adjust the schedule gets better the further out we go, and it's somewhat limited in Q2 at this point. That's all great. And just my follow-up: any outlook or, you know, update you can provide us, your outlook for new wins in the cargo segment? Thanks for taking the questions. Nothing to talk about right now. Yeah, we probably don't have much to talk about at this point. Okay, thank you. One moment for our next question. The next question comes from Helane Becker with TD Cowen. Go ahead, your line is open. Thanks very much, operator. Hi, team. Thanks for the time. Just a couple of clarification points. Are you expecting maintenance costs then to continue to be at this level for the rest of the year, or is this just a one-quarter event? No, the maintenance costs are going to stay a bit elevated like this through the rest of the year. You know, I think we talked about on the Q1 or the call we did at the end of 2023, about some intentional changes to our maintenance program that we made in 2024, that are gonna keep costs higher, and that's gonna likely persist, or it will persist, based on our plan, through 2024. Okay, that's very helpful. Thanks, Dave. And then the other question I have is with respect to the decline in air traffic liability, and maybe you explained it through the changes in bookings, but usually, it doesn't decline as much as it seems to have declined from the, from the year-end, you know, from the fourth quarter to the first quarter, but it was down 24%. So how are you thinking about that, or did you explain that already? I don't think we explained it already, but I mean, the ATL is gonna drop as we go through Q1. You know, a little bit of the decline this time might be the weaker fare environment in the second quarter, but there's nothing unusual in the ATL drop. Okay. Well, that's very helpful. Yeah, just there, there is a lot of seasonality in our ATL just based on the- Yeah ... on the volatility of our schedule and fare environment. You know, so- Mm-hmm ... so at the end, going into the first quarter, we'll have the highest ATLs of the year. Right. That's what I would expect, but I wouldn't expect it to decline as much as it did from January to March. But I guess it all has to do with not having as many bookings for the second quarter, the Easter Shift and all the other things you've already explained, right? Is that how we should sort of think about it? Yeah, to the extent that it's a little bit unusually large, it would be the fare issues you're talking about, and Easter is a big part of it. Perfect. Okay. Thanks for your help. I appreciate it. Thanks, Helane. Thanks, Helane. Of course. Thank you. One moment while we bring up our next question. Our next question comes from Michael Linenberg with Deutsche Bank. Go ahead. Your line is open. Oh, yeah. Hey, good morning, everyone. Yeah, no, I in the release, and I think Jude even sort of mentioned, capacity by competitors, OA capacity. Can you give us a sense of maybe what OA capacity looks like in the June quarter, you know, in your markets, year-over-year changes, maybe June, September, maybe how that trends, maybe it was better in the March quarter? Any color on that would be great. Domestic capacity was up 6%, and overlay capacity was up about 10% in the first quarter. Those trends are basically consistent in the second quarter as well. Keep in mind, our network is dramatically different from quarter to those two quarters. But, I mean, we're just seeing a lot of seats in our markets. In the back of the year, you know, we become really concentrated between Labor Day and Thanksgiving because, you know, as we trim out markets that are seasonal, so that's where the concentration resides. So then we have a lot of capacity into major trunk routes out of Minneapolis, and that's where you see a lot of seat pressure. Okay. And then just my second question is, you know, you've obviously identified the issue, and you'll respond, you know, as you mentioned in sort of, you know, the off-peak periods from September through Thanksgiving. How much of what's going on reflects some of the other churn going on in the industry? When I think about the network changes being made by many of the other carriers, and I would say it's really the smaller carriers, not the big three, I mean, they're very well-established. The churn that we're seeing in network changes, it's quite frankly nothing like I've seen before, when I look at the number of additions and deletions. So how much of this may be just more of this sort of structural change going on in the industry, where it just may be that more difficult to respond to because of the dramatic shifts in networks that we're seeing? Just your thoughts on that. Thanks. It's difficult to give a long-term read-through based on a very limited amount of input. I mean, my view would be that Spirit and Frontier are challenged more with when they fly than where they fly. Mm-hmm. In the same way that we're having these off-peak weaknesses, they're experiencing the same. And so the network churn is, you know, isn't addressing the issue. Our response to this is gonna be look at incremental capacity and shave it down- Mm-hmm. ... as it always has been. Mm-hmm. You know, so like, and then on a competitive encroachment, most of what we're seeing is from Delta, quite frankly. Mm-hmm. And it seems like they're just kind of building out Minneapolis in the post-COVID recovery a little later than they've done in some of their other hubs. Then there has been some encroachment, speaking specifically of Minneapolis from Frontier, but those markets, you know, like Cleveland, are ones that they had done pre-COVID and canceled because it didn't work. Mm-hmm. So I, you know, I don't, I think it's mainly just, you know, our markets had really high fares through the comp period that people are scheduling into, and they attracted a bunch of seats, and it'll sort of- Mm-hmm ... equivocate over time. ... Yeah, makes sense. All right, great. Thanks. Thanks for answering my questions. Thanks, Mike. One moment for our next question. Your next question comes from Scott Group with Wolfe. Go ahead, your line is open. Hey, thanks. Good morning. So I just wanna make sure I'm understanding some of the monthly commentary. I get sort of some weaker close-in in March, April had Easter, but as you look at May and June, are things getting incrementally worse? Is it stabilizing? Any signs of things getting better? I know June seasonally is a better month, but just seasonally adjusted, do you feel like things are getting incrementally better or worse? Well, I guess it depends, Scott, on what the expectation basis is. So when we went into the quarter, when we built the quarter last year, we're way below that. And then we had this period of resetting through late February into March for selling fares into the second quarter, and now in the last couple weeks, they've come up slightly. So it's been an evolution, but I'd say, you know, fares, our selling fare expectation has bottomed and is recovering slightly. But we're talking about a recovery that, you know, is small numbers relative to where we expect it to be when we built the schedule. Okay, that's helpful. And then where do you ultimately think you're gonna take capacity in the second half? And did I hear right that you think that your margins in Q3 will be higher than Q2? On the second part, yes. You know, because typically, second and third quarter produce about the same margin, and in this particular second quarter will be handicapped by the Easter shift and some overcapacity in April and May. And the first part of your question is difficult to say at this point. I mean, we have some time to make these adjustments, but post Labor Day, you know, I would expect us to be mostly focused on scheduled service flying in, you know, markets that typically have a good third quarter. There's about a handful of those, and then scheduled service flying in support of positioning airplanes and crews for our charter business. So there's, you know, there's not a whole lot of opportunity in September, so it's gonna be pretty small. Yeah, so Scott, just let's say from a planning perspective, we had sort of in the scheduled service segment, year-over-year capacity growth peaking in the second quarter, tapering in the third quarter, and then tapering significantly more into the fourth quarter. So second quarter was our peak year-over-year growth, and as we pointed out here, we'll kind of revisit that given this off-peak weakness, so it's probably gonna be even more dramatic than it was in our plan. Okay, great. And then just last, last question. I thought I heard $65 million in CapEx. Is that a, the rest of the year comment, and or is that a full year comment? And then does— is 25 a similar— it sounds like it's a, it's another very low number. I just wanna make sure we're thinking about it right. That's right. Yeah, so, so my commentary was about a run rate basis. So we completed an aircraft purchase a couple months ago. That's the last airplane that we're committed to buy. We'll still be in the market also for engines, so I'm just trying to give a little bit of, of a sense of what we would expect on maintenance CapEx, $50 million-$75 million. And the lumpiness is largely gonna be about opportunistic buys for engines that would, that would replace an overhaul. Yeah, Scott, so this year, we will be on pace to do well sub $100 million in CapEx. I would expect 2025, barring what Jude's saying here, in terms of some opportunistic purchases here and there, to be less than 2024. You know, from a cash flow perspective, the calls on cash around CapEx are minimal for several years to come. That's why we've grown very carefully. Okay, well, it's been very good for cash flow. Yeah, with growth, too, which is, you know, unusual. Makes sense. Okay, thank you for the time, guys. Appreciate it. Thanks, Scott. One moment for our next question. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by. Now we have Brandon Oglenski with Barclays. Go ahead, your line is open. Hey, gentlemen, good morning, and thanks for taking the question. Jude, I guess I want to come back to the comment about Delta, you know, adding capacity in Minneapolis and, you know, the challenges you guys are seeing in off-peak, because I thought that was kind of the strength of your model, that you guys tried to target the peak travel periods. So can you just put this in context? Did you guys go after a little bit more off-peak, you know, this summer, and it just didn't play out the way you thought? And maybe longer term, does this change your view on the opportunity set in Minneapolis in any way? Well, in the first part, that's exactly what happened. So our percentage growth by month, year-over-year, in the second quarter, is smallest in June. And that's just because when we came into the year, we're looking at the fares of the previous comp month, so April of 2023, and it looked like it could support incremental growth, and we have the capacity, we have the pilots, so you know, it's really low cost incremental flying. And yeah, I mean, I think that the market just couldn't support that kind of growth, and so the fare pressure was beyond what we expected. And that's because we were adding seats alongside all the OAs in and out of Minneapolis. We're a pretty Minneapolis-centric airline in the first quarter, in particular, because that's sort of the bright spot in the U.S. network. As we move into the summer, I mean, we're not cutting in June and July. Those months look really good. August is probably mostly like we planned it to be. There's no real change in the long-term opportunity in Minneapolis. I think long-term, where I've reset is on aircraft utilization. You know, in 2019, we were producing about 9 block hours per aircraft per day. We kind of said, "All right, with the fleet age and our focus on reliability, we probably need to be around 8 hours a day per aircraft in a steady state environment, just based on operational restrictions." And now based on off-peak performance, I think we're probably lower than that. But, you know, these things change pretty rapidly as we, as we've been talking about, and it could easily reverse itself. The key for us is flexibility. So it's just very important that you understand how we think about incremental capacity if you want to understand the business. Is every airplane doing the best thing it can with that plane time at that moment? And when we run out of things to do that contribute positively, we don't fly, or we fly cargo, or we fly charter. And so we're just adjusting at the margin, and we were a little bit bigger than we needed to be into April and May. Appreciate that, Jude. And, Dave, I think you said in your prepared remarks, and we kind of spoke about this in the Q&A, but about reducing volatility in earnings. I mean, we probably shouldn't confuse that with seasonality, right? But can you maybe elaborate a little bit more there? Yeah. So, yeah, we shouldn't confuse it with seasonality. That's gonna be a part of our business. I think there are pieces of our business, without getting into a ton of detail, that are much more stable from an earnings perspective, that we will continue to focus on and maybe emphasize more in future periods that should help reduce the volatility of earnings. And by reduce the volatility, I guess what I mean by that is somewhat less exposure to capacity adds in the scheduled service segment. So it's really focusing on some of these other segments, filling in off-peak periods, and focusing on other segments that are gonna be more stable and provide more stability to earnings. All right. Thank you both. Thank you. This now concludes the question and answer session. I would now like to turn it back to Jude Bricker for closing remarks. Thanks for your time, everybody. Have a great day, and we'll talk to you in 90 days. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.