Thank you. I'm joined today by Jude Bricker, our Chief Executive Officer Bill Trauss, Dale chief financial officer and a group of others to help answer questions. We begin, would like to remind everyone that during this call, the company may make certain statements that forward looking statements. Our remarks today may include forward looking statements, which are based on management's current beliefs, expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially. Encourage you to review the risk factors and cautionary statements outlined in our earnings release on our most recent SEC filings. Assume no obligation to update any forward looking statements. You can find our first quarter twenty twenty five earnings press release on Investor Relations portion of our website at ir.suncountry.com, With that said, I would like to turn the call over to Drew. 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 are 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 will be able to reliably deliver industry leading profitability throughout all cycles. During the first quarter, our flight attendants and our dispatchers ratified new contracts. I want to start by congratulating them on their raises. I'm proud of this team and the service we deliver. March is a particularly important month for us. It's a time when we stress operations, trying to meet the demand of our home market. In March, we delivered controllable completion factor of 99.4%, in our scheduled business and over 98% on time in our cargo business both key metrics for us. Additionally, we had a mishandled bag rate of 1.3, a record for us. Our folks continue to deliver for our customers. Our first quarter is typically our strongest quarter of the year. This quarter, we're reporting quarterly records for revenue and earnings. Additionally, we outperformed the Next Best mainline carrier by a wider margin than we've seen since COVID. While we're certainly subject to industry conditions, I expect us to outperform by a greater margin during times of stress. This is due to the strength of our diversified model, the reliability of demand in our home market.

Execution on the previously announced cargo expansion continues at pace with three of the eight additional committed aircraft having been inducted into the program. We plan to have all eight aircraft in service by the end of the summer bringing our total cargo fleet to 20. Additionally, the unit revenues of that business have been expanding with 1Q revenue per block hour growing by about 20% versus the same time last year. With growth in unit revenue and volumes we project our cargo revenue should be roughly double compared to prior year comp by September. In that month, two thirds of our flights will be under committed contracts, both charter and cargo. For 2025, our system block hours will continue to grow by about 8% year on year. However, with cargo growth outpacing system growth, we expect to draw down scheduled service temporarily as we observe absorb the opportunity in cargo. This should provide a tailwind for scheduled service unit revenues on a year on year basis through at least the end of 1Q twenty twenty six. In 1Q twenty five, we produced about 7% scheduled service ASM growth on a 4.5% TRASM decline. For 2Q, we'll be shrinking scheduled service ASMs by about 7% and expect to see about a 3% TRASM improvement.

That's below where we would expect to be based on capacity in the Easter shift. However, close in fares accelerated into April. That's a positive indicator for a summer, which for us is generally characterized by close in bookings. 1Q twenty five also set a record for charter revenue, We built buffers into the timing of our cargo growth. So we'll have surplus passenger aircraft and crew time that we expect to be able to allocate into the charter market. For this reason, I expect our charter segment to perform well for the rest of the year. On the fleet side, we've redelivered our first 900 for passenger service and expect the second to arrive this quarter. We've decided to postpone the induction of this aircraft until later this year as we have a temporary surplus in our passenger fleet. Even with this deferral, we'll experience some unit cost pressures associated with lower utilization of our passenger fleet until we're able to catch up our staffing to our fleet, which should occur around the second quarter of twenty Further, temporary cost pressure will come from cargo growth in the form of staffing surpluses built into the induction buffers. We have made the decision to retire one of our older 800s which will help us alleviate some of the tightness we are experiencing in the NG components market.

The company continues to deliver high levels of free cash yield Currently, we plan to continue to delever with net debt levels expected to fall below zero at some point in 2028. However, we have the liquidity and balance sheet headwind to take advantage of any opportunities, including share repurchases using the $25,000,000 of repurchase authority recently granted by our board. A few other notes about the quarter. We are excited to be awarded Air Transport World's Airline Leader of the Year for 2025. And 1Q also marked the end of Apollo's ownership here Sun Country with the sell down of their remaining shares. Bill Tralsdale to the earnings call. Bill has been an officer of the company serving in finance since 2018. I'm excited to have him here. And congratulate him on his new role. With that, I'll turn it over to you, Bill. Thanks, Judy, for those kind words. I'm grateful of the support of yourself and the board. It's a transition to the CFO seat here at Sun Country. And with that, we are very pleased to report that the first quarter was our eleventh consecutive quarter of profitability. Total revenue of $326,600,000 was the highest of any quarter on record for Sun Country.

Operating margin for the quarter was 17.2%, and adjusted operating margin was 18.3%, which we expect to be among the highest in the industry. Diluted adjusted EPS for the quarter was $0.72 These results speak directly to the resilience of our diversified business model at Sun Country. First quarter total revenue of $326,600,000 was 4.9% higher than Q1 of twenty twenty four. Revenue for our passenger segment, which includes scheduled service and charter businesses, grew 4.1% year over year. Average scheduled service fare grew 1% year over year to a hundred $98.04 $4 offset by a 3.9 percentage point decline in load factor. Scheduled service TRASM declined point 7% as scheduled service ASMs increased 6.7%. As we turn our focus to the second quarter of twenty twenty five, we are expecting scheduled service ASMs to decrease approximately 7% as we allocate pilot resources to allow for the planned growth of our cargo segment. Charter revenue in the first quarter grew 15.6 percent $55,000,000 on 10.7% growth in charter block hours. Excluding the revenue reconciliation of fuel expenses, charter flying revenue increased 21%. Ad hoc charter revenue growth, which included March Madness flying, was also significant in the quarter, as we saw it increase by 55% versus last year, and now represents about 34% of total charter revenue for the quarter, as compared to 25% in Q1 of twenty twenty four.

Our ability to reallocate resource to take advantage of ad hoc opportunities such as these helps us mitigate the impact of changes in demand in other parts of the business. For our cargo segment, revenue grew by 17.6% in Q1 to $28,200,000 This growth came despite a 1.1% decrease in cargo blockout. Q one cargo revenue per block hour was up 18.9%, driven by the impact of the rate changes in our amended Amazon agreement as well as standard annual rate adjustments. We continue to expect cargo flying to inflect sharply upward in 02/2025, as we take on eight additional freighter aircraft throughout the year. Three of those eight were delivered in the first quarter with the first of those entering service in late March, and we continue to expect the remaining five to be delivered and entered in service by the end of Q3. Turning now to costs. Q one total operating expense grew 5.5% on 5.8% growth in total block hours. Adjusted CASM increased by 3.5% versus Q1 last year. The increases in salaries and wages put the most pressure on Q1 costs, as pilot headcount grew about 7% to support the demand dramatic growth of our cargo fleet in 2025.

As well as a 6% contractual pay rate increase for our pilots at the end of 2024. Operational challenges during the quarter as well as rate increases and outsourced ground handling and airport costs, drove the bulk of the increase we saw in the ground handling and landing fees expense line items. While an increase in non routine maintenance events helped drive the 12.2% increase in maintenance expenses. As a reminder, the growth in our car segment during the remainder of 2025 will cause us to reallocate pilot resources from scheduled service flying this year. Thus, we expect full year scheduled service ASMs to decline between 35%. With those reductions occurring from Q2 through Q4. The lower ASM production will put pressure on adjusted CASM, which we anticipate increasing mid to high single digits for the full year of 2025. Regarding cash flows and our balance sheet, our total liquidity at the end of Q1 was $227,100,000 At the March, we entered into a four year $75,000,000 revolving credit facility which was an increase of $50,000,000 over our previous revolver. Given our focus on Amazon growth 2025 and into 2026, coupled with the six aircraft currently on lease to third party airlines, we do not anticipate a need to purchase any incremental aircraft until we begin looking for 2027 capacity.

We expect 2025 CapEx to be to between $70,000,000 and $80,000,000 which much of this spent on spare engines and inductions of our new cargo aircraft as well as the aircraft returning to us off lease in 2025. In addition, during the quarter, we paid a total of $19,700,000 in debt and finance lease obligation. Enabling us to continue to maintain low levels of debt with a net debt to adjusted EBITDA ratio of two point zero x at the end of the first quarter. Which was an improvement from 2.4x at the end of Q1 of twenty twenty four. For the full year of 2025, we expect to pay a total of $108,000,000 towards these debt obligations. Furthermore, during the quarter, we repurchased $10,000,000 of shares in conjunction with the secondary public offering in which Apollo Global Management exited their position in Sun Country. And we just received, as Jude mentioned, additional $25,000,000 of share repurchase authorization from our board of directors. Turning to guidance. We expect the second quarter total revenue to be between $250,000,000 and $260,000,000 a reduction of block hours between 13%. We are anticipating our fuel cost per gallon to be $2.44, and for us to achieve an operating margin between 47%.

Our business is built for resiliency, and we'll continue to allocate capacity segments to maximize profitability and minimize our earnings volatility. With that, operator, we can now open the call up for questions.

Thank you so much. And as a reminder, to ask a question, simply press [indiscernible] On your telephone and wait for your name to be announced. One moment for our first question. And it's coming from Duane Perninsworth with Evercore ISI. Please proceed.

Hey, good morning. Thank you. Can you talk a little bit about the ramp of aircraft and utilization and frankly profitability or margins on the cargo side, how has maybe the change of that slope or how is the slope of that kind of changed versus your expectations at maybe the outside of the year? Hey, Duane. Good morning. The right way to think about it is we're going to grow pilot credit hours by 10% a year. The flying that we do in cargo uses more credit hours to produce a block hour. So even though we're growing credit hours by 10%, total system block hour growth will be below that as we expand into cargo. And then once we've absorbed the cargo growth, we'll be adding back really efficient flying into Sched service. And so growth will exceed that 10% level. So this will be about a three year process to go into all the aircraft that we've already committed to, both from the lease out fleet and the cargo expansion. More near term, we're taking on these eight airplanes, and there's a lot of variability in the induction timing because we have part dependencies, sometimes record inconsistencies during the transition from prior operator all the things you face with the induction of a used airplane.

And so we staff up in expectation of that. What's expensive today that we're experiencing is that we staff up for an airplane that may come in late but we can't really backfill that with other opportunities on the passenger side. Because we need, you know, one hundred and twenty days at least to schedule a flight and we need a little bit of warning to get the end demand dependent to get it into the ad hoc charter market. So we'll have a little bit of tailwinds on cost but this is a 10% growth airline and probably will be for the next three years. The airplanes that are going to support that are already either on the balance sheet or committed to contract and don't require any CapEx. You know, we're just here executing. Great. And then just for my follow-up, this might be a little bit of an unfair question, but your model contemplates peaks and off peaks in scheduled service. And obviously, the scheduled service capacity is pretty tight for the foreseeable future given this ramp into cargo. But I guess, as we hear about all this peak versus off peak and softer troughs, I guess looking at the rest of the world, what do you think these other carriers are going to need to do?

Because we're always going to have weeks that have Tuesdays and Wednesdays. So what do you think the natural evolution will be to all this continued conversation about softer Tuesdays, Wednesdays, etcetera?

I don't think that's an unfair question. I think that [indiscernible] that the leisure space needs to get smaller in The US, in order for us to get back pricing power. And that'll either be done through reorgs or M and A activity.

Makes sense. Thank you.

Thank you. One moment for our next question, please.

It comes from the line of Michael Linenberg with Deutsche Bank. Please proceed.

Yes. Hey, good morning, everyone.

Jude, want to go back to just sort of what you saw with respect to demand through the quarter and as you head into April. You only called out February as being off peak and it sounded like it was a bit challenging on the demand side. A fellow low cost carrier yesterday talked about a real tough March. And a really not a great Easter either, not a great April. It sounds like that you didn't see that. And you talked about acceleration of close in. And maybe on the pricing side. Can you just elaborate on the margin? And I realize was eight you're obviously benefiting from the fact that you're really starting to scale back your capacity.

Yes. Hey, Mike. Well, here's what we're seeing. We had just to start off with, we report 18% margin, so things are pretty good. I didn't want to call that But relative to where we thought we would be, we're below And what had happened was January was really strong. All the airlines probably, saw the same thing. So we held fares high in the booking path going into February and March. We missed on load factor because as things slightly weakened, we weren't able to catch up. April will be up by about 5%. You know, I'm talking unit revenues, I'd say 3% to 4% in May and probably you know, 2% to 3% in June. But what's happened more recently is that these close in fares have really accelerated rapidly. Keep in mind, our winter network and summer network are totally different. So we're talking about leisure market demand when we speak winter. So Florida, Mexican Caribbean, Southern California, Southwest Desert destinations like Vegas and Phoenix. And then when we move into the summer, it's Minneapolis connecting to big cities plus Texas origination to Mexican Caribbean market. So when we talk about Minneapolis big city markets, is a big thing for us in the summer, those fares have accelerated really dramatically the last couple weeks.

And the capacity looks really promising both because we're drawing down in the OA backdrop is is rationalizing really rapidly. So you know, we're guiding conservatively. I'm certainly seeing more positivity in bookings than what we're baking in to our forecast.

Great. And then, that's super helpful. And then, my second question to [indiscernible] can you talk about the reason behind tripling your revolver? I don't know if it's as much opportunistic. I know Jude mentioned about that the leisure space has to get smaller and there may be reorgs. M and A and so maybe it's the opportunity to build some dry powder. When I look out at your CapEx needs, they're de minimis over the next couple of years. So can you talk about the thinking behind expanding that? And you think about managing that? Thank you.

Yes. Thanks, Mike. So So I would say that was more of a function of the fact that our revol our prior revolver was put in place at the time of our IPO. At time of our IPO, our annual revenue was $600,000,000 ish. Mhmm. And we've nearly doubled that. So we went to market knowing that that revolver was was coming due at the end of at the basically, in q one of twenty twenty six, So we went to market at the end of last year looking to upsize that in general. And as we went through the process, it was a bit opportunistic to get it to 75,000,000 It wasn't specifically designed to generate specific dry powder or anything like that. It's just growth relative to the size of the airline type of thing. You think about strategic uses of capital in three ways. First would be asset buys. So this would be opportunistic purchases of aircraft. We haven't done that in a while because planes have been expensive, but we hope to see some opportunities here with some disruption that we're seeing. Second is share buybacks, we've authorized $25,000,000 and we'll do that opportunistically. And then the third is you know, M and A. And, I think that we're gonna see some opportunities out there.

Great. Thanks, everyone.

Thanks, Mike.

Thank you. Our next question comes from Tom Fitz Fitzgerald with TD Cowen. Please proceed.

Everyone, thanks so much for the time. You talk about the new credit card deal with Synchrony? It seems like it could be pretty exciting for your model. But I'd just love to hear how investors should think about how incremental it could be to growth and remuneration. Yeah, we're excited about it. So the background was we inherited credit card agreement. These typically are about seven year deals. So this kind of our first opportunity since I've been at Sun Country to to really leverage our relationship with our co brand partner. Synchrony is gonna become our co brand We're going implement the program in the third quarter. There's gonna be some headwinds in the meantime because the credit card transact limits our ability to build the credit card issuer base. During this period. But the the most substantial benefit is just an increase in rates for us. We're going to load a lot more technology to make it a better program for our consumers. But our revenue share is going to improve fairly dramatically. So, yeah, this is going to be a really positive development for us. But it's not going to really hit the P and L until 'twenty six and beyond.

Okay. Thanks. That's that's really helpful color, Jude. And I just had a kind of a multi part question on labor, but I was wondering if I know moving pilots from the right seat to the left seat had been a challenge for a little bit. So, I'm curious about that, but it also seems like you have a lot of fixed costs that you should be able to leverage with the Amazon deal. And then just curious how we should be thinking about the flight attendant contract in terms of modeling the P and L the rest of the year? Thanks again for the time. Thanks. So I'll give you some thoughts and then turn it over to Bill. So the flight attendant contract is done and those costs will be in the second quarter and basically steady state. Think that generally we'll see hiring keep the you know, juniorization of crews should be about you know, second quarter should be run rate basis. Our pilots got a raise this year and that and then we'll be open by the end of the year on an amended on an amendment. I think it's going to take a little while.

Your question is really material. It's about how upgrades are looking. And I'll start off with the backdrop. You know, we spent a lot of time talking about pilot shortage. That's over. We haven't lost haven't a pilot hasn't left Sun Country In, like, ninety days. And you know, so this is that's just not an issue anymore. Now we still are constrained by upgrades, which mainly has to do with quality of life transition. The quality of schedule that you can hold as a junior pilot, as a junior captain versus a senior FO. We're doing a lot of things to improve that. We have PBS rolling out in the third quarter. Trying to open a base this year, which I expect to have to get done. So I think there's a lot of improvement heading there and with the backdrop of no attrition, I think you know, we're very comfortable with the 10% credit hour growth that we're putting in. And I would I would think that there's upside to that. Because you're right, we do have the airplane to operate more, particularly during peak periods to the extent that crew growth exceeds our expectations. Anything to add, Bill?

Yeah. I mean, I would just add, maybe you're looking at from a modeling perspective, and you spoke to some of the fixed costs and vis a vis our our Amazon growth. We look at you know, we typically speak in terms of CAS and obviously that poses some challenges there. But if you look at total costs you know, sort of excluding fuel per block hour, the growth and cost of that is gonna be for the year is gonna be you know, low single digits. For the year. So so I think we you know, we look at our costs, we feel like they're in good shape. There's always always going to keep a focus on them. But were pretty pleased on them in aggregate. Just Thank you. One moment for our next question. It comes from Catherine O'Brien with Goldman Sachs. Please proceed. Good morning, everyone. Thanks for the time. Hi, Catherine. Hey. Maybe one more on just on the cargo revenue ramp this year index.

You've taken delivery of three of the eight incremental aircraft year to date by think, 1QN, but only two of those were flying and one really late in the quarter. Jude, you said you expect to see a doubling of revenue by September. Should that inflection really be more back half weighted? And then if I take you literally, that 4 q could be double year over year. That's about 60,000,000 and then you get that December rate step up. So so next year, should we be thinking about something in, the mid $200,000,000 range? Just anything on how we should think about that ramp would be super helpful.

Yeah, I mean, so the rate increase of 20% per revenue block hour and then the block hour production of eight incremental airplanes, the math works out to about 100% increase by September. Those airplanes are coming in just as rapidly as we can put them in there But there's a process of putting it on the certificate, getting transition mods completed, and then getting them scheduled. And we're running behind for reasons beyond our control. So it's going to be a little lumpy as we move through the transition, but I expect September to be operating eight or 20 airplanes and [indiscernible] September year on year should be about double and that should roughly hold. Through till we lap ourselves on that metric. I don't think though it's two fifty. I think double would be more like 200.

Yeah. Two twenty. Something like that.

Okay. Shooting for the stars over here. Got And maybe just one more to follow-up your commentary on the short term trends you're seeing that sound rosier than some of your peers. Realize you're shrinking, so I'm that's helpful on a relative basis. But then as you were talking about your summer network, it's a lot of Minneapolis and Texas urging traffic. And one of your peers recently noted they were seeing a more noticeable pressure in Northeast and to some extent West Coast demand. I know you're small in both those regions and they're more destination markets versus origin markets. But anything you could add, maybe just regionally, that might be explaining why this this sounds like a very different call than some of the ones we've listened to recently.

I get it. Yeah. Look. It's I think it's all capacity based. It's 100% the East Coast Had a lot of capacity going in particularly in the Northeast and New England areas. But, you know, we serve Boston and Providence, and few others in the region, and they're doing quite well because the those markets into Minneapolis don't have a lot of capacity, and those are some of our strongest markets So I think if you're on the East Coast moving people North South or transcon gonna be a challenging summer. In the Midwest where we serve, it looks really good. Our Dallas market leisure markets are doing really well. There's not a lot, I mean, California is a little down from Minneapolis, as I look across the network. Underperforming our expectation. I'd struggle to find, you know, really up outlier weakness.

Yeah.

This is Grant. I would just add that we don't have anything speculative. We like, everything we do, we have pretty good sense of, and especially as we're shrinking. And the rigor that goes into we're on a trip by trip basis. We have a very good sense for where it's coming in. So I echo Jude's commentary that we feel really good about things are going. And even as we look back to the first quarter, the February weakness can be highly attributed to sort of Caribbean growth out of Minneapolis, specifically. And and it's a highly a highly profitable segment for us. We grew it, others grew it. So there's a little bit pressure there. The absolute returns were still consistent with the rest of our network.

That will get adjusted as we go forward. And then in March, there's a little bit of pricing pressure, but it was completely, connected to what Jude said. Just where the expectations of March, in the booking curve were really strong. And as things changed, fares came down a little bit, but we still delivered really good results. And I don't wanna say that international was all bad for us. We did grow in Milwaukee So if you go and look what we did in Milwaukee, we had a pretty substantial international growth in Milwaukee this year, and that paid dividends for us. It certainly met expectations. And gives us a nice little baseline off of which to grow in Wisconsin because we operate out of Madison, Green Bay and Milwaukee. And we're really pleased with those results. So our call is a little different. And it's for good reason. Well, one other tailwind that's a little bit more nuanced in in unit revenues is that we got some infrastructure boost here in Minneapolis with more gates. You think about trying to pack flying in [indiscernible] smooth it out. And we have plenty of planes and plenty of gates. And so we're able to really pack peak periods with a lot of seats.

Even though we're block hour constrained because of cargo growth That's great. I really appreciate all that color, gents.

Thanks. Mhmm. Thank you.

Our next question is from Brandon Oglenski with Barclays. Please proceed.

Hey, good morning, Jude, and congrats, Bill.

I guess, Jude, you talked about pilot productivity or like having some downtime built into the schedule. I think as you ramp up the cargo side. Did see good charter growth this quarter. Was that more of a contracted basis or more ad hoc business that you came across? I guess, how do you look to name that?

We're seeing an expansion in the in production of our charter So unit revenues are increasing in charters and that's because of the contract mix. Yeah, mean, we have more more availability close in to be able to take opportunities as they come up. Years past, we kind of schedule the airline for the tightness. And then we didn't have close in availability and we had to forego a lot of those opportunities. I'd say generally the cargo market is actually under a little bit of pressure because there's a lot of folks coming into it. And we got some tailwind from bankruptcies through COVID, like iAero, I'd call out. So, yeah, you know, as we sit here today, confident that we're gonna outperform just because we have contracted charter revenue that is gonna happen. And then we have close in demand so we can be really flexible. This is something we are really good at. Grant runs our charter business. Any other commentary? Yeah. The the team's done a really good job. So I think in the quarter, was sort of ad hoc in nature where the year over year strength came from. But it's really important to understand that there's been a concerted effort to sort of engage with our customers.

So those relationships that we form, the reliability that we offer to customers when the NCAA needs to fulfill things and we have that availability. They look to us because they really trust the team and the capability I definitely give a shout out to our ops team because we expect we knew we were gonna fly March really hard and and our crew staffing, the folks who schedule our pilots, plan our pilots, [indiscernible] should give them credit because they did an excellent job of facilitating March. But the team is in a really good place, The relationships with our customers are in a really good place.

So I completely agree as we look forward, we will adjust to the business as as the competitive environment says we should. The relationships with our customers are strong. And the team's really innovative Jude mentioned it, but our ability to integrate scheduled service with charter service to to come up with creative solutions It is unparalleled in the business, and it is muscle we've been working on for years, and we're really good at it.

And so it almost harkens back to a previous question about is carriers talk about, hey, sculpting, off peak is not as good as peak, and we'll do that. It's one thing to talk about that, it's another to deliver upon it and to build that muscle and the capability to to execute upon moving schedule levels of ops that move around. It's easier said than done, and I think it's just a test to the team here at Sun Country that we're able to do it. First quarter charter shows it.

But we're not done. There's a lot of innovation that we're gonna continue to bring on. And from a charter perspective, there's some business development that's in the works too, so we're excited about taking the brand out. People like us, they know us, they respect us, so it's it's we're starting to have discussions with folks. And I say the team's in a really good place. Poised for success.

I appreciate the thorough response. And Judah, just clarification. I think did you mention doubling cargo revenue by the third quarter or should we be thinking about that into next year? [indiscernible] lap that metric in fourth quarter.

Okay, got it. And then real quick, know you mentioned the buyback, but don't know if we elaborated on the here in Q and A. I mean, 25,000,000, I guess, not that sizable, but maybe more more signaling from the board or can you maybe expand on that?

We're just going to take it opportunistically and see what's out there. [indiscernible] our stock got hit pretty hard recently and we want to be just sitting on the sideline if that were to happen. [indiscernible] Okay. Appreciate it.

Thank you. Thanks.

Thank you. Our next question comes from James Kirby with JPMorgan. Please proceed.

Hey, good morning guys. There's been low cost carriers in the market that are making significant changes to their product offerings as well as off peak flying. Have you seen any share shift? Or are you seeing any start of a share shift or change in buyer behavior from this?

I think that's a really interesting question. Spent a lot of time thinking about it. We did the cabins that we and the product revision in 2018, cabins last about seven years, eight years, We're not planning anything now, but I think we have a great product. We do a nice job in my view of kinda saying these are things that are affordable to give away for free and have high value to the consumer. Other things we can't get a return on, we give away. [indiscernible] There's been a lot of talk about the premium for premium. We have a premium economy product that is as a percentage of our cabin, higher than any other airline and look leisure in The U. S. So I think we're well positioned in that regard. We have a really strong brand presence in the Twin Cities, which is really valuable. But the premium versus you know, of our premium economy versus basic economy essentially hasn't expanded enough to justify you know, adding more of those seats. I mean, we're still running high eighties load factor during peak periods. So I think we have the right product now, we spend a lot of time talking about onboard connectivity, I think probably at some point in the future we're going need to do that But we got a nice solution right now with the captive WiFi offering.

So I I think we got the right product for the leisure customer here in the Twin Cities. Really high quality seats so you can sit in them for their look. Relatively long stage lengths So we we don't have anything impending changes, but, we're studying it quite a lot actually. Got it. That's helpful. I appreciate the color. And then for my second question, I know generally asking about M and A is a moot point. But maybe coming from a different angle, is there any guidelines that you wouldn't breach in terms of M and A, in terms of leverage, liquidity or maybe it's not even M and A dependent, but maybe just remind us of kind of your ceilings on leverage or liquidity Well, more on the M and A side. We have to be to protect what makes us special, which is the ability the ability to peak up and down and combine these segments into a single operation. A lot of that could be impinged if the work rules in the future of a JCBA change that, you know? So that's something we're very conscious of. Yeah, I mean, the liquidity side, I'll let Bill come in second.

More than comfortable where we are. Keep in mind, you know, so much of our revenue is contracted that liquidity isn't as sensitive here at Sun Country as it is across the industry. The goal is always to think about the part of the scheduled service that we always have and have for forty years always shows up these very peak days. Combined with contracted flying both in cargo and in charter, if we can get that to contribute to cover our fixed cost.

Then that's the perfect airline model in my view. We can fly when we want and don't have to fly when we can't. And it just you know, So I'm I'm very comfortable where we're where we are on the front. I think we have the headroom in assets. We have about half a billion dollars of appreciated asset value in excess of our debt levels. So we have a lots of headroom on the balance sheet to raise capital if there's an opportunity. And so, you know, we're just gonna be responsive to what we see.

I I'll just add to that. Mean, right now, our liquidity our liquidity as a percentage of annual revenue sits a little north of 20%. We probably can operate you know, lower lower than that. We have in the past, pretty safely given the sort of the [indiscernible] the mix of business that we have and the fact that only 60% of our of our revenues, you know, 6065% of our revenue is is traditional passenger revenue. It's a lot more sort of under contract that sort of comes in very much, very methodically. So we're pretty like, as Jude says, we're really comfortable at our current liquidity position, and and you know, good shape. Got it. I appreciate the commentary. Thanks for the time.

Thanks.

Thank you. And as a reminder, if you do have a question, Our next question comes from Ryan Caposdi with Wolfe Research. Please proceed.

Hey, good morning, guys.

Maybe just more of a high level question here, but 1Q margins were roughly flat year over year and your 2Q margin guidance is also flat year over year at the midpoint. Do you see a path to margin expansion in the back half of the year here as your mix starts to shift quite a bit? Absolutely. Yeah. No doubt about it. So obviously, it's dependent on where the environment goes and I think there's a lot of questions around that. But yeah, this is just about us absorbing the opportunity and [indiscernible] cargo and then being able to bring our utilization at least back to what it was the prior year. So utilization is down about 10%. On the passenger fleet, and we'd like to grow that back to where it was and that's very accretive flying, and there's and it doesn't require us to add new markets or off peak. Stuff. So yeah. I mean, I think we should have some tailwind on margins as we move into the back of the year. On a year over year basis.

Got it. That's helpful there. And then maybe just back to the scheduled service business. And I know you touched on this earlier, but how should we think about the load factor and yield dynamic in an environment of less scheduled service capacity going forward? [indiscernible] I think, you know, we schedule a we wanna run high load factors. And we're able to do that predominantly because of the way we schedule. So if you think about our TRASM premium to Spirit Frontier, for example, it comes in a couple different for a couple different reasons. We have a better product, that's because we fly longer stage length and we invested a little bit more in it. We fly only when there's demand so we lower utilization, positively affects unit revenues. And then we have brand presence. So, they have a strategy of being thin everywhere, and we have a strategy of being strong where it matters. And, you know, our our strategy is proving to be better [indiscernible] you know, I think our outperformance will widen and we'll continue to focus on high load factor stimulative fares, but we're not gonna have anything in the schedule that doesn't cover its variable cost at a minimum.

So, you know, if you think about fair volatility going forward, if demand falls, we're gonna try to maintain our margins by cutting our weakest flights. So absolute profitability may suffer. But, you know, we'll deliver the the margins that you expect. Contrast is true as well. If you see if we see a rally in fares, unlikely perhaps, but but if it happens, then then we have a lot of capacity that we can add into the shoulder periods. Helpful. Thanks for the time there guys. Thanks.

Thank you. Our next question comes from the line of Chris Tatoropoulos with Susquehanna International. Please proceed.

Good morning. Two could you remind us of the the timing of the rate increases as they relate to the the deliveries of the remaining aircraft for Amazon. And then also, the the the economics with the contract apology that think I asked this question on every call. But given all the concerns here around tariffs and tangible goods and things like that, just want to better understand, how utilization, is is reflected here in these contracts.

So I I know that will get in the life of [indiscernible] Right. Yeah.

Okay. Yeah. So just to touch on the on the on the structure of the contract. There's a fixed component and a variable component. Generally speaking, the variable component covers our cost. The margin for the program is in the fixed component. So lower utilization drives higher margins for cargo for Sun Country. So I'm not at all concerned about it and look, I mean, this is a long dated contract This will be here contributing for us for a really, really long time. So no concerns there with with utilization in the fleet. In fact, we'd prefer particularly during peak periods, to have lower utilization because we can deliver more on time and deploy those pilots to, more productive flying. On the rate increases, I'll turn it over to Bill if you have some timing on that. Actually, I'd have to look that up, to be brutally honest. When the next there is one more general rate increase is dependent on the timing of certain aircraft, which I don't have off the top my head.

And then we, you know, we have our our standard increases, which is between 35% a year occurs, in December of every year. We're mostly baked. When we signed the deal and started this progress, it's it's mostly there. There's one more rate increase that's going into effect based on growth, it's going to happen probably in the third quarter, I guess. [indiscernible] Okay. As a follow-up, I don't think you mentioned in your prepared remarks anything on the CMI I think there's four or five aircraft. If you could just remind us of the timing of those.

Yeah. So those are those are standard operating leases. I think that's what you're talking about. Yes. We have yeah.

Yeah. So we have five we had had $5.09 hundreds out on lease and $2.08 hundreds. We took back one of those, and those are roll off lease mostly towards the end of this year. And a few into next year. And then the induction timing is taking quite a long time these days, with availability of parts and engineering support from the OEM. So we'll introduce at least $1,900 we expect in the third quarter and then the passenger fleet growth will kinda be dependent on you know, how quickly we can staff up. But there's no constraint on going out and buying used airplanes in this relative relatively tight market. We have them already, as you point out, coming off lease. Deals we've done last couple of years. But but I think it's important as you've modeled the airline, this is important because we're they generate pretty good returns on lease. And we take them back And relative to an airline that's buying in the open market, and inducting it, that airplane doesn't go into whip. I mean, so we're still experiencing DNA costs associated with airplanes that we put into storage awaiting induction. [indiscernible] transition friction as we move the airplanes.

From their lessee onto our certificate.

Got it. Okay. Thank you.

Thanks.

Thank you. And our last question comes from Michael Linenberg with Deutsche Bank. Please proceed.

Yes. Hey, thanks for the follow-up. Jude, you made a comment that in intrigued me about getting additional gates in Minneapolis. And the question is, are these newly built gates and how many or were these gates that were maybe vacated by a competitor or competitors? Thanks for taking my question.

Hey, Mike. A little bit of both. We got two new gates built. And then we are absorbing more of the availability because of the drawback in [indiscernible] remind I wanna remind everybody we have our own terminal.

It and it's just a great setup here and a strategic advantage I love it. As a traveler and as a CEO. And we added two gates to our facility that are new, and then and then we'll continue to absorb gates from competitors that we push out of our market.

Can you help me, Kate?

Totaled are you currently operating out of the Hubert Humphrey Terminal? So we have the ability to peak up to 10. And those are know, some of those are common use that we kinda push people around on in in and out of. They've added two, and they have plans to add that we got, and then they have plans to add more than that. And then I don't have the number off the top of my head, but in the next couple of years, we're trying to continue to absorb that because, because we need Are the I just one more. I I apologize. I'm just are the per employment costs at your terminal lower than the main terminal? Or if they're the same? I know that Minneapolis actually has some of the lowest employment costs any terminal in the country.

Yes, it's a better deal.

It's a better deal. But but but these these capital projects you know, we're not immune from them. They are pushing north. Yeah.

Okay. Thank you.

Thanks, Mike.

Thank you. And this concludes our Q and A for today. I will turn it back to Mr. Bricker for final comments.

Hey guys, thanks for joining us today. We are really excited about where we are and thanks for your interest in the company. Have a great day.

Thank you. And with that, we thank you all for participating, and you may now disconnect.