As Profits Increase, Sun Country Charts Its Growth Plan

Two years ago, I spoke with Sun Country CEO Jude Bricker as he was just starting to implement his plan for turning Sun Country from an also-ran into a money-making machine. Would it work? He didn’t know. Last month, I spoke to him at the Boyd Conference, and it was a much different discussion. Sun Country is seeing big margin growth, and it has a plan to grow from less than 30 to 50 airplanes in the next few years. According to Jude, it’s been a lot harder than he thought it would be. But he has a plan.

When we spoke, only first quarter financial data had been released via the Department of Transportation. (As a private company, Sun Country does not publicly release financial statements on its own.) I decided to wait until second quarter numbers came out this week before posting this. Why? The first quarter is Sun Country’s best. That’s when everyone in Minnesota wants to go somewhere warm. Success in the first quarter has never been all that hard.

It’s the rest of the year where Sun Country struggled. The second quarter numbers would give a little more of an indication, I figured. And here they are:

Indeed, the first quarter was spectacular, and way better than in previous years. But the second quarter shaped up quite nicely as well. Costs make up one half of this strategy. The airline has added more seats to planes, removed First Class, and worked to cut costs throughout the system. Those efforts are really just starting to bear fruit this year. But that’s the easy part.

Jude’s background at Allegiant means he knows far more about cost reduction than the previous team at Sun Country. There must have been a lot of low-hanging fruit. The harder part is the revenue side of the business. Sun Country has reworked its onboard product with 3 types of seating (Good, Better, Best), and it has tried to improve ancillary sales. But the core issue of getting enough people to pay enough money on each flight has always been the big question. Where should it be sending its airplanes, and when?

There are three components to Jude’s network plan, and those will form the basis of the company’s future growth.

The first is the charter business. That has always been important to Sun Country, and its importance seems to be growing. Jude described it as “huge.” It’s good business with high margins, and the number of players has dwindled over the years. Look for this to continue to grow.

Second is the Minnesota business. Sun Country’s network has always focused on Minneapolis/St Paul. During the winter there is near unlimited demand as Minnesotans flee to warmer weather. That’s great in the winter, but it evaporates in the summer. Previously, Sun Country has found ways to flex during off-peak times. It has leased in some airplanes only during the winter, so the fleet is smaller in the summer. It also has searched out more routes where there was summer demand. Dallas/Fort Worth, for example, has long been a mini-focus during that time of year. That leads us to the third component.

Sun Country has to find more ways to fly outside of the winter and make money. This is where the biggest changes to the network have occurred. Nashville has become a focus, though Jude says that’s primarily as a destination, not an origin. Apparently, people in Nashville want to travel at the same time as people in Minneapolis, so Sun Country can’t dedicate capacity. Instead, it flies at other times when people want to visit Nashville.

Nashville joins other important destinations that have long been in sunny spots like Mexico and the Caribbean. That was recently joined by Hawai’i which works quite well. Canada will likely become a summer destination in the future as well. Basically, any place that the 737-800 can reach is a possibility as a destination… if people want to go there.

From an origin perspective, Sun Country has seen some success in Portland (Oregon), St Louis, Madison, and Austin. While the results overall have been “mixed,” according to Jude, that is somewhat by design. If you don’t try, you don’t know if it’ll work. Jude says there have been more successes then they expected as they continue to search for opportunities.

This strategy as the spill carrier of choice Jude likens to Jet2 in the UK or Sunwing in Canada. Both of those companies move their airplanes around frantically wherever the demand is. Airlines like Spirit and Frontier may chase some of that traffic, but they have much more stable schedules. The image I used to describe Sun Country’s strategy before still sums things up nicely.

And this strategy continues to come with all sorts of potential problems. For example, there’s always the threat of a war with a competitor. Jude seems to be going out of his way to make sure other airlines know that he isn’t trying to take their business. He just wants to put airplanes in places during peak times when he can scoop up their leftovers or stimulate new traffic at lower fares. As he puts it, “We fly when people want to fly.”

So far, airlines have mostly left Sun Country alone. Most importantly, Delta seems to be somewhat-peacefully coexisting in Minneapolis. It probably figures it would rather have Sun Country in there then a more aggressive low-cost carrier. It helps that Sun Country has actively avoided Atlanta, Detroit, and Salt Lake City. Jude explained that even Sun Country’s New York strategy was influenced by his desire to not fight Delta.

Moving from JFK to Newark was a big part of us dealing with Delta. JFK is a much bigger market. It’s THE market for them. We’ll serve Newark.

This all sounds great during a time when the economy is humming along and people are traveling, but what happens when the economy turns down? It seems to me that the need for a spill carrier shrinks dramatically when other airlines have too much capacity and race to fill seats with cheap fares as demand drops. Jude, however, is upbeat about that eventuality.

I think we’re in a much better position than anybody else. I mean if you have really low fixed costs and you can be really nimble in the way you allocate capacity… you know, the world where L.A.-Honolulu doesn’t work between Memorial and Labor Day, it’s not a thing…. Then we just take down utilization if the economic environment comes down…. What we’ve seen over the last 20 years is when that does happen, fuel prices come down too. And so our costs of delivering the product comes down.

Of course, he’ll have to prove that to be true. There’s a decent chance that the economy will have taken a turn from the worse the next time Jude and I talk. Will he be able to crow about continued success then? I’m not convinced. For now, however, Sun Country is doing quite well for itself.