[Management View]
Sun Country Airlines reported its twelfth consecutive quarter of profitability, emphasizing its diversified business model comprising scheduled passenger service, charter service, and cargo operations. Management highlighted the rapid growth in the cargo segment, with eight incremental cargo aircraft delivered and full integration expected by Q3 2025. The company aims to achieve $1.5 billion in revenue, $300 million in EBITDA, and $2.50 in EPS by 2027, supported by fleet expansion and utilization normalization.

[Outlook]
Management provided Q3 2025 revenue guidance of $250-$260 million, with block hours expected to grow 5%-8% and operating margins forecasted between 3%-6%. Cargo block hours are projected to increase 40%-50% YoY, while scheduled service block hours are expected to decline by high single digits. Fleet growth targets include 70 in-service aircraft by 2027 (20 cargo, 50 passenger). Scheduled passenger service growth is anticipated to resume in 2026 following cargo ramp-up and utilization stabilization.

[Financial Performance]
- Total revenue: $206.3 million (+3.6% YoY).
- GAAP pretax margin: 3.2%; adjusted pretax margin: 3.9%.
- Passenger segment revenue: -0.8% YoY due to a 6.2% decline in scheduled service ASMs.
- Cargo segment revenue: +36.8% YoY to $34.8 million; cargo block hours: +9.5%.
- Charter revenue: +6.4% YoY to $54.3 million; charter block hours: +7.9%.
- Adjusted CASM: +11.3% YoY due to reduced scheduled service ASMs.
- Salaries expense: +12.9% YoY driven by headcount growth and contractual rate increases.
- Total debt and lease obligations: $562 million (down from $619 million at the start of the year).
- Liquidity: $206.6 million at quarter-end.

[Q&A Highlights]
Question 1: Can you elaborate on the path to achieving $2.50 EPS by 2027 and the assumptions for industry conditions?
Answer: Management uses a two-factor model based on fleet utilization and absolute growth, assuming normalized unit revenue performance and current fuel prices. No changes in utilization are expected compared to last year, and cost predictability is high due to post-COVID labor stabilization.

Question 2: What is the impact of the new Amazon cargo contract rates?
Answer: The new higher rates took effect recently, with Q3 2025 being the first full quarter at the updated rate. Annual step-up escalators will continue to adjust rates going forward.

Question 3: How does Sun Country plan to address industry capacity challenges and potential opportunities?
Answer: The strategy focuses on executing well, maintaining a strong balance sheet, and being prepared for organic growth opportunities arising from industry disruptions. Management is cautious about entering overcapacity markets prematurely.

Question 4: What intermediate-term margin improvements are expected as the cargo ramp progresses?
Answer: Q4 2025 is expected to see significant cargo ramp progress, with pilot availability growing 10% YoY. Scheduled service fleet growth will resume in Q2 2026, leading to gradual margin improvement.

Question 5: How does Q3 block hour growth break down by segment?
Answer: Cargo block hours are expected to grow 40%-50% YoY, scheduled service block hours to decline by high single digits, and charter block hours to increase by single digits.

Question 6: What is the margin drag expected in Q3 2025?
Answer: Management estimates a $10 million pretax margin drag (approximately 4%) due to fleet underutilization and fixed cost pressures.

Question 7: How are booking trends shaping up for the fall and winter?
Answer: Bookings remain strong, with close-in demand driving higher fares and lower load factors. The Midwest and Northeast show robust demand, while Southern California and desert destinations are weaker.

Question 8: What is the outlook for charter growth and ad hoc flying?
Answer: Long-term charter contracts remain stable, while ad hoc flying opportunities are expected to continue benefiting from surplus fleet and crew availability.

Question 9: How does Sun Country view capital allocation amid growth opportunities?
Answer: Management balances shareholder returns, asset acquisitions, and maintaining liquidity for potential industry shake-ups. Share buybacks remain an option, but aircraft and engine inflationary pressures are considerations.

Question 10: What is the impact of the World Cup on operations?
Answer: The World Cup is expected to have a slightly negative impact due to paused Major League Soccer operations, offsetting potential high-yield traffic gains.

Question 11: How does competitive capacity look across Sun Country’s network?
Answer: Capacity is flat to down across the network, with notable pullbacks by Southwest, Spirit, and Frontier in the Minneapolis market, creating a healthier two-airline environment.

Question 12: What is the outlook for Amazon cargo aircraft utilization?
Answer: Utilization delays stem from aircraft delivery and preparation issues. Management expects flat and reliable schedules going forward, with no significant changes anticipated.

[Sentiment Analysis]
Management maintained a confident and pragmatic tone, emphasizing long-term growth potential despite near-term margin pressures. Analysts expressed interest in the company’s strategic diversification and ability to navigate industry challenges, with questions focused on growth trajectories, competitive positioning, and capital allocation.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 | YoY Change |
|----------------------------|-----------------|-----------------|------------------|
| Total Revenue | $206.3M | $199.1M | +3.6% |
| GAAP Pretax Margin | 3.2% | 2.9% | +0.3pp |
| Passenger Revenue | $117.2M | $118.1M | -0.8% |
| Cargo Revenue | $34.8M | $25.4M | +36.8% |
| Charter Revenue | $54.3M | $51.0M | +6.4% |
| Adjusted CASM | +11.3% | - | - |
| Total Debt & Lease Obligations | $562M | $619M | -9.2% |

[Risks and Concerns]
1. Elevated unit costs due to fleet underutilization and cargo ramp-up.
2. Delays in cargo aircraft integration impacting near-term profitability.
3. Competitive pressures in key markets, particularly Minneapolis.
4. Inflationary pressures on aircraft and engine assets.
5. Dependence on Amazon cargo contracts for revenue stability.

[Final Takeaway]
Sun Country Airlines continues to leverage its diversified business model to navigate near-term margin pressures while positioning for long-term growth. The rapid expansion of its cargo segment, coupled with disciplined fleet planning and strategic capital allocation, underscores its resilience in a challenging industry environment. Management’s focus on achieving $1.5 billion in revenue and $2.50 EPS by 2027 reflects confidence in its structural advantages and ability to capitalize on future opportunities.