Cargo revenue at leisure carrier Sun Country Airlines jumped 18% year over year in the second quarter to $25 million as aircraft flown for Amazon, its dedicated cargo customer, were fully available after experiencing downtime for maintenance in 2022.
The airline’s overall health improved markedly during the three-month period, with revenues growing 19% to $261 million and operating income soaring to $35.6 million from $3.4 million during the same 2022 period, the company reported after Thursday’s market close.
The increase in cargo revenues primarily resulted from a 10.4% increase in flight hours under Sun Country’s contract with Amazon Air and an annual rate escalation that went into effect last December.
Sun Country’s first-half revenue for cargo grew 14.5% to $48.3 million, with flight activity up 8% year over year. Cargo aircraft flights increased 18.2% to 3,184 for the six-month period.
Sun Country (NASDAQ: SNCY) is appropriately located at 2005 Cargo Road in Minneapolis.
The results show that Sun Country’s cargo operation isn’t profitable yet. The company, which operates a dozen Boeing 737-800 converted freighters for Amazon, is essentially breaking even on cargo. Expenses for cargo operations, including overhead, were $26 million in the second quarter and $50.8 million for the first half of the year. It attributed a $4,000 operating loss in cargo for the six months to additional hiring of pilots, costs to support more pilots in the field and more expenses due to the increase in departures.
Sun Country is still new to the freighter business. It began providing crews, maintenance and insurance for Amazon aircraft in May 2020 as a way to generate steady cash and smooth out variability in the passenger business.
Last year, Sun Country generated $90 million in cargo revenue and spent $89 million to support cargo operations.
But cargo profitability could be near at hand if Amazon continues to require more flight hours. Amazon said in its quarterly report on Thursday that North American retail sales increased 11% year over year during the quarter and that it sees some macroeconomic improvements, which could translate into more e-commerce shipping volume in the coming months. Amazon CEO Andrew Jassey said on a call with analysts that customers are interested in faster delivery.
“We have a lot of data that shows when we make faster delivery promises on a detail page, customers purchase more often, not just a little higher, meaningfully higher,” he said. Amazon’s ongoing focus on expedited deliveries suggests it will continue to grow its virtual airline, which relies on partners like Sun Country.
Sun Country’s experience is better than most all-cargo operators during a sustained freight recession in which airfreight demand has leveled out to 3% to 5% lower than a year ago, after declining for more than a year. Express carriers DHL, FedEx and UPS, among others, have reduced flight frequencies and even parked some aircraft to reduce costs until demand picks up.
Amazon has slowed the expansion of its air network, which it relies on to help fulfill customer orders on its retail site but has not cut back. Amazon Air’s flight utilization was actually up 13% year over year through June, according to analysis by Morgan Stanley transportation analyst Ravi Shanker, who tracks the parcel carriers.
He predicted in a recent client note that Amazon’s flight schedule would remain robust in July, especially after the online retailer saw the highest sales day in company history during Prime Day.
ASL Airlines, another Amazon partner that operates in Europe, let go more than two dozen nonemployee pilots after Amazon said it didn’t need as many flights. Amazon also recently cut ties with Silver Airways, a small carrier that operated feeder routes to smaller cities in the Great Plains. Amazon didn’t give a reason for ending the Silver Airways contract, but one possibility is that the company’s new regionalization strategy reduced the need for some short-haul flights that trucks can carry out.
Amazon received warrants in 2020 to acquire a minority stake in Sun Country but has yet to exercise them. Cargo represents about 10% of Sun Country’s total revenue.
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