Insights into one of the most profitable US airlines you’ve never heard of

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While ultra-low-cost airlines like Spirit and Frontier are struggling, Sun Country has consistently maintained its position as one of the most profitable airlines in the United States.

Meghna Maharishi

Surprisingly, Delta Air Lines has not always been the most profitable U.S. airline since the pandemic.

In fact, there is one ultra-low-cost airline that has managed to make a good profit every quarter despite the faltering performance of Spirit Airlines and Frontier Airlines: Sun Country, an ultra-low-cost airline based in Minneapolis.

In 2023, Sun Country achieved an operating margin of 13%, the highest of any American airline. Delta came in second at 11.6%.

In the second quarter, Sun Country saw revenue declines due to overcapacity in its domestic business that plagues much of the industry. Despite the disappointing quarter, Sun Country was still the most profitable ultra-low-cost carrier in the country.

TD Cowen analyst Thomas Fitzgerald wrote in a note to investors on August 5: “Sun Country is well positioned to weather the headwinds facing leisure airlines in the U.S.”

How has Sun Country been so successful in an environment that has primarily benefited premium and international travel?

A niche market in Minnesota

Much of Sun Country’s success comes from its Minnesota roots. Most of its routes operate out of Minnesota, and the airline has built a loyal following in the region.

Airline Weekly analyst Jay Shabat called Minnesota — and Minneapolis in particular — a solid market for Sun Country, in part due to the presence of major companies like United Healthcare and Target. The healthcare and food processing industries in particular have strong presences in Minneapolis.

“These are huge sectors that employ a lot of people,” he said.

While airlines typically see stronger second and third quarters as customers book their summer vacations, Sun Country’s strength lies in the winter. The ultra-low-cost carrier typically reports a much stronger first quarter with high demand for its routes to popular vacation destinations like Florida.

Sun Country, for example, reported a profit of $35 million in the first quarter of this year, despite the market being hit by overcapacity at home and weaker demand for low-cost products. Spirit and Frontier, on the other hand, posted first-quarter net losses of $142 million and $26 million, respectively.

“During the winter months, demand is virtually inexhaustible anywhere the sun shines,” Shabat said.

A diversified business model with expansion into the freight sector

Another strength of Sun Country is its diversified business model – it is not just a passenger airline. Sun Country’s cargo and charter businesses have also significantly improved the company’s results.

The airline’s charter business is particularly popular with hotels in Las Vegas. Caesars has signed a contract with Sun Country to operate charter flights to its various hotels for its members. MGM Resorts also has a charter partnership with Sun Country from markets such as Cincinnati, Buffalo, Charlotte and Houston to Atlantic City.

Sun Country also operates a cargo business that is expected to become a major revenue driver in the future. The airline signed a deal with Amazon Air to operate a cargo fleet in 2019, which was recently extended through 2030. The revised deal now gives Sun Country eight additional 737 freighters.

By expanding its cargo fleet, Sun Country expects profit margins roughly equivalent to those of its passenger business, Chief Financial Officer Dave Davis said during a conference call with analysts on Aug. 2.

Shabat also said Sun Country would be able to schedule pilots for all of its cargo, charter and passenger services, reducing costs and complexity.

“You can move pilots around – the same pilot can fly a scheduled flight, a charter flight or a cargo flight,” he said. “So it’s a very flexible working model.”

The ultra-low-cost carrier is also known for its aggressive capacity adjustments. Shabat said it plans its routes very seasonally. “In the summer, for example, Sun Country tends to offer more routes from Minneapolis to Las Vegas, San Francisco, Los Angeles and Seattle. In the winter, however, Sun Country cuts capacity to those cities and instead focuses on warmer destinations like Florida, Mexico and the Caribbean.”

“It’s a unique model,” Shabat said.

Watch Sun Country CEO Jude Bricker at the Skift Aviation Forum 2022