Sun Country Airlines Holdings, Inc. (SNCY) Q4 2021 Earnings Call Transcript

Sun Country Airlines Holdings, Inc. (SNCY -2.76%)
Q4 2021 Earnings Call
Feb 08, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Sun Country Airlines' fourth quarter and full-year 2021 earnings conference call. My name is Norma and I'll be your operator for today's call. [Operator instructions] After the speakers' presentation, there'll be a question and answer session. [Operator instructions] Please be advised that today's conference is being recorded.

[Operator instructions] I would now like to turn the conference over to Mr. Chris Allen, director of investor relations. Mr. Allen.

you may begin.

Chris Allen -- Director of Investor Relations

Thank you. I'm joined today by Jude Bricker, our chief executive officer. Dave Davis, president, chief financial officer, and talented group of others to help others answer questions. Before we begin, I'd like to remind everyone that during this call, the company may make certain statements that constitute more looking statements.

Our remarks today may include Forward-Looking Statements, which are based on management's current beliefs, expectations, or assumptions, and are subject to risks and uncertainties. Actual results may differ materially or encourage you to review the risk factors. The cautionary statements outlined in our earnings release the most recent SEC filing. We assume no obligation to update any forward-looking statement.

You can find a third -- or fourth quarter press release on our investor relations portion of our website at ir.suncountry.com. With that said, I would now like to turn the call over to Jude.

Jude Bricker -- Chief Executive Officer

Thanks, Chris. Good morning, everyone. Today, we're excited to announce full-year record results in 2021. Further, our margins adjusted for CARES Act benefit again lead the industry.

Our multi-segment business model is unique among airlines due to the predictability of our charter and cargo businesses. We're able to deliver the most flexible schedule service capacity in the industry. The combination of this schedule's 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'll be able to reliably deliver one of the industry's best profitability throughout all cycles as we've been demonstrating through the COVID crisis.

First, I want to talk about operations. I continue to be amazed and impressed with the aviation professionals we put on the front lines each day to make this operation work. I'm not sure I've ever seen as challenging a set of circumstances for an operation as what we've been dealing with since the holiday peak. There are folks who have delivered as they always do, thank you to all my team members.

To start, I want to address some of the most commonly raised concerns in our industry. First staffing issues, we've certainly seen the effects of the tight labor market on our staffing needs. Currently, we're hiring across all major labor groups. Shortages, however, are most acutely felt and pilots, technicians, and ramp staff.

In each of those groups, we've negotiated or announced increased pay and benefits offerings. Just recently, we most notably reached a new agreement with our pilot group, bringing our pilot pay above those airlines in our competitive set. It should also give investors' confidence in our ability to staff to our growth targets. Across the industry, I believe staffing challenges will result from downward pressure on capacity, [Inaudible] capacity, and therefore be positive to fares.

Second and related are cost pressures, including fuel price, we remain well in control of our cost position including the new pilot rates, we still expect 2022 ex-fuel adjusted CASM to come in less than 2019. Further, we still expect the adjusted CASM to be under $0.06 by 2023. We expect to continue to be able to offset inflationary pressures and labor by cycling out of our legacy fleet deals, introducing technology efficiencies, and diluting our overhead with growth. I want to remind everyone about a third of our flying has passed the fuel economics.

In our variable schedule, service operation allows us to build a schedule that will positively contribute to any fuel environment. I believe our outperformance of the industry will widen in a high fuel environment, all else equal. Finally, the unit revenue recovery. We certainly have felt the effects of the Omicron variant on our bookings and like other carriers have reported, we are now seeing a strong recovery in demand, particularly for domestic leisure markets and for our March peak period.

We're currently selling a march schedule with a maximum volume limited by staff, indicating our confidence in a recovery. We also announced new fleet transactions for five additional growth aircraft able to talk more about the fleet plan. But I wanted to point out that we're continuing to see favorable price and availability of our feedstock 737 NG aircraft. We expect this to continue as MAX production ramps, along with the recovery in demand for aircraft.

And with that, I'll turn it to Dave.

Dave Davis -- President and Chief Financial Officer

Thanks, Jude. We're very pleased with our results in 2021 because we accomplished a lot in a challenging year for the airline industry. In March, we launched our initial public offering, which greatly strengthened our balance sheet and gave us the resources necessary to drive our growth. We grew block hours during the year by 58% versus 2020 and 13% versus 2019.

We added five passenger aircraft, signed long-term charter agreements with MLS and Caesars Entertainment, and rapidly negotiated and ratified a new pilot agreement. All of this was done while maintaining five consecutive quarters, a greater than 15% EBITDA margins. Our new four-year pilot agreement, signed in December, was negotiated in less than four months' time, which speaks to the professionalism and dedication of our pilot group and company negotiating team. The new deal is a key enabler of our growth plans.

Specific benefits of the agreement include, one, pay rates, benefits, and work rules that are highly competitive with our low-cost peers should allow us to recruit the pilots we need to support our growth. Early indications are promising as pilot applications for Sun Country are up by 160% compared to the months prior to the new agreement being announced. Two, new work rules will allow pilots to start trips from their home locations and provide for the implementation of a preferential bidding system. These changes will make Sun Country a more attractive option for commuting pilots and reduce our costs by allowing us to more efficiently schedule flight crews.

And three, the ability to assign reserve pilots to bases outside of MSP. This flexibility was a key requirement to unlock potential future Amazon growth. Our pilot pay rates were significantly behind the industry, and the changes in the new contract are expected to increase our pilot cost per block hour by approximately 34% between 2021 and 2022. We expect to be able to absorb most of this cost increase elsewhere, however, and our total 2022 non-fuel operating cost per block hour is expected to increase only 2% versus 2021 and is expected to be 9% lower than it was in 2019.

Pilot cost per block hour is expected to decrease in 2023 as the full benefit of the new work rules is realized. Let me turn now to specific Q4 '21 results. In the fourth quarter of '21, we delivered adjusted pre-tax income of $8 million and adjusted EPS of $0.10 on revenue of $172.6 million. For full-year 2021, our adjusted pre-tax income was $25.4 million in adjusted EPS was $0.33 on revenue of $623 million.

We are very pleased with our profitable results in 2021, given the impact the pandemic had on industry bookings. Moreover, the pandemic effects were particularly acute in Q1, which is traditionally Sun Country's strongest quarter. Operating margins for Q4 and the full year were 8.6% and 8.1% respectively. We believe our 2021 full-year operating margin to be industry-leading.

Regarding costs, our Q4 21 gap non-fuel operating expenses increased $9 million, or only 8% versus Q4 2019, and a 25% growth in total block hours. We've demonstrated an ability to consistently take costs out of the business, and we expect to be able to do so going forward. Per aircraft, ownership expense has declined by 22% since 2019. Despite wage pressure in 2021, our ground handling costs for departure were 3% lower than they were in 2019 while we maintained a completion factor near the top of the industry.

Full-year 2021 adjusted CASM was $6.44. Only 2% higher than our adjusted CASM in 2019 on an 18% reduction in ASMs. As Jude mentioned, we expect 2022 adjusted CASM, which includes the impact of our new pilot agreement to finish the year lower than the $6.31 we achieved in 2019. Turning now to revenue.

Revenue in the quarter finished quite strong, despite flying 11% fewer scheduled block hours in Q4 2021 versus 2019. Scheduled service revenue finished the quarter, down only 7%, as the average base fare was $111 in Q4 '21 versus $99 in Q4 '19. Q4 2021, ancillary revenue was $1.6 million higher than the same period in 2019. And a per passenger basis., ancillary revenue per pax was $44, which was the highest in the company's history.

Q4 '21 charter service revenue was down 21% versus Q4 '19 while charter block hours were down 22% in the same period. Both MLS and Caesars Charter Flying will begin to contribute meaningfully toward the end of Q1 '22. Let me turn now to guidance Q1 2022 total revenue is expected to be between $215 million and $225 million. As a reminder, the first quarter is historically our strongest quarter of the year, adjusted operating margin is expected to be between eight and 12%.

We're anticipating a fuel price of $2.79 per gallon for the quarter. Finally, we expect the total system ASMs for the full year of 2022 to be approximately $7.8 billion. Due to the seasonal nature of our business, we expect Q1 to have the highest level of ASMs, followed by Q3. With that, we're now ready to open it up for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Hunter Keay with Wolfe Research. Your line is now open.

Hunter Keay -- Wolfe Research -- Analyst

Hey, thanks. Just a quick one on that last ASM comment, Dave. That's scheduled plus charter together for the $7.8 billion ASMs.

Dave Davis -- President and Chief Financial Officer

Yeah. Yeah, that's right.

Hunter Keay -- Wolfe Research -- Analyst

All right. Thanks. And then did Jude or Dave? what kind of your thoughts on this, the MAX planes that your old pals, Allegiant just bought, Jude? I was wondering, not necessarily if you want to comment on that for them, but if there's any thought to maybe an evolving view that maybe that could work for you?

Jude Bricker -- Chief Executive Officer

We always study it, but we haven't been able to make the economics work that far and it's not close. I mean, we're seeing used aircraft values for late-model aircraft. So, six to 10 years old that aren't much above carried out by is still today. And I don't know, I just want to take the MAX can compete with that.

Hunter Keay -- Wolfe Research -- Analyst

I gotcha. All right. Another question for you on the Spirit Frontier deal, again. How are you thinking about that in terms of the overall impact, the overall competitive landscape? And how does that change the algorithm for you in terms of how you're thinking about growth? Or will it?

Jude Bricker -- Chief Executive Officer

Not at all. We don't have a lot of overlap with either of those carriers. They've both been out there trying to find things that the other doesn't do for multiple years, as they have both been, growing so rapidly and Minnesota hasn't been very successful for them. And I don't think that changes with them as a single company.

So, my view is we don't have a lot of overlap with them now. We won't have a lot of overlap with them in the future. That makes it not necessarily a great thing. There's no real positive, but it also isn't really a negative, and therefore it doesn't really change what we're doing.

Hunter Keay -- Wolfe Research -- Analyst

Yeah.

Jude Bricker -- Chief Executive Officer

I think generally kind we view sort of consolidation in the industry as a good thing. So from a high level, positively inclined toward it.

Hunter Keay -- Wolfe Research -- Analyst

All right. I'm going to get back in the queue. Thanks a lot. 

Jude Bricker -- Chief Executive Officer

Thanks, Hun.

Operator

Thank you. And next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Hey, guys. Nice to be speaking with you this morning. Hope everybody's staying warm.

Jude Bricker -- Chief Executive Officer

Hey, Duane. Actually -- it's actually 40 degrees today, so it's been a record year.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Break out the sunscreen.

Jude Bricker -- Chief Executive Officer

Exactly.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Pilot basing, which you now have this new flexibility and you talked about how that's going to help you on the cargo side. But could you expand a little bit on how that impacts the passenger side of the business and how it might impact your thinking with respect to new markets?

Jude Bricker -- Chief Executive Officer

Yeah, I think one of the biggest things that we got here was the implementation of the PBS system, which is going to allow us to more efficiently schedule pilots more, help us take costs out, and improve trip quality for our pilots. So most other airlines have this in place, Sun Country has it. So we now got it. This ability to station reserve pilots out of Minneapolis for cargo trips was a big thing for Amazon.

We needed to get it to be eligible for more growth and we've now got it. So that was a big win for us. Generally, on the passenger side, I think what this does is it improve sort of quality of life for our pilots and makes Sun Country more interesting for commuting pilots. In other words, pilots who don't live here in Minneapolis they'll ultimately have the ability to start trips from home locations rather than come up here to Minneapolis to start up.

I don't think it necessarily changes our growth strategy or the cities we're going to fly to, but hopefully, it's going to help us get our fair share of pilots rolling forward. 

Dave Davis -- President and Chief Financial Officer

Yeah, Duane, it sounds like you're kind of angling toward are we going to create another Minneapolis, and that isn't in the plan. So our summer growth is going to be on the blueprint of our Dallas network, which is seasonal focus on origination traffic from a summer peak market like Dallas, and we'll replicate that across major southern cities for summer traffic. We see a lot of summer opportunities to deploy Minnesota-based capacity into non-Minnesota O&Ds. And then keep in mind, we have a significant charter business that doesn't really touch Minnesota with originations out of LA and Gulf port and Warren, Reno, and AC.

And so this just the contract just adds to the flexibility that we can deploy assets around the country.

Duane Pfennigwerth -- Evercore ISI -- Analyst

It makes a lot of sense. And then maybe just for my follow-up. You mentioned that this flexibility was helpful vis-a-vis Amazon. Can you talk about just broad strokes, incremental growth opportunities in cargo, and maybe along those lines.

How do you weigh opportunities with perhaps a larger aircraft type, which you can now support versus, the potentially the increased complexity of supporting a new fleet type? Thanks for taking the questions.

Jude Bricker -- Chief Executive Officer

Thanks, Duane. Yeah, in Amazon growth, I mean, we're in continually negotiate discussions, I should say with them about growth and obviously, their primary business is, publicly now as we all read about, is growing rapidly. But our focus remains on leveraging into the recovery for shared service. Our preference would be, to kind of be able to build out the utilization of our existing passenger fleet before we started adding more cargo aircraft.

That being said, I mean, if there's an opportunity, we'll take it and we remain flexible and I really don't have any comments on it, any aircraft type other than the 737 that we're operating today.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Appreciate the thoughts.

Jude Bricker -- Chief Executive Officer

Yeah.

Operator

Thank you. Our next question comes from Brandon Oglenski with Barclays. Your line is open.

Brandon Oglenski -- Barclays -- Analyst

Hey. Good morning, everyone, and thanks for taking my questions.

Jude Bricker -- Chief Executive Officer

Sure.

Brandon Oglenski -- Barclays -- Analyst

Jude, I think you mentioned that you're flying a March schedule as much as you can be based on limitations with staffing. Did I hear you correctly?

Jude Bricker -- Chief Executive Officer

Yeah, that's right. So we started hiring pilots earlier than the rest of the industry in October, 15 months ago. And -- but there is just a lot of catching up to do. We've been continually --  so we're just in a different situation than the rest of the industry.

We went into COVID with 30 or so passenger airplanes, 31, added 12 cargo airplanes. And then have been adding passenger aircraft to the fleet has grown substantially. And it's just going to take us a while to staff up to that. Our training pipeline, we're in the process of expanding, but we kind of have the training staff that we went into COVID with, which was 12 pilots.

A month of capability, and we want to make that two or three times that and just takes a little bit of time to ramp all that up.

Brandon Oglenski -- Barclays -- Analyst

OK, I appreciate that. It's not something commercial you're seeing, like in the spring break period. I think you had pretty favorable commentary on demand.

Jude Bricker -- Chief Executive Officer

Yeah, absolutely. So, I mean it's hard to forecast in a COVID environment, as we've been talking about, it seems like a long time now. And the revenue in the first quarter for us is particularly heavily weighted toward the very last several weeks of the quarter. And so what we're seeing in bookings just over the last two weeks is really, really positive.

And just like other waves of the COVID crisis, it is highly correlated to what we see, in the fall and hospitalizations, for example, across the country. And our bookings are turning the corner in the same way. And just like with other waves, as this recovery begins with domestic leisure markets that we serve, and now we're starting to see it extend into some of our long-haul markets and international markets. So that's why we have such a wide bracket of our revenue forecast in the first quarter is that there's still quite a lot of uncertainty.

But if you extrapolate out, what we're seeing today, it looks like a really positive finish for the quarter.

Brandon Oglenski -- Barclays -- Analyst

OK, appreciate that. And if I could just ask one more maybe of Dave. And you guys mentioned in the prepared remarks or at least in the release about Amazon and some impacts from operational difficulties. Can you talk about, the financial implications of that, if you don't mind?

Dave Davis -- President and Chief Financial Officer

Yeah, the financial implications were pretty minimal. We had some operational disruptions right toward the end of the year. Sort of a perfect storm of some staffing issues that were COVID-related, really, really cold weather here. And then we had an IT outage that resulted in sort of an abnormally high level of cancelations for us.

I would think of the financial impact in the fourth quarter to us of all these issues, as let's say a million dollars-ish. So not it's not a huge impact for us in the fourth quarter. 

Jude Bricker -- Chief Executive Officer

[Inaudible] I just want to contextualize a little bit like just across the ecosystem, so staffing issues for us, but also all our vendors that we rely on for maintenance and ground support. Federal agencies like TSA and the FAA and air traffic control are having staffing issues associated with both hiring and also sick time related to COVID. And then the supply chain. So we're delayed in getting aircraft into service and repairs are done, service bulletins, and engineering work from Boeing.

It's just a weird environment right now, and I continue to believe that that's going to put kind of a governor on industry capacity. As we've seen the commentary, as airlines have announced, that'll be positive for fares as we push into the summer period.

Brandon Oglenski -- Barclays -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Catherine O'Brien with Goldman Sachs. Your line is now open.

Catherine O'Brien -- Goldman Sachs -- Analyst

Hey, good morning, everyone. Thanks so much for the time.

Jude Bricker -- Chief Executive Officer

Sure, Catherine.

Catherine O'Brien -- Goldman Sachs -- Analyst

Hey. So one does that on the revenue beat this quarter. Can you walk us through what drove that? I think last quarter there was some incremental charter ops with the Afghani mission that drove part of your third quarter to be any charter ops here, higher Amazon. Or was it just stronger passenger demand [Inaudible].

Dave Davis -- President and Chief Financial Officer

Fares. Yeah, it was. It was higher fares. I mean, we went into the quarter in a really uncertain environment, right? I think when we had the call, we were probably coming down off of Delta, and then the Omicron thing happened.

So, we were somewhat cautious on the revenue guide and I think the fare environment just strengthened pretty rapidly and that produced the outperformance.

Jude Bricker -- Chief Executive Officer

Yeah. If you recall back to Delta, we kind of saw this inflection point around late September that was just really dramatic were -- we went from a weak environment to the next day, it was increasing and we kind of saw this really strong demand increase up until really the Omicron variant and through the holiday period. And we're kind of in that same place now where Omicron as we move into the March period. And so I'm just really bullish on demand in the next four to six weeks as we move into our peak spring break holiday season.

Catherine O'Brien -- Goldman Sachs -- Analyst

Got it. OK, so that that you answer a little bit of my follow up, which is, just as you're thinking about the fourth quarter, you spoke about how very back halfway like the last several weeks as we get into March. It's like typical seasonality that makes sense. But can you give us some color on how you thought about forecasting the first quarter out? Is there a fair degree of conservatism in one Q2 just given the Omicron uncertainty or due to the amount of bookings you already have locked in? Do you feel like you have more certainty than where you were forecasting 4Q? Just trying to get some color on how you want to [Inaudible].

Jude Bricker -- Chief Executive Officer

I'm going to turn it over to Grant and he runs our revenue and for some color. 

Grant Whitney -- President and Chief Financial Officer

Yeah, that thing together. And I would say, I would echo what Jude said, we've gotten so good at seeing these waves and sort of how things play out. But as we look to forecast the first quarter, the fourth quarter was pretty instructive in terms of how that sort of return of demand after Delta performed. And we had three distinct peak periods for us, which was a little bit different.

We have a holiday school break in October where we saw really good demand, Thanksgiving, and the second half of December. And so using that, we have a pretty good sense for the first quarter. And one thing that's really notable about us in the first quarter, we actually have an inflection point just in overall capacity for a while, we trailed 2019. This is the first quarter where we're bigger than 2019 on a pretty substantial basis on the schedule side of the house.

We feel really good about the schedule we have in the market. It's really Minneapolis-focused. We've done a really good job building the brand in Minneapolis, connecting with customers here. So the one thing, I think that we are doing is just working really closely with our operating team because the airline is fully deployed in March.

And so for us, it's just execution making sure we deliver. And I can say that the team here does that as well as any airline I've seen. So we're very focused on that. So just anything that would bring guardrails to the first quarter, just making sure we can deliver.

And I think there's a ton of confidence here that we will.

Catherine O'Brien -- Goldman Sachs -- Analyst

That's great. And then maybe one for you, Dave. On the quick clarification one on a follow-up on the balance sheet. So on the five aircraft, you have signed LOIs for -- I guess, first, are those part of the eight planned deliveries this year? Or are those incremental? And then given Jude's comment on your target aircraft being still for sale, not much above tear down? Like do you have -- I know there's still some training guardrails you guys are working on.

But from a balance sheet perspective, like if those deals are perhaps not here to stay forever, is there capacity on the balance sheet and appetite for a management perspective to maybe lock in some aircraft for future periods. So I think little bit of two parts there. Thanks.

Dave Davis -- President and Chief Financial Officer

Yeah. Let me just talk about the fleet situation. So our fleet plan for 2022 has to add eight-passenger aircraft. We signed deals for two of those last year and '21, so those are going to be delivering.

The five I mentioned are part of the eight. So that brings us to seven. It's only, early February that that'll be delivering through the year and we need to find only one more to hit our fleet plan. But I think it's fair to say that what you said is accurate.

We continue to see attractive deals in the market, we're very active. And to the extent that we see really good deals and maybe we front-load the fleet a little bit, we will do that. The balance sheet is not a concern, we're very well-capitalized. We have access to whatever to the financing that we need at really attractive rates.

So that's not a limiter for us. Really, the only limiter at this point is our ability is really the staffing side, our ability to train pilots to get them through and fly the aircraft. There's plenty of market opportunities for us, plenty of aircraft that are available. We have the balance sheet capacity to bring them on.

So, yeah, we're in a good spot from the fleet perspective.

Catherine O'Brien -- Goldman Sachs -- Analyst

OK. Great. Thanks so much for all the time.

Dave Davis -- President and Chief Financial Officer

Sure. 

Operator

Thank you. Our next question comes from Mike Linenberg with Deutsche Bank. Your line is open.

Shannon Doherty -- Deutsche Bank -- Analyst

Hi, yes. This is Shannon Doherty for Mike. My first question is given the run-up-- recent run-up in fuel and, putting cargo in your side. Can you provide us with some more detail on your historic ability to recapture higher fares?

Jude Bricker -- Chief Executive Officer

So this is an important concept is just, there's a wide spectrum of revenue outcomes on a scheduled service network. And our response to high fuel prices is to eliminate flights that are predictably under returned targets. That's how we raise fares, we now raise fares by going out across the fleet and adding $1 or whatever to the airfare. We just go in and eliminate flights that become marginal and as the new inputs for fuel price become clear to us.

And so, that's the model is that we don't have, much of a relationship for unit cost and utilization. So it just becomes, OK, what's the fuel price input. What flights are profitable and hit our hurdle rate at that fuel price? The other ones are eliminated, and that's how we run the sched service business. And that's how we're able to pass on.

That's how we're able to maintain our margins in high rising fuel prices. 

Dave Davis -- President and Chief Financial Officer

Yeah, and I think if you look across the industry, you definitely see that recapture effect that Jude's were talking about as sort of the cold, lower, profitable, less profitable flights are unprofitable, flights capacity comes down, fares rise. And part of this cost is recaptured over time. It's not instant. There's a lag, but that's the trend.

Shannon Doherty -- Deutsche Bank -- Analyst

Got it. Thanks. And my second question, can you give us any cost inputs that perhaps maybe run tailwinds throughout 2022 to drive the adjusted unit cost below 2019 levels? Or, is it really more about just restoring the ASM growth and the better utilization of the network? Thanks for the questions.

Jude Bricker -- Chief Executive Officer

Yeah, I mean, I think continued averaging down in cost on the fleet side is part of the metric. We in-sourced our ground handling here in Minneapolis in 2020 that continues to provide dividends for us. A significant opportunity in '22 is just continued cost control and leveraging as ASMs come back. As I pointed out, we've been able to essentially absorb the cost of the new pilot agreement.

That's in the numbers. So it's cost control elsewhere and leveraging into the growth.

Operator

Thank you. Our next question comes from Chris Stathoulopoulos with Susquehanna. Your line is open.

Chris Stathoulopoulos -- Susquehanna International Group -- Analyst

Good morning, everyone. Thanks for taking my question. So going back to the new work rules you mentioned with respect to the new pilot deal. Curious if that was something that the union brought to you or was kind of mutually brought to the table? And whether there were sort of any typical or out-of-ordinary concessions made during the bargaining period? Meaning, in this kind of great resignation environment or however you want to describe it, should we expect that perhaps we could see other changes to any upcoming deals you had with other groups? Thanks.

Dave Davis -- President and Chief Financial Officer

Yeah. So there's sort of a lot in that. Basically, some of the work rules that I talked about here were brought to the table by the company. Others like, let's say, PBS I would probably characterize it as both sides had an interest in getting that in place.

There is nothing thinking through the sort of the deal. There's nothing kind of out of the ordinary for the industry in work rule changes that we made, nothing particularly unique. That's in this deal. Some of these starting trips at home stuff are fairly unique, and we're hammering out the final details on that.

I think one of the things about this agreement is our pilots were substantially behind the average of our -- who we believe are our competitors in the low-cost world. So there was a lot of ground to be made up, which is what drives that pilot cost per block hour number I gave. We don't believe in the data would indicate that we're not in the same position with our other workgroups. In other words, pay rates, benefits, and so forth are quite consistent with what our peers pay at this point.

So I wouldn't expect to see similar moves with other workgroups for us.

Jude Bricker -- Chief Executive Officer

Just a little more commentary on the negotiation that we got done on a contract that was pretty over. We got an amendment negotiated in two months and it takes a tremendous amount of effort from our team, obviously, but also our pilot group and Alpha National and RMEC. And I'm just so impressed with those guys, and I'm really excited for the pilots that have been here all the challenges that Sun Country's had. We got pilots who have been on the payroll for 35 years and now they're going to get, for the first time, maybe in their whole career, an industry-leading contract.

I'm just really excited for those guys. It's really kind of amazing that we got this across the finish line in the timeline that we did, and it took a lot of working together and that was great that it happened.

Chris Stathoulopoulos -- Susquehanna International Group -- Analyst

OK. And my second one, so we go back to I think it was Hunter's questions on the announced merger proposal with Frontier and Spirit yesterday. So you mentioned it doesn't really impact anything you do, and I think you said that you kind of look at consolidation as favorably. But if the recovery in business and long-haul international does take longer and we have this kind of jump ball approach to managing inventory from your peers in the US, is there a perhaps there's also the upselling phenomenon that we keep hearing about.

So is there perhaps an opportunity within this -- if this merger goes through and everything else that's happening to perhaps look at markets where you typically wouldn't have looked to sell inventory? Thank you.

Jude Bricker -- Chief Executive Officer

I just want to be really clear, like, we're focused on the peak years of days. And so the combination of Spirit and Frontier that drive these 12 and 13-hour daily utilization of their new aircraft is still going to have that same dynamic. So I don't think there are changes at all our opportunity set of really picky leisure markets that have predictable peaks, a long day of the week, or primarily seasonal sensitivities. So, there's a set of 300, 400 O&Ds that have these really peak contributions from leisure demand.

And they're not going to be effectively served with any other carrier than us. Spare if I do just can't modulate their capacity as to what's required to pick up that demand that exists on those peak periods. So I don't think it's -- as Dave mentioned, I think it's a net positive. I don't think it changes the dynamic much here in Minneapolis, which is quickly becoming a two-airline market.

And I think our growth outside of Minneapolis is still going to be focused on these predictable peak season leisure markets originating from major DMAs. And I think that I feel more strongly about that with the merger. And it's new to us, and we're still evaluating it. And I think we'll kind of see how it plays out.

But I think it's positive for our ex-Minneapolis growth, and it's kind of neutral for Minneapolis and our plans here.

Chris Stathoulopoulos -- Susquehanna International Group -- Analyst

OK,thank you.

Operator

Thank you. And I have a follow-up with Hunter Keay with Wolfe Research. Your line is open.

Hunter Keay -- Wolfe Research -- Analyst

Yes, thanks. I got a few. Jude did that last comment you made. Have you guys studied what happened in Seattle when that place became a two airline market with Delta? And what happened with some of the tertiary competitive capacity there that maybe couldn't compete on schedule and loyalty? Any similarities you may see developing here or there?

Jude Bricker -- Chief Executive Officer

Yeah, I mean, yeah, of course. Look, I mean, Seattle's a bigger market than what we have here. And the geography has a little bit different with flow over the ocean. But yeah, I mean, I completely agree with the -- I think it's [Inaudible] to what we're seeing here with Delta, and we're focused on the leisure market.

I mean, I think more carefully, we want to be even more segmented the way we think about the twin cities and focus more directly on leisure, which I think will be less of a front than Alaska is in Seattle to Delta. But yeah, I mean, I think there's a good model for coexisting, and I would put us right up there with Alaska as an example, yeah.

Hunter Keay -- Wolfe Research -- Analyst

Yeah, you guys are flying [Inaudible] now, but -- all right. And then the CASM comment that you made just to be clear, you're expecting are '23 CASM MAX adjusted to be under $0.6 on a full-year basis. Or you're saying you're going to get there at some point in '23? 

Jude Bricker -- Chief Executive Officer

Yeah, I mean, at this point, we're thinking that our full-year number is going to be sub-six. 

Hunter Keay -- Wolfe Research -- Analyst

Got it. All right. And then can you talk a little bit about PBS some more and just elaborate on some of the benefits that it's going to bring to you that might be unique to some country? And also just tell people on the call to understand why PBS is a beneficial thing for an [Inaudible] to run anyway.

Jude Bricker -- Chief Executive Officer

So, I'm super passionate about PBS, inappropriately. Like it shouldn't be so much

Hunter Keay -- Wolfe Research -- Analyst

You don't hear that.

Jude Bricker -- Chief Executive Officer

A focus to me. But I just love the product because -- and I think it's going to be great for our pilot. So what PBS does is you just allow the pilot while honoring seniority to select their own schedule instead of us building a month-long schedule and then pilots in seniority order select up from that set of schedule options. And so imagine just a portfolio of trips out there, round trips from Minneapolis, two or three-day trips for charters, a cargo liner that takes you to multiple cities on, four or five days.

And then, depending on your situation, personally, you can select and build a schedule that's best for you. Obviously, not everybody gets what they want, but we're just a lot more likely to satisfy pilots for their own personal scheduling desires in a PBS system than in the line system, which is just an outdated system. Further, in 2017, the pilot work rules change part 117, and the primary change was that legalities are now on a rolling basis instead of on a calendar basis. You used to be able to start the month anew, and now I think it makes perfect sense.

It's a rolling basis. So PBS, when -- as it awards pilots or even flight attendants calendars, it takes into account those restrictions. It's just a lot more --it is just a lot more efficient for both pilots and the company. Dave any other comments?

Dave Davis -- President and Chief Financial Officer

No. your passion came through. And I mean, more desirable trip construction means fewer dropped trips, which means more efficiency, the pilot workforce.

Hunter Keay -- Wolfe Research -- Analyst

OK. OK. Can I ask a couple more? Chris, are there others behind me?

Chris Allen -- Director of Investor Relations

Yeah, I've got two behind you.

Jude Bricker -- Chief Executive Officer

Go ahead, one more.

Hunter Keay -- Wolfe Research -- Analyst

All right. One more fine. Why do you think your ops have been so strong while others have been so weak? You have your folks just, volunteering to pick up trips? I mean, is it a cultural thing? I mean, how are you getting people to show up is because you're small. I mean, you can have direct contact.

Jude Bricker -- Chief Executive Officer

Wow, I love the question. I feel like it's been really hard. Let me go over to Greg.

Greg Mays -- Executive Vice President and Chief Operating Officer

Yeah. Hunter, I think it's a few things I think that the as evidenced by our agreement that we get with our pilots that shows that we've got a good relationship and we have seen, some leaning forward, Grant mentioned just a close relationship that we have between the commercial team and the operations team to really pinpoint decisions that we need to make super close in. We actually have daily discussions where we're look, not only the day next day, that's a few days, so it's just been a lot of close work. And I think that the organization is very much a line with what we need to accomplish.

I mean, I think that's largely what it is, but there's a whole lot of tactics that come in on a daily basis to make this work.

Jude Bricker -- Chief Executive Officer

We should touch on just structural advantages we have. One is, we're a single-based operator, single fleet type. we're in Minneapolis, which is in JFK, it's not Honolulu. But kind of in the middle.

And, so we didn't have to deal with a lot of the ATC constraints on other airline congestion and things like that. So we've also got a good position at T2 and our in our terminal here, which helps us consistency of our defensive advantage, such as that that we've got.

Greg Mays -- Executive Vice President and Chief Operating Officer

And the variable capacity that we reset the schedule when yeah, that's the other thing.

Jude Bricker -- Chief Executive Officer

That's kind of firebreaks natural firebreaks in our schedule that exist, as we schedule for demand. If your Spirit Frontier and you're -- the only recovery option is to cancel down and reset. We have today, Tuesday. That's our reset day, which is natural, 

Hunter Keay -- Wolfe Research -- Analyst

Right, yeah. That makes sense.

Greg Mays -- Executive Vice President and Chief Operating Officer

It's hard and it's come with a lot of work. There's a lot of work involved and very difficult. 

Jude Bricker -- Chief Executive Officer

All right. That's enough. 

Hunter Keay -- Wolfe Research -- Analyst

Thank you. I appreciate it. I have more, by the way.

Jude Bricker -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Hey, thanks for the follow-up. This may be an off-the-wall question, and not one I would ask most airlines at this point in the recovery. Can you just remind us when restrictions on the capital return go away and how you'd be thinking about it if you didn't have those restrictions with your stock at these levels?

Dave Davis -- President and Chief Financial Officer

Yeah, the restrictions go away, I think the end of September of this year. Yeah. Let me put it this way. The balance sheet is really strong.

We have excess capital on the balance sheet above and beyond what our operating needs are to either buy planes or operate the business. We're strongly cash flow positive. We think that the shares, the share price is substantially undervalued. You can sort of draw from that conclusion.

You would, but we think our shares are our strong buy at these levels.

Duane Pfennigwerth -- Evercore ISI -- Analyst

OK. Thank you. 

Dave Davis -- President and Chief Financial Officer

Thanks, Duane. 

Operator

Thank you. I have a follow-up with Catherine O'Brien with Goldman Sachs. Your line is open.

Catherine O'Brien -- Goldman Sachs -- Analyst

Hey, guys, thanks for the extra time here. I thought one of us might try for this, but just any high-level guidepost we should think about for what down versus 2019 means in 2022, obviously the path to below $0.6 in 2023. I'm guessing this year is a step toward that. But just any kind of like high-level thoughts on how we should be thinking about full-year 2022 CASM ex just in the context that down vs '19 comments.

Thanks.

Jude Bricker -- Chief Executive Officer

Yeah, I think you should be thinking about it as modestly below 2019 levels. So in other words, we do not sort of knock on the door of six quite yet. We should be there in '23. So we'll be modestly below.

If everything goes according to plan, which we're confident in. We should be modestly below our 2019 levels.

Dave Davis -- President and Chief Financial Officer

I think the big variable is input around the capacity level. And how quickly the recovery happens and whether or not the shoulder months in particular or able to blow those out or not. And that's going to drive some effect on the CASM.

Catherine O'Brien -- Goldman Sachs -- Analyst

Got it. Makes sense, and then just one more for me, just on new charter contracts. Can you give us some color on the impact of those as they ramp up? I know in the fourth quarter you're still down 20% or so from '19 due to lower military flying. Will these contracts backfill some or all of that? And then, I guess, if so, do you still have the capacity to do more military flying if that demand comes back stronger? So, just helping us think through the impact of the new contracts and then what's left in the tank after those contracts are fulfilled? Thanks so much.

Grant Whitney -- President and Chief Financial Officer

Great question, Catherine. This is Grant again. Yeah. So this year, the successes of the team in 2021, in terms of selling ourselves, winning back business, winning new business.

We feel really good about the portfolio in total for 2022. We have a lot of precision in terms of what it's going to be. And that's really helpful in these times because this is very operationally friendly. So a lot of the flying we're going to be doing, it will be in pilot bed.

We'll have a good line of sight on it. So it's not going to drive closed-in changes or drive a lot of work for the organization. So we feel really good about that, getting our sort of casino business back to where it was and above where it was in 2019, it's really important because those are really good contracts for us. And then, you're absolutely right, we will watch the military very, very closely.

And we can opportunistically take it when it makes sense and the military has been more competitive, just as other airlines have some spare capacity that they've been deploying the military. As things change and based on the recovery, we will keep close tabs on the military business, we do, and we will very much engage when it makes sense for us. So yes, we have upside, and we have a really good portfolio, to begin with.

Catherine O'Brien -- Goldman Sachs -- Analyst

OK. Great. Thanks so much for that.

Operator

Thank you. And I have a follow-up, we have Chris Stathoulopoulos with Susquehanna. Your line is open.

Chris Stathoulopoulos -- Susquehanna International Group -- Analyst

Thanks for taking my follow-up. So on going back to the question on cargo, so you mentioned sickouts and some IT issues, but just curious in the context of utilization. Is the current fleet, I believe it's 12 aircraft, sufficient to handle growing or what could be erratic peaks as well as it looks like Amazon is adding a few more dots or air hubs on the map here. Thanks.

Jude Bricker -- Chief Executive Officer

You said sickouts. I just want to be very clear, like we had the beginning of COVID. I mean people were --

Chris Stathoulopoulos -- Susquehanna International Group -- Analyst

Right, COVID-19.

Jude Bricker -- Chief Executive Officer

I don't know. I think it's the answer. I mean we have -- we're running right now at C-check line, and that won't be a constant. I think what we saw in the fourth quarter for Amazon production for our cargo production is kind of what we would expect in a standard quarter going forward until we get more aircraft.

I mean -- and I think that's -- my view is its kind of relatively likely. I think that we would intend to continue to have great operations that will be valuable to Amazon or any other cargo partner. And we have a capability that I think is really valuable. I mean we're comfortable and confident that Amazon is happy with our performance.

And our -- if they want to grow the 737, 800 fleet more, we're very, very viable competitors to get more of those aircraft. But ultimately, it's up to them.

Chris Stathoulopoulos -- Susquehanna International Group -- Analyst

OK. Thank you.

Jude Bricker -- Chief Executive Officer

Thanks, Chris.

Operator

Thank you. And I'm currently showing no further questions at this time, I'd like to hand the conference back over to Mr. Jude Bricker for any closing comments.

Jude Bricker -- Chief Executive Officer

Thanks, guys. Thanks for your interest. Everybody have a great day and we'll talk to you next quarter.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Chris Allen -- Director of Investor Relations

Jude Bricker -- Chief Executive Officer

Dave Davis -- President and Chief Financial Officer

Hunter Keay -- Wolfe Research -- Analyst

Duane Pfennigwerth -- Evercore ISI -- Analyst

Brandon Oglenski -- Barclays -- Analyst

Catherine O'Brien -- Goldman Sachs -- Analyst

Grant Whitney -- President and Chief Financial Officer

Shannon Doherty -- Deutsche Bank -- Analyst

Chris Stathoulopoulos -- Susquehanna International Group -- Analyst

Greg Mays -- Executive Vice President and Chief Operating Officer

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