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Date

Friday, Aug. 1, 2025, at 10 a.m. ET

Call participants

  • Chief Executive Officer — Jude Bricker
  • Chief Financial Officer — Bill Trousdale

Risks

  • Chief Executive Officer Bricker stated, "during peak months, unit revenue improvements will not overcome unit cost pressures of lower utilization," indicating margin compression in the near term.
  • Bricker further indicated, "the situation will be most acute in July and, therefore, have the greatest impact in Q3 2025," highlighting a peak period of cost challenges.
  • Chief Financial Officer Trousdale said, "we do not anticipate resuming the growth of our scheduled passenger service until 2026 following the annualization of our cargo group," confirming sustained elevated costs and constrained passenger volume growth.
  • Bricker said, "On a unit cost basis as we absorb this cargo growth. But 10% growth this year, 10% growth next year, that puts us into a growth mode again. On our scheduled service fleet," but also acknowledged no cost offset from capacity cuts, driving short-term margin drag.

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Takeaways

  • Profitability streak— The company reported its twelfth consecutive quarter of profitability in the second quarter of 2025.
  • Total revenue— Total revenue reached $206.3 million in the second quarter, a 3.6% year-over-year increase.
  • GAAP pretax margin— 3.2%, with adjusted pretax margin at 3.9%.
  • Total block hours— Total block hours decreased 0.5%, despite 3.6% year-over-year revenue growth.
  • Passenger segment revenue— Passenger segment revenue declined 0.8% year-over-year, due to a 6.2% decrease in scheduled service ASMs.
  • Scheduled service TRASM— Scheduled service TRASM grew 3.7%, with total fare increased 6.5% and a 1.3 percentage point decline in load factor.
  • Cargo segment revenue— Cargo segment revenue rose 36.8% to $34.8 million, with cargo block hours increased 9.5%. The in-service cargo fleet expanded from 12 to 15 aircraft.
  • Charter revenue— Charter revenue increased 6.4% to $54.3 million. Charter block hours rose 7.9%; 77% of charter block hours were under long-term contracts.
  • Adjusted CASM— Adjusted CASM increased 11.3%, highlighting cost challenges due to reduced scheduled service ASMs.
  • Salaries expense— Salaries expense rose 12.9%, driven by a 7% increase in headcount, pilot contractual rate increases, and a new flight attendant contract.
  • Total debt and lease obligations— Total debt and lease obligations were $562 million at the end of the second quarter, down from $619 million at the start of the year.
  • Liquidity— Total liquidity was $206.6 million at quarter-end.
  • 2025 CapEx guidance— Capital expenditures (CapEx) are projected at $70 million-$80 million for 2025, with $21 million spent in the first half.
  • Third-quarter revenue guidance— Total revenue guidance for the third quarter is $250 million-$260 million, with block hours guided up 5%-8% and an operating margin between 3%-6%.
  • Amazon cargo contract— Annual step-up escalators took effect, making the third quarter the first full quarter at the new rate.
  • Fleet growth target— Targeting 70 in-service aircraft by 2027 (20 cargo, 50 passenger), as previously leased aircraft rejoin the fleet through 2026.
  • Long-term financial target— Bricker stated plans to deliver "roughly $1.5 billion in revenue, $300 million in EBITDA, and $2.50 in EPS" at full fleet and utilization, targeting 2027 (non-GAAP EBITDA basis).
  • Third-quarter segment guidance— Cargo block hours are expected to increase 40%-50% year over year; scheduled service block hours are projected to decrease by high single digits year over year; charter service block hours are expected to be up single digits year-over-year.
  • Return to scheduled service growth— Not anticipated until 2026, post-cargo ramp and utilization normalization.
  • Load factor and fare booking trends— The company is prioritizing fare over load, accepting lower load factors to capture close-in, higher-yield demand, as described by management in commentary on current booking trends.
  • Loyalty program and crew system initiatives— Launch of a new loyalty program and introduction of PBS (Preferential Bidding System) to crews expected to drive future productivity.

Summary

Sun Country Airlines(SNCY 2.52%) emphasized a near-term profit headwind driven by cargo expansion at the expense of scheduled passenger service in the third quarter of 2025, leading to temporary margin and cost pressure as the company navigates elevated unit costs from lower fleet utilization. Management confirmed all eight incremental cargo aircraft had been delivered as of the second quarter, with full integration expected by the end of the third quarter, yielding the highest cargo revenue in company history for the quarter. Diversification allowed Sun Country Airlines to offset lower short-term cargo hours and passenger pressures with charter strength, primarily from long-term contracts. Leadership guided toward $250 million-$260 million in total revenue for the third quarter, an operating margin forecast of 3%-6% for the quarter, and highlighted an anticipated linear path to targeted 2027 financial metrics as excess fleet is reintegrated and scheduled service growth resumes, with management expecting to reach approximately $1.5 billion in revenue, $300 million in EBITDA, and $2.50 in EPS by 2027.

  • Bricker explained the margin drag in the third quarter as "could be $10 million. 4%. It's going on pretax," with improvement expected across the fourth quarter and into 2026.
  • Trousdale said, "Q3 2025 will be the first full quarter at the new rate," marking a significant step-up in contractual cargo economics.
  • Trousdale noted that "Scheduled service TRASM increased 3.7% as total fare increased 6.5%, which offset the 1.3 percentage point decline in load factor" in the second quarter, illustrating the company's pricing strategy.
  • Ongoing cost pressures include elevated salaries, higher landing fees, and increased other operating expenses, with annualized pilot and attendant contracts now absorbed.
  • Trousdale stated, "We still have available all of our $25 million share authorization from our board of directors," providing share buyback capacity as part of capital allocation flexibility.
  • Longer-term structural advantages from cargo and charter predictability are cited as underpinning eventual margin and revenue normalization.
  • Trousdale said, "We do not anticipate a need to purchase any incremental aircraft until we begin looking for capacity growth in 2027 and beyond," indicating disciplined fleet planning.

Industry glossary

  • TRASM: Total Revenue per Available Seat Mile, a key measure of unit revenue generation in airline operations.
  • ASM: Available Seat Mile, representing an airline's passenger carrying capacity.
  • CASM: Cost per Available Seat Mile, measuring unit cost efficiency and overall cost discipline for airlines.
  • PBS (Preferential Bidding System): A crew rostering tool enabling pilots and flight attendants to bid for schedules based on preferences and seniority, used to improve productivity and satisfaction.

Full Conference Call Transcript

Jude Bricker: Thanks, Chris. Good morning, everyone. We are pleased to report our twelfth consecutive quarter of profitability. Our diverse business model is unique in the airline industry. Due to the predictability of our charter and cargo businesses, we are able to deliver the most flexible scheduled service capacity in the industry. The combination of our scheduled 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 will be able to reliably deliver industry-leading profitability throughout all cycles. The theme in 2025 for Sun Country Airlines Holdings, Inc. is about growth, particularly in our cargo business.

By August, we expect to have all eight 2025 cargo additions in service, bringing our cargo fleet to 20 aircraft. We anticipate fleet growth along with contractual rate increases will roughly double versus prior contract our cargo revenue once these additional aircraft reach mature utilization. In the short term, this rapid growth has caused a pullback in our scheduled service volumes. We are planning that these reductions will be recovered as we move through 2026. I want to provide a little color as to the effects of this rapid cargo growth as it has on our results. Our 2Q results reported yesterday reflect the year-over-year TRASM improvement of 3.5%. Within the quarter, each month had a positive unit revenue performance.

May had the best year-on-year improvement with TRASM up 6.6%, which is consistent with our expectation that off-peak controlled periods are the most sensitive to capacity changes. Importantly, the peak summer months of June, July, and August could absorb much more capacity than we are able to deliver with little falloff in unit revenue and performance. Here's the point. First, rapid growth of our cargo business has required us to pull back scheduled service during our peak summer months. Second, during peak months, unit revenue improvements will not overcome unit cost pressures of lower utilization. This situation will be most acute in July and, therefore, most impact in 3Q 2025.

We expect margins to expand as we build back our scheduled service with flying that was productive but that we had to cut. With all this complexity in our current results, I think it's worthwhile to look into the future when we get the cargo fleet fully utilized, recover our passenger fleet utilization, and add in our own fleet of leased-out aircraft, mostly 900s, coming back to us through 2026. That will be an in-service fleet of 70 aircraft, 20 cargo, and 50 passenger. With current demand for our product, and at current fuel prices, I expect the business to deliver roughly $1.5 billion in revenue, $300 million in EBITDA, and $2.50 in EPS.

The timing of getting to this is a bit uncertain as we are challenged with induction timing and pilot upgrades. But I expect to be there right around 2027. In the meantime, we will be focused on deploying our free cash flow. Our success in achieving these results will be mainly dependent on our ability to continue to deliver a great product. For February, I am particularly proud that we delivered the industry's best completion factor, our most important operating metric. Airline operations are a team event. I am so proud of all our folks who are delivering for our customers every day. Over to you, Bill.

Bill Trousdale: Thanks, Jude. As Jude mentioned earlier, we are pleased to report that the second quarter marked the twelfth consecutive quarter of profitability. Our truly diversified revenue streams focused on traditional scheduled passenger service, charter passenger service, and our growing freighter service delivered the highest second quarter revenue in Sun Country Airlines Holdings, Inc. history, and generated a GAAP pretax margin of 3.2%, and an adjusted pretax margin of 3.9%. Furthermore, this is our third consecutive quarter of both total revenue growth year-end and year-over-year improvement in pretax margin. During the second quarter, our cargo block hours were lower than we had anticipated at the beginning of the quarter due to the timing of cargo aircraft deliveries.

That being said, we were able to pivot our pilot resources toward passenger flying, and more than offset the reduction in cargo revenue with increased charter revenue, demonstrating the powerful benefit of our uniquely diversified business model. As of today, we have received delivery of all eight of our incremental cargo aircraft, and as Jude mentioned, we remain on track to have them all in service by the end of the third quarter. Second quarter total revenue of $206.3 million was 3.6% higher than 2024, on a 0.5% decrease in total block hours. Revenue for our passenger segment, which includes both our scheduled service and our charter businesses, was down 0.8% year-over-year primarily on a greatly reduced scheduled service operation.

Due to our focus on growing our cargo segment this year, scheduled service ASMs declined 6.2% in Q2 versus the same period last year. Scheduled service TRASM increased 3.7% as total fare increased 6.5%, which offset the 1.3 percentage point decline in load factor. Throughout this year, we have seen scheduled service revenue book closer in and are not anticipating that to change anytime soon. As Jude described, second quarter demand was strong with May exceeding expectations. Third quarter scheduled service ASMs are expected to contract between 9-10% as we continue to pull back in support of the growth of our cargo business. Second quarter charter revenue grew 6.4% to $54.3 million on a 7.9% increase in charter block hours.

As a reminder, some of our contracts have revenue reconciliation based on fuel prices. Since fuel prices were down 15% in the quarter versus the same period in 2024, we naturally received less fuel reconciliation proceeds than we did a year ago on a per block hour basis. Excluding this fuel revenue reconciliation, revenue received from charter flying easily exceeded the 7.9% increase in block hours in the quarter. About 77% of our Q2 charter block hours were flown under long-term contracts, which is a similar level as Q2 of last year. Revenue in our cargo segment grew 36.8% in Q2 to $34.8 million. This was the highest quarterly cargo revenue in our history.

Cargo block hours grew 9.5% as we had 15 cargo aircraft in service by the end of the quarter, up from 12 in the previous year. We expect to have all 20 flying by the end of the third quarter as our cargo aircraft induction process is now pacing as planned. Turning now to costs. Q2 total operating expense grew 2.2% on a slight decline in block hours. Adjusted CASM increased 11.3% and was heavily impacted by the 6.2% decline in scheduled service ASMs arising from our shift out of the passenger business into the cargo business. We project this year-over-year quarterly increase in CASM to be the highest such increase in 2025.

It is important to note that our adjusted CASM will remain elevated as we do not anticipate resuming the growth of our scheduled passenger service until 2026 following the annualization of our cargo group. Salaries grew in Q2 by 12.9% in large part driven by a 7% headcount increase, the increase in pilot contractual rates from the beginning of the year, and our new flight attendant contract that was ratified in the first quarter. Also during the second quarter, landing fees and airport rent expense increased 9.1% on higher rates, while the 14% increase in other operating expense was primarily the result of an increase in operation, and a decrease in activity from our engine part sales programs.

Regarding our balance sheet, our total liquidity at the end of Q2 was $206.6 million. Given our focus on Amazon growth in 2025 into 2026, coupled with the aircraft currently on lease to third-party airlines, we do not anticipate a need to purchase any incremental aircraft until we begin looking for capacity growth in 2027 and beyond. During this quarter, we took redelivery of our second Boeing 737-900 that was previously on lease to another airline. And we expect both of those aircraft to enter service later this year. We also extended the leases on two of the remaining five aircraft that are on lease to other airlines.

And we now expect two of those five to be redelivered to us in Q4 of this year and one in each of Q2, Q3, and 2026. We still expect 2025 CapEx to be between $70 and $80 million with $21 million already spent in the first half of the year. Our total debt and lease obligations were $562 million at the end of Q2, down from $619 million at the beginning of the year. We expect to pay down an additional $44 million in debt by the end of the year, and we still have available all of our $25 million share authorization from our board of directors. Turning to guidance.

We expect the third quarter total revenue to be between $250 and $260 million on an increase in block hours of 5 to 8%. I would like to point out that included in our Q3 revenue guide is a reduction of approximately 33% in other revenue versus our Q2 results, driven by a reduction of the number of aircraft we have on lease to unaffiliated airlines plus a $2.7 million Q2 benefit of a lease redelivery as described in our October. We are anticipating our Q3 fuel cost per gallon to be $2.61 and for us to achieve an operating margin between 3-6%.

Our business is built for resiliency, and similar to what we observed in Q2, we will continue to allocate capacity between segments to maximize profitability and minimize earnings volatility. With that, operator, I will open up for questions.

Operator: Certainly. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. And our first question comes from the line of Ravi Shanker with Morgan Stanley.

Ravi Shanker: Great. Thanks. Good morning, everyone. So, Jude, thanks for that trajectory on the kind of long-term normalized EPS. Can you just talk about how purely idiosyncratic versus industry macro dependent that path to $2.50 EPS is and maybe kind of what you're assuming for industry conditions at that time in 2027?

Jude Bricker: Sure. Hi. Thanks, Ravi. Well, we look at long-term revenue forecasts. We use a general tailwind associated with inflation of about 3%. And then we have a two-factor model associated with changes in utilization of our fleet and also absolute growth. And we're not assuming any changes in utilization versus last year as we look forward for those forecasts. So it really is kind of just normalized, I would say, unit revenue performance, current fuel prices, you know, the cost that we can reliably predict, which today are most of our cost is most of our labor situation has been sorted out post-COVID.

So, you know, I think we're pretty there's not a whole lot, I think, of aggressive or conservative assumptions. It's kind of right down the middle.

Ravi Shanker: Understood. That's helpful. And maybe as a follow-up, apologies if I missed this, but I know your Amazon revenues are not volume dependent, but do you have any sense from them as to what peak season is shaping up like? Because that's still somewhat debated in the space.

Jude Bricker: Yeah. I'll make a couple comments, and Bill has done a lot of work on this. I mean, the basics are that the utilization of the assets. So we're taking airplanes, we're doing work to them to get them ready for service. They're entering service later than we expected. And by virtue of that happening, the fleet isn't as committed because we want to make sure that we're executing well. And so it's just taking a little bit longer to get to, you know, kind of terminal velocity on that fleet.

Ravi Shanker: Very good. Thanks, guys.

Operator: Our next question comes from the line of Brandon Oglenski with Barclays.

Brandon Oglenski: Hey, good morning. Thanks for taking the question. Jude, maybe I can follow-up there. Can you remind us do you have like a step up in pricing on that contract as well later this year? Or is that an issue looking into next year?

Bill Trousdale: Yeah. We so we have an annual this is Bill, by the way. We have an annual step up on the contract every basically, on the anniversary of the contract. That's sort of standard with it. And with the new fleet coming in, we actually recently actually, when we put the last aircraft in place, we have a final step up of the change in the economics on the updated agreement. So current rates will be adjusted by annual escalators from here forward. And current rates are much higher than they were this time last year, based on the contract that we signed with Amazon at the end of last year.

Brandon Oglenski: Okay. But we're at that new higher level run right now?

Bill Trousdale: Uh-huh. Yeah. Bill said it just it just kicked in. It just kicked in. So Q3 will be the first full quarter at the new rate.

Brandon Oglenski: Okay. Got it. And then, Jude, maybe just a bigger question about industry capacity and maybe, you know, strategic actions that can be taken here. Just given some of the challenges that your competitors or larger low-cost competitors are facing.

Jude Bricker: Yeah. You know, we're just our strategy here is to just continue to execute and produce good results and keep an eye out for organic growth that presents themselves through restructuring or disruptions around the industry. I certainly agree with your assessment that there are some challenged airline operators out there. You know? I know what to say. I mean, our approach is basically let's get a good balance sheet. Let's continue to execute. And, hopefully, we will be able to move quickly when these opportunities present themselves.

Immediately, though, as I look around, I mean, the reason that a lot of these carriers are struggling is because of overcapacity situations, which means we can't really move into these markets in advance of them having a pullback. I think we're taking the right approach. It's just continue to execute, build up our Amazon base that allows us to be really nimble with our scheduled service capacity. Continue to strengthen the balance sheet, maybe distribute some of our surplus capital to shareholders, and be ready to move when there's an opportunity.

Brandon Oglenski: Appreciate it. Thank you.

Operator: Our next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Duane Pfennigwerth: Hey. Good morning. Thanks. Jude, appreciate you speaking to the longer-term earnings power. But wanted to ask you just maybe in the more intermediate term, it feels like you know, we've been in kind of a known holding pattern where you're holding resource in expectation for this cargo ramp. It sounds like although there's been some shift you know, the idea that you're gonna be kinda fully ramped by the fourth quarter is still on the table.

So maybe you could just help us understand kind of the intermediate-term margin improvement when you kinda hit your stride, in cargo, which feels like the fourth quarter and feel that feel free to push back on that if you don't feel like fourth quarter would be a good measurement point.

Jude Bricker: Hey, Duane. Yeah. I think fourth quarter for cargo ramp is pretty good. We're on track for that. And really what we're experiencing right now is we're gonna grow credit hours to pilot availability hours by 10% year on year. That's a nice stable output for us. Predictable. We're not having to add extra infrastructure. Cargo is pilot intensive, so we get less block hours for every credit hour than we do in scheduled service. And so, you know, we're gonna grow block hours by a little bit less than that. And when we planned the third quarter, we were planning on the cargo business being even bigger than it turned out to be for the reasons I mentioned earlier.

As a result, our scheduled service is incrementally smaller. Now we don't get any offset cost savings on the fixed basis. So we have a bigger fleet. And something else that's happening is that we have lease returns that are going through induction. Every airline, when they take an airplane, typically begins expensing the ownership of that aircraft when the airplane goes into service. Differently for us, we're taking a lease redelivery, putting it through our induction process, and continuing to depreciate the asset while it's being adopted. So we have unproductive assets on the passenger side. We have no change in the overhead of the passenger fleet that we had in service before we started our cargo ramp.

And that's just putting a lot of cost pressure on the business. On a unit cost basis as we absorb this cargo growth. But 10% growth this year, 10% growth next year, that puts us into a growth mode again. On our scheduled service fleet. You know, scheduled service operations. Probably around the second quarter of next year and just continuing on to absorb the fleet that we already own coming into our operating fleet thereafter. There's a little bit of noise. I mean, we're gonna still lead the industry in margins. But the growth rate's gonna be a little bit constrained as we absorb this cargo expansion.

Duane Pfennigwerth: Okay. Appreciate those thoughts. And then just on your I understand this can move around a little bit, but on your initial view of 5 to 8% block hour growth, for the third quarter specifically, I wonder if you could just comment on how that looks by segment?

Bill Trousdale: Yeah. I have that. So for the third quarter, obviously, you know, there's gonna be a tremendous amount of block hour growth in our cargo segment probably year over year up between 40-50%. Scheduled service will be down high single digits. Charter service will be kind of up single digits. One thing that's really important that I tried to cover with my prepared comments is that capacity cuts and scans service in July are in the profit. They're very expensive because the market can easily absorb those hours, and we don't get much change to our unit revenues by cutting really profitable flights by necessity. Differently, September we're cutting marginal flights that would have been in the schedule.

So there's almost very little effect in months like September and early May and off-peak periods like that. So it really you know, we're kind of at the most acute situation right now with this imbalance across our segments in July and August as we're cutting really productive flying.

Duane Pfennigwerth: Thank you.

Operator: Thank you. And our next question comes from the line of Michael Linenberg with Deutsche Bank.

Michael Linenberg: Yeah. Hey, good morning, everyone. Hey, just sort of back to Duane's question and maybe trying to get it a little bit more granularly. When we think about just the margin drag, in the September, you know, Jude, you've talked through all the puts and takes. About the ramp-up and the fact that you're underutilizing across your scheduled service. How should we think about it on a margin basis? I mean, are we looking like a drag of 300, 400 basis points here? Any color on that would be great.

Jude Bricker: I think for the third quarter, you could $10 million. 4%. It's going on pretax.

Michael Linenberg: Super helpful. And then, my second question, as we've heard from other carriers you know, the consumer may be changing in how they book. You know, we've heard carriers talk about shorter booking curves. We've obviously you know, the most price-sensitive customer seems to be the most impacted right now in the current macro environment. Is there anything that you can talk about and maybe what you're seeing? And I realize you're coming into this with a very constrained capacity backdrop, which may make it more difficult for you to discern some of the maybe structural or secular changes that we're seeing in people book, etcetera.

Jude Bricker: Thanks. Yeah. I've listened to the second quarter earning calls that have come out thus far, and we're not really seeing a similar situation. I mean, our bookings are strong. We're seeing year-on-year monthly improvements in unit revenue. Our peak periods remain really good. We're concentrated on the peak, so that kind of drives the business. If you go back to pre-COVID margin comparisons for peak days, we're replicating those situations in spite of higher fuel prices, higher airport costs, higher labor costs, higher maintenance costs associated with OEM pricing. You know, it's all pass-through, and it's just incredibly similar.

And, you know, the other thing that we're seeing is kind of like everybody's saying, domestic's weak and we're gonna see pressure on the third quarter. And in some cases, airlines are kind of banking on a fourth-quarter recovery. When you go back and look at our expectation of the third quarter when we plan the year, our budget is almost spot on our performance. That we now expect to experience in the third quarter. So, like, things are pretty good, and I think it mostly reflects one is we're concentrated on a healthy local economy here in Minnesota. Secondly, the capacity overall for the industry across our network is either slow growth or modestly declining.

And then, you know, we're kind of also into a point where we've absorbed most of the inflationary pressures, we can be pretty good about where we think costs are gonna fall as we add capacity into the network. So things are pretty good, and we have a lot of tailwind looking forward into the back of the year with the launch of our loyalty program. We're getting PBS out to our crews, which I think is gonna increase productivity. We've absorbed the last contractual rate increase on our pilots. Here this year, so that'll be a tailwind going into next year's comps.

One thing on the comp basis that I should bring up is that as you look on third quarter year on year, the only month in the six-month period of the second and third quarter where we'll be near zero or maybe slightly negative on a unit revenue basis is July. And that's because the comp for 2024 was when Delta experienced their CrowdStrike outage. And we had a lot of reacomp revenue last minute at really high yield. So but, you know, if you stabilize for that, July looks really good. I mean, we're booking the winter right now. We're scheduled out to April. Bookings look really strong into the winter peak period for us.

I mean, August is closing in a lot better than we had thought just a couple weeks ago. So I'm kind of, you know, somewhat experiencing what Scott Kirby talked about on his call with the recent strengthening of close-in bookings. We're certainly seeing that here. But, I mean, we're not experiencing the variance to what we expected that other airlines are talking about that. I can't I can't

Michael Linenberg: Jude, how much of December quarter's booked right now? Like, if you do you have a sense of just the fifteen.

Jude Bricker: Mid okay. Okay. That makes sense. Looking at the actual numbers right here. Hang on one Mike. What do you got?

Michael Linenberg: Yeah. That word. Sort of yeah. Mid teen. Exactly. Right?

Jude Bricker: Yeah.

Michael Linenberg: Perfect. No. Thanks for that. That's all very helpful. Really appreciate it.

Jude Bricker: Thanks, Mike.

Operator: Thank you. And our next question comes from the line of Tom Fitzgerald with TD Cowen.

Tom Fitzgerald: Hi, everyone. Thanks so much for the time. Jude, wanted to return back to capital allocation and you know, it just seems like you guys have such a lower risk opportunity here versus a normal airline. And with the stock trading around, like, four times, you know, the 2027 potential or midyear '27, how do you weigh, like, next year? How do you kind of weigh that balance between growth opportunities, and then shareholder returns? Like, will the PE be kind of the deciding metric what else kind of goes into the calculus?

Jude Bricker: We run the business for EPS. And it's certainly a viable strategy then to reduce the share count. I think that for me, the balance is in the absence of the building is we got plenty of liquidity. We're producing a lot of free cash flow. So to start with that, we're not gonna do any debt prepayments beyond our amortization schedule unless it's associated with a refinance. So you know, we're gonna continue to build cash. And I think the balance is, do we return to shareholders? Do we try to find asset deals, which we're working real hard and trying to find some? Or and I'm talking asset deals are for aircraft.

Or are we going to have a bunch of dry powder for what we think is gonna be a shake-up in the low-cost space. In the near term. And I think probably we'll end up doing a little bit of all three. Billy, do you have anything to add?

Bill Trousdale: Yeah. I would just add. I mean, just one thing that we are cognizant of is a fairly severe inflationary pressure on aircraft assets and specifically engine assets that are that's important to us that so that while we do have relatively modest CapEx outlook, you know, depending on what you know, what the severity is of that inflation, you know, it could sort of have some upper pressure, which puts availability pressure on the ability to do shift for the share buybacks. But certainly at today's pricing, it's more attractive than it was yesterday. So they want to be opportunistic in the market.

If there's a big portfolio that comes along for airplane that we intend to operate or engines we intend to use, we're gonna we want to be able to act without any capital constraints. So that's a consideration as well.

Tom Fitzgerald: Okay. That's really helpful just to kind of get some of the philosophy there. Then most of them have already been answered, but just thinking about, you know, things go better than expected in 2026, like, what some of those mainly, like, scheduled service. Do you foresee just given how nimble your model could be, like, in, like, June and July with the World Cup, is that, like, something where, you know, in the past, like, you've gone into markets like or Hawaiian when they've been hot? Like, you foresee that as, like, maybe an upside opportunity? Or things in the in the track charter? Thanks again for the time, guys.

Jude Bricker: Sure, Tom. No. The World Cup will probably be a slightly negative event for us because we'll be able to schedule around some of the events and pick up some high-yielding traffic, but the offset will be the Major League Soccer will be paused during that period. I think it'll be probably a little bit slightly negative as a result of the World Cup.

Tom Fitzgerald: Thank you.

Operator: And our next question comes from the line of Scott Group with Wolfe Research.

Scott Group: Hey, thanks. Good morning. So that couple questions ago, that $10 million drag you're talking about for Q3, how should we think about what that looks like in Q4? Is it you think it's fully gone by the time we get to '26?

Jude Bricker: Yeah. So it goes Q4 goes Thanksgiving and Christmas. Christmas peak periods, there's about an aggregate thirty days things are really good. And so if we can recover really, it's about pilot capacity by then. Then there won't be any impact. That's unlikely. I think it'll you know, this is kind of peak impact, and it'll kind of ameliorate over the fourth and first quarters of the subsequent year. The next big opportunity for us is in March '26. And I feel better about getting back to an unconstrained situation on the scheduled service fleet by then.

Scott Group: Yeah. And then that longer-term comment about $2.50, second quarter twenty-seven, it's just like a very specific sort of quarter. So what Yep. I and it's like especially because Q1 is usually your peak quarter, like, why is it Q2? Is there something about the shape of earnings for you that changes now with some of these mix changes? I'm just surprised it was such a specific quarter.

Jude Bricker: Got it. It's a pretty simple analysis. It's just our 10% growth. Rolling that out when that gets to a fleet of 70 at the utilization that we expected to be over the long run. So it's just algebra.

Scott Group: Okay. Okay. And then maybe just lastly, just to follow-up on that. Like, is there a step function that happens there, or do you think we see sort of linear improvement, like, in '26, on our way to that sort of longer-term goal?

Jude Bricker: Right, we're not assuming any step function. We're assuming a linear approach but there's a lot of uncertainty there, particularly around changes. And we're launching a crew base this year, which is the first non-Minneapolis pilot base this company's ever had. We don't know what the effect of that's gonna be, but I think it's gonna be positive where we're PBS, as I said earlier, which is a different way to roster our crews. There's a lot of efficiency in that. And so those initiatives together may change the trajectory substantially. And we can bring utilization online faster. So I think we're okay.

You know, you did summarize all that by saying we're pretty conservative on where we think growth is gonna go. I think there's probably particularly with hiring of pilots being where it is, there's no constraints there. Particularly with that, I think that we're probably on the conservative side.

Scott Group: Okay. Great. And if I could just squeeze in one last one, please. Sorry. Go ahead. If I could just sneak in one last one, any color on competitive capacity you're seeing as you look out over the next quarter or two?

Jude Bricker: Yeah. If you kind of look month by month, if you go all the way out, now a lot of airlines haven't extended their schedules past January, which is a head-scratcher in and of itself. But if you look out across our network all the way through our selling schedule, in April, it's either flat to down. It looks really, really good. And I can't imagine we don't have you know, with kind of demand maintaining its current level, capacity, very moderate, you know, down single digits across our network. I think we're gonna continue to see the kind of unit revenue trends we already produced in the second quarter. Importantly, Southwest pulled back from the Minneapolis market.

Sprint Frontier pulled back from the Minneapolis market. Allegiant doesn't have Minneapolis, and current selling schedule. I mean, we're just seeing this become very quickly a two-airline market. And I think both carriers are gonna be really healthy in that environment.

Scott Group: Okay. That's great color. Thank you. Appreciate it.

Jude Bricker: Thanks, Scott. Take care.

Operator: Thank you. And our next question comes from the line of James Kirby with JPMorgan.

James Kirby: Hey, good morning. Maybe just a little more color on charter and how to model that business out into early 2026? Know, given scheduled service. It sounds like capacity is gonna be flat to down in the first half of the year. Is that consistent with where charter capacity should be? And maybe just a comment on ad hoc flying. It looks like last quarter, it was better than historical run rate. And so any comments there as we think about the back half of this year and early next?

Jude Bricker: Yeah. Let me give you some general comments about how we think about charters, and then Bill can give you kind of what we can guide to. I think so Charters, it comes in two flavors. One is long-term commitments, which operate economically very similar to our cargo business. Very stable, very reliable margins, pass-through economics associated with ground handling fuel, etcetera. Those will not change. I don't think there's gonna be a lot of growth in those opportunities for us. It's casino charters, Major League Soccer, and our VIP business, which operates out of LA. The other side of that is ad hoc bids, which tend to happen closer in the fall for us. That's collegiate football.

All year round is military. Those have been up for us recently. You know, in the second quarter because of the availability of crew and airplanes. As we didn't have the kind of growth that we had expected from our cargo fleet as we talked about earlier. Looking forward, I think that's probably gonna continue to be the case through the back half of the year, where we'll be able to be more aggressive at picking up these ad hoc opportunities. But I think it's gonna be a relatively minor impact on overall results. Bill, anything to add?

Bill Trousdale: Yeah. We spoke about sort of the growth of Charter earlier. I mean, from a unit revenue perspective, I mean, our Charter as a whole sort of on a per block hour basis is growing on an annual basis approximately 4%. There's some peaks and valleys through the quarters, but that's probably a good run rate.

James Kirby: Okay. Got it. That's helpful. I appreciate the color. And then second question, of the $1.5 billion top line by 2027, are you able to break that down maybe by mix of segment? I mean or if you're not able to, I mean, you talked about long-term target weights. Is that just consistent with where you're seeing it?

Jude Bricker: Yeah. Two thirty, two forty of that is gonna be in cargo. Bill talked about charter growth. You know, 4% from where it is today. The remainder will be in scheduled service.

James Kirby: Great. Thanks, Jude. Appreciate it.

Operator: Thank you. And our next question comes from the line of Catherine O'Brien with Goldman Sachs.

Catherine O'Brien: Hey. Good morning. Thanks for the time. You guys extended two leases that you have with the third-party airlines pushing out the returns into 2026. Is that a reflection of your view on staffing? Or demand? Doesn't sound like it, or just the economics are too good to pass up. I'm just trying to get a sense of how you're thinking about when you can start pushing the utilization on that passenger fleet more and this the gating factor is still pilot?

Jude Bricker: Yeah. So that's a scenario where we are faced with all the issues that we talked about we're growing but not able to absorb the fleet growth that we're experiencing. And then also the operator really wanting to keep the airplanes. So we're getting great economics by leasing them out until we're ready to operate them. It's kind of an intersection of the two points that you brought up.

Catherine O'Brien: Okay. Great. And then I know you talked about July having tough comp, rest of the month, gradually positive. Can you give us some more details on how things are booking to the fall? Like, you know, how does August compare to June? Any early thoughts September, any geographies you'd want to call out as particularly strong or maybe less strong?

Jude Bricker: Yeah. Sure. I'm happy to give you more color. We're consistently coming in under where we expected on load factor. And higher where we expected the most significant trend, I think, in our bookings is that we're on fares and then ancillary unit revenue has continued its steady climb of low single-digit improvement. Now the fair load factor trade-off is a result of demand close in, and as we adjust our pricing and expect of that demand, we're accepting lower load factors to hold seats available for the expectation of closer in demand. You know, across the network, generally, we're seeing demand is really good in the Northeast. Really good in the Midwest. And moderately, you know, kind of flat.

Mexican, Caribbean. Weaker in California, Southern California. Desert destinations, and I think most of that is attributable to capacity. Like, you know, I feel these are sort of normal variations across geographies that we experience every time we look at revenue. So I think everything's in a pretty tight band of expectations, and nothing really stands out as weird to me at this point. So I feel really good about where we're predicting things to go based on the fact we're hitting where we predicted to be now.

Catherine O'Brien: Yeah. No. That makes a lot of sense. Maybe I could squeeze this one really quick one in. You mentioned participating in a potential shake-up in the ULCC space. As of now, I know hard to predict. There's not like a it's not an opportunity, exact moment, but are you thinking more on, like, acquiring assets? Could that include outright M&A? I know you've talked about that in the past. Like, you need to see a cost structure and a pilot and a pilot contract that would align better with yours, like, as it stands now, are any of those things aligned where you could be talking more out of M&A?

Or right now, it's looking more like asset acquisition if there was something attractive.

Jude Bricker: Yeah. So kind of all of the above, but I'd say we've I don't spend any mental horsepower on things I've limited amount of that to give, and I tend to focus on things I could control. So for us, that's asset acquisitions and then being ready for organic growth opportunities. Based on a shake-up in the industry. M&A, because of our size, is probably gonna be something that we are asked to participate in, not initiating. And, you know, so, therefore, we don't I don't spend any time worrying about it. And I think it's an unlikely scenario because of how different our model is.

You know, we're just best serving our shareholders by keeping our heads down, executing a plan, and continuing to outperform the industry.

Catherine O'Brien: It sounds like a prudent plan. Thanks so much for the time.

Jude Bricker: Thanks, Nancy.

Operator: Thank you. Our next question comes from the line of Christopher Stathoulopoulos with SIG.

Christopher Stathoulopoulos: Good morning, everyone. Thanks for the questions. Going back to the targets on '27. So just want to understand I guess, the inputs here. So I heard a two-factor model wasn't clear exactly what's in that, but 3% inflation two forty, I think you said, in cargo out of the one and a half. On the top line. So in utilization similar to last year, if that's the case so maybe if you could give on the utilization piece, exactly what's contemplated on the schedule and cargo side? And then is there anything unique with respect to Charter? You did call out casinos, Major League Soccer, military, college football. That would be different perhaps. Versus where those contracts currently sit.

Jude Bricker: Yeah. There's a lot there. So first to kind of review the inputs. So the 3% is just an inflationary I mean, we just add inflation to kind of the backdrop of where we do long-term forecast. The two-factor model is just what we experience on unit revenue impact from a change in utilization, which we're assuming is zero because we're replicating our inflation I mean, our utilization as we look forward. And then absolute growth. So absolute growth puts pressure on unit revenues. That tends to come down as incremental capacity adds. Same store sales or new markets. The impact of that kind of stabilizes over time. So that's how we think about forecasting long-term revenue.

Our last year's fleet utilization was 7.3 hours per day per passenger airplane, and so we're assuming we get back to that somewhere around 2027. And kind of that's the inputs on the long-range plan that we have on the charter growth. You know, the track programs, as I mentioned, I don't see right now a whole lot of opportunity to grow that business. But ad hoc is really a function of having fleet and crew available when there's availability. So as the passenger fleet grows, we'd like to keep ad hoc flying kind of proportionally the same.

Which is to say, you know, we have off-peak opportunities where we have surplus fleet and cruise, and we can take advantage of any opportunity that presents itself. That's kind of the basis of our long-range assumptions. Anything to add, Bill?

Bill Trousdale: I mean, you know, just keep in mind that, you know, this year versus last year that utilization will continue to decline faster in the back half of the year because of the cargo sort of ramping up. So that's why it's gonna take us a while. So you might not see much utilization variant in the first half of the year as Jude described in the But that'll sort of kick in and sort of bottom out probably in Q1 of next year on a year-over-year basis.

Christopher Stathoulopoulos: Okay. And the second question on the what I heard delay around the utilization with the Amazon aircraft. So is that just some delays with deliveries, prepping, or perhaps some hesitation around the schedules given all the noise around tariffs and demand. And that if we if there is a weak peak season, any are those aircraft able to be deployed in other areas? Just want to understand, again, if you could reiterate weak peak what that might mean for utilization volume commitments, etcetera.

Jude Bricker: It's a CFI model. We operate the schedule they give us. And so as the airplanes were coming in and they were delayed, they adjusted by lowering the utilization and also the assumed entry into service dates of the rest of the fleet. We had already built our scheduled service plans that included these higher production levels for the cargo fleet and therefore, we were just under allocated. You know, that'll correct itself in very short order, you know, I can't read anything into what the schedule that they produce was a result of. I just don't know. Other than those internal issues around, getting the planes serviced.

Christopher Stathoulopoulos: Okay. And the weak peak season piece, if that does occur? I realize it's still early.

Jude Bricker: I'm sorry. I it again, please.

Christopher Stathoulopoulos: For peak season shipping, still early. But if the season does come in softer than expected, are you able to do anything else around those assets and just maybe if you could remind us around the volume commitments and how that all works?

Jude Bricker: Yeah. Sure. Looking backwards, generally, the schedule, which is what we love about it, is very flat and reliable. So my assumption would be going forward that we would expect the same. And these are Amazon airplanes flown for Amazon's purposes. And I don't expect anything different out of this fleet.

Christopher Stathoulopoulos: Okay. Thank you.

Operator: Thank you. And I'm showing no further questions. So with that, I will hand the call back over to CEO, Jude Bricker, for any closing remarks.

Jude Bricker: Hey, guys. Thanks for your time today. We're really excited about where we ended, and I look forward to talking to you again in ninety days. Take care, everybody.

Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program. You may now disconnect.