With demand for leisure travel through the roof, airline stocks are starting to show signs of recovery. Low-cost carrier Sun Country Airlines Holdings (SNCY 0.61%) just posted third-quarter revenue that exceeded the same period in 2019 by 29%. But the stock is down more than 50% from its highs of April 2021.

That being said, the stock has surged more than 62% in the past six weeks alone. Let's take a closer look at Sun Country's most recent quarter and whether this upward momentum will continue.

Delivering sun and warmth

"The leisure demand environment remains very strong," Sun Country CEO Jude Bricker said in the third-quarter release. Indeed, Q3 scheduled service revenue jumped 39% versus last year, despite higher-than-expected fuel costs and the impact of Hurricane Ian on Florida operations.

Based in Minneapolis, Minnesota, Sun Country carries passengers from the Great Lakes region to destinations in the southern U.S., Caribbean, and Mexico. Although Sun Country's fares were 16% more expensive than last year, robust vacation demand helped propel a nearly 10% surge in scheduled service year over year. 

Total Q3 revenue came in just shy of $222 million, marking a 28% increase year over year and a 29% improvement over 2019. Sun Country's adjusted operating margin of 7.2% surpassed management's prior guidance, as total revenue per seat mile, or TRASM, steadily improved during the third quarter. 

Charter revenue, which supplements earnings and helps diversify the business, enjoyed a 27% rise. Aside from long-term contracts with Major League Soccer and Caesars Entertainment, Sun Country's other charter customers include collegiate sports teams and the U.S. Department of Defense. 

Current headwinds

Despite increases in both scheduled service and charter revenue, cargo revenue dropped 3% in Q3 compared to last year. Sun Country retains an agreement with Amazon to deliver packages within the airline's network. Although cargo business actually observed a 2% increase in total flight hours, an expense from the prior year offset the gains.

Hurricane Ian also impacted Sun Country's performance in Q3, with an estimated $1 million missed in the quarter as a result. Fuel expenses, which soared 75% higher than last year, have dragged down profitability.

Staffing issues also continue to challenge the low-cost carrier, and management cited a training backlog for a 2% decline in scheduled service flight hours. Pilots in particular have been a bottleneck for Sun Country Airlines in the third quarter, specifically captains. 

Things are looking up

Undeterred by temporary staffing shortages, Bricker reassured during the company's Q3 earnings call, "As our rapid hiring works through our training program, we expect fleet utilization to continue to improve into the beginning of 2023." He also remarked that it had been 96 days since the airline had canceled a flight.

Anticipating a busy fourth quarter for leisure travel, Sun Country forecasts total flight hours to grow between 9% to 12% during the quarter, compared to prior-year levels. After last quarter's scheduled service revenue grew by 39% year over year, and 46% versus Q3 2019, the company predicts a similar increase in Q4.

Sun Country expects to see continued strength for the foreseeable future. The airline's current TRASM growth outpaces the industry, thanks to Sun Country's flexible scheduling and brand loyalty in its home market.

For an already well-diversified airline, Sun Country CFO Dave Davis claims that the carrier is "even more resilient than it has been in the past." With much of Sun Country's business already under contract, predictable repeat business certainly helps defend against swings in leisure demand. 

There's no doubt that Sun Country Airlines is on a positive flight path at the moment. If this low-cost carrier can replenish its staff and maintain scheduling efficiencies while growing its charter and cargo operations, watch for company success to be reflected in the stock's performance.