In four short years, former Allegiant president Jude Bricker has taken the Midwest niche carrier from near-death to a stock market IPO, aided by a well-timed venture into cargo markets with Amazon
Minnesota can be excruciatingly cold in winter. The temperature often remains below freezing for weeks at a time. Days are short and dark. Add the wind-chill factor from the sharp gusts blowing off the plains, and you’ll be frostbitten in no time.
But rising from the tarmac at Minneapolis-St Paul International airport is a school of bright-blue-and-orange tailfins depicting a stylised “S” ringed by the sun’s rays.
The cheerful colours against a tapestry of grey remind winter-weary consumers that there are places on the planet, just a short flight away, where it doesn’t actually have to be this way.
The tailfins belong to Sun Country Airlines, a small vacation specialist carrier that is quietly making a name for itself beyond its hometown in the upper Midwest. Most recently it made headlines with an initial public offering – a move coming as the industry emerges from a catastrophic pandemic – that paid its debts and flushed it with liquidity.
Founded in 1983, the carrier with the upbeat orange livery has had multiple brushes with death. But in 2019 it carried 3.6 million passengers in its scheduled service, ranking it 11th in the US by that metric. That’s behind its bigger ultra-low-cost peers Spirit Airlines, Frontier Airlines and Allegiant Air, which came in at seventh, eighth and ninth respectively.
And in 2020, the little airline from Minneapolis fared surprisingly well.
“We had an operational profit, which was pretty cool,” says its chief executive officer, and architect of the new Sun Country, Jude Bricker. (Like its peers, it posted a net loss for the year, at $3.9 million.)
Sun Country earns the majority of its revenue with seasonal scheduled service, doing most of its flying on peak-demand days of the week during the highest-yielding travel months for vacationers. But it also has a thriving charter business.
Recently, it began to dip into the pot of pandemic-era gold: cargo operations.
“The goal was to build this variable airline [that is able to] keep fixed costs low so that we can be really responsive to predictable leisure customer demand,” Bricker says.
Since arriving in 2017, Bricker has transformed the airline almost beyond recognition.
Sun Country currently operates 82 routes, with 58 of those to and from its home base of Minneapolis-St Paul. Top destinations include Las Vegas, Orlando, Fort Myers and Los Angeles – obvious destinations for quick getaways during Minnesota’s brutal, seemingly endless winter months.
About a quarter of the airline’s passenger service is to international beach destinations in Mexico and the Caribbean.
The carrier also runs charters for professional and collegiate sports teams, as well as troop transports for the US military, which comprise up to 20% of revenue.
The airline often schedules its fleet using what it calls “power patterns”. That means it merges scheduled service and charter legs, making the most of times when aircraft might otherwise be parked, or earning lower margins.
For example, Sun Country might fly a regular passenger flight to a destination on Thursday, when leisure demand is high. Instead of flying back right away, that aircraft might next operate a charter flight – perhaps transporting a team to and from a weekend sports event. Sun Country might then schedule the jet to fly another scheduled flight on, say, Monday, when demand for that particular leg is higher than it would have been during the weekend.
The third and newest peg of the airline’s strategy is cargo, which, since May, already makes up about 25% of the airline’s block hours, Bricker says. “We’re trying to balance some of the seasonality of our business.
“We have some really strong periods of demand and some really weak ones,” he adds.
He sees two strategies for dealing with this kind of inconsistent demand.
“You can either do what Frontier does, where you fly and then just incentivise people on to the airplane with price. That instigates a competitive response that drives down yields.
“Or you could do what Allegiant does: have really low fixed costs on your assets and be able to fly when you choose to. We went with that,” he says.
TIMELY CARGO PIVOT
In December 2019, Sun Country signed a six-year deal with e-commerce giant Amazon Air, and began operating Prime Air-branded aircraft for the company in May 2020. The airline found that lucrative pivot just as the global pandemic was ripping through other carriers’ balance sheets. Cargo revenue helped shore up Sun Country’s finances during a year the entire industry wishes to quickly forget.
Then the niche carrier in March surprised many when it took the bold step of launching an initial public offering that raised $218 million and valued the company at $1.84 billion.
“We have opportunities to deploy capital and that was an efficient way to raise it,” Bricker says. “Airplanes are really cheap right now. We want to go out and grow and buy airplanes. And so we needed some capital to do that.
“We also felt like it was the right thing to do to pay off our CARES Act loan,” he adds.
The airline took $45 million as a part of the US government’s programme that helped airlines manage the sharp downturn as a result of the coronavirus. Sun Country is one of the first US carriers to pay the government back.
Covid is not the only crisis Bricker and his airline have faced. He is a veteran of numerous earlier battles – literally and figuratively. The Texas native began his career as an infantry officer in the US Marines, and later spent more than a decade at American Airlines and Allegiant Air – leaving that carrier as its treasurer and president in May 2017.
He arrived in Minneapolis two months later, at a time when Sun Country was on the ropes, and in need of a radical overhaul. Apollo Global Management, a New York City-based investment group, acquired the airline shortly thereafter.
“When I got here, we sort of had to get into the trenches for a little while. First, we didn’t have any money. We were the worst performing airline from a margin perspective.
“Apollo came on board in April 2018 and they capitalised us, underwrote our transition strategy, which involved significant investment in the airline to tune of about $200 million,” Bricker says. “So, we bought all new cabins. Probably the biggest capital outlay was transitioning out of some of our adverse lease agreements into a strategy of owning our assets.”
In a short order, Bricker turned the money-losing venture into a no-frills operation, increasing capacity on its Boeing 737-800s to 183 seats, eliminating first class and introducing ancillary fees for priority check-in, carry-on bags and seat preference. Its all-economy cabins are now divided into just three sections: “best”, “exit row” and “standard”.
2019 was the first full year as the new Sun Country, and 2020 was going to be the airline’s year to excel.
“We got a new technology system. We changed our website. A lot of transition. We were locked and loaded, ready to go for 2020. And then along comes Covid.
“Covid wasn’t really good for anything,” he reflects. “But it certainly helped us prove out the resilience of the model we created.”
Sun Country operates 43 aircraft, 31 of which are configured for passenger operations, and 12 as Amazon freighters for which it provides the crew, maintenance, insurance and operating certificate. It is a single-type operation, counting on mid-life 737-800s as its reliable workhorse. According to Cirium fleets data, the majority of the aircraft are 15 years old or older.
The airline remains committed to the type, Bricker says, and is aiming to add five more this year.
“The -800 does everything we need it to do, it has the range we need and it has the economics that work for us. Typically, as an aircraft ages, you would expect to see some reliability issues – higher maintenance costs due to structural repairs or corrosion that need to be addressed. We’re not seeing that with this type. So there’s no indication that we’re going to run out of runway with it.”
And with Europe currently on a seemingly slower post-coronavirus recovery trajectory, there could be opportunities for Sun Country to acquire some of its desired metal at discounted prices.
“There are 4,000 used NGs out there,” he says. “We’re being aggressive in that we’re bidding on everything we see, but we’re not moving off our price targets. So we feel like we have plenty of time to acquire the planes at the appropriate rates.” The airline is also hiring between 50 and 100 pilots this year.
By the end of 2023, Bricker expects 50 aircraft in the fleet.
For the moment, the 737 Max is not in those plans. “We haven’t been able to make the numbers work on that yet.”
To get Sun Country to this point took hard work, but also a lot of listening. Bricker credits his military experience with shaping how he approached his role in preparing the airline for its future.
As a young officer “you get thrown into the fire at such an early age that you learn how to deal with conflict, talk in front of groups, give constructive criticism in an effective manner. Those are the nuts and bolts of leadership.
“One of the challenges about change management is making sure that you don’t bring such an overbearing urgency that you lose things, and culturally challenge the organisation in ways that are irrecoverable,” he says.
Sun Country has come a long way since 2017, and successfully weathered the worst year in aviation history. After months of apprehension and uncertainty, the airline looks set to thrive in a post-pandemic environment as customers once again venture further afield.
“This was probably the hardest time for airlines, ever,” Bricker says. “We have lived through this crisis together as an industry, and my hope is that it shapes our decision-making going forward – the way we think about risk management, balance-sheet strength and the value of employees that that bootstrap through these crises.
“I think we should all be building our airlines for the next one.”