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What changed in Sun Country Airlines Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sun Country Airlines Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+557 added−574 removedSource: 10-K (2024-02-14) vs 10-K (2023-02-15)

Top changes in Sun Country Airlines Holdings, Inc.'s 2023 10-K

557 paragraphs added · 574 removed · 358 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

95 edited+32 added−49 removed38 unchanged
Biggest changeSun Country’s leadership is committed to promoting safety and security through program investments including: • Flight Operations Quality Assurance ("FOQA"), a structured program to gather and aggregate electronically recorded flight operations data for the purpose of identifying areas where safety, efficiency and training can be improved 18 Table of Contents • CEFA animation software which creates 3D flight video simulations using our data to enhance pilot training • Investing in new state of the art training devices, such as a new simulator to enhance pilot training • Line Operations Safety Audit ("LOSA") program to proactively monitor and diagnose our operation’s safety performance to protect the Company’s assets and operations • ProSafeT, a safety management system platform that enables anonymous reporting of safety concerns by employees and business partners, promotes active participation in identification, reduction, and elimination of hazards, and serves as our central repository for tracking all safety assurance information, and safety risk mitigation activities Information gathered from our safety programs is used to create awareness for leadership in order to actively monitor the health of our Safety Management System ("SMS") and Security Management System ("SeMS").
Biggest changeSun Country’s leadership is committed to promoting safety and security through program investments including: • Flight Operations Quality Assurance, a structured program to gather and aggregate electronically recorded flight operations data for the purpose of identifying areas where safety, efficiency and training can be improved. • Investing in new state of the art training devices, such as a new simulator to enhance pilot training. • Safte-Fast Solutions, a software that uses a bio-mathematical model for fatigue assessment, is used for predicting and proactively mitigating fatigue in pilot trips and schedules. • ProSafeT, a safety management system platform that enables anonymous reporting of safety concerns by employees and business partners, promotes active participation in identification, reduction, and 18 Table of Contents elimination of hazards, and serves as our central repository for tracking all safety assurance information, and safety risk mitigation activities. • ASAP, a partnership with the FAA and our labor unions to promote reporting of safety concerns by eliminating the fear of FAA enforcement action.
Changes in the aviation policies of the United States, Mexico or other countries in which we operate could result in the alteration or termination of the corresponding air transport agreement, diminish the value of our international route authorities or otherwise affect our operations to/from these countries.
Changes in the aviation policies of the United States, Mexico or other countries in which we operate could result in the alteration or termination of the corresponding air transport agreement, diminish the value of our international route authorities or otherwise affect our operations to or from these countries.
The new CO2 standards will apply to new aircraft type designs from 2020, and to aircraft type designs already in production as of 2023. In-production aircraft that do not meet the standard by 2028 will no longer be able to be produced unless their designs are modified to meet the new standards.
The new CO2 standards apply to new aircraft type designs from 2020, and to aircraft type designs already in production as of 2023. In-production aircraft that do not meet the standard by 2028 will no longer be able to be produced unless their designs are modified to meet the new standards.
Item 1. Business Overview Sun Country Airlines is a new breed of hybrid low-cost air carrier that dynamically deploys shared resources across our synergistic scheduled service, charter, and cargo businesses. By doing so, we believe we are able to generate high growth, high margins and strong cash flows with greater resilience than other passenger airlines.
ITEM 1. BUSINESS Overview Sun Country Airlines is a new breed of hybrid low-cost air carrier that dynamically deploys shared resources across our synergistic Scheduled Service, Charter, and Cargo businesses. By doing so, we are able to generate high growth, high margins and strong cash flows with greater resilience than other passenger airlines.
Points earned are treated like currency and can be applied towards the purchase of all or a portion of our air travel tickets. This makes our program more valuable to leisure customers who travel less frequently and would have difficultly accumulating enough points to get discounted travel on other airlines.
Points earned are treated like currency and can be applied towards the purchase price of all or a portion of our air travel tickets. This makes our program more valuable to leisure customers who travel less frequently and would have difficultly accumulating enough points to get discounted travel on other airlines.
Our direct distribution channels include our website and call center, and indirect distribution channels include third parties, such as travel agents and Online Travel Agents ("OTAs") (e.g., Priceline and websites owned by Expedia, including Orbitz and Travelocity). Our direct distribution channels are our lowest cost methods of distributing our product.
Our direct distribution channels include our website and call center, and indirect distribution channels include third parties, such as travel agents and OTAs (e.g., Priceline and websites owned by Expedia, including Orbitz and Travelocity). Our direct distribution channels are our lowest cost methods of distributing our product.
Sun Country Airlines learns from industry best practices by participation in collaborative inter-airline safety sharing programs and the FAA Aviation Safety Information Analysis and Sharing System ("ASIAS"), a central conduit for the exchange of industry safety information.
Sun Country Airlines learns from industry best practices by participation in collaborative inter-airline safety sharing programs and the FAA Aviation Safety Information Analysis and Sharing System, a central conduit for the exchange of industry safety information.
Our marketing tools are our proprietary email distribution list consisting of over one million email addresses, our Sun Country Rewards program, as well as advertisements online, on television, radio, digital billboards and other channels. Our objective is to use our low prices, quality customer service, and differentiated in-flight product to stimulate demand and drive customer loyalty.
Our marketing tools are our proprietary email distribution list consisting of over two million email addresses, our Sun Country Rewards program, as well as advertisements online, on television, radio, digital billboards and other channels. Our objective is to use our low prices, quality customer service, and differentiated in-flight product to stimulate demand and drive customer loyalty.
Our principal competitive advantages are our diversified and resilient business model, our agile peak demand scheduling strategy, our tactical mid-life fleet with flexible operations, our superior low-cost product and brand, our competitive low-cost structure, our strong position in our profitable MSP home market and our seasoned management team.
Our principal competitive advantages include our: diversified and resilient business model, agile peak demand scheduling strategy, tactical mid-life fleet with flexible operations, superior low-cost product and brand, competitive low-cost structure, strong position in our profitable MSP home market and our seasoned management team.
The principal competitors for our cargo business include ATSG, Southern Air, and Hawaiian Airlines. Our on-time arrival performance for our cargo business since starting operations in May 2020, together with our operational capabilities, give us a stable position with our customer, Amazon.
The principal competitors for our Cargo business include ATSG, Atlas Air, and Hawaiian Airlines. Our on-time arrival performance for our Cargo business since starting operations in May 2020, together with our operational capabilities, give us a stable position with our customer, Amazon.
For a discussion of the procedures we instituted to ensure compliance with these foreign ownership rules, please see “Risk Factors - Risks Related to Ownership of Our Common Stock - Our certificate of incorporation and bylaws include provisions limiting ownership and voting by non-U.S. citizens .” Government Regulation Aviation Regulation The airline industry is heavily regulated, especially by the federal government.
For a discussion of the procedures we instituted to ensure compliance with these foreign ownership rules, please see “Risk Factors - Risks Related to Ownership 19 Table of Contents of Our Common Stock - Our certificate of incorporation and bylaws include provisions limiting ownership and voting by non-U.S. citizens .” Government Regulation Aviation Regulation The airline industry is heavily regulated, especially by the federal government.
The restrictions imposed by federal law and DOT policy currently require that at least 75% of our voting stock must be owned and controlled, directly and indirectly, by persons or entities who are citizens of the United States (“U.S. citizens”), as that term is defined in 49 U.S.C. §40102(a)(15), that our president and at least two-thirds of the members of our Board of Directors and other managing officers be U.S. citizens, and that we be under the actual control of U.S. citizens.
The restrictions imposed by federal law and DOT policy currently require that at least 75% of our voting stock must be owned and controlled, directly and indirectly, by persons or entities who are U.S. citizens, as that term is defined in 49 U.S.C. §40102(a)(15), that our president and at least two-thirds of the members of our Board of Directors and other managing officers be U.S. citizens, and that we be under the actual control of U.S. citizens.
We share resources, such as flight crews, across our scheduled service, charter and cargo business lines with the objective of generating higher returns and margins and mitigating the seasonality of our route network.
We share resources, such as flight crews, across our Scheduled Service, Charter and Cargo business lines with the objective of generating high returns and margins and mitigating the seasonality of our route network.
Our network strategy is designed to take advantage of the seasonal nature of the leisure customer by concentrating our flying in seasons when demand is strongest and flying significantly less in seasons when demand is lower. As a result, our passenger business is subject to significant seasonal fluctuations, especially our scheduled service.
Our network strategy is designed to take advantage of the seasonal nature of the leisure customer's needs by concentrating our flying in seasons when demand is strongest and flying significantly less in seasons when demand is lower. As a result, our passenger business is subject to significant seasonal fluctuations, especially our Scheduled Service.
See also “Risk Factors - Risks Related to Our Industry - The airline industry is exceedingly competitive, and we compete against new entrants, LCCS, ULCCs, legacy network airlines and cargo carriers; if we are not able to compete successfully in our markets, our business will be materially adversely affected.” 13 Table of Contents Seasonality The airline industry has significant seasonal fluctuation in demand.
See also “Risk Factors - Risks Related to Our Industry - The airline industry is exceedingly competitive, and we compete against new entrants, LCCs, ULCCs, legacy network airlines and cargo carriers; if we are not able to compete successfully in our markets, our business will be materially adversely affected.” Seasonality The airline industry has significant seasonal fluctuation in demand.
Human Capital As of December 31, 2022, we had 2,510 employees. FAA regulations require pilots to have commercial licenses with specific ratings for the aircraft to be flown and to be medically certified as physically fit to fly. FAA and medical certifications are subject to periodic renewal requirements including recurrent training and recent flying experience.
Human Capital As of December 31, 2023, we had 2,783 employees. FAA regulations require pilots to have commercial licenses with specific ratings for the aircraft to be flown and to be medically certified as physically fit to fly. FAA and medical certifications are subject to periodic renewal requirements including recurrent training and recent flying experience.
Our charter business, which is one of the largest narrow body charter operations in the United States, is a key component of our strategy both because it provides inherent diversification and downside demand protection, as well as it being synergistic with our other businesses.
Our Charter business, which is one of the largest narrow body Charter operations in the United States, is a key component of our strategy both because it provides inherent diversification and downside demand protection, and because it is synergistic with our other businesses.
In addition, foreign governments may allow airports to enact similar restrictions, which could adversely impact our international operations or require significant expenditures in order for our aircraft to comply with the restrictions. 21 Table of Contents Other Regulations Airlines are also subject to various other federal, state, local and foreign laws and regulations. For example, the U.S.
In addition, foreign governments may allow airports to enact similar restrictions, which could adversely impact our international operations or require significant expenditures in order for our aircraft to comply with the restrictions. Other Regulations Airlines are also subject to various other federal, state, local and foreign laws and regulations. For example, the U.S.
In particular, on March 6, 2017, the International Civil Aviation Organization ("ICAO"), an agency of the United Nations established to manage the administration and governance of the Convention on International Civil Aviation, adopted new carbon dioxide ("CO2") certification standards for new aircraft beginning in 2020.
In particular, on March 6, 2017, the ICAO, an agency of the United Nations established to manage the administration and governance of the Convention on International Civil Aviation, adopted new CO2 certification standards for new aircraft beginning in 2020.
We are responsible for flying the aircraft under our air carrier certificate, crew, aircraft line maintenance and insurance, all of which allow us to leverage our existing operational expertise from our scheduled service and charter businesses. The ATSA has generated consistent, positive cash flows, including during the COVID-19 induced downturn.
We are responsible for flying the aircraft under our air carrier certificate, crew, aircraft line maintenance and insurance, all of which allow us to leverage our existing operational expertise from our Scheduled Service and Charter businesses. The ATSA has generated consistent cash flows, including during the COVID-19 induced downturn, and provides for annual rate escalations.
The ATSA offers potential future growth opportunities by establishing a long-term partnership with Amazon. The ATSA is a six-year contract and includes two, two-year extensions exercisable at Amazon’s option, providing for a total term of ten years if both extension options are exercised.
The ATSA offers potential future growth opportunities by establishing a long-term partnership with Amazon. The ATSA is a six-year contract and includes two, two-year extensions, providing for a total term of ten years if both extension options are exercised.
Under the RLA, after receipt of such notice, the parties must meet for direct negotiations, and if no agreement is reached, either party may request the National Mediation Board (“NMB”) to appoint a federal mediator. The RLA prescribes no set timetable for the direct negotiation and mediation process.
Under the RLA, after receipt of such notice, the parties must meet for direct negotiations, and if no agreement is reached, either party may request the NMB to appoint a federal mediator. The RLA prescribes no set timetable for the direct negotiation and mediation process.
International flights are subject 20 Table of Contents to customs, border, immigration and similar requirements of equivalent foreign governmental agencies. We are currently in compliance with all directives issued by such agencies.
International flights are subject to customs, border, immigration and similar requirements of equivalent foreign governmental agencies. We are currently in compliance with all directives issued by such agencies.
In addition, they provide more opportunities to sell ancillary products and services, such as baggage fees, seat selection and upgrade fees, priority check-in and boarding fees, itinerary service fees and on-board sales. With our Navitaire -based reservation system and enhanced website, we have experienced a significant increase in the proportion of our bookings that are sold through direct channels.
In addition, they provide more opportunities to sell ancillary products and services, such as baggage fees, seat selection and upgrade fees, priority check-in and boarding fees, and other fees. With our Navitaire -based reservation system and enhanced website, we have experienced a significant increase in the proportion of our bookings that are sold through direct channels.
Materials filed with the SEC are available at www.sec.gov. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report.
Materials filed with the SEC are available at www.sec.gov. 22 Table of Contents The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report.
We regularly schedule our fleet using what we refer to as “ Power Patterns ,” which involves scheduling aircraft and crew on trips that combine scheduled service and charter legs, dynamically replacing what would be lower margin scheduled service flights with charter opportunities.
We regularly schedule our fleet using what we refer to as “Power Patterns”, which involves scheduling aircraft and crew on trips that combine Scheduled Service and Charter legs, dynamically replacing what would be lower margin Scheduled Service flights with Charter opportunities.
The Sun Country Airlines co-branded credit card is the primary vehicle whereby customers earn points and our frequent flyer program is geared specifically towards supporting adoption and continued use of the credit card. Sun Country Rewards offers award travel on every flight without blackout dates.
The Sun Country Airlines co-branded credit card is the primary vehicle for our customers to earn points and our loyalty program is geared specifically towards supporting adoption and continued use of the credit card. Sun Country Rewards offers award travel on every flight without blackout dates.
As of December 31, 2022, approximately 53% of our employees were represented by labor unions under collective-bargaining agreements as set forth in the table below.
As of December 31, 2023, approximately 65% of our employees were represented by labor unions under collective-bargaining agreements as set forth in the table below.
To the extent we can optimize flight crew on freighters with overlapping scheduled or charter service, we attempt to capture those synergies as well, though they are not core to that line of business.
To the extent we can optimize flight crew on cargo aircraft with overlapping Scheduled or Charter Service, we attempt to capture those synergies as well, though they are not core to that line of 13 Table of Contents business.
The following charts demonstrate that our schedule is highly variable by day of the week and month of the year.
The following charts demonstrate that our Scheduled Service schedule is highly variable by day of the week and time of year.
Our cargo service performed under the ATSA serves destinations on Amazon’s network. Our cargo business also enables us to leverage certain assets, capabilities and fixed costs to enhance profitability and promote growth across our company. For example, we believe that by deploying pilots across each of our business lines, we increase the efficiency of our operations.
Our Cargo business also enables us to leverage certain assets, capabilities and fixed costs to enhance profitability and promote growth across our Company. For example, we believe that by deploying pilots across each of our business lines, we increase the efficiency of our operations.
We are a leading charter airline for collegiate sports including the National Collegiate Athletic Association (“NCAA”) Championships, as well as individual team travel. In March 2022, we began to provide charter service to Caesars Entertainment, Inc. This agreement restarts a relationship between the two organizations that ended in late 2020.
We are a leading charter airline for collegiate sports including the NCAA Championships, as well as individual team travel. In March 2022, we began to provide Charter Service to Caesars Entertainment, Inc. This agreement restarted a relationship between the two organizations that had previously ended in 2020.
Points expire 36 months after the date they were earned, except those points held by Sun Country co-branded cardholders do not expire so long as the holder maintains the card as active. Rewards are not available to charter or cargo customers.
Points expire 36 months after the date they were earned, except those points held by Sun Country co-branded cardholders do not expire so long as the holder maintains the card as active.
Available Information We make available, free of charge on our website www.suncountry.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after electronically filing such material with, or furnishing such material to, the Securities and Exchange Commission (the “SEC”).
Available Information We make available, free of charge on our website www.suncountry.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Exchange Act, as soon as reasonably practicable after electronically filing such material with, or furnishing such material to, the SEC.
In addition, at least 51% of our total outstanding stock must be owned and controlled by U.S. citizens and no more than 49% of our stock may be owned or controlled, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have entered into “open skies” air transport agreements with the United States which allow unrestricted access between the United States and the applicable foreign country and to points beyond the foreign country on flights serving the foreign country.
In addition, at least 51% of our total outstanding stock must be owned and controlled by U.S. citizens and no more than 49% of our stock may be owned or controlled, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have entered into “open skies” air transport agreements with the United States.
We maintain low aircraft ownership costs by acquiring mid-life Boeing 737-800 aircraft, which have lower acquisition costs when compared to new Boeing 737 aircraft, that more than offsets their higher ongoing maintenance and repair costs. Lower ownership costs allow us to maintain lower unit costs at lower levels of utilization.
Flying mid-life Boeing 737-NG aircraft allows us to maintain low aircraft ownership costs and have lower acquisition costs when compared to new Boeing 737 aircraft, both of which more than offset their higher ongoing maintenance and repair costs. Lower ownership costs allow us to maintain lower unit costs at lower levels of utilization.
Our collective bargaining agreement with our flight attendants became amendable on December 31, 2019. We entered into negotiations in November 2019. Negotiations were paused by mutual consent in March 2020 due to the COVID-19 pandemic. We restarted negotiations with our flight attendants in October of 2021 and negotiations are ongoing.
Our collective bargaining agreement with our pilots is amendable on December 21, 2025. Our collective bargaining agreement with our flight attendants became amendable on December 31, 2019. We entered into negotiations in November 2019. Negotiations were paused by mutual consent in March 2020 due to the COVID-19 pandemic.
We flex our capacity by day of the week, month of the year and line of business to capture what we believe are the most profitable flying opportunities available from both our MSP home market and our network of non-MSP markets. As a result, our route network varies widely throughout the year.
We flex our capacity by day of the week, time of year and line of business to capture what we believe are the most profitable, peak demand, flying opportunities available from both our MSP home market and our network of non-MSP markets.
With certain other countries, however, the United States has a restricted air transportation agreement. Our international flights to Mexico are governed by a liberalized bilateral air transport agreement which the DOT has determined has all of the attributes of an “open skies” agreement.
Our international flights to Mexico are governed by a liberalized bilateral air transport agreement, which the DOT has determined has all of the attributes of an “open skies” agreement.
Either party may decline to submit to arbitration. If arbitration is rejected by either party, a 30-day “cooling off” period commences. During that period (or after), a Presidential Emergency Board (“PEB”) may be established, which examines the parties’ positions and recommends a solution.
Either party may decline to submit to arbitration. If arbitration is rejected by either party, a 30-day “cooling off” period commences. During that period (or after), a PEB may be established, which examines the parties’ positions and recommends a solution. The PEB process lasts for 30 days and is followed by another “cooling off” period of 30 days.
The FAA requires each commercial airline to obtain and hold an FAA air carrier certificate. We currently hold an FAA air carrier certificate. Airport Access In the United States, the FAA currently regulates the allocation of take-off and landing authority, slots, slot exemptions, operating authorizations or similar capacity allocation mechanisms, which limit take-offs and landings, at certain airports.
Airport Access In the United States, the FAA currently regulates the allocation of take-off and landing authority, slots, slot exemptions, operating authorizations or similar capacity allocation mechanisms, which limit take-offs and landings, at certain airports.
Based in Minnesota, we focus on serving leisure and visiting friends and relatives ("VFR") passengers, charter customers, and providing crew, maintenance and insurance ("CMI") service to amazon.com Services, Inc. (together with its affiliates, "Amazon"), with flights throughout the United States and to destinations in Canada, Mexico, Central America and the Caribbean.
Based in Minnesota, we focus on serving leisure and VFR passengers, charter customers, and providing CMI service to Amazon, with flights throughout the United States and to destinations in Canada, Mexico, Central America and the Caribbean.
We have invested in numerous projects to create a well-regarded product and brand that we believe is superior to ULCCs while maintaining lower fares than LCCs and larger full-service carriers. Some of the reasons that we believe we have a superior brand to ULCCs include: • Our Cabin Experience.
We have invested in numerous projects to create a well-regarded product and brand that we believe is superior to ULCCs while maintaining lower fares than LCCs and larger full-service carriers. We believe that our cabin experience is a differentiator amongst ULCCs. All of our aircraft have new state-of-the-art seats that comfortably recline and have full size tray tables.
In addition, in October 2016, ICAO adopted the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”), which is a global, market-based emissions offset program designed to encourage carbon-neutral growth beyond 2020. CORSIA will increase operating costs for us and other U.S. airlines that operate internationally.
There may be future rulemaking that may result in stricter GHG emissions standards than those contained in the proposed rule. In addition, in October 2016, ICAO adopted the CORSIA, which is a global, market-based emissions offset program designed to encourage carbon-neutral growth beyond 2020. CORSIA will increase operating costs for us and other U.S. airlines that operate internationally.
This includes 42 aircraft in the passenger fleet and 12 cargo operated aircraft through the Air Transportation Services Agreement ("ATSA") with Amazon. This fleet is managed through our two reportable segments: Passenger, which includes both Scheduled Service and Charter, and Cargo. Our Unique Business Model Scheduled Service.
This includes 42 aircraft in the passenger fleet, 12 cargo operated aircraft through the ATSA with Amazon, and six aircraft that are currently on lease to unaffiliated airlines. Our fleet is managed through our two reportable segments: Passenger, which is comprised of Scheduled Service and Charter, and Cargo. Our Unique Business Model Scheduled Service.
As a result of our focus on flying during seasonal peak periods, our well-regarded brand and product and our strong position in Minneapolis, we have historically enjoyed a TRASM premium to other leisure airlines at MSP. Seasoned Management Team.
As a result of our focus on flying during seasonal peak periods, our well-respected brand and product, and our strong position in Minneapolis, we have historically enjoyed a TRASM premium to other leisure airlines at MSP. Our peak demand strategy focuses on profitable flying opportunities available from both our MSP home market and our network of non-MSP markets.
The option to renew the ATSA for two additional two-year terms is at Amazon’s sole discretion, subject to Amazon providing Sun Country with at least 180 days’ prior written notice before the expiration of the then-current term. The ATSA has annual rate escalations, so rate increases occurred on December 13, 2022, 2021, and 2020.
The option to renew the ATSA for two additional two-year terms is at Amazon’s sole discretion, subject to Amazon providing Sun Country with at least 180 days’ prior written notice before the expiration of the then-current term. Competition The airline industry is highly competitive.
A U.S. airline’s ability to operate flights to and from international destinations is also subject to the air transport agreements between the United States and the foreign country as well as the airline's ability to obtain the necessary authority from the applicable foreign government. 19 Table of Contents The U.S. government has negotiated “open skies” agreements with many countries, which allow unrestricted access between the United States and the applicable foreign country and to points beyond the foreign country on flights serving the foreign country.
A U.S. airline’s ability to operate flights to and from international destinations is also subject to the air transport agreements between the United States and the foreign country as well as the airline's ability to obtain the necessary authority from the applicable foreign government.
Our fleet is highly reliable, and we have a demonstrated ability to maintain our high completion factor during harsh weather conditions. For more information on our operational performance and comparisons to our competitors, see "Operational Performance" included within Part I, Item 1, "Business". Superior Low-Cost Product and Brand .
Our fleet is reliable, and we have demonstrated the ability to maintain our high completion factor during harsh weather conditions. For 10 Table of Contents more information on our operational performance and comparisons to our competitors, see "Operational Performance" included within Part I, Item 1, "Business". As of December 31, 2023, our fleet consisted of 60 Boeing 737-NG aircraft.
Our marketing message is designed to convey our affordable and convenient flight options to leisure destinations. We often include our low base fares in marketing materials in order to stimulate demand.
Marketing We are focused on direct-to-consumer marketing targeted at our core leisure and VFR travelers who pay for their own travel costs. Our marketing message is designed to convey our affordable and convenient flight options to leisure destinations. We often include our low base fares in marketing materials in order to stimulate demand.
For the years ended December 31, 2022, 2021 and 2020, our average ancillary revenue per passenger was approximately $53.49, $42.89, and $40.53, respectively. 8 Table of Contents We also earn revenue from our Sun Country Vacations ("SCV") products, including commissions from the sale of third-party hotel rooms and rental cars.
For the years ended December 31, 2023 and 2022, our average ancillary revenue per passenger was approximately $66.69 and $53.49, respectively. We also earn revenue from our SCV products, including commissions from the sale of third-party hotel rooms and rental cars. Our SCV products facilitate booking a flight and land package at a discounted price for our customers.
Operational Performance We are committed to delivering excellent operational performance, even in extreme weather conditions, which we believe supports our “peak demand,” leisure-focused business model and will strengthen customer loyalty and attract new customers. This focus also strengthens our relationship with our cargo customer, Amazon, who has incentives and disincentives for performance in the ATSA.
Rewards are not available to Charter or Cargo customers. 15 Table of Contents Operational Performance We are committed to delivering excellent operational performance, even in extreme weather conditions, which we believe supports our “peak demand,” leisure-focused business model and will strengthen customer loyalty and attract new customers.
Although our actual results vary by season, we pride ourselves on the ability to adjust our route network and charter service to accommodate seasonality. Distribution We sell our scheduled service flights through direct and indirect distribution channels with the goal of selling in the most efficient way across our customer base.
Distribution We sell our Scheduled Service flights through direct and indirect distribution channels with the goal of selling in the most efficient way across our customer base.
We fly out of Terminal 2, which we believe is preferred by many flyers because of its smaller layout, shorter security wait times, close parking relative to check-in and full suite of retail shops. As of December 31, 2022, we have access to eight of the 14 gates in Terminal 2.
As Minnesota’s hometown airline, a substantial portion of our business is serving markets originating or ending in MSP. We fly out of Terminal 2 at MSP, which we believe is preferred by many flyers because of its smaller layout, shorter security wait times, close parking relative to check-in and full suite of retail shops.
We have different competitive sets in our scheduled service business, charter business and cargo business. Our competitors and potential competitors in the scheduled service business include both legacy network airlines and low-cost airlines.
The principal competitive factors in the airline industry are ticket prices, flight schedules, aircraft type, passenger amenities, customer service, reputation and loyalty programs. We have different competitive sets in our Scheduled Service business, Charter business and Cargo business. Our competitors and potential competitors in the Scheduled Service business include both legacy network airlines and low-cost airlines.
The majority of our competitors maintain higher utilization to keep their unit costs low, which makes it difficult for them to serve markets on a highly seasonal or day-of-week basis. As such, we believe our low Adjusted CASM coupled with relatively low utilization is a competitive advantage.
We also believe the association of our brand with a high level of operational performance differentiates us from our competitors and enables us to generate greater customer loyalty. The majority of our competitors maintain higher utilization to keep their unit costs low, which makes it difficult for them to serve markets on a highly seasonal or day-of-week basis.
We do not presently market our cargo business. 14 Table of Contents Loyalty Program Our Sun Country Rewards frequent flyer program rewards and encourages scheduled service customer loyalty and we believe it is well tailored to serving the leisure passenger.
We have a team of business development professionals who utilize business-to-business methods to identify opportunities and develop and maintain relationships with potential Charter customers. We do not presently market our Cargo business. Loyalty Program Our Sun Country Rewards loyalty program rewards and encourages Scheduled Service customer loyalty and we believe it is well tailored to serving the leisure passenger.
We will operate in and out of John F. Kennedy International Airport (JFK), a Level 3 airport, beginning in April of 2023. We currently operate in and out of the following Level 2 airports: San Francisco International Airport (SFO), Los Angeles International Airport (LAX), Chicago O’Hare International Airport (ORD) and Newark International Airport (EWR).
We have operated in and out of JFK, a Level 3 airport, since April of 2023. We also currently operate in and out of the following Level 2 airports: SFO, LAX, ORD and EWR.
We currently have the access we need to accommodate our planned service, and we have generally been able to obtain the rights to expand our operations and to change our schedules. There is no assurance, however, that we will be able to do so in the future because, among other reasons, such allocations are subject to changes in governmental policies.
There is no assurance, however, 20 Table of Contents that we will be able to do so in the future because, among other reasons, such allocations are subject to changes in governmental policies.
Our historical fuel consumption and costs were as follows: Year Ended December 31, 2022 2021 2020 Fuel Gallons Consumed (in thousands) 71,690 60,739 43,844 Fuel cost per gallon, excluding derivatives and other items $ 3.75 $ 2.19 $ 1.58 Gallons consumed includes scheduled service and charter operations, but does not include cargo.
Our historical fuel consumption and costs were as follows: Year Ended December 31, 2023 2022 Fuel Gallons Consumed (in thousands) 79,574 71,690 Fuel cost per gallon, excluding indirect fuel credits $ 3.11 $ 3.75 Gallons consumed includes Scheduled Service and Charter operations where we are responsible for fuel and are later reimbursed by the customer, but does not include Cargo.
If either party wishes to modify the terms of any such agreement, they must notify the other party in the manner agreed to by the parties.
Under the RLA, the collective bargaining agreements generally do not expire, but instead become amendable as of a stated date. If either party wishes to modify the terms of any such agreement, they must notify the other party in the manner agreed to by the parties.
Our movement in and out of markets where we may not have an established brand presence, is facilitated by the availability of our inventory through Global Distribution System ("GDS") companies (e.g., Amadeus, Sabre and Travelport). We also generate sales through OTAs, which also broadens our ability to sell in highly seasonal markets.
Sales through direct channels for the years ended December 31, 2023 and 2022 were 78% and 73%, respectively. Indirect distribution channels remain important outlets to sell our flights. Our movement in and out of markets where we may not have an established brand presence, is facilitated by the availability of our inventory through GDS companies (e.g., Amadeus, Sabre and Travelport).
Our operational performance is enabled by our capable and dedicated workforce in maintenance, ground, flight crew and system operations, as well as our highly capable fleet of 737-NG aircraft, which are equipped to operate in adverse weather conditions worldwide. Our primary operational metric is completion factor because most of our markets are operated less than daily.
This focus also strengthens our relationship with our cargo customer, Amazon, who has incentives and disincentives for performance in the ATSA. Our operational performance is enabled by our capable and dedicated workforce in maintenance, ground, flight crew and system operations, as well as our highly capable fleet of 737-NG aircraft, which are equipped to operate in adverse weather conditions.
All of our technicians are two-licensed Airframe and Powerplant and undergo extensive initial and recurrent training. Aircraft maintenance and repair consists of routine and non-routine maintenance.
Technical Operations: Maintenance, Repairs and Overhaul We have an FAA mandated and approved maintenance program, which is administered by an experienced group of Technical Operations leaders. All of our technicians are two-licensed Airframe and Powerplant and undergo extensive initial and recurrent training. Aircraft maintenance and repair consists of routine and non-routine maintenance.
Sun Country Airlines continuously strives to promote a culture of safety and security in line with the highest possible industry standards. Insurance We maintain insurance policies we believe are of types customary in the airline industry and as required by the DOT, lessors and other financing parties.
Insurance We maintain insurance policies that are of types customary in the airline industry and as required by the DOT, lessors and other financing parties.
As part of the on-going assessment of market opportunities, we continue to identify future growth opportunities, primarily from Midwest locations to warm weather leisure destinations and large markets with fragmented and seasonal demand peaks. Landline offers convenient airport shuttle service for Sun Country passengers to MSP from five locations throughout Minnesota, Wisconsin and North Dakota.
As part of the ongoing assessment of market opportunities, we continue to identify future growth opportunities, primarily from Midwest locations to warm weather leisure destinations and large markets with fragmented and seasonal demand peaks. 12 Table of Contents MSP Departures Top 5 Destinations from MSP in....
Our dispatchers ratified a new collective bargaining agreement in December 2019, which is amendable on November 30, 2024. 17 Table of Contents As of December 31, 2022, the status of the collective-bargaining agreements for our employees was as follows: Employee Group Number of Employees (1) Representative Status of Agreement/Amendable Date Pilots 571 Air Line Pilots Association (ALPA) Amendable in December 2025 Flight Attendants 547 International Brotherhood of Teamsters (IBT) Currently amendable (commenced as of December 2019) Dispatchers 32 Transport Workers Union (TWU) Amendable in November 2024 Technicians and related craft employees 177 Aircraft Mechanics Fraternal Association (AMFA) New contract in negotiations __________________________ (1) Not included within the table are our fleet service employees (cargo, commissary/catering, ramp agents and bag room agents), who on January 4, 2023, elected to be represented by the IBT.
Our dispatchers ratified a new collective bargaining agreement in December 2019, which is amendable on November 30, 2024. 17 Table of Contents As of December 31, 2023, the status of the collective-bargaining agreements for our employees was as follows: Employee Group Number of Employees Representative Status of Agreement/Amendable Date Pilots 616 ALPA Amendable in December 2025 Flight Attendants 675 IBT Currently amendable (commenced as of December 2019) Dispatchers 33 TWU Amendable in November 2024 Technicians and related craft employees 206 AMFA Contract in negotiations Below the Wing Fleet Service Employees 273 IBT Contract in negotiations The RLA governs our relations with labor organizations.
However, like the charter and scheduled service business, aircraft and crew utilization can be maximized by filling in cargo service in periods when scheduled service flying is less profitable.
However, like the Charter and Scheduled Service business, aircraft and crew utilization can be optimized by filling in Cargo service in periods when Scheduled Service and Charter flying is less profitable. Our CMI service is asset-light, as Amazon supplies the aircraft and covers many of the operating expenses, including fuel, and provides all cargo loading and unloading services.
Our completion factor, including the adverse impact of weather, was 98.8%, 99.4% and 96.8% for the years ended December 31, 2022, 2021 and 2020, respectively.
Our primary operational metric is completion factor because most of our markets are operated less than daily. Our Scheduled Service completion factor, including the adverse impact of weather, was 99.0% and 98.8% for the years ended December 31, 2023 and 2022, respectively.
Sources of our ancillary revenue include air travel-related services such as baggage fees, seat selection and upgrade fees, priority check-in and boarding fees, itinerary service fees and on-board sales. Part of our strategy has been to reduce base fares to stimulate demand while increasing ancillary revenue per passenger, which we believe offers passengers more choice and correspondingly, more ancillary revenue.
Sources of our ancillary revenue include air travel-related services such as baggage fees, seat selection and upgrade fees, priority check-in and boarding fees, other fees and on-board sales.
On January 11, 2021, the EPA issued a proposed rule regulating GHG emissions from aircraft that largely conforms to the March 2017 ICAO standards. However, on November 15, 2021, the EPA announced that it would press for ambitious new airplane GHG emission standards at international negotiations organized by ICAO in late 2022.
On January 11, 2021, the EPA issued a proposed rule regulating GHG emissions from aircraft that largely conforms to the March 2017 ICAO standards. Like the ICAO standards, the final EPA standards would not apply retroactively to engines on in-service aircraft.
The combination of our agile peak demand network with our elevated consumer product allows us to generate higher TRASM than ULCCs while maintaining lower Adjusted CASM than LCCs. We provide low-fare passenger airline service primarily to leisure and VFR travelers. Our low fares are designed to stimulate demand from price-sensitive travelers seeking a superior product to ULCCs.
We provide low-fare passenger airline service primarily to leisure and VFR travelers. Our low fares are designed to stimulate demand from price-sensitive travelers seeking a superior product to ULCCs. We operate our Scheduled Service business using a flexible capacity model focused on peak demand.
This allows us to concentrate our flying during periods of peak demand, which generates higher TRASM and also allows us to park aircraft during periods of low demand, at a lower cost than other airlines.
This allows us to concentrate our Scheduled Service flying during periods of peak demand, and also allows us to park aircraft during periods of low demand at a lower cost than other airlines. In addition to the benefits of lower all-in ownership costs, we do not have an aircraft order book because we only purchase mid-life aircraft.
Passengers and fares were both impacted dramatically by the COVID-19 pandemic in the years ended December 31, 2021 and 2020. Our scheduled service business includes many cost characteristics of ULCCs, such as an unbundled product (which means we offer a base fare and allow customers to purchase ancillary products and services for an additional fee), and point-to-point service.
Seasonal Demand Dictates Monthly Scheduled Service Schedule Day-of-Week Capacity Determined by Scheduled Service Demand Patterns (1) Monthly Seats as a % of March 2023 Seats (% of Peak Day ASMs) (TRASM in cents) (1) Based on fiscal year 2023 data Our Scheduled Service business includes many cost characteristics of ULCCs, such as an unbundled product (which means we offer a base fare and allow customers to purchase ancillary products and services for an additional fee), and point-to-point service.
AMFA organized our mechanics in 2022 and negotiations for an initial collective bargaining agreement with our technicians and related craft employees began in October of 2022 and negotiations are ongoing. Our collective bargaining agreement with our pilots was ratified on December 21, 2021 and is amendable on December 31, 2025.
AMFA organized our technicians in 2022 and negotiations for an initial collective bargaining agreement with our technicians and related craft employees began in October of 2022 and negotiations are ongoing with the assistance of a federal mediator appointed by the NMB. IBT organized our below-the-wing employees in 2023 and negotiations began in March of 2023 and are ongoing.
Our on-board sales are also designed to enhance the customer experience, including local passenger favorite brands of beer, wine and spirits.
Part of our strategy is to reduce base fares to stimulate demand while increasing ancillary revenue 11 Table of Contents per passenger, which we believe offers passengers more choice and generates more ancillary revenue. Our on-board sales are also designed to enhance the customer experience, including local passenger favorite brands of beer, wine and spirits.
The price and availability of jet fuel are volatile due to global economic and geopolitical factors as well as domestic and local supply factors.
Aircraft Fuel Aircraft fuel is one of our largest individual expenses, representing approximately 27% and 32% of our total operating costs for the years ended December 31, 2023 and 2022, respectively. The price and availability of jet fuel are volatile due to global economic and geopolitical factors as well as domestic and local supply factors.
Our scheduled service business combines low costs with a high-quality product to generate higher Total Revenue per Available Seat Mile (“TRASM”) than ultra low-cost carriers ("ULCCs", which include Allegiant Travel Company, Frontier Airlines and Spirit Airlines) while maintaining lower Adjusted Cost per Available Seat Mile (“CASM”) than low-cost carriers ("LCCs", which include Southwest Airlines and JetBlue Airways), resulting in best-in-class unit profitability.
Our Scheduled Service business combines low costs with a high-quality product to generate higher TRASM than ULCCs while maintaining lower Adjusted CASM than LCCs, resulting in best-in-class unit profitability. We offer a high-quality product that we believe is superior to ULCCs and consistent with that of LCCs.
All of our 737-800 aircraft have new state-of-the-art seats that comfortably recline and have full size tray tables. Our seats have an average pitch of approximately 31 inches, giving our customers comparable legroom to Southwest Airlines and greater legroom than all ULCCs in the United States.
Our seats have an average pitch of approximately 31 inches, giving our customers comparable legroom to Southwest Airlines and greater legroom than all ULCCs in the United States. We also provide seat-back power, complimentary in-flight entertainment and free beverages to improve the overall flying experience for our customers.
While our passenger business will remain highly seasonal, our cargo operations will have the effect of mitigating seasonal troughs. For example, when our scheduled flying demand is lower during the fall and early December, our cargo service remains consistent and grows until Christmas.
While our passenger business will remain highly seasonal, our Cargo operations will have the effect of mitigating seasonal troughs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe DOT also published a Notice of Proposed Rulemaking in January 2020 regarding, for example, the accessibility features of lavatories and onboard wheelchair requirements on certain single-aisle aircraft with an FAA certificated maximum capacity of 125 seats or more, training flight attendants to proficiency on an annual basis to provide assistance in transporting qualified individuals with disabilities to and from the lavatory from the aircraft seat, and providing certain information on request to qualified individuals with a disability or persons inquiring on their behalf, on the carrier’s website, and in printed or electronic form on the aircraft concerning the accessibility of aircraft lavatories.
Biggest changeFor example, the DOT or FAA has pending proposed rulemakings and/or published final rules regarding: the accessibility features of lavatories and onboard wheelchair requirements on certain single-aisle aircraft with an FAA certificated maximum capacity of 125 seats or more, training flight attendants to proficiency on an annual basis to provide assistance in transporting qualified individuals with disabilities to and from the lavatory from the aircraft seat, and providing certain information on request to qualified individuals with a disability or persons inquiring on their behalf, on the carrier’s website, and in printed or electronic form on the aircraft concerning the accessibility of aircraft lavatories; traveling by air with service animals; defining unfair or deceptive practices; clarifying that the maximum amount of denied boarding compensation that a carrier may provide to a passenger denied boarding involuntarily is not limited, prohibiting airlines from involuntarily denying boarding to a passenger after the passenger’s boarding pass has been collected or scanned and the passenger has boarded (subject to safety and security exceptions), raising the liability limits for denied boarding compensation, and raising the liability limit for mishandled baggage in domestic air transportation; enhancing the transparency of airline ancillary service fees; airline ticket refunds and consumer protections; requiring that certain airplanes used to conduct domestic, flag, or supplemental passenger-carrying operations have installed a physical secondary barrier that protects the flightdeck from unauthorized intrusion when the flightdeck door is opened; and flight attendant duty period limitations and rest requirements.
We emphasize compliance with all applicable laws and regulations in all jurisdictions where we operate and have implemented and continue to implement and refresh policies, procedures and certain ongoing training of our employees, third-party providers and partners with regard to business ethics and key legal requirements; however, we cannot assure that our employees, third-party providers or partners will adhere to our code of ethics, other policies or other legal requirements.
We emphasize compliance with all applicable laws and regulations in all jurisdictions where we operate and have implemented and continue to implement and refresh policies, procedures and certain ongoing training of our employees, third-party providers and partners with regard to business ethics and key legal requirements; however, we cannot assure that our employees, third-party providers or partners will adhere to our code of ethics and other policies.
Countries can voluntarily participate in the pilot and first phase, and the United States agreed to participate in 29 Table of Contents these voluntary phases. Participation in the second phase is mandatory for certain countries, including the United States. Certain details are still being developed and the impact cannot be fully predicted.
Countries can voluntarily participate in the pilot and first phase, and the United States agreed to participate in these voluntary phases. Participation in the second phase is mandatory for certain countries, including the United States. Certain details are still being developed and the 29 Table of Contents impact cannot be fully predicted.
Furthermore, our labor costs may increase in connection with our growth, especially if we needed to hire more pilots in order to grow 39 Table of Contents various segments of our business, including Cargo. We cannot guarantee that our cargo business will grow and that hiring of additional pilots will be required.
Furthermore, our labor costs may increase in connection with our growth, especially if we needed to hire more pilots in order to grow various segments of our 39 Table of Contents business, including Cargo. We cannot guarantee that our Cargo business will grow and that hiring of additional pilots will be required.
The amount of our aircraft-related fixed obligations could have a material adverse effect on our business, results of operations and financial condition and could: • require a substantial portion of cash flow from operations be used for operating lease and maintenance deposit payments and interest expense, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; • limit our ability to obtain additional financing to support our expansion plans and for working capital and other purposes on acceptable terms or at all; • make it more difficult for us to pay our other obligations as they become due during adverse general economic and market industry conditions because any related decrease in revenues could cause us to not have sufficient cash flows from operations to make our scheduled payments; • reduce our flexibility in planning for, or reacting to, changes in our business and the airline industry and, consequently, place us at a competitive disadvantage to our competitors with lower fixed payment obligations; and • cause us to lose access to one or more aircraft and forfeit our maintenance and other deposits if we are unable to make our required aircraft lease rental payments and our lessors exercise their remedies under the lease agreement, including cross-default provisions in certain of our leases.
The amount of our aircraft-related fixed obligations could have a material adverse effect on our business, results of operations and financial condition and could: • require a substantial portion of cash flows be used for aircraft leases and maintenance deposit payments and interest expense, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; • limit our ability to obtain additional financing to support our expansion plans and for working capital and other purposes on acceptable terms or at all; • make it more difficult for us to pay our other obligations as they become due during adverse general economic and market industry conditions because any related decrease in revenues could cause us to not have sufficient cash flows from operations to make our scheduled payments; • reduce our flexibility in planning for, or reacting to, changes in our business and the airline industry and, consequently, place us at a competitive disadvantage to our competitors with lower fixed payment obligations; and • cause us to lose access to one or more aircraft and forfeit our maintenance and other deposits if we are unable to make our required aircraft lease rental payments and our lessors exercise their remedies under the lease agreement, including cross-default provisions in certain of our leases.
In particular, as more pilots in the industry approach mandatory retirement age, or have retired early during the COVID-19 pandemic, the U.S. airline industry is being affected by a pilot shortage. We and other airlines also face shortages of qualified aircraft mechanics, dispatchers, ground handlers, flight attendants and other personnel.
In particular, as more pilots in the industry approach mandatory retirement age, or retired early during the COVID-19 pandemic, the U.S. airline industry is being affected by a pilot shortage. We and other airlines also face shortages of qualified aircraft mechanics, dispatchers, ground handlers, flight attendants and other personnel.
Furthermore, the terms of our lease agreements require us to pay maintenance reserves to the lessor in advance of the performance of major maintenance, resulting in our recording significant prepaid deposits on our Balance Sheets, and there are restrictions on the extent to which such maintenance reserves are available for reimbursement.
Furthermore, the terms of certain of our lease agreements require us to pay maintenance reserves to the lessor in advance of the performance of major maintenance, resulting in our recording significant prepaid deposits on our Balance Sheets, and there are restrictions on the extent to which such maintenance reserves are available for reimbursement.
Our maintenance costs will fluctuate over time; additionally we will periodically incur substantial maintenance costs due to the maintenance schedules of our aircraft fleet and obligations to the lessors, and we could incur significant maintenance expenses outside of such maintenance schedules in the future. We have substantial maintenance expense obligations, including with respect to our aircraft operating leases.
Our maintenance costs will fluctuate over time; additionally we will periodically incur substantial maintenance costs due to the maintenance schedules of our aircraft fleet and obligations to the lessors, and we could incur significant maintenance expenses outside of such maintenance schedules in the future. We have substantial maintenance expense obligations, including with respect to our aircraft leases.
We expect our quarterly results of operations to continue to fluctuate due to a number of factors, including our seasonal operations, competitive responses in key locations or routes, price changes in aircraft fuel and the timing and amount of maintenance expenses.
Our quarterly results of operations fluctuate due to a number of factors, including seasonality. We expect our quarterly results of operations to continue to fluctuate due to a number of factors, including our seasonal operations, competitive responses in key locations or routes, price changes in aircraft fuel and the timing and amount of maintenance expenses.
Performance under the ATSA is subject to a number of challenges and uncertainties, such as: unforeseen maintenance and other costs; our ability to hire pilots, crew and other personnel necessary to support our CMI services, which can be impacted by industry-wide staffing shortages; interruptions in the operations under the ATSA as a result of unexpected or unforeseen events, whether as a result of factors within the Company’s control or outside of the Company’s control; and the level of operations and results of operations, including 34 Table of Contents margins, under the ATSA being less than the Company’s current expectations and projections.
Performance under the ATSA is subject to a number of challenges and uncertainties, such as: unforeseen maintenance and other costs; our ability to hire pilots, crew and other personnel necessary to support our CMI 35 Table of Contents services, which can be impacted by industry-wide staffing shortages; interruptions in the operations under the ATSA as a result of unexpected or unforeseen events, whether as a result of factors within the Company’s control or outside of the Company’s control; and the level of operations and results of operations, including margins, under the ATSA being less than the Company’s current expectations and projections.
Although these taxes and fees are not our operating expenses, they represent an additional cost to our customers, that can drive down demand as we operate in a highly elastic environment, drives down demand.
Although these taxes and fees are not our operating expenses, they represent an additional cost to our customers, that can drive down demand as we operate in a highly elastic environment.
In addition, data and security breaches can also occur as a result of non-technical issues, including breaches by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. 36 Table of Contents We are subject to increasing legislative, regulatory and customer focus on privacy issues and data security in the United States and abroad.
In addition, data and security breaches can also occur as a result of non-technical issues, including breaches by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. 34 Table of Contents We are subject to increasing legislative, regulatory and customer focus on privacy issues and data security in the United States and abroad.
Prior to an aircraft being returned in connection with an operating lease, we will incur costs to restore these aircraft to the condition required by the terms of the underlying operating leases.
Prior to an aircraft being returned in connection with an aircraft lease, we will incur costs to restore these aircraft to the condition required by the terms of the underlying leases.
The restrictions imposed by federal law and DOT policy require that we be owned and controlled by U.S. citizens, that no more than 25% of our voting stock be owned or controlled, directly or indirectly, by persons or entities who are not U.S. citizens, as defined in 49 U.S.C. § 40102(a)(15), that no more than 49% of our stock be owned or controlled, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have entered into “open skies” air transport agreements with the United States, that our president and at least two-thirds of the members of our Board of Directors and other managing officers be U.S. citizens and that we be under the actual control of U.S. citizens.
The restrictions imposed by federal law and DOT policy require that we be owned and controlled by U.S. citizens, that no more than 25% of our voting stock be owned or controlled, directly or indirectly, by persons or entities who are not U.S. citizens, as defined in 49 U.S.C. § 40102(a)(15), that no more than 49% of 52 Table of Contents our stock be owned or controlled, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have entered into “open skies” air transport agreements with the United States, that our president and at least two-thirds of the members of our Board of Directors and other managing officers be U.S. citizens and that we be under the actual control of U.S. citizens.
For the year ended December 31, 2022, cargo revenue under the ATSA represented 10% of our total operating revenues and our cargo revenue consisted entirely of air cargo transportation services provided to Amazon under the ATSA. The ATSA does not require a minimum amount of flying and Amazon is permitted to decrease flying volume at any time.
For the year ended December 31, 2023, Cargo revenue under the ATSA represented 10% of our total operating revenues and our Cargo revenue consisted entirely of air cargo transportation services provided to Amazon under the ATSA. The ATSA does not require a minimum amount of flying and Amazon is permitted to decrease flying volume at any time.
The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us. Our future earnings and earnings per share, as reported under GAAP, could be adversely impacted by the warrants granted to Amazon.
The deterioration of the earnings from, or other available assets of, our subsidiary for any reason could also limit or impair their ability to pay dividends or other distributions to us. Our future earnings and earnings per share, as reported under GAAP, could be adversely impacted by the warrants granted to Amazon.
As of December 31, 2022, we were not subject to any credit card holdbacks under our credit card processing agreements, although if we fail to meet certain liquidity and other financial covenants, our credit card processors have the right to hold back credit card remittances to cover our obligations to them.
As of December 31, 2023, we were not subject to any credit card holdbacks under our credit card processing agreements, although if we fail to meet certain liquidity and other financial covenants, our credit card processors have the right to hold back credit card remittances to cover our obligations to them.
Increases in such taxes, fees and charges could negatively impact our business, results of operations and financial condition. Under regulations set forth by the Department of Transportation, or the DOT, all governmental taxes and fees must be included in the prices we quote or advertise to our customers.
Increases in such taxes, fees and charges could negatively impact our business, results of operations and financial condition. Under regulations set forth by the DOT, all governmental taxes and fees must be included in the prices we quote or advertise to our customers.
These complaints, together with reports of lost baggage, delayed and cancelled flights, and other service issues, are reported to the public by the DOT. In addition, we could become subject to complaints about our booking practices. Finally, we experienced a significant number of complaints, including letters from lawmakers and attorneys general, concerning non-refundable tickets during the COVID-19 pandemic.
These complaints, together with reports of lost baggage, delayed and cancelled flights, and other service issues, are reported to the public by the DOT. In addition, we could become subject to complaints about our booking practices. For example, we experienced a significant number of complaints, including letters from lawmakers and attorneys general, concerning non-refundable tickets during the COVID-19 pandemic.
In general, our charter and cargo operations have pass-through provisions for fuel costs, and as such we do not hedge our fuel requirements for that portion of our business. As of December 31, 2022, we had no outstanding fuel derivative contracts.
In general, our Charter and Cargo operations have pass-through provisions for fuel costs, and as such we do not hedge our fuel requirements for that portion of our business. As of December 31, 2023, we had no outstanding fuel derivative contracts.
Commencing in 2013, the minimum flight hour requirement to achieve a commercial pilot’s license in the United States increased from 250 to 1,500 hours, thereby significantly increasing the time and cost commitment required to become licensed to fly a commercial aircraft.
The minimum flight hour requirement to achieve a commercial pilot’s license in the United States increased from 250 to 1,500 hours, thereby significantly increasing the time and cost commitment required to become licensed to fly a commercial aircraft.
High fuel prices or increases in fuel costs (or in the price of crude oil) could have a material adverse effect on our business, results of operations and financial condition, including as a result of legacy network airlines and LCCs adapting more rapidly or effectively to higher fuel prices through new-technology aircraft that is more fuel efficient than our aircraft.
High fuel prices or increases in fuel costs (or in the price of crude oil) could have a material 23 Table of Contents adverse effect on our business, results of operations and financial condition, including as a result of legacy network airlines and LCCs adapting more rapidly or effectively to higher fuel prices through new-technology aircraft that is more fuel efficient than our aircraft.
In the event we believe or have reason to believe our employees, third-party providers or partners have or may have violated applicable laws or regulations, we may incur investigation costs, potential penalties and other related costs, which in turn may materially adversely affect our reputation and could have a material adverse effect on our business, results of operations and financial condition.
In the event we believe or have reason to believe our employees, third-party 27 Table of Contents providers or partners have or may have violated applicable laws or regulations, we may incur investigation costs, potential penalties and other related costs, which in turn may materially adversely affect our reputation and could have a material adverse effect on our business, results of operations and financial condition.
If we are unable to obtain and maintain access to a sufficient number of slots, gates or related ground facilities at desirable airports to accommodate our growing fleet, we may be unable to compete in desirable markets, our aircraft utilization rate could decrease, and we could suffer a material adverse effect on our business, results of 33 Table of Contents operations and financial condition.
If we are unable to obtain and maintain access to a sufficient number of slots, gates or related ground facilities at desirable airports to accommodate our growing fleet, we may be unable to compete in desirable markets, our aircraft utilization rate could decrease, and we could suffer a material adverse effect on our business, results of operations and financial condition.
Sales of significant amounts of stock in the public market 50 Table of Contents upon expiration of lock-up agreements, the perception that such sales may occur, or early release of any lock-up agreements, could adversely affect prevailing market prices of our common stock or make it more difficult to sell shares of common stock at a time and price that you deem appropriate.
Sales of significant amounts of stock in the public market upon expiration of lock-up agreements, the perception that such sales may occur, or early release of any lock-up agreements, could adversely affect prevailing market prices of our common stock or make it more difficult to sell shares of common stock at a time and price that you deem appropriate.
If we fail to remediate the material weakness and maintain effective internal control over financial reporting or disclosure controls and procedures, we may not be able to rely on the integrity of our financial results, which could result in inaccurate or late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with SEC rules and regulations.
If we fail to maintain effective internal control over financial reporting or disclosure controls and procedures, we may not be able to rely on the integrity of our financial results, which could result in inaccurate or late reporting of our financial results, as well as delays or the inability to meet our reporting obligations or to comply with SEC rules and regulations.
We are a holding company and rely on dividends, distributions, and other payments, advances, and transfers of funds from our subsidiaries to meet our obligations. We are a holding company that does not conduct any business operations of our own.
We are a holding company and rely on dividends, distributions, and other payments, advances, and transfers of funds from our subsidiary to meet our obligations. We are a holding company that does not conduct any business operations of our own.
Attacks may be targeted at us, our customers (including the DoD) and our providers, including air navigation service providers, or others who have entrusted us with information, including regulators such as the DoD, FAA and DOT.
Attacks may be targeted at us, our customers (including the DoD) and our third-party service providers, including air navigation service providers, or others who have entrusted us with information, including regulators such as the DoD, FAA and DOT.
Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs 31 Table of Contents of cleaning up environmental contamination regardless of fault or compliance with applicable law when the disposal occurred or the amount of wastes directly attributable to us.
Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or compliance with applicable law when the disposal occurred or the amount of wastes directly attributable to us.
While we may change this policy at some point in the future, we cannot assure you that we will make such a change. We are required to pay our pre-Initial Public Offering ("IPO") stockholders for certain tax benefits, and the amounts of such payments could be material.
While we may change this policy at some point in the future, we cannot assure you that we will make such a change. We are required to pay our pre-IPO stockholders for certain tax benefits, and the amounts of such payments could be material.
The demand for airline services is highly sensitive to changes in economic conditions, and a recession or similar or worse economic downturn in the United States would weaken demand for our services and have a material adverse effect on our business, results of operations and financial condition.
Risks Related to Our Industry The demand for airline services is highly sensitive to changes in economic conditions, and a recession or similar or worse economic downturn in the United States would weaken demand for our services and have a material adverse effect on our business, results of operations and financial condition.
Threatened or actual terrorist attacks or security concerns involving airlines could have a material adverse effect on our business, results of operations and financial condition.
Threatened or actual terrorist attacks, war, or other security concerns involving airlines could have a material adverse effect on our business, results of operations and financial condition.
The DOT periodically audits airlines to determine whether such airlines have violated any of the DOT rules. If the DOT determines that we are not, or have not been, in compliance with these rules or if we are unable to remain compliant, the DOT may subject us to fines or other enforcement action.
The DOT periodically audits airlines to determine whether such airlines have 28 Table of Contents violated any of the DOT rules. If the DOT determines that we are not, or have not been, in compliance with these rules or if we are unable to remain compliant, the DOT may subject us to fines or other enforcement action.
Our results of operations may be affected by actions taken by governmental or other agencies or authorities having jurisdiction over our operations at these airports, including, but not limited to: • increases in airport rates and charges; • limitations on take-off and landing slots, airport gate capacity or other use of airport facilities; • termination of our airport use agreements, some of which can be terminated by airport authorities with little notice to us; • increases in airport capacity that could facilitate increased competition; • international travel regulations such as customs and immigration; • increases in taxes; • changes in law, regulations and government policies that affect the services that can be offered by airlines, in general, and in particular markets and at particular airports; • restrictions on competitive practices; • changes in law or ordinances that increase minimum wages beyond regional norms; • the adoption of statutes or regulations that impact or impose additional customer service standards and requirements, including operating and security standards and requirements; and • the adoption of more restrictive locally imposed noise regulations or curfews. 41 Table of Contents Our business is highly dependent on the availability and cost of airport services at the airports where we operate.
Our results of operations may be affected by actions taken by governmental or other agencies or authorities having jurisdiction over our operations at these airports, including, but not limited to: • increases in airport rates and charges; • limitations on take-off and landing slots, airport gate capacity or other use of airport facilities; • termination of our airport use agreements, some of which can be terminated by airport authorities with little notice to us; • increases in airport capacity that could facilitate increased competition; • international travel regulations such as customs and immigration; • increases in taxes; • changes in law, regulations and government policies that affect the services that can be offered by airlines, in general, and in particular markets and at particular airports; • restrictions on competitive practices; • changes in law or ordinances that increase minimum wages beyond regional norms; • the adoption of statutes or regulations that impact or impose additional customer service standards and requirements, including operating and security standards and requirements; and 41 Table of Contents • the adoption of more restrictive locally imposed noise regulations or curfews.
If U.S. or global economic conditions are unfavorable or uncertain for an 23 Table of Contents extended period of time, it would have a material adverse effect on our business, results of operations and financial condition. Inflation may have an adverse impact on our business, results of operations and financial condition.
If U.S. or global economic conditions are unfavorable or uncertain for an extended period of time, it would have a material adverse effect on our business, results of operations and financial condition. Inflation may have an adverse impact on our business, results of operations and financial condition.
The five-year credit agreement (the “Credit Agreement”) contains, and any future indebtedness of ours could contain covenants that impose significant operating and financial restrictions on us, such as restrictions on our and our subsidiaries’ ability to, among other things: • incur additional debt, guarantee indebtedness, or issue certain preferred equity interests; • pay dividends on or make distributions in respect of, or repurchase or redeem, our capital stock, or make other restricted payments; • prepay, redeem, or repurchase certain debt; • make loans or certain investments; • sell certain assets; • create liens on certain assets; • consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets; • enter into certain transactions with our affiliates; • alter the businesses we conduct; • enter into agreements restricting our subsidiaries’ ability to pay dividends; and • designate our subsidiaries as unrestricted subsidiaries.
The Credit Agreement contains, and any future indebtedness of ours could contain covenants that impose significant operating and financial restrictions on us, such as restrictions on our and our subsidiaries’ ability to, among other things: • incur additional debt, guarantee indebtedness, or issue certain preferred equity interests; • pay dividends on or make distributions in respect of, or repurchase or redeem, our capital stock, or make other restricted payments; • prepay, redeem, or repurchase certain debt; • make loans or certain investments; • sell certain assets; • create liens on certain assets; • consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets; 51 Table of Contents • enter into certain transactions with our affiliates; • alter the businesses we conduct; • enter into agreements restricting our subsidiaries’ ability to pay dividends; and • designate our subsidiaries as unrestricted subsidiaries.
Additionally, Apollo and its affiliates are in the business of making investments in companies and may, from time to time, acquire and hold interests in or provide advice to businesses that compete directly or indirectly with us, 49 Table of Contents or are suppliers or customers of ours.
Additionally, Apollo and its affiliates are in the business of making investments in companies and may, from time to time, acquire and hold interests in or provide advice to businesses that compete directly or indirectly with us, or are suppliers or customers of ours.
In addition, federal government shutdowns can affect the availability of federal resources necessary to provide air traffic control and airport security. Furthermore, a federal government grounding of our 26 Table of Contents aircraft type could result in flight cancellations and adversely affect our business.
In addition, federal government shutdowns can affect the availability of federal resources necessary to provide air traffic control and airport security. Furthermore, a federal government grounding of our aircraft type could result in flight cancellations and adversely affect our business.
As of December 31, 2022, approximately 53% of our workforce was represented by labor unions. We cannot assure you that our labor costs going forward will remain competitive or that any new agreements into which we enter will not have terms with higher labor costs or that the negotiations of such labor agreements will not result in any work stoppages.
As of December 31, 2023, approximately 65% of our workforce was represented by labor unions. We cannot assure you that our labor costs going forward will remain competitive or that any new agreements into which we enter will not have terms with higher labor costs or that the negotiations of such labor agreements will not result in any work stoppages.
Even if we are able to hedge portions of our future fuel requirements, we cannot guarantee that our hedge contracts will provide an adequate 24 Table of Contents level of protection against increased fuel costs or that the counterparties to our hedge contracts will be able to perform.
Even if we are able to hedge portions of our future fuel requirements, we cannot guarantee that our hedge contracts will provide an adequate level of protection against increased fuel costs or that the counterparties to our hedge contracts will be able to perform.
We may also become subject to additional collective bargaining agreements in the future as non-unionized workers may unionize. Relations between air carriers and labor unions in the United States are governed by the Railway Labor Act, or the RLA.
We may also become subject to additional collective bargaining agreements in the future as non-unionized workers may unionize. Relations between air carriers and labor unions in the United States are governed by the RLA.
If Amazon exercises its right to acquire shares of our common stock pursuant to the 2019 Warrants, this will dilute the ownership interests of our then-existing stockholders and could adversely affect the market price of our common stock.
If Amazon exercises its right to acquire shares of our common stock 53 Table of Contents pursuant to the 2019 Warrants, this will dilute the ownership interests of our then-existing stockholders and could adversely affect the market price of our common stock.
As a result, we are largely dependent upon cash dividends and distributions and other transfers, including for payments in respect of our indebtedness, from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries, including the Credit Agreement, impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us.
As a result, we are largely dependent upon cash dividends and distributions and other transfers, including for payments in respect of our indebtedness, from our subsidiary to meet our obligations. The agreements governing the indebtedness of our subsidiary, including the Credit Agreement, impose restrictions on our subsidiary’s ability to pay dividends or other distributions to us.
Additionally, we frequently use all freighters in support of our cargo business. In the event we experience a series of aircraft out of service, we would experience a decline in revenue and potentially customer satisfaction.
Additionally, we frequently use all freighters in support of our Cargo business. In the event we experience a series of aircraft out of service, we would experience a decline in revenue and potentially 40 Table of Contents customer satisfaction.
The warrants granted to Amazon in 2019 increase the number of diluted shares reported, which has an effect on our diluted earnings per share to the extent the warrants actually vest. The warrants have an exercise price of approximately $15.17 per share, approximately 25% of which had vested as of December 31, 2022.
The warrants granted to Amazon in 2019 increase the number of diluted shares reported, which has an effect on our diluted earnings per share to the extent the warrants actually vest. The warrants have an exercise price of approximately $15.17 per share, approximately 34% of which had vested as of December 31, 2023.
Failure to have effective internal control over financial reporting and disclosure controls and procedures could impair our ability to produce accurate financial statements on a timely basis and could lead to a restatement of our financial statements.
Failure to have effective internal control over financial reporting and disclosure controls and procedures could impair our ability to produce accurate financial statements on a timely basis and could lead to a restatement of 55 Table of Contents our financial statements.
Furthermore, most of our charter revenue is generated from ad hoc or short-term contracts with repeat customers, and these customers may cease using our services or seek to negotiate more aggressive pricing during periods of unfavorable economic conditions.
Furthermore, most of our Charter revenue is generated from ad hoc, short-term contracts with repeat customers, or long-term customers with utilization variability and these customers may cease, or limit, using our services or seek to negotiate more aggressive pricing during periods of unfavorable economic conditions.
Paul, and any decrease in traffic in this hub could have a material adverse effect on our business, operations, financial condition and brand. Our service is concentrated around our hub in MSP and our business is impacted by economic and geophysical factors of this region.
Paul, and any decrease in traffic in this hub could have a material adverse effect on our business, operations, financial condition and brand. Our service is concentrated around our hub in MSP and our business is impacted by economic and geophysical factors of this region. We maintain a large presence in MSP.
Each of our subsidiaries is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from them and we may be limited in our ability to cause any future joint ventures to distribute their earnings to us.
Our subsidiary is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from them and we may be limited in our ability to cause any future joint ventures to distribute their earnings to us.
Our “fitness” is monitored by the DOT, which considers managerial competence, operations, finances, and compliance record. In addition, under federal law, we must be a U.S. citizen (as determined under 30 Table of Contents applicable law).
Our “fitness” is monitored by the DOT, which considers managerial competence, operations, finances, and compliance record. In addition, under federal law, we must be a U.S. citizen (as determined under applicable law).
In August 2016, the Environmental Protection Agency, or the EPA, made a final endangerment finding that aircraft engine greenhouse gas, or GHG, emissions cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare, which obligates the EPA under the Clean Air Act to set GHG emissions standards for aircraft.
In August 2016, the EPA made a final endangerment finding that aircraft engine GHG emissions cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare, which obligates the EPA under the Clean Air Act to set GHG emissions standards for aircraft.
The following factors could affect our stock price: • our operating and financial performance and prospects; • quarterly variations in the rate of growth (if any) of our financial or operational indicators, such as earnings per share, net income, revenues, Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted CASM; • the public reaction to our press releases, our other public announcements and our filings with the SEC; • strategic actions by our competitors; • changes in operating performance and the stock market valuations of other companies; • announcements related to litigation; • our failure to meet revenue or earnings estimates made by research analysts or other investors; • changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts; • speculation in the press or investment community; • sales of our common stock by us or our stockholders, or the perception that such sales may occur; • changes in accounting principles, policies, guidance, interpretations, or standards; • additions or departures of key management personnel; • actions by our stockholders; • general economic and market conditions; • the COVID-19 virus and its variants and their effects; • domestic and international economic, legal and regulatory factors unrelated to our performance; • material weakness in our internal control over financial reporting; and • the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future.
The following factors could affect our stock price: • our operating and financial performance and prospects; • quarterly variations in the rate of growth (if any) of our financial or operational indicators, such as earnings per share, net income, revenues, Adjusted Net Income, Adjusted EBITDA and Adjusted CASM; • the public reaction to our press releases, our other public announcements and our filings with the SEC; • strategic actions by our competitors; • changes in operating performance and the stock market valuations of other companies; • announcements related to litigation; • our failure to meet revenue or earnings estimates made by research analysts or other investors; • changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts; • speculation in the press or investment community; • sales of our common stock by us or our stockholders, or the perception that such sales may occur; • changes in accounting principles, policies, guidance, interpretations, or standards; • additions or departures of key management personnel; • actions by our stockholders; • general economic and market conditions; • the rapid spread of a viral or bacterial infection, disease or similar public health threat and its effects; • domestic and international economic, legal and regulatory factors unrelated to our performance; • material weakness in our internal control over financial reporting; and • the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future.
If our competitors increase overall industry capacity, or capacity 25 Table of Contents dedicated to a particular domestic or foreign region, market or route that we serve, it could have a material adverse impact on our business.
If our competitors increase overall industry capacity, or capacity dedicated to a particular domestic or foreign region, market or route that we serve, it could have a material adverse impact on our business.
To comply with restrictions imposed by federal law on foreign ownership and control of U.S. airlines, our certificate of incorporation and bylaws restrict ownership and control of shares of our common stock by non-U.S. citizens.
Our certificate of incorporation and bylaws include provisions limiting ownership and voting by non-U.S. citizens. To comply with restrictions imposed by federal law on foreign ownership and control of U.S. airlines, our certificate of incorporation and bylaws restrict ownership and control of shares of our common stock by non-U.S. citizens.
We also expect the SEC to adopt rules requiring certain new disclosures, including environmental-related disclosures, which could be costly and difficult to implement. Compliance with existing and future environmental laws and regulations can require significant expenditures and operational changes and violations can lead to significant fines and penalties and reputational harm.
We also expect the SEC or other regulating entities to which we are subject to adopt rules requiring certain new disclosures, including environmental-related disclosures, which could be costly and difficult to implement. Compliance with existing and future environmental laws and regulations can require significant expenditures and operational changes and violations can lead to significant fines and penalties and reputational harm.
Terrorist attacks, or the fear of such attacks or other hostilities (including elevated national threat warnings or selective cancellation or redirection of flights due to terror threats), even if not made directly on or involving the airline industry, could have a negative impact on the airline industry and have a material adverse effect on our business, results of operations and financial condition.
Terrorist attacks, war, or the fear of such 24 Table of Contents matters or other hostilities (including elevated national threat warnings or selective cancellation or redirection of flights due to terror threats), even if not involving the airline industry, could have a negative impact on the airline industry and have a material adverse effect on our business, results of operations and financial condition.
Increased labor costs, union disputes, employee strikes and other labor-related disruption may adversely affect our business, results of operations and financial condition. Our business is labor intensive, with labor costs representing approximately 29%, 35% and 37% of our total operating costs for the years ended December 31, 2022, 2021 and 2020, respectively.
Increased labor costs, union disputes, employee strikes and other labor-related disruption may adversely affect our business, results of operations and financial condition. Our business is labor intensive, with labor costs representing approximately 32% and 29% of our total operating costs for the years ended December 31, 2023 and 2022, respectively.
Assuming no material changes in the relevant tax law, and that we and our subsidiaries earn sufficient income to realize the full tax benefits subject to the income tax receivable agreement, we expect that future payments under the income tax receivable agreement will aggregate to be approximately $103,800 as of December 31, 2022.
Assuming no material changes in the relevant tax law, and that we and our subsidiaries earn sufficient income to realize the full tax benefits subject to the income tax receivable agreement, we expect that future payments under the income tax receivable agreement will aggregate to be approximately $101,044 as of December 31, 2023.
We aim to optimize our daily aircraft utilization rate by tailoring service to customer demand patterns, which are seasonal and vary by day of the week. Our average daily aircraft utilization was 7.2 hours, 6.8 hours and 5.1 hours for the years ended December 31, 2022, 2021 and 2020, respectively.
We aim to optimize our daily aircraft utilization rate by tailoring service to customer demand patterns, which are seasonal and vary by day of the week. Our average daily aircraft utilization was 6.9 hours and 7.2 hours for the years ended December 31, 2023 and 2022, respectively.
Our business would also be negatively impacted by any circumstances causing a reduction in demand for air transportation in the Minneapolis area, such as adverse changes in local economic conditions, local regulations and/or mandates, health concerns, adverse weather conditions, negative public perception of Minneapolis, riots, social unrest, terrorist attacks or significant price or tax increases linked to increases in airport access costs and fees imposed on passengers.
Our business would also be negatively impacted by any circumstances causing a reduction in demand for air transportation in the Minneapolis area, such as adverse changes in local economic conditions, local regulations and/or mandates, health concerns, adverse weather conditions, negative public perception of Minneapolis, riots, social unrest, terrorist attacks or significant price or tax increases linked to increases in airport access costs and fees imposed on passengers. 36 Table of Contents We currently operate out of Terminal 2 at MSP.
Any costs (including remediation and spill response costs) incurred by such fuel consortia could also have an adverse impact on our business, results of operations and financial condition. We also expect the SEC to adopt rules requiring certain new disclosures, including environmental-related disclosures, which could be costly and difficult to implement.
Any costs (including remediation and spill response costs) incurred by such fuel consortia could also have an adverse impact on our business, results of operations and financial condition. 32 Table of Contents We also expect the SEC or other regulating entities to which we are subject to adopt rules requiring certain new disclosures, including environmental-related disclosures, which could be costly and difficult to implement.
If these operators suffer a service problem, safety failure or accident, our brand would be negatively impacted. Our reputation and brand could be harmed if we were to experience significant negative publicity, including through social media. We operate in a public-facing industry with significant exposure to social media. Negative publicity, whether or not justified, can spread rapidly through social media.
If these operators suffer a service problem, safety failure or accident, our brand would be negatively impacted. Additionally, we operate in a public-facing industry with significant exposure to social media. Negative publicity, whether or not justified, can spread rapidly through social media.
The cost of aircraft fuel is highly volatile and is one of our largest individual operating expenses, accounting for approximately 32%, 25% and 22% of our operating expenses for the years ended December 31, 2022, 2021 and 2020, respectively.
The cost of aircraft fuel is highly volatile and is one of our largest individual operating expenses, accounting for approximately 27% and 32% of our operating expenses for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2022, the Apollo Stockholder beneficially owned approximately 43% of the voting power of our outstanding common equity.
As of December 31, 2023, the Apollo Stockholder beneficially owned approximately 21% of the voting power of our outstanding common equity.
We have entered into agreements with third-party providers to furnish certain facilities and services required for our operations, including ground handling, catering, passenger handling, engineering, maintenance, refueling, reservations and airport facilities as well as administrative and support services.
We rely on third-party service providers and other commercial partners to perform functions integral to our operations. We have entered into agreements with third-party providers to furnish certain facilities and services required for our operations, including ground handling, catering, passenger handling, engineering, maintenance, refueling, reservations and airport facilities as well as administrative and support services.
Furthermore, expansion to new markets may have other risks due to factors specific to those markets. We may be unable to foresee all of the existing risks upon entering certain new markets or respond adequately to these risks, and our growth strategy and our business may suffer as a result.
We may be unable to foresee all of the existing risks upon entering certain new markets or respond adequately to these risks, and our growth strategy and our business may suffer as a result.
Under certain customer agreements, we are required to provide a spare aircraft while scheduled maintenance is completed. If delays occur in the completion of aircraft maintenance, we may incur additional expense to provide airlift capacity and forgo revenues.
As a result, we may incur additional expenses and lose billable revenues that we would have otherwise earned. Under certain customer agreements, we are required to provide a spare aircraft while scheduled maintenance is completed. If delays occur in the completion of aircraft maintenance, we may incur additional expense to provide airlift capacity and forgo revenues.
Specifically, Management's controls over the accounting for complex, non-routine transactions were not designed or implemented to operate with a sufficient level of precision. This included controls addressing the application of ASC Topic 842, Leases, to the purchase of aircraft subject to an existing operating lease.
The first previously disclosed material weakness identified in the prior year related to management's controls over the accounting for complex, non-routine transactions that were not designed or implemented to operate with a sufficient level of precision. This included controls addressing the application of ASC Topic 842, Leases, to the purchase of aircraft subject to an existing operating lease.
The COVID-19 pandemic adversely affected our growth plans and business strategy.
The COVID-19 pandemic adversely 33 Table of Contents affected our growth plans and business strategy.
Furthermore, in the event we are unable to procure aircraft at the price-point necessary to allow for lower utilization during weak demand periods, our costs will be higher and could have a material adverse effect on our business, results of operations and financial condition. 40 Table of Contents The cost of aircraft repairs and unexpected delays in the time required to complete aircraft maintenance could negatively affect our operating results.
Furthermore, in the event we are unable to procure aircraft at the price-point necessary to allow for lower utilization during weak demand periods, our costs will be higher and could have a material adverse effect on our business, results of operations and financial condition.
In the future, there may be additional consolidation in our industry, such as the planned merger of JetBlue Airways and Spirit Airlines. Business combinations could significantly alter industry conditions and competition within the airline industry and could permit our competitors to reduce their fares.
In the future, there may be additional consolidation in our industry. Business combinations could significantly alter industry conditions and competition within the airline industry and could permit our competitors to reduce their fares.
The failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of a substantial amount of our indebtedness.
The failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of a substantial amount of our indebtedness. Risks Related to Ownership of Our Common Stock Our stock price may fluctuate significantly.
From time-to-time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including commercial, employment, class action, whistleblower, patent, product 45 Table of Contents liability and other litigation and claims, and governmental and other regulatory investigations and proceedings.
From time-to-time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including commercial, employment, class action, whistleblower, patent, product liability and other litigation and claims, and governmental and other regulatory investigations and proceedings. 45 Table of Contents In particular, in recent years, there has been significant litigation in the United States and abroad involving airline consumer complaints.
Our cargo business is concentrated with Amazon, and any decrease in volumes or increase in costs, or a termination of the ATSA , could have a material adverse effect on our business, operations, financial condition and brand.
A cybersecurity incident could also impact our brand, harm our reputation and adversely impact our relationship with our customers, employees and stockholders. Our Cargo business is concentrated with Amazon, and any decrease in volumes or increase in costs, or a termination of the ATSA , could have a material adverse effect on our business, operations, financial condition and brand.
We entered into an income tax receivable agreement with our pre-IPO stockholders that provides for the payment by us to our pre-IPO stockholders of 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that we and our subsidiaries actually realize for periods starting at least 12 months after the closing date of our initial public offering as a result of the utilization of tax attributes existing at the time of our initial public offering.
We entered into an income tax receivable agreement with our pre-IPO stockholders that provides for the payment by us to our pre-IPO stockholders of 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that we and our subsidiaries actually realize for periods starting at least 12 months after the closing date of our initial public offering as a result of the utilization of tax attributes existing at the time of our initial public offering. 54 Table of Contents These tax attributes include net operating loss carryforwards, deductions, tax basis and certain other tax attributes, in each case that relate to periods (or portions thereof) ending on or prior to the closing date of our initial public offering.
We consider our intellectual property rights, particularly our branding rights such as our trademarks applicable to our airline and Sun Country Rewards program, to be a significant and valuable aspect of our business.
Our intellectual property rights, particularly our branding rights, are valuable, and any inability to protect them may adversely affect our business and financial results. We consider our intellectual property rights, particularly our branding rights such as our trademarks applicable to our airline and Sun Country Rewards program, to be a significant and valuable aspect of our business.
Due to the competitive revenue environment, many increases in these fees and taxes have been absorbed by the airline industry rather than being passed on to the customer.
Due to the competitive revenue environment, many increases in these fees and taxes have been absorbed by the airline industry rather than being passed on to the customer. Further increases in fees and taxes may reduce demand for air travel, and thus our revenues.
The CARES Act places limitations on pay for these key positions. Competition for highly qualified personnel is intense, and the loss of any executive officer, senior manager, or other key employee without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on our business, results of operations and financial condition.
Competition for highly qualified personnel is intense, and the loss of any executive officer, senior manager, or other key employee without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on our business, results of operations and financial condition. We do not maintain key-man life insurance on our management team.
Past terrorist attacks or attempted attacks, particularly those involving airlines, have caused substantial revenue losses and increased security costs, and any actual or threatened terrorist attack or security breach, even if not directly against an airline, could have a material adverse effect on our business, results of operations and financial condition.
Past terrorist attacks or attempted attacks, particularly those involving airlines, heightened security and military action in response thereto, and war have caused substantial revenue losses and increased security costs, and such event, even if not directly involving an airline, could have a material adverse effect on our business, results of operations and financial condition.
In addition, the compensation and benefit costs applicable to a significant portion of our employees are established by the terms of collective bargaining agreements. We cannot guarantee we will be able to maintain our relatively low costs.
In addition, the compensation and benefit costs applicable to a significant portion of our employees are established by the terms of collective bargaining agreements.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, we operated a fleet of 54 Boeing 737-NG aircraft, consisting of 53 Boeing 737-800s and one Boeing 737-700. As of December 31, 2022, we operated 42 aircraft in our passenger fleet. Of these passenger aircraft, 13 were financed under operating or finance leases, 26 of the owned aircraft are financed and three aircraft were unencumbered.
Biggest changeOf these passenger aircraft, 13 were financed under finance leases, 26 of the owned aircraft were financed and three aircraft were unencumbered. The average age of the passenger aircraft in our fleet was approximately 15 years as of December 31, 2023.
Our principal executive offices and headquarters are presently located on MSP property at 2005 Cargo Road, Minneapolis, Minnesota 55450, consisting of approximately 90,000 square feet, under a lease which expires in February 2029. 53 Table of Contents
Our principal executive offices and headquarters are presently located on MSP property at 2005 Cargo Road, Minneapolis, Minnesota 55450, consisting of approximately 90,000 square feet, under a lease which expires in February 2029.
We also operate 12 aircraft dedicated to our cargo business. These freighters had an average age of 20 years as of December 31, 2022. This fleet of freighters is subleased directly from Amazon and we operate them pursuant to the ATSA.
We also operate 12 aircraft dedicated to our Cargo business. These freighters had an average age of 21 years as of December 31, 2023. This fleet of freighters is subleased directly from Amazon and we operate them pursuant to the ATSA.
Our leases also include two hangars: • 108,000 square foot maintenance hangar, which includes office space and is where we provide certain maintenance on our aircraft; and • 90,000 square foot office and hangar facility which has been converted into our corporate headquarters.
Our leases also include two hangars: • 108,000 square foot maintenance hangar, which includes office space and is where we provide certain maintenance on our aircraft; and 58 Table of Contents • 90,000 square foot office and hangar facility which has been converted into our corporate headquarters.
We primarily operate out of eight of the 14 gates at Terminal 2 at MSP, five of which are assigned to us on a priority basis with common use access to the remaining gates. Our leases for our terminal passenger service facilities, which include operational support space and baggage service offices, are leased on a month-to-month basis.
We primarily operate out of eight of the 14 gates at Terminal 2 at MSP, which we have access to on an "Enhanced Priority" basis through 2028, with common use access to the remaining gates. All other leases for our terminal passenger service facilities, which include operational support space and baggage service offices, are leased on a month-to-month basis.
The leases will each have annual lease payments of approximately $2,000 for six years. We do not have an aircraft order book because we only purchase mid-life aircraft. As a result, unlike many other airlines, we are not locked into large future capital expenditures. Rather, we opportunistically take advantage of aircraft prices with purchases at the time of our choosing.
We do not have an aircraft order book because we only purchase mid-life aircraft. As a result, unlike many other airlines, we are not locked into large future capital expenditures. Rather, we opportunistically take advantage of aircraft prices with purchases at the time of our choosing. As of December 31, 2023, we operated 42 aircraft in our passenger fleet.
The average age of the passenger aircraft in our fleet was approximately 15 years as of December 31, 2022. As of December 31, 2022 the Company had a commitment to lease three aircraft with deliveries spanning the fourth quarter of 2023 and the first quarter of 2024.
The average age of the Owned Aircraft Held for Operating lease in our fleet was approximately 9 years as of December 31, 2023. As of December 31, 2023, the Company had a commitment to purchase an aircraft with an expected delivery in the first quarter of 2024.
Added
As of December 31, 2023, Sun Country's fleet consisted of 60 Boeing 737-NG aircraft, comprised of 55 Boeing 737-800s and five Boeing 737-900ERs. This includes 42 aircraft in the passenger fleet, 12 cargo operated aircraft through the ATSA with Amazon, and six aircraft that are currently on lease to 57 Table of Contents unaffiliated airlines.
Added
During the year ended December 31, 2023, the Company acquired five 737-900ERs that are currently on lease to an unaffiliated airline. The Company obtained outright ownership of the Owned Aircraft Held for Operating Lease upon purchase and assumed the position of lessor until the end of the lease terms.
Added
The Company is entitled to fixed payments over the remaining lease term for each aircraft, which expire at various dates between the fourth quarter of 2024 and the fourth quarter of 2025. On each lease expiry date, the Owned Aircraft Held for Operating Lease will be redelivered to Sun Country and are expected to be inducted into the Company’s fleet.
Added
The purchase agreement calls for a base price of $27,500 that is subject to adjustment based on the aircraft's maintenance condition on the date of delivery. The Company had a commitment to lease three aircraft with deliveries spanning the fourth quarter of 2023 and the first quarter of 2024.
Added
The leases have annual lease payments of approximately $2,000 for six years. As of December 31, 2023, the Company had taken control of one of the three aircraft, which was subsequently subleased. The sublease expires in the fourth quarter of 2024.
Added
The aircraft will be delivered to Sun Country on the sublease expiry date and the aircraft will continue to be leased by the Company. The aircraft is expected to be inducted into the Company's fleet upon redelivery. The age of the subleased aircraft was approximately 11 years as of December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTotal Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value ($ in thousands) of Shares that May Yet be Purchased Under Plan October 1-31, 2022 — $ — — $ — November 1-30, 2022 890,586 (1) 890,586 25,000 December 1-31, 2022 — — — — Total 890,586 $ — 890,586 $ 25,000 __________________________ (1) During the fourth quarter of 2022, the Company entered into a $25,000 accelerated share repurchase program.
Biggest changeTotal Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value ($ in thousands) of Shares that May Yet be Purchased Under Plan October 1-31, 2023 — $ — — $ — November 1-30, 2023 (1) 446,948 13.97 446,948 18,757 December 1-31, 2023 459,486 15.84 459,486 11,478 Total 906,434 $ 14.92 906,434 $ 11,478 _________________________________ (1) On November 6, 2023, the Company's Board of Directors authorized an additional $25,000 to the Company's existing stock repurchase program. 60 Table of Contents Stock Performance Graph The following graph compares the cumulative total return from March 17, 2021 through December 31, 2023 on our common stock with the cumulative total return on the NASDAQ Composite Index and the NYSE ARCA Airline Index.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES AND EQUITY SECURITIES Market Information On March 17, 2021, our common stock began trading on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “SNCY”. Prior to that date, there was no public market for our common stock.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES AND EQUITY SECURITIES Market Information On March 17, 2021, our common stock began trading on the Nasdaq under the symbol “SNCY”. Prior to that date, there was no public market for our common stock.
Securities Authorized for Issuance under Equity Compensation Plans The Company has 3,600,000 shares authorized under the Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan, of which 3,276,169 remains available as of December 31, 2022.
Securities Authorized for Issuance under Equity Compensation Plans The Company has 3,600,000 shares authorized under the Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan, of which 2,881,120 remains available as of December 31, 2023.
For more information on the Company's compensation plans, see Note 1 0 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements" of this Annual Report.
For more information on the 59 Table of Contents Company's compensation plans, see Note 10 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements" of this Annual Report.
As of December 31, 2022, there were 57,325,238 shares of common stock outstanding and held of reco rd by approximately 60 stockholders and no shares of preferred stock were outstanding. The number of record holders of our common stock does not include Depository Trust Company ("DTC") participants or beneficial owners holding shares through nominee names.
As of December 31, 2023, there were 53,291,001 shares of common stock outstanding and held of reco rd by approximately 3 stockholders and no shares of preferred stock were outstanding. The number of record holders of our common stock does not include DTC participants or beneficial owners holding shares through nominee names.
The graph assumes that the value of the investment on our common stock and each of the Indexes was $100 on March 17, 2021, and further assumes that all dividends are reinvested. 2022 3/31/2022 6/30/2022 9/30/2022 12/31/2022 SNCY $ 71.96 $ 50.41 $ 37.41 $ 43.60 NYSE Arca Airline Index 70.34 48.69 43.43 46.12 NASDAQ Composite Index 105.14 81.54 78.19 77.39 2021 3/17/2021 3/31/2021 6/30/2021 9/30/2021 12/31/2021 SNCY $ 100.00 $ 94.23 $ 101.73 $ 92.19 $ 74.90 NYSE Arca Airline Index 100.00 93.13 86.51 82.96 71.28 NASDAQ Composite Index 100.00 97.94 107.24 106.83 115.67 The stock performance depicted in the graph above represents historical performance and is not to be relied upon as indicative of future performance.
The graph assumes that the value of the investment on our common stock and each of the Indexes was $100 on March 17, 2021, and further assumes that all dividends are reinvested. 3/17/2021 12/31/2021 12/31/2022 12/31/2023 SNCY $ 100.00 $ 74.90 $ 43.60 $ 43.24 NYSE Arca Airline Index 100.00 71.28 46.12 59.15 NASDAQ Composite Index 100.00 115.67 77.39 110.99 The stock performance depicted in the graph above represents historical performance and is not to be relied upon as indicative of future performance.
Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan 76,605 $ 32.87 3,276,169 Sun Country Airlines 2018 Equity Incentive Plan 4,458,450 $ 6.08 — Total 4,535,055 $ 6.53 3,276,169 54 Table of Contents Purchases of Equity Security by the Issuer and Affiliated Purchasers On October 31, 2022, the Company’s Board of Directors authorized a stock repurchase program pursuant to which the Company may purchase up to $50,000 of its Common Stock, $0.01 par value per share (“Common Stock”).
Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan 68,540 $ 33.03 2,881,120 Sun Country Airlines 2018 Equity Incentive Plan 3,992,712 $ 6.11 — Total 4,061,252 $ 6.56 2,881,120 Purchases of Equity Security by the Issuer and Affiliated Purchasers On October 31, 2022, the Company’s Board of Directors authorized a $50,000 stock repurchase program of its Common Stock.
Removed
The Company received an initial delivery of 890,586 shares at an average price of $19.65 per share during the fourth quarter of 2022. The settlement of the program occurred during January 2023, upon which the Company received an additional 480,932 shares. In total, the Company repurchased 1,371,518 shares at an average price of $18.23 per share.
Added
We are unable to estimate the total number of stockholders represented by the holders. For this reason, the actual number of stockholders is greater than this number of record holders.
Removed
For more information, see Note 16 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. 55 Table of Contents Stock Performance Graph The following graph compares the cumulative total return from March 17, 2021 through December 31, 2022 on our common stock with the cumulative total return on the NASDAQ Composite Index and the NYSE ARCA Airline Index.
Added
On August 1, 2023 and November 6, 2023, the Company's Board of Directors authorized the addition of $30,000 and $25,000, respectively to the Company's existing stock repurchase program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

117 edited+48 added−91 removed42 unchanged
Biggest changeThe year-over-year increase in the effective tax rate was impacted by the non-taxable adjustments of the TRA liability, which was a $5,000 expense in 2022 as compared to a $16,400 benefit in 2021. 65 Table of Contents Segment Information For the Years Ended December 31, 2022 and 2021: Year Ended December 31, 2022 Year Ended December 31, 2021 Passenger Cargo Total Passenger Cargo Total Operating Revenues $ 804,094 $ 90,350 $ 894,444 $ 531,587 $ 91,428 $ 623,015 Operating Expenses: Aircraft Fuel 268,279 84 268,363 128,863 247 129,110 Salaries, Wages, and Benefits 189,134 56,721 245,855 135,721 42,486 178,207 Aircraft Rent 8,768 — 8,768 17,653 — 17,653 Maintenance 33,293 13,311 46,604 29,537 10,558 40,095 Sales and Marketing 31,053 — 31,053 22,060 — 22,060 Depreciation and Amortization 67,530 111 67,641 56,970 105 57,075 Ground Handling 33,808 8 33,816 26,981 — 26,981 Landing Fees and Airport Rent 45,234 424 45,658 40,230 496 40,726 Special Items, net — — — (54,019) (18,400) (72,419) Other Operating, net 71,148 19,830 90,978 56,428 15,152 71,580 Total Operating Expenses 748,247 90,489 838,736 460,424 50,644 511,068 Operating Income (Loss) $ 55,847 $ (139) $ 55,708 $ 71,163 $ 40,784 $ 111,947 Adjustment for Special Items — — — (54,019) (18,400) (72,419) Operating Income (Loss), Excluding Special Items $ 55,847 $ (139) $ 55,708 $ 17,144 $ 22,384 $ 39,528 Operating Margin %, Excluding Special Items 6.9 % (0.2) % 6.2 % 3.2 % 24.5 % 6.3 % Passenger.
Biggest changeFor more information on the Company's tax rate and the TRA Liability, see Note 14 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements" of this Annual Report. 69 Table of Contents Segment Information For the Years Ended December 31, 2023 and 2022: Year Ended December 31, 2023 Year Ended December 31, 2022 Passenger Cargo Total Passenger Cargo Total Operating Revenues $ 949,885 $ 99,735 $ 1,049,620 $ 804,094 $ 90,350 $ 894,444 Operating Expenses: Aircraft Fuel 246,600 69 246,669 268,279 84 268,363 Salaries, Wages, and Benefits 225,744 69,896 295,640 189,134 56,721 245,855 Aircraft Rent 2,281 — 2,281 8,768 — 8,768 Maintenance 46,211 14,377 60,588 33,293 13,311 46,604 Sales and Marketing 34,105 — 34,105 31,053 — 31,053 Depreciation and Amortization 88,098 53 88,151 67,530 111 67,641 Ground Handling 37,506 — 37,506 33,808 8 33,816 Landing Fees and Airport Rent 49,175 440 49,615 45,234 424 45,658 Other Operating, net 87,293 20,272 107,565 71,148 19,830 90,978 Total Operating Expenses 817,013 105,107 922,120 748,247 90,489 838,736 Operating Income (Loss) $ 132,872 $ (5,372) $ 127,500 $ 55,847 $ (139) $ 55,708 Operating Margin % 14.0 % (5.4) % 12.1 % 6.9 % (0.2) % 6.2 % Passenger.
Our charter business, which is one of the largest narrow body charter operations in the United States, is a key component of our strategy both because it provides both inherent diversification and downside protection as well as because it is synergistic with our other businesses.
Our Charter business, which is one of the largest narrow body Charter operations in the United States, is a key component of our strategy because it provides both inherent diversification and downside protection as well as because it is synergistic with our other businesses.
Depreciation and amortization expense includes depreciation of fixed assets we own, amortization of leasehold improvements, amortization of finance leased assets, as well as the amortization of finite-lived intangible assets. It also includes the depreciation of significant maintenance expenses deferred under the built-in overhaul method for owned and certain finance leased aircraft. Ground Handling.
Depreciation and Amortization . Depreciation and amortization expense includes depreciation of fixed assets we own, amortization of leasehold improvements, amortization of finance leased assets, as well as the amortization of certain finite-lived intangible assets. It also includes the depreciation of significant maintenance expenses deferred under the built-in overhaul method for owned and certain finance leased aircraft. Ground Handling.
Our business includes many cost characteristics of ULCCs, such as an unbundled product (which means we offer a base fare and allow customers to purchase ancillary products and services for an additional fee), point-to-point service and a single-family fleet of Boeing 737-NG aircraft, which allow us to maintain a cost base comparable to these ULCCs.
Our business includes many cost characteristics of ULCCs, such as an unbundled product (which means we offer a base fare and allow customers to purchase ancillary products and services for an additional fee), point-to-point service and a single-family fleet of Boeing 737-NG aircraft, which allow us to maintain a cost base comparable to ULCCs.
For more information on our business and strategic advantages, see the "Business" section within Part I, Item 1 of this Annual Report. Operating Revenues Scheduled Service . Scheduled service revenue consists of base fares and expired passenger travel credits. Charter Service .
For more information on our business and strategic advantages, see the "Business" section within Part I, Item 1 of this Annual Report. Operating Revenues Scheduled Service . Scheduled Service revenue mainly consists of base fares and expired passenger travel credits. Charter Service .
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless otherwise indicated, the terms "Sun Country," "we," "us" and "our" refer to Sun Country Airlines Holdings, Inc., and its subsidiaries. The following discussion and analysis presents factors that had a material effect on our results of operations during the years ended December 31, 2022 and 2021.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless otherwise indicated, the terms "Sun Country," "we," "us" and "our" refer to Sun Country Airlines Holdings, Inc., and its subsidiaries. The following discussion and analysis presents factors that had a material effect on our results of operations during the years ended December 31, 2023 and 2022.
For more information on our credit facilities or debt, see Note 8 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. TRA Liability - In connection with the Company’s IPO, the Company entered into a TRA with pre-IPO stockholders (the “TRA holders”).
For more information on our credit facilities or debt, see Note 8 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. TRA Liability - In connection with the Company’s IPO, we entered into a TRA with pre-IPO stockholders (the “TRA holders”).
The Company’s assets include aircraft and associated engines, operating and finance lease assets, the Company’s customer relationship finite-lived intangible assets, and other long-lived assets. The Company reviews the current economic and operating environment to determine whether events or circumstances indicate that these assets (or asset groups) may be impaired.
The Company’s assets include aircraft and associated engines, operating and finance lease assets, the Company’s customer relationship and over-market finite-lived intangible assets, and other long-lived assets. The Company reviews the current economic and operating environment to determine whether events or circumstances indicate that these assets (or asset groups) may be impaired.
However, we cannot predict what the effect on our business and financial position might be from a change in the competitive environment in which we operate or from events beyond our control, such as volatile fuel prices, economic conditions, pandemics, weather-related disruptions, the impact of airline bankruptcies, restructurings or consolidations, U.S. military actions, geopolitical factors, regulations, or acts of terrorism.
However, we cannot 74 Table of Contents predict what the effect on our business and financial position might be from a change in the competitive environment in which we operate or from events beyond our control, such as volatile fuel prices, economic conditions, pandemics, weather-related disruptions, the impact of airline bankruptcies, restructurings or consolidations, U.S. military actions, geopolitical factors, regulations, or acts of terrorism.
Aircraft rent expense is partially offset by the amortization of over-market liabilities related to unfavorable terms of our operating leases and maintenance reserves which existed as of the date of our acquisition by the Apollo Funds in 2018.
Aircraft rent expense was partially offset by the amortization of over-market liabilities related to unfavorable terms of our operating leases and maintenance reserves which existed as of the date of our acquisition by the Apollo Funds in 2018.
The increase was primarily due to the impact of a change in the composition of our aircraft fleet that results in an increased number of owned aircraft and aircraft under finance leases (the expense is recorded as Depreciation and Amortization and Interest Expense).
The increase was primarily due to the impact of a change in the composition of our aircraft fleet that resulted in an increased number of owned aircraft and aircraft under finance leases (the expense is recorded as Depreciation and Amortization and Interest Expense).
We believe our estimates and assumptions are reasonable; however, actual results could differ from those estimates. Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments, or estimates.
We believe our estimates and assumptions are reasonable; however, actual results could differ from those estimates. Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. Some of those significant accounting policies require us to make difficult, 79 Table of Contents subjective, or complex judgments, or estimates.
Accordingly, readers are cautioned not to place undue reliance on this information . 67 Table of Contents The following table presents the reconciliation of Operating Income to Adjusted Operating Income, and Adjusted Operating Income Margin for the periods presented below.
Accordingly, readers are cautioned not to place undue reliance on this information . 71 Table of Contents The following table presents the reconciliation of Operating Income to Adjusted Operating Income, and Adjusted Operating Income Margin for the periods presented below.
Adjusted CASM further 70 Table of Contents excludes special items and other adjustments, as defined in the relevant reporting period, that are not representative of the ongoing costs necessary to our airline operations and may improve comparability between periods. We also exclude stock compensation expense when computing Adjusted CASM.
Adjusted CASM further excludes special items and other adjustments, as defined in the relevant reporting period, that are not representative of the ongoing costs necessary to our airline operations and may improve comparability between periods. We also exclude stock compensation expense when computing Adjusted CASM.
We share resources, such as flight crews, across our scheduled service, charter and cargo business lines with the objective of generating higher returns and margins and mitigating the seasonality of our route network.
We share resources, such as flight crews, across our Scheduled Service, Charter and Cargo business lines with the objective of generating high returns and margins and mitigating the seasonality of our route network.
For more information of our operating and finance leases, as well as the timing of expected future lease payments, see Note 9 to the Consolidated Financial Statements included in Part II, Item 8, included in this Annual Report. • TRA Liability.
For more information on our finance leases, as well as the timing of expected future lease payments, see Note 9 to the Consolidated Financial Statements included in Part II, Item 8, included in this Annual Report. • TRA Liability.
For further detail of our long-term debt and the timing of expected future payments, see Note 8 to the Consolidated Financial Statements included in Part II, Item 8, included in this Annual Report. Interest coupon payments on the Company's EETC financings are paid semi-annually. • Aircraft Leases and Maintenance Reserves.
For further detail of our long-term debt and the timing of expected future payments, see Note 8 to the Consolidated Financial Statements included in Part II, Item 8, included in this Annual Report. Interest coupon payments on the Company's EETC financings are paid semi-annually. The Term Loan is repaid monthly. • Aircraft Leases and Maintenance Reserves.
The Company’s compensation strategy includes the use of stock-based compensation to attract and retain employees and executives and is principally aimed at aligning their interests with those of our stockholders and long-term employee retention, rather than to motivate or reward operational performance for any period.
Our compensation strategy includes the use of stock-based compensation to 73 Table of Contents attract and retain employees and executives and is principally aimed at aligning their interests with those of our stockholders and long-term employee retention, rather than to motivate or reward operational performance for any period.
The Company continuously monitors its breakage rate assumptions and may adjust its estimated breakage rate in the future. Changes in the Company’s estimated breakage rate impact revenue recognition prospectively. For the year ended December 31, 2022, a 10% change in the Company’s estimated travel credit breakage rate would have resulted in a change to Passenger Revenue of approximately $921.
The Company continuously monitors its breakage rate assumptions and may adjust its estimated breakage rate in the future. Changes in the Company’s estimated breakage rate impact revenue recognition prospectively. For the year ended December 31, 2023, a 10% change in the Company’s estimated travel credit breakage rate would have resulted in a change to Passenger Revenue of approximately $827.
Aircraft Rent expense decreased primarily due to the composition of our aircraft fleet shifting from aircraft under operating leases (expense is recorded within Aircraft Rent) to owned aircraft or finance leases (expense is recorded through Depreciation and Amortization and Interest Expense).
The decrease was primarily due to the composition of our aircraft fleet shifting from aircraft under operating leases (expense is recorded within Aircraft Rent) to owned aircraft or finance leases (expense is recorded through Depreciation and Amortization and Interest Expense).
(2) Total System operating statistics for Departures, Block hours, Aircraft miles, ASMs and Fuel gallons consumed include amounts related to flights operated for maintenance; therefore the Total System amounts are higher than the sum of Scheduled Service, Charter Service and Cargo amounts. (3) Scheduled service and charter service utilize the same fleet of aircraft.
(2) Total System operating statistics for Departures, Block hours, Aircraft miles, ASMs and Fuel gallons consumed include amounts related to flights operated for maintenance; therefore, the Total System amounts are higher than the sum of Scheduled Service, Charter Service and Cargo amounts.
Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Further, our non-GAAP information may be different from the non-GAAP information provided by other companies.
Investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, our financial performance measures prepared in accordance with GAAP. Further, our non-GAAP information may be different from the non-GAAP 70 Table of Contents information provided by other companies.
Our charter business includes ad hoc, repeat, short-term and long-term service contracts with pass through fuel arrangements and annual rate escalations. Most of our business is non-cyclical because the U.S. Department of Defense and sports teams still fly during normal economic downturns and our casino contracts are long-term in nature.
Our Charter business includes ad hoc, repeat, short-term and long-term service contracts with pass through fuel arrangements and annual rate escalations. Most of our business is non-cyclical because the DoD and sports teams still fly during normal economic downturns and our casino contracts are long-term in nature.
Sales and marketing expense includes credit card processing fees, travel agent commissions and related global distribution systems fees, advertising, sponsorship and distribution costs, such as the costs of our call centers, and costs associated with our loyalty program. It excludes related salary and wages of personnel, which are included in salaries, wages, and benefits expense. Depreciation and Amortization .
Sales and Marketing . Sales and marketing expense includes credit card processing fees, travel agent commissions and related GDS fees, advertising, sponsorship and distribution costs, such as the costs of our call centers, and costs associated with our loyalty program. It excludes related salary and wages of personnel, which are included in salaries, wages, and benefits expense.
This section should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts.
This section should be read in conjunction with our Consolidated Financial Statements and related 61 Table of Contents notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts.
Based in Minnesota, we focus on serving leisure and VFR passengers and charter customers and providing CMI service to Amazon, with flights throughout the United States and to destinations in Canada, Mexico, Central America and the Caribbean.
Based in Minnesota, we focus on serving leisure and VFR passengers, Charter customers and providing CMI service to Amazon, with flights throughout the U.S. and to destinations in Canada, Mexico, Central America and the Caribbean.
We believe Aircraft Fuel expense, excluding derivatives and other items, is the best measure of the effect of fuel prices on our business as it consists solely of direct fuel expenses that are related to our operations and is consistent with how management analyzes our operating performance.
We believe Aircraft Fuel expense, excluding indirect fuel credits, is the best measure of the effect of fuel prices on our business as it consists solely of direct fuel expenses that are related to our operations and is consistent with how management analyzes our operating performance.
However, we offer a high-quality product that we believe is superior to ULCCs and consistent with that of LCCs. For example, our product includes more legroom than ULCCs, complimentary beverages, in-flight entertainment, and in-seat power, none of which are offered by ULCCs.
However, we offer a high-quality product that we believe is superior to ULCCs and consistent with that of LCCs. For example, our product includes more average legroom than ULCCs, complimentary soft drinks and juices, complimentary in-flight entertainment, and in-seat power, none of which are offered by other ULCCs.
In addition, we had restricted cash of $10,842 as of December 31, 2022, which consists of cash received as prepayment for chartered flights that is maintained in separate escrow accounts in accordance with DOT regulations requiring that charter revenue receipts received prior to the date of transportation are maintained in a separate third-party escrow account.
In addition, we had restricted cash of $17,401 as of December 31, 2023, which generally consists of cash received as prepayment for chartered flights that is maintained in separate escrow accounts in accordance with DOT regulations requiring that Charter revenue receipts received prior to the date of transportation are maintained in a separate third-party escrow account.
Ground handling includes ground services at airports, including baggage handling, ticket counter and other ground services. Landing Fees and Airport Rent. Landing fees and airport rent includes aircraft landing fees and charges for the use of airport facilities. Special Items, net.
Ground handling includes ground services at airports, including baggage handling, ticket counter and other ground services. Landing Fees and Airport Rent. Landing fees and airport rent includes aircraft landing fees and charges for the use of airport facilities. Other Operating.
We believe that our unrestricted cash and cash equivalents, short-term investments, and availability under our Revolving Credit Facility, combined with expected future cash flows from operations, will be sufficient to fund our operations and meet our debt payment obligations for at least the next twelve months.
Our management team retains broad discretion to allocate liquidity. We believe that our unrestricted cash and cash equivalents, short-term investments, and availability under our Revolving Credit Facility, combined with expected future cash flows from operations, will be sufficient to fund our operations and meet our debt payment obligations for at least the next twelve months.
Unless expressly stated otherwise, for discussion and analysis of fiscal year 2020 items and fiscal year 2021 compared to fiscal year 2020, please refer to Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2021, which was filed with the United States Securities and Exchange Commission and is incorporated herein by reference.
Unless expressly stated otherwise, for discussion and analysis of fiscal year 2021 items and fiscal year 2022 compared to fiscal year 2021, please refer to Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2022, which was filed with the SEC and is incorporated herein by reference.
Air Traffic Liabilities typically increase during the fall and early winter months as advanced ticket sales grow prior to the late winter and spring peak travel season and decrease during the summer months.
Air Traffic Liabilities typically increase during the fall and early winter months as advanced ticket sales grow prior to the late winter and spring peak travel season and decrease during the summer months. Air Traffic liabilities were materially consistent year-over-year. Aircraft Fuel.
The Credit Agreement includes financial covenants that require a minimum trailing 12-month EBITDAR ($87,700 as of March 31, 2022 and beyond) and a minimum liquidity of $30,000 at the close of any business day. The Company was in compliance with this covenant as of December 31, 2022.
The Credit Agreement includes financial covenants that require a minimum trailing 12-month EBITDAR ($87,700 as of March 31, 2022 and beyond) and a minimum liquidity, as defined within the Credit Agreement, of $30,000 at the close of any business day. We were in compliance with these covenants as of December 31, 2023 and December 31, 2022.
The restrictions are released once the charter transportation is provided. 71 Table of Contents Our primary uses of liquidity are for operating expenses, capital expenditures, lease rentals and maintenance reserve deposits, debt repayments, working capital requirements, and other general corporate purposes.
The restrictions are released once the charter transportation is provided. Our primary uses of liquidity are for operating expenses, capital expenditures, lease rentals and maintenance reserve deposits, debt repayments, working capital requirements, and other general corporate purposes. Our single largest capital expenditure requirement relates to the acquisition of aircraft.
As of December 31, 2022, the Company held $172,635 of debt securities, all of which are classified as current assets because of their highly liquid nature and availability to be converted into cash to fund current operations.
As of December 31, 2023, we held $134,240 of debt securities, all of which are classified as current assets because of their highly liquid nature and availability to be converted into cash to fund current operations.
Adjusted CASM is a non-GAAP measure derived from CASM by excluding fuel costs, costs related to our cargo operations, certain commissions and other costs of selling our vacation products from this measure as these costs are unrelated to our airline operations and improve comparability to our peers.
Adjusted CASM is a non-GAAP measure derived from CASM by excluding fuel costs, costs related to our Cargo operations, depreciation and amortization recognized on certain assets that generate lease income, stock-based compensation, certain commissions and other costs of selling our vacation products from this measure as these costs are unrelated to our airline operations and improve comparability to our peers.
In December 2019, the Company arranged for the issuance of Class A, Class B and Class C pass-through trust certificates Series 2019-1 (the “2019-1 EETC”), in an aggregate face amount of $248,587 for the purpose of financing or refinancing 13 used aircraft, which was completed in 2020.
Debt - We may obtain debt financing through the issuance of pass-through trust certificates to purchase, or refinance, aircraft. In December 2019, we arranged for the issuance of Class A, Class B and Class C trust certificates Series 2019-1 (the “2019-1 EETC”), in an aggregate face amount of $248,587 for the purpose of financing or refinancing 13 used aircraft.
Our primary sources of liquidity as of December 31, 2022 included our existing cash and cash equivalents of $92,086 and short-term investments of $178,936, our expected cash generated from operations, and the $24,650 of available funds from the Revolving Credit Facility.
Our primary sources of liquidity as of December 31, 2023 included our existing cash and cash equivalents of $46,279 and short-term investments of $141,127, our expected cash generated from operations, and the $24,650 of available funds from the Revolving Credit Facility.
Our operating cash flow is primarily impacted by the following factors: Seasonality of Advance Ticket Sales. We sell tickets for air travel in advance of the customer's travel date. When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred revenue in Air Traffic Liabilities.
We sell tickets for air travel in advance of the customer's travel date. When we receive a cash payment at the time of sale, we record the cash received on advance sales as deferred revenue in Air Traffic Liabilities.
It excludes direct labor costs related to our own mechanics, which are included in salaries, wages, and benefits expense. It also excludes maintenance expenses, which are deferred based on the built-in overhaul method for owned and finance leased aircraft, which is subsequently amortized as a component of depreciation and amortization expense.
It also excludes maintenance expenses, which are deferred based on the built-in overhaul method for owned and finance leased aircraft, which is subsequently amortized as a component of depreciation and amortization expense.
For the year ended December 31, 2022 and 2021, there were an average of four and seven aircraft under operating leases, respectively . As of December 31, 2022, we operated two aircraft under operating leases. Investing Cash Flow Activities Capital Expenditures. Our capital expenditures were $187,922 and $123,332 for the years ended December 31, 2022 and 2021, respectively.
For the years ended December 31, 2023 and 2022, there was an average of one and four aircraft under operating leases, respectively. As of December 31, 2023, we operated no aircraft under operating leases. Investing Cash Flow Activities Capital Expenditures. Our capital expenditures were $218,160 and $187,922 for the years ended December 31, 2023 and 2022, respectively.
This measure is defined as GAAP Aircraft Fuel expense, excluding gains related to fuel hedge derivative contracts and certain costs that are recognized within Aircraft Fuel expense, but are not directly related to our Fuel Cost per Gallon.
This measure is defined as GAAP Aircraft Fuel expense, excluding indirect fuel credits that are recognized within Aircraft Fuel expense, but are not directly related to our Fuel Cost per Gallon.
Our capital expenditures during the year ended December 31, 2022 primarily included the purchase of five incremental aircraft, two aircraft off operating leases, five spare engines, a flight simulator, and other miscellaneous assets.
Our capital expenditures during the year ended December 31, 2023 primarily included the purchase of five Owned Aircraft Held for Operating Lease and one incremental aircraft for our passenger fleet. Our capital expenditures during the year ended December 31, 2022 primarily included the purchase of five incremental aircraft, two aircraft off operating leases, five spare engines, and a flight simulator.
Also discussed is our financial position as of 56 Table of Contents December 31, 2022 and 2021.
Also discussed is our financial position as of December 31, 2023 and 2022.
For more information on Special Items, see Note 17 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. Other Operating, net .
For more information on the TRA liability, see Note 14 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
We are responsible for flying the aircraft under our air carrier certificate, crew, aircraft line maintenance and insurance, all of which allow us to leverage our existing operational expertise from our scheduled service and charter businesses.
We are responsible for flying the aircraft under our air carrier certificate, crew, aircraft line maintenance and insurance, all of which allow us to leverage our existing operational expertise from our Scheduled Service and Charter businesses. Our Cargo business also enables us to leverage certain assets, capabilities, and fixed costs to enhance profitability and promote growth across our Company.
(f) The tax effect of adjusting items, net is calculated at the Company’s statutory rate for the applicable period. The TRA adjustment is not tax deductible and therefore not included in this adjustment. 69 Table of Contents The following table presents the reconciliation of Net Income to Adjusted EBITDA for the periods presented below.
The TRA adjustment is not tax deductible and therefore not included in this adjustment. 72 Table of Contents The following table presents the reconciliation of Net Income to Adjusted EBITDA for the periods presented below.
Aircraft counts and utilization metrics are shown on a system basis only. (4) Passenger-related statistics and metrics are shown only for scheduled service. Charter service revenue is driven by flight statistics. (5) CASM is a key airline cost metric. CASM is defined as operating expenses divided by total available seat miles.
(5) Includes both the Company's Owned Aircraft Held for Operating Lease as well as subleased aircraft. (6) Passenger-related statistics and metrics are shown only for Scheduled Service. Charter Service revenue is driven by flight statistics. (7) CASM is a key airline cost metric. CASM is defined as operating expenses divided by total available seat miles.
Fuel expense represented approximately 32% and 25% of our total operating expense for the years ended December 31, 2022 and 2021, respectively. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations. Fuel consumption has increased by 18% year-over-year, consistent with increased passengers as the impact of the pandemic subsides.
Aircraft Fuel expense represented approximately 27% and 32% of our total operating expense for the years ended December 31, 2023 and 2022, respectively. The market price for jet fuel is volatile, which can impact the comparability of our periodic cash flows from operations.
We believe our flexible business model generates higher returns and margins while also providing greater resiliency to economic and industry downturns than a traditional scheduled service carrier. Our scheduled service business combines low costs with a high-quality product to generate higher TRASM than ULCCs while maintaining lower Adjusted CASM than LCCs, resulting in best-in-class unit profitability.
Our Scheduled Service business combines low costs with a high-quality product to generate higher TRASM than ULCCs while maintaining lower Adjusted CASM than LCCs, resulting in best-in-class unit profitability.
For the years ended December 31, 2022 and 2021, there were an average of 25 and 19 owned aircraft and 11 and seven finance leases, respectively. Ground Handling . Ground handling expense increased $6,835, or 25%, to $33,816 for the year ended December 31, 2022, as compared to $26,981 for the year ended December 31, 2021.
For the years ended December 31, 2023 and 2022, there were an average of 33 and 25 owned aircraft and 12 and 11 aircraft under finance leases, respectively. 68 Table of Contents Ground Handling . Ground handling expense increased $3,690, or 11%, to $37,506 for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Asset Impairment Analysis The Company’s long-lived assets, such as Property & Equipment and finite-lived Intangible Assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable.
There are no critical accounting estimates associated with Charter or Cargo revenue recognition that would materially impact the amount of revenue recognized in any specific period. 80 Table of Contents Asset Impairment Analysis The Company’s long-lived assets, such as Property & Equipment and finite-lived Intangible Assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable.
Aircraft – As of December 31, 2022, we operated a fleet of 54 Boeing 737-NG aircraft. This includes 42 aircraft in the passenger fleet and 12 cargo operated aircraft through the ATSA.
Aircraft – As of December 31, 2023, we had a fleet of 60 Boeing 737-NG aircraft. This includes 42 aircraft in the passenger fleet and 12 cargo operated aircraft through the ATSA and six aircraft that are currently on lease to unaffiliated airlines.
For additional information, refer to Note 18 Commitments and Contingencies to our Consolidated Financial Statements included elsewhere in this Annual Report. Except as described herein, there have been no material changes in our contractual obligations and commitments other than in the ordinary course of business since our fiscal year ended December 31, 2022.
Except as described herein, there have been no material changes in our contractual obligations and commitments other than in the ordinary course of business since our fiscal year ended December 31, 2023.
Ancillary revenue consists primarily of revenue generated from air travel-related services such as baggage fees, seat selection and upgrade fees, priority check-in and boarding fees, itinerary service fees and on-board sales. Cargo . Cargo revenue consists of air cargo transportation services under the ATSA with Amazon, primarily related to e-commerce delivery services. Other .
Charter service revenue consists of revenue earned from our Charter business, primarily generated through our service to the DoD, collegiate and professional sports teams, and casinos. Ancillary . Ancillary revenue consists primarily of revenue generated from air travel-related services, such as baggage fees, seat selection and upgrade fees, priority check-in and boarding fees, other fees and on-board sales. Cargo .
Our repayments of finance lease obligations were $42,062 and $11,931 for the years ended December 31, 2022 and 2021, respectively. During 2022, the Company purchased two aircraft previously classified as finance leases using proceeds from the 2022-1 EETC. The resulting cash outflows are recorded as payments for finance lease obligations.
During 2022, we purchased two aircraft previously classified as finance leases using proceeds from the 2022-1 EETC. The resulting cash outflows are recorded as payments for finance lease obligations. There were no similar aircraft transactions during the year ended December 31, 2023.
Our cargo business also enables us to leverage certain assets, capabilities, and fixed costs to enhance profitability and promote growth across our Company. 57 Table of Contents Operations in Review We believe a key component of our success is establishing Sun Country as a high growth, low-cost carrier in the United States by attracting customers with low fares and garnering repeat business by delivering a high-quality passenger experience, offering state-of-the-art interiors, free streaming of in-flight entertainment to passenger devices, seat reclining and seat-back power in all of our aircraft.
Operations in Review We believe a key component of our success is establishing Sun Country as a high growth, low-cost carrier in the United States by attracting customers with low fares and garnering repeat business by delivering a high-quality passenger experience, offering state-of-the-art interiors, complimentary streaming of in-flight entertainment to passenger devices, seat reclining and seat-back power in all of our aircraft. 62 Table of Contents Pilot training throughput issues, fuel price volatility due to market conditions and geopolitical events, and the impact of macroeconomic conditions, including inflationary pressures, continue to impact the Company, as well as the industry.
The Company has not recorded an impairment on its long-lived assets for any of the periods presented in these Consolidated Financial Statements, nor did it identify any triggering events during the year ended December 31, 2022 and 2021. 79 Table of Contents Valuation of the TRA Liability In connection with its IPO, the Company entered into a TRA with the TRA holders.
Primarily all of the Company’s long-lived assets are owned by, or associated with, the Passenger operating segment. The Company has not recorded an impairment on its long-lived assets for any of the periods presented in these Consolidated Financial Statements, nor did it identify any triggering events during the year ended December 31, 2023 and 2022.
Interest expense includes interest and fees related to our outstanding debt and our finance leases, as well as the amortization of debt financing costs. Other, net .
Interest expense includes interest and fees related to our outstanding debt and our finance leases, as well as the amortization of debt financing costs. Other, net . Other expenses include activities not classified in any other area of the Consolidated Statements of Operations, such as changes in the TRA Liability.
To determine whether impairment exists, the Company groups its assets based on the lowest level of identifiable cash flows, which is its operating segments. This is due to the Company operating a Passenger Service fleet comprised exclusively of one type of aircraft, the Boeing 737-NG.
To determine whether impairment exists, the Company groups its assets based on the lowest level of identifiable cash flows. The Company operates a fleet comprised exclusively of one type of aircraft, the Boeing 737-NG. Therefore, the Company's largest asset group is its fleet of 737-NG aircraft, associated engines, as well as related finite-lived intangible assets.
For more information on these maintenance expense credits, see Note 6 of the Consolidated Financial Statements included in Part II, Item 8 of this report. Sales and Marketing .
For more information on the purchase of five Owned Aircraft Held for Operating Lease, see Note 6 of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
We have identified the following critical accounting policies: – Revenue Recognition – Loyalty Program Accounting – Asset Impairment Analysis – Valuation of the Tax Receivable Agreement TRA Liability 77 Table of Contents Revenue Recognition Scheduled passenger service, charter service, and most ancillary revenues are recognized when the passenger flight occurs.
We have identified the following critical accounting policies: – Revenue Recognition – Asset Impairment Analysis Revenue Recognition Scheduled Service, Charter Service, and most Ancillary revenues are recognized when the passenger flight occurs. Revenues exclude amounts collected on behalf of other parties, including transportation taxes.
We have historically funded our operations and capital expenditures primarily through cash from operations, proceeds from stockholders’ capital contributions, the issuance of promissory notes, and debt financing.
Our ability to successfully execute our business strategy is largely dependent on the continued availability of capital with attractive terms and maintaining sufficient liquidity. We have historically funded our operations and capital expenditures primarily through cash from operations, proceeds from stockholders’ capital contributions, the issuance of promissory notes, and debt financing.
The Company records an estimate for travel credits that will expire unused, otherwise known as breakage, in Passenger Revenue upon issuance of the travel credit. During the years ended December 31, 2022 and 2021, the Company recorded $12,560 and $12,456, respectively, of estimated travel credit breakage.
As of December 31, 2023 and 2022, the Company’s air traffic liability included $6,048 and $10,192, respectively, related to travel credits for future travel. The Company records an estimate for travel credits that will expire unused, otherwise known as breakage, in Passenger Revenue upon issuance of the travel credit.
We have excluded costs related to the cargo operations as these operations do not create ASMs.
We have excluded costs related to the Cargo operations, as well as depreciation and amortization recognized on certain assets that generate lease income as these operations do not create ASMs.
For more information on the Company's Debt, see Note 8 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. Other, net . Other, net decreased by $19,859 to a net expense of $5,235 for the year ended December 31, 2022, as compared to net benefit of $14,624 for the year ended December 31, 2021.
The year-over-year increase was partially offset by a $1,557 loss on extinguishment of debt incurred during the year ended December 31, 2022 related to the repayment of the DDTL. For more information on the Company's Debt, see Note 8 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report. Other, net .
Salaries, Wages, and Benefits . Salaries, wages, and benefits expense increased $67,648, or 38%, to $245,855 for the year ended December 31, 2022, as compared to $178,207 for the year ended December 31, 2021.
Salaries, Wages, and Benefits . Salaries, wages, and benefits expense increased $49,785, or 20%, to $295,640 for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Maintenance materials and repair expense increased $6,509, or 16%, to $46,604 for the year ended December 31, 2022, as compared to $40,095 for the year ended December 31, 2021.
Maintenance materials and repair expense increased $13,984, or 30%, to $60,588 for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
The 2019-1 EETC is payable in semi-annual installments, in June and December, through December 2027. In March 2022, the Company arranged for the issuance of the 2022-1 EETC in an aggregate face amount of $188,277 for the purpose of financing or refinancing 13 aircraft.
During March 2022, we arranged for the issuance of Class A and Class B trust certificates Series 2022-1 (the "2022-1 EETC") in an aggregate face amount of $188,277 for the purpose of financing or refinancing 13 aircraft.
Accordingly, all prior period numbers included in this Management's Discussion and Analysis of Financial Condition and Results of Operations reflect the effect of the revisions. 60 Table of Contents Operating Statistics Key Operating Statistics and Metrics Year Ended December 31, 2022 (1) Year Ended December 31, 2021 (1) Scheduled Service Charter Cargo Total Scheduled Service Charter Cargo Total Departures (2) 23,166 8,616 11,619 43,686 19,706 7,093 11,295 38,317 Block hours (2) 76,081 17,788 32,691 127,361 64,584 14,967 33,934 114,106 Aircraft miles (2) 30,413,446 6,295,154 12,502,451 49,438,373 26,228,100 5,483,145 13,372,671 45,269,162 ASMs (thousands) (2) 5,637,233 1,093,530 6,771,340 4,844,203 951,086 5,826,827 TRASM (cents) 11.40 14.78 11.87 8.35 13.39 9.12 Average passenger aircraft during the period (3) 35.9 32.2 Passenger aircraft at end of period (3) 42 36 Cargo aircraft at end of period 12 12 Average daily aircraft utilization (hours) (3) 7.2 6.8 Average stage length (miles) 1,155 1,183 Revenue passengers carried (4) 3,598,584 2,733,364 Revenue passenger miles (RPMs) (thousands) (4) 4,706,996 3,618,208 Load factor (4) 83.5% 74.7% Average base fare per passenger (4) $ 121.80 $ 102.21 Ancillary revenue per passenger (4) $ 53.49 $ 42.89 Charter revenue per block hour $ 9,086 $ 8,508 Fuel gallons consumed (thousands) (2) 59,222 12,055 71,690 49,685 10,729 60,739 Fuel cost per gallon, excluding derivatives and other items $ 3.75 $ 2.19 Employees at end of period 2,510 2,181 CASM (cents) (5) 12.39 8.77 Adjusted CASM (cents) (6) 7.04 6.48 __________________________ (1) Certain operating statistics and metrics are not presented as they are not calculable or are not utilized by management.
Deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards. 64 Table of Contents Operating Statistics Key Operating Statistics and Metrics Year Ended December 31, 2023 (1) Year Ended December 31, 2022 (1) Scheduled Service Charter Cargo Total Scheduled Service Charter Cargo Total Departures (2) 26,144 10,387 13,009 50,040 23,166 8,616 11,619 43,686 Block hours (2) 82,618 21,154 34,592 139,841 76,081 17,788 32,691 127,361 Aircraft miles (2) 32,494,683 7,331,362 13,145,001 53,450,328 30,413,446 6,295,154 12,502,451 49,438,373 ASMs (thousands) (2) 6,044,011 1,286,175 7,416,189 5,637,233 1,093,530 6,771,340 TRASM (cents) (3) 12.27 14.78 12.56 11.40 14.78 11.87 Average passenger aircraft during the period (4) 41.8 35.9 Passenger aircraft at end of period (4) 42 42 Leased aircraft (5) 6 — Cargo aircraft at end of period 12 12 Average daily aircraft utilization (hours) (4) 6.9 7.2 Average stage length (miles) 1,090 1,155 Revenue passengers carried (6) 4,140,663 3,598,584 Revenue passenger miles (RPMs) (thousands) (6) 5,217,852 4,706,996 Load factor (6) 86.3% 83.5% Average base fare per passenger (6) $ 109.61 $ 121.80 Ancillary revenue per passenger (6) $ 66.69 $ 53.49 Total fare per passenger (6) $ 176.30 $ 175.29 Charter revenue per block hour (6) $ 8,988 $ 9,086 Fuel gallons consumed (thousands) (2) 64,450 14,299 79,574 59,222 12,055 71,690 Fuel cost per gallon, excluding indirect fuel credits $ 3.11 $ 3.75 Employees at end of period 2,783 2,510 CASM (cents) (7) 12.43 12.39 Adjusted CASM (cents) (8) 7.49 7.04 __________________________ (1) Certain operating statistics and metrics are not presented as they are not calculable or are not utilized by management.
These agreements generally include cost-sharing provisions and environmental indemnities that are generally joint and several among the participating airlines. Consortia that are governed by interline agreements are either, 1) not variable interest entities (“VIEs”) because they are not legal entities, or 2) are variable interest entities, but the Company is not deemed the primary beneficiary.
Consortia that are governed by interline agreements are either, 1) not VIEs because they are not legal entities, or 2) are variable interest entities, but the Company is not deemed the primary beneficiary. Therefore, these agreements are not reflected on our Consolidated Balance Sheets.
For more information on the TRA liability, see Note 15 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements" of this Annual Report. Income Tax Expense (Benefit). The Company's effective tax rate increased by 7.3% to 26.3% for the year ended December 31, 2022, as compared to 19.0% for the year ended December 31, 2021.
For more information on the TRA Liability and secondary offerings, see Note 14 and Note 15 to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements" of this Annual Report. Income Tax Expense.
Depreciation and amortization expense increased $10,566, or 19%, to $67,641 for the year ended December 31, 2022, as compared to $57,075 for the year ended December 31, 2021.
Depreciation and amortization expense increased $20,510, or 30%, to $88,151 for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible or nontaxable items.
Our effective tax rate decreased by 3.0% to 23.3% for the year ended December 31, 2023, as compared to 26.3% for the year ended December 31, 2022. The effective tax rate represents a blend of federal and state taxes and includes the impact of certain nondeductible or nontaxable items.
The increase was largely driven by an increase in demand for passenger service during the year ended December 31, 2022 as compared to 2021, which was significantly impacted by a decrease in passenger demand due to the COVID-19 pandemic. 62 Table of Contents Scheduled Service .
The revenue increase was largely driven by an increase in demand for our passenger service offerings during the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Revenue for change fees is deferred and recognized when the passenger travel is provided. Travel credits may generally be redeemed toward future travel for up to 12 months after the date of the original booking. As of December 31, 2022 and 2021, the Company’s air traffic liability included $10,192 and $10,924, respectively, related to travel credits for future travel.
If notification is made, a travel credit is created for the face value, including ancillary fees, less applicable change fees. Revenue for change fees is deferred and recognized when the passenger travel is provided. Travel credits may generally be redeemed toward future travel for up to 12 months after the date of the original booking.
(b) This represents the one-time costs to establish the TRA liability with our TRA holders. See Note 15 to the Company’s Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
For more information on the TRA liability to be paid to the TRA holders, see Note 14 to the Consolidated Financial Statements included in Part II, Item 8, included in this Annual Report.
Other revenue consists primarily of revenue from services in connection with our Sun Country Vacations products, including organizing ground services, such as hotel, car and transfers. Other revenue also includes services not directly related to providing passenger services such as the advertising, marketing and brand elements resulting from our co-branded credit card program.
Other revenue also includes services not directly related to providing passenger services such as the advertising, marketing and brand elements resulting from our co-branded credit card program. Operating Expenses Aircraft Fuel . Aircraft fuel expense includes jet fuel, federal and state taxes, and other fees.
In the near term, current airline travel demand will partially offset the additional costs associated with operational challenges, fuel price increases, and other inflationary pressures. Our flexible business model gives us the ability to adjust our services in response to these market conditions, which is targeted at producing the highest possible returns for Sun Country.
Additionally, our Charter and Cargo businesses have the ability to pass on certain costs, including fuel. Our flexible business model gives us the ability to adjust our services in response to market conditions, which is targeted at producing the highest possible returns for Sun Country.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+4 added−6 removed2 unchanged
Biggest changeWe have exposure to market risk associated with changes in interest rates related to the interest expense from our variable-rate debt and our short-term investment securities. A change in market interest rates would impact interest expense under the Revolving Credit Facility, totaling $25,000 in principal capacity.
Biggest changeWe currently do not expect to enter into these types of contracts prospectively, although significant changes in market conditions could affect our decisions. Interest Rates. We have exposure to market risk associated with changes in interest rates related to the interest expense from our variable-rate debt and our short-term investment securities.
Given these factors and that a significant portion of our 80 Table of Contents portfolio is held in cash and cash equivalents, we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position. 81 Table of Contents
Given these factors and that a significant portion of our portfolio is held in cash and cash equivalents, we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position. 82 Table of Contents
Based on our forecasted scheduled service and charter fuel consumption for the first quarter of 2023, we estimate that a one cent per gallon increase in the average aircraft fuel price would increase aircraft fuel expense by approximately $213 excluding reimbursed cargo fuel. Interest Rates.
Unexpected pricing changes of aircraft fuel could have a material adverse effect on our business, results of operations and financial condition. For example, based on our forecasted Aircraft Fuel expense for the first quarter of 2024, we estimate that a one cent per gallon increase in the average aircraft fuel price would increase Aircraft Fuel expense by approximately $233.
Conversely, a decrease in market interest rates increases the market value. The fair market value of our short-term investments with exposure to interest rate risk was $172,635 as of December 31, 2022. These investments are highly liquid and are available to be quickly converted into known amounts of cash to fund current operations.
An increase in market interest rates decreases the market value of fixed-rate investments. Conversely, a decrease in market interest rates increases the market value. The fair market value of our short-term investments with exposure to interest rate risk was $134,240 as of December 31, 2023. The Company limits its investments to investment grade quality securities.
Removed
Unexpected pricing changes of aircraft fuel could have a material adverse effect on our business, results of operations and financial condition.
Added
Aircraft Fuel expense does not include amounts where we are considered the customer's agent for procuring fuel. We had no fuel option and swap contracts in place to hedge the economic risk associated with volatile fuel prices as of December 31, 2023.
Removed
To hedge the economic risk associated with volatile aircraft fuel prices, we periodically enter into fuel collars, which allows us to reduce the overall cost of hedging, but may prevent us from participating in the benefit of downward price movements. In the past, we have also entered into fuel option and swap contracts.
Added
A change in market interest rates would impact interest expense under the $119,200 term loan credit facility used to finance the Owned Aircraft Held for Operating Lease. A 100 basis point increase in interest rates on the term loan would result in a corresponding increase in interest expense of approximately $1,084 annually.
Removed
We had no hedges in place at December 31, 2022. We do not hold or issue option or swap contracts for trading purposes. We currently do not expect to enter into these types of contracts prospectively, although significant changes in market conditions could affect our decisions.
Added
As of the date of this filing, the 81 Table of Contents entire term loan credit facility has been drawn. The Company also maintains a $25,000 Revolving Credit Facility with a variable interest rate that is impacted by market conditions.
Removed
During the first quarter of 2022, we repaid the outstanding balance of the DDTL using proceeds from the 2022-1 EETC, which terminated the DDTL. We are unable to draw any additional amounts from the DDTL and no longer face any exposure to market risk on this portion of our Credit Facilities.
Added
As of December 31, 2023, the Company had $24,650 of financing available through the Revolving Credit Facility, as $350 had been pledged to support a letter of credit. As of December 31, 2023, no amounts on the Revolving Credit Facility had been drawn. Our short-term investment securities are primarily comprised of fixed-rate debt investments.
Removed
Assuming the Revolving Credit Facility is fully drawn, a 100 basis point increase in interest rates would result in a corresponding increase in interest expense of approximately $250 annually. Our short-term investment securities are primarily comprised of fixed-rate debt investments. An increase in market interest rates decreases the market value of fixed-rate investments.
Removed
The Company limits its investments to investment grade quality securities.

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