Sun Country Plans to Go ULCC While Others Question Whether That Model Can Work for Any Airline

When Jude Bricker was brought in as the new CEO of Sun Country, I assumed a move toward his roots at ultra low cost carrier (ULCC) Allegiant was in the cards. A recent memo he sent internally at the airline indicates that is indeed what’s happening. The timing, however, is interesting as many are starting to publicly question whether the ULCC model is going to be sustainable in the long term in the US market for anyone.

Jude’s plan appears to be this:

  • Reduce costs
  • Increase ancillary revenues
  • Diversify beyond its home airport (Minneapolis/St Paul)
  • Maintain that Minnesota friendliness
  • Reduce costs

Did I mention the airline will need to reduce costs? It’s going to do this through the usual methods. It’ll add seats to airplanes to bring unit costs down. You’ll also see a buyout for senior employees (not pilots, which are desperately needed) to help bring labor costs lower. And of course, you know there will be a top to bottom review of everything to find ways to wring costs out.

Does this sound like Frontier to you? The structure sounds exactly like Frontier to me. Just substitute Minneapolis for Denver and you’ve got the same thing, just on a smaller scale. (No, we don’t know what the route structure is going to look like, but at least the basic transformation plan sounds the same.)

Is that good? Well, certainly Frontier did not have a sustainable model before the change, and it’s making money now. But for Frontier, the switch has been rocky. There have been notable operational and customer service failures that become even more noticeable when compared to the service previously provided by the airline. Having that point of comparison makes for an uphill battle for any airline at the start. Sun Country will face that same challenge at home, but the challenges appear even larger now than before.

What’s been most interesting lately is that the ULCCs aren’t spinning gold in quite the same way they did before. Spirit’s stock took a hit after talk of pricing pressure came out in the last earnings call. Meanwhile, increased competition has led to a delayed initial public offering for Frontier. The current state of affairs has some questioning whether the ULCC model has a future at all in the US.

Let’s not kid ourselves. These airlines are still making good money. That being said, the big carriers are getting much more aggressive. They aren’t going to sit around and let ULCCs have an inch anymore. US Airways knew this and fought Spirit tooth-and-nail. Now those former US Airways leaders are running two of the three remaining big network carriers in the US and the strategy remains the same.

More importantly, they’ve armed themselves with new weapons in the fight against carriers with a lower cost base. They’ve upgauged to bigger airplanes and put more seats in coach to help bring unit costs down. At the same time they’ve launched Basic Economy and begun selling even more ancillary services to find a way to be able to offer those low fares to match ULCCs without hemorrhaging.

It’s a delicate dance. Those airplanes still need to be full of higher fare travelers up front, and so far, the big three appear to have found a good balance. This can (and undoubtedly will) change in the future, but it seems that right now, the network carriers have won a battle in this long-standing war.

So what can the ULCCs do? And how can Sun Country succeed? Spirit will tell you that having low costs matters the most. That is a huge piece of it, but it may no longer be enough considering the competitive threat from the big guys. ULCCs need to actually do right by the customer. That means it’s now hugely important to run a good operation. Ryanair figured this out long ago. Just look at the first 7 months of this year. Ryanair’s worst month was an 83 percent on-time percentage with four of the months over 90 percent.

You would think the basic idea of running a good operation would be a given, but the ULCCs in the US still aren’t there after all these years. Meanwhile, Ryanair has learned even that’s not enough in Europe. It now believes improving customer service matters as well. The airline has spent a lot of time over the last few years playing in that sandbox. US ULCCs are still playing catch-up. So what about Sun Country?

Sun Country already has a reputation for good customer service, but it has a model that’s not going to work in the long run. Now it has to figure out how it can transition its model without ruining that solid reputation. A note to Sun Country: it’s probably best not to follow Frontier’s lead. Sure, that airline wanted to do the same thing, but reality hasn’t worked out that way with several very public missteps along the way.

Sun Country’s owner at least paid lip service to this reality.

“We don’t want to nickel and dime customers. We want to stabilize it for long-term growth by finding the right rhythm between our pricing and customer service,” he said. “Jude very much recognizes the value that exists at Sun Country and we aren’t going to change that.”

As the old saying goes, talk is cheap. In the past, that didn’t matter as much since bigger airlines either weren’t able to properly compete or simply didn’t bother trying. But those days are over, and a successful ULCC is going to have to really focus on operational and customer service excellence. Even that’s no guarantee of success in this hyper-competitive world. But it’s at least a roadmap that may have a fighting chance.

If that’s Sun Country’s plan, then more power to the airline. Maybe someone can pull this off.

[Sun Country 737 by Cory W. Watts/CC BY-SA 2.0 and Weight Watchers by Mike Mozart/CC BY 2.0]

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14 Comments on "Sun Country Plans to Go ULCC While Others Question Whether That Model Can Work for Any Airline"

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David
Guest

Ryanair has been having 2nd thoughts about customer service in the last few months. In particular it seems they have decided that their improvement of customer service went a bit too far and they have rolled back a bit.

Customer service is important – but price is even more important for ULCCs

A
Guest
This ran in the local MSP media a week or two ago. If online newspaper comments are to be believed SY has just lost 100% of their loyal customer base. Of course that isn’t true but overall the local mood is not good. SY was the Delta alternative and marketed big to being the local airline after NW was gobbled up. No doubt that drove some business. They offered mostly the same mainline product but often at a slight fare discount and service “with a smile” or whatever other corny line they wanted to give it. If you forgive light… Read more »
David SF eastbay
Member

You never know what can happen until you try, so let them try. They will either fail, or be bought by someone else.

DesertGhost
Guest

At one of the first earnings calls following the America West / US Airways merger, I remember Doug Parker mentioning that one of the best cost cutting moves an airline can make is to run a good operation.

Ted
Guest
SAVE/NK is correct to believe cost matters the most. As long the costs stay low for the ULCCs they will make money. The potential cost of new pilot contract is concerning, that’s why the stock is back at 52w low. Long term investors are buying. As for Sun Country, they are looking to get out from the investment. Potential sale to another ULCC is likely, and over lap is low. The leases on the 737 might need to go, and that will lead to pilot issues. Not sure how delta would like a larger ULCC at MSP, but it shouldn’t… Read more »
Kilroy
Guest
If you’re flexible on dates and service quality, it appears that you can go from JFK to most destinations in Europe for <$1000 a RT these days, sometimes even close to $600 (e.g., Meridiana runs JFK to Naples for about $600, as does Turkish from JFK to Istanbul), and from JFK to many really unusual destinations (the 'stan countries, other really off-the-beaten-path places in Africa & Asia that few Americans ever visit) for <$1500 a RT. I wonder how sustainable these fares really are, and suspect that we will see a shakeout within the next few years with some of… Read more »
Alex Kim
Member

You can get $350-$400 return fares from Moscow to New York in October on major airlines like Air France or KLM. And that’s eastern Europe, so there is extra 4hr leg from/to Paris or Amsterdam. funny enough the same flight another way around (or simply AMSNYC flight) will cost you $200-300 more.
So I am pretty sure sub $500 transatlantic fares in off-peak season are sustainable, its just that airlines CAN charge you more if your trip originates in US or Western Europe.
For now

Kilroy
Guest

Yup. I recall seeing JFK – Moscow fares in the $400-500 per RT range a few years ago (when oil was a bit pricier), but you had to go to Moscow… In the winter… And at the time those cheap fares were only available on Aeroflot.

I was tempted to try it, but came to my senses rather quickly.

Itami
Guest
Another concern within the US ULCC sector that hasn’t gotten quite as much airtime is network-related. The NK/F9 2.0 business model works best when flying between large markets where they can reliably fill those ultra-dense A320s and it’s an ongoing question whether there are enough of those markets left unserved to sustainably accommodate the growth these airlines are planning for the next few years (let alone a re-tooled SY). If we’re to take Scott Kirby’s words at face value (Your mileage may vary of course), F9 re-pivoting to connections shows that they’re starting to run up against that ceiling as… Read more »
jaybru
Member

Don’t know too much about Sun Country, except as I watch their casino flights come and go from the Laughlin NV/Bullhead City AZ airport. Their aircraft paint jobs seem outstanding. I’ll take them over any of the legacies.’ Plane exteriors always look very clean, like UPS keeps them washed. (But, note to UPS, your trucks don’t seem to be kept as clean as they used to be! What gives?)

Sun Country, best of luck to you!

Alex
Guest

Still think there is a good chance WN acquires SY. Canada is the next frontier for WN, and having a big presence in MSP would help facilitate that. And SY flies all 737.

Anthony
Guest

I don’t know a ton about Sun Country, but it will be interesting to see if there is support in the market for yet another low cost carrier. They seem to operate a fairly simple business which will help on the operational side.

bigjetbuyer
Member

Cranky, what is going on with WN at HOU? They tried to operate 100 flights yesterday and now have 800 customers and employees trapped in the terminal due to flooding! They are trying to organize crews and A/C to ferry everyone to DAL. Who’s in charge there? This has been forecast for days!

CEO’s get fired for this kind of screw up.

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