Last week at the Boyd Conference, Sun Country’s new CEO Jude Bricker had something of a coming out party. We had already heard that the airline wanted to become an Ultra Low Cost Carrier (ULCC), but how would it be different than all the rest? In a presentation to the conference as well as in a lengthy media gathering right after, Jude laid out his plan. It revolves around being nice, cutting costs, and being nimble enough to chase demand wherever it may exist, even if just for 12 weeks at a time in any given market. It’s that last bullet point, which sounds a lot like dream of The Endless Summer, that really caught my attention.
The idea of being able to just chase demand sounds great in theory but is hard in practice. Jude knows that, but he thinks Sun Country is uniquely prepared. It’s true that the airline does have a lot of experience in flexing its operation. As Jude noted, the airline does a lot of charter work that requires being able to move airplanes and cater the product to fit the needs of whomever paid for the service. Flexibility is built into that model. (And the flying is profitable.)
At the same time, Sun Country also has the ability to flex its fleet size in a way that we don’t often see in the US. The airline has 22 737s today (16 737-800s in addition to 6 737-700s which will likely be returned to the lessor as soon as possible). But during the winter when those Minnesotans really want to go down to the Caribbean and warm up, Sun Country leases in 5 extra 737s from Transavia over in Europe. Demand for short-haul travel within Europe during the winter is very weak, so for Transavia, shipping off 5 airplanes at that time of year is great. And Sun Country has the ability to really flex itself when times are good.
With that flexibility, Jude wants to remake the airline’s scheduled service so that it floats from market to market when demand is high. For example, he mentioned the New York to Florida market since it’s a bloodbath for much of the year. But for 12 weeks around late winter/Spring Break, the market does well. That’s a place where Sun Country might want to be, if only for 12 weeks. Another example? The West Coast to Hawai’i, at least as of now, has insatiable demand and high fares during the 12 weeks of summer. Sun Country might be interested in doing that, and already having ETOPS means it can do it easily. Jude sounded a bit cautious on Hawai’i, suggesting that it might make sense now, but as newer aircraft get delivered to other airlines and capacity ramps up, it might not always make sense. But that’s ok. Sun Country would reevaluate season by season when building it schedule.
The first obvious questions here is… how the heck are they going to establish any market presence with only 12 weeks of flying in a market at one time? It can take some time to build up a market, so if you’re only there for 12 weeks, that’s not giving much opportunity. Jude’s secret weapon here is the Global Distribution Systems (GDS). Sun Country participates in the GDS unlike his previous employer, Allegiant. With that, he believes the airline can find enough demand for its flights and have a shorter window of time needed. Right now, Sun Country gives its lowest fares to the GDS, but that may not always be the case. Still, having a presence will be key in Jude’s plan.
The second question is the one I asked Jude directly… what do you do in September? It’s easy to talk about where to put planes during peak seasons, but there’s really no market that has a peak in September. You can’t ground the airplanes because they’re just too expensive and revenue has to come in to pay for them. So what’s Jude’s plan? Well, he said some markets are always decent, like Las Vegas, LA, and New York. His idea seems to be to pull back the airline to fly as little as possible during that lean time and then stick with markets that have the best demand.
In theory, this idea of “The Endless Summer,” chasing demand, sounds really appealing. Sun Country truly becomes a “spill” carrier that’s not stealing share from existing airlines. It’s just stimulating the market and scraping the passengers that the big guys can’t serve anyway. But it’s also a logistical nightmare to manage. I’m not convinced demand will build as quickly as Jude hopes either. Then again, what’s a better option?
There’s no question Sun Country has to get its costs down. Jude’s plan is to get unit costs toward 6.5 cents ex-fuel, still roughly a penny more than the other ULCCs. He’s ok with that, because he says that today on the few markets where Sun Country competes with Spirit and Frontier, Sun Country gets a significant fare premium. His goal is to figure out how to retain that while also squeezing out costs. How will this differ from other ULCCs?
- The airline is going to keep what Jude kept calling “Minnesota Nice” as part of the brand. He wants that friendly Midwestern customer service to remain and thrive.
- While he is looking to charge for a lot of things like baggage, meals, and seat assignments, he’s going a bit softer by not charging for water/sodas.
- More seats will be put onboard, but seat pitch will be cut down only to 30.5 inches, well above what the other ULCCs offer.
- The airline will continue to have First Class, though it’ll have fewer amenities and there will be fewer seats. (Jude came in thinking he would get rid of it entirely, but the team convinced him there’s value there.)
- Sun Country runs a great operation today (99.9 percent dispatch reliability with on-time performance in the low to mid 80 percent range) and it will keep it running well. The airline won’t run its airplanes as hard as the other ULCCs,so there will be more slack in the system. That adds some costs, but he understands the importance of operational integrity (which is funny since he was COO at Allegiant)
You add all that up and costs are somewhat higher than the guys at the bottom, but they’re still well below the legacy carriers. Sun Country becomes not only an airline that people want to fly but also one that can make money with some kind of revenue premium over the Spirits of the world.
This is a different kind of ULCC model and one that comes with risks, but as Jude notes, the biggest risk is doing nothing because the model today just isn’t working. Still, it will take time for the route network to change and that means the airline is vulnerable. When I asked, Jude conceded that if Delta woke up and decided to focus itself on killing Sun Country, it could probably be successful. But Delta probably prefers Sun Country to Southwest or someone else filling the vacuum right now. And since Sun Country doesn’t seem to have huge aspirations, it’s possible the airline can survive long enough to remake itself into a sustainably-profitable airline. At least that’s the case if this model actually works.