Minneapolis-based Sun Country Airlines attributed its lower first quarter profit to rising airport fees and maintenance costs.
The double-digit increase in landing fees is the result of expiring COVID-era federal funding that propped up airports at a time when U.S. terminals were handling far fewer flights.
Sun Country's top executives also said they expect maintenance expenses to remain high throughout 2024.
The budget carrier on Tuesday reported net income of $35.3 million on revenue of $311 million, a 7.9% decrease in net income compared with the same quarter in 2023.
Maintenance expenses rose 29% and landing fees and airport rent rates are up nearly 35% for the three-month period ended March 31.
"Maintenance costs are going to stay a bit elevated like this through the rest of the year," Dave Davis, president and chief financial officer, told analysts Tuesday. He attributed the higher costs to "some intentional changes" in the company's maintenance program this year.
"That's going to likely persist or it will persist based on our plan through 2024," Davis said.
The expired federal funding kept rent rates lower that they otherwise would have been given the rapid decline of landings during the pandemic, Davis said. "That aid that they received really ran out fully in 2023 and we're now sort of bearing the consequence of full market rates without that subsidy."
Sun Country, however, has benefited from Minneapolis-St. Paul International Airport (MSP) being its main hub, where it's the second-largest carrier behind Delta Air Lines. Sun Country CEO Jude Bricker said MSP "does a really good job" of maintaining low costs, referring to the airport's fuel consortium, which has kept the price difference between jet fuel and crude oil "a lot narrower than most major markets", he said.
Fuel expenses for the airline decreased by 2.7% compared with the same period a year ago, falling from $72.2 million to $70.3 million.
"We'll have less of an impact from pressure of major airport rate increases than most of the industry," he said.
Sun Country reported earnings per share of 64 cents, slightly below analyst projections of 68 cents a share. The quarterly revenue, up 5.9% compared to the year-ago quarter, was the company's highest for any quarter dating to 2017, but below analyst estimates of $316.2 million.
For its second quarter, Sun Country's leaders anticipate revenue of between $255 million and $265 million, which disappointed investors who sent the company's stock down more than 12% in trading Tuesday.
Total passenger revenue per available seat miles, or TRASM, is a key industry metric that declined by 9.6% for the airline, partly driven by growing competition with other airlines, predominantly Delta, but also Southwest and Frontier, Bricker said.
Overall, airfares have rapidly declined as built-up travel demand coming out of the pandemic wanes. Additionally, the airline expects to have more scheduled flights during the period between spring break and Memorial Day than is needed for the demand in those off-peak months, Bricker said.
Bricker said the situation is creating an opportunity to grow Sun Country's cargo and charter service segments.
"In 2023, fares were really high and we were under allocated into scheduled service and now that's changed," he said. "Now the opportunity is best in those cargo and charter markets."
Sun Country's payroll grew 9% in the quarter, from $75.4 million in 2023 to $82.2 million, which helped boost the airline's completion factor, or percentage of scheduled flights that were not canceled, to 99.7%. The company saw a nearly 10% improvement in the number of hours its aircrafts were in operation, Bricker said.
"Coming out of COVID, we had tightness, not just pilots, but across all of our labor categories, and I think that's in the rearview mirror," he said.
