Sun Country is on the rise

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: November 10, 2012 - 10:53 PM

Minnesota’s homegrown airline is thriving after surviving Tom Petters, the recession and high fuel prices.

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Sun Country's Stan Gadek, chief executive officer and key strategist behind the airline's turn around under the new ownership of Marty Davis and his Cambria countertop manufacturing family, stood in front of one of the airplanes, Wednesday, November 7, 2012 in Bloomington, MN. (ELIZABETH FLORES/STAR TRIBUNE) ELIZABETH FLORES � eflores@startribune.com

Photo: Elizabeth Flores, Star Tribune

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The first hint to passengers that the heritage of Sun Country Airlines lies beyond the aviation industry is the dragon symbol of Cambria, the quartz countertop and tabletop giant, on the airplane's skin next to the cabin door.

The second hint is in the seat-back pouch where copies of the "Cambria Style" magazine share space with Sun Country's in-flight magazine.

But other than that, it's not obvious that the owners of Cambria, a conglomerate run by the Davis family of southern Minnesota, has been the airline's owner since paying $34 million for Sun Country in July 2011.

And Sun Country Chairman Marty Davis wants to keep it that way at Minnesota's last remaining homegrown airline.

"There might be some cross-marketing opportunities,'' Davis said during a recent interview. "But we run Sun Country in a very arm's-length way."

Indeed, the Davis family has bet on the vision of Chief Executive Stan Gadek, the engineer of a strategy that turned Sun Country from a money-losing, cash-strapped and bankrupt carrier in 2008 into an airline that is on a path to its fourth-consecutive profitable year.

"They are very good owners," Gadek says of the Davis organization. "They are very entrepreneurial, and that aligns well with who we are. They let management run the company and employees do their job."

The relationship seemingly bodes well for an airline that was once owned by businessman Tom Petters and suffered when the Petters empire collapsed under the weight of a $3.65 billion Ponzi scheme just as the U.S. economy sank into recession.

Sun Country's future was "clearly hanging in the balance" in the fall of 2008 when the Petters scheme collapsed, said Minneapolis attorney Doug Kelley, who negotiated the sale of Sun Country to the Davises. Kelley serves as the court-appointed receiver and trustee of the Petters' corporate and personal estate. Against the advice of his investment bankers, Kelley approved a $5 million line of credit for Sun Country in the fall of 2008. That was enough cash to get the airline into its busy winter flying months.

"I was just impressed with the spirit of cooperation and optimism," Kelley said of the airline's management and employees.

For Gadek, an airline industry veteran who became Sun Country's CEO in the spring of 2008, it was trial by fire after Petters, the airline's main source of emergency funding, was arrested and later sent to prison.

After operating losses of nearly $50 million in 2007 and 2008, Sun Country has re-established itself as a profitable niche carrier out of Minneapolis-St. Paul International Airport with a heavy dose of service to leisure destinations and strategic offerings to key business destinations.

"There's a lot of competition for warm-weather destinations in this market," said Cindy Nelson, general manager for Carlson Wagonlit Travel. "Consumers want nonstop service, and Sun Country plays a big role in providing that."

Sun Country operates in the shadow of Delta Air Lines, the principal carrier serving the Twin Cities. It flies out of Terminal 2, which also is the home terminal for low-cost Southwest Airlines and Spirit Airlines, the no-frills operator.

But Gadek is nonplussed by the competition. "We've seen no significant impact from either Spirit or Southwest," he said. "But we think we're getting some spillover from the dominant carrier in the Twin Cities [Delta] as they reduce service."

Sun Country also provides charter services to the military -- it currently is ferrying troops in and out of Kuwait -- and to Big 10 athletic teams.

Even facing the headwinds of rising fuel costs, Sun Country has stayed in the black. Two years ago, when the airline turned an operating profit of $14.5 million, the cost of jet fuel was $2.46 a gallon. Last year it was $3.29 and so far this year it is averaging $3.39, or nearly 36 percent of operating costs.

"It's the new reality," Gadek said. "Prices are what they are."

Sun Country has forged ahead with slow but steady growth.

It added two Boeing 737s to its fleet of 12 this year and plans to add three more next year. When expansion is done, Sun Country will have six 129-seat 737-700s and 11 162-seat 737-800s available for service.

That's a far cry from the airline's beginning in 1982 when out-of-work Braniff employees forged an alliance with MLT Vacations and started leisure service with one aircraft.

Today, Sun Country is turning some of its seasonal destinations into year-round routes, including flights to Boston, Seattle, San Francisco and Orlando. New seasonal service to Tampa, Fla., will start soon and expansion into other markets is under study.

"We want to make sure we are profitable in our growth," said Gadek. "Our goal is to generate our own capital and that puts a control on our growth rate. Taking on debt would be the wrong thing to do. I know how quickly things can turn in this industry. We'll be conservative."

For Davis, whose family interests range from dairy farming to cheesemaking to mortgage financing, the pace of decisionmaking in the airline industry -- and the slim margin for error -- have been eye-opening.

"No pun intended, this is a fast-moving business," Davis said. "We were surprised at how tight the margins are day-to-day and how fast things can move if value is not there. At Cambria, we have a long process in what we do with a customer. The cycle of [airline] customers coming in and leaving is very quick. It's an up-to-the-minute business and you have to serve the heck out of them."

To that end, Sun Country in January will unveil a new frequent-flier program that will allow customers to pool their miles for free travel with the hope that the program will stimulate customer loyalty. Think of it as a "friends and family'' plan similar to those offered by cellphone providers.

The program, called ''ufly,'' is aimed at families, although it can be used by others, who can form groups of up to 10 individuals. Current frequent-flier programs generally benefit just one passenger at a time.

"For us, this was a simple analysis," said Davis. "People won't go to Mexico with us because they don't get the benefits they get from Delta. With this, the whole family can go to Mexico and get benefits and feel good."

Gadek said Sun Country passengers will not have to fight a mire of blackout dates with the new program.

"It works on any flight, any day, anywhere," Gadek said. "There are no moving targets.''

But as Sun Country grooms for the future, some unfinished business remains with employees, who took significant pay cuts in 2008 to keep the airline flying. At one point, Gadek stopped taking a salary and cut employee salaries 40 percent, which was restored the next year. Sun Country has three unions on its property, two of which have open contracts. The airline recently settled with its flight dispatchers but has ongoing negotiations with its flight attendants, represented by the International Brotherhood of Teamsters, and its pilots, represented by the Air Line Pilots Association (ALPA).

ALPA spokesman Jake Yockers, a Sun Country pilot of 22 years, said pilots are optimistic.

"It's great to see the company being profitable but we just want to be fairly compensated," Yockers said in an interview.

Gadek said he is "committed" to reaching new contracts with his employees. "These discussions typically take time," Gadek said. "Employees are critical to an airline and they deserve increases and improvements."

For the Davis family, the last 15 months have been an on-the-fly education about the industry.

"We're still the hometown airline. It's a fun business with good people," Davis said. "But it's still a very competitive, hard-charging industry that won't lie down. We have to grow to maintain profitability and long-term viability. There can't be the status quo."

David Phelps • 612-673-7269

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