Oil prices continue to take toll on Sun Country

In what is typically its only profitable quarter, Sun Country Airlines lost nearly a dime for every dollar it generated in the first three months of this year.

Buffeted by rapidly rising fuel prices, Sun Country lost $8.3 million in the first quarter on operating revenue of $88 million, according to financial data released Monday by the federal Bureau of Transportation Statistics.

Those results aren't an anomaly. Sun Country has lost $43 million on operating revenue of $243 million in the four quarters ending in March.

For Twin Cities travelers, Sun Country has been a low-fare alternative to Northwest Airlines, but the latest results raise questions about how long the Mendota Heights-based carrier can sustain such large losses.

Twin Cities businessman Tom Petters, who owns all of Sun Country's voting stock, has been subsidizing the losses and he hired new CEO Stan Gadek in March to get control of the airline's costs and to reassess its ticket pricing and fee structure.

Historically, the winter quarter has been a tremendous boost for the carrier, as it expands its fleet to accommodate passengers flying to Mexico and other warm-weather destinations.

In 2007, Sun Country nearly broke even in the first quarter -- it had a net loss of $389,000. It had profits exceeding $5 million during each of the first quarters in 2005 and 2006.

"With oil spiking near $140 a barrel [Monday], the situation continues to be a challenging one for airlines," Gadek said in a prepared statement. He declined to be interviewed Monday.

Gadek, who worked at Northwest Airlines from 1977 to 1990, was chief financial officer at low-fare AirTran Airways before he joined Sun Country.

Gadek, who arrived in the final days of the first quarter, has spent the past three months trying to reverse Sun Country's mounting losses. He cut about 11 percent of Sun Country's workforce, reduced management pay by an average of 10 percent and he's secured new revenue sources through military charter flying and higher fees on customers.

"We are continuing to move ahead with initiatives that will bring us closer to profitability and help minimize our losses," Gadek said in the statement. "We continue to improve the revenue performance of our scheduled service, grow our military charter business as well as identify new sources of ancillary revenue."

For the 12 months ending in March, Sun Country generated 7.3 cents in revenue for every mile flown -- an increase of 2.82 percent over the prior 12 months.

Last year Sun Country posted its worst full-year results since emerging from a bankruptcy restructuring in 2002. Sun Country lost $35 million during 2007, but the fourth quarter was an indicator of the seriousness of Sun Country's financial woes. The airline had a net loss of $17.8 million in the last three months of 2007 on total operating revenue of $54.5 million.

Petters and Whitebox Advisors, a Minneapolis hedge fund, acquired Sun Country in October 2006, and Petters bought the remaining voting shares in the privately held carrier a year later.

In April, Jay Salmen, vice chairman of the Sun Country board, said in an interview that Petters had "deep pockets" and that Petters and his Petters Group Worldwide company were "firmly committed to financially support" Sun Country as it adapts to higher fuel costs. Salmen was Sun Country's interim CEO for 11 months before Gadek's arrival.

Sun Country might seek government assistance to survive the financial challenges facing the small carrier. In a late May interview, Gadek said: "It is certainly possible that we would have some discussions with the state," but he did not disclose any proposal.