Sun Country cuts pay of managers to limit losses

Sun Country Airlines, which has been stung by record fuel prices, will try to limit losses by cutting management salaries by 10 percent.

In addition, the low-fare carrier recently negotiated more time to make gate-fee payments at the Minneapolis-St. Paul International Airport.

"We are doing everything we can to make sure that we remain viable," Sun Country CEO Stan Gadek said in a Tuesday interview.

The carrier, based in Mendota Heights, lost about $34 million last year on total revenue of $234 million.

Red ink continues to flow at Sun Country. But Gadek said that if fuel prices remain at current high levels, he expects the airline's 2008 total loss to be smaller than last year.

Gadek took a 15 percent pay cut last week. Overall, Sun Country managers will see their paychecks decline by 10 percent, which Gadek described as a "fiscally prudent thing to do."

Management pay reductions came just six weeks after Gadek cut 28 full-time and 97 part-time jobs at Sun Country.

Gadek said Sun Country has made good progress in slashing costs, raising fares and developing new sources of revenue, including military charter flying.

"I'm optimistic that the industry is going to achieve equilibrium at some point as a result of aircraft being parked," he said. He pointed to capacity cuts that American, Northwest and other major carriers plan to make later this year, which are expected to bring ticket revenue and operating costs into closer alignment.

Spreading out fees

Sun Country, which flies from the Humphrey terminal, typically pays most of its gate fees to the Metropolitan Airports Commission (MAC) at the beginning of the year.

But Steve Busch, MAC director of finance, said Tuesday that Sun Country wanted to distribute its fee payments across the entire year, instead of paying three-fourths of its fees early in the year.

Jeff Hamiel, MAC executive director, said he has made the commission aware of this new payment timetable and he believes that it is reasonable.

"In the end, we will pay the same amount of fees," Gadek said.

Gadek, former chief financial officer of AirTran Airways, joined Sun Country as CEO March 10, and he has watched oil prices rise to a record $135 a barrel this month.

Gadek, who did not disclose Sun Country's first-quarter loss, said that the airline's bookings look strong for the summer and the carrier's management is focused on building the business and brand. Sun Country will fly eight 737s this summer.

He emphasized that Tom Petters, chief executive of Petters Group Worldwide, is continuing to subsidize Sun Country's losses and is "committed to the success of this airline." Petters owns 100 percent of the voting shares of the privately held airline.

Through the existence of Sun Country in the Twin Cities market, he said, "we bring about $125 million in annual cost savings to consumers from lower fares." He noted that Sun Country's pricing structure keeps some fares low on Northwest Airlines and other carriers.

State help?

While Northwest and Delta Air Lines were in merger talks earlier this year, Gov. Tim Pawlenty raised the prospect of state incentives being offered to keep a hub and headquarters in the Twin Cities.

Asked Tuesday whether Sun Country might seek state government help in a time of financial stress, Gadek said: "It is certainly possible that we would have some discussions with the state."

But he added, "There aren't any scheduled at this time."

Liz Fedor • 612-673-7709