These are upbeat days at Sun Country Airlines.
First there was a profitable 2010. Then there was its emergence from bankruptcy in February. And, most recently, there was the sale of the Minneapolis-based carrier to the Davis family of Minnesota-based Cambria countertop fame.
Today the airline and its 850 employees are flying high. Another profitable year is in the works. A recent marketing survey of Twin Cities area travelers found that Sun Country's "Hometown Airline" mantra clicks with the public and that 80 percent of the respondents rated Sun Country's service as excellent or very good.
CEO Stan Gadek, who includes stints at Northwest Airlines, AirTran Airways, Atlas Air and Continental Airlines on his résumé, has been at the Sun Country helm since 2008. He is equally positive about the airline's future.
QEarlier this year you said Sun Country Airlines would be more than a 12-aircraft carrier five years from now. What is your vision?
AWe're going to grow the airline, but it's profitability first and growth second. The trend in this industry is to grow at any cost and it doesn't work out that way. We are earning our capital. Our growth rate may be slower than others but it is sustainable growth. Do I have a specific number in mind? No, other than we'll be larger than 12 airplanes.
QWhere do you see opportunities for growth?
AOur customer is the leisure traveler. We don't have the scope to attract business travelers at this time but as we grow and add destinations and frequencies we'll get more business customers.
QTalk about your charter business.
AThat is part of our diversification strategy. We were entirely dependent on scheduled service, so we went into charter service. We do both commercial and military charters, both domestic and international. We flew one charter to the Middle East and another to the Caribbean. For fiscal year 2011, we are the No. 2 military charter carrier in the U.S., only behind Delta, which has significantly more aircraft. We've been very efficient in terms of flying the fleet. We're nimble in keeping the planes flying.
Another opportunity is in travel services. We started Sun County Vacations in 2009 and Sun Country Cruises in 2010. We work with agencies and offer packages through them. Sun Country Vacations has been profitable from the start. As we grow the airline, there could be potential to offer these services on other carriers as well. This is a cyclical industry. Travel services is a nice fill-in business.
QHow do your new owners fit into the picture?
AOf all the potential investors we met with, the Davis family was by far the best fit. They are very supportive and agree with our forward-looking strategy. They've been customers, too, so they know first-hand our reputation for service. They've experienced the product and seen what we have done. We have a strong brand for Sun Country and for Cambria. We're looking for the guidance and counsel of the Davises. We want to take advantage of their business wisdom. But I don't anticipate them being involved in day-to-day decision-making.
Q Will new owners give you access to new capital?
A There's that potential, but my philosophy is the airline has to earn its own capital. We are debt-free and want to stay debt-free. We look for slower growth and sustainable growth. This is my eighth airline and I've seen many strategies and different ways to operate as an airline. We will generate growth that will create jobs and avoid the oscillations of this industry.
Q You had a good year last year, earning $13 million. How does this year look?
A We're profitable. Even in the current environment, with high fuel prices, we are profitable. And we anticipate being profitable for the full year. Fuel is 93 cents higher than last year at this time. It's our largest expense. It was 36 percent of operating expenses in July. Salaries, wages and benefits were 17 percent. Last year fuel was 30 percent. Part of that was volume but more of that is price. We're making money in the current environment, but if we had last year's price we'd be making more money.
Q Do you see more industry consolidation?
A I see more reduction in capacity. There was US Airways and America West five years ago, Delta and Northwest, Southwest and AirTran. But looking at the landscape, nothing jumps out at me. Some carriers may not survive the next 20 to 24 months. In addition, established carriers are slowing growth and reducing capacity. If you have too many seats, then carriers start to discount and that pressures pricing downward.
Q What's it like operating in a Delta hub?
A I don't mind competition. It gives us an opportunity to demonstrate the product we offer. It's true that travelers out of the Twin Cities pay higher fares, but not in the markets we serve. Our average segment fare in the second quarter, that is, going from Point A to Point B, was $146.23. That's $292 roundtrip. That's significantly below what was quoted [$413 in a recent Twin Cities fare study].
Q What's next for Sun Country?
A This winter we'll add two airplanes for the season and decide later whether to take them permanently. People want us to grow, but we don't want to grow at the expense of remaining profitable. I'm optimistic going forward. We're a hybrid carrier with scheduled and charter service. We're adding Costa Rica from January through April. We eventually would like to serve Hawaii. There are a lot of growth opportunities, but you have to walk before you can run. That's why we're excited about the future. And now, with ownership stabilized, we can truly say we are the "Hometown Airline" again.
David Phelps • 612-673-7269