Sun Country Airlines (SNCY) has announced a robust start to the year with record first-quarter revenue and a solid adjusted operating margin of 18.2%. Despite facing fare declines and market pressures, the airline has managed to maintain profitability through its diverse business model and cost control measures.
Looking ahead, Sun Country plans strategic capacity reallocations and anticipates a significant fleet capacity increase by late 2025. Still, the airline notes challenges in off-peak travel and fare pressure, particularly in Minneapolis, but remains optimistic about the long-term opportunities in the region.
Key Takeaways
- Sun Country Airlines posted record revenue in the first quarter with an adjusted operating margin of 18.2%.
- The airline's diverse business model, including scheduled service, charter, and cargo operations, helps maintain profitability.
- Fare declines were observed in the first quarter, but were partially offset by cost controls.
- Planned capacity reallocation to charter and cargo segments during off-peak periods.
- Fleet capacity to increase by 40% with all recently purchased aircraft operational by late 2025.
- Second-quarter revenue expected to be between $255 million and $265 million with an operating margin between 4% and 7%.
Company Outlook
- Focus on picking up more charters during Labor Day through Thanksgiving period.
- Capacity cuts to scheduled service flights that do not make a variable contribution.
- Maintenance costs expected to remain elevated due to intentional changes in the maintenance program.
- Anticipated higher margins in the third quarter due to the Easter shift and overcapacity in the second quarter.
- Capital expenditures for the year projected around $65 million with minimal cash flow calls for capital expenditures in the following years.
Bearish Highlights
- Fare declines in the first quarter due to off-peak period growth not being absorbed as expected.
- Decline in air traffic liability, a normal occurrence given the volatility of the schedule and fare environment.
- No significant new wins expected in the cargo segment at present.
- Fare pressure in Minneapolis affecting off-peak travel.
Bullish Highlights
- Fares have bottomed out and are on a recovery path.
- Capacity growth expected to taper in the third and fourth quarters.
- Long-term opportunity in Minneapolis remains unchanged despite current challenges.
Misses
- Second quarter growth in Minneapolis lower than expected due to fare pressure and market support issues.
Q&A highlights
- Jude Bricker discussed the need for flexibility in capacity adjustments and aircraft utilization.
- David Davis emphasized reducing earnings volatility by focusing on more stable business segments.
- The company is positioning airplanes and crews for their charter business to optimize third-quarter performance.
In summary, Sun Country Airlines is navigating a challenging environment with strategic adjustments to its capacity and a keen focus on its diversified business model. The airline's commitment to cost control and a flexible approach to market dynamics positions it to leverage opportunities in the coming quarters, despite the current fare pressures and competitive landscape.
InvestingPro Insights
Sun Country Airlines (SNCY) has demonstrated resilience with its record first-quarter revenue and solid operating margins. The InvestingPro data and tips shed light on additional factors that investors may find pertinent when evaluating the company's financial health and stock performance.
InvestingPro Data:
- Sun Country's market capitalization stands at approximately $649.29 million, indicating its size within the airline industry.
- With an adjusted P/E ratio of 10.26 for the last twelve months as of Q4 2023, the stock is trading at a low earnings multiple, which could suggest that it is undervalued compared to earnings.
- The company's revenue growth of 17.35% over the last twelve months as of Q4 2023 highlights its ability to increase earnings, which is a positive sign for potential investors.
InvestingPro Tips:
- It's noteworthy that Sun Country's management has been aggressively buying back shares, a signal that the company believes its stock is undervalued and is confident in its future performance.
- The airline is trading near its 52-week low, which might present a buying opportunity for investors who are bullish on the company's long-term prospects.
Investors interested in a deeper analysis can find additional InvestingPro Tips for Sun Country Airlines, including insights on the company's debt burden and short-term obligations, at https://www.investing.com/pro/SNCY.
There are currently 9 additional tips available on InvestingPro, providing a comprehensive view of the company's financial position and market potential. For those looking to access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
In conclusion, while Sun Country Airlines faces fare pressures and a competitive environment, the InvestingPro data and tips provide a nuanced perspective on the company's financial metrics and stock valuation, which could be beneficial for investors making informed decisions.
Full transcript - Sun Country Airlines Holdings Inc (SNCY) Q1 2024:
Operator: Welcome to the Sun Country Airlines' first-quarter 2024 earnings call. My name is Jill, and I will be your operator for today's call. [Operator Instructions]. Please be advised that today's conference is being recorded. I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin.
Chris Allen: Thank you. I'm joined today by Jude Bricker, our Chief Executive Officer; Dave Davis, President and Chief Financial Officer; and a group of others to help answer questions. Before we begin, I'd like to remind everyone that during this call, the company may make certain statements that constitute forward-looking statements. Our remarks today may include forward-looking statements, which are based on management's current beliefs, expectations, and assumptions and are subject to risks and uncertainties. Actual results may differ materially, and we encourage you to review the risks and cautionary statements outlined in our earnings release and our most recent SEC filings. We assume no obligation to update any forward-looking statement. You can find our first quarter 2024 earnings press release on the Investor Relations portion of the website at ir.suncountry.com. With that said, I'd like to turn it over to Jude.
Jude Bricker: Thank you, Chris. Good morning, everyone. Our diversified business model is unique in the airline industry due to the predictability of our charter and cargo businesses, we're able to deliver the most flexible scheduled service capacity in the industry. The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages; we are able to reliably deliver industry-leading profitability throughout all cycles. Operational excellence is a core tenant of our product. It's critical to our scheduled service customers and justifies our growth with our charter and cargo customers. Among the 11 public mainline carriers, Sun Country again had the best completion factor at 99.7% for 1Q. Congratulations to our employees, especially our frontlines for delivering excellence this past quarter. In the first quarter, we saw yields reset off their post pandemic highs. These fare declines were partially absorbed by our continued momentum on costs. Our CASMx declined slightly in 1Q in spite of significant increase in heavy aircraft visits. Diligent cost control, scheduled service growth, along with the effects of our buyback program, produced flat EPS for us last year. Our adjusted operating margin of just over 18% was at the lower end of our expectations coming into the quarter. This variance is mostly due to close in March bookings finishing less strong than in 2023. March is still a great month for us, we had gross margins, profit success in excess of variable costs approaching 50%. However, March bookings made through January would have indicated an even stronger month. As lows remains high, most of the variance can be attributed to industry capacity growth across our largest markets. Our response to changes in the fare environment or fuel price inputs, is to adjust marginal capacity so that we continue to produce positive and industry leading results. When possible, we may allocate surplus capacity into our charter and cargo segments. So looking into the rest of the year, we're currently allocating too much capacity growth in off-peak periods based on selling fares. While we're committed to May, I expect us to make some significant capacity trends in September through November. Some of that displaced capacity will provide growth opportunities in cargo and charter. Summer peak continues to sell well and should remain mostly as scheduled. Also, a quick note on the Easter shift. And early Easter reduces the peak winter season and explains about 10 percentage points in fare drop in April 2024 or about $3 million. This revenue isn't recoverable in March because it's already at peak capacity. Finally, on fleet activities. With our recent aircraft purchase, we now have a control fleet of 63 aircraft. Seven of these aircraft remain out on the operating lease, and two more are in induction process to enter service in late 2Q. Once all these aircraft are in operation by late 2025. We'll have fleet capacity to produce about 40% more block hours than we currently operate. As we already paid for that growth, we won't require any aircraft CapEx. And so expect CapEx to fall to maintenance levels, which is about $50 million to $75 million per year. And with that, I'll turn it over to Dave.
David Davis: Thanks, Jude. We're pleased to report strong Q1 results, including record revenue and an adjusted operating margin of 18.2%, which we expect to be at the top of the industry. Our quarterly results again demonstrate the resiliency and earnings power of our diversified business model as this is our seventh consecutive quarter of profitability. The staffing driven constraints we've experienced for over a year now have eased and we were able to grow our scheduled service business as rapidly as we intended to. Year-over-year unit costs fell for the second consecutive quarter despite significant increases in maintenance and airport related expenses. It's important to keep in mind that our unique operating model is the opposite of the high utilization carriers. Our diversification across scheduled service, charter and cargo operations leads to resiliency through business cycles. Where we've seen large increases in OA capacity in some of our markets, which has pressured yields, there are significant opportunities for accretive growth in our charter and cargo businesses, and we'll continue to allocate capacity to the segments generating the highest returns. Let me turn now to the specifics of the first quarter. First, on revenue and capacity. In the first quarter, total revenue grew 5.9% versus Q1 of last year, to $311.5 million. This is our highest quarterly total record -- revenue on record. Scheduled service revenue plus ancillary revenue grew 2.8% to $227.4 million, also the highest on record. Scheduled service TRASM decreased 11.7% to $12.2, as scheduled service ASMs grew by more than 16%. Total fare declined 11.3% to $196.41, while we maintained an 87% load factor. For the month of March, we saw our scheduled service load factor at 89%. First quarter is historically our strongest, and we expect to see a seasonally driven fall in unit revenue from Q1 to Q2, exacerbated by the Easter shift into Q1 and the nearly 20% growth in scheduled service ASMs we're expecting to see in Q2. Charter revenue in the first quarter grew 2.4% to $47.3 million on a block hour decline of 3%, driving charter revenue per block hour, up 5.6%. If you exclude changes in fuel reimbursement revenue from both Q1 of this year and Q1 of last year, charter revenue grew 6.5% over the period, and revenue per block-hour was up 9.8%. Ad hoc charter revenue grew 29% versus Q1 of last year, and charter flying under long-term contracts was 75% of total charter revenue versus 80% last year. First quarter cargo revenue grew 2.5% to $23.9 million on a 1.1% increase in block hours. As a reminder, our cargo rates in -- sorry, 1.1% decrease in block hours. As a reminder, our cargo rates increase annually at the end of December. Let me turn now to costs. Our first quarter total operating expenses increased 7.5% on a 9.6% increase in total block hours. CASM declined by 5.4% versus Q1 of '23 while adjusted CASM declined by 0.1%, marking our second consecutive quarter of year-over-year CASM declines. As our pilot availability issues have eased, we've been able to grow flying through higher aircraft utilization, which was eight hours per day in Q1, up 9.6% versus Q1 of last year. Our declining CASM came despite increases in both maintenance expenses and higher airport costs. Maintenance expenses grew by 29% year over year, driven by an increase in the number of airframe and engine overhaul events from three in Q1 of '23 to eight to this quarter, while the rolling off of COVID relief payments to airports helped to drive a 34.6% increase in rent and landing fees. Now let me turn now to the balance sheet. Our total liquidity at the end of Q1 was $179 million, which incorporates $11.5 million in share repurchases that we made during the quarter and $29.7 million in CapEx spend. At this point, we do not expect to purchase any incremental aircraft until we begin looking for 2026 capacity at the very earliest. We anticipate full year 2024 CapEx to be well below $100 million. We continue to maintain a very strong balance sheet and our net debt to adjusted EBITDA ratio at the end of Q1 was 2.5 times. Since we do not have a significant debt burden, we have flexibility in how we deploy our cash. Turning now to guidance. We expect second quarter total revenue to be between $255 million and $265 million on block hour growth of 8% to 11%. We're anticipating our cost per gallon for fuel to be $2.93. And for us to achieve an operating margin between 4% and 7%. Our business is built for resiliency, and we'll continue to allocate capacity between our lines of business to maximize profitability and minimize earnings volatility. With that, we will open it up for questions.
Operator: [Operator Instructions]. First question comes from Ravi Shanker with Morgan Stanley.
Ravi Shanker: Thanks. Morning, everyone. Dave, can I just start with where you ended off and talk about the difference in the segment realignment or reallocation of capacity. Can you go into a little more detail on kind of what you guys are doing in terms of specific actions to absorb some of that excess capacity and some of your oversupplied markets and kind of how long that will take?
David Davis: Yeah. I'll let Jude speak to that mainly but let me just say it at a high level here. So I think basically our capacity is committed for Q2, and that explains part of the margin pressure that we're seeing into the second quarter. There'll be opportunities in the back half of the year to reallocate some of that capacity, particularly in off-peak times away from our scheduled service business and into our charter businesses. In the longer term to the medium term, we continue to look for opportunities to allocate the resources we have across all our segments. There's opportunities in the cargo business that present themselves, we're going to presume. We're going to allocate our pilot capacity, our training capacity, the capacity of our company between the segments based on profitability. If there's continued pressure in the scheduled service business, we're going to allocate to the other segments that we think there are opportunities in both of our other lines of business.
Jude Bricker: Yeah, the focus is in the Labor Day through Thanksgiving period to try to pick up more charters, but it usually is that way. So incremental allocations are going to be marginal. So it's mostly going to be capacity cuts of scheduled service flights that don't make variable contribution.
Ravi Shanker: Got it. As maybe just to follow up on that, how do we think about modeling from 2Q to 3Q kind of the relative normal seasonality, given the kind of extremely low starting point for 2Q.
Jude Bricker: That's a fair point. I mean typically, we would see 2Q and 3Q perform equally. This 2Q has both over-capacity in April and May and an Easter shift. So our expectation is we outperform 2Q and 3Q.
Operator: Your next question comes from Duane Pfennigwerth with Evercore ISI.
Duane Pfennigwerth: Hey, good morning. Thanks. So if we just play back your ability to kind of flex up in the peak periods, you were obviously constrained for an extended period of time. Those constraints started to ease and now you have a greater ability to kind of flex up in these peaks, which theoretically was going to be at higher incremental RASM. And so I guess, relative to your expectations going in, how has that gone? And I guess more importantly, what do you take with you going forward? So how are you thinking about flexing up in future peaks, maybe relative to how you managed peaks in the first quarter?
Jude Bricker: The biggest surprise is that the scheduled service network didn't absorb the growth in the off-peak periods the way we expected it to do. Keep in mind, we designed the network based on its performance largely of the prior year on a granular level. So this slide on this day did well, let's add another. This market was cut right at the end of the peak period but was performing strongly, so maybe it can go into the off-peak period and still contribute. And those decisions on the margin didn't produce the results that we thought they would. So most of the difference between where we expected fares to be and where they actually turned out to be, can be explained through more seats in markets, not just from us, but from OAs. And there's a really strong correlation between the change in route, the downward pressure on fares, the change in unit revenue in a market, and its seat growth, as you would expect. And in off-peak periods when there just isn't a lot of margin to give, those markets, those flights should have been not in the schedule. The change -- what's really interesting about this time is that the change in the selling fare environment didn't really start until mid-February. And then we're looking at 2Q and saying, okay, well, these fares are coming down, some of these flights aren't going to be positively contributing, but we should leave them in there to protect the sold seats on those flights. And further like, fare fluctuations are pretty common. This one just lasted on the way through the selling period. So I think we made the right decision in 2Q, keep these markets going and then we'll adjust to the new environment in the post summer trough.
Duane Pfennigwerth: That's great. So basically, the learnings that you're taking here from your approach to off-peak, 2Q is not really the period to measure that change it's more kind of 3Q second half. Is that fair?
Jude Bricker: Yeah. But Duane, keep in mind that we're always adjusting utilization based on the inputs of fare environment and fuel. So this can reverse itself as well. But the marginal capacity that comes in or out of the schedule largely resides in the off-peak periods. So think of our business is there's one awesome month, that's March. There's about six good months: February, April, June, July, December, August. And then there's a really bad month in September. And then there's kind of a couple that are meh for. And when we think about variable capacity, it's always allocating into like those shoulder months that can absorb or not based on the fuel price and fare environment.
David Davis: Yeah. But it is fair to say, Duane, obviously we have more of the second quarter sold than we did the third quarter or the fourth quarter. So our ability to adjust the schedule gets better the further out we go. It is somewhat limited in Q2 at this point.
Duane Pfennigwerth: That's all great. And just my follow-up. Any outlook or update you can provide us, your outlook for new wins in the cargo segment? Thanks for taking the questions.
Jude Bricker: Nothing to talk about right now.
David Davis: Yeah, we probably don't have much to talk about at this point.
Duane Pfennigwerth: Okay. Thank you.
Operator: Your next question comes from Helane Becker with TD Cowen
Helane Becker: Thanks very much, operator. Hi, team. Thanks for the time. Just a couple of clarification points. Are you expecting maintenance costs then to continue to be at this level for the rest of the year or is this just a one-quarter event?
David Davis: No, the maintenance costs are going to stay a bit elevated like this through the rest of the year. I think we talked about it on the Q1 or the call we get in the end of '23, about some intentional changes to our maintenance program that we made in '24 that are going to keep costs higher. And that's going to likely persist, or it will persist based on our plan through '24.
Helane Becker: Okay. That's very helpful. Thanks, Dave. And then the other question I have is with respect to the decline in air traffic liability. And maybe you explained it through the changes in bookings, but usually it doesn't decline as much as it seems to have declined from the year end, from the fourth quarter to the first quarter. But it was down 24%. So how are you thinking about that? Or did you explain that already?
David Davis: I don't think we explained it already, but I mean the ATL is going to drop as we go through Q1. A little bit of the decline this time, what might be the weaker fare environment in the second quarter. But there's nothing unusual in the ATL drop.
Helane Becker: Okay. Well, that's very helpful.
Jude Bricker: Yeah. Just there is a lot of seasonality in our ATL just based on the volatility of our schedule and fare environment. So going into the first quarter, we'll have the highest ATLs for the year.
Helane Becker: Right, that's what I would expect. But I wouldn't expect it to decline as much as it did from January to March. But I guess it all has to do with not having as many bookings for the second quarter, the Easter shift, and all the other things you've already explained, right? Is that how we should sort of think about it?
David Davis: Yeah. To the extent that it's a little bit unusually large, it would be the fair issues you're talking about, and Easter is a big part of it.
Operator: Your next question comes from Michael Linenberg with Deutsche Bank.
Michael Linenberg: Hey, good morning, everyone. In the release, and I think Jude, you even sort of mentioned capacity by competitors, OA capacity. Can you give us a sense of maybe what OA capacity looks in the June quarter in your markets, year over year changes made in September. Maybe how that trends? Maybe it was better in the March quarter? Any color on that would be great.
Jude Bricker: Domestic capacity was up 6% and overlay capacity was up about 10% in the first quarter. Those trends are basically consistent in the second quarter as well. Keep in mind, our network is dramatically different from quarter to those two quarters. But I mean, we're just seeing a lot of seats in our markets. In the back of the year, we become really concentrated between Labor Day and Thanksgiving because as we trim our markets that are seasonal, so that's where the concentration resides. So then we have a lot of capacity into major trunk routes out of Minneapolis, and that's where you see a lot of -- see pressure.
Michael Linenberg: Okay. And then just my second question is you've obviously identified the issue and you'll respond. As you mentioned in sort of the off-peak periods from September through Thanksgiving. How much of what's going on reflects some of the other churn going on in the industry? When I think about the network changes being made by many of the other carriers. And I would say it's really the smaller carriers, not the big three. I mean, they're very well established. The churn that we're seeing in network changes. It's quite frankly, it's nothing like I've seen before when I look at the number of additions and deletions. And so how much of this may be just more of this sort of structural change going on in the industry? Where it just may be that more difficult to respond to because of the dramatic shifts in networks that we're seeing? Just your thoughts on that, thanks.
Jude Bricker: It's difficult to give a long-term read-through based on a very limited amount of input. I mean, my view would be that Spirit and Frontier are challenged more with when they fly than where they fly. The same way that we're having these off-peak weaknesses, they're experiencing the same. And so the network churn isn't addressing the issue. Our response to this is going to be looking at incremental capacity and shave it down, and it always has been. And then on a competitive encroachment, most of what we're seeing is from Delta, quite frankly. And it seems like they're just kind of building out Minneapolis in the post-COVID recovery, later than they've done in some of their other hubs. And then there has been some encroachment speaking specifically of Minneapolis from Frontier. But those markets like Cleveland, are ones that they had done pre-COVID and cancelled because they didn't work. So I don't -- I think it's mainly just, our markets had really high fares through the comp period that people are scheduling into, and they attracted a bunch of seats and it'll sort of equivocate over time.
Operator: Your next question comes from Scott Group with Wolfe.
Scott Group: Hey, thanks. Good morning. So I just want to make sure I'm understanding some of the monthly commentary. I get sort of some weaker close-in in March, April at Easter, but as you look at May and June, are things getting incrementally worse? Is it stabilizing? And any signs of things getting better? I know June seasonally is a better month, but just seasonally adjusted, do you feel like things are getting incrementally better or worse?
Jude Bricker: Well I guess it depends Scott, on what the expectation basis is. So when we went into the quarter -- when we built the quarter last year, we're way below that. And then we had this period of resetting through late February and March for selling fares into the second quarter. And now in the last couple of weeks, they've come up slightly. So it's been an evolution. But I'd say, fares -- our selling fare expectation has bottomed and is recovering slightly. But we're talking about a recovery that is small numbers relative to where we expected to be when we built the schedule.
Scott Group: Okay. That's helpful. And then where do you ultimately think you're going to take capacity in the second half? And did I hear right that you think that your margins in Q3 will be higher than Q2?
Jude Bricker: On the second part, yes, because typically second and third quarter had produced about the same margin. And in this particular second quarter will be handicapped by the Easter shift and some overcapacity in April and May. I don't -- yeah, and that first part of your question is difficult to say at this point. I mean, we have some time to make these adjustments. But post Labor Day, I would expect us to be mostly focused on scheduled service flying in markets that typically have a good third quarter. There's about a handful of those. And then scheduled service flying in support of positioning airplanes and crews for our charter business. So there's not a whole lot opportunity in September. So it's going to be pretty small.
David Davis: Yeah. So Scott, just let's say from a planning perspective, we had sort of in the scheduled service segment, year-over-year capacity growth peaking in the second quarter, tapering in the third quarter, and then tapering significantly more into the fourth quarter. So second quarter was our peak year-over-year growth. And as we pointed out here, we'll kind of revisit that, given this off-peak weakness. So it's probably going to be even more dramatic than it was in our plan.
Scott Group: Okay, great. And then just last question, I thought I heard $65 million of CapEx. Is that the rest of the year comment or is that a full year comment and then does -- is '25 a similar, it sounds like it's another very low number. I just wanted to make sure we're thinking about it right.
Jude Bricker: That's right. Yeah, so my commentary was about a run rate basis. So we completed an aircraft purchase couple of months ago. That's the last airplane that we're committed to buy. We'll still be in the market also for engines. So I'm just trying to give a little bit of a sense of what we would expect on maintenance CapEx, $50 million to $75 million. And the lumpiness is largely going to be about opportunistic buys for engines that would replace an overhaul.
David Davis: Yeah, Scott. So this year, we will be on pace to do well, sub-$100 million in CapEx. I would expect '25, barring what Jude say in here in terms of some opportunistic purchases here and there, to be less than '24. From a cash flow perspective, the calls on cash around CapEx are minimal for several years to come--
Jude Bricker: Yeah, with growth too, which is unusual.
Operator: [Operator Instructions]. Your next question comes from Brandon Oglenski with Barclays.
Brandon Oglenski: Hey, gentlemen. Good morning and thanks for taking my question. Jude, I want to come back to the comment about Delta adding capacity in Minneapolis and the challenges you guys have seen in off-peak. Because I thought that was kind of a strength in your model that you guys tried to target the peak travel periods. So can you just put this thing in [Technical Difficulty]. Can you guys go after a little bit more off-peak this summer and it just didn't play out the way you thought it. And maybe longer term, does this change your view on the opportunity set in Minneapolis in any way?
Jude Bricker: Well in the first part, that's exactly what happened. So our percentage growth five months year over year in the second quarter is smallest in June. And that's just -- because when we came into the year, we're looking at the fares of the previous comp months. So April of '23, and it looked like it could support incremental growth. And we have the capacity, we have the pilots. So it's really low-cost incremental flying. And yeah, I mean, I think that the market just couldn't support that kind of growth. And so the fare pressure was beyond what we expected. And that's because we were adding seats as along with side of all the OAs in Minneapolis. We're a pretty Minneapolis-centric airline in the first quarter in particular, because that's sort of the bright spot in the US network. As we move into the summer. I mean, we're not cutting in June and July, those months look really good. August is probably mostly like we planned it to be. There's no real change in the long-term opportunity in Minneapolis. I think long term where I've reset it, is an aircraft utilization. In 2019, we were producing about nine block hours per aircraft per day. We kind of set out with the fleet age and our focus on reliability. We probably need to be around eight hours a day per aircraft in a steady-state environment, just based on operational restrictions. And now based on off-peak performance, I think we're probably lower than that. But these things change pretty rapidly as we've been talking about, and it could easily reverse itself. So the key for us is flexibility. So it's just very important that you understand how we think about incremental capacity if you want to understand the businesses. Every airplane doing the best thing it can with that plane time at that moment and when we run out of things to do, they contribute positively. We don't fly, where we fly cargo, or we fly charter. And so we're just adjusting at the margin, and we were a little bit bigger than we needed to be into April and May.
Brandon Oglenski: Appreciate that, Jude. And Dave, I think you said in your prepared remarks, and we kind of spoke about this in the Q&A. It's about reducing volatility in earnings. I mean, we probably shouldn't confuse that with seasonality, right? But can you maybe elaborate a little bit more there?
David Davis: So yeah, we shouldn't confuse it with seasonality. That's going to be a part of our business. I think there are pieces of our business without getting into a ton of detail, that are much more stable from an earnings perspective that we will continue to focus on and maybe emphasize more in future periods. That should help reduce the volatility of earnings. And by reduced the volatility -- I guess what I mean by that is somewhat less exposure to capacity adds in the scheduled service segment. So it's really focusing on some of these other segments filling in off-peak periods and focusing on other segments that are going to be more stable and provide more stability to earnings.
Operator: Thank you. This now concludes the question-and-answer session. I would now like to turn it back to Jude Bricker for closing remarks.
Jude Bricker: Thanks for your time, everybody. Have a great day. And we'll talk to you in 90 days.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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