Executive Summary / Key Takeaways

• Unique Hybrid Model Driving Profitability: Sun Country Airlines (SNCY) stands out with its diversified business model, synergistically combining scheduled passenger, charter, and a rapidly expanding cargo segment. This flexibility has enabled 12 consecutive quarters of profitability, with a record Q1 2025 operating margin of 17.2%, demonstrating resilience against broader industry volatility.
• Cargo Growth as a Core Catalyst: The company's strategic pivot to significantly expand its Amazon cargo operations is a primary growth driver. With the cargo fleet growing from 12 to 20 aircraft by Q3 2025, cargo revenue is projected to roughly double by September 2025, providing predictable, high-margin contributions that de-risk the overall business.
• Disciplined Fleet & Operational Excellence: SNCY's reliance on the reliable Boeing 737-NG fleet, acquired opportunistically without a large order book, mitigates OEM delivery risks and supports exceptional operational performance, including industry-leading completion factors. This asset-light approach, coupled with strong free cash flow generation, underpins a robust balance sheet and declining net debt.

• Clear Path to Significant EPS Expansion: Management targets approximately $1.5 billion in revenue, $300 million in EBITDA, and $2.50 in EPS by Q2 2027. This outlook is supported by full cargo fleet utilization, recovery of passenger fleet utilization, and the return of leased-out aircraft, signaling substantial long-term value creation.
• Strategic Market Positioning: Amidst industry capacity rationalization, particularly in its core Minneapolis market, SNCY's agile capacity deployment and strong brand presence are enhancing unit revenues and competitive standing, positioning it favorably against larger, less flexible carriers.

The Resilient Hybrid: Sun Country's Strategic Foundation

Sun Country Airlines, established in 1983, has evolved into a distinctive hybrid low-cost air carrier, strategically deploying shared resources across its passenger (scheduled and charter) and cargo segments. This unique model, centered in Minneapolis, Minnesota, allows the company to dynamically adjust capacity, responding to predictable leisure demand fluctuations and external industry shocks with remarkable agility. This foundational flexibility, honed over decades, has been instrumental in delivering consistent profitability, even as the broader airline industry grapples with cyclicality and competitive pressures.

At the heart of Sun Country's operational prowess lies its exclusive reliance on the Boeing 737-NG fleet, comprising 737-800s and 737-900ERs. This choice is a significant technological differentiator, offering tangible benefits over newer, often troubled aircraft types. The mature 737-NG platform provides superior operational reliability, minimizing costly aircraft-on-ground (AOG) events and mitigating exposure to the OEM delivery delays plaguing many competitors. This commonality across its fleet simplifies maintenance, crew training, and spare parts management, contributing to a lower, more predictable cost structure.

The benefits of this fleet strategy are evident in Sun Country's operational metrics. In Q2 2025, the company achieved the industry's best completion factor, a critical metric for its low-frequency model. In Q1 2025, it boasted a controllable completion factor of 99.4% in scheduled service and over 98% on-time performance in cargo, alongside a record low mishandled bag rate of 1.3. These achievements underscore the operational excellence derived from its reliable fleet and efficient resource allocation. For investors, this translates into reduced operational risk, enhanced customer satisfaction, and a more stable revenue stream, forming a crucial competitive moat against rivals burdened by newer, less reliable aircraft.

Strategic Evolution and Segment Performance

Sun Country's journey from its 2018 product revision to its 2021 IPO has been marked by a deliberate diversification strategy. A pivotal moment was the 2019 Air Transportation Services Agreement (ATSA) with Amazon , which laid the groundwork for the burgeoning cargo segment. This strategic foresight has positioned Sun Country to capitalize on the predictable, high-margin nature of cargo operations, providing a robust counterbalance to the inherent seasonality and volatility of passenger travel.

The "theme in 2025" for Sun Country is the aggressive expansion of its cargo business. Under the amended Amazon agreement (AR ATSA), the cargo fleet is set to increase from 12 to 20 Boeing 737-800 aircraft. By the end of August 2025, all eight additional cargo aircraft are expected to be in service. This expansion is a significant financial catalyst; management anticipates cargo revenue will "roughly double" versus the prior contract by September 2025, once these new aircraft reach mature utilization. The cargo segment's profitability is also notable, with its operating margin expanding from 0.7% in Q2 2024 to 6.5% in Q2 2025, driven by contractual rate increases and increased volume. This segment's CMI (Crew, Maintenance, and Insurance) model ensures profitability regardless of cargo load, as variable costs are passed through, and lower utilization can even enhance margins by freeing up pilot resources for other high-value flying.

This rapid cargo growth has necessitated a temporary, strategic adjustment in the passenger segment. In Q2 2025, total operating revenues increased 4% to $263.62 million, primarily driven by cargo. However, passenger revenue slightly decreased by 1% to $214.67 million, as scheduled service capacity was deliberately pulled back to reallocate pilot resources to the expanding cargo operations. Scheduled service ASMs declined 6.2% in Q2 2025 year-over-year, yet TRASM increased 3.7%, demonstrating pricing power even with reduced capacity. Charter revenue, a key component of the passenger segment, continued its strong performance, growing 6.4% in Q2 2025 on an 8% increase in block hours, showcasing the model's inherent flexibility. For the first six months of 2025, total operating revenues reached $590.27 million, up 4% from the prior year, with net income climbing 16% to $43.11 million.

Financial Strength and Outlook

Sun Country's financial health remains robust, underpinned by disciplined capital management and strong cash flow generation. As of June 30, 2025, total liquidity stood at $206.6 million, comprising $36.96 million in cash and cash equivalents, $101.34 million in short-term investments, and $75 million available under its recently expanded Revolving Credit Facility. This facility, increased from $25 million in March 2025, provides ample financial flexibility for general corporate purposes and opportunistic asset acquisitions. The company's total debt and lease obligations have been steadily declining, reaching $562 million at the end of Q2 2025, down from $619 million at the start of the year. Management expects to pay down an additional $44 million in debt by year-end 2025, further strengthening the balance sheet. The net debt to adjusted EBITDA ratio improved to 2.0x at the end of Q1 2025, reflecting a healthy leverage profile.

Looking ahead, Sun Country's guidance for Q3 2025 reflects the ongoing strategic shift. Total revenue is projected to be between $250 million and $260 million, with total block hours increasing by 5% to 8%. The operating margin is anticipated to be between 3% and 6%, acknowledging temporary unit cost pressures. This margin compression is largely due to the strategic reduction in high-yielding scheduled service flights in peak summer months like July, as pilot resources are prioritized for the cargo ramp-up. However, these capacity reductions are expected to be recovered as the company moves through 2026, with a return to unconstrained scheduled service operations by March 2026.

The long-term vision is compelling. By Q2 2027, with the cargo fleet fully utilized (20 aircraft) and the passenger fleet utilization recovered (50 aircraft, including those currently leased out returning to service), Sun Country projects achieving approximately $1.5 billion in revenue, $300 million in EBITDA, and $2.50 in EPS. This outlook assumes a 3% inflationary tailwind and consistent fleet utilization, which management describes as a "right down the middle" forecast. This substantial EPS growth is expected to be driven by the full annualization of cargo growth and the re-absorption of efficient passenger flying. Furthermore, the new co-branded credit card program, launching in the second half of 2025, is expected to significantly improve revenue share, contributing positively to the P&L from 2026 onwards.

Competitive Landscape and Risks

Sun Country operates in a highly competitive airline industry, yet its hybrid model provides distinct advantages. Unlike traditional scheduled service carriers, its diversified revenue streams offer greater resilience to economic and industry downturns. In its core Minneapolis market, Sun Country is benefiting from a rationalization of capacity, with competitors like Southwest , Spirit (SAVE), Frontier (ULCC), and Allegiant (ALGT) pulling back. This is transforming Minneapolis into a more favorable "2-airline market," enhancing Sun Country's pricing power and market position. The company's ability to dynamically allocate resources, pivoting between scheduled, charter, and cargo flying, is unparalleled, allowing it to maximize profitability and minimize earnings volatility. This operational flexibility, coupled with a strong brand presence in the Twin Cities, differentiates it from larger, more rigid network carriers.

However, Sun Country is not without its vulnerabilities. Its smaller scale compared to major airlines like Delta (DAL) or Southwest (LUV) could lead to higher unit costs in certain areas, though its disciplined cost management and flexible model aim to mitigate this. The reliance on Amazon for a significant portion of its cargo revenue introduces customer concentration risk, although the contractual structure of the Amazon agreement provides a strong downside buffer. Operational challenges, such as the timing of pilot upgrades and the induction of new aircraft, can create temporary staffing surpluses and unit cost pressures, as seen in Q1 and Q2 2025. External factors like volatile fuel prices, broader economic conditions, and geopolitical events also pose inherent risks to the airline industry. Despite these, Sun Country's strategic decision to avoid new aircraft orders and instead leverage its existing fleet for future growth shields it from the OEM delivery delays and associated costs impacting many peers.

Conclusion

Sun Country Airlines presents a compelling investment thesis rooted in its unique, resilient hybrid business model. By strategically leveraging the predictable, high-margin growth of its Amazon (AMZN) cargo operations and the flexibility of its charter business, SNCY is able to optimize its scheduled service capacity, driving superior profitability and cash flow generation. The company's disciplined fleet strategy, centered on the reliable Boeing (BA) 737-NG, provides a distinct operational advantage, mitigating industry-wide challenges related to new aircraft availability and maintenance.

While short-term capacity adjustments in its passenger segment may create temporary unit cost pressures, the clear long-term trajectory towards $1.5 billion in revenue and $2.50 in EPS by Q2 2027 underscores significant upside potential. As competitors rationalize capacity and the Minneapolis market strengthens, Sun Country's agile operations and strong financial position are poised to capture market share and expand margins. For discerning investors, SNCY offers a differentiated play in the airline sector, combining operational excellence, strategic diversification, and a clear path to enhanced shareholder value.