Welcome to the Sun Country Airlines Fourth Quarter and Full Year 2021 Earnings Conference Call. My name is Norma, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there’ll be a question-and-answer session. I would now turn the conference over to Mr. Chris Allen, Director of Investor Relations. Mr. Allen, you may begin.

Thank you. I'm joined today by Jude Bricker, our Chief Executive Officer; Dave Davis, President and Chief Financial Officer; and a talented 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 upon management's current beliefs, expectations, and assumptions subject to risks and uncertainties. Actual results may differ materially. We encourage you to review the risk factors and cautionary statements outlined in our earnings release and our most SEC filings. We assume no obligation to update any forward-looking statements. You can find our fourth quarter press release on the Investor Relations portion of our website at ir.suncountry.com. With that said, I would now like to turn the call over to Jude.

Thanks, Chris. Good morning, everyone. Today, we're excited to announce full-year record results in 2021. Further, our margins, adjusted for CARES Act benefit, again lead the industry. Our multi-segment business model is unique among airlines due to the predictability of our charter and cargo businesses. We're able to deliver the most flexible schedule service capacity in the industry. The combination of this schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe that due to our structural advantages, we'll be able to reliably deliver one of the industry's best profitability throughout all cycles, as we've been demonstrating through the COVID crisis. First, I want to talk about operations. I continue to be amazed and impressed with the aviation professionals we put on the front lines each day to make this operation work. I’m not sure I've ever seen as challenging a set of circumstances for operations as what we've been dealing with since the holiday peak, yet our folks have delivered, as they always do. Thank you to all my team members. To start, I want to address some of the most commonly raised concerns in our industry. First, staffing issues. We've certainly seen the effects of a tight labor market on our staffing needs. Currently, we're hiring across all major labor groups. Shortages, however, are most acutely felt in pilots, technicians, and ramp staff. In each of those groups, we've negotiated or announced increased pay and benefit offerings just recently. We most notably reached a new agreement with our pilot group, bringing our pilot pay above those airlines in our competitive set. It should also give investors confidence in our ability to staff to our growth targets. Across the industry, I believe staffing challenges will result in downward pressure on capacity, and therefore be positive for fares. Second and related is cost pressures, including fuel price. We remain well in control of our cost positions, including the new pilot rates, and we still expect 2022 ex-fuel adjusted CASM to come in less than 2019. Further, we still expect adjusted CASM to be under $0.06 by 2023. We expect to continue to be able to offset inflationary pressures in labor by cycling out of our legacy fleet deals, introducing technology efficiencies, and diluting our overhead with growth. However, I want to remind everyone that about a third of our flying has pass-through fuel economics. Our variable schedule service operation allows us to build a schedule that will positively contribute in any fuel environment. I believe our outperformance of the industry will widen in a high fuel environment, all else equal. Finally, with revenue recovery, we certainly have felt the effects of the Omicron variant on our bookings, and like other carriers have reported, we are now seeing a strong recovery in demand, particularly for our domestic leisure markets and for our March peak period. We're currently selling a March schedule with maximum volume limited by staff indicating our confidence in the recovery. We also announced new fleet transactions for five additional growth aircraft. Dave will talk more about the fleet plan, but I wanted to point out that we're continuing to see favorable price and availability of our feedstock 737 NG aircraft. We expect this to continue as max production ramps, along with the recovery in demand for aircraft. And with that, we’ll turn over to Dave.

Thanks, Jude. We're very pleased with our results in 2021, as we accomplished a lot in a challenging year for the airline industry. In March, we launched our initial public offering, which greatly strengthened our balance sheet and gave us the resources necessary to drive our growth. We grew block hours during the year by 58% versus 2020, and 13% versus 2019. We added five passenger aircraft, signed long-term charter agreements with MLS and Caesars Entertainment, and we rapidly negotiated and ratified a new pilot agreement. All of this was done while maintaining five consecutive quarters of greater than 15% EBITDA margins. Our new four-year pilot agreement signed in December was negotiated in less than four months’ time, which speaks to the professionalism and dedication of our pilot group and company negotiating team. The new deal is a key enabler of our growth plans. Specific benefits of the agreement include, one, pay rates, benefits, and work rules that are highly competitive with our low-cost peers and should allow us to recruit the pilots we need to support our growth. Early indications are promising, as pilot applications to Sun Country are up by 160% compared to the months prior to the new agreement being announced. Two, new work rules that will allow pilots to start trips from their home locations, and provide for the implementation of a preferential bidding system. These changes will make Sun Country a more attractive option for commuting pilots, and reduce our costs by allowing us to more efficiently schedule flight crews. And three, the ability to assign reserve pilots to bases outside of Minneapolis. This flexibility was a key requirement to unlock potential future Amazon growth. Our pilot pay rates were significantly behind the industry, and the changes in the new contract are expected to increase our pilot cost per block hour by approximately 34% between 2021 and 2022. We expect to be able to absorb most of this cost increase elsewhere, however, and our total 2022 non-fuel operating costs per block hour are expected to increase only 2% versus 2021, and are expected to be 9% lower than it was in 2019. Pilot costs per block hour are expected to decrease in 2023, as the full benefit of the new work rules are realized. Let me turn now to specific Q4 ‘21 results. In the fourth quarter of ‘21, we delivered adjusted pretax income of $8 million, and adjusted EPS of $0.10, on revenue of $172.6 million. For the full year 2021, our adjusted pretax income was $25.4 million, and adjusted EPS was $0.33 on revenue of $623 million. We are very pleased with our profitable results in 2021, given the impact the pandemic had on industry bookings. Moreover, the pandemic effects were particularly acute in Q1, which is traditionally Sun Country's strongest quarter. Operating margins for Q4 and the full year were 8.6% and 8.1%, respectively. We believe our 2021 full-year operating margin to be industry-leading. Regarding costs, our Q4 ‘21 GAAP non-fuel operating expenses increased $9 million or only 8% versus Q4 2019 on a 25% growth in total block hours. We've demonstrated an ability to consistently take cost out of the business, and we expect to be able to do so going forward. Per aircraft ownership expense has declined by 22% since 2019. Despite wage pressure in 2021, our ground handling costs per departure were 3% lower than they were in 2019, while we maintained a completion factor near the top of the industry. Full year 2021 adjusted CASM was $0.06.44, only 2% higher than our adjusted CASM in 2019, on an 18% reduction in ASMs. As Jude mentioned, we expect 2022 adjusted CASM, which includes the impact of our new pilot agreement, to finish the year lower than the $0.06.31 we achieved in 2019. Turning now to revenue. Revenue in the quarter finished quite strong. Despite flying 11% fewer scheduled block hours in Q4 2021 versus 2019, scheduled service revenue finished the quarter down only 7%, as average base fare was $111 in Q4 ‘21 versus $99 in Q4 ’19. Q4 2021 ancillary revenue was $1.6 million higher than the same period in 2019. On a per passenger basis, ancillary revenue per passenger was $44, which was the highest in the company's history. Q4 ‘21 charter service revenue was down 21% versus Q4 ’19, while charter block hours were down 22% in the same period. Both MLS and Caesar's charter flying will begin to contribute meaningfully towards the end of Q1 ‘22. Let me turn now to guidance. Q1 2022 total revenue is expected to be between $215 million and $225 million. As a reminder, the first quarter is historically our strongest quarter of the year. Adjusted operating margin is expected to be between 8% and 12%. We're anticipating a fuel price of $2.79 per gallon for the quarter. Finally, we expect total system ASMs for the full year of 2022 to be approximately $7.8 billion. Due to the seasonal nature of our business, we expect Q1 to have the highest level of ASMs, followed by Q3. With that, we're now ready to open it up for questions.

Our first question comes from Hunter Keay with Wolfe Research. Your line is now open.

Hey, thanks. Just a quick one on that last kind of Dave, that's scheduled plus charter together for the $7.8 billion ASMs?

Yes. That’s right.

All right, thanks. And then Jude or Dave, wondering about your thoughts on this - the max planes that your old pal, Allegiant just bought, Jude. I was wondering not necessarily if you want to comment on that for them, but if there's any thought to maybe an evolving view that maybe that could work for you.

We always study it, but we haven't been able to make the economics work thus far, and it's not closed. I mean, we're seeing used aircraft values for late model aircraft, around six to 10 years old, that aren’t much above tear-down values still today. And I don’t know. I just don’t think the max can compete with that.

I got you. All right. Another question for you on the Spirit-Frontier deal. Again, how are you thinking about that in terms of the overall impact, the overall competitive landscape? And how does that change the algorithm for you in terms of how you're thinking about growth, or will it?

Not at all. We don't have a lot of overlap with either of those carriers. They've both been out there trying to find things that the other doesn't do for multiple years as they’ve both been growing so rapidly. And Minnesota hasn't been very successful for them, and I don't think that changes with them as a single company. So, my view is, we don't have a lot of overlap with them now. We won't have a lot of overlap with them in the future, which makes it not necessarily a great thing. It's not a real positive, but it also isn't really a negative. Therefore, it doesn't change what we're doing.

I think generally Hunter, we view sort of consolidation in the industry as a good thing. So, from a high level, we're positively inclined toward it.

All right. I'm going to get back in the queue. Thanks a lot.

Thank you. Our next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

Hey guys, nice to be speaking with you this morning. Hope everybody's staying warm.

It's actually 40 degrees today. So, a record. It's an eight-week record.

Break out the sunscreen, exactly. On pilot basing, which you now have this new flexibility, and you talked about how that's going to help you on the cargo side, but could you expand a little bit on how that impacts the passenger side of the business, and how it might impact your thinking with respect to new markets?

Yes. I think one of the biggest things that we got here was the implementation of the PBS system, which is going to allow us to more efficiently schedule pilots, help us take cost out, and improve trip quality for our pilots. Most other airlines have this in place. Sun Country has it now. This ability to station reserve pilots out of Minneapolis for cargo trips was a big thing for Amazon. We needed to get it to be eligible for more growth, and we've now gotten it. So, that was a big win for us. Generally, on the passenger side, I think what this does is it improves quality of life for our pilots and makes Sun Country more interesting for commuting pilots. In other words, pilots who don't live here in Minneapolis will ultimately have the ability to start trips from home locations rather than come up here to Minneapolis to start. I don't think it necessarily changes our growth strategy or the cities we're going to fly to, but hopefully, it's going to help us get our fair share of pilots rolling forward.

Yes. Duane, it sounds like you're kind of angling towards if we’re going to create another Minneapolis? And that isn’t in the plan. Our summer growth is going to be on the blueprint of our Dallas network, which is seasonal, focusing on origination traffic from a summer peak market like Dallas. We'll replicate that across major Southern cities for summer traffic. We see a lot of summer opportunities to deploy Minnesota-based capacity into non-Minnesota O&Ds. Keep in mind, we have a significant charter business that doesn't really touch Minnesota with originations out of LA, Gulfport, Reno, and AC. This just - the contract just adds to the flexibility that we can deploy assets around the country.

It makes a lot of sense. And then maybe just for my follow up, you mentioned it, that this flexibility was helpful vis-à-vis Amazon. Can you talk about just broad strokes incremental growth opportunities in cargo? And maybe along those lines, how do you weigh opportunities with perhaps a larger aircraft type, which you can now support versus potentially the increased complexity of supporting a new fleet type? Thanks for taking the questions.

Thanks, Duane. Yes. On Amazon growth, I mean, we're in continual negotiations, discussions, I should say, with them about growth. Obviously, their primary business is publicly known - as we all read about, is growing rapidly. But our focus remains on leveraging into the recovery for shared service. Our preference would be to kind of be able to build out the utilization of our existing passenger fleet before we started adding more cargo aircraft. That being said, I mean, if there's an opportunity, we'll take it. We remain flexible, and I really don't have any comments on any aircraft type other than the 737s that we're operating today.

Appreciate the thoughts.

Thank you. Our next question comes from Brandon Oglenski with Barclays. Your line is open.

Hey good morning, everyone, and thanks for taking my questions. Jude, I think you mentioned that you're flying a March schedule as much as you can, based on limitations with staffing. Did I hear you correctly?

Yes, that's right. So, we started hiring pilots earlier than the rest of the industry in October, about 15 months ago. But there was just a lot of catching up to do. We've been continually hiring – so we're just in a different situation than the rest of the industry. We went into COVID with 30 or so passenger airplanes, added 12 cargo airplanes, and then have been adding passenger aircraft. The fleet has grown substantially, and it's just going to take us a while to staff up to that. Our training pipeline, we're in the process of expanding, but we kind of have the training staff that we went into COVID with, which was 12 pilots a month of capability. We want to make that two or three times that, and it just takes a little bit of time to ramp all that up.

Okay. Appreciate that. So, it's not something commercial you're seeing like in the spring break period. I think you had pretty favorable commentary on demand.

Yes, absolutely. I mean, it’s tough to forecast in a COVID environment as we've been talking about. It seems like a long time now. The revenue in the first quarter for us is particularly heavily weighted towards the very last several weeks of the quarter. What we're seeing in bookings just over the last, I don't know, two weeks, is really, really positive. Just like other waves of the COVID crisis, it is highly correlated to what we see in the fall-offs in hospitalizations, for example, across the country, and our bookings are turning the corner in the same way. Like with other waves, this recovery begins with domestic leisure markets that we serve. Now we're starting to see it extend into some of our longer-haul and international markets. That's why we have such a wide bracket of our revenue forecast in the first quarter; there's still quite a lot of uncertainty, but if you extrapolate out what we're seeing today, it looks like a really positive finish for the quarter.

Okay, appreciate that. If I could just ask one more, maybe of Dave. You guys mentioned in the prepared remarks, or at least in the release, about Amazon and some impacts from operational difficulties. Can you talk about the financial implications of that, if you don't mind?

Yes. The financial implications were pretty minimal. We had some operational disruptions right towards the end of the year, sort of a perfect storm of some staffing issues that were COVID-related, really, really cold weather here. Then we had an IT outage that resulted in sort of an abnormally high level of cancellations for us. I would think of the financial impact in the fourth quarter to us of all these issues as, let's say $1 million-ish. So, not a huge impact for us in the fourth quarter.

I mean, I just want to contextualize a little bit; across the ecosystem, we have staffing issues for us, but also all our vendors that we rely on for maintenance and ground support, federal agencies like TSA and the FAA and air traffic control are having staffing issues associated with both hiring and also sick time related to COVID, and then the supply chain. We're delayed in getting aircraft into service and repairs done, service bulletins and engineering work from Boeing. It's just a weird environment right now. I continue to believe that that's going to put kind of a governor on industry capacity as we see the commentary from airlines that have announced. That'll be positive for fares as we push into the summer period.

Thank you.

Thank you. Our next question comes from Catherine O'Brien with Goldman Sachs. Your line is now open.

Hey, good morning, everyone. Thanks so much for the time. So, one, just on the revenue beat this quarter, can you walk us through what drove that? I think last quarter, there were some incremental charter ops with the Afghani mission that drove part of your third-quarter beat? Any charter ops here, higher Amazon, or was it just stronger passenger demand?

Yes, it was higher fare. I mean, we went into the quarter in a really uncertain environment, right? I think when we had the call, we were probably coming down off of Delta, and then the Omicron thing happened. We were somewhat cautious on the revenue guide, and I think the fare environment just strengthened pretty rapidly, and that produced the outperformance.

Yes. If you recall back to Delta, we kind of saw this inflection point around late September that was just really dramatic; we went from a weak environment to the next day, it was increasing, and we kind of saw this really strong demand increase up until really the Omicron variant and through the holiday period. We’re kind of in that same place now with Omicron as we move into the March period. I’m just really bullish on demand in the next four to six weeks as we move into our peak spring break holiday season.

Got it. Okay. So, that - you answered a little bit of my follow-up, which is, just as you're thinking about the first quarter, you spoke about how it's very back half weighted, like the last several weeks as we get into March. It’s like typical seasonality. That makes sense. But can you give us some color on how you’ve thought about forecasting the first quarter out? Is there a fair degree of conservatism in 1Q too just given the Omicron variant, or due to the amount of bookings you already have locked in, do you feel like you have more certainty than where you were forecasting 4Q? Just trying to get some color on how you worked it all.

I'm going to turn it over to Grant maybe, who runs our revenue for some color.

Yes. Thanks, Catherine. I would say - I would echo what Jude said. We've gotten so good at seeing these waves and sort of how things play out; as we look to forecast the first quarter, the fourth quarter was pretty instructive in terms of how that sort of return of demand after Delta performed. We had three distinct peak periods for us, which was a little bit different. We have a holiday school break in October where we saw really good demand, Thanksgiving, and the second half of December. Using that, we have a pretty good sense for the first quarter. One thing that's really notable about us, in the first quarter, we actually have an inflection point just in overall capacity. For a while, we trailed 2019. This is the first quarter where we're bigger than 2019 on a pretty substantial basis. On the scheduled side of the house, we feel really good about the schedule we have in the market. It's really Minneapolis focused. We've done a really good job building the brand in Minneapolis, connecting with customers here. The one thing I think that we are doing is just working really closely with our operating team because the airline is fully deployed in March. For us, it's just execution, making sure we deliver. I can say that the team here does that as well as any airline I've seen. So, we're very focused on that. Just anything that would bring guardrails to the first quarter, just making sure we can deliver. I think there's a ton of confidence here that we will.

That's great. And then maybe one for you, Dave, on the - quick clarification. Wanted to follow up on the balance sheet. So, on the five aircraft you have signed LOIs for, I guess, are those part of the eight planned deliveries this year, or are those incremental? And then, given Jude's comment on your target aircraft being still for sale, not much above tear-down, like, do you have - I know there's still some training guardrails you guys are working on, but from a balance sheet perspective, like if those deals are perhaps not here to stay forever, is there capacity on the balance sheet, an appetite from management’s perspectives, maybe lock-ins on aircraft for future periods? So, thanks - a little bit of a two-part there. Thanks.

Yes. Let me just talk about the fleet situation. Our fleet plan for 2022 has us adding eight passenger aircraft. We signed deals for two of those last year in ‘21, so those are going to be delivering. The five I mentioned are part of the eight. That brings us to seven, and it's only early February, that’ll be delivering through the year. We need to find only one more to hit our fleet plan. But I think it's fair to say that what you said is accurate. We continue to see attractive deals in the market. We're very active. To the extent that we see really good deals and maybe we front-load the fleet a little bit, we will do that. The balance sheet is not a concern; we're very well capitalized. We have access to whatever financing that we need at really attractive rates, so that's not a limiter for us. Really, the only limiter at this point is our ability to train pilots, get them through, and fly the aircraft. There are plenty of market opportunities for us, plenty of aircraft that are available. We have the balance sheet capacity to bring them on. So, yes, we're in a good spot from the fleet perspective.

Okay, great. Thanks so much for all the time.

Thank you. I have a follow-up with Mike Linenberg with Deutsche Bank. Your line is open.

Oh, hi. Yes, this is on for Mike. My first question is, given the recent increase in fuel costs and excluding cargo and charter, can you provide us with more details on your historical ability to recover higher fares?

So, this is an important concept. There’s a wide spectrum of revenue outcomes on a scheduled service network. Our response to high fuel prices is to eliminate flights that are predictably under return targets. That's how we raise fares. We don't raise fares by going out across the fleet and adding a dollar, whatever, to the airfare. We just go in and eliminate flights to become marginal as the new inputs for fuel price become clear to us. That’s the model. We don't have much of a relationship for unit cost and utilization. It just becomes, what’s the fuel price input? What flights are profitable and hit our hurdle rate at that fuel price? The other ones are eliminated, and that's how we run the service business. That's how we're able to pass on - that's how we're able to maintain our margins in high-rising fuel prices.

Yes. If you look across the industry, you definitely see that recapture effect that Jude's talking about as sort of lower profitable or unprofitable flights capacity comes down, fares rise. Part of this cost is recaptured over time; it's not instant, there's a lag, but that's the trend.

Got it. Thanks. My second question, can you give us any cost inputs that perhaps maybe run tailwinds throughout 2022 to drive the adjusted unit cost below 2019 levels? Or is it really more about just restoring the ASM growth and the better utilization of the network? Thanks for the questions.

Yes. I mean, I think continued averaging down in cost on the fleet side is part of the metric. We insourced our ground handling here in Minneapolis in 2020, and that continues to provide dividends for us. A significant opportunity in ‘22 is just continued cost control and leveraging as ASMs come back. As I pointed out, we've been able to absorb the cost of the new pilot agreement; that's in the numbers. So, it's cost control elsewhere and leveraging into growth.

Thank you. Our next question comes from Chris Stathoulopoulos with Susquehanna. Your line is open.

Good morning, everyone. Thanks for taking my question. So, going back to the new work rules you mentioned with respect to the new pilot deal, curious if that was something that the union brought to you or was kind of mutually brought to the table, and whether there were sort of any atypical or out-of-ordinary concessions made during the bargaining period, meaning, in this kind of great resignation environment, or however you want to describe it, should we expect that perhaps we could see other changes to any upcoming deals you have with other groups? Thanks.

Yes. So, there's sort of a lot in that. Basically, some of the work rules that I talked about here were brought to the table by the company. Others, like let's say PBS, I would probably characterize as both sides having an interest in getting that in place. There's nothing - thinking through sort of the deal, there's nothing kind of out of the ordinary for the industry in work rule changes that we made, nothing particularly unique that's in this deal. Some of this, starting trips at home stuff is fairly unique, and we’re hammering out the final details on that. I think one of the things about this agreement is, our pilots were substantially behind the average of our competitors in the low-cost world. There was a lot of ground to be made up, which drives that pilot cost per block hour number I gave. We don’t believe, and the data would indicate that we're not in the same position with our other work groups. In other words, pay rates, benefits, and so forth, are quite consistent with what our peers pay at this point. I wouldn't expect to see similar moves with other work groups for us.

Just a little more commentary on the negotiation; we got done a contract that was pretty old. We got an amendment negotiated in two months. It takes a tremendous amount of effort from our team, obviously, but also our pilot group and Alpha National and our MEC. I was just so impressed with those guys. I'm really excited for the pilots that have been here through all the challenges that Sun Country has had. We’ve got pilots who have been on payroll for 35 years, and now they're going to get, for the first time maybe in their whole career, an industry-leading contract. I'm just really excited for those guys. It's really kind of amazing that we got this across the finish line in the timeline that we did, and it took a lot of working together, and it was great that it happened.

Okay. And my second one, so we go back to, I think it was Hunter's question on the announced merger proposal with Frontier and Spirit yesterday. So, you mentioned it doesn't really impact anything you do. I think you said that you kind of look at consolidation as favorably. But if the recovery in business and long-haul international does take longer, and we have this kind of jump-all approach to managing inventory from your peers in the US, is there perhaps - there's also the upselling phenomenon that we keep hearing. So, is there perhaps an opportunity within this - if this merger goes through and everything else that's happening, to perhaps look at markets where you typically wouldn't have looked to sell inventory? Thank you.

I just want to be really clear; we're focused on the peakiest of days. The combination of Spirit and Frontier that drives these twelve and thirteen-hour daily utilization of their new aircraft is still going to have that same dynamic. I don't think this changes at all our opportunity set of really peaky leisure markets that have predictable peaks along a day of the week or primarily seasonal sensitivities. There are three to four hundred O&Ds that have these really peak contributions from late leisure demand. They're not going to be effectively served with any other carrier than us. Spirit and Frontier just can't modulate their capacity as to what's required to pick up that demand that exists in those peak periods. So, I don't think - as Dave mentioned, I think it's a net positive. I don't think it changes the dynamic much here in Minneapolis, which is quickly becoming a two-airline market. I think our growth outside of Minneapolis is still going to be focused on these predictable peak-season leisure markets originating from major DMAs.

I feel strongly about that with the merger. It's new to us, and we're still evaluating it. I think we'll see how it plays out, but I think it's positive for our ex-Minneapolis growth, and it's kind of neutral for Minneapolis and our plans here.

Yes. Thanks. I’ve got a few. Jude, that last comment you made, have you guys studied what happened in Seattle when that place became a two-airline market with Delta, and what happened with some of the tertiary competitive capacity there that maybe couldn't compete on schedule and loyalty? Any similarities you may see developing here or there?

Yes. I mean, yes, of course. Look, I mean, Seattle's a bigger market than what we have here, and the geography is a little bit different, with flow over the ocean. But yes, I mean, I completely agree with you. I think it's an allegory to what we're seeing here with Delta. We're focused on the leisure market. I mean, I think more carefully, we want to be even more segmented in the way we think about the twin cities and focus more directly on leisure, which I think will be less of a front than Alaska is in Seattle to Delta. But yes, I mean, I think there's a good model for coexisting, and I would put us right up there with Alaska as an example here.

Yes. You guys are flying commies now, but all right. And then - on the CASM comment that you made, just to completely be clear, you're expecting your ‘23 CASM ex-adjusted to be under $0.06 on a full-year basis. You're saying you're just going to get there at some point in ‘23.

Yes. At this point, we're thinking that our full-year number is going to be sub-six.

Got it. All right. And then, can you talk a little bit about PBS some more, and just elaborate on some of the benefits that it's going to bring to you that might be unique to Sun Country? Also, just help people on the call understand why PBS is a beneficial thing to run anyway.

So, I'm super passionate about PBS, inappropriately. It shouldn't be so much of a focus to me, but I just love the product because I think it's going to be great for our pilots. What PBS does is allow a pilot, while honoring seniority, to select their own schedule instead of us building a month-long schedule and then pilots in seniority order select from that set of scheduled options. Imagine a portfolio of trips out there, round trips from Minneapolis, two- and three-day trips for charters, a cargo line that takes you through multiple cities on four or five days. Depending on your situation personally, you can select and build a schedule that's best for you. Obviously, not everybody gets what they want, but we're just a lot more likely to satisfy pilots for their own personal scheduling desires in a PBS system than an Alliance system, which is just an outdated system. Further, in 2017, the pilot work rules changed, Part 117. The primary change was that legalities are now on a rolling basis instead of a calendar basis. You used to be able to start the month anew, and now I think it makes perfect sense. It's a rolling basis. PBS, as it awards pilots or even flight attendants’ calendars, takes into account those restrictions. It's just a lot more efficient for both pilots and the company.

No. Your passion came through. More desirable trip construction means fewer dropped trips, which means more efficiency in the pilot workforce.

Okay. Can I ask a couple more, Chris? Are there others behind me?

Yes. I’ve got two behind you.

Go ahead. One more.

All right. One more. Fine. Why do you think your operations have been so strong while others have been so weak? Do you have folks just volunteering to pick up trips? I mean, is it a cultural thing? I mean, how are you getting people to show up? Is it because you're small? I mean, you can have direct contact.

Wow, I love the question. I feel like it's been really hard. Let me go over to Greg.

Yes, Hunter. I think it's a few things. As evidenced by our agreement that we’ve got with our pilots, that shows that we've got a good relationship, and we have seen some leaning forward. Grant had mentioned just the close relationship that we have between the commercial team and the operations team to really pinpoint decisions we need to make super close in. We have daily discussions where we're looking not only day of, next day, next few days. It's just been a lot of close work, and I think that the organization is very much aligned on what we need to accomplish. I mean, I think that's largely what it is, but there's a whole lot of tactics that come in on a daily basis to make this work.

We should touch on just structural advantages we have. One is, we're a single-based operator, single fleet type. We're in Minneapolis, which isn't JFK. It's not Honolulu, but kind of in the middle. We didn't have to deal with a lot of the ATC constraints other airlines deal with like field congestion and things like that.

We've also got a good position at T2 in our terminal here, which helps with consistency of operation.

There are definitely some advantages such as that that we've got.

And the variable capacity that we can reset the schedule when we need to.

Yes. That's the other thing is kind of fire breaks, natural fire breaks in our schedule that exist as we schedule for demand, but if you’re Spirit-Frontier and the only recovery option is to cancel down and reset. We have today, Tuesday, that's our reset date, which is naturally scheduled.

Right. Yes. No, that makes sense. All right, great.

It is hard and it's come with a lot of work. There's a lot of work involved. So, it's very difficult.

All right. That’s enough.

Thank you. Appreciate it. I have more, by the way.

Thank you. Our next question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

Hey, thanks for the follow-up. This may be an off-the-wall question and not one I would ask most airlines at this point in the recovery. But can you just remind us when restrictions on capital return go away and how you'd be thinking about it if you didn't have those restrictions with your stock at these levels?

Yes. The restrictions go away, I think, at the end of September of this year. Let me position it this way. The balance sheet is really strong. We have excess capital on the balance sheet above and beyond what our operating needs are to either buy planes or operate the business. We're strongly cash flow positive. We think that the shares - the share price is substantially undervalued. You can sort of draw from that conclusions you would, but we think our shares are a strong buy at these levels.

Okay. Thank you.

Thank you. I have a follow-up with Catherine O'Brien with Goldman Sachs. Your line is open.

Hey guys. Thanks for the extra time here. I thought one of us might try for this, but just any high-level guidepost we should think about for what down versus 2019 means in 2022. Obviously, the path to below $0.06 in 2023, I'm guessing this year is a step towards that. But just any kind of like high-level thoughts on how we should be thinking about full year 2022 CASM exercise in the context for that down versus ‘19 comment? Thanks.

Yes. I think you should be thinking about it as modestly below 2019 levels. In other words, we're not sort of knocking on the door of six quite yet. We should be there in ‘23. We'll be modestly below - if everything goes according to plan, which we're confident in, we should be modestly below our 2019 levels.

I think the big variable is input around capacity level and how quickly the recovery happens, and whether or not the shoulder months in particular were able to blow those out or not. That's going to drive some effect on CASM.

Yes. Got it. Makes sense. And then just one more for me. Just on the new charter contract, can you just give us some color on the impact of those as they ramp up? I know in the fourth quarter, you're still down 20% or so from ‘19 due to lower military flying. Will these contracts backfill some or all of that? And then I guess, if so, do you still have capacity to do more military flying if that demand comes back stronger? So, just helping us think through the impact of the new contracts and then what's left in the tank after those contracts are fulfilled. Thanks so much.

Great question, Catherine. This is Grant again. Yes, so this year, the successes of the team in 2021, in terms of selling ourselves, winning back business, winning new business, we feel really good about the portfolio in total for 2022. We have a lot of precision in terms of what it's going to be, and that's really helpful in these times because this is very operationally friendly. A lot of the flying we're going to be doing will be in pilot bids. We'll have good lineup sights on it. So, it's not going to drive close-in changes or drive a lot of work for the organization. We feel really good about that. Getting our casino business back to where it was and above where it was in 2019 is really important because those are really good contracts for us. You’re absolutely right. We will watch military very, very closely, and we can opportunistically take it when it makes sense. Military has been more competitive, just as other airlines have some spare capacity that they've been deploying to military. As things change and based on the recovery, we will keep close tabs on the military business. We do, and we will engage when it makes sense for us. So, yes, we have upside and we have a really good portfolio to begin with.

Okay, great. Thanks so much for that.

Thank you. I have a follow-up with Chris Stathoulopoulos with Susquehanna. Your line is open.

Thanks for taking my follow-up. So, going back to the question on cargo. So, you mentioned sick-outs and some IT issues, but just curious in the context of utilization, is the current fleet, I believe it's 12 aircraft, sufficient to handle growing or what could be erratic peaks as well as what looks like Amazon is adding a few more dots or air hubs on the map here. Thanks.

You said sick-outs. I just want to be very clear. We have legitimate COVID cases. People were affected. I think the answer is, we have - we're running right now, a C-check line, and that won't be a constant. What we saw in the fourth quarter for Amazon production, for our cargo production, is kind of what we would expect in a standard quarter going forward until we get more aircraft. That being said, my view is, it’s relatively likely that we would intend to continue to have great operations that'll be valuable to Amazon or any other cargo partner. We have a capability that I think is really valuable. I mean, we’re comfortable and confident that Amazon is happy with our performance. If they want to grow the 737-800 fleet more, we’re very viable competitors to get more of those aircraft, but ultimately, it's up to them.

Okay. Thank you.

Thank you. I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Jude Bricker for any closing comments.

Thanks, guys. Thanks for your interest. Everybody, have a great day and we'll talk to you next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Everyone, have a wonderful day.