Sun Country Airlines Holdings, LLC Q1 FY2022 Earnings Call

Welcome to the Sun Country Airlines First Quarter 2022 Earnings Call. My name is Terry, and I will be your operator for today’s call. Please be advised that this conference call is being recorded. I will now turn the call over to 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 on management’s current beliefs, expectations, and assumptions and are 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 recent SEC filings. We assume no obligation to update any forward-looking statement. You can find our first quarter earnings press release on the Investor Relations portion of our website at ir.suncountry.com. And with that said, I would now like to turn the call over to Jude.

Thanks, Chris. Good morning, everyone. After nearly two years since the onset of the COVID pandemic, demand for air travel in the first quarter returned to pre-pandemic levels. While it’s been a long and challenging time for our industry and its employees, the last two years have shown the resiliency of Sun Country and what makes us truly unique. We believe we have the best people in the industry, and I’m proud of them on a daily basis, serving our growing leisure, charter, and cargo customer base. While the industry now faces certain challenges, I want to take a few minutes to highlight some differences here at Sun Country versus the broader industry. First, we’re already profitable. We were profitable in the first quarter. We’ve been profitable through most of the pandemic. Although we’re tremendously excited about our growth prospects, we’re not reliant on growth to deliver consistent profitability and cash flow. Second, our charter and cargo segments produced strong results and predictable cash flow in all demand and fuel environments. These businesses are primarily under long-term contracts with premier partners such as Major League Soccer, Caesars, and Amazon. We pass through fuel costs to the consumer. Third, and importantly, the synergies between our cargo, charter, and scheduled service segments have never been more apparent as they are today. Because of the consistency of charter and cargo, we have the flexibility to adjust our scheduled service operations to deliver in all circumstances. So in the second quarter, in response to the fuel environment, we’ve been able to focus our growth on peak periods where fares can be achieved to compensate us for our fuel costs. And because of that peak focus, we expect to be able to deliver much stronger scheduled service unit revenue growth in Q2 versus the industry. While it’s great that the industry is seeing a resurgence in demand, our improved unit revenue will be as much a result of our own doing and design. Fourth, we deleveraged through the pandemic. Our future CapEx can be adjusted for aircraft prices, interest rates, and the opportunity to deploy the asset. The pandemic produced many opportunities for us to purchase growth aircraft at attractive prices. Today, we have seven aircraft that have been purchased and financed that will enter the fleet over the next nine months. In the first quarter, we grew block hours by 30% versus the same quarter in 2019. Through this time next year, we expect to continue to deliver over 20% growth without future CapEx while deleveraging as our debt amortizes and producing positive cash flow, adding to our already strong liquidity position. Finally, as you all know, we ratified a contract with our pilot group in December. This has allowed us to attract the quality and quantity of talented aviators needed to support our growth, but it also gives us more certainty in our costs as compared to having an open contract in this environment. Again, I’m so proud of all our team members here at Sun Country and what we’ve achieved to date and excited about the future. With that, I’ll turn it over to Dave.

Thanks, Jude. Q1 was another profitable quarter at Sun Country, including our sixth consecutive quarter of greater than 15% EBITDA margins. We’re very pleased with these results given high fuel prices throughout the quarter and Omicron-driven demand softness prior to President’s Day. Our numbers demonstrate again the benefits of Sun Country’s unique and highly resilient business model. We can quickly adjust our capacity and the allocation of our flying between segments in reaction to exogenous factors like the much higher fuel costs that we’re experiencing today. Adjusted pretax earnings for the quarter were $15.7 million, and adjusted EPS was $0.20 a share and revenue of $226.5 million, a record for Sun Country. Q1 adjusted operating margin was 10%, which we believe to be industry-leading. Our total Q1 block hours were up 30% and ASMs were up 6.3% versus Q1 of ‘19. The quarter was a tale of two halves. Bookings were soft in January, but since President’s Day, we have seen some of the strongest demand in our history. Our total average fare in Q1 of $183 was 7% higher than the comparable number in Q1 of ‘19. Included in this is ancillary revenue per passenger of $49, which was the highest in the history of our company. In terms of quarterly unit revenue, scheduled service TRASM was down 1% on a 10% increase in scheduled service ASMs when compared to the first quarter of ‘19. However, scheduled service TRASM in March increased 4% versus 2019, while scheduled service capacity was up 8%. Charter revenue for the quarter was $32.9 million. Q1 was the third consecutive quarter where charter revenue per block hour was higher than in 2019, and flying done under longer-term contracts made up over 70% of the charter flying we did during the quarter. Flying under our agreements with MLS and Caesars was ramping up during Q1 and will be fully operating in Q2. Charter block hours for the quarter were down 14.3% in total versus Q1 of ‘19 due to reduced ad hoc flying as we chose to prioritize scheduled service and cargo while we ramp up pilot hiring under our new contract. For example, we’re typically one of the largest charter carriers for the NCAA basketball tournament, but we didn’t participate this year due to capacity constraints. We’ll return to this type of flying in the future as our staffing picture steadily improves, again, illustrating the unique optionality that our three-pronged model affords us. Cargo revenue in the quarter of $21.1 million was down slightly when compared to the first quarter of last year due to the timing of planned heavy maintenance checks. Recall, we did not begin cargo flying until May of 2020. On the cost front, we continue to maintain solid cost discipline in the first quarter. Despite Q1 being the first full quarter of operating under our new pilot agreement, our adjusted CASM of $0.0621 was only 0.6% higher than Q1 of ‘19. Excluding fuel and special items, total cost per block hour in the first quarter was 5.9% below Q1 of ‘19 despite the cost of our new pilot agreement. We paid an average of $3.20 per gallon for fuel during the quarter, which was significantly higher than our initial Q1 plan and almost $1 per gallon higher than it was in the first quarter of ‘19. In March, which was our heaviest flying month of the quarter, fuel costs were $3.58 per gallon, yet we still produced an operating margin of greater than 20%. As we enter a seasonally weaker second quarter, we’re pleased with how the quarter is shaping up. Demand continues to be robust with historically strong revenue trends. We expect total revenue to be up 24% to 30% versus the second quarter of 2019 and 22% to 26% higher block hours. These growth trends imply scheduled service TRASM growth of a remarkable 25% to 34% over the same period. We expect operating margin to be in the plus 5% to 9% range for the quarter, even in spite of forecasting a fuel price of $3.50 per gallon and facing some unit cost headwinds in Q2. We’re rightsizing our capacity to maximize profitability in a high-fuel environment while responding to staffing challenges. We continue to see strong application numbers from prospective new pilots, and we are filling all of our new hire classes. As we implement our new agreement, we’re expanding our training capacity and plan to increase the size of our new hire classes, allowing us to grow faster in future quarters. Finally, our balance sheet remains very strong. We closed the quarter with $297 million in liquidity and completed an EETC aircraft financing for $188 million with an average interest rate of just over 5%. We expect the refinancing to save us over $2 million per year in ownership costs. We had approximately $15 million of positive free cash flow during the quarter, excluding aircraft CapEx. We expect to generate strong free cash flow for the year. Of the eight aircraft we plan to acquire this year, we have already closed on seven. Additionally, no significant non-aircraft capital expenditures for the remainder of 2022 are expected. With that, I’ll open it up to questions.

Your first question comes from the line of Ravi Shanker from Morgan Stanley.

First question on the cargo side, obviously, we heard from your primary cargo customer recently that they may actually have some excess capacity in their fulfillment network for the first time in a long time. Does this have any impact on kind of the schedule they’re flying with you guys and how full the aircraft are, etc.?

No, we fly the same amount now as we did when we fully stood up the airplanes to 12 aircraft. And for the foreseeable future, the schedules that we see continue to have the same volume. A little commentary on cargo, though, is keep in mind, it’s a long-term contract with escalation annually that’s fixed. One of the biggest costs associated with it as fuel is passed through, then as pilots. And our pilot contract went into effect in January. So the margins of that business are tighter now than they were last year and will widen as the escalation outpaces pilot rate increases and the juniorization as we hire more pilots. So we expect those margins to widen as we look forward into the future.

What is the timing of the escalator going into effect like what time of the year is that?

The calendar year.

Calendar year, okay, got it. And a follow-up question is just on the charter side. I mean you said that you didn’t fly the NCAA planes this time because of availability, and that makes sense. I’m just wondering kind of how much flexibility you guys have in your charter contracts because I think one of the good things about these contracts is that they are long-term contracts, and they’re pretty sticky. But you guys do have the flexibility to not fly them if you didn’t want to?

Hello, Ravi, it’s Dave. I think the way we’ll think about it is this way. Remember, our charter business is composed of a fixed component, basically a component under contract, I’ll call it, which we fly, and we want to continue to fly, and we will. And then we have this ad hoc segment. The NCAA basketball, for instance, fell in the ad hoc segment. That’s where all of our flexibility resides. And as we’re prioritizing the use of our resources, let’s say, pilots, whatever the constraining resource is at any time. That’s sort of the last thing on the totem pole because we don’t need to bid it if we don’t have the pilot hours available. Yes, a little bit more on that. So we have 17 airplanes in track and cargo. Those are fixed production margin businesses. And then the rest of it, we adjust for the yield environment or for fuel prices, most of that’s in scheduled in the ad hoc, which comes at the very end of our planning horizon; we can adjust for the staffing situation at the time, the opportunity cost from scheduled service, anything really.

Your next question comes from the line of Duane Pfennigwerth from Evercore.

Duane here, nice to speak to you guys. Just on the block hours, can you put a finer point on the composition within there? Understand 1Q is a bigger quarter for you historically on scheduled service, but wonder if you could sort of give any color on the composition sequentially? And I guess any high-level thoughts about the balance of the year?

I actually just happen to have a couple of those numbers in front of me, Duane. So scheduled service block hours were 66% of our total in the first quarter. Charter was 11%, and cargo was 22%. As we move into the year, I mean, remember, Q1 is our big quarter, particularly from a scheduled service perspective. So as we move into the year, particularly in Q2, there will be a modest shift away from the scheduled service business into the charter business as we reallocate resources there. Also our MLS and Caesars contracts, I think Caesars didn’t get really started until March. So that’s really ramping up now, and that will be a bigger piece of our flying in the second quarter as well. The cargo business, the number I gave you is plus or minus 1% or 2% on a quarterly basis.

And then just on scheduled service, it’s natural in the face of like what fuel did that you’d pull back on that and protect your margins. And obviously, the revenue environment has played out such that it’s been a lot stronger, certainly a lot stronger than what we were looking for. So if it’s possible, can you talk about for the growth that we see in the schedules, how much of that was sort of proactively protecting your margins? And maybe in an ideal world, you’d actually have more of that out there than what’s been cut versus this idea of constraint? Is it a constraint that’s driving what’s in scheduled service or was it just maybe being overly aggressive in taking down growth?

First, it's important to note that we are experiencing a mix of opportunities, with both weak and strong flights. In response to higher fuel prices, our approach has been to reduce the weaker flights. However, we are seeing broad improvements in demand, meaning that the weaker flights are performing better, and peak periods are showing even more improvement. Most of the cuts we made were driven by the rise in fuel prices, and we have identified peak opportunities where we can effectively allocate our crew resources. Additionally, higher fuel prices significantly impact long-haul routes, which influenced some of the cuts we've implemented. Our goal is to remove certain flights from our scheduled service business. While we cannot provide a precise answer, we are continuously adjusting the schedule based on various factors, including the yield environment and fuel prices, to ensure we meet our performance targets in each period.

That makes sense. And as we look out to maybe the third quarter, what is sort of planned and baked? And if we looked at what’s in the schedule for the third quarter, would we be taking the over on that at this point based on how strong revenue is? I appreciate you taking the questions.

Yes, we believe our plan for the third quarter is suitable given the current forward curve, which is in backwardation. If fuel prices do not decrease, we may need to make further cuts. Conversely, if prices drop more rapidly than we anticipate, we might find opportunities to expand. There is seasonality in Minneapolis, lasting until Labor Day, and our significant operations in Texas, which include travel to Mexico, are performing very well. However, I do not expect any improvement from our current state. Overall, I think we are on target.

Your next question comes from the line of Brandon Oglenski from Barclays.

I guess maybe to be more explicit, if we look at 2Q schedules right now, ASMs are down about 6%. Does that sound about right?

Yes, that’s about right.

Okay, Jude, I think you mentioned some constraints as well though, on the staffing side. Can you talk to the new pilot contract and if that’s helped you on attrition or not? And I think you mentioned new hire classes are full as well?

Yes, our new pilot classes are fully booked. We’re onboarding about 20 pilots each month, starting from winter and continuing now. Historically, our company hired around 5 pilots a month in an inconsistent manner, but we’re currently experiencing significant growth. We are encountering bottlenecks in our training timeline, particularly with simulators; we have increased from 1 to 2 and need to advance to 3 check airmen, for which we are training more and seeking additional FAA approvals. We are working to resolve these bottlenecks, but growing at 30% under the current conditions is challenging.

Yes, the other thing I want to point out is you can look at our ASM production relative to 2019. That’s one metric, but a more relevant metric for us is total block hours because we’ve established a significant cargo business that we didn’t have a few years ago. In terms of that metric, we’re up 25% in total capacity in the second quarter. So the growth continues to be very robust. Jude mentioned what we’re doing on the pilot front. This has been the trend. I stated on the last call that we experienced high levels of attrition around September and October last year. Following that, attrition has moderated and decreased. While it hasn’t returned to previous levels, we wouldn’t expect it to, given the hiring at legacy carriers. We have increased the size of our new hire classes, and applications remain very strong, allowing us to fill those classes. It’s no longer a front end issue. Now, we are diligently working on expanding the size of that funnel to increase our classes further and continue the growth moving forward. We’re making good progress on that.

Got you, Dave. And one last one for me, I think you said rates were up like 30% with the new contracts, but you had a lot of efficiency offsets that you expected with it. Is that coming through as you expected?

We anticipate seeing some cost reductions in the future, although we haven’t experienced much of that yet. One of the most significant changes will be the introduction of preferential bidding, which most other airlines already have, but we do not. This is expected to take effect in the first quarter of next year and should lead to a considerable improvement in efficiency. Additionally, we are witnessing some positive results from other initiatives, particularly in the commuter area, but the PBS change is expected to provide the largest benefit.

Your next question comes from the line of Catherine O’Brien from Goldman Sachs.

So I’m going to stick on this cost question. So I’m sure the 30% increase in block hours helped drive efficiencies across fixed costs. But you do have the new pilot contract, and you just said one of the biggest productivity offsets doesn’t come until next year, but you still saw cost ex-fuel on a per block hour basis down 6% from ‘19. Could you just give us some more color on what are helping you drive that result?

Yes. I mean, there are a few things. One is just we’re bigger, so we’re spreading costs overhead over more block hours, which is also reflected in our CASM number. We’ve done a lot of work, as we’ve talked about a number of times here on the fleet front over the last few years and driven our ownership costs, which is one of our biggest cost items, clearly, down significantly in excess of 25% over the last several years. So that’s bearing fruit. We’ve taken our distribution costs down through a number of initiatives that we’ve sort of had in work. So it’s really sort of all over the map. We’re working hard on reducing our maintenance costs. We’ve got an active program now buying green time engines as opposed to expensive overhauls, which is another benefit of our older fleet strategy. So it’s items like that.

As we look ahead to the next year, it seems you mentioned a growth rate of over 20% based on the aircraft currently in place. Can we expect to see that continue? I understand there may be some variation from quarter to quarter, but generally speaking, compared to 2019, should we anticipate improvements in efficiency? This would contribute to driving costs down further, especially with PBS coming up and a few other initiatives, along with spreading more overhead.

Yes. I mean, I can’t give you the exact numbers in the quarters ahead, but that all of those concepts are absolutely still there. And particularly, as we continue to grow and add flying, we’ll continue to spread our costs out over more block hours.

Yes. I think the input is fuel that we don’t know and how that affects ex-fuel CASM is that we will cut out flying and grow less fast if fuel doesn’t mean revert.

Yes, the main uncertainty lies in our strategic approach to flying. We focus on profitable routes and avoid flights that are not financially viable. Therefore, our growth will be influenced by hiring and fuel expenses.

Just one quick question related to the ongoing plan. Fuel costs are obviously significantly higher than in 2019, and it's hard to predict where we'll be next year. However, considering some of the changes to the business, I believe you could enhance your run rate profitability by adding the cargo business. I understand that pilot costs may have impacted margins this year, but that should improve moving forward. While charter block hours are lower, your revenue per charter block hour has increased with these new contracts. Do you think that as we reach the second half of the year, we could see margins exceed 2019 levels, assuming fuel and demand remain relatively stable at current levels?

Yes, is the answer. I mean I think the right way to think about our margins is when it’s as good as it can get for everybody else, we’ll be right there with them. And in all other circumstances, we will lead the industry.

Your next question comes from the line of Scott Group from Wolfe Research.

You talked about $49 of ancillary revenue per passenger. Where do you see that going from here rest of the year or longer term?

I want to be cautious here because we have just introduced a new product called the passenger interface charge, which will significantly change fare structure. The most pertinent ancillary products will enhance total revenue per passenger, and we estimate an increase of around $5 to $7 from third-party products and improved pricing strategies for bags and seat assignments. We are also introducing bundles that should prove very effective. However, you should expect a swift increase in our ancillary revenue per passenger due to the passenger interface charge, leading to a decrease in airfare. We are likely to exceed 60.

But you’re saying a lot of that is just a shift from one to the other?

Yes, all the ULCCs have a product like that and we’re creating one too. So, be cautious when interpreting comparisons across the industry for ancillary revenue per passenger. What's truly important is the revenue that adds to the total. Considering the range of ancillary products, passengers generally expect to pay for a bag, which is often included in the airfare, while seat selection tends to be seen as optional. Onboard sales don’t affect airfare at all. Third-party product sales are things passengers will buy anyway, and those contribute positively to our revenue. There’s a variety of added value associated with different product categories. Allegiant refers to it as a customer convenience fee, while Frontier calls it a customer interface charge. I can’t recall what Spirit names it, but they all have something similar, which is essentially just a fee that reallocates funds from the fare.

As Jude pointed out, sort of the object here is obviously accretive to total revenue. So we talked about $3 to $5 of upside in sort of truly accretive stuff. Yield management of seat pricing, getting more heavily involved in third-party products, which we started doing in the rental car business. So that’s sort of coming down the road as well.

I wanted to follow up on the earlier question about Amazon cargo. There's been no change in the business today. Do you think that Amazon possibly having some excess capacity in their network could affect your timing for acquiring additional aircraft?

We remain in discussion with them about growth opportunities. And I continue to believe that there are some. I mean, right now, scheduled service is doing really well. We’re not in a big rush to grow our cargo business, quite frankly. I mean we need to try to continue to push peak period scheduled service, which is really strong today. It’s our best thing right now.

And then just lastly, as we’re seeing a little bit of an uptick in cases, are you seeing any changes in the demand environment as cases move a little higher?

No, none at all. It’s a steady increase in average airfare sold each day, which rises as we approach summer. It’s consistent and this kind of turning point is quite unusual, as many airline CEOs have noted. I can’t recall another time where we’ve seen such a variation since mid-February, following this inflection point with no signs of slowing down. The capacity situation in the U.S. appears very favorable. You will be paying significantly for travel due to a shortage of available seats. I can't see this changing anytime soon.

Your next question comes from the line of Mike Linenberg from Deutsche Bank.

I guess just a quick one here on fuel, Dave, $3.50 per gallon. Presumably, that’s the strip. What’s the day-end? Maybe are you benefiting from better prices, Chicago, Mid-Con, you’re not dealing with New York Harbor; that did seem to be a bit lower?

Yes, that's the strip along with some assumptions about crack spread narrowing. To be honest, that's probably four or five days old. We believe crack spreads will decrease. Most of the fuel we purchase is sourced from Minneapolis, so our exposure to the Northeast is very limited, but that remains the primary source of our fuel.

Probably more relevant when comparing our fuel price to the rest of the industry is the seasonality of our business within the volatile fuel environment. In the first quarter, we likely paid a significantly higher fuel price than our competitors. This is due to the fact that more of our flying occurred in March when fuel prices are typically higher, which aligns with our business plan. The same pattern exists in the second quarter, where we will have a heavier flight schedule in June compared to the other two months of the quarter. This trend reverses in the third quarter, and so on.

Okay, that’s helpful. In the last quarter, you made a significant adjustment to your scheduled capacity, and it seems to be the right decision. Reducing routes like Minneapolis to Fairbanks and the West Coast to Hawaii can get quite expensive, especially for longer-haul flights, as you mentioned, given the need to carry extra fuel. I'm curious about your block hour mix from two to three months ago. I know you indicated you were at 66% in the March quarter; it appears the June quarter will be slightly below that. Were you above 70% a few months back, perhaps with fewer charters, and have you now been able to redistribute resources? It's not just about the airplanes; I assume it also involves reallocating pilots from scheduled services to support charter or cargo operations.

Yes, let me discuss our pilots. Our pilot group is involved in all aspects of flying. We have a system where they can take scheduled flights, charters, and cargo, often all in one trip. This integrated approach allows us to operate efficiently. Currently, we maintain a ratio of about 25% fixed flying to 75% scheduled flying. This setup enables us to adjust our scheduled service significantly based on seasonal trends, especially when comparing September and March. Additionally, there are various factors that could influence this ratio, such as yield conditions, fuel prices, and the competitive landscape. Over time, we expect to stabilize at a roughly 75-25 split between scheduled flights and other operations. Grant, do you have any additional insights?

Yes, Mike, this is Grant. I want to emphasize that the team excels at optimizing based on the best projected margins. Looking back, we made the necessary adjustments to scheduled services, which were indeed the right decisions made within a strategic framework. On the charter side, as Dave pointed out, we have some flexible customers that are relatively nearby, allowing us to choose selectively. Therefore, you might notice a slight reduction in that area, but we continue to perform at a high level for our largest clients. Overall, this team does an excellent job of maximizing value.

Your next question comes from the line of Christopher Stathoulopoulos from Susquehanna.

So I just want to get to this demand or perhaps TRASM outlook in a different way. So mask mandates off here, summer travel around the quarter. If you could give some color with respect to what the 0 to 60-day booking window looks like? And how does it compare to this time last year and then, let’s say, three to five years on average pre-pandemic? And then further out, so let’s say, 60-plus days, are you having to stimulate discounts to stimulate demand or is marketing and whatever you normally do around with your RMS team sufficient to fill out your kind of required load factors into the second half?

Hello, Chris. I'll make a couple of general comments before passing it to Grant. Currently, we are not implementing any stimulation pricing. If there are low prices for a flight, we will cut it; we simply won’t operate it. You might be asking about how quickly we will react to the new pricing environment that emerged after Omicron. We noticed a shift in booking behavior and a strong recovery in demand around mid-February. After navigating through COVID and its fluctuations, I would allow about two weeks after the end of February to adjust to the new and positive reality before we start pricing accordingly. By the end of February, we had already sold about one-third of our segments for the second quarter, leaving two-thirds still to be integrated into the new pricing conditions, which represent around 15% for the third quarter. This means that yields will increase as more seats are sold within the new environment. After March 1, pricing will be notably higher compared to the past three years but relatively stable. The lead time for bookings resembles what it was in 2019; we are just selling a lot more higher-priced fares. Fares have increased significantly, around 50%, which is a substantial change. Additionally, our fares follow a heuristic algorithm, meaning that booking activity itself leads to higher fares. Our algorithms adapt naturally, allowing us to benefit from these changes even before fully realigning our expectations. Grant, do you have anything to add?

No. The only thing I would add is that we have teams, particularly the revenue management and yield management team, who are very knowledgeable about these markets. They manage pricing on a flight-by-flight and day-by-day basis. They are aware of market trends and are doing a great job of ensuring that we are selling fares at the highest possible levels. I also echo Jude's sentiment that when we establish schedules, we fully expect each flight to contribute value to the airline. We are not trying to stimulate demand with our future schedules. There has been significant consideration and input from stakeholders regarding the best schedule for Sun Country.

Your next question comes from the line of Duane Pfennigwerth from Evercore.

So when we look at kind of the model historically in scheduled service, you’ve had good revenue. You’ve had decent fares, you’ve had decent yields. It hasn’t been as much of a sort of push all the way on loads. But just given how tight you are with capacity right now actively deciding to be tight with capacity, should we be thinking about loads a little bit differently for the balance of this year?

It’s a good question, and I’ll let Grant answer, but I just want to highlight a couple of differences that we have. We do a lot of seasonal flying. The nature of seasonal flying when it begins and ends is that there’s a naked leg, right. So your first round trip to Central America, the planes pull down, but empty back because nobody was able to fly down and be on that return flight. So I would say probably our steady-state load factors is at such lower than what you would expect to see in Southwest, for example.

Yes. We adjust our schedule to accommodate when people want to travel. Many of the unit revenue increases will come from fares, but the team is effectively getting people on the planes. We fly according to demand, which brings additional benefits. Even though we may be reducing capacity at a system level, we are doing so strategically. There are specific markets we are excited about, and we are making strategic investments there. Overall, we feel very positive about our current situation.

All right. I’m showing no further questions at this time. I’d now like to turn the conference back to Jude Bricker.

Well, thanks for your interest, everybody, and thanks for spending the time with us. Talk to you next quarter.

This concludes today’s conference call. Thank you all for your participation. You may now disconnect.