Earnings Call Transcript - SNCY Q4 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Sun Country Airlines Fourth Quarter and Full Year 2024 Earnings Call. My name is Michelle, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. 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, Director of Investor Relations

Thank you. I'm joined today by Jude Bricker, our Chief Executive Officer; Dave Davis, President and Chief Financial Officer, and the group of others to help answer questions. Before we begin, I would 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 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 statements. You can find our fourth quarter and full year 2024 earnings press release on the Investor Relations portion of our website at ir.suncountry.com. With that said, I'd like to turn the call over to Jude.

Jude Bricker, CEO

Thanks, Chris. Good morning, everyone. Before we get into our financial results, I want to take a moment to address the tragic accident last week in Washington, D.C. Our thoughts are with the families and loved ones affected by this event. Our industry is highly competitive, but we've always worked together with other airlines, the OEMs and regulators to make sure we deliver the safest possible operations. Once all the facts are gathered, there will surely be lessons that will be applied across the industry. We will continue to maintain the highest safety standards across our operations to earn and keep the trust of our passengers and the public. 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 will be able to reliably deliver industry-leading profitability throughout all cycles. I want to first highlight a few developments. First, last month, we reached agreements in principle with the unions of both our flight attendants and our dispatchers. We expect these agreements to go to vote among the respective workgroups in the next month or so. I'm excited to be able to deliver improved rates and work rules to all these team members. Also, we took delivery of our first cargo aircraft from our latest agreement with Amazon. This aircraft is yet to enter service. But by summer, we will have all eight aircraft growing the cargo fleet to 20. I expect cargo revenue will roughly double by this time next year. We also executed the redelivery off-lease of our first 737-900. This aircraft will also go into service this summer. We still have six aircraft that we own that are out on lease redelivering through the end of 2026. These aircraft will provide the growth in our passenger fleet in the coming years, including the freighters. We'll be able to grow block hours by about 30% through 2027 without a change in utilization or additional aircraft acquisitions. In scheduled service and similar to the rest of the industry, we are seeing capacity rationalization starting to inflect unit revenues to the positive. Our TRASM was flat year-on-year for the fourth quarter. However, in December, we saw scheduled service TRASM increased almost 5%, which is where January is. Capacity trends remained positive through the selling schedule. As underlying demand remains strong, I expect unit revenues to continue to perform well. Our staff continues to deliver for our customers. Of note, our completion factor and mishandled bag rate operational metrics that are particularly important to our low frequency model are near the best in the industry. After a strong 2024, you should expect more of the same from us in 2025, margins at or near the top of the industry, high levels of free cash production, healthy growth at about a 10% block hour increase, operational excellence, and continued balance sheet strengthening. And with that, I'll turn it over to Dave.

Dave Davis, CFO

Thanks, Jude. We're pleased to report that Q4 was our tenth consecutive quarter of profitability. Both total revenue of $260.4 million and adjusted operating margin of 10.6% were the highest on record for Sun Country. With the exception of the second quarter of 2022, on an adjusted net income basis, we've been profitable in every quarter since our IPO in March of 2021. Additionally, 2024 was our fourth consecutive full year of profitability. Total revenue of $1.08 billion was our highest full year on record, driven by strong revenues in the charter line of business and the cargo segment. Operating margin for the year was 9.9% and adjusted operating margin was 10.4%. Adjusted diluted EPS for the year was $1.05. These results speak directly to the resilience of the uniquely diversified Sun Country model. Industry overcapacity prevailed through much of 2024 that the capacity picture changed quickly in Q4, and we were very active in adjusting scheduled service capacity to match demand. While scheduled service ASMs in the first half of the year grew 17%, we trimmed growth in the second half of the year to less than 5%. Despite the significant removal of scheduled service flying, we're still able to hold growth in adjusted CASM to only 1.3% for the year. Unit revenues rebounded in the half of the year as Q4 scheduled service TRASM was down only 1% on 3.5% growth in scheduled service ASMs. As industry capacity continues to rationalize, we are seeing a stronger pricing environment into Q1 of 2025. I'll now turn to the specifics of the fourth quarter. First, revenue and capacity. Fourth quarter total revenue of $260.4 million was 6.1% higher than last year. Revenue for our Passenger segment, which includes our scheduled service and charter businesses grew 2.2% year-over-year. Average scheduled service fare also grew 2.2% year-over-year to $159.88. Scheduled service TRASM steadily improved during the quarter with December up 5.8% year-over-year. As we turn our focus to Q1 2025, we're expecting scheduled service unit revenues to be roughly flat with Q1 of 2024 and 7% growth in scheduled service ASMs. Charter revenue in the fourth quarter grew 2.3% to $48 million on 5% growth in Charter block hours. As a reminder, a portion of charter revenue is a reconciliation of fuel expense caused by the variance of fuel prices to the amount specified in our longer-term charter contracts. In Q4, fuel prices were down 20%, we received less revenue tied to fuel reconciliation. Excluding this fuel reconciliation, Q4 charter revenue grew approximately 10% over last year. Ad hoc charter revenue growth was also significant as we saw it increase by 27% in the quarter versus last year. Excluding the fuel reconciliation, Q4 charter revenue per block hour was up 4.6% versus Q4 of 2023. For our Cargo segment, revenue grew by 13.1% in Q4 to $28.6 million, which was an all-time quarterly high. This growth came despite a 2.5% decrease in Cargo block hours. Q4 Cargo revenue per block hour was up 16%, driven by the impact of a portion of the rate changes implicit in our extended Amazon agreement as well as annual rate adjustments. We continue to expect Cargo flying to inflect sharply upward in 2025 as we take on an anticipated eight additional freighter aircraft throughout the year. One of the freighters has already been delivered and we expect to enter service in late Q1. The revised Amazon contract rates will continue to escalate as we receive additional aircraft and will not be in full effect until the second half of 2025. Turning now to costs. Q4 total operating expense grew 2.6% or 2.7% growth in total block hours. We continue to remain well-disciplined as demonstrated by full year 2024 adjusted CASM increasing only by 1.3% versus 2023. For full year 2025, we expect our ex-fuel operating expenses to grow in line with our total block hours, which are expected to increase between 9% and 10% versus full year 2024. As a reminder, our eight additional Amazon aircraft will drive most of the growth in 2025 and we expect full year scheduled service ASMs to decline between 3% and 5%, with the reductions occurring in Q2 through Q4. The lower ASM productions put pressure on adjusted CASM, which we currently anticipate to increase mid to high single-digits in 2025. This decline will happen from Q2 through the rest of 2025 as we are anticipating scheduled service revenue growth in Q1. Regarding our balance sheet. Our total liquidity at the end of the year was $205.6 million. As of February 3rd, total liquidity stood at $226.7 million. Full year 2024 CapEx was $88 million, which includes the acquisition of three aircraft previously on finance leases. At this point, we do not need to purchase any incremental aircraft until we begin looking for 2027 or 2028 capacity. We expect 2025 CapEx to be between $70 million and $80 million, with much of this spent on spare engines. During the quarter, we appended a new C tranche to our existing 2019 EETC, raising $60 million. This was used to pay down a significant portion of the term loan financing our five 737-900ER aircraft. This is expected to drive savings of approximately $800,000 in 2025 interest expense. Our leverage continues to improve and we finish 2024 with a net debt to adjusted EBITDA ratio of 2 times. Additionally, we have extended the lease return dates on three of the four 737-900 ERs currently on lease to another carrier. The four aircraft are now expected to return to us in May, September, and November of 2025 and in November of 2026. We had one 737-900ER returned to us in November 2024 and we expect this aircraft to enter revenue service in mid-2025. These extensions provide continued lease revenues as we focus our 2025 growth on our cargo business. As the lease 737-900ERs return to us, they'll provide the passenger service growth we expect in 2026 and 2027. Let me turn now to guidance. We expect first quarter total revenue to be between $330 million and $340 million on block hour growth of 7% to 9%. We're anticipating our fuel cost per gallon to be $2.76 and for us to achieve an operating margin between 17% and 21%. Our business is built for resiliency and will continue to allocate capacity between segments to maximize profitability and minimize earnings volatility. With that, we'll open it up for questions.

Operator, Operator

Thank you. And our first question will come from Ravi Shanker with Morgan Stanley. Your line is now open.

Ravi Shanker, Analyst

Great. Thank you. Good morning. A couple of your kickoff. There's been some commentary on other airline calls about just strength in Europe in the first quarter, kind of, just unusual probably run by effects and such. How does that impact you guys? Is it going to help with feeder? Does it potentially redirect some traffic away from domestic meter destinations to Europe? Just, obviously, given how important 1Q is for you guys.

Jude Bricker, CEO

Yeah. To start with the obvious, we don't fly there. So I think the secondary effect is that there's a reallocation of capacity into the transatlantic market that positively affects us. We're selling really well in the Mexican Caribbean destination, but it certainly doesn't appear that there's a shift in demand out of those markets into the transatlantic market. So I think on the whole, it's a positive. I mean, we would like to see strength everywhere for US airlines. So there's no risk there.

Ravi Shanker, Analyst

Got it. That's really helpful. And yes, I was referring to the indirect impact. And maybe kind of, Dave, thanks to the specific guidance there. But can you just help us, given the moving parts here, frame the trajectory of margin and cash using through the year, please?

Dave Davis, CFO

Yeah. I mean, I think you know the seasonal profile of the company. First quarter, we expect to be really strong, we gave guidance. I think as revenues come in, we're very confident in that guidance. I think we'll follow the typical seasonal pattern. A lot of how the year plays out is going to be driven by the exact delivery dates of the Amazon cargo aircraft. We expect them to start service in March and then enter service throughout the year. They should all be in by late summer into the fourth quarter. But I don't see anything abnormal from a seasonal profitability perspective for the company.

Jude Bricker, CEO

One thing of note would be the things that we were dealing with last year primarily, we're competitive encroachment into our network, and that negatively affected the second and third quarter the most. As you could see in the fourth quarter, we did quite well, the best we've ever done in the fourth quarter. And that variance where capacity is now a tailwind as opposed to a headwind, it's the strongest in the second quarter combined with the Easter shifted to April. All else equal, we're not giving guidance into the second quarter. The second quarter has the most upside relative to prior year comps.

Dave Davis, CFO

And from a capacity perspective, Ravi, probably you can anticipate Q3 being the biggest drawdown in scheduled service capacity for the year. Right now, it's looking to be around a 10% reduction in Q3 and then starting to rebound in Q4.

Ravi Shanker, Analyst

Very helpful. Thank you.

Jude Bricker, CEO

Thanks, Ravi.

Operator, Operator

And the next question will come from Duane Pfennigwerth with Evercore. Your line is open.

Duane Pfennigwerth, Analyst

Good morning, everyone. Could you please discuss the booking patterns for the fourth quarter? It seems there was a positive increase in your ATL. Is there something related to seasonal changes, or is the booking trend extending, perhaps due to spring break? Any insight you could share on this would be appreciated.

Jude Bricker, CEO

Well, so I just want to make sure when we look at ATL, we should look at it on a year-on-year basis, not a sequential because we have such strong seasonality. I'm assuming that you're doing that.

Duane Pfennigwerth, Analyst

Sorry. We are, but I guess that sequential move is much stronger than it has been for the last few years. It looks like to us.

Jude Bricker, CEO

Yes. So a couple of things were bigger in the first quarter than we were in the prior year, that affects ATL. As we mentioned, we got some TRASM tailwind. One of the changes that we're inflicting ourselves on our own booking is just holding capacity further out. So we're seeing less variability in our pricing. As a particular flight sells, so we're building load factor early on. And then as it moves close in, in the midrange, we get less bookings because we see such strong demand close in these days, particularly in our larger ED markets. Anything else?

Duane Pfennigwerth, Analyst

Okay.

Jude Bricker, CEO

Yes. So that's a complicated answer, but I'd say generally, the output of that is higher fares, it's slightly lower load factors.

Duane Pfennigwerth, Analyst

Got it. Thank you. And then just to the extent that you can on the cargo expansion, can you just remind us of, I guess, the cadence of the aircraft that you're taking on how that may have changed and relatedly, the cadence of maybe the rate improvement as that business rolls on? Thank you for taking the questions.

Dave Davis, CFO

Yes, I believe there hasn't been any significant change from the guidance we've been providing for a while. The first aircraft is expected to be in service by late March, specifically mid to late March, and all should be operational by the fourth quarter.

Jude Bricker, CEO

By the end of August.

Dave Davis, CFO

Yes. So the rate of delivery is really fast. And the rate of the escalations, the two additional escalations in our rate is basically similar to what we've been talking about before.

Duane Pfennigwerth, Analyst

Okay. Thank you.

Operator, Operator

And the next question will come from Brandon Oglenski with Barclays. Your line is open.

Brandon Oglenski, Analyst

Good morning. And thanks for taking the question. Jude or Dave, do you guys mind talking about network priorities as you get into the summer months, especially as you flip some pilot capacity into the Cargo business? And actually, should that help shape a better margin profile in those softer quarters for you guys?

Jude Bricker, CEO

Certainly. The situation is straightforward. The routes that were marginal last summer will be removed from the schedule. The cuts will mainly involve suspending many markets that were added to counter competitive pressures. Additionally, there will be some reductions in capacity in markets with particularly low yields. This makes the scheduling for capacity planning relatively uncomplicated. We also anticipate that fares will be significantly higher due to these capacity adjustments, along with a general decrease in overall capacity across our network and strong demand. As a result, we are projecting robust revenue growth.

Brandon Oglenski, Analyst

Appreciate that, Jude. And then as you think about it going into 2026, I know it's far out there, but should we be thinking scheduled capacity remains down at the beginning of next year as well?

Dave Davis, CFO

I think probably by mid-2026, we should be pretty close to back to where we were, let's say, at the end of the first quarter of 2025. So in other words, shrink Q2, shrink Q3 and then start to rebound in Q4, grow into the first quarter of 2026. So sometime between there and the middle of 2026, we should be sort of back and then growing again.

Brandon Oglenski, Analyst

Okay. Thank you, guys.

Operator, Operator

And our next question will come from Catherine O'Brien with Goldman Sachs. Your line is open.

Catherine O'Brien, Analyst

Good morning, everyone. Just one on the margin outlook here. I know you've already given some details, but your fourth quarter operating margin up just over 300 basis points year-over-year. Midpoint of the first quarter guide implies a 100 basis point decline. Obviously, the fuel tailwind is smaller year-over-year, but just sounded that the capacity environment continues to improve further upside on Amazon. On the 1Q year-over-year versus 4Q year-over-year margin comparison, is that just fuel or maybe the new flight attendant deals in there? Perhaps some conservatism around industry uplift. Any color there would be really helpful. Thanks.

Dave Davis, CFO

Yes. First, the new flight attendants are included for part of the quarter. There is a more significant increase in pilot pay expected in 2025. Generally speaking, the first quarter of 2025 should be at least as strong as the first quarter of 2024. We have provided guidance within a range, and everything looks good at this point. We’re not going to elaborate much further, but we are very confident in the numbers.

Catherine O'Brien, Analyst

Got it. Understood. And then just a strong secondary aircraft pricing, do you think you'll still be able to find growth aircraft for later this decade? Can you just help us frame maybe like rough numbers, how many aircraft you would need past the ones you already have that are on lease to get you through your growth plan through the rest of the decade? And do you feel confident being able to find opportunistic purchases for that volume of aircraft? Thanks.

Dave Davis, CFO

The answer is, yes. There's two pieces that are out there to provide growth in the 2026, 2027 and 2028. And those two pieces are the redelivery of the aircraft that are on lease with Oman, the 737-900s, those five aircraft. And then a couple of other ones that we have on lease, 737-800s. So those come back into the fleet. And then we still think there's room on the utilization front. We're in the seven hours range-ish. We think there's upside to that as well. So there's probably 30% to 40% growth just on the metal that we have right now, and that gets us into 2028 most likely. Used aircraft are expensive right now. We'll continue to be in the market and we'll buy opportunistically. But with very little activity in the market, we think there's significant growth left in the airline enough to get us through the end of the decade.

Jude Bricker, CEO

Just a couple of more comments. It's good not to be dependent on Airbus, Boeing, CFM or Brad Whitney and the way they're executing right now. So I'd rather have our fleet land than sort of anybody else's. And then also, we have a very reliable aircraft. So like we're not having to deal with any of the out-of-service issues that other airlines are dealing with associated with the new technology equipment. So I mean, we already own these aircraft that Dave mentioned that are going to provide growth. But that'll just be a really good about where we are on the fleet side.

Catherine O'Brien, Analyst

Yeah, definitely a great spot to be in. Thanks for all that color.

Jude Bricker, CEO

Yeah.

Operator, Operator

And the next question will come from Michael Linenberg with Deutsche Bank. Your line is open.

Michael Linenberg, Analyst

Good morning, guys. I guess, a couple here. Jude, you talked about encroachment capacity, and I do see that as you guys scale back pretty meaningfully in, call it, spring or last summer, we are seeing some additional capacity come into your markets by some of those who are probably just there skimming. And so I guess the question is, as you scale back, does it open up opportunities for others and maybe to establish share sort of thoughts on that?

Jude Bricker, CEO

Mike, let me take this opportunity to talk a little bit better about how we think about the company. I think the innovation that Sun Country brings to the market is that we basically say at any moment in time, what's the best thing a plane can do right now. And then we fill out the schedule until we either run out of things to do and in which case, we park airplanes or we run out of planes. And every other airline generally would build an optimized day and repeated many, many times and then kind of tweak that day based on certain inputs. It's just fundamentally a different way to think about it. And what we want to get to which probably is impossible is where we don't have to fly where our fixed obligations are so low and can be serviced by our cargo and track flying that's contractual that we can be entirely independent when we make capacity decisions. So when we look at summer markets, for example, that we're going to be pulling out, those markets work for us, but don't work for anybody else even if we're not in them. We're talking about like Cleveland, Minneapolis that can be supported by a carrier, a leisure carrier like ours because there's leisure demand between Memorial Day and Labor Day, sufficient to support a twice-weekly service pattern. But if you're going to fly it daily with the 321 at the back of the clock, it's going to be empty at zero fares. And so I'm just not at all. I don't lose any sleep about some of the backfill opportunities that might happen for other airlines. We are keeping our footprint down and in these really what I would consider strategically important markets that call out like JetBlue, Levi, Minneapolis, Boston. If you go way back at the time of 2017, we used to serve that market up to three daily in the summertime. We're going to keep a healthy level of capacity in that market. So I think markets taking sustain any significant capacity level will continue to get service from us and in markets that really only work for us are going to be the kind of markets that we're going to be pulling back on for the summer next year.

Michael Linenberg, Analyst

Great, very helpful. Thank you for that. My second question is about the recent headlines regarding tariffs and your commitment to cargo operations. I understand that the focus is on the indirect effects of tariffs on overall cargo, commerce, and freight. Regarding your contract with Amazon, do you have any minimum requirements, such as block hours or revenue? Will the plane receive compensation regardless of whether it is 90% full or 60% full? Could you discuss the potential downside risk protection? Thank you.

Dave Davis, CFO

The contract is structured with a fixed rate for each aircraft and an additional block hour rate. While there are no set minimums, this setup effectively serves as a minimum since we receive payment for each aircraft.

Jude Bricker, CEO

Generally speaking, the lower the utilization of the cargo fleet, the better the margins are for us because we can redeploy that pilot capacity most of the calendar into more high-margin flying. And then you mentioned the load on the airplane. I want to call out, we can fly empty or full. It doesn't matter that the rates are the same. And it's pass-through economics on fuel and stuff. So any other secondary effects of a full airplane that doesn't impact the profitability of the cargo market for us.

Michael Linenberg, Analyst

Perfect. That's what I wanted to hear. Thanks. Nice quarter.

Jude Bricker, CEO

Thanks.

Operator, Operator

And our next question will come from Scott Group with Wolfe Research. Your line is open.

Scott Group, Analyst

Hey, thanks. Good morning. I'm not sure if I heard this correctly, but I think you mentioned that January unit revenue was up 5%, yet you're projecting flat unit revenue for the quarter. Did I understand that right? I just want to clarify.

Jude Bricker, CEO

January is performing similarly to December. We haven't finalized January yet, but it seems that February will be a weaker month this year. Overall, March is expected to align with our expectations. This gives us a quarterly outlook that is roughly flat.

Scott Group, Analyst

What's driving the weaker February and flattish March relative to a strong January?

Jude Bricker, CEO

So March is expected to be flat with a 5% or 6% ASM growth, which I think is a pretty good result considering the Easter shift. What about the weakness in February?

Dave Davis, CFO

Some of the changes last year around April were influenced by the early holidays. We are also planning for strategic capacity growth from Milwaukee to the Caribbean, which we believe will meet expectations, but there is some year-over-year comparison to consider.

Jude Bricker, CEO

I'd say, yeah, just more color would be the Caribbean is a little bit softer than the previous year, but our core markets are really strong. So those are the markets that you would see, call it, trunk wrap for us. So Phoenix, Vegas, Fort Myers, Orlando, Cancun are all really good, and those become a more heavily weighted portion of the network in March, where kind of early February is these once or twice a week markets into the Caribbean, and those are a little off.

Scott Group, Analyst

Okay. Last week, UPS announced a 50% reduction in their volume with Amazon, so Amazon may need to explore other options. Is this an opportunity for you, or is what you're doing for Amazon quite different from what UPS is handling? So, is this a potential opportunity or a risk?

Dave Davis, CFO

Yes, I don't see it as a risk at all. Here's the situation: Amazon operates 20 narrow-body aircraft, and we will have them as well. Unless we change to a different fleet type or they expand their narrow-body fleet, there isn't a short-term opportunity for us to leverage the current situation at UPS. As you mentioned, it doesn't matter if the aircraft are fuller; we can pay based on a per-block hour basis. Looking at the long-term, we are enthusiastic about the Amazon business because the margins are strong, and we believe there is likely more growth to come. However, I don't view the current situation with UPS as a short-term opportunity for us.

Jude Bricker, CEO

The Amazon growth is coming faster than we can grow the operation and also keep the kind of performance that we expect. So we want to be able to absorb this growth, allocate more growth into our scheduled service and then before we talk about cargo growth, if we could have it our way, that's how we do it. We pause on cargo growth after this 20 airplane expansion. And then for a couple of years, at least.

Scott Group, Analyst

And then lastly, I believe you mentioned $70 million to $80 million in CapEx for this year. What are the other factors affecting free cash flow? Additionally, how are you currently approaching the buyback?

Dave Davis, CFO

Yes, your CapEx number is correct; we will be repaying a significant amount of debt in 2025. Our buyback option remains available, and we are considering it. As we assess the incoming numbers and with current strong cash flow, we will make decisions accordingly. However, we are not announcing a buyback at this time, but we will keep evaluating the situation.

Scott Group, Analyst

Thank you, guys.

Dave Davis, CFO

Thanks, Scott.

Operator, Operator

And the next question comes from Tom Fitzgerald with TD Cowen. Your line is open.

Tom Fitzgerald, Analyst

Hi, everyone. Thank you for your time. Did I hear correctly that you mentioned 30% block hour growth through 2027? Could you please break that down between scheduled charter and cargo?

Jude Bricker, CEO

Well, that's just simple arithmetic of saying 2024 utilization applied to the in-service that we will have after all the committed fleet is redelivered into the operation.

Dave Davis, CFO

Yes. The 30% is essentially the result of redelivering the leased aircraft and improving utilization.

Tom Fitzgerald, Analyst

Okay. That's really helpful. Looking at the long-term, I remember in August you mentioned the volatility other airlines are experiencing and that you wanted to be cautious to invest when opportunities arise. What are your thoughts on the long-term plans for adding more focus cities or expanding beyond just Minneapolis? Thank you again for your time.

Jude Bricker, CEO

Well, we want to do it. I'd say we're putting in. We're making the investments into markets that we think can support over time, Sun Country type operations. So we've expanded into the Upper Midwest with origination service out of Milwaukee. We continue to support our summer Mexican Caribbean service out of Dallas and Central Texas. So I think those are the kind of markets that we're going to be able to expand into at the end of the decade. But quite frankly, the next two years, it's going to kind of be getting the network back to what it was in '24.

Dave Davis, CFO

Yes. So I mean, I think you could just look a little bit sort of longer term, '25 is all cargo, right? And then '26, cargo basically the full year effect of these new aircraft by hitting the hitting the growth of the airline as well. And then '26, probably '27 are refilling in Minneapolis and then some of these other focus cities. As we move to later in the decade, we think we can take this model to a lot of different cities. Grant mentioned one, where we're doing some strategic growth now, but that's definitely on the table. But we got our hands full with all of our sort of programmed growth here over the next couple of years.

Jude Bricker, CEO

I think it's important to note that predicting future opportunities is challenging due to the impact from Spirit and the outcomes of their restructuring. Additionally, Southwest is making significant changes to their network and scaling back their growth. Therefore, what we view as an opportunity a few years from now may not align with our current perspective. The main point is that our growth capacity outside of Minneapolis won't be available for approximately two years, and by that time, it is likely to feature a different network.

Operator, Operator

And our next question comes from James Kirby with JPMorgan.

James Kirby, Analyst

Most of my questions have been asked. Maybe just on the ad hoc Charter segment, I think you mentioned in the prepared remarks that has been growth in the fourth quarter. I guess what drove that? Was that just kind of better efficiency or demand? And I guess, going forward, should we expect the Charter segment to kind of be proportionately down with scheduled service for the cadence of the year?

Dave Davis, CFO

The growth in ad hoc charter during the fourth quarter was significant on a percentage basis. It's important to note that over 80% of our flying is on the program side, so that percentage growth is coming from a relatively low starting point. We experienced substantial football flying in the fourth quarter, which was a key factor in driving that growth. We anticipate that this ad hoc growth will continue into 2025. The performance of the Charter business is not expected to decline as much as the scheduled service business, and we may see it remain flat or increase slightly.

James Kirby, Analyst

Got it. That's helpful. And there's no in contract roll-offs in the next 2 years, I believe, right? I think MLS was 2027, or is that incorrect?

Jude Bricker, CEO

Yes. We did work with them this year. So we feel really good about that contract into the future. And then I would just say for the fourth quarter, I would just add to what Dave said, I think it's just a very good illustration of the power of our model. That when we brought scheduled service down, we had the ability to be more proactive on the ad hoc charter basis. And our customers are looking for that. We communicate really well with them. And when we have availability, we win business. So, I would just say that. But yes, we feel very good about our partnerships in the short term. The medium term, we're doing a really good job of delivering for our customers.

James Kirby, Analyst

Okay. Got it. Thanks for the questions.

Operator, Operator

And our next question will come from Christopher Stathoulopoulos with Susquehanna. Your line is now open.

Christopher Stathoulopoulos, Analyst

Thank you, operator. Good morning, everyone.

Jude Bricker, CEO

Hi, Chris.

Christopher Stathoulopoulos, Analyst

Good morning. I want to go back to the Amazon business. So the dates March and then mid to late August full, you'll have the full fleet in place. So I want to go back to the economics here. So there's a fixed rate per aircraft, which I'm guessing covers all insurance and things like that and block hour commitment rate on top of that, which is utilization agnostic. And then how much visibility do you have into the block hours? So is it as our schedules given a week, a month in advance? And then is the flying going to be concentrated out of AVG or more ad hoc point to point? Just want to understand that more nuances here between the fixed and block hour rate piece, and then the commitments on how that kind of network looks and will ultimately shape over time? Thanks.

Jude Bricker, CEO

Schedule development is a two-month schedule that it gets approved roughly six times a year. They come in and we try to work together to optimize the schedule for utilization inputs. But ultimately, it's their network and they fly where they want. I can't really comment on where we expect the planes to go because I don't really know. And that's the value Sun Country brings is that we can do anything with the airplane based on our charter DNA really. But your comments about the rate structure are accurate and that there's a fixed component that includes margin and everything else, and then the variable costs associated with the operation are pass-through on a fee basis. So from our perspective, it doesn't matter so much what the network looks like.

Christopher Stathoulopoulos, Analyst

Okay. So I heard Chris...

Jude Bricker, CEO

Go ahead.

Christopher Stathoulopoulos, Analyst

Yes. So two-month approval prop, so you have visibility into what March and through spring flying might look like at this point?

Jude Bricker, CEO

That's right. Yeah. Now this is going to be a messy period just because the dates that we get the airplane on the certificate, so we take a delivery then we'll do some work to the airplane, get on the certificate and then schedule it. And so there's going to be a little bit of noise about the fleet count and the utilization and the schedule as we integrate these aircraft.

Operator, Operator

I show no further questions in the queue at this time. I would now like to turn the call back over to Mr. Jude Bricker for closing remarks.

Jude Bricker, CEO

Thanks for calling in, everybody. We really appreciate it. I think we have a great story, and we're excited to share with you guys. Have a great day, everybody.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.