10-Q: Sun Country Airlines Navigates Q3 Headwinds with Cargo Growth

Sun Country Airlines reports mixed Q3 2025 results with strong cargo revenue growth offsetting passenger declines, while nine-month financials show overall improvement.

Summary

• Total operating revenues increased by 2% to $255.5 million for the three months ended September 30, 2025, compared to $249.5 million in the prior year.
• Net income decreased by 34% to $1.6 million ($0.03 diluted EPS) for the three months ended September 30, 2025, down from $2.3 million ($0.04 diluted EPS) in the same period last year.
• For the nine months ended September 30, 2025, total operating revenues grew 4% to $845.8 million, up from $815.3 million in 2024.
• Nine-month net income increased 13% to $44.7 million ($0.81 diluted EPS) in 2025, compared to $39.5 million ($0.72 diluted EPS) in 2024.
• Cargo revenue surged 51% to $44.0 million in Q3 2025 and 36% to $107.0 million for the nine-month period, driven by additional aircraft and contractual rate increases with Amazon.
• Passenger revenue declined 3% to $201.1 million in Q3 2025, primarily due to a 10% decrease in available seat miles (ASMs) as capacity shifted to the Cargo business.
• Operating income for Q3 2025 fell 20% to $9.9 million, with Passenger operating income down 9.1% and Cargo operating income down 89.2% due to operational challenges and pilot rate increases.
• Nine-month operating income increased 3% to $82.4 million, with Cargo operating income significantly improving by 2408% to $4.0 million, while Passenger operating income slightly decreased by 1.7%.
• Aircraft fuel expense decreased 11% in Q3 2025 and 13% for the nine-month period, primarily due to lower average fuel costs per gallon.
• Salaries, wages, and benefits increased 15% in Q3 2025 and 14% for the nine-month period, driven by an 11% increase in employee headcount and contractual pay increases.
• The company executed a new $75.0 million revolving credit facility in March 2025 and a $108.0 million term loan facility in September 2025 for refinancing and general corporate purposes.
• Total liquidity, including cash, investments, and available credit, increased to $298.7 million as of September 30, 2025, from $205.6 million at December 31, 2024.
• The fleet consisted of 70 Boeing 737-NG aircraft as of September 30, 2025, including 20 cargo aircraft operated for Amazon, up from 12 in the prior year.

Sentiment

Score: 6

Explanation: The overall sentiment is moderately positive due to strong year-to-date financial performance, significant cargo segment growth, and improved liquidity. However, the notable decline in Q3 net income and operating income, particularly in the cargo segment's profitability despite revenue growth, introduces caution. The strategic shift to cargo is a long-term positive, but its short-term operational impact on profitability needs close monitoring.

Positives

• Total operating revenues increased by 2% in Q3 2025 and 4% for the nine months ended September 30, 2025.
• Cargo revenue saw substantial growth, increasing 51% in Q3 2025 to $44.0 million and 36% for the nine-month period to $107.0 million, driven by additional aircraft and contractual rate increases.
• Nine-month net income increased 13% to $44.7 million, and diluted EPS rose to $0.81 from $0.72 year-over-year.
• Nine-month operating income increased 3% to $82.4 million, with Cargo operating income showing a significant increase of 2408% to $3.96 million.
• Aircraft fuel expense decreased 11% in Q3 2025 and 13% for the nine-month period, benefiting from lower average fuel costs.
• Total liquidity improved significantly, reaching $298.7 million as of September 30, 2025, up from $205.6 million at December 31, 2024.
• The company successfully expanded its cargo fleet from 12 to 20 Boeing 737-800 aircraft for Amazon, with all 8 additional aircraft placed in service during the nine-month period.
• A new $75.0 million revolving credit facility was secured in March 2025, replacing a smaller $25.0 million facility, enhancing financial flexibility.
• A new $108.0 million term loan facility was executed in September 2025, partially used to repay the 2023 Term Loan Credit Facility, optimizing debt structure.

Negatives

• Net income decreased by 34% to $1.6 million in Q3 2025 compared to the prior year, and diluted EPS fell to $0.03 from $0.04.
• Operating income for Q3 2025 declined by 20% to $9.9 million.
• Passenger revenue decreased by 3% in Q3 2025, primarily due to reduced capacity as operations shifted towards the Cargo business.
• Scheduled Service departures decreased by 12% in Q3 2025 and 6% for the nine-month period, reflecting the strategic shift away from passenger capacity.
• Cargo operating income for Q3 2025 decreased significantly by 89.2% to $183 thousand, despite revenue growth, indicating operational challenges in the segment.
• Salaries, wages, and benefits increased 15% in Q3 2025 and 14% for the nine-month period, impacting profitability due to headcount growth and contractual pay increases.
• Maintenance expense increased 13% in Q3 2025 and 10% for the nine-month period, driven by fleet growth, higher service rates, and engine maintenance events.
• An unplanned engine retirement in July 2025 resulted in a non-cash expense of $737 thousand, contributing to increased depreciation and amortization.
• Interest income decreased by 12% in Q3 2025 and 16% for the nine-month period due to a reduction in the company's average investment balance.

Risks

• The demand for air travel services is historically affected by U.S. and global economic conditions, or other geopolitical events.
• Operating results can be impacted by seasonal variations in the demand for air travel and the volatility of aircraft fuel prices.
• The company's financial position, assets, or earnings could be materially impacted if current economic uncertainty persists or worsens, requiring reevaluation of estimates and assumptions.
• The company is subject to market risks, including commodity price risk (specifically aircraft fuel) and interest rate risk.
• Events beyond the company's control, such as volatile fuel prices, economic conditions, pandemics, weather-related disruptions, airline bankruptcies, restructurings or consolidations, U.S. military actions, regulations, or acts of terrorism, could adversely affect the business.
• The company is subject to an audit by the Internal Revenue Service (IRS) related to the collection of federal excise taxes on optional passenger seat selection charges, with an assessment of approximately $2.7 million received, though the company believes a loss is not probable.
• The company is subject to various legal proceedings in the normal course of business, which could have an adverse effect on financial position, liquidity, or results of operations.

Future Outlook

The company expects continued volatility in Aircraft Fuel prices per gallon due to market conditions and global geopolitical events. It believes its unrestricted cash, short-term investments, and available credit facilities, combined with expected future cash flows from operations, will be sufficient to fund operations and meet debt obligations for at least the next 12 months. The company's strategy involves allocating more resources to the Cargo business in the near term, aligning with its long-term flexibility goals to mitigate economic and industry downturns.

Management Comments

• We believe our diversified business model, which includes a focus on leisure and VFR passengers, Charter and Cargo service, all primarily within the U.S., is unique in the airline sector and helps mitigate the impact of cyclical, economic, and industry downturns on our business when compared with other large U.S. passenger airlines.
• Our flexible business model provides greater resiliency to economic and industry downturns than a traditional scheduled service carrier.
• In the near term, the increase in aircraft we operate on behalf of Amazon will result in more resources being allocated to the Cargo business. This aligns with our strategy of long-term flexibility and supports our ability to mitigate the impact of cyclical, economic, and industry downturns on our business.

Industry Context

The airline industry continues to face challenges from volatile fuel prices and macroeconomic conditions. Sun Country's hybrid low-cost carrier model, with its diversified Passenger and Cargo segments, aims to provide greater resilience compared to traditional scheduled service carriers. The strategic shift of capacity towards cargo operations, particularly with the Amazon contract expansion, positions the company to capitalize on the growing e-commerce logistics demand, potentially insulating it from some of the cyclicality inherent in passenger travel. However, this shift also introduces operational complexities and cost pressures, as evidenced by the decline in Q3 Cargo operating income.

Comparison to Industry Standards

• The company's Adjusted CASM (Cost per Available Seat Mile, excluding fuel and cargo costs) for Q3 2025 was 8.46 cents, an increase from 8.04 cents in Q3 2024. For the nine months ended September 30, 2025, Adjusted CASM was 7.98 cents, up from 7.51 cents in the prior year. While the filing states Adjusted CASM is used to compare to peers, it does not provide specific comparable companies or benchmarks within the document.
• The company's diversified business model, combining scheduled passenger service, charter, and cargo (Amazon), is highlighted as unique in the airline sector, suggesting a different operational and financial profile compared to pure-play passenger or cargo airlines.
• The company's focus on leisure and visiting friends and relatives (VFR) passengers, along with non-cyclical charter contracts (e.g., U.S. Department of Defense, casinos), aims to provide more stable demand compared to business-heavy airlines.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject to an audit by the Internal Revenue Service (IRS) related to the collection of federal excise taxes on optional passenger seat selection charges for the period of October 1, 2021, through June 30, 2023. An assessment of approximately $2.7 million was received, but the company has appealed and believes a loss is not probable.
• The company is subject to various commercial litigation claims and administrative and regulatory proceedings in the normal course of business, which management does not believe will have a materially adverse effect.

Related Party Transactions

• The company made payments of $10.5 million and $3.4 million to pre-IPO stockholders (TRA holders), which include certain members of management and the Board of Directors, during the nine months ended September 30, 2025 and 2024, respectively, under the Tax Receivable Agreement (TRA).

Stakeholder Impact

• Shareholders: Impacted by mixed Q3 results but positive year-to-date performance, strategic shift to cargo, and ongoing stock repurchase program. Executive compensation changes and potential severance packages could affect shareholder value.
• Employees: Flight attendants received ratification bonuses as part of a new five-year collective bargaining agreement. Overall employee headcount increased by 11%, leading to higher salaries, wages, and benefits expenses.
• Customers (Passenger): Reduced passenger capacity in Q2 and Q3 2025 due to strategic focus on cargo may impact flight availability and choices.
• Customers (Cargo Amazon): Benefited from the expansion of the cargo fleet from 12 to 20 aircraft and contractual rate increases, indicating a strengthened partnership.
• Creditors: The company's liquidity improved, and new credit facilities were secured, enhancing its ability to meet debt obligations. Debt balances decreased year-over-year.

Next Steps

• Draw the remaining $54.0 million from the 2025 Term Loan Facility by December 19, 2025.
• Continue to manage the operational challenges within the Cargo segment to improve profitability.
• Monitor the impact of the new co-branded Credit Card Program, launched in Q3 2025, on 'Other Revenue'.
• Address the IRS audit related to federal excise taxes on optional passenger seat selection charges, currently under appeal.
• Implement the new executive employment letters for D. Torque Zubeck and Rose Neale, effective October 29, 2025.
• Continue to execute the stock repurchase program, with $15.0 million remaining authorization as of September 30, 2025.

Key Dates

Recommendation

The company presents a mixed financial picture. While the nine-month results show solid growth in total revenue and net income, driven by a successful expansion into the cargo segment, the third-quarter performance indicates some headwinds. The significant decline in Q3 net income and operating income, particularly the sharp drop in cargo operating income despite revenue growth, raises concerns about short-term operational efficiency and profitability in a key growth area. The strategic shift to cargo is a long-term positive, offering diversification and resilience, but its execution appears to be impacting passenger capacity and overall Q3 profitability. Improved liquidity and debt management are favorable, but the immediate-term challenges warrant a 'hold' recommendation. Investors should monitor the company's ability to translate cargo revenue growth into consistent profitability and manage cost pressures from increased headcount and contractual agreements.

Keywords

Sun Country Airlines, SNCY, Airline, Cargo, Passenger, SEC Filing, 10-Q, Financial Results, Quarterly Report, Aviation, Amazon, Fleet Expansion, Executive Compensation, Debt Refinancing, Stock Repurchase