10-K: Sun Country Airlines Reports 2025 Results, Merger with Allegiant on Track

Sun Country Airlines reported a 5% increase in total operating revenues for 2025, driven by significant cargo growth, while confirming its merger with Allegiant Travel Company is expected to close in the second half of 2026.

Summary

• Total Operating Revenues increased by 5% to $1,126,769 thousand for the year ended December 31, 2025, compared to $1,075,739 thousand in 2024.
• Cargo revenue surged by 45% to $155,027 thousand in 2025, primarily due to operating eight additional Boeing 737-800 cargo aircraft for Amazon, increasing the total to 20. Two more aircraft are expected in early 2026, bringing the total to 22.
• Passenger revenue saw a modest 1% increase to $923,129 thousand in 2025, with a 7% decrease in Scheduled Service departures offset by a 4% increase in total fare per passenger.
• Operating Income decreased by 5% to $100,573 thousand in 2025 from $105,986 thousand in 2024, and Net Income slightly decreased to $52,809 thousand from $52,903 thousand in 2024.
• Salaries, Wages, and Benefits increased by 14% to $372,597 thousand, driven by a 4% increase in employee headcount and contractual pay increases from new collective bargaining agreements (CBAs).
• Aircraft Fuel expense decreased by 10% due to an 8% decrease in the average fuel cost per gallon and a 2% decrease in consumption.
• A Merger Agreement with Allegiant Travel Company was entered into on January 11, 2026, under which Allegiant will acquire Sun Country. Each Sun Country share will convert into $4.10 in cash and 0.1557 shares of Allegiant Common Stock, with the merger expected to close in the second half of 2026.
• The company launched a new co-branded Credit Card Program in the third quarter of 2025 with a seven-year term.
• A new $75,000 Revolving Credit Facility was executed in March 2025, replacing the company's previous $25,000 facility.
• A $108,000 Term Loan Facility was executed in September 2025 to refinance five Boeing 737-900ER aircraft, resulting in a lower interest rate of 5.98%.
• The company repurchased 1,474,021 shares of its Common Stock at an average price of $13.58 per share in 2025.
• A one-time ratification bonus of $1,886 thousand was paid to eligible flight attendants in 2025 following a new five-year CBA.
• An arbitrator ruled in favor of pilots in a grievance regarding wages for pilot instructors, resulting in a $2,718 thousand loss contingency recorded in the fourth quarter of 2025.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed report. While cargo growth and strategic fleet management are positive, the decline in operating and net income, coupled with rising labor and maintenance costs, presents challenges. The pending merger with Allegiant introduces both opportunities and integration risks.

Positives

• Strong growth in Cargo revenue, increasing by 45% to $155,027 thousand, driven by the expansion of the Amazon CMI service fleet from 12 to 20 aircraft in 2025, with two more expected in early 2026.
• Successful launch of a new co-branded Credit Card Program in Q3 2025, expected to enhance loyalty and revenue streams.
• Refinancing of the 2023 Term Loan Credit Facility with a new 2025 Term Loan Facility at a more favorable fixed interest rate of 5.98%.
• Increased liquidity with the execution of a new $75,000 Revolving Credit Facility in March 2025, replacing the previous $25,000 facility.
• Aircraft Fuel expense decreased by 10% year-over-year, primarily due to an 8% decrease in the average fuel cost per gallon and a 2% decrease in consumption.
• Maintained a high Scheduled Service completion factor of 98.9% in 2025, demonstrating strong operational performance even in challenging weather conditions.
• Successful ratification of new CBAs with flight attendants and below-the-wing fleet service employees, providing labor stability in those segments.

Negatives

• Overall Operating Income decreased by 5% and Net Income slightly decreased year-over-year despite total revenue growth.
• Passenger segment operating income decreased by $7,730 thousand, and its operating margin percentage decreased by 0.8 percentage points to 10.0%.
• Scheduled Service departures decreased by 7%, indicating reduced capacity in this segment, which was offset by growth in Cargo.
• Salaries, Wages, and Benefits increased significantly by 14% to $372,597 thousand, impacting overall profitability.
• Maintenance expense increased by 17% to $80,349 thousand, driven by fleet growth and higher rates for service.
• Ground Handling and Landing Fees & Airport Rent expenses increased by 6% and 9% respectively, due to market pressures.
• A $2,718 thousand loss contingency was recognized in Q4 2025 due to an arbitration ruling in favor of pilots regarding instructor wages.
• An unplanned engine retirement in July 2025 resulted in a non-cash expense of $737 thousand.
• Interest income decreased by 11% due to a reduction in the company's average investment balance.
• The company is prohibited from repurchasing common stock from January 11, 2026, until the Merger with Allegiant closes.

Risks

• Changes in economic conditions, including inflationary pressures, could weaken demand for services and materially adversely affect business, results of operations, and financial condition.
• The price and availability of aircraft fuel are highly volatile, and unexpected increases or supply disruptions could materially adversely affect the business.
• Reliance on company and third-party technology and systems makes the business vulnerable to unauthorized use, incursions, or breaches, potentially compromising sensitive information and exposing the company to liability.
• The airline industry is exceedingly competitive, and inability to compete successfully against new entrants, LCCs, ULCCs, legacy network airlines, and cargo carriers could materially adversely affect the business.
• Factors beyond control, such as air traffic congestion, adverse weather, federal government shutdowns, aircraft-type groundings, terrorist attacks, war, or disease outbreaks, could have a material adverse effect on operations.
• Any restrictions on or increased taxes applicable to charges for ancillary products and services could harm business, results of operations, and financial condition.
• Concentration of business in the Minneapolis-St. Paul market and the Cargo business with Amazon exposes the company to specific regional and customer-related risks.
• Risks associated with presence in international markets, including political and economic instability, and changes in applicable laws and regulations.
• Loss of key personnel, increased labor costs, union disputes, employee strikes, and other labor-related disruptions may adversely affect the business.
• Labor shortages and the ability to attract and retain qualified personnel, including pilots and technicians, at a reasonable cost or maintain company culture.
• Increases in insurance costs or reductions in insurance coverage could have a material adverse effect on the business.
• Failure to receive regulatory approvals required to complete the Merger with Allegiant or failure to complete the Merger on a timely basis, or at all.
• Expenses, litigation, or disruption to the business relating to the pending Merger.
• Restrictions under the Merger Agreement on the ability to consider alternative transaction proposals.
• Potential liability or adverse effects from utilizing artificial intelligence (AI) due to flaws, bias, ethical issues, or evolving regulatory frameworks.
• Significant amount of aircraft and other fixed obligations could impair liquidity and harm the business.
• Reduction in demand for air transportation in the domestic United States, Canada, Mexico, or Caribbean markets, or a reduction in demand for Charter or Cargo operations, could harm the business.
• Quarterly results of operations fluctuate due to seasonality and other factors, making quarter-to-quarter comparisons unreliable indicators of future performance.
• Inability to realize any or all estimated cost savings could negatively affect results of operations.
• Involvement in litigation could be costly, time-consuming, and materially adversely affect the company.
• Lessee defaults or reorganizations, failure by lessees to meet maintenance and recordkeeping obligations, or inadequate insurance could materially adversely affect the business.
• Export restrictions and tariffs may impact where aircraft can be placed and delivered, negatively impacting earnings and cash flows.
• ESG matters may impose additional costs and expose the company to new risks.
• Major bank failure or sustained financial market illiquidity could adversely affect business, financial condition, and results of operations.
• Future indebtedness could contain restrictions that limit flexibility.
• Stock price may fluctuate significantly due to various factors, some beyond the company's control.
• Certificate of incorporation and bylaws include provisions limiting ownership and voting by non-U.S. citizens.
• Future earnings and earnings per share could be adversely impacted by warrants granted to Amazon, which will dilute ownership interests upon exercise.
• Future sales of common stock in the public market, or the perception that such sales may occur, could reduce the stock price.
• No anticipation of paying dividends on common stock in the foreseeable future.
• Requirement to pay pre-IPO stockholders for certain tax benefits (TRA liability), and the amounts of such payments could be material, especially upon a change of control like the Allegiant merger.

Future Outlook

The Merger with Allegiant Travel Company is expected to close in the second half of 2026, subject to various closing conditions including stockholder and regulatory approvals. The company plans to continue its strategy of long-term flexibility and mitigating economic downturns by leveraging its diversified business model, particularly through cargo growth. Future capital expenditures are not locked in due to the opportunistic purchase of mid-life aircraft. The company will also need to comply with new climate reporting laws in California, with the first GHG emissions report due in August 2026.

Management Comments

• We believe a key component of our success is establishing Sun Country as a high growth, low-cost carrier in the United States by attracting customers with low fares and garnering repeat business by delivering a high-quality passenger experience.
• 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.
• This aligns with our strategy of long-term flexibility and supports our ability to mitigate the impact of economic and industry downturns on our business.
• Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the Consolidated Financial Statements.
• Management does not believe these proceedings will have a materially adverse effect on the Company.

Industry Context

StockSavvy.ai notes that Sun Country's hybrid low-cost model, combining passenger and cargo services, offers greater resilience against industry cyclicality compared to traditional passenger airlines. The expansion of its cargo operations with Amazon positions it favorably in the growing e-commerce logistics sector, while its focus on leisure and VFR travelers, coupled with an agile scheduling strategy, allows it to navigate the competitive landscape against both ULCCs and legacy carriers. The pending merger with Allegiant, another ULCC, signals further consolidation in the low-cost segment, potentially creating a stronger combined entity with enhanced market reach and operational synergies.

Comparison to Industry Standards

• Sun Country's low-cost structure is comparable to Ultra Low-Cost Carriers (ULCCs) like Allegiant Travel Company, Frontier Airlines, and Spirit Airlines, while offering a product quality superior to ULCCs and consistent with Low-Cost Carriers (LCCs) such as JetBlue Airways, Southwest Airlines, and Alaska Airlines.
• The company's ability to maintain low unit costs at lower utilization levels provides a competitive advantage over many competitors who rely on high utilization to keep costs low.
• Its Scheduled Service TRASM (total revenue per available seat mile) is higher than ULCCs, and Adjusted CASM (cost per available seat mile) is lower than LCCs, indicating best-in-class unit profitability within its niche.
• The Cargo business with Amazon, operating 737-800 freighters, differentiates it from competitors like Air Transport Services Group and Alaska Airlines (via Hawaiian Airlines transaction) who primarily operate widebody aircraft for Amazon.
• The lack of flight interruption manifest agreements with peers makes recovery from operational disruptions more challenging compared to larger airlines that have these agreements in place.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject to an audit by the 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 $2,700 thousand was received in 2024, which the company has appealed, believing a loss is not probable.
• ALPA filed a grievance on behalf of the company's pilots for certain wages to be paid to pilot instructors during flight hours. An arbitrator ruled in favor of the pilots in Q4 2025, resulting in a $2,718 thousand loss contingency (inclusive of tax effects and 401(k) contributions) recorded in Salaries, Wages, and Benefits. The company is assessing all available legal remedies.

Related Party Transactions

• Payments were made to TRA holders (pre-IPO stockholders), which include certain members of the company's management and Board of Directors. Payments totaled $10,525 thousand in 2025 and $3,350 thousand in 2024. The TRA liability will be settled upon completion of the Merger with Allegiant.
• Delta Air Lines, Inc., a competitor, supplies aircraft parts to the company under an Inventory Support and Services Agreement.
• Amazon.com Services, LLC is the company's sole CMI service customer for cargo operations and a significant counterparty for Accounts Receivable and warrants.

Stakeholder Impact

• Shareholders: The pending merger with Allegiant offers a defined exit strategy with cash and Allegiant stock, but also introduces risks related to deal completion and potential stock price fluctuations. The slight decrease in net income and operating income might be a concern, but cargo growth is positive. No dividends are expected in the foreseeable future.
• Employees: New CBAs ratified for flight attendants and below-the-wing fleet service employees, and an agreement in principle for technicians, provide stability and contractual pay increases. However, ongoing pilot CBA negotiations and a recent arbitration ruling in favor of pilots (resulting in a loss contingency) indicate potential for increased labor costs and ongoing labor relations challenges. Management changes also occurred.
• Customers (Passenger): Reduced Scheduled Service capacity might impact route availability, but increased total fare per passenger and ancillary revenue per passenger suggest continued demand and successful unbundling strategy. The new co-branded credit card program aims to enhance loyalty.
• Customers (Cargo Amazon): The expansion of the CMI service with Amazon (from 12 to 20, then 22 aircraft) strengthens the relationship and provides stable, growing revenue, but also concentrates business risk with a single major customer.
• Creditors/Lenders: Refinancing debt at a lower interest rate and increasing the revolving credit facility improve liquidity and financial flexibility. Compliance with all covenants as of December 31, 2025, is positive.
• Suppliers: Reliance on Delta for aircraft parts and third-party service providers for various operations creates dependency risks.

Next Steps

• Closing of the Merger with Allegiant Travel Company in the second half of 2026, subject to various closing conditions.
• Induction of three currently leased aircraft into the passenger fleet upon lease expiry through Q4 2026.
• Operating two additional cargo aircraft for Amazon in early 2026, increasing the total to 22.
• Ongoing negotiations for a new Collective Bargaining Agreement (CBA) with pilots.
• Ratification of the agreement in principle for a new CBA with technicians and related craft employees.
• Compliance with California's SB-253 (Climate Corporate Data Accountability Act) requiring GHG emissions disclosure starting in 2026.
• Compliance with California's SB-261 (Climate-Related Financial Risk) requiring disclosure of climate-related financial risk.
• Continued assessment of the impact of ASU 2024-03 (Disaggregation of Income Statement Expenses), ASU 2025-04 (Clarifications to Share-Based Consideration Payable to a Customer), and ASU 2025-06 (Targeted Improvements to the Accounting for Internal-Use Software).

Key Dates

Recommendation

The pending merger with Allegiant introduces significant uncertainty and potential for both upside and downside. While the cargo segment shows strong growth and the company has managed to reduce fuel costs, the passenger segment's reduced capacity and declining operating income, coupled with rising labor and maintenance expenses, are concerning. The arbitration ruling for pilots adds to potential future cost pressures. Given the defined merger consideration, the stock's movement will likely be tied to merger completion probabilities and Allegiant's performance, rather than Sun Country's standalone operational results. A 'hold' recommendation is appropriate as investors await clarity on the merger's finalization and the integration strategy.

Keywords

Sun Country Airlines, SNCY, Airline, Cargo, Passenger Airline, Hybrid Low-Cost Carrier, Amazon, Allegiant Merger, 10-K, Financial Results, Aviation, Boeing 737-NG, Minneapolis-St. Paul, Airline Industry, SEC Filing, Financial Performance, Labor Relations, Aircraft Fleet, Credit Card Program, Share Repurchase, Tax Receivable Agreement