Skift Take

We always hear airlines are a scale business. So can an airline with 30 airplanes and a measured growth plan succeed? We're not sure, but we'll be watching.

After Jude Bricker took over as CEO of Sun Country Airlines in mid-2017, he figured it would be an easy turnaround. He was leading a quixotic, perennially underperforming airline owned by two brothers — pillars of the Minneapolis/St. Paul community for their quartz countertop and dairy businesses — with no airline experience.

Bricker, who had spent more than a decade at Allegiant Air, would add more economy seats, cut first class, institute fees for carry-on bags, retire smaller, less cost-effective jets, change the loyalty program, switch from employees to contractors for ground operations and buy airplanes, rather than pay the astronomical lease rates previous management negotiated. He’d also expand beyond Minneapolis, sending aircraft on any routes he thought could make money.

Most of it was from from a classic playbook, successfully implemented by low-cost airlines worldwide, including Spirit Airlines, Frontier Airlines, and Ryanair. At first, customers may complain, but soon they understand the value proposition: An airline that lowers its costs can offer cheaper fares, and more of them.

But not this time, at least not yet. Sun Country, which was bought in late 2017 by a private equity firm, has struggled at times to win customers with its new approach, in part because of a couple of high-profile operational miscues that have affected public perception.

“The execution turned out to be a lot harder,” Bricker said. “The perception from the community was that we were a bunch of outsiders coming in and taking away a brand and company from them that they had a lot of affinity to, and they reacted somewhat negatively to that process. I thought we would be further along by now.”

An Airline Like no other in the U.S.

Before selling Sun Country to private equity firm Apollo Global Management in 2017, the Davis Brothers ran it like a mom-and-pop operation, naming planes after local lakes, keeping first class because they liked owning a premium airline, and operating a frequent flyer program in which they could dole out elite status to friends.

They had bought Sun Country 2011, after its second bankruptcy in eight years, as something as a public service to the region, which relies on the airline for lower fares to vacation destinations than Delta Air Lines, with its massive Minneapolis hub.

When Bricker arrived, Sun Country was tiny, carrying about two million passengers annually, fewer than Delta flies during three days during July. Even in Minneapolis, Sun Country had less than 6 percent share, according to government data.

It was making money — barely. During one of the best times in the industry’s history, with fuel cheap, Sun Country reported operating profit of $18 million in the year ending September 2017, government data shows.

“The financial history of Sun Country is not wonderful,” Bricker said last month at Sun Country’s media day in Minneapolis. “Consistently for last 15 years, Sun Country has pretty dramatically underperformed the rest of the industry. We were the smallest, worst financially performing mainline carrier in the country. It’s a very dangerous place to be.”

Bricker had begun to remake Sun Country even before the sale — the Davis brothers had wanted to streamline costs — but the pace picked up afterward. Apollo Global Management, is providing capital for many of Bricker’s initiatives, including plans to grow the fleet, now about 30 Boeing 737s, by up to six used aircraft per year.

For now, Bricker said he is focused on building the airline into a more sustainable business. He would like to get costs to near Spirit and Frontier levels, while providing a slightly better product so he can win a revenue premium against them.

The focus on revenue is why Sun Country isn’t emulating all the moves ultra-low-cost-carriers usually make. For example, while it is retrofitting its Boeing 737-800s to add more seats, from 162 to 183, the new seats will be more comfortable and 30 percent more expensive than the barebones Acro Aircraft Seating model Spirit has installed, Bricker said. 

Sun Country is also adding in-seat power and offering streaming entertainment, and it still offers free drinks.

“We need to differentiate the product,” Bricker said. “There’s a reason ULCCs have had a really slow growth profile here in Minnesota. Minnesotans ask for more, and we need to deliver.”

While the new Sun Country has had trouble winning trust locally, the airline is making more money. According to government data, Sun Country generated operating profit of $30 million in the year ending in September, an increase of 66 percent, year-over-year, even though costs rose by more than 7 percent.

Private equity firms generally don’t retain assets for long, and Bricker said he knows Apollo has an exit strategy. It may include an initial public offering, or a sale.

“They’re not going to be here in 10 years,” Bricker said. “Five years is kind of up in the air.”

Niche carrier

Even as it grows, Sun Country likely will remain the most unusual large-jet-flying airline in the United States.

In an interview, Bricker said the closest comparisons are probably, in the United Kingdom, and Tui, the cluster of European airlines owned by a major tour operator. They’re not perfect comparisons, because Sun Country focuses less on vacation packages than the others, but the idea similar.

“These are leisure carriers that focus on taking people on very seasonal demand traffic patterns to leisure destinations,” he said. “We would go and do what Spirit and Frontier have already done, but they are already doing it. We would do what Allegiant has done, but they are already doing it. We’re focused on a smaller addressable market, but it’s bigger than we have today.”

Sun Country has one major advantage over European operators: Unlike European short-haul carriers, which struggle in winter — because a 737 doesn’t have range to fly from London or Paris to warm-weather destinations, many leisure airlines park their planes or lease them away — Sun Country has viable opportunities year-round.

In the winter, it’s obvious. Much of the fleet flies from chilly Minneapolis to warm-weather destinations in the Southern United States, the Caribbean and Mexico, though the airline is expanding to offer similar flights from other major markets, such as Dallas/Fort Worth.

From Minneapolis, Delta competes on most routes, but it charges high fares to nonstop customers, leaving room for Sun Country to undercut it and still generate significant margins. And while Delta could try to put Sun Country out of business, conventional wisdom suggests a giant like Delta would rather have a small, niche competitor as No. 2 in its hub than a peskier one, like Southwest or Frontier.

“That’s one of the reasons for taking first class out,” Bricker said. “We need to try a distinction between us and them. One that isn’t threatening to them, to be perfectly blunt about it. To me it’s customers that are left behind by Delta’s fares here in this market that Delta doesn’t really care about.”

That only gets Sun Country through part of year, however. In warmer months, Bricker is positioning the airline as what he calls a nationwide “spill” carrier, flying passengers bigger airlines don’t want to carry on popular routes.

Intuitively, it make sense. Summer travel is so robust that Sun Country’s larger competitors don’t have enough airplanes to shuttle cost-conscious passengers to the most popular destinations, like Las Vegas, Florida, Hawaii and Alaska. With limited capacity, bigger carriers typically raise prices to focus on yield, and value-oriented customers stay home or postpone a trip to shoulder season.

Sun Country is making a play to carry those travelers in peak times, adding routes like Los Angeles to Honolulu, Seattle to Anchorage, Dallas/Fort Worth to Las Vegas and Portland, Oregon to Orlando. Sun Country hardly has to advertise, as customers who don’t want to pay high fares see it on a third-party site and book because it’s the only affordable option.

“We are going after a market that no one else is really pursuing — really seasonal demand,” Bricker said. “I don’t feel like someone is going to take it away from us.”

Snags in the Operation

The strategy has had some hiccups, though, as Bricker’s strategy has introduced more complexity.

The most notable event happened in mid-April, just before Sun Country switched from its winter/early spring, Minneapolis-based schedule, to its more nationwide operation. A late snow storm storm hit Minneapolis, and Sun Country canceled about 40 flights in two days, including some of the last departures to and from Mazatlan and Los Cabos.

The airline was not prepared. Its customers were stranded in Mexico, but Sun Country needed its airplanes elsewhere, so it could not send rescue flights to pick them up. It also doesn’t have agreements with other airlines, so it couldn’t put passengers on, say, Delta.

Perhaps worse, customers complained they couldn’t reach the airline. In Minneapolis, some phone agents couldn’t get to work because of the snow, so Sun Country was having trouble responding to calls, which jumped from about 1,000 on a typical day to about 20,000.

When passengers did reach the airline, they were told they would receive a refund from Sun Country, and they would have to buy their own flight home, though the airline eventually agreed to help pay for it. The incident hurt the brand: Where Allegiant can get away with than share of operational miscues, in part because few of its routes have nonstop competition, Sun Country could not. The airline has pledged to do better in the future. 

Sun Country also has struggled with ground handling. The first company Sun Country hired couldn’t deliver the service it promised in Minneapolis, and workers from headquarters, including Bricker, went to the airport to help.

Recently, Sun Country hired Delta Global Services to handle the work. The company, which has been a Delta subsidiary, is fine, but agents are limited by Sun Country’s antiquated systems. At most airlines, Bricker said, it takes agents about 90 seconds to check a customer’s bag; At Sun Country, it takes about four minutes, though that will improve soon when the airline invests in new technology.

At times, too, the operation is stretched because it’s so vast. While Sun Country has a flight attendant base in Dallas and plans to open another in Portland, it only one pilot base, in Minneapolis.

The former owners agreed in collective bargaining that all pilots would be based at headquarters, perhaps not thinking about a nationwide expansion.


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Tags: airline innovation, low-cost carriers, sun country airlines

Photo credit: Sun Country Airlines introduced a new livery for its Boeing 737 fleet recently. The airline is in the midst of a turnaround. Sun Country Airlines

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