Sun Country’s Amazon cargo moves stay steady as rivals fly less

April 28, 2023

Leisure carrier Sun Country Airlines has not suffered any cutbacks in flight hours for its secondary cargo business for Amazon, management said Friday, setting it apart from most express parcel operators and partner airlines that have adjusted aircraft utilization to match lower demand.

Instead, Minneapolis-based Sun Country (NASDAQ: SNCY) reported first-quarter cargo revenue increased 11% year over year to $23 million behind a 5.2% increase in block hours — time in flight and taxiing at the airport — and an annual rate escalation that went into effect in mid-December.

“The cargo business remains a steady cash-generating business for Sun Country that serves to smooth the peaks and valleys in our passenger service schedule,” said Chief Financial Officer Dave Davis in a call to brief analysts about the company’s results.

Sun Country operates 12 Boeing 737-800 converted freighters for Amazon Air under a long-term transport services agreement, with Amazon (NASDAQ: AMZN) providing the aircraft and covering expenses such as fuel. Its other business lines are scheduled passenger service to warm-weather destinations and charters, mostly for casinos and sports teams.

One reason Sun Country flew more for Amazon during the quarter is because several aircraft pulled from service for heavy maintenance a year ago were available again.

“We haven’t seen any significant reductions in block hours. If anything, it’s been a little bit of pressure in the other way. So it’s been sort of steady Eddie from a scheduling perspective from Amazon,” Davis said.

The low-cost carrier began flying packages for Amazon in 2020. Cargo now represents about 10% of its total revenues and is a high-margin business.

Sun Country’s business-as-usual flying for Amazon stands in contrast to the rest of the express air sector, where major integrated carriers are reducing frequencies, consolidating routes, parking aircraft and scaling back discretionary flights from third-party vendors. Global e-commerce growth has cooled down significantly from 26% in 2020 to about 8%, according to eMarketer. Regular air cargo companies are also operating more conservatively.

Freighter aircraft utilization across the industry fell 3% in March compared to the previous year, an improvement from recent months as China’s economy reopens, according to research by BMO Capital Markets. The downturn in flight activity for cargo jets has accelerated since last fall. The 12-month moving average of flight hours, which corrects for seasonal fluctuations, contracted 4.8% — the steepest decline in two years.

FedEx recently reported that it has scaled back flight hours by about 6.5%. UPS executives this week said they have reduced aircraft utilization out of Asia by 14% and are stuffing aircraft in their domestic overnight network with second-day packages so some daytime flights can be canceled.

Air Transport Services Group in February said it expects aircraft utilization at its two cargo airlines to decline about 5% this year, adding that Amazon Air and DHL Express have pared down the number of flights executed. Amazon disputed that characterization, saying air cargo volumes have remained consistent and that flight schedules are typically lighter in the first part of the year to allow for regular aircraft maintenance.

Cargojet (TSX: CJT), an all-cargo carrier that provides overnight airlift for Amazon, DHL and other large customers, recently said it is flying less.

Air transport for express delivery companies is partially protected from severe loss of business during downturns because of minimum guarantees in their contracts and the fact that express carriers need to maintain regular service to uphold delivery commitments. But those customers have discretion to reduce variable capacity.

Sun Country generated record revenue of $294 million and record operating income of $56 million during the first quarter. Executives say they expect passenger bookings to increase as the year progresses.

During the quarter, the airline acquired five Boeing 737-900 aircraft and is leasing them to Oman Air until late 2024 and 2025. The purchase is a way to guarantee future capacity but the airline doesn’t need the planes now because it doesn’t have enough pilots to utilize them.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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