Sun Country profits soaring, while others sinkby Martin Moylan, Minnesota Public Radio
Mendota Heights-based Sun Country is doing pretty well right now, even as other airlines are expected to lose billions of dollars.
Sun Country earned a profit of $8 million in the first three months of 2009. The small low-fare airline is still in midst of a bankruptcy reorganization, but company officials hope a few more quarters of profits will convince potential investors that Sun Country is a viable business.
St. Paul, Minn. — Sun Country filed for bankruptcy last October. The airline said it had no choice at the time since its owner was Petters Group Worldwide. Sun Country's management didn't want the airline to go down with its parent company and management feared the airline could face liquidation.
The Petters organization was falling apart as CEO Tom Petters was charged with masterminding a Ponzi scheme that bilked investors out of billions of dollars. Petters will face trial later this year.
In bankruptcy, Sun Country has cut costs and reworked its business model. The airline has dropped four planes from its fleet, it now has just ten. CEO Stan Gadek said Sun Country has also found other ways to make money flying.
"We optimized the flight schedules and eliminated flights that weren't profitable and didn't have a lot of demand," Gadek said. "We also developed new channels of revenue for charter and contract flying for another operator."
Sun Country carried just 390,000 passengers in the first quarter. That was a drop of about one-third compared to the same quarter in 2008.
The result was Sun Country's remaining flights had fewer empty seats. In the first quarter, Sun Country filled about 80 percent of the seats on its planes. That was up from about 72 percent from the same quarter a year before, when they lost $8.3 million.
So, in essence, Sun Country is profitable because bankruptcy protection helped the company reduce its expenses more than its revenues. In doing so, the company has been able to restore employee pay cuts and give workers back pay.
For now, the airline is overseen by a committee of its creditors, and there's no timeline for Sun Country to exit bankruptcy.
But Gadek said making money removes the pressure to find an investor -- or investors -- right away. Gadek said it gives Sun Country a better opportunity to prove it is worth investing in.
"My plan right now is to generate a string of back-to-back quarters of profitability which will demonstrate that the changes we have made are real and will result in profitable performance on a sustained basis," Gadek said. "[This] will hopefully attract a longer-term strategic investor down the road who will invest capital in the company and grow it."
Gadek said the airline will soon renew service --for the summer -- to Washington, D.C., Los Angeles, San Francisco and Seattle. The airline will also launch service to Branson, Missouri and Boston.
Sun Country may have found the route to its salvation. That's the view of George Wozniak. He owns Hobbit Travel and is a former Sun Country shareholder.
"They are just a great little airline that flies to sometimes undeserved or not served at all areas that people like to go to," Wozniak said. "They're going to be quick on their feet in and out of areas that make sense and don't make sense. I think they're got a great model going. I think the people running the airline are doing a terrific job."
But there are growing concerns about the future profits of airlines.
People are flying less because of the recession and jet fuel prices could shoot back up as fast as they have dropped.
Some industry observers expect it will be difficult for Sun Country to attract investors. After all, airlines have a long track record of burning through the money of owners.
- Morning Edition, 04/16/2009, 7:25 a.m.