Jude Bricker Gets Very Real on Sun Country’s Quest for Financial Sustainability
Jude Bricker, 45, joined Sun Country Airlines in 2017 after a decade with another quirky airline, Allegiant. He took the job because the Davis family, Sun Country’s owners, had plans to sell the carrier to deep-pocked Apollo Global Management, which would provide Bricker the liquidity to fix its structural problems. The Davises saved the airline, but could never give it sufficient oxygen to thrive. Sun Country paid too much for everything, earned too little as a consequence, and struggled with red ink, substandard returns, and bankruptcy for decades.
Though 2018 contained its share of missteps, SY [its industry code] is in a growth mode, planning to modernize its customer-facing technology in 2019 and boost fleet size, adding seasonal service from MSP to Chicago, Providence, Sacramento, St. Louis, Philadelphia, San Antonio, Newark, and Washington (Dulles).
The expectation is that Apollo will eventually sell or spin off Sun Country, but not before Bricker can grow it into a business that has assets and operations worth buying. For the near-term, passengers can expect more flights, lower base fares, and Ã la carte pricing—the model that attracts today’s leisure travelers.
Bricker is candid and unassuming, with few of the airs and veneer of omnipotence typical in the industry. Dressed in a pullover and khakis, TCB spoke to him at Sun Country’s headquarters in Mendota Heights.
TCB | Several years ago, I did a deep-dive article on Sun Country, and the one question I really couldn’t answer is why the airline existed after so many years in the red, trips through bankruptcy, etc. From the outside—you were at Allegiant Air—what did people think about this airline?
JUDE BRICKER | We didn’t spend a lot of time thinking about Sun Country. They were irrelevant on the national stage. They relied on a relatively high fare base because they only needed to undercut Delta. But it was a short-term strategy because you couldn’t build scale here, and low-cost carriers were starting to eat away [at margins].
Q | How so?
A | 2015 was the best year for airlines ever. Everybody did well. Sun Country was no outlier. But Sun Country margins relative to the industry started to separate. The network carriers were producing 10 percent margins, Spirit and Frontier were producing midteen margins. Our best year ever was 2017, $28 million in earnings on half a billion of revenue, or 5 percent margins. Now if that was stable and could go on forever, that’s a fine business, but this is not a stable industry.
Q | When you came on board, were you aware the Davises planned to sell the airline?
A | Yeah, that was part of my arrangement with them.
They took the airline out of bankruptcy, they saved it, really, but it was not sufficient for the airline to evolve.
They have other business interests that are not necessarily aligned.
Sun Country has to define its place in the market. Sun Country was doing a good job, offering a great product, but nobody was paying for it because Delta is dominant in this marketplace.
Q | Do you have a sense, now that you’ve been here for a while, why this airline has survived as such an outlier in the industry?
A | The people wanted it, I guess.
We don’t have the dynamics of the other midmarket airlines—Hawaiian, Alaska, and JetBlue. Each relies heavily on a fragmented regional [air] market and codeshares with other airlines. We’re in a midsize market with a dominant player that is never going to share passengers with us and [we’re] getting squeezed by low-cost competition. It was a dead-end street.
In 2018, we paid $40 million more in fuel, which was more than all our profitability in the previous year. Through our new owners we raised several hundred million dollars in direct investment, which is allowing us to stabilize and grow the airline, and pay more for fuel without having a liquidity problem. [Editor’s note: Fuel costs have since declined.]
Q | This seems like a fun industry to work in, but a terrible industry to invest in. Or am I missing something?
A | No, that’s pretty much accurate. High capital expenditure, heavily regulated, unionized, concentrated, geopolitical risk.
Q | The industry has changed. There’s a lot of pricing discipline. There’s been a lot of consolidation. American Airlines CEO Doug Parker said a while ago that the airline industry would never see years in the red again. Have airlines have figured out how to make money in good times and bad?
A | The cracks in that thesis started two years ago, when we saw a lot of capacity growth. American decided to compete with Spirit. Then the equity markets inflicted some discipline. They want stable revenue production. We saw four years of declining unit revenues at Spirit finally turn upward this quarter. These are the most price-sensitive customers. That bodes well for Sun Country. We’re in a pretty good place for 2019. … Partly because we have such a low bar to exceed our past performance. We’ve made so much investment in the business it’s going to be dramatically different than any year we’ve had before.
Q | When you came aboard, what was your plan?
A | I looked at it as a real opportunity. They ran a great operation. If we get a call for a charter tonight, we can fly it in two hours anywhere. We have over 99 percent dispatch reliability. We have a bunch of former Northwest mechanics in that hangar and they know everything about a 737. We have great crews. They’re all Minnesotans. There’s this affinity for local in this market. From an outsider’s perspective, it’s a little hard to understand, but I saw it as a plus. We just had to cut some costs out of the business to get to average. We can go from worst to medium and we’re sustainable, and we can keep paying $155 million in payroll to Minnesotans in perpetuity.
Q | Where was the low-hanging fruit?
A | It was at the airport. We had 430 ground handler employees here supporting 20 [departures] a day. Those metrics were unreal. Those were good people. But we had to [outsource that area]. I also think for many, many years if we had a problem, we attacked it by spending. If we had a dirty airplane, we hired more cleaners. If the queue was too long, we hired more agents. It just stacked up. Instead of throwing more people at it we had to get more efficient—in the way we schedule the planes [and] the technology we invest in to streamline guest experience. We were way behind. We have our ticket counter next to Southwest. They have it down. They’ve been focused on efficiency for years. You don’t have to talk to a person unless you need to.
There was a portfolio of contracts we were able to renegotiate. Our vendors want us to be viable. So if we’re paying 30 to 40 percent over market, they were open to a longer-term relationship but charging market rate.
Last was the fleet. We leased all our planes. It’s basically debt; the airline was incredibly leveraged. We’d go to the market and say we need an airplane with common specifications to our other [planes], and there were only a couple out there, so we’d win them by overpaying.
Q | Could you renegotiate those?
A | No. We’re small potatoes to the leasing companies.
Q | Why have you adopted an unbundled model with Ã la carte pricing instead of Southwest’s bundled model, given your admiration for their efficiency?
A | It works for them because they have scale. People assume they are the lowest fare and go right to their website. In Nashville, which we’re entering, they are just dominant. So I have to come in with a lower fare to compete. The way you do that is [unbundling]. But Southwest’s fares have the fee revenue baked in to some extent.
Also, we fly some long stages where we have certain inefficiencies with aircraft weight. We have an incentive to have fewer bags. The way you get less bags is to charge for them.
Q | So people take less?
A | They do.
Q | The Ã la carte model is complicated relative to Southwest, where the fare is the fare. When I go to Spirit.com I have no idea what I will pay by the end of the transaction.
A | There’s no reason you can’t have fees and be the easiest. The booking platform should be easy to use.
Q | You experience a huge peak in travel from December to Easter with people flying to warm destinations. Is there enough other leisure travel to build a year-round business with fewer peaks and valleys?
A | Yes, but we need to find some of that growth in other markets. So we’ve expanded into Madison, St. Louis, Dallas, Nashville, and Portland [Oregon], all of which don’t have a strong ULCC [ultra-low-cost carrier] presence.
Q | When you arrived here, how competitive was Sun Country with the ULCCs?
A | When I got here, our cost per ASM [available seat mile] was 8.5 cents. Spirit’s is 5.5 cents. So they can undercut your fares substantially and still be profitable. That’s going to end poorly. But by the end of next year, we’ll be competitive with them. To be successful [at MSP], you have to deliver a higher level of service than the ULCC but with a comparable fare and cost structure.
Q | Are you able to price above them?
A | We can in this market. In other markets where people don’t know us, that’s not the case. In order to grow, we have to be fare-competitive with Spirit and Frontier.
Q | There was a time when you were trying to operate morning and evening departures to major business centers. Are business travelers still part of the business plan?
A | Well, there’s a lot of business travelers on Southwest Airlines. They demand a couple things. You’ve got to be on time. You need a breadth of schedule because they want to fly when they want to fly. And you have to have scale in the market, because corporate customers fly on a corporate contract and they are locked into that carrier. I can’t compete with a lot of that. There are small business owners, people flying on their own dime, that we can win.
Q | Northwest used to compete very aggressively with small carriers to keep market share. Does Delta pay that kind of attention?
A | Oh, they do. Part of our strategy is to say, ‘We don’t want to threaten your business.’ By the way, they run a fantastic operation. Great technology. They have an amazing loyalty program. And they’re gigantic. Where’s the place for us, then, because we can’t win the corporate client, we can’t win on product? We can win the leisure customer who doesn’t want to put up with Spirit and Frontier. Who doesn’t want to get cancelled on, doesn’t want to sit in the fetal position, who doesn’t want to pay for a soft drink. It’s a hassle. There’s 4.6 million people 90 minutes from this airport. I think we can win ’em.
Q | In judging your success, what are the metrics you look at?
A | Our focus right now is CASM ex-fuel, controllable costs per available seat mile. We set out to come down from 8.5 to 6 cents. We’re competitive at 6. And we’re doing it without additional [flying of existing aircraft], because that requires operating planes at times people don’t want to fly. Once [we are at 6] the focus will shift to unit revenue. The metric I like is TRASM, total revenue per available seat mile. That includes things like cargo, loyalty programs, [and] ancillary fees.
Q | You said at your media day that you have no idea what your ownership’s long-term plan is. Can you expand on that?
A | Well, they’re fiduciaries to their clients’ money. So they intend to make them more money, so they want to make us more valuable.
Adam Platt is TCB’s executive editor. His monthly column, Plattitudes, addresses the airline industry this month.