Downtime for aircraft maintenance and Amazon’s more conservative approach to flight expansion amid reduced online shopping resulted in a marginal drop in cargo revenue last year for hybrid carrier Sun Country Airlines.
The Amazon transport provider said cargo revenue increased a modest 4.6% to $24.4 million during the fourth quarter but dipped 1.2% to $90.3 million for the full year on a 4% decrease in hours utilized.
Overall, Sun Country (NASDAQ: SNCY) reported fourth-quarter revenue of $272 million, a year-over-year increase of 31.6%, and adjusted pretax income of $10.3 million, a 39% gain, despite a large jump in costs for fuel and pilot pay related to a new contract. Amazon (NASDAQ: AMZN) now represents about 11% of total revenue.
The number of in-service hours during the fourth quarter declined 1.8% due to a shorter average trip length between airports versus the previous year.
“During the first half of the year, we had numerous Amazon aircraft in heavy maintenance, which drove the block hour decrease,” said CFO Dave Davis in an analysts’ briefing Friday. “Our cargo flying remains a consistent source of revenue in all environments, and we do not expect this to change in the future.
Sun Country operates 12 Boeing 737-800 converted freighters for Amazon under a long-term crew maintenance contract, with Amazon 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.
Amazon began to scale back on adding flights to its in-house air network during the second half of last year in response to slower consumer spending, which influenced Sun Country’s results.
Sun Country management doesn’t expect volumes to increase this year, but CEO Jude Bricker said more revenue is likely because the transport services agreement with Amazon has rate escalators embedded in it and the retailer pays for service regardless of whether the aircraft are full or not.
Bricker noted the increased cost for pilot labor means margins for Amazon flying are currently low, but they will increase as the contract rates rise.
Sun Country has a fixed fee contract with Amazon based on a minimum hour obligation with a variable component at a separate rate that actually becomes cheaper as the amount of flying increases.
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Amazon dials back air cargo expansion as e-commerce sales grow