SNCY

Sun Country is a hybrid LCC built around three legs: a leisureheavy scheduled network (anchored in MinneapolisSt. Paul), a profitable charter franchise (sports, casinos, DoD, ad hoc), and a contract cargo arm operating 737800BCFs for Amazon under a crewmaintenanceinsurance (CMI) model. Management "powerpatterns" the passenger fleetinterleaving scheduled and charter legs to maximize aircraft utilization and marginso internally the company views Scheduled and Charter as one Passenger segment, with Cargo as the second segment. The 10K's segment footnote shows how the CODM evaluates these two segments and explicitly describes the powerpattern scheduling logic. In 2023, Passenger generated $950m of revenue and $133m operating income, while Cargo produced ~$100m revenue and a small operating loss as Amazon reimbursements were still under the prior rate card.

The inflection was mid2024, when Sun Country signed an Amended & Restated Air Transportation Services Agreement (A&R ATSA) with Amazon that added up to eight additional 737800 freighters (taking the fleet from 12 to 20) and extended the term to 2030, with optional extensions through 2037. New economics began to flow in 2025 as the extra aircraft came online and the rate structure stepped up. Management had all eight delivered by Q3'25, and expects to end 2025 with 45 passenger aircraft and 20 cargo aircraft (five additional passenger frames are temporarily leased out and return through 2026).

The flip side is that to crew and support the cargo ramp, the airline deliberately pulled back scheduled ASMs in 2025, which raises CASM exfuel until passenger flying grows again (management expects to add back scheduled flying in the second half of 2026). That mechanical dynamic is visible in Q2'25: revenue rose 3.6% to $264m, operating income was $16m (6.2% margin), Cargo revenue jumped +37% on higher rates and block hours, but CASM exfuel was up as scheduled capacity was down 6.2% and load factor slipped 130 bps. Management was candid that CASM and Adjusted CASM will "remain elevated until we begin growing our scheduled service business again in the second half of 2026."

Fullyear 2024 was the company's best top line ever, at $1.08bn revenue, with GAAP EPS $0.96 and a 9.9% operating margin; Q4'24 revenue was also a record for a fourth quarter ($260m; 10.0% operating margin). Q1'25 then hit an alltime quarterly revenue high (~$327m), with a 17.2% operating margin as peak winter leisure and charter mixed well with the early cargo ramp. Q2'25 cooled to the 6% margin described above, and management guided a Q3'25 operating margin of 36% on $250260m revenue as scheduled capacity remained constrained to finish the cargo induction.

Liquidity as of 6/30/25 was $207m (cash, AFS securities, and revolver availability), with net debt of ~$431m. Using ~$11.5/share and ~53.2m basic shares, market cap is ~$612m; adding net debt yields an EV ~ $1.04bn.

On the Street side, the 2025 EPS consensus sits around ~$1.08 (Nasdaq/Zacks), rising toward ~$1.61.7 for 2026 as passenger flying resumes growth and the 20frame Amazon operation annualizes. The 12month sellside price target average clusters around $17$19, with a high of $23 and lows $13 as of late October. At today's price that implies 5070% upside if the narrative improves.

In Q2'25, Scheduled TRASM printed 10.40¢, up 3.7% year over year despite a load factor dip; total fare per scheduled passenger was $151 (+6.5% y/y). Cargo revenue rose to $34.8m (+36.8%), and Charters to $54m (+6.4%), giving a tangible picture of the diversified mix. Yet Adjusted CASM rose 11.3% chiefly because of reduced scheduled ASMs while crew and other overhead were ramping to support cargo (a known denominator effect). Aircraft fuel expense fell 19% y/y on lower price, helping but not offsetting the exfuel headwind.

Q3 guidance implied the same pattern: finishing the cargo induction first, then rebuilding the highmargin peak leisure schedule. I think the Street is correctly modeling depressed exfuel unit costs through mid2026; the question for a 12month trade is whether investors begin to look across the valley as Amazon profitability settles at the new rate card and the seasonal passenger peaks of Q4'25 and Q1'26 remind the market what "normal" looks like for this network.

The A&R ATSA is economically meaningful: (i) it adds scale to a business with stable blockhour demand decoupled from leisure seasonality, (ii) it's capitallight (Amazon subleases aircraft; Sun Country supplies crew/maintenance/insurance), smoothing cash flows, and (iii) it now runs through 2030 with optional extensions to 2037. Importantly, the contract does not require a minimum amount of flying, and Amazon can reduce flying volume at any time. That concentration risk is the single most material "tail" in the story. Sun Country's disclosure around the A&R ATSA risk language is crisp in the 2024 10K, and I would haircut uplift expectations accordingly.

That said, Amazon's choice to increase the frame count to 20 and accept a multiyear extension in mid2024 is a strong revealedpreference signal that the partnership is durable for now.

The revenue backdrop is mixed but not hostile. U.S. fares cooled into mid2025 (BTS reports the average inflationadjusted domestic fare fell ~3.8% from Q1 to Q2'25), yet leisure demand remained resilient in most carriers' commentary, and North American airline profitability remains positive in IATA's 2025 outlook despite modestly softer cargo yields.

On cost, U.S. Gulf Coast jet has ranged near $2.052.15/gal into October 2025well below the 2022 peaksand the step down versus 2024 showed up in Sun Country's Q2 fuel line. If fuel drifts higher it mechanically crimps margins; if it stays roughly here, Q4/Q1 seasonality plus Amazon runrate could surprise to the upside.

The company finished Q2 with $206.6m liquidity and net debt ~$431m (including finance and operating lease obligations in the net debt definition the company discloses), a manageable position for a $1bnEV airline with profitable operations and a capitallight cargo arm. Sun Country added a $25m buyback authorization in May 2025, opportunistic but sensible given the equity's drawdown and the absence of a fleet CAPEX cliff (they acquire used 737NGs opportunistically and have no MAX orderbook to fund). I model net leverage roughly flat through 2025 and improving in 2026 as scheduled flying grows again.

Beyond the core flying, the airline is adding small, accretive profit streams. In September 2025, Sun Country launched a new Synchronyissued cobrand Visa (replacing the legacy bank partner). Airline cards typically produce highmargin marketing revenue and points sales; I don't underwrite a large P&L contribution in year one, but over 1224 months this should lift "Other" revenue per passenger and aid loyalty economics, particularly in MSP and upper Midwest origin markets. Management also extended the public sellable schedule through April 28, 2026, which helps capture early leisure demand for spring shoulder seasons.

My base case takes company guidance at face value for Q3'25 (36% op margin on $250260m revenue) and assumes typical winter strength in Q4'25 (I use ~910% operating margin on ~$265275m revenue, similar to Q4'24 on slightly higher cargo contribution). For Q1'26 I use an operating margin in the midteens on ~$330m revenue (in line with Q1'25 dynamics, acknowledging CASMexfuel is still elevated), then a seasonally weaker Q2'26 with 68% margin as the first signs of scheduled growth begin late in the quarter.

Rolling those into 12 months, I get FY'26 EPS of ~$1.451.70 (Street ~1.61.7). On valuation, at $11.5, you're paying ~10.7x the 2025 consensus EPS of ~$1.08 and ~78x my 2026 EPS range. A 12x multiple on $1.451.70 implies $17$20 fair value; haircutted to 11x yields $16$19my target band.

The market is treating the 2025 cargoramp year as a structural stepdown in earnings quality rather than a timing choice that frontloads CASM exfuel. The Q2 print and Q3 guide were honest about that tradeoff, and the stock has been derated accordingly. Yet when you look at the record revenue in 2024, record Q1'25, and the expanded, repriced Amazon contract now fully inducted at 20 frames, the earnings bridge to 2026 is not heroic.

The core passenger business still prints doubledigit operating margins in peak quarters, and charters have quietly grown midsingle digits y/y. The powerpattern system remains an underappreciated advantage: by dynamically substituting charter legs for lowermargin scheduled legs, Sun Country keeps the passenger fleet on its most profitable work. That is literally how management allocates aircraft at the CODM level.

The Amazon concentration is real: there is no minimumflying guarantee, and operational snafus, pilot availability, or soft Amazon volumes would hit Cargo contribution. A macro wobble that knocks leisure fares another leg down in 2026 would slow the CASM/ASM normalization and cap TRASM gains; BTS data show fares cooled sequentially in Q2'25. A fuel spike back toward $2.50$3.00/gal would compress margins; labor costs are also drifting upthe flight attendant CBA ratified in March 2025 included ratification bonuses and higher wageswhich lifts the fixed cost base.

Finally, MSP is a Delta stronghold; competitive capacity or pricing moves at the hub could pressure yields on some leisure O&Ds. On balance, I view Amazon and fuel as the critical swing factors in a 12month window.

Three things: (1) evidence that Amazon utilization under the A&R ATSA chronically trails plan (missed block hours with no rate relief), (2) sustained negative fare prints into 2026 (BTS) such that Scheduled TRASM cannot hold the ~10¢ level offpeak, and (3) a surprise stepup in unit costs that isn't tied to the 2025H1'26 scheduled capacity choice (e.g., outsized maintenance or hiring/retention friction beyond current run rates).

Conversely, any early announcement of reaccelerating scheduled capacity in mid2026 (crew pipeline > plan) or positive commentary on the Synchrony cobrand monetization would move me toward the high end of my target band.

Nearterm, Q3'25 results should mark the final quarter of the cargo induction, with Q4'25 and Q1'26 reshowing peak season profitability and TRASM strength; those prints, plus disclosure around 20frame Amazon runrate block hours, are the first triggers. As we move into mid2026, any update that scheduled capacity growth is restarting on timeand the associated commentary that CASM exfuel is normalizingshould be the second.

The new Synchrony credit card launch is a slowburn positive for "Other" revenue and loyalty stickiness; you'll likely see it lineitemed in Other revenue and discussed qualitatively at investor days.

An enterprise value of ~$1.04bn on my $160$185m 2026 operating income proxy (midteens Q1, high single Q2, ~10% Q4, with D&A steady) implies EV/EBIT ~5.66.5x; that is not demanding for a hybrid LCC with a capitallight cargo arm contracted with an investmentgrade counterparty and with a demonstrated ability to print >15% operating margins in peak seasons. Even if I trim those margins by 150200 bps (fuel or fares softer), the multiple remains reasonable. The Street's pricetarget distribution, centered in the highteens, is consistent with this math.

I'm long SNCY. The business has already absorbed the cargo ramp drag that explains 2025's noisy unit costs; the expanded Amazon contract is now fully embedded; liquidity is solid; and the company just demonstrated, with record 2024 and Q1'25 results, that the core passenger/charter engine still works. At ~1011x 2025 EPS and ~78x 2026 EPS, with visible catalysts (Q4/Q1 seasonality, full Amazon runrate disclosure, scheduled flying additions in 2H'26) and manageable risks, I see a path to $16$19 within a year. If fuel spikes or Amazon pulls down flying materially, the shares can trade to the high single digits; otherwise, I expect the market to rerate as it looks through the transition penalty and toward a cleaner 2026.