SNCY - NASDAQ

Welcome to the Sun Country Airlines First Quarter 2022 Earnings Call. My name is Terry, and I will be your operator for today’s call. Please be advised that this conference call is being recorded. I will now turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin.

Thank you. I’m joined today by Jude Bricker, our Chief Executive Officer; Dave Davis, President and Chief Financial Officer; and talented group of others to help answer questions. Before we begin, I’d like to remind everyone that during this call, the company may make certain statements that constitute forward-looking statements. Our remarks today may include forward-looking statements, which are based on management’s current beliefs, expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially. We encourage you to review the risk factors and cautionary statements outlined in our earnings release and our most recent SEC filings. We assume no obligation to update any forward-looking statement. You can find our first quarter earnings press release on the Investor Relations portion of our website at ir.suncountry.com. And with that said, I would now like to turn the call over to Jude.

Thanks, Chris. Good morning, everyone. After nearly 2 years since the onset of the COVID pandemic, demand for air travel in the first quarter returned to pre-pandemic levels. While it’s been a long and challenging time for our industry and its employees, the last 2 years have shown the resiliency of Sun Country and what makes us truly unique. We believe we have the best people in the industry, and I’m proud of them on a daily basis, serving our growing leisure, charter and cargo customer base. While the industry now faces a certain challenge, I want to take a few minutes to highlight some differences here at Sun Country versus the broader industry. First, we’re already profitable. We were profitable in the first quarter. We’ve been profitable through most of the pandemic. Although we’re tremendously excited about our growth prospects, we’re not reliant on growth to deliver consistent profitability and cash flow. Second, our charter and cargo segments produced strong results and predictable cash flow in all demand and fuel environments. These businesses are primarily under long-term contracts with premier partners such as Major League Soccer, Caesars and Amazon, we pass through fuel cost to the consumer. Third, and importantly, the synergies between our cargo, charter and scheduled service segments have never been more apparent as they are today. Because of the consistency of charter and cargo, we have the flexibility to adjust our scheduled service operations to deliver in all circumstances. So in the second quarter, in response to the fuel environment, we’ve been able to focus our growth on peak periods where fares can be achieved to compensate us for our fuel costs. And because of that peak focus, we expect to be able to deliver much stronger scheduled service unit revenue growth in 2Q versus the industry. While it’s great, the industry is seeing a resurgence in demand, our improved unit revenue will be as much a result of our own doing and design. Fourth, we deleveraged through the pandemic. Our future CapEx can be adjusted for aircraft prices, interest rates and the opportunity to deploy the asset. The pandemic produced many opportunities for us to purchase growth aircraft at attractive prices. Today, we have 7 aircraft that have been purchased and financed that will enter the fleet over the next 9 months. In the first quarter, we grew block hours by 30% versus the same quarter in 2019. Through this time next year, we expect to continue to deliver over 20% growth without future CapEx while deleveraging as our debt amortizes and producing positive cash flow adding to our already strong liquidity position. Finally, as you all know, we ratified a contract with our pilot group in December. This has allowed us to attract the quality and quantity of talented aviators needed to support our growth, but it also gives us more certainty in our cost as compared to having an open contract in this environment. Again, I’m so proud of all our team members here in Sun Country and what we’ve achieved to date and excited about the future. With that, I’ll turn it over to Dave.

Thanks, Jude. Q1 was another profitable quarter at Sun Country, including our sixth consecutive quarter of greater than 15% EBITDA margins. We’re very pleased with these results given high fuel prices throughout the quarter and Omicron driven demand softness prior to President’s Day. Our numbers demonstrate again the benefits of Sun Country’s unique and highly resilient business model. We can quickly adjust our capacity and the allocation of our flying between segments in reaction to exogenous factors like the much higher fuel costs that we’re experiencing today. Adjusted pretax earnings for the quarter were $15.7 million, and adjusted EPS was $0.20 a share and revenue of $226.5 million, a record for Sun Country. Q1 adjusted operating margin was 10%, which we believe to be industry leading. Our total Q1 block hours were up 30% and ASMs were up 6.3% versus Q1 of ‘19. The quarter was a tale of 2 halves. Bookings were soft in January, but since President’s Day, we have seen some of the strongest demand in our history. Our total average fare in Q1 of $183 was 7% higher than the comparable number in Q1 of ‘19. Included in this is ancillary revenue per passenger of $49, which was the highest in the history of our company. In terms of quarterly unit revenue, scheduled service TRASM was down 1% on a 10% increase in scheduled service ASMs when compared to the first quarter of ‘19. However, scheduled service TRASM in March increased 4% versus 2019, while scheduled service capacity was up 8%. Charter revenue for the quarter was $32.9 million. Q1 was the third consecutive quarter where charter revenue per block hour was higher than in 2019 and flying done under longer-term contracts made up over 70% of the charter flying we did during the quarter. Flying under our agreements with MLS and Caesars was ramping up during Q1 and will be fully operating in Q2. Charter block hours for the quarter were down 14.3% in total versus Q1 of ‘19 due to reduced ad hoc flying as we chose to prioritize scheduled service and cargo while we ramp up pilot hiring under our new contract. For example, we’re typically one of the largest charter carriers for the NCAA basketball tournament, but we didn’t participate this year due to capacity constraints. We’ll return to this type of flying in the future as our staffing picture steadily improves, again, illustrating the unique optionality that our 3-pronged model affords us. Cargo revenue in the quarter of $21.1 million was down slightly when compared to the first quarter of last year due to the timing of planned heavy maintenance checks. Recall, we did not begin cargo flying until May of 2020. On the cost front, we continue to maintain solid cost discipline in the first quarter. Despite Q1 being the first full quarter of operating under our new pilot agreement, our adjusted CASM of $0.0621 was only 0.6% higher than Q1 of ‘19. Excluding fuel and special items, total cost per block hour in the first quarter was 5.9% below Q1 of ‘19 despite the cost of our new pilot agreement. We paid an average of $3.20 per gallon for fuel during the quarter, which was significantly higher than our initial Q1 plan and almost $1 per gallon higher than it was in the first quarter of ‘19. In March, which was our heaviest flying month of the quarter, fuel costs were $3.58 per gallon, yet we still produced an operating margin of greater than 20%. As we enter a seasonally weaker second quarter, we’re pleased with how the quarter is shaping up. Demand continues to be robust with historically strong revenue trends. We expect total revenue to be up 24% to 30% versus the second quarter of 2019 and 22% to 26% higher block hours. These growth trends imply scheduled service TRASM growth of a remarkable 25% to 34% over the same period. We expect operating margin to be in the plus 5% to 9% range for the quarter, even in spite of forecasting a fuel price of $3.50 per gallon and facing some unit cost headwinds in Q2. We’re rightsizing our capacity to maximize profitability in a high-fuel environment, while responding to staffing challenges. We continue to see strong application numbers from prospective new pilots, and we are filling all of our new hire classes. As we implement our new agreement, we’re expanding our training capacity and plan to increase the size of our new hire classes, allowing us to grow faster in future quarters. Finally, our balance sheet remains very strong. We closed the quarter with $297 million in liquidity and completed a EETC aircraft financing for $188 million with an average interest rate of just over 5%. We expect the refinancing to save us over $2 million per year in ownership costs. We had approximately $15 million of positive free cash flow during the quarter, excluding aircraft CapEx. We expect to generate strong free cash flow for the year. Of the 8 aircraft we plan to acquire this year, we have already closed on 7. Additionally, no significant non-aircraft capital expenditures for the remainder of 2022 are expected. With that, I’ll open it up to questions.

Your first question comes from the line of Ravi Shanker from Morgan Stanley.

First question on the cargo side, obviously, we heard from your primary cargo customer recently that they may actually have some excess capacity in their fulfillment network for the first time in a long time. Does this have any impact on kind of the schedule they’re flying with you guys and how full the aircraft are, et cetera?

No, we fly the same amount now as we did when we fully stood up the airplanes to 12 aircraft. And for the foreseeable future, the schedules that we see continue to have the same volume. A little commentary on cargo though is keep in mind, it’s a long-term contract with escalation annually that’s fixed. One of the biggest costs associated with it as fuel is passed through then as pilots. And our pilot contract went into effect in January. So the margins of that business are tighter now than they were last year and will widen as the escalation outpaces pilot rate increases and the juniorization as we hire more pilots. So we expect that those margins to widen as we look forward into the future.

What is the timing of the escalator going into effect like what time of the year is that?

The calendar year.

Calendar year, okay, got it. And a follow-up question is just on the charter side. I mean you said that you didn’t fly the NCAA planes this time because of availability, and that makes sense. I’m just wondering kind of how much flexibility you guys have in your charter contracts because I think one of the good things about this contracts that they are long-term contracts, and they’re pretty sticky. But you guys do have the flexibility to not fly them if you didn’t want to?

Hello, Ravi, it’s Dave. I think the way we’ll think about it is this way. Remember, our charter business is composed of a fixed component, basically a component under contract, I’ll call it, which we fly and we want to continue to fly and we will. And then we have this ad hoc segment. The NCAA basketball, for instance, fell in the ad hoc segment. That stuff we pick up on a near-term basis. That’s where all of our flexibility resides. And as we’re prioritizing the use of our resources, let’s say, pilots, whatever the constraining resources is at any time. That’s sort of the last thing on the totem pole because we don’t need to bid it if we don’t have the pilot hours available. Yes, a little bit more on that. So we have 17 airplanes in track and cargo. Those are fixed production margin businesses. And then the rest of it, we adjust for the yield environment or for fuel prices, most of that’s in scheduled in the ad hoc, which comes at the very end of our planning horizon, we can adjust for the staffing situation at the time, the opportunity cost from sched service, anything really.

Your next question comes from the line of Duane Pfennigwerth from Evercore.

Duane here, nice to speak to you guys. Just on the block hours, can you put a finer point on the composition within there? Understand 1Q is a bigger quarter for you historically on scheduled service, but wonder if you could sort of give any color on the composition sequentially. And I guess any high-level thoughts about the balance of the year?

I actually just happen to have a couple of those numbers in front of me, Duane. So scheduled service block hours were 66% of our total in the first quarter. Charter was 11% and cargo was 22%. As we move into the year, I mean, remember, Q1 is our big quarter, particularly from a scheduled service perspective. So as we move into the year, particularly in Q2, there will be a modest shift away from the scheduled service business into the charter business as we reallocate resources there. Also our MLS and Caesars contracts, I think Caesars didn’t get really started until March. So that’s really ramping up now, and that will be a bigger piece of our flying in the second quarter as well. The cargo business, the number I gave you is plus or minus 1% or 2% on a quarterly basis.

And then just on scheduled service, it’s natural in the face of like what fuel did that, you’d pull back on that and protect your margins. And obviously, the revenue environment has played out such that it’s been a lot stronger, certainly a lot stronger than what we were looking for. So if it’s possible, can you talk about for the growth that we see in the schedules, how much of that was sort of proactively protecting your margins? And maybe in an ideal world, you’d actually have more of that out there than what’s been cut versus this idea of constraint? Is it a constraint that’s driving what’s in sched service or was it just maybe being overly aggressive in taking down growth?

Well, so first, I mean, keep in mind that we’re still having a distribution of opportunities that include weak and strong flights. So the response to higher fuel prices is now and will always be that we cut these weaker flights. Now we’re seeing broad-based demand improvements. So week is better, but peak periods are even better and so, most of the cuts that we did are response to the high fuel prices. We certainly have looked at really peak opportunities where we can -- we’re tied on crews, and we’re thinking always about how we can allocate those across the opportunity set. Keep in mind also, fuel prices overly expense long haul. So if you look at some of the cuts we made, that’s because of fuel prices. We’re just trying to get those flights out of the sched service business. So I think -- we can’t give you an exact answer, but we’re just always modifying the schedule based on inputs to include the yield environment and the fuel prices and trying to continually hit a hurdle rate in every given period.

That makes sense. And as we look out to maybe the third quarter, what is sort of planned and baked. And if we looked at what’s in the schedule for the third quarter, would we be taking the over on that at this point based on how strong revenue is? I appreciate you taking the questions?

Yes -- I mean our third quarter plan, we think, is appropriate at today’s forward curve, which is in backwardation. So if we don’t get a decline in fuel prices, we’ll probably have to cut a little bit more. And if fuel falls faster than we expect, then we’ll probably have some opportunities to add. There is seasonality in Minneapolis tends to go all the way through Labor Day. And so -- and also, we have a big Texas operation with travel to Mexico. And all of that is really, really strong. But I don’t see it improving from where we are today. In other words, I think we’re probably about right.

Your next question comes from the line of Brandon Oglenski from Barclays.

I guess maybe to be more explicit, if we look at 2Q schedules right now, ASMs are down about 6%. Does that sound about right?

Yes, that’s about right.

Okay, Jude, I think you mentioned some constraints as well though, on the staffing side. Can you talk to the new pilot contract and if that’s helped you on attrition or not? And I think you mentioned new hire classes are full as well?

Yes, our new hire classes remain full for pilots. We’re hiring about 20 a month that began in the winter and continues on today. The company -- we have so our company’s been around for a long time and traditionally was hiring 5 or so a month on a lumpy basis, and now we’re growing sort of unprecedented rates. And we’re starting to hit bottlenecks across the training production timeline to include SIMs which we have -- we went from 1 to 2, we need to go to 3, check airmen, which we’re in the process of training more and getting more approval from the FA for more of those. So we’re eliminating these bottlenecks, but we’re just -- we’re growing at 30%, and that’s difficult to do in this environment.

Yes, the other thing -- hello, Brandon, it’s Dave. The other thing I want to point out is you can look at sort of our ASM production relative to 2019. That’s one metric, but a more relevant metric for us is total block hours because we’ve got this big cargo business now that we didn’t have 2 years, 3 years ago or whatever. When you look on that metric, we’re up 25% in terms of total capacity in the second quarter. So the growth continues to be very robust. Jude pointed out sort of what we’re doing on the pilot front. I mean, I think this is the -- this has sort of been the trend. I said on the last call, we experienced high levels of attrition in like the October -- September, October timeframe of last year. We did the deal. Attrition has moderated and come down. It hasn’t come down to what it was before, which we wouldn’t expect it to given all of the hiring at legacy carriers. So what we’ve done is we have increased the size of our new hire classes. And the good news is applications continue very strong, and we’re filling our new hire classes. So it’s not a front end of the funnel anymore. That looks to be solved. What we’re working on now diligently is expanding the size, the aperture of that funnel so that we can get our classes up even larger and continue the growth sort of going forward. We’re making good progress on that.

Got you, Dave. And one last one for me, I think you said rates were up like 30% with the new contracts, but you had a lot of efficiency offsets that you expected with it. Is that coming through as you expected?

Here’s where that’s going to come through. So we haven’t seen a lot of it yet. So we expect some cost reductions in the future. One of the biggest ones is PBS. So preferential bidding, which almost -- which most other airlines have, we didn’t have. That is not slated to come online until really the first quarter of next year. So that will be, we think, a pretty big step change in efficiency. There’s some of the other stuff that we’re seeing that is bearing some fruit, some of the commuter stuff, but that PBS change is going to be the big benefit to us.

Yes. I mean, I can’t give you the exact numbers in the quarters ahead, but that all of those concepts are absolutely still there. And particularly, as we continue to grow and add flying, we’ll continue to spread our costs out over more block hours.

Yes. I think the input is fuel that we don’t know and how that affects ex-fuel CASM is that we will cut out to flying and grow less fast if fuel doesn’t mean revert.

Yes, is the answer. I mean I think the right way to think about our margins is when it’s as good as it can get for everybody else, we’ll be right there with them. And in all other circumstances, will lead the industry.

Your next question comes from the line of Scott Group from Wolfe Research.

You talked about $49 of ancillary revenue per passenger. Where do you see that going, where do you see that going from here rest of the year or longer term?

So, I want to be careful here because we just launched a new product called the passenger interface charge, which is going to displace fare pretty substantially. So the ancillary products that are most relevant are ones that are accretive to total revenue per passenger -- and we think we have about $5 to $7 of upside in there based on third-party products, increased efficiency, effectiveness of our pricing in bags and seat assignments. And we’re rolling out bundles, which is going to be really effective. But what you’re going to see in our financials, just to warn you, is pretty rapid acceleration of our ancillary revenue per passenger because of that PIF and that’s just going to be a displacement of the airfare. So we’re probably going to finish over 60.

But you’re saying a lot of that is just a shift from one to the other?

Yes all the ULCCs have a product like that and we’re doing one that’s all it is. So when -- you just may be careful as you interpret comparisons across the industry for ancillary revenue per passenger, the stuff that matters is the stuff that is accretive to total revenue. And that is particularly if you think about the stack of ancillary products, bag seats, people kind of expect to have to bring a bag and therefore it’s priced into the airfare, seat a little less, so you don’t have to buy one. Onboard sales completely irrelevant to the airfare. Third-party product sales you’re going to buy anyway, those are totally accretive. So there’s a spectrum of incremental value associated with the product categories. The PIF, I think, Allegiant calls it a customer convenience fee, it’s a CIC, customer interface charge, at Frontier. I can’t remember what Spirit calls it, but they all have one and it’s basically just a fee that moves money from fare.

As Jude pointed out, sort of the object here is obviously accretive to total revenue. So we talked about $3 to $5 of upside in sort of truly accretive stuff. Yield management of seat pricing, getting more heavily involved in third-party products, which we started doing in the rental car business. So that’s sort of coming down the road as well.

I know the follow-up on the Amazon cargo question from earlier. So I get no change in the business today. Do you think -- does Amazon maybe having some excess capacity in the network change your timing of when you could get additional aircraft in your mind?

We remain in discussion with them about growth opportunities. And I continue to believe that there are some. I mean, right now, scheduled service is doing really well. We’re not in a big rush to grow our cargo business, quite frankly. I mean we need to try to continue to push peak period scheduled service, which is really strong today. It’s our best thing right now.

And then just lastly, as we’re seeing a little bit of an uptick in cases, are you seeing any changes in the demand environment as cases move a little higher?

No, no, none at all. I mean, it’s a steady hill of average airfare sold every day. It gets higher and higher as we push into the summer. It’s linear and this kind of inflection point, I know you’re hearing all the CEOs across the airline say it, but it’s very rare. I can’t think of another circumstance where we’ve seen kind of this variance from mid-February where we saw this inflection point and no signs of slowing down. And the capacity backdrop in the U.S. looks really accretive. You’re going to pay a lot of travel because there’s, not enough seats out there. So it’s -- I can’t imagine it turning around anytime soon.

Your next question comes from the line of Mike Linenberg from Deutsche Bank.

I guess just a quick one here on fuel, Dave, $3.50 per gallon. Presumably, that’s the strip. What’s the day end? Maybe are you benefiting from better prices, Chicago, Mid-Con, you’re not dealing with New York Harbor, that did seem to be a bit lower?

Yes, that’s the strip along with some assumption for some crack spread narrowing, to be honest with you, that’s probably, I don’t know, 4 or 5 days, 6 days old, something like that. We think cracks are going to come in. The bulk of -- obviously, the bulk of the fuel we buy is here in Minneapolis. So our exposure to the Northeast is very minimal, but that continues to be where most of our fuel comes from.

Probably more relevant as you compare our fuel price to the rest of the industry is the seasonality of our business within the volatile fuel environment. So if you look to the first quarter, we probably paid a little higher fuel price -- significantly higher fuel price than comps. And that’s because the majority -- as compared to them, more of our flying happened in March when fuel is higher, which is -- that’s our business plan. And the same exists in the second quarter where we’re going to be really heavy in June relative to the other 2 months of the quarter. It’s the reverse in the third quarter, et cetera.

Okay. No, that’s helpful. And then this last quarter, I mean, you did make a pretty meaningful shift to your scheduled capacity, and it’s -- look, it’s the right thing. I mean, pulling down things like Minneapolis to Fairbanks and obviously, West Coast Hawaii, I mean, it starts getting really expensive Jude, as you said, some of these longer haul flights and given the fact that you’re carrying fuel to carry the fuel to get you to that definition with these 73s? I’m curious, 2, 3 months ago, sort of on a block hour basis, where that mix was? I know you said you were 66% in the March quarter, June quarter, it looks like it’s going to be a little bit less than for scheduled. 2, 3 months ago, what were you above 70 and maybe there was less for Charter and now you’ve been able to shift. And it’s not just airplanes, but I guess it’s shifting pilots from scheduled maybe to backfill pilots on reserve at the charter biz -- or at the cargo business?

Yes let me first just talk about pilots. I mean our pilot group supports all lines of flying always. So we integrated in particular trips, and we have a single crew base, and they go out and fly sched at and then they might fly a charter and then they may fly a cargo and then all in one trip. So it’s very integrated and that gives us a lot of the efficiencies. And so optimally, we’re at about 25% fixed flying 75% sched. We think, which gives us the ability on a typical seasonality that we would expect September versus March to draw down our sched service to about 1/3 of what it is in March and September. So -- and then there’s other variations of that inputs associated with the yield environment or fuel prices or anything else, competitive backdrop, aggressive or benign or whatever. And so -- but I think over time, we’re going to kind of correct into that place where it’s about 75-25 sched versus track and cargo, which basically operate the same -- in our business and, Grant, if you’ve got anything else?

Yes. Mike, this is Grant. All I would say is the team does a really good job of optimizing based on forecasted best margins. And so as we -- if you would have stepped back in time, we definitely made the adjustments you made -- or you commented on from a scheduled service, which were absolutely the right ones done with this -- through a strategic framework. And then on the charter side, we absolutely, as Dave mentioned, we have these ad hoc customers that are relatively close in, and we can pick and choose there as well. So you’ll see a little bit of reduction there, but still executing and operating at a high level for our biggest customers. But it’s -- this team does a really good job of optimizing to drive the most amount of value.

Your next question comes from the line of Christopher Stathoulopoulos from Susquehanna.

So I just want to get to this demand or perhaps TRASM outlook in a different way. So mask mandates off here, summer travel around the quarter. If you could give some color with respect to what the 0 to 60-day booking window looks like? And how does it compare to this time last year and then, let’s say, 3 to 5 years on average pre-pandemic. And then further out, so let’s say, 60-plus days or are you having to stimulate discount, excuse me, to stimulate demand or is marketing and whatever you normally do around with your RMS team sufficient to fill out your kind of required load factors into the second half?

Hello, Chris, let me make a couple of general comments, and I’ll throw it over to Grant. Right now we’re not doing any stimulation pricing. It is a -- if there’s low prices in a flight, it cut, we just won’t fly it. One of the things I think you may be getting at is kind of when we went into this new pricing environment after Omicron kind of how quickly are we going to react to the new environment. And so mid-February is when we saw the change in booking behavior and demand really recovered strongly. We just came through COVID with all its ups and downs. And I’d probably give us a grace of about 2 weeks to the end of February to kind of this is real and different and good, where we would say, okay, now we’re pricing in the new environment. And we had sold in the second quarter about 1/3 of our segments by the end of February with 2/3 yet to be priced into the new environment, and it’s about 15% at the third quarter. So yields will go up just because more of the seats will be sold into the new environment. But all fair, so post March 1, it’s kind of on a year over 3-year basis high, but like steady. And the days out of bookings are basically what they were back in the day. It’s just back in 2019, it’s just we’re selling a lot of higher fares. And fares up, I would say, like 50%. I mean, it is a big move. One other comment is that fares are on a heuristic algorithm. So activity -- booking activity creates higher fares by nature. And so our algorithms just sort of naturally adjust. And so we’re able to take advantage of it even in advance of kind of realigning our expectations. Grant anything to add.

No. And the only thing I would add to that, Jude -- we have teams, the revenue management, the yield management team especially these are folks who know these markets really, really well. They manage these on a flight-by-flight basis, day-by-day basis. So they’re seeing this, and they’re doing a really good job of making sure that we are selling fares at the highest level that the market will bear, being cognizant of other things. The other thing is I would just echo Jude sentiment. When we put schedules up, we absolutely expect every flight to drive value for the airline. So we are not doing any stimulation in the schedules we have out in the future. There’s been a lot of thought and just input from stakeholders on what’s the best schedule for some country.

Your next question comes from the line of Duane Pfennigwerth from Evercore.

So when we look at kind of the model historically in scheduled service, you’ve had good revenue. You’ve had decent fares, you’ve had decent yields. It hasn’t been as much of a sort of push all the way on loads. But just given how tight you are with capacity right now actively deciding to be tight with capacity, should we be thinking about loads a little bit differently for the balance of this year?

It’s a good question, and I’ll let Grant answer, but I just want to highlight a couple of differences that we have. We do a lot of seasonal flying. The nature of seasonal flying when it begins and ends is that there’s a naked leg, right. So your first round trip to Central America, the planes pulled down, but empty back because nobody was able to fly down and be on that return flight. So our -- I would say probably our steady state load factors is at such lower than what you would expect to see in Southwest, for example.

Yes. But we do cater the schedule to fly when people want to fly. So a lot of the valid -- or the unit revenue increases are certainly going to come through fare. But it’s really -- the team is doing a good job getting people on the airplane. We fly when people want to fly, so we’re getting the ancillary benefit from that as well. And if you do sort of take a step down into the depths of where we are allocating capacity, we are still doing that in a very strategic way. So while at a system level we may be down, you can absolutely look at markets that we’re really excited about, and we’re making strategic bets there. So we feel really good about how things are coming in for us.

All right. I’m showing no further questions at this time. I’d now like to turn the conference back to Jude Bricker.

Well, thanks for your interest, everybody, and thanks for spending the time with us. Talk to you next quarter.