What happens when you take a small, moderately successful full service airline and put a ultra low cost carrier (ULCC) veteran executive at the helm? A pivot is coming and Sun Country is set to slash costs and raise ancillary revenue through various fees. The carrier is now run by Jude Bricker, an Allegiant alum, who was brought in last month to change the airline’s course. And change it he will.
Sun Country historically offered “high touch” (and commensurately high-cost) service on board flights radiating from its hub in Minneapolis. It is a leisure operator, focused on a loyal local customer base but also struggling to compete against a Delta Air Lines hub in the same city and significant other competition in most connecting markets where it flies. High costs while serving an ever more price-sensitive vacation traveler base are not a good combination for an airline. And so Sun Country will now change. But will it be enough?
Cutting Costs
Cost cuts are coming mostly in the form of cutting higher-paid employees from the company ranks. A first effort will be focused on buyouts of long-tenured staff and crew. It is gives “long-tenured employees an opportunity to leave Sun Country if those individuals were not on board with the new vision,” according to an internal company memo. That’s a very polite way of spinning the need to replace more expensive crewmembers with new hires that work at a fraction of the cost. In essence, the company is saying that working for Sun Country is no longer a career choice so much as a place to spend a short bit of time along the way to something else.
The carrier will also add seats to its aircraft, cutting legroom and the cost per seat-mile flown (CASM), a metric commonly used to compare between airlines. That also translates into greater revenue opportunities in that there are more seats per flight available to be sold.
Increasing Revenue
Boosting the revenue will come from more fees – high, carry-on bag charges! – and taking away other amenities typically included in the fare price. This unbundling is hardly a new concept but it is one that until now Sun Country resisted. With the three network carriers also pursuing the “Basic Economy” model it is hard to argue that this is a mistake for the company, even if it does annoy some customers. After all, their other options mostly do the same thing.
Other Adjustments
The company is also set to branch out from its hub at MSP airport. The competition against Delta from its home base certainly doesn’t help anything and other markets may exist where point-to-point leisure travel will be compelling. Bricker’s experience with such route networks at Allegiant will undoubtedly be useful in helping plan this aspect of the Sun Country shift.
How much is too much?
Making major changes like this is dangerous but not unprecedented. Frontier managed to pull it off at least reasonably successfully, though its model is hardly perfect. And it, too, is pivoting from point-to-point service to a hub-and-spoke model, choosing to battle with legacy carriers along the way. Frontier also managed to slash operating costs significantly, allowing it to be competitive with the other ULCCs on that front. Sun Country, even after slashing costs 20%, will still have higher expenses than the ULCCs, leaving it in an incredibly tough position.
Another option to London(ish)
The cost cuts are almost certainly going to piss off some passengers who might have previously paid a little extra to the home-town carrier. As the revenue premium shrinks the cost pressure grows. And there isn’t a lot more to cut once the basic stuff (bags, seat assignments, etc.) is done. The carrier is in a tough spot with its small fleet (only 22 737s) and limited ability to scale. But once this change is made it’ll be nearly impossible to go back.
Header image: Sun Country 737 by Bill Larkins via Flickr/CC BY-SA
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Didn’t they try this once before?
I don’t think Sun Country did. Certainly not to the ULCC levels now being discussed.
It did have a massive financial fraud scandal a while back, though.
I was thinking that they went the same route as ATA before both declared bankruptcy in 2008 but maybe I’m wrong.
One of the truly great little airlines goes the way of Midwest Express
A real dilemma. ULCC’s in the US are not exactly having an easy go of it now. And the sleeping giants have been woken with BE. Hard to see allowing another one co-exist unless Sun tries to do a better version of Allegiant, which is a different model, and one that doesn’t work so well with a newer, more expensive fleet that has to be in the air generating revenue. Unlike old MD-80s which can be left on the ground.
Seth, what do you think the chances are for a premium economy airline that only flies a single type of equipment point to point between SF, NYC, DC, LA, ORD, maybe adding SEA, DEN BOS and maybe MIA or DFW/AUS (not a hub and spoke model just a high O&D model) and say strikes an agreement to use mileage plan – think it’d be viable?
Alas, no.
Much like the all-premium TATL airlines from a decade ago it is too easy for the legacy carriers to match price and dump inventory to crush a new carrier with such a limited model. Business contracts still make up a huge portion of revenue and most business travelers are going enough places that a route map with a dozen dots on it just isn’t enough.
Arguably JetBlue was closest to that recently (VX advertised as such but didn’t actually deliver on the premium economy seating) and it needed a much more significant route map to pick up the business traffic in Boston, and that’s still a small portion of its business.
Also, the major airports you mentioned are maxed out. No gates or slots.
So are they getting rid of their first class?
This totally sucks (being near MSP). I’ve actually gone out of my way to fly them. Their upgrade rates are pretty reasonable and they’re surprisingly innovative with their domestic catering. Alas all good things must come to an end as is the case with all Midwestern airlines it seems.