Sun Country Airlines Faces a Summer Storm: Can Cargo and Strategy Steer Clear of Demand Woes?

The skies ahead for Sun Country Airlines (NASDAQ: SAVE) are clouded with uncertainty, as CEO Jude Bricker has issued a stark warning about potential demand softness extending into the 2025 summer travel season. While macroeconomic headwinds and geopolitical tensions threaten to crimp leisure travel, the airline’s pivot to cargo and charter operations—and a razor-sharp focus on cost discipline—could position it to outperform peers. Let’s dissect the risks, strategies, and opportunities for this leisure-focused carrier.

The Demand Dilemma: Tariffs, Trade, and Travel Slump

Bricker’s concerns center on three pillars: U.S. tariffs squeezing consumer wallets, cross-border travel decline between Canada and the U.S., and broader economic uncertainty. Tariffs, particularly on Canadian goods, have fueled a “buy Canada” movement, denting demand for U.S. leisure destinations like Florida and Texas. Meanwhile, geopolitical tensions have stifled cross-border traffic, prompting rivals like Porter and Flair Airlines to retreat to domestic routes—a move that could paradoxically reduce competition for Sun Country in key U.S. markets.

However, the CEO isn’t panicking. He’s betting on strategic capacity cuts to align with demand realities. By slashing Q2 2025 scheduled service capacity by 7% and annual capacity by 35% by year-end, Sun Country aims to prioritize high-yield routes, particularly in the Midwest, where demand remains robust.

The Lifelines: Cargo, Charters, and Cost Control

Sun Country’s defense against weak passenger demand hinges on two growth engines: cargo and charter operations. The airline plans to double cargo revenue by September 2025, deploying 20 cargo-configured Boeing 737s (up from 12) to capitalize on Amazon contracts and rising freight rates. This segment now contributes 15% of total revenue, acting as a stabilizer in volatile times.

The charter business, meanwhile, has surged with 15.6% year-over-year growth in Q1 2025, driven by NCAA March Madness flights and a 55% spike in ad hoc demand. Bricker calls this “icing on the cake,” but it’s more than that—it’s a flexible revenue stream that thrives on last-minute bookings, offsetting scheduled service weakness.

Cost management is equally critical. Despite rising pilot salaries (+12.9%) and maintenance expenses (+12.2%), Sun Country maintained an 18.3% adjusted operating margin in Q1, thanks to its diversified revenue model. The airline also plans share buybacks and deleveraging to bolster financial resilience.

Summer Outlook: Caution Amid Strength

Bricker’s cautious optimism stems from strong summer booking trends, particularly for Minneapolis connections and Texas-Mexican Caribbean routes. Close-in fare pricing has surged, suggesting pent-up demand for leisure travel. However, risks loom large:
- Cargo fleet delays: Part shortages and pilot training could strain costs.
- Regional demand gaps: Weakness in Northeast and California markets may offset Midwest gains.
- Macroeconomic volatility: Persistent inflation or tariff hikes could further crimp discretionary spending.

Bottom Line: A Risky Bet with Upside

Sun Country’s strategy is a high-wire act. By doubling down on cargo and charters while pruning unprofitable routes, the airline is hedging against a summer slowdown. The 15% cargo revenue contribution and 15.6% charter growth provide tangible buffers, but execution risks remain.

Investors should watch two key metrics:
1. Cargo fleet utilization: Will the 20 planes meet revenue targets by September?
2. Margin sustainability: Can Sun Country maintain its 18%+ operating margin amid rising costs?

Historically, Sun Country has outperformed peers during leisure peaks. In 2023, its summer yield rose 8% versus a flat industry average. If 2025 bookings mirror this trend—despite capacity cuts—the stock could rebound sharply.

Final Verdict: A Buy With an Eye on the Horizon

Sun Country’s stock (SAVE) is currently undervalued at 11x forward earnings, a discount to Delta (14x) and American (16x). While risks are real, the airline’s diversified model and proactive capacity management make it a compelling play on leisure travel’s recovery. Investors should consider a gradual buy entry, targeting dips below $30/share, with a 12-month price target of $45-$50.

In a sector where peers like Delta and American are cutting forecasts, Sun Country’s agility could turn a stormy summer into a strategic victory—a lesson in flying against the wind.

Data as of Q1 2025. Always consult a financial advisor before making investment decisions.