Digital Bookings And Amazon Cargo Will Drive Secular Demand

Key Takeaways

• Accelerating cargo growth, enhanced digital revenues, and flexible business model position Sun Country for sustained outperformance and resilience amid industry shifts.
  
• Dominance in secondary markets and strong travel demand from younger demographics support higher yields, rapid margin recovery, and multi-year passenger growth.
  
• Sun Country faces rising costs and revenue uncertainty due to stricter regulations, shifting travel demand, concentrated operations, and exposure to industry-wide risks.

Catalysts

An air carrier company, operates scheduled passenger, air cargo, charter air transportation, and related services in the United States, Latin America, and internationally.

• Analysts broadly agree that the Amazon cargo expansion will double cargo revenue, but this likely understates the transformative effect-annual rate escalators and a now fully-ramped 20-aircraft fleet mean that cargo revenues can accelerate even further, providing a stable, high-growth, inflation-protected revenue stream that significantly boosts overall top and bottom-line growth through at least 2027.
  
• Analyst consensus sees scheduled service capacity rationalization restoring margins, but this view underappreciates the magnitude of potential outperformance-Sun Country's network dominance in secondary markets, combined with sharply reduced ULCC competition and high peak period pricing power, sets the stage for a rapid rebound in passenger yields and sustained outperformance in TRASM and net margins as the cycle normalizes.
  
• Sun Country is poised to unlock outsized earnings leverage from the structural shift in consumer spending toward travel and experiences, as its core leisure destinations and low-fare positioning directly tap persistent demand from millennial and Gen Z travelers, supporting stronger-than-expected, multi-year passenger growth and higher utilization rates.
  
• The company's tech-driven push for more direct digital bookings and dynamic ancillary sales will materially enhance both revenues and margins-adoption of advanced personalization, new loyalty initiatives, and expanded digital channels are likely to drive up ancillary revenue per passenger and decrease total distribution costs faster than the market anticipates.
  
• Sun Country's hybrid business model, underpinned by multi-year charter contracts and the ability to redeploy capacity quickly, means it is uniquely positioned to capitalize on any further industry disruption or competitive retrenchment, opening the door for opportunistic market share gains, new route launches, and M&A or asset acquisitions-all of which could significantly accelerate revenue, free cash flow, and long-term earnings power beyond current estimates.

Sun Country Airlines Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Sun Country Airlines Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Sun Country Airlines Holdings's revenue will grow by 10.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.4% today to 12.7% in 3 years time.
• The bullish analysts expect earnings to reach $186.9 million (and earnings per share of $3.35) by about August 2028, up from $58.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.8x on those 2028 earnings, down from 11.4x today. This future PE is lower than the current PE for the US Airlines industry at 10.5x.
• Analysts expect the number of shares outstanding to grow by 0.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.4%, as per the Simply Wall St company report.

Sun Country Airlines Holdings Future Earnings Per Share Growth

Risks

• The airline's increasing exposure to decarbonization efforts and stricter environmental regulations threatens to drive up fuel and compliance costs in the long term, which could significantly compress net margins and add future capital expenditure burdens.
  
• Changing demographic patterns and advances in virtual connectivity could lead to structurally lower discretionary air travel demand, reducing Sun Country's addressable customer base and putting pressure on long-term revenue growth and fleet utilization rates.
  
• Significant input cost volatility, especially ongoing wage escalations from new pilot and flight attendant contracts and rising maintenance expenses, risks eroding net earnings and limiting the sustainability of current operating margins.
  
• Heavy operational concentration in Minneapolis and reliance on predictable cargo and charter business leaves the company vulnerable to localized economic downturns and competitive shifts, potentially impacting both revenue stability and margin performance.
  
• The airline remains susceptible to industry-wide risks such as heightened low-cost competition, labor shortages, and external shocks like pandemics or geopolitical events, which could result in recurring pressure on revenues and periods of margin volatility over the long run.

Valuation

• The assumed bullish price target for Sun Country Airlines Holdings is $20.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Sun Country Airlines Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $186.9 million, and it would be trading on a PE ratio of 7.8x, assuming you use a discount rate of 10.4%.
• Given the current share price of $12.55, the bullish analyst price target of $20.0 is 37.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.