Does Sun Country Want To Be Acquired?
Since the Sun Country news broke yesterday, I’ve been trying to wrap my head around Sun Country’s plans to become an ultra low-cost carrier. Based on my analysis it appears Sun Country wants to be acquired or sold within the next few years. Let’s cover the facts.
Sun Country Stats
- Earned $31 million in net income in 2016. They are not losing money, but they make less than competitors.
- Owned by Cambria, which is privately owned by the Minnesota-based Davis family.
- Consists of a small fleet of 26 aircraft, which makes it difficult to compete.
- Slowly increasing market share of 5.61% in Minneapolis. Chief competitor Delta has a market share of 51 %.
Cost Cutting Measures
- Pivot to a no-frills ultra-low-cost carrier
- Begin charging for overhead bin space, carry-on luggage, and seat assignment
- Add more seats to their aircraft, resulting in decreased legroom
- Offering buyouts to 300 senior employees (non-pilots only)
- Future layoffs have not been ruled out
- Expansion out of the Minneapolis market
So why would a local ownership group want to radically change how a beloved profitable local company operates? If they wanted to increase their profits they could have followed Delta’s basic economy structure, where they charge the same price for fares as before but now charge for seat assignment. They could have even taken it a step further and followed United’s basic economy structure, where you charge for seat assignment and overhead bin space. This would have easily boosted profits and not upset too many of their loyal fliers. Sun Country would have simply been competing with their peers.
Instead Sun Country is about to drastically change their business model and slash costs, which is odd for a profitable company. One of their first steps is to clean house of their most valuable customer-facing employees. The personal touch that Sun Country excels at, will likely be gone after loyal tenured employees are replaced by new lower cost staff. Next, they’re going the way of Frontier and Spirit and putting more seats in an already cramped cabin. People fly Sun Country for the personal customer service, cheap fares, and lack of fees. The new business model gets rid of many of the reasons why people fly Sun Country. People want a comfortable, lower-priced alternative to Delta.
The planned cost-cutting measures are typical of a company which is losing money. Sun Country made millions in profit last year, which leads me to believe something else is afoot. It appears Sun Country is trying to maximize their profits with little regard for the business model which has made them successful. The current pivot to an ultra low-cost carrier is something an outside investment firm would do to boost short term profits, increasing the company’s valuation, only to sell a few years later. I fully admit this is all speculation and I hope my analysis is wrong, but things just don’t add up. I’ve long been an ardent supporter of Sun Country, and I’m discouraged to see what is happening.
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