Welcome to the Sun Country Airlines first quarter 2022 earnings call. My name is Cherry, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star 0. 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 a 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 these subjects are subject to risk and uncertainty. 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 statements. You can find our first quarter earnings press release on the investor relations portion of our website at ir.suncountry.com. With that said, I'd like to turn the call over to Jude.
Thanks, Chris. Good morning, everyone. After nearly two 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 certain challenges, I wanna 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 produce 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 costs 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. 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 that compensate us for our fuel costs.
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 redeploy 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 Presidents 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 pre-tax earnings for the quarter were $15.7 million, and adjusted EPS was $0.20 a share on 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 2019. The quarter was a tale of two halves. Bookings were soft in January, but since Presidents 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 2019. 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 2019.
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 2019 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 three-prong 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 continued 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 6.21 cents was only 0.6% higher than Q1 of 2019.
Excluding fuel and special items, total cost per block hour in the first quarter was 5.9% below Q1 of 2019 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 2019. 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 our 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 on 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 double ETC 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've 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.
As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. Again, that's star then the number one on your telephone. Your first question comes from the line of Ravi Shanker from Morgan Stanley. Your line is now open.
Thanks, gentlemen. 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, etc ?
No, we fly the same amount now as we did when we fully stood up the airplanes to 12 aircraft. 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 is pilots. Our pilot contract went into effect in January. You know, 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. We expect those margins to widen as we look forward into the future.
Thanks for that detail. 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. 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, you know, how much flexibility you guys have in your charter contracts, because I think one of the good things about those contracts is that they're long-term contracts, and they're pretty sticky. You guys do have the flexibility to not fly them if you didn't want to?
Hey, Ravi, this is Dave. I think the way to 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 wanna continue to fly, and we will. 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. 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.
A little bit more on that. We have 17 airplanes in charter and cargo. Those are fixed contribution margin businesses. Then the rest of it, we adjust for the yield environment or for fuel prices. Most of that's been scheduled. Then ad hoc, which comes at the very end of our planning horizon, we can adjust for the you know, the staffing situation at the time, the opportunity cost from scheduled service, anything really.
Got it. That makes sense. Thank you.
Your next question comes to the line of Duane Pfennigwerth from Evercore. Your line is now open.
Hey, Duane here. Nice to speak. Just on the block hours, can you put a finer point on the composition within there? Understand, you know, one Q 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. 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. 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, you know, as we reallocate resources there. Also our MLS and Caesars contracts, I think Caesars didn't get really started until March. That's really ramping up now, and that'll be a bigger piece of our flying in the second quarter as well.
The cargo business, the number I gave you is, you know, plus or minus 1% or 2% on a quarterly basis.
Okay. That's helpful. Then just on scheduled service, you know, it's natural in the face of like what fuel did, that you'd pull back on that and protect your margins. Obviously, the revenue environment has played out such that, you know, it's been a lot stronger, certainly a lot stronger than what we were looking for. You know, if it's possible, can you talk about, you know, for the growth that we see in the schedules, how much of that was sort of proactively protecting your margins? Maybe in an ideal world, you'd actually have, you know, more of that out there than what's been cut, versus, you know, this idea of constraint.
Is it constraint that's driving what's in sched service, or was it just maybe being overly aggressive in taking it down growth?
First, I mean, keep in mind that we're still having a distribution of opportunities that include weak and strong flights. 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. You know, weak is better, but peak periods are even better. You know, most of the cuts that we did are a response to the high fuel prices. We certainly have looked at you know, really peak opportunities. You know, we're tight on crews, and you know, we're thinking always about how we can allocate those across the opportunity set. Keep in mind also, fuel prices overly expense long haul. You look at some of the cuts we made, you know, that's because of fuel prices.
We're just trying to get those flights out of the scheduled service business. You know, 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, you know, trying to continually hit a hurdle rate in every given period.
That makes sense. As we look out to maybe the third quarter, you know, what is, you know, sort of planned and baked? You know, if we looked at what's in the schedules for third quarter, would we be taking, you know, the over on that at this point based on how strong revenue is? I appreciate you taking the questions.
I mean, our third quarter plan we think is appropriate at today's fuel forward curve, which is in backwardation. If we don't get a decline in fuel prices, we'll probably have to cut a little bit more. If fuel falls faster than we expect, we'll probably have some opportunities to add. The seasonality in Minneapolis tends to go all the way through Labor Day. You know, and also we have a big Texas operation with travel to Mexico. All of that looks really, really strong. I don't see it improving from where we are today. In other words, you know, I think we're probably about right.
Okay. Very clear. Thank you.
Your next question comes from the line of Brandon Oglenski from Barclays. Your line is now open.
Hey, good afternoon, Jude and Dave. Thanks for taking the question.
Hey, Brandon.
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?
That's about right.
Okay. Jude, I think you mentioned, you know, some constraints as well, though, on the staffing side. Can you talk to, you know, the new pilot contract and if that's helped you on attrition or not? I think you mentioned new hire classes are full as well.
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's been around for a long time, and tradition was hiring 5 or so a month on a lumpy basis. Now we're growing sort of at unprecedented rates. We're starting to hit bottlenecks across the training production timeline to include sims, which we have. We went from one to two, we need to go to three. Check airmen, which we're in the process of training more and getting more approval from the FAA for more of those.
We're eliminating these bottlenecks, but you know, we're just you know, we're growing at 30%, and that's difficult to do in this environment.
The other thing. Hey, Brandon, it's Dave. The other thing I wanna point out is, you know, you can look at sort of our ASM production relative to 2019, that's one metric. 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. You know, when you look on that metric, we're up 25% in terms of total capacity in the second quarter. You know, the growth continues to be very robust. You know, Jude pointed out sort of what we're doing on the pilot front. I mean, I think this has sort of been the trend.
I said on the last call, we experienced high levels of attrition in like the 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 the hiring at legacy carriers. 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. 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, and we're making good progress on that.
Got you, Dave. One last one for me. I think you said, you know, 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 gonna come through. 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 most other airlines have, we didn't have. That is not slated to come online until really the first quarter of next year. That'll 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 gonna be the big benefit to us.
Okay. Thank you.
Thanks, Brandon.
Your next question comes from the line of Catherine O'Brien from Goldman Sachs. Your line is now open.
Hey, good afternoon, everyone.
Hey, Cathie.
Hey, guys. I might stick on this cost question. You know, I'm sure the 30% increase in block hours helped drive efficiencies across fixed costs. You do have the new pilot contract, and you just said one of the biggest productivity offsets isn't coming till next year, but you still saw cost ex fuel on a per block hour basis down 6% from 2019. Could you just give us some more color on, like, what line items are helping you drive that result? Thanks.
I mean, there's a few things. One is just we're bigger, so we're spreading costs, you know, overhead over more block hours, you know, which is also reflected in our CASM number. We've done a lot of work, as we've talked about a number of times here on the fleet front over the last few years and driven our ownership costs, you know, which is one of our biggest cost items, clearly, down significantly in excess of 25% over the last several years. That's bearing fruit. We've taken our distribution costs down through a number of initiatives that we've sort of had in work. It's really sort of all over the map. We're working hard on reducing our maintenance costs.
We've got an active program now, buying green-time engines as opposed to expensive overhauls, which is another benefit of our older fleet strategy. It's items like that.
Got it. Is there maybe just as we think about, you know, I think you said over the next year, you're gonna keep growing, like, 20% plus just with the aircraft you've got. Locked in. Should we continue to see that? Obviously, I know it's a little lumpy quarter to quarter, but just in general, like the versus 19, should we continue to see that, you know, the efficiency build versus 19? To drive that cost even lower, just, you know, we've got PBS on the horizon, a couple other things, and then obviously more overhead spread.
I mean, I can't give you the exact numbers in the quarters ahead, but all those concepts are absolutely still there. Particularly as we continue to grow and add flying, we'll continue to spread our costs out over more block hours.
I think the input is fuel that we don't know and how that affects ex-fuel CASM is that we will cut out some flying, you know, and grow less fast if fuel doesn't mean revert.
That's the big wild card. You know, as we've talked about before, we're very targeted in where we fly. We do it economically. We don't fly when we can't make money. You know, part of it is our growth is gonna be tempered by both staffing as well as, you know, fuel costs.
Got it. That makes sense. Maybe just one quick last one on a related just kind of going on, pulling on the same string. You know, as you said, fuel is obviously significantly higher than in 2019 and anyone's best guess where we're at next year. Just as we think about some of the changes to the business, I would think they would improve your run rate profitability, you know, adding the cargo business. I understand, you know, pilot costs maybe took a little bite out of margins this year, but that improves going forward. You know, while charter block hours are lower, your revenue per charter block hour is higher, you know, some of these new contracts.
Do you think as we get to the back half of the year, we could see margins surpass 2019 levels if fuel and demand stay relatively stable to where they are today? Thanks for all the time, gents.
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, we'll lead the industry.
Very clear, Jude. Thank you.
Yep.
Your next question comes to the line of Scott Group from Wolfe Research. Your line is now open.
Thanks. Afternoon, guys.
Scott.
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, longer term?
I wanna be careful here because we just launched a new product called the Passenger Interface Charge, which is gonna displace fare pretty substantially. The ancillary products that are most relevant are ones that are accreted to total revenue per passenger, and we think we have about $5-$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 gonna be really effective. What you're gonna see in our financials, just to warn you, is you know, pretty rapid acceleration of our ancillary revenue per passenger because of that PIC, and that's just gonna be a displacement of the airfare. You know, we're probably gonna finish you know, over $60.
You're saying a lot of that is just a shift from one to the other.
You know, all the ULCCs have a product like that, and we're doing one. That's all that it is. You just need to 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, you know. If you think about the stack of ancillary products, bag fees, people kind of expect to have to bring a bag, and therefore it's priced into the airfare. Seat assignment, a little less, so you don't have to buy one. Onboard sales, completely irrelevant to the airfare. Third-party product sales, you're gonna buy anyway. Those are totally accretive. You know, there's a spectrum of incremental value associated with the product categories. The PIC, I think Allegiant calls it a Carrier Usage Charge.
It's a CIC, Carrier 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, the sort of objective here is obviously accretive to total revenue. You know, we've talked about $3-$5 of upside in sort of truly accretive stuff. You know, yield management of seat pricing, getting more heavily involved in third-party products which we started doing in the rental car business. That's sort of coming down the road as well.
Okay. I know the follow-up on the Amazon cargo question from earlier. I get no change in the business today. Does Amazon maybe having some excess capacity in the network change your timing of when you could get additional aircraft in your mind?
We've remained 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.
Okay. Just lastly, as we're seeing a little bit of an uptick in cases, you seeing any changes in the demand environment, as cases move up a little higher?
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. 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. The capacity backdrop in the U.S. looks really accretive. You know, you're gonna pay a lot to travel because there's not enough seats out there. I can't imagine it turning around anytime soon.
Okay. Thank you, guys. Appreciate the time.
Thanks, Scott.
Again, everyone, if you have questions, please press star one on your telephone keypad. Again, that's star then the number one on your telephone. Your next question comes from the line of Mike Linenberg from Deutsche Bank. Your line is now open.
Hi, Mike.
Hey, good afternoon, guys. I guess just a quick one here on fuel, Dave. $3.50 per gallon, presumably that's the strip. What's the date? 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.
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.
Okay.
You know, we think cracks are gonna come in. You know, 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, a significantly higher fuel price than comps. That's because the majority, as compared to them, more of our flying happened in March when fuel was higher.
Which is, you know, that's our business plan. The same exists in the second quarter, where we're gonna be really heavy in June relative to the other 2 months of the quarter. You know, it's the reverse in the third quarter, et cetera.
Okay. No, that's helpful. Then, you know, this last quarter, I mean, you did make a pretty meaningful shift to your scheduled capacity. It's. Look, it's the right thing. I mean, you know, pulling down things like Minneapolis to Fairbanks and obviously West Coast, Hawaii. I mean, you know, it starts getting really expensive, Jude, as you said, some of these longer haul flights and given the fact that, you know, you're carrying fuel, you know, to carry the fuel to get you to that destination with these seven threes. I'm curious, you know, 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 gonna 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. It's not just airplanes, but I guess it's shifting pilots from scheduled maybe to backfill pilots on reserve at the charter or at the cargo business.
Let me first just talk about pilots. I mean, our pilot group supports all lines of flying always. We integrated in particular trips and we have a single crew base, and they go out and fly sched, and then they may fly a charter, and then they may fly a cargo, and then all in one trip.
It's very integrated, and that gives us a lot of the efficiencies. 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 a third of what it is in March and September. You know, and then there's all the variations of that inputs associated with the yield environment or fuel prices or anything else, competitive backdrop, aggressive or benign or whatever. I think over time, we're gonna kinda correct into that place where it's about 75, 25, sched versus charter and cargo, which basically operate the same in our business. Grant, if you had anything else?
Hi, Mike, this is Grant. All I would say is the team does a really good job of optimizing based on forecasted best margins. If you would've 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. 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. You'll see a little bit of reduction there, but still executing and operating at a high level for our biggest customers. You know, this team does a really good job of optimizing to drive the most amount of value.
Very good. Thanks. Thanks for your time, everyone.
Thanks, Mike.
Thanks, Mike.
Your next question comes to the line of Chris Stathoulopoulos from Susquehanna. Your line is now open.
Hey, good afternoon. Thanks for taking my question. I just wanna get to this, demand or, perhaps, travel outlook in a different way. Mask mandate's off here, summer travel around the corner. If you could give some color with respect to what the 0-60 day booking window looks like and how does it compare to this time last year, and then let's say 3-5 years on average pre-pandemic. Further out, let's say 60+ days. Are you having to stimulate, discount, excuse me, to stimulate demand, or is marketing and whatever you normally do around with your RMS teams sufficient to fill out your, kind of required load factors into the second half? Thank you.
Hey, Chris. Let me make a couple general comments and I'll throw it over to Grant. Right now we're not doing any stimulus pricing. If there's low prices in a flight, it's cut. We just won't fly it. You know, 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 gonna react to the new environment. Mid-February is when we saw the change in booking behavior and demand really recovered strongly.
You know, we just came through COVID with all its ups and downs, and I'd probably give us a grace of about two weeks to the end of February to kinda, all right, this is real and different and good, where we would say, "Okay, now we're pricing in the new environment." You know, we had sold in the second quarter about a third of our segments by the end of February with two-thirds yet to be priced into the new environment, and it's about 15% at the third quarter. Yields will go up just because more of the seats will be sold into the new environment. Of fares sold post March first, it's kind of on a year-over-year basis, you know, high, but like steady.
The days out of bookings are basically what they were back in the day. It's just, you know, back in 2019, it's just we're selling a lot higher fares. Fares up, you know, I would say like 50%. I mean, it's a big move. One other comment is that, you know, fares are on a heuristic algorithm, so, you know, booking activity creates higher fares by nature. You know, so our algorithms just sort of naturally adjust, and so we're able to take advantage of it even in advance of kinda realigning our expectations.
Grant, anything to add?
No, the only thing I would add to that, Jude, is the team. 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's sentiment. When we put schedules out, we absolutely expect every flight to drive value for the airline. We're 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 Sun Country.
Great. Good call. Thanks for the time.
Thanks, Chris.
Your next question comes to the line of Duane Pfennigwerth from Evercore. Your line is now open.
Thank you for the follow-up. When we look at kinda the model historically in scheduled service, you've had good, you know, 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. Just given how tight you are with capacity right now, actively deciding to be tight with capacity, should we be thinking about, you know, 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 wanna highlight a couple 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, you know, your first round trip to Central America, the plane's full down but empty back 'cause nobody was able to fly down and be on that return flight. So, you know, I would say probably our steady-state load factors is a touch lower than what you would expect to see in Southwest, for example.
But we do cater the schedule to fly when people wanna fly. A lot of the value or the unit revenue increases are certainly gonna come through fare. It's really, you know, the team's doing a good job getting people on the airplane. We fly when people wanna fly, so we're getting the ancillary benefit from that as well. If you do sort of take a step down into the depths of where we're allocating capacity, we're still doing that in a very strategic way. 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. Feel really good about how things are coming in for us.
Helpful. Thank you.
Thanks, Duane.
All right. I am showing no further questions at this time. I would 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.
This concludes today's conference call. Thank you all for your participation. You may now disconnect.