UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Securities registered pursuant to Section 12(b) of the Act:
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Yes
Number of shares outstanding by each class of common stock, as of June 30, 2021:
Common Stock, $0.01 par value –
Sun Country Airlines Holdings, Inc.
Form 10-Q
Table of Contents
- 2 -
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| June 30, 2021 |
| December 31, 2020 | |||
(Unaudited) | ||||||
ASSETS |
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Current Assets: |
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Cash and Equivalents | $ | | $ | | ||
Restricted Cash |
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Investments |
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Accounts Receivable, net of an allowance for credit losses of $ |
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Short-term Lessor Maintenance Deposits |
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Inventory, net of a reserve for obsolescence of $ |
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Prepaid Expenses |
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Derivative Assets |
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Other Current Assets |
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Total Current Assets |
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Property & Equipment, net: |
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Aircraft and Flight Equipment |
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Leasehold Improvements and Ground Equipment |
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Computer Hardware and Software |
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Finance Lease Assets |
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Rotable Parts |
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Property & Equipment |
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Accumulated Depreciation & Amortization |
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Total Property & Equipment, net |
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Other Assets: |
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Goodwill |
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Other Intangible Assets, net |
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Operating Lease Right-of-use Assets |
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Aircraft Lease Deposits |
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Long-term Lessor Maintenance Deposits |
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Deferred Tax Asset |
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Other Assets |
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Total Other Assets |
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Total Assets | $ | | $ | |
See accompanying Notes to Condensed Consolidated Financial Statements
- 3 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| June 30, 2021 |
| December 31, 2020 | |||
(Unaudited) | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current Liabilities: |
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Accounts Payable | $ | | $ | | ||
Accrued Salaries, Wages, and Benefits |
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Accrued Transportation Taxes |
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Air Traffic Liabilities |
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Derivative Liabilities |
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Over-market Liabilities |
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Finance Lease Obligations |
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Loyalty Program Liabilities |
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Operating Lease Obligations |
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Current Maturities of Long-term Debt |
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Other Current Liabilities |
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Total Current Liabilities |
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Long-term Liabilities: |
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Over-market Liabilities |
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Finance Lease Obligations |
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Loyalty Program Liabilities |
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Operating Lease Obligations |
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Long-term Debt |
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Income Tax Receivable Agreement Liability |
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Other Long-term Liabilities |
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Total Long-term Liabilities |
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Total Liabilities |
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Commitments and Contingencies |
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Stockholders' Equity: |
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Common Stock |
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Common stock with $ |
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Loans to Stockholders |
| — |
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Additional Paid In Capital |
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Retained Earnings (Deficit) |
| ( |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity | $ | | $ | |
See accompanying Notes to Condensed Consolidated Financial Statements
- 4 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Operating Revenues: |
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Passenger | $ | | $ | | $ | | $ | | ||||
Cargo |
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Other |
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Total Operating Revenue |
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Operating Expenses: |
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Aircraft Fuel |
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Salaries, Wages, and Benefits |
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Aircraft Rent |
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Maintenance |
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Sales and Marketing |
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Depreciation and Amortization |
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Ground Handling |
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Landing Fees and Airport Rent |
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Special Items, net |
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Other Operating, net |
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Total Operating Expenses |
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Operating Income (Loss) |
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Non-operating Income (Expense): |
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Interest Income |
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Interest Expense |
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Other, net |
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Total Non-operating Income (Expense), net |
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Income (Loss) before Income Tax |
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Income Tax Expense (Benefit) |
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Net Income (Loss) | $ | | $ | ( | $ | | $ | | ||||
Net Income (Loss) per share to common stockholders: |
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Basic | $ | | $ | ( | $ | | $ | | ||||
Diluted | $ | | $ | ( | $ | | $ | | ||||
Shares used for computation: |
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Basic |
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Diluted |
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See accompanying Notes to Condensed Consolidated Financial Statements
- 5 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30, 2020 | |||||||||||||||||||
Common Stock | Loans to | Additional | Retained | ||||||||||||||||
| Warrants |
| Shares |
| Amount |
| Stockholders |
| Paid-in Capital |
| Earnings |
| Total | ||||||
December 31, 2019 |
| |
| | $ | | $ | ( | $ | | $ | | $ | | |||||
Exercise of Apollo Warrants |
| ( |
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| — |
| ( |
| — |
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Net Income |
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| — |
| — |
| — |
| — |
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Stock-based Compensation | — | — | — | — | | — | | ||||||||||||
March 31, 2020 | — | | $ | | $ | ( | $ | | $ | | $ | | |||||||
Net Loss | — | — | — | — | — | ( | ( | ||||||||||||
Stock-based Compensation |
| — |
| — |
| — |
| — |
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| — |
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June 30, 2020 |
| — |
| | $ | | $ | ( | $ | | $ | | $ | |
Six Months Ended June 30, 2021 | |||||||||||||||||||
Retained | |||||||||||||||||||
| Common Stock | Loans to |
| Additional |
| Earnings | |||||||||||||
Warrants |
| Shares |
| Amount |
| Stockholders | Paid-in Capital | (Deficit) |
| Total | |||||||||
December 31, 2020 |
| — |
| | $ | | $ | ( | $ | | $ | | $ | | |||||
Shares Surrendered by Stockholders |
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Initial Public Offering |
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Net Income |
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Income Tax Receivable Agreement |
| — |
| — |
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| ( |
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Amazon Warrants |
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Stock-based Compensation |
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March 31, 2021 | — | | $ | | $ | — | $ | | $ | ( | $ | | |||||||
Initial Public Offering Expense Adjustment | — | — | — | — | | — | | ||||||||||||
Exercise of Stock Options | — | | — | — | | — | | ||||||||||||
Net Income | — | — | — | — | — | | | ||||||||||||
Amazon Warrants | — | — | — | — | | — | | ||||||||||||
Stock-based Compensation | — | — | — | — | | — | | ||||||||||||
June 30, 2021 |
| — |
| | $ | | $ | — | $ | | $ | ( | $ | |
See accompanying Notes to Condensed Consolidated Financial Statements
- 6 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Six Months Ended June 30, | |||||
| 2021 |
| 2020 | |||
Net Income | $ | | $ | | ||
Adjustments to reconcile Net Income to Cash from Operating Activities: |
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Depreciation and Amortization |
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Tax Receivable Agreement Adjustment | ( | — | ||||
Reduction in Operating Lease Right-of-use Assets |
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Non-Cash (Gain) Loss on Asset Transactions, net |
| ( |
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Unrealized (Gain) Loss on Fuel Derivatives |
| ( |
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Amortization of Over-market Liabilities |
| ( |
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Deferred Income Taxes |
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Amazon Warrants Vested |
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Stock-based Compensation Expense |
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Amortization of Debt Issuance Costs |
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Changes in Operating Assets and Liabilities: |
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Accounts Receivable |
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Inventory |
| ( |
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Prepaid Expenses |
| ( |
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Lessor Maintenance Deposits |
| ( |
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Aircraft Lease Deposits |
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Other Assets |
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Accounts Payable |
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Accrued Transportation Taxes |
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Air Traffic Liabilities |
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Loyalty Program Liabilities |
| ( |
| ( | ||
Reduction in Operating Lease Obligations |
| ( |
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Other Liabilities |
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Net Cash Provided by (Used in) Operating Activities |
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Cash Flows from Investing Activities: |
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Purchases of Property & Equipment |
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Purchase of Investments |
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Proceeds from the Sale of Investments |
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Net Cash Used in Investing Activities |
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Cash Flows from Financing Activities: |
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Cash Received from Stock Offering |
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Costs of Stock Offering |
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Proceeds from Stock Option and Warrant Exercises |
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Proceeds from Borrowings |
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Repayment of Finance Lease Obligations |
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Repayment of Borrowings |
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Debt Issuance Costs |
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Net Cash Provided by Financing Activities |
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Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash |
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Cash, Cash Equivalents and Restricted Cash--Beginning of the Period |
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Cash, Cash Equivalents and Restricted Cash--End of the Period | $ | | $ | | ||
Supplemental information: |
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Cash Payments for Interest | $ | | $ | | ||
Cash Payments (Receipts) for Income Taxes, net | $ | | $ | ( | ||
Non-cash transactions: |
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Lease Deposits Applied Against the Purchase of Aircraft | $ | | $ | — | ||
Aircraft and Flight Equipment Acquired through Finance Leases | $ | | $ | — | ||
Purchases of Property & Equipment in Accounts Payable | $ | — | $ | | ||
Costs of Stock Offering in Accounts Payable | $ | | $ | — | ||
The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Consolidated Balance Sheets: | ||||||
June 30, 2021 | June 30, 2020 | |||||
Cash and Equivalents | $ | | $ | | ||
Restricted Cash |
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Total Cash, Cash Equivalents and Restricted Cash | $ | | $ | |
See accompanying Notes to Condensed Consolidated Financial Statements
- 7 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1. | COMPANY BACKGROUND |
Sun Country Airlines Holdings, Inc. is the parent company of Sun Country, Inc., which is a certificated air carrier providing scheduled passenger service, air cargo service, charter air transportation and related services. Services are provided to the general public, cargo customers, military branches, wholesale tour operators, individual entities, schools and companies for air transportation to various U.S. and international destinations. Except as otherwise stated, the financial information, accounting policies, and activities of Sun Country Airlines Holdings, Inc. are referred to as those of the Company (the “Company” or “Sun Country”).
Stock Split
In March 2021, the Company effected an approximately
Approval of the Omnibus Incentive Plan
In March 2021, the stockholders approved the Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan (the “Plan”). The Plan authorizes that no more than
Upon implementation of this new Plan, there were
Initial Public Offering of Common Stock and Other Stock Sales
On March 16, 2021, the Company priced its initial public offering of
Concurrently with the closing of the initial public offering, SCA Horus Holdings, LLC, an affiliate of investment funds managed by affiliates of Apollo Global Management (the “Apollo Stockholder”), also completed a concurrent private placement in which the Apollo Stockholder sold
- 8 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
aggregate purchase price of $
In May 2021, the Apollo Stockholder sold
Amazon Agreement
On December 13, 2019, the Company signed a
In December 2019, in connection with the ATSA, the Company issued warrants to Amazon to purchase an aggregate of up to
2. | BASIS OF PRESENTATION |
The accompanying unaudited Condensed Consolidated Financial Statements of Sun Country Airlines Holdings, Inc. should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report for the year ended December 31, 2020, which is included in the Company’s Final Prospectus dated March 16, 2021. During the six months ended June 30, 2021, there were no significant changes to the Company’s critical accounting policies.
Certain prior period Stockholders’ Equity amounts were reclassified to conform to the current period presentation. This involved reducing the Common Stock values to $
Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited Condensed Consolidated Financial Statements for the interim periods presented. All material intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make certain
- 9 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Significant areas of judgment relate to passenger revenue recognition, maintenance under the built-in overhaul method, equity-based compensation, tax receivable agreement, lease accounting, impairment of goodwill, impairment of long-lived and intangible assets, air traffic liabilities, the loyalty program, as well as the valuation of Amazon warrants.
Due to severe impacts from the global coronavirus (“COVID-19”) pandemic, seasonal variations in the demand for air travel, the volatility of aircraft fuel prices and other factors, operating results for the three and six months ended June 30, 2021 are not necessarily indicative of operating results for future quarters or for the year ended December 31, 2021. Air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers, unemployment levels, corporate travel budgets, extreme or severe weather and natural disasters, disease outbreaks, fears of terrorism or war, and other factors beyond the Company’s control.
The Company operates its fiscal year on a calendar year basis.
Recently Adopted Accounting Standards
Income Taxes-Simplifying the Accounting for Income Taxes - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions related to the approach for intraperiod tax allocation, recognizing deferred tax liabilities for outside basis differences, and calculating income taxes in interim periods. The guidance also reduces complexity in certain areas, including franchise taxes that are partially based on income and accounting for tax law changes in interim periods. The standard was adopted prospectively effective January 1, 2021 and it did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
3. | IMPACT OF THE COVID-19 PANDEMIC |
On March 11, 2020 the World Health Organization declared COVID-19 a global pandemic causing a massive market disruption to the aviation industry. While U.S. domestic passenger volumes have increased to date, those levels are still down when compared to the same time frame in 2019. The growth in the U.S. domestic air traffic since the trough in April 2020 has been led by leisure and visiting family and relatives (“VFR”) travelers as business travel remains more subdued with corporate workforces continuing to “work-from-home” and in-person meetings continuing to be conducted via videoconferencing and other virtual channels. Equity research analysts and other industry executives believe that the positive trends in leisure and VFR travel will continue as COVID-19 vaccines continue to become more widely distributed in 2021. COVID-19 vaccines have become widely available in the US according to the Centers for Disease Control and Prevention (“the CDC”). The initial beneficiaries of the travel rebound are expected to be leisure and VFR focused Low-Cost Carriers (“LCCs”) and Ultra Low-Cost Carriers (“ULCCs”), while the more international and business travel exposed legacy network airlines are expected to lag behind.
As COVID-19 has spread globally, many countries have imposed strict international travel restrictions. The U.S. market has recovered markedly faster than most other countries as a result of widespread vaccine distribution igniting the leisure travel recovery. However, given the uncertainty regarding COVID-19 variants, including but not limited to the Delta variant, the demand recovery may be impacted in both international and domestic travel.
- 10 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Since the beginning of the COVID-19 pandemic, the air cargo market has experienced solid growth both in terms of volumes and yields. While the pandemic has caused a worldwide economic recession, e-commerce has thrived due to a variety of factors such as consumers being unable or unwilling to visit brick-and-mortar stores due to social distancing, which translated into an acceleration of secular growth in e-commerce. Air cargo operators have been in a unique position to meet e-commerce demands that require a high level of speed, reliability and security.
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
On March 27, 2020, the CARES Act was passed by the U.S. Government. The provisions in the act provide for economic relief to eligible individuals and businesses affected by COVID-19. As a provider of scheduled passenger service, air cargo service, charter air transportation and related services, the Company is eligible for and has received certain benefits outlined in the CARES Act including but not limited to payroll tax breaks, government grants and government loans.
The grant amount recognized under the CARES Act Payroll Support Program for the year ended December 31, 2020 was $
Further, in the second quarter, the Company received a grant of $
The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”) which is a refundable tax credit against certain employment taxes. During the year ended December 31, 2020, the Company recorded $
Under the CARES Act Loan Program, the Company received a $
In accordance with any grants and/or loans received under the CARES Act, the Company is required to comply with the relevant provisions of the CARES Act and the related implementing agreements which, among other things, include the following: the requirement to use the Payroll Support Payments exclusively for the continuation of payment of crewmember and employee wages, salaries and benefits; the requirement that certain levels of commercial air service be maintained until March 1, 2021, or if ordered by the DOT, March 1, 2022; the prohibitions on share repurchases of listed securities and the payment of common stock (or equivalent) dividends until September 30, 2022; and restrictions on the payment of certain executive compensation until April 1, 2023.
- 11 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
4. | REVENUE |
Sun Country is a certificated air carrier generating Operating Revenues from Scheduled service, Charter service, Ancillary, Cargo and Other revenue. Scheduled service revenue mainly consists of base fares. Charter service revenue is primarily generated through service provided to the U.S. Department of Defense, collegiate and professional sports teams and casinos. Ancillary revenues consist of revenue earned from air travel-related services such as baggage fees, seat selection fees and on-board sales. Cargo consists of revenue earned from flying cargo aircraft under the ATSA. Other revenue consists primarily of revenue from services in connection with Sun Country Vacation products.
The significant categories comprising Operating Revenues are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Scheduled service | $ | | $ | | $ | | $ | | ||||
Charter service |
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Ancillary |
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Passenger |
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Cargo |
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Other |
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Total Operating Revenue | $ | | $ | | $ | | $ | |
The Company attributes and measures its Operating Revenue by geographic region as defined by the Department of Transportation for airline reporting based upon the origin of each passenger and cargo flight segment.
The Company’s operations are highly concentrated in the U.S. but include service to many international locations, primarily based on scheduled service to Latin America during the winter season and on military charter services.
Total Operating Revenue by geographic region are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||||
Domestic | $ | |
| $ | | $ | |
| $ | | ||
Latin America |
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Other |
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Total Operating Revenue | $ | |
| $ | | $ | |
| $ | |
Contract Balances
The Company’s contract assets primarily relate to costs incurred to get the
- 12 -
SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company’s significant contract liabilities are comprised of 1) ticket sales for transportation that has not yet been provided (reported as Air Traffic Liabilities on the Condensed Consolidated Balance Sheets), 2) outstanding loyalty points that may be redeemed for future travel and other non-air travel awards (reported as Loyalty Program Liabilities on the Condensed Consolidated Balance Sheets) and 3) the Amazon Deferred Up-front Payment received (reported within Other Liabilities on the Condensed Consolidated Balance Sheets).
Contract Assets and Liabilities are as follows:
| June 30, 2021 |
| December 31, 2020 | |||
Contract Assets |
|
| ||||
Costs to fulfill contract with Amazon | $ | | $ | | ||
Air Traffic Liabilities | $ | | $ | | ||
Loyalty Program Liabilities |
| |
| | ||
Amazon Deferred Up-front Payment |
| |
| | ||
Total Contract Liabilities | $ | | $ | |
The balance in the Air Traffic Liabilities fluctuates with seasonal travel patterns. Most tickets can be purchased no more than
As part of the ATSA executed in December 2019, Amazon paid the Company $
Loyalty Program
The Sun Country Rewards program provides loyalty awards to program members based on accumulated loyalty points. Loyalty points are earned as a result of travel and purchases using the Company’s co- branded credit card. The balance of the Loyalty Program Liabilities fluctuates based on seasonal patterns, which impact the volume of loyalty points awarded through travel or issued to co-branded credit card and other partners (deferral of revenue) and loyalty points redeemed (recognition of revenue).
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SUN COUNTRY AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Changes in the Loyalty Program Liabilities are as follows:
| 2021 |
| 2020 | |||
Balance - January 1 | $ | | $ | | ||
Loyalty Points Earned |
| |
| | ||
Loyalty Points Redeemed(1) |
| ( |
| ( | ||
Balance - June 30 | $ | | $ | |
(1) | Principally relates to revenue recognized from the redemption of loyalty points for both air and non-air travel awards. Loyalty points are combined in one homogenous pool and are not separately identifiable. As such, the revenue recognized is comprised of points that were part of the Loyalty Program Liabilities balance at the beginning of the period, as well as points that were earned during the period. |
The timing of loyalty point redemptions can vary significantly, however most new points, that are not left to expire, are redeemed within