Sun Country's New Owners Plan Growth

Nov. 3, 2006
Tom Petters and others outlined the airline's plans to fly more often to existing destinations, then add new ones.

More flights, more travel destinations and more airplanes are on the horizon for Sun Country Airlines, which on Tuesday got new owners who want to capitalize on the low-fare airline's reputation for excellent service.

Tom Petters, the new chairman of Sun Country Airlines, was greeted with applause and cheers Tuesday morning in the airline's hangar as he introduced himself to Sun Country's workforce.

The festive atmosphere was in stark contrast to the mood at many airlines, including Northwest and Mesaba, where employees have been locked in protracted labor struggles.

"You're happy, and you're people that show that," Petters said. That devotion to customer service, he said, earned Sun Country a ranking as the No. 3 domestic airline in Travel + Leisure magazine.

The ranking is behind JetBlue and Midwest Airlines but ahead of Southwest and Frontier.

Petters Group Worldwide of Minnetonka and Whitebox Advisors, an investment firm in Minneapolis, acquired Sun Country in a deal that closed Monday night. Terms of the deal were not disclosed, but Whitebox CEO Andy Redleaf said the new owners are involved in a 50-50 partnership from financial and management perspectives.

"We do intend to grow [Sun Country], no doubt about it," Petters said, but the airline's management and owners did not say how many airplanes they will acquire or which cities they will add to Sun Country's schedule.

For its busy winter season, Sun Country will be operating 13 Boeing 737-800s. The airline now flies to 21 U.S. cities and 12 international destinations in warm-weather climates, such as Mazatlan and Puerto Vallarta, both in Mexico.

"The biggest complaint I get about Sun Country is that we don't fly to enough places enough times," Sun Country CEO Shaun Nugent said.

The new owners are providing capital to expand Sun Country's fleet. That will allow the carrier initially to fly more frequently to major destinations. Then Nugent said Sun Country will "expand into new routes opportunistically."

While Mendota Heights-based Sun Country has many cities on its schedule that it serves only during the winter months, it flies to 13 cities all year.

Terry Trippler, a Minneapolis-based airline expert for myvacationpassport.com, said New York, San Francisco and Los Angeles are markets where Sun Country could increase its flight frequencies.

For some East Coast and Midwest destinations, Trippler said, "business travelers would like to get in and out of a city in one day." Those traveling to California from the Twin Cities also want more flights to choose from.

Competing with Northwest

In 2005, Sun Country transported 1.6 million passengers and generated revenue of $204 million.

This year, Nugent expects its revenue to reach about $235 million, but it's still a small airline when compared to Northwest Airlines, which could have revenue of more than $12 billion this year.

In the late 1990s, Sun Country was purchased by Bill La Macchia of Milwaukee, and the airline piled up huge debts as it expanded its fleet and tried to compete with Northwest for business travelers.

Sun Country ended up in bankruptcy in early 2002. The company then was rebuilt by an investor group led by Twin Cities businessman and lawyer Robert Daly, who this week sold the company to the Petters-Whitebox partnership.

The old Sun Country slashed fares and took an "in-your-face" approach toward Northwest, Trippler said. "Right now, there is room for Sun Country and Northwest in this town. The big difference this time is that Northwest knows it."

Nugent, who will remain chief executive under the new ownership, said: "Our objective is not to compete against Northwest." He explained, "There is a huge marketplace for the flying public that wants our product." Sun Country does not reduce fares to bargain-basement levels to gain market share. "We'll continue to price our product in a way that ensures that we cover our costs and provide a return on capital to our shareholders," he said.

Sun Country now flies to many of the largest metropolitan areas in the United States. In addition, to New York, Los Angeles and San Francisco, Sun Country's schedule includes Dallas, Denver, Seattle and San Diego.

The airline industry is highly competitive, and Sun Country's revenue stream is cyclical with the seasons. The first quarter historically is Sun Country's best period, and this year Sun Country produced a profit of $5.5 million. The airline lost $1.8 million in the second quarter, and it has had to cope with high fuel prices as have other carriers.

On Tuesday, Petters distributed baseball caps to the Sun Country employees, and they donned them much like champion athletes. "This is who you are," Petters said. "Most valuable players."

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