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Dave Davis

Thanks, Jude. We're pleased to report that Q4 was our 10th consecutive quarter of profitability. Both total revenue of $260.4 million and adjusted operating margin of 10.6% were the highest on record for Sun Country. With the exception of the second quarter of 2022 on an adjusted net income basis. We've been profitable in every quarter since our IPO in March of 2021. Additionally, 2024 was our fourth consecutive full year of profitability. Total revenue of $1.08 billion was our highest full-year on record driven by strong revenues in the charter line of business and the cargo segment operating margin for the year was 9.9%. And adjusted operating margin was 10.4%. Adjusted diluted EPS for the year was $1.05.
These results speak directly to the resilience of the uniquely diversified Sun Country model. Industry overcapacity prevailed through much of 2024. But the capacity picture changed quickly in Q4 and we were very active in adjusting scheduled service capacity to match demand. While scheduled service ASMs in the first half of the year grew 17%, we trimmed growth in the second half of the year to less than 5%.
Despite the significant removal and scheduled service flying, we're still able to hold growth and adjusted CASM to only 1.3% for the year. Unit revenues rebounded in the second half of the year as Q4 scheduled service TRASM was down only 1% on 3.5% growth in scheduled service ASMs. As industry capacity continues to rationalize, we're seeing a stronger pricing environment into Q1 of '25.
I'll now turn to the specifics of the fourth quarter. First to revenue and capacity. Fourth quarter total revenue of $260.4 million was 6.1% higher than last year. Revenue for our passenger segment, which includes our scheduled service and charter businesses, grew 2.2% year-over-year. Average scheduled service fare also grew 2.2% year-over-year to $159.88. Scheduled service TRASM steadily improved during the quarter with December up 5.8% year-over-year. As we turn our focus to Q1 '25, we're expecting scheduled service unit revenues to be roughly flat with Q1 of '24 and 7% growth on sched service ASMs.
Charter revenue in the fourth quarter grew 2.3% to $48 million and 5% growth in charter block hours. As a reminder, a portion of charter revenue is a reconciliation of fuel expense caused by the variance of fuel prices to the amount specified in our longer term charter contracts. As Q4 fuel prices were down 20%, we received less revenue tied to fuel reconciliation. Excluding this fuel reconciliation, Q4 charter revenue grew approximately 10% over last year. Ad hoc charter revenue growth was also significant as we saw it increase by 27% in the quarter versus last year. Excluding the fuel reconciliation, Q4 charter revenue per block hour was up 4.6% versus Q4 of '24.
For our cargo segment, revenue grew by 13.1% in Q4 to $28.6 million which was an all-time quarterly high. This growth came despite a 2.5% decrease in cargo block hours. Q4 cargo revenue per block hour was up 16% driven by the impact of a portion of the rate changes implicit in our extended Amazon agreement as well as annual rate adjustments. We continue to expect cargo flying to reflect sharply upward in 2025 as we take on an anticipated eight additional freighter aircraft throughout the year. One of the freighters has already been delivered and we expect it to enter service in late Q1. The revised Amazon contract rates will continue to escalate as we receive additional aircraft and will not be in full effect until the second half of 2025.
Turning now to costs. Q4 total operating expense grew 2.6% and 2.7% growth in total block hours. We continue to remain well-disciplined as demonstrated by full-year 2024 adjusted CASM, only increasing by 1.3% versus 2023. For full-year 2025, we expect our ex-fuel operating expenses to grow in line with our total block hours which are expected to increase between 9% and 10% versus full-year 2024. As a reminder, our eight additional Amazon aircraft will drive most of the growth in 2025. And we expect full- year scheduled service ASMs to decline between 3% and 5%, with the reductions occurring in Q2 through Q4.
The lower ASM productions will put pressure on adjusted CASM which we currently anticipate to increase mid to high single digits in 2025. This decline will happen from Q2 through the rest of 2025 as we are anticipating scheduled service revenue growth in Q1.
Regarding our balance sheet, our total liquidity at the end of the year was $205.6 million. As of February 3, total liquidity stood at $226.7 million. Full-year 2024 CapEx was $88 million which includes the acquisition of three aircraft previously on finance leases. At this point, we do not need to purchase any incremental aircraft until we begin looking for 2027 or 2028 capacity. We expect 2025 CapEx to be between $70 millionand $80 million, with much of this spend on spare engines.
During the quarter, we appended a new C tranche to our existing 2019 double ETC, raising $60 million. This was used to pay down a significant portion of the term loan financing our five 737-900ER aircraft. This is expected to drive savings of approximately $800,000 in 2025 interest expense. Our leverage continues to improve, and we finished 2024 with a net debt-to-adjusted EBITDA ratio of 2 times. Additionally, we have extended the lease return dates on three of the four 737-900ERs currently on lease to another carrier. The four aircraft are now expected to return to us in May, September, and November of 2025, and in November of 2026. We have one 737-900ER returned to us in November 2024, and we expect this aircraft to enter revenue service in mid-'25. These extensions provide continued lease revenues as we focus our 2025 growth on our cargo business. As the leased 737-900ERs return to us, they'll provide the passenger service growth we expect in '26 and '27.
Let me turn now to guidance. We expect first quarter total revenue to be between $330 million and $340 million. Block hour growth 7% to 9%. We're anticipating our fuel cost per gallon to be $2.76. And for us to achieve an operating margin between 17% and 21%. Our business is built for resiliency and we'll continue to allocate capacity between segments to maximize profitability and minimize earnings volatility.
With that, we'll open it up for questions.

Question and Answer Session

Operator

(Operator Instructions) We ask you, please limit to one question and one follow-up. One moment while we process the roster.
Ravi Shanker, Morgan Stanley.

Ravi Shanker

Great. Thank you. Good morning, A couple here just to kick off. There's been some commentary on other airline calls about just strength in Europe in the first quarter. Just unusual, probably run by FX and such. How does that kind of impact you, guys? Does it kind of help with feeder? Does it potentially redirect some traffic away from domestic winter destinations to Europe, just obviously given how important 1Q is for you, guys?

Jude Bricker

I'll just start with the obvious. We don't fly there. So I think the secondary effect is that there's a reallocation of capacity into the Transatlantic market that positively affects us. We're selling really well in the Mexican-Caribbean destinations. It certainly doesn't appear that there's a shift in demand out of those markets into the Transatlantic market. So I think on the whole, it's a positive. I mean, we would like to see strength everywhere for US airlines. There's no downside risk there.

Ravi Shanker

Got it. That's really helpful. And yes, I was referring to the indirect impact. And maybe as a follow-up, Dave, thanks, to the specific guidance there. But can you just help us, given the moving parts here, frame the trajectory of of margin and CASM evolution through the year, please?

Dave Davis

Yeah. I think the seasonal profile of the company, first quarter we expect to be really strong. We gave guidance. I think as revenues come in, we're very confident in that guidance. I think we'll follow a typical seasonal pattern. A lot of how the year plays out is going to be driven by the exact delivery dates of the Amazon cargo aircraft. We expect them to start service in March. And then enter service throughout the year. They should all be in by late summer into the fourth quarter. But I don't see anything abnormal from a seasonal profitability perspective for the company.

Jude Bricker

One thing of note would be that the things that we were dealing with last year primarily were competitive encroachment into our network and that negatively affected the second and third quarters the most. As you can see, in the fourth quarter, we did quite well, the best we've ever done in the fourth quarter. And that variance, where capacity is now a tailwind as opposed to a headwind, is the strongest in the second quarter combined with the Easter shift into April. All else equal, we're not giving guidance into the second quarter. The second quarter has the most upside relative to the prior-year comps.

Dave Davis

And from a capacity perspective, Ravi, probably, you can anticipate Q3 being the biggest draw down in scheduled service capacity for the year. Right now, it's looking to be around 10% reduction in Q3 and then starting to rebound in Q4.

Ravi Shanker

Very helpful. Thank you.

Jude Bricker

Thanks, Ravi.

Operator

Duane Pfennigwerth, Evercore.

Duane Pfennigwerth

Hey guys. Good morning. Maybe you could just speak to bookings patterns in the fourth quarter. It looked like there was a nice build in your ATL. And is there something around maybe seasonal changes or is the booking curve extending, maybe is it spring break? Any color you could provide on that would be great.

Jude Bricker

I just want to make sure, when we look at ATLs, we should look at it on a year-on-year basis. Not as sequential. Because we have such strong seasonality. I'm assuming that you're doing that.

Duane Pfennigwerth

Sorry. We are. But I guess that sequential move is much stronger than it has been for the last few years, it looks like to us.

Jude Bricker

Yes. So a couple things. We're bigger in the first quarter than we were the prior year. That affects ATLs. As we mentioned, we got some TRASM tailwind. One of the changes that we're inflicting ourselves on our own booking is just holding capacity further out. So we're seeing less variability in our pricing as a particular flight sells. So we're building load factor early on. And then, as it moves close in, the mid range, we get less bookings because we see such strong demand close in these days, particularly in our larger EU markets. Anything else? Okay. Yeah. That's a complicated answer, but I'd say, generally, the output of that is higher fares is slightly lower load factors.

Duane Pfennigwerth

Got it. Thank you. And then just to the extent that you can on the cargo expansion, can you just remind us of, I guess, the cadence of the aircraft that you're taking on? How that may have changed? And relatedly, the cadence of maybe the rate improvement as that business rolls on? Thank you for taking the questions.

Dave Davis

Yeah. I think as we sit now, there's really no significant change from the guidance we've been giving for a while. The first aircraft now looks like it's probably going to be in service in late March --

Jude Bricker

Mid to late.

Dave Davis

Mid to late March. And then they should all be in service by Q4.

Jude Bricker

By the end of August.

Dave Davis

End of August, yes. So the rate of delivery is really fast. And the rate of the escalations -- the two additional escalations in our rate is basically similar to what we've been talking about before.

Duane Pfennigwerth

Okay. Thank you.

Operator

Brandon Oglenski, Barclays.

Brandon Oglenski

Good morning and thanks for taking the question. June or Dave, do you guys mind talking about network priorities as you get into the summer months? Especially as you flip some pilot capacity into the cargo business. And actually, should that help shape a better margin profile in those softer quarters for you, guys?

Jude Bricker

Yeah, I'll take that one. It's pretty simple, I mean, the stuff that was on the margin last summer is going to be cut from the schedule. And the cuts are going to be a combination of -- in particular, last summer, we had a lot of margins that we put in to repel competitive incursion. Many of those will be suspended. And then there's going to be some carving, some capacity reductions in same-source markets that had particularly low yield. So it's a pretty easy schedule to write from a capacity planning perspective. And yes, we expect fares to be substantially higher based on those capacity moves and then a general reduction in OA capacity across our network and underlying strong demand. Yeah, we're forecasting some pretty strong revenue productions.

Brandon Oglenski

Appreciate that, Jude. And then as you think about it, going into 2026, I know it's far out there, but should we be thinking scheduled capacity remains down at the beginning of next year as well?

Dave Davis

I think probably by mid-'26, we should be pretty close to back to where we were, let's say, at the end of the first quarter of '25. So in other words, shrink Q2, shrink Q3, and then start to rebound in Q4, throw into the first quarter of '26. So sometime between there and the middle of '26, we should be sort of back and then growing again.

Brandon Oglenski

Okay. Thank you, guys.

Operator

Catherine O'Brien, Goldman Sachs.

Catherine O'Brien

Good morning, everyone. Just one on the margin outlook here, I know you've already given some details. But your fourth quarter operating margin is up just over 300 basis points year-over-year. Midpoint of the first quarter guide implies 100 basis point decline. Obviously, the fuel tail end is is smaller year-over-year. But just sound of that, the capacity environment continues to prove further upside on Amazon. On the 1Q year-over-year versus 4Q year-over-year margin comparison, is that just fuel or maybe the new flight attendant deals in there? Perhaps some conservatism around industry uplift? Any color there would be really helpful. Thanks.

Dave Davis

Yeah. So first of all, the new flight attendant deal is in there for part of the quarter. There was a little bit more significant increase in pilot pay in 2025. I would say just speaking generally, probably the first quarter of '25 we see at least as strong as the first quarter of '24. We put a range around the guidance. Everything looks good at this point. Probably w're not going to say much more than that, but I think we're very confident in the number.

Catherine O'Brien

Got it. Understood. And then just on strong secondary aircraft pricing, do you think you'll still be able to find growth aircraft for later this decade? Can you just help us frame maybe like rough numbers how many aircraft you'd need past the ones you already have out on lease to get you through your growth plans for the rest of the decade? And do you feel confident being able to find opportunistic purchases for that volume of aircraft? Thanks.

Dave Davis

The answer is yes. There's two pieces that are out there to provide growth in the '26, '27, and '28. And those two pieces are the redelivery of the aircraft that are on lease with Oman, the 737-900, those five aircraft. And then a couple other ones that we have that are on lease, 737-800. So those come back into the fleet. And then, we still think there's room on the utilization front. We're in the sevens of seven hours range-ish. We think there's upside to that as well. So there's probably 30% to 40% growth just on the metal that we have right now. And that gets us in to '28, most likely. Used aircraft are expensive right now. We continue to be in the market and we'll buy opportunistically. But with very little activity in the market, we think there's significant growth left in the airline enough to get us through the end of the decade.

Jude Bricker

Just a couple more comments. It's good not to be dependent on Airbus, Boeing, CFM, or Pratt & Whitney the way they're executing right now. So I'd rather have our fleet (inaudible) anybody else's. And then also we have a very reliable aircraft. We're not having to deal with any of the out-of-service issues that other airlines are dealing with associated with the new technology equipment. I mean, we already own these aircraft that Dave mentioned that are going to provide growth. I just feel really good about where we are on the fleet side.

Catherine O'Brien

Yeah. Definitely a great spot to be in. Thanks for all that color.

Jude Bricker

Yeah.

Operator

Michael Linenberg, Deutsche Bank.

Mike Linenberg

Hey. Good morning, guys. I guess a couple here. Jude, you talked about encroachment capacity. And I do see that as you guys scale back pretty meaningfully in, call it, spring or early summer, we are seeing some additional capacity come into your markets by some of those who are probably just there skimming. And so I guess the question is as you scale back, does it open up opportunities for others and maybe to establish share? Sort of thoughts on that.

Jude Bricker

Hey Mike. Let me take this opportunity to talk a little bit better about how we think about capacity. I think the innovation that the country brings to the market is that we basically say at any moment in time, what's the best thing a plane can do right now? And then we fill out the schedule until we either run out of things to do. And in which case, we park airplanes or we run out of planes. And every other airline generally would build an optimized day and repeat it many, many times. And then kind of tweak that day based on certain input. It's just a fundamentally different way to think about it.
And what we want to get to, which probably is impossible, is where we don't have to fly, where our fixed obligations are so low and can be serviced by our cargo and track flying that's contractual that we can be entirely independent when we make capacity decisions.
So when we look at summer markets, for example, that we're going to be pulling out, those markets work for us, but don't work for anybody else even if we're not in them. We're talking about Cleveland, Minneapolis, that can be supported by a carrier -- a leisure carrier like ours because there's leisure demand between Memorial Day and Labor Day sufficient to support a twice-weekly service pattern. But if you're going to fly it daily with the 321, at the back of the clock, it's going to be empty at zero fares.

Mike Linenberg

Yes.

Jude Bricker

And so I'm just not at all -- I don't lose any sleep about some of the backfill opportunities that might happen for other airlines. We are keeping our footprint down in these, really, what I would consider strategically important markets I'd call out like JetBlue leaving Minneapolis, Boston. If you go way back in time in 2017, we used to serve that market up to three daily in the summertime. We're going to keep a healthy level of capacity in that market.
So I think markets that can sustain any significant capacity level will continue to get service from us. And then markets that really only work for us are going to be the kind of markets that we're going to be pulling back on for summer next year.

Mike Linenberg

Great. Very helpful. Thanks for that. My second -- just with all the headlines around tariffs, you're going all-in on cargo and I realize it's more about knock-on effects, secondary, or second-order effects from tariff and the impact to overall cargo and commerce and freight. With your Amazon contract, do you have minimums whether it's block hours or revenues? And so the plane flies and whether the plane is 90% full or 60% full, you're going to get compensated? Can you just talk about maybe downside risk protection? Thanks.

Dave Davis

Yeah. So the way the contract -- maybe before speaking broadly about tariffs which is difficult to sort of assess especially given that we have one customer. There's no set minimums, but the way this contract is constructed is there is a fixed rate per aircraft and then a block hour rate on top of that. So it operates a sort of a de facto minimum because we get paid for each aircraft.

Jude Bricker

Generally speaking, the lower the utilization of the cargo fleet, the better the margins are for us because we can redeploy that pilot capacity, most of the calendar into more high-margin flying.
And then you mentioned the load on the airplane. I want to call out, we can fly empty or full. It doesn't matter. The rates are the same. It's pass-through economics on fuel and stuff. So any other secondary effects of a full airplane, that doesn't impact the profitability of the cargo mark for us.

Mike Linenberg

Perfect. That's what I wanted to hear. Thanks. Nice quarter.

Jude Bricker

Thanks.

Operator

Scott Group, Wolfe Research.

Scott Group

Hey. Thanks. Good morning. I'm not sure if I heard this right, but I think at one point you said January, unit revenue was tracking up 5%, but you're assuming for the quarter scheduled service unit revenue flat. Did I hear that right? Is that -- I just want to understand that.

Dave Davis

Yes. January is doing about what December did. We haven't closed January yet. But it looks like along the lines. February is going to be a softer month this year. So kind of the wash is -- And March is about in line. So that's kind of where we're at on a quarterly basis, roughly flat.

Scott Group

What's driving the weaker February and flattish March relative to a strong January?

Dave Davis

So March, there's the Easter shift. We should talk about a flat March with 5%. Unit revenue with 5% or 6% ASM growth, I think, is a pretty good result. In February, the weakness --

Jude Bricker

I think it's some of it moving into sort of that April timeframe last year was so concentrated with the early holidays. And we have some strategic capacity growth out of Milwaukee into the Caribbean which we feel really good about meeting expectations, but there's just some year-over-year comp on that as well.

Dave Davis

I'd say, yeah, just more color would be the Caribbean is a little bit softer than previous year. But our core markets are really strong. So those are the markets that you would see called trunk wrap for us. So Phoenix, Vegas, Fort Myers, Orlando, Cancun are all really good and those become a more heavily weighted portion of the network in March where kind of early February is these once or twice-a-week markets into the Caribbean and those are a little off.

Scott Group

Okay. With last week, UPS announced a 50% cut in their volume with Amazon. So Amazon, maybe it's gotta look somewhere else. Is this an opportunity for you or is this -- what you're doing for Amazon is pretty different than what the UPS is involved with? I don't know, is this an opportunity or risk?

Dave Davis

Yeah. I think I don't see it as a risk in any way. Here's sort of the issue. The Amazon operates 20 narrow-bodies, and we're going to have them. So unless we sort of go to a different fleet type where they grow that narrow-body fleet, there's probably not a short-term opportunity to take advantage of what's going on at UPS and as you pointed out, it doesn't matter if the aircraft are more full, we get paid on a per block hour basis. Now over the long term, we love the Amazon business, the margins are great. So we think there's probably more growth ahead. But I don't think the near term UPS stuff is a near-term potential for us.

Jude Bricker

The Amazon growth is coming faster than we can grow the operation and also keep the performance that we expect. So we want to be able to absorb this growth, allocate more growth into our scheduled service, and then before we talk about cargo growth, if we could have it our way, that's how we do it. We pause on cargo growth after this 20-airplane expansion and then, for a couple of years at least.

Scott Group

And then just lastly, if I can, I think you said $70 million to $8 million of CapEx this year. What are the other puts and takes for free cash flow? And how are you thinking about the buyback right now?

Dave Davis

Yeah. Your CapEx numbers' right? We'll bepaying back a fair amount of debt in 2025. And a buyback is always on the table and we are looking at it. And as we see how the numbers come in, cash flow looks strong now, we'll make decisions. But we're not announcing a buyback right now, but we'll continue to be assessing it.

Scott Group

Thank you, guys.

Jude Bricker

Thanks, Scott.

Operator

Tom Fitzgerald, TD Cowen.

Thomas Fitzgerald

Hi everyone. Thanks so much for the time. Did I hear that right that you said 30% block hour growth through 2027? And would you mind just breaking that up between scheduled, charter, and cargo?

Dave Davis

Well, that's just simple arithmetic of saying 2024 utilization applied to the in-service fleet that we will have after all the committed fleet is redelivered into the operation. So that, by definition, is passenger growth. So the 30% is basically -- as Jude just said, the redelivery of the leased aircraft and then improved utilization.

Thomas Fitzgerald

Okay. Thanks. That's really helpful. And then just like longer term, how are you thinking about -- I know in August you talked about, with some of the volatility that other airlines are facing, wanting to keep your powder dry to to invest opportunistically, how are you thinking longer term about adding other focus cities or adding another -- and something else in addition to Minneapolis? Thanks again for the time.

Jude Bricker

Well, we want to do it. I'd say we're putting in -- we're making the investments into markets that we think can support over time a Sun Country-type operation. So we've expanded into the Upper Midwest with origination service out of Milwaukee. We continue to support our summer Mexican-Caribbean service out of Dallas and Central Texas. So I think those are the kind of markets that we're going to be able to expand into at the end of the decade. But quite frankly, the next two years, it's going to be getting the network back to what it was in '24.

Dave Davis

Yeah. I think if you just look a little bit longer term, '25 is all cargo, right? And then '26, cargo, basically the full-year effect of these new aircraft hitting the growth of the airline as well. And then '26, probably '27, are are refilling in Minneapolis and then some of these other focus cities. As we move to later in the decade, we think we can take this model to a lot of different cities. Grant mentioned one where we're doing some strategic growth now. But that's definitely on the table. But we got our hands full with all of our program in growth here over the next couple of years.

Jude Bricker

I think also the point would be it's difficult to predict where those opportunities are going to be because of the pull down from Spirit and kind of how all that shakes out where they end up in their restructuring. And then Southwest is doing some pretty dramatic changes to their network and adjusting down their growth. So I think what we see is an opportunity a few years from now may not be what we see today. I think the main point is our capacity is going to be -- our growth capacity outside of Minneapolis isn't going to be available about two years. And when that happens, it's going to be probably a different network.

Operator

James Kirby, JPMorgan.

James Kirby

Hey. Good morning, guys. Most of my questions have been asked. Maybe just on the ad hoc charter segment, I think you mentioned in the prepared remarks that it has been growth in the fourth quarter. I guess what drove that? Was that just better efficiency or demand? And I guess going forward, should we expect the charter segment to be proportionally down with scheduled service for the cadence of the year?

Dave Davis

Yeah. The growth on a percentage basis in ad hoc charter in the fourth quarter was significant. And remember, most of our flying, 80%-plus is on the program side. So that percentage growth is up a relatively low base. But we did have a lot of football flying in the fourth quarter that really drove that growth. And we see that ad hoc growth continuing into the year into 2025. The cargo that the charter business (inaudible) is not going to be down on the order of the scheduled service business, maybe flat to low single digits kind of a number.

James Kirby

Got it. That's helpful. And there no significant contract roll-offs in the next two years, I believe, right? (inaudible) was 2027 or is that incorrect?

Jude Bricker

Yeah. We did work with them this year. So we feel really good about that contract into the future. And then I would just say for the fourth quarter, I would just add to what Dave said, I think it's just a very good illustration of the power of our model that when we brought scheduled service down, we had the ability to be more proactive on the ad hoc charter basis. And our customers are looking for that. We communicate really well with them. And when we have availability, we win business. So I would just say that. But yeah, we feel very good about our partnerships in the short term, the medium term. We're doing a really good job of delivering for our customers.

James Kirby

Okay. Got it. Thanks for the questions.

Operator

(Operator Instructions)
Christopher Stathoulopoulos, Susquehanna.

Christopher Stathoulopoulos

Thank you, operator. Good morning, everyone. I want to go back to the Amazon --

Jude Bricker

Hey Chris.

Christopher Stathoulopoulos

Good morning. Amazon business. So the dates March and then mid to late August, you'll have the full fleet in place. So I want to go back to the economics here. So there's a fixed rate per aircraft, which I'm guessing covers all insurance and things like that, and block hour commitment rate on top of that, which is utilization agnostic. And then how much visibility do you have into the block hours? So is it sort of as your schedule is given a week, a month in advance? And then is the flying going to be concentrated out of EVG or more ad hoc point-to-point? Just want to understand the more nuances here between the fixed block hour rate piece and then the commitments and how that kind of network looks and will ultimately shape over time. Thanks.

Jude Bricker

Schedule development is a two-month schedule that it gets approved roughly six times a year. They come in and we try to work together to optimize the schedule for utilization inputs. But ultimately, it's their network and they fly where they want. I can't really comment on where we expect the planes to go because I don't really know. And that's the value Sun Country brings is that we can do sort of anything with the airplane based on our charter DNA really.
But your comments about the rate structure are accurate in that there's a fixed component that includes margin and everything else. And then the variable costs associated with the operation are passed through in a fee basis. So from our perspective, it doesn't matter so much what the network looks like.

Christopher Stathoulopoulos

Okay. So I heard --

Jude Bricker

(inaudible) your problem. Go ahead.

Christopher Stathoulopoulos

Yeah. So the two-month approval process. You have visibility into what March and through spring flying might look like at this point?

Jude Bricker

That's right. Yeah. Now this is going to be a (inaudible) period just because the dates that we get the airplane on the certificate. So we take a delivery, then we'll do some work to the airplane, get on the certificate, and then schedule it. And so there's going to be a little bit of noise about the fleet count and the utilization and the schedule as we integrate these aircraft.

Christopher Stathoulopoulos

Okay. And my second question, so you spoke to the favorable supply/demand balance here in the US. We've heard that from the peers. But as we look at a map of your network, are there areas or regions that are perhaps doing better or worse versus what looks like a low single-digit domestic seat growth for at least the first half and a point or two of demand on top of that? Just want to understand if there are pockets that are doing better or worse than as we think about domestic system as a whole. Thanks.

Jude Bricker

On the scheduled side, we're seeing, as I mentioned earlier, really strong demand into our really leisure trunk routes. I'd say the things that were uncertain going into this period are West Florida. They've had a lot of impact from storms down there. And we've got a ton of seats. We have five markets on the West Coast, and they're doing really well. I'd say Southern California is off a little bit. And then Caribbean, as I mentioned earlier. But the Mexican markets are doing really, really well. That was a point of uncertainty, just with all the geopolitical stuff going on. I don't know. I think you nailed it, yeah.

Dave Davis

The traditional spring break routes look really good year-over-year, just the capacity rationalization. And as we've mentioned, the Caribbean, there's pressure in the Caribbean, but because it's a strategic growth opportunity for us, we've done exceptionally well there. So we've added some -- these were single, weekly markets, we've added some to twice a week. That's a significant capacity adjustment. These are really strong markets. So there was always going to be some impact of that. And some competitors have seen that too. But we will continue to be in these markets for the long run and the customers are responding to what we've added.

Jude Bricker

Yeah, it's a good point. But I should clarify. It's in the schedule because it's going to achieve some really high-level profitability. When I say weak, it's a year-over-year TRASM decline, but it's from such a high level in the prior year.

Christopher Stathoulopoulos

Okay. Thank you.

Operator

I show no further questions in the queue at this time. I would now like to turn the call back over to Jude Bricker for closing remarks.

Jude Bricker

Thanks for calling in, everybody. We really appreciate it. I think we have a great story, and we're excited to share with you, guys. Have a great day, everybody.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.