Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SkyWest Inc (SKYW, Financial) reported a net income of $76 million, or $1.82 per diluted share, for the second quarter of 2024.
- The company received 8 of the 20 United-financed E175s during the quarter, enhancing its fleet.
- SkyWest Inc (SKYW) achieved a 99.99% adjusted completion rate on nearly 15,000 more flights than the same period last year.
- Captain attrition continues to improve, with strong first officer availability through the pathway program, expecting over 5,000 pilots by year-end.
- The company repurchased 177,000 shares of SkyWest stock in Q2 for $13 million at an average price of $75.23 per share.
Negative Points
- SkyWest Inc (SKYW) anticipates maintenance expenses to increase in the coming year as they increase utilization and return aircraft to service.
- The company ended Q2 with debt of $2.8 billion, although down from $3 billion as of year-end 2023.
- There are challenges in the MRO network, with labor and parts challenges as flying increases.
- SkyWest Inc (SKYW) expects maintenance expenses to average $200 million a quarter during 2025.
- The company is still working through the captain shortage, which impacts fleet utilization and production.
Q & A Highlights
Q: Just on the maintenance color that you gave, which is helpful and understand that that comes first as you restore this capacity. I'm curious, as you go through into next year, if that means margins, contractors stay steady, or it should still see an improvement because your utilization is improving on the full-year impact of the E175 fleet and the partial year of the CRJ fleet?
A: Yeah. Thanks, Savi. It's Rob here. So as we said on the call, that we do expect there to be $40 million in more maintenance expense in the second half of '24 compared to the first half of '24. And then we expect to have roughly $200 million a quarter of expense in 2025. So your question -- the calculus to your question is there will be puts and takes. Obviously, as production goes up, we'll have some offset in revenue to offset the higher maintenance expense as we bring -- as we both fly at higher utilization, which will drive more maintenance expense and as we bring other airplanes out of storage, which will have some one-time effect to our maintenance expense there as well. So, I mean, it maybe not a perfect answer to what you're asking, but there will be some puts and takes on both sides.
Q: And if I might on the E175, it looks like there are three more E175 from United this quarter with the update than last quarter, 39 versus 36. But your year-end '26 E175 assumption is unchanged at 278. Is that because some of these go back or get retired before year-end '26? Why was that not up as well?
A: So just to make sure I follow your questions, so at the end of 2026, we've pretty much consistently been saying for the last several quarters and year since we've announced the United deal that we'll have 278 E175s at the end of 2026. We did take more E175s during this quarter than we probably anticipated, and it was just the acceleration of bringing airplanes into our fleet quicker because of some of the operational needs that United had. And so, the overall fleet is still the same. 278 is still our target by the end of 2026, but we did get some earlier than we had anticipated because of some operational needs that United wanted those in our hands quicker.
Q: When you look at the United fleet, it now looks like that they have moderated their retirement of their 50 seaters, ERJ145, CRJ200, CRJ550. Now we don't know who operates them, but we know that you operate some of them. And so while you've given us a plan of new airplanes coming in, are you getting requests from your major partners to possibly maybe slow down the retirement of maybe, what I will refer to as the much vilified CRJ200 or maybe there's more CRJ550 opportunities that you have there? Is that in those numbers?
A: Yeah, Mike. Those are great questions. I think overall, just if you take a step back, we worked very closely with United on their fleet demands and what they want in the 50-seat category. At this point, by the end of the year, we'll have 50 CRJ200s under contract with them. And those are in contract, and United still wants them. We're working with them on multiple levels of fleet related to the 50 seaters, both under contract and pro rate. So there's a lot of ongoing discussion with those guys. And so both in contract and pro rate. And so, United's been very supportive of us and what we're trying to accomplish in that. And so we'll just continue to work with them. And hopefully in the next couple of quarters, we'll have a couple of things we can clarify for you on that.
Q: Can you talk about the environment for incremental agreements on the new aircraft side and when we should expect you to put your balance sheet to work on incremental new aircraft?
A: Yeah, Duane. This is Chip. I can tell you just at a very, very high level, you can imagine in the current climate that we have today that a lot of the major carriers are reevaluating capacity. And we're a big part, I think, of those conversations with most of our partners. When you talk about capacity, you can look at it in several different ways. We're still extremely optimistic about the regional capacity. You're right, we have a strong balance sheet that we want to put to work. We have a lot of developments with most of our partners today, as we usually do. I think that we're making some very good progress. But I think given the time and season where they're at right now, we need to be a little bit more patient to let them strategize on some of their -- more of their network needs. But we still fundamentally believe that we've got some great products and a great balance sheet to help them from a capital perspective. I mean, I think if you look at the position where they are and where we are and what we can do to help, we're a front runner in being able to help them with some of the capital and some of the regional lift needs that still has a very strong opportunity out there. So honestly, Duane, nothing obviously to announce today, but we continue to work hard and we'll be patient and help become part of the strategy with our partners as those plans continue to develop as they've said as well.
Q: Is there a leverage target that you and the Board are looking forward to start contemplating, resuming the dividend, or how should we think about that opportunity long term?
A: Yeah, Tom. This is chip. By the way, welcome. We appreciate your continuing to cover us from the line. We're excited to continue to have a relationship with you and engage in our business. Relative to all of the capital allocation strategies that we have relative to stock buyback dividend best in new aircraft, all of those types of things, as of right now, certainly, as Rob noted in his script, we backed up share repurchase quite a bit right now. We have a Board meeting that's coming up here in the next little bit. This will be top of mind in what we're talking about relative to what our shareholder return strategy will be. The majority of it still has to contemplate what the opportunities with the fleet are. Obviously, our priority with our capital is to reinvest in the fleet, make sure that we've got good strong market share opportunities to continue to expand. And as we go down the pathway, that's our top priority. After that, we'll continue to evaluate the other models that we think that the market would want, what would be good for our shareholders relative to dividends and share repurchase. So, certainly, we feel like we're more mature than we were when we started our purchase program a couple of years ago. So that comes into a factor. But I think as we let the fleet strategy continue to evolve, we'll get to that point, and you'll be the first to know
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
