SkyWest Q4 2024 Earnings Report

SkyWest EPS Results

• Actual EPS: $2.34
• Consensus EPS: $1.75
• Beat/Miss: Beat by +$0.59
• One Year Ago EPS: $0.42

SkyWest Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $915.57 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

SkyWest Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 4:30PM ET

SkyWest (NASDAQ:SKYW) is the holding company for two scheduled passenger airline operations and an aircraft leasing company. SkyWest's airline companies provide commercial air service in cities throughout North America with nearly 3,000 daily flights carrying more than 53 million passengers annually. SkyWest Airlines operates through partnerships with United Airlines, Delta Air Lines, American Airlines and Alaska Airlines. ExpressJet Airlines operates through partnerships with United Airlines, Delta Air Lines and American Airlines. Based in St. George, Utah, SkyWest employs nearly 17,000 employees.

SkyWest Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the SkyWest Incorporated Fourth Quarter and Full Year twenty twenty four Results Call. All lines have been placed on mute to prevent any background noise. Thank you.

[Operator]

And I would now like to turn the conference over to Mr. Rob Simmons, Chief Financial Officer. You may begin.

[Robert Simmons, Chief Financial Officer at SkyWest]

Thanks, Abby, and thanks, everyone, for joining us on the call today. As Abby indicated, this is Rob Simmons, SkyWest's Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer Wade Steele, Chief Commercial Officer and Eric Woodward, Chief Accounting Officer. I'd like to start today by asking Eric to read the safe harbor. Then I will turn the time over to Chip for some comments.

[Robert Simmons, Chief Financial Officer at SkyWest]

Following Chip, I will take us through the financial results, then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q and A session with our sell side analysts. Eric?

[Eric Woodward, Chief Accounting Officer at SkyWest]

Today's discussion contains forward looking statements that represent our current beliefs, expectations and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward looking statement whether as a result of new information, future events or otherwise. Actual results will likely vary and may vary materially from those anticipated, estimated or projected for a number of reasons. Some of the factors that may cause such differences are included in our most recent Form 10 K and other reports and filings with the Securities and Exchange Commission. And now I'll turn the call over to Chip.

[Chip Childs, President and CEO at SkyWest]

Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. I want to start, and acknowledge last night the unthinkable happened when a military aircraft collided with an American Eagle aircraft on approach to Washington's Reagan National Airport, claiming the lives of all on board. SkyWest has offered our resources and support to our colleagues at PSA and American and extended our deepest condolences to those involved and their loved ones.

[Chip Childs, President and CEO at SkyWest]

This is a tragedy for all of us in aviation and we support our aviation and military colleagues throughout the industry who have been affected by this tragic event. As an airline, we invest hundreds of millions of dollars to safely fly thousands of flights each day. That investment includes in fleet, onboard system and technology, rigorous training programs and safety management systems that enable ongoing safe adaptation to our dynamic industry's challenges. The NTSB investigation will undoubtedly be extensive and we stand ready to offer support needed to ensure safe airspace across the nation. Just this week, SkyWest was named 1 of Fortune's World Most Admired Companies for 2025.

[Chip Childs, President and CEO at SkyWest]

Is 1 of only 3 U. S. Airlines and the only regional airline on the list. This honor is not remotely possible without the integrity and teamwork of our more than 14000 professionals, and I'm humbled to be part of this outstanding team. During the completed nearly 30000 more flights in the same quarter last year, delivering 99.9% adjusted completion.

[Chip Childs, President and CEO at SkyWest]

As we continue our work to execute on our growth plan to first restore or bring new service to underserved communities second, redeploy and fully utilize our existing fleet and third, prepare to receive our upcoming deliveries of 16 new E175s between this year and next, our ability to maintain strong operating credibility remains a key differentiator for SkyWest. Today SkyWest reported net income of $97,000,000 or $2,.34 per diluted share for the We also reported net income of $3.23,000,000 dollars or $7,.77 per diluted share for the 2024 We're also pleased to announce that during the we reached a contract extension with American Airlines that allows for a total of 74 CRJ700s under agreement. This new multiyear agreement extends SkyWest current American CRJ700 flying along with our United and Delta CRJ550s and places nearly all of SkyWest's CRJ700 aircraft under long term agreements. Additionally, as we receive another 16 E175s over the next couple of years, we will have two seventy eight total by the We are proud to become the first carrier to operate the E175 into Aspen in Dec. 0.

[Chip Childs, President and CEO at SkyWest]

Our dual class aircraft generated 87% of our block hour production during the and the ongoing strong demand and delivery book continues to position us for increased regional market share. Our overall pilot staffing balance and outlook continues to improve. We believe we are now in a place where our pilot staffing, hiring and production are well matched with a very robust pipeline. We are fully confident the measures we have put into place over the past three years will ensure staffing is stabilized over the long term. With this continued progress, we expect block hour production to be up about 12% this year compared to 2024.

[Chip Childs, President and CEO at SkyWest]

As we discussed last quarter, this places us near the pre COVID utilization levels. We remain disciplined in our long term strategy and will continue to make smart investments in our people and fleet as we redeploy and restore utilization and execute on our growth pathways. As part of those ongoing investments, we expect our aircraft and made it spend will increase compared to last year. Wade will speak more about that in a minute. Overall with our well positioned fleet, operation and our strong partnerships and demand, we remain optimistic about the year ahead.

[Chip Childs, President and CEO at SkyWest]

We continue to play the long game and have spent the last several years investing heavily in our fleet and in our people to ensure we are in the best possible situation to respond to strong market demand. Rob will now take us through the financial data.

[Robert Simmons, Chief Financial Officer at SkyWest]

Today, we reported a GAAP net income of $97,000,000 or $2,.34 earnings per share. Pretax income was $134,000,000 Our weighted average share count for was $4,170,000,0.0 and our effective tax rate was 27.1%. For the 2024 we reported GAAP net income of $3.23,000,000 dollars or $7,.77 earnings per share. First, let's talk about revenue. Total revenue of $9.44,000,000 dollars is up 3% sequentially from $9.13,000,000 dollars in and up 26% from $7.52,000,000 dollars in revenue breaks down with contract revenue at $7.86,000,000 dollars up 3% from and up 27% from Pro rate and charter revenue was $126,000,000 in up 3% from and up 14% from Leasing and other revenue was $32,000,000 in up 8% from and up 34% from a year ago.

[Robert Simmons, Chief Financial Officer at SkyWest]

These GAAP results include the effect of recognizing $20,000,000 of previously deferred revenue this quarter similar to the $19,000,000 recognized in We deferred recognizing $63,000,000 of revenue in As of the end of we had $3.22,000,000 dollars of cumulative deferred revenue that will be recognized in future periods, we expect this run rate to continue in 2025 subject to production levels. Our GAAP results also reflect $5,000,000 of below the line other income related to mark to market gains on our equity investments and gains from the sale of equipment. Let me move to the balance sheet. We ended the quarter with cash of $8.00 $2,000,000 slightly down from $8.36,000,000 dollars last quarter and $8.35,000,000 dollars at The decrease in cash during the quarter included the accretive actions of: 1, repaying $115,000,000 in debt before the financing on the 4 new E175s delivered in buying back 47,000 shares of SkyWest stock in for $5,000,000 at an average price of $104 per share. Since the we have repurchased 1,120,000,0.0 shares or approximately 22% of the outstanding shares of the company for $3.32,000,000 dollars at an average price of $29,.76 per share and 3, investing $186,000,000 in CapEx, including 4 new E175 aircraft, additional E175 spare engines, the CRJ550s purchased from United, construction payments toward a new hangar in Tucson along with other CapEx.

[Robert Simmons, Chief Financial Officer at SkyWest]

Our CapEx investment in is up from $97,000,000 in CapEx in and is an important catalyst to achieving our growth initiatives. We ended with debt of $270,000,000,0.0 down from $3,000,000,000 as of year end 2023. Cash flow is an important component of our shareholder value creation calculus. We generated over $500,000,000 in free cash flow in 2024 and deployed it primarily to delever and derisk the balance sheet to the benefit of our partners, our employees and our shareholders. Our strong balance sheet and well grounded liquidity are powerful tools as we pursue a variety of growth opportunities, including acquiring and financing 16 additional E175s, repaying over $400,000,000 in debt in 2025 and continuing to execute opportunistically on our share repurchase program.

[Robert Simmons, Chief Financial Officer at SkyWest]

As we remain focused on improving our return on invested capital, we would like to highlight the following: Our debt net of cash and leverage ratios are at their lowest point in over a decade. As a result of repurchasing over 11,000,000 shares since the beginning of 2023, we had 4,030,000,0.0 shares outstanding as of Dec. 31, 2024, compared to 5,060,000,0.0 shares as of the start of 2023. As of December '31, we had $48,000,000 remaining under our current share repurchase authorization. We anticipate our total 2025 CapEx funding our growth initiatives will be approximately $600,000,000 including the purchase of 8 new E175s and aircraft and engines supporting our CRJ550 opportunity.

[Robert Simmons, Chief Financial Officer at SkyWest]

Total CapEx in 2024 was $3.40,000,000 dollars Consistent with our policy and practice, we are not giving any specific EPS guidance at this time, but let me give you a little additional color on 2025. As Wade will discuss in a minute, we now anticipate our 2025 block hours to be up approximately 12% over 2024. The improved outlook in our 2020 05/00 block hours is driven primarily by improving fleet utilization and availability and ongoing strong demand for our production. We expect our 2025 GAAP EPS could be in the $9 per share area if we are successful in executing on the opportunities in front of us. For modeling purposes, we expect our 2025 depreciation expense will be flat to slightly down from 2024.

[Robert Simmons, Chief Financial Officer at SkyWest]

Our CRJ700 contract extension and opportunities to place the CRJ550 aircraft into service are pushing out the estimated useful lives on our older CRJ-seven hundred fleet by a few years, offsetting the expected new depreciation expense from our incremental investment in CapEx. We are optimistic about our growth possibilities going into 2025 and 2026, including the following 3 focus areas: first, growth in underserved communities driven partially by the deployment of over 20 additional CRJ five fifty aircraft second, improved aircraft utilization and availability on our ERJ and CRJ fleets and third, placing 16 new E175s into service in 2025 and 'twenty six. We believe that our strong balance sheet and liquidity and the actions we will be taking to invest in a variety of growth opportunities will position us well to drive total shareholder returns. Wade?

[Wade Steel, Chief Commercial Officer at SkyWest]

Thank you, Rob. During the we reached an extension of a multi year flying agreement that would allow for SkyWest to operate a total of 74 CRJ700s with American under revenue agreements. This new agreement will allow for these aircraft to fly for American through most of this decade. Last quarter, we announced a new multi year flying agreement for a total of 40 CRJ550s with United, including 11 that we committed to purchase from United. United also had an option to add 10 additional CRJ550s to this agreement, bringing the total to 50.

[Wade Steel, Chief Commercial Officer at SkyWest]

As of year end, we had purchased 7 of the 11 aircraft and expect to purchase the rest by the end of this quarter. We were operating 4 of these aircraft at year end 2024 and expect to operate 30 by the end of this year, with the last 10 entering service during 2026. Of the 40 CRJ550s, 29 will be modified from our existing CRJ700 fleet. I want to point out that this agreement represents net growth aircraft along with additional new E175s arriving by the We are excited about our continued strong partnership with United. We successfully launched our first Delta CRJ550 flying and we anticipate transitioning 15 CRJ550s to our Delta fleet by the end of this quarter.

[Wade Steel, Chief Commercial Officer at SkyWest]

These new Delta and United CRJ550 agreements along with our CRJ700 extension with American bringing the number of unassigned dual class CRJ700s and 900s down to single digits. We expect these few aircraft will be assigned to 1 of our major partners soon. You'll recall that earlier in 2024, we announced a flying agreement for 20 United owned E175s from another United Express carrier to replace 20 CRJ200s under our United contract. As of year end, we transitioned all of these aircraft and they were operating as of Dec. 0.

[Wade Steel, Chief Commercial Officer at SkyWest]

We also took delivery of 4 new E175s for United during We have 16 new E175s currently on order, 15 for United and 1 for Alaska. We expect delivery of 8 in 2025 and eight in 2026. At the our E175 fleet total will be two seventy eight continuing to enhance SkyWest position as the largest Embraer operator in the world. Let me review our production. Completed block hours were up more than 5% compared to Based on the current schedules from our major partners for we anticipate similar block hours to As a point of reference, our 2024 block hours increased by approximately 13% compared to 2023.

[Wade Steel, Chief Commercial Officer at SkyWest]

We anticipate a 12% increase in 2025 compared to 2024, approaching our 2019 levels. We expect block hour seasonality to return to the model as utilization improves during the strong summer months. We still have approximately 30 parked dual class CRJ aircraft that will be returned to service. The majority of these aircraft are currently under flying agreements and will be operating in 2025 and 2026. As flying quickly returns and we place CRJs into service, we continue experiencing challenges in our third party MRO network, including labor and parts challenges.

[Wade Steel, Chief Commercial Officer at SkyWest]

We expect maintenance expense to average $200,000,000 a quarter during 2025 as we bring aircraft out of long term storage and service the current fleet as production continues to increase. As you would expect, the maintenance expense will happen before the aircraft goes back into service. Our partners remain very engaged in supporting our efforts to restore production. I also want to review our plans to monetize our CRJ200 assets. We still own over 140 CRJ200 aircraft.

[Wade Steel, Chief Commercial Officer at SkyWest]

These aircraft will have very little book value and no associated debt, and we have approximately 4000000 cycles remaining to monetize. Our priority is to fly them at SkyWest Airlines under contract with our partners or in our prorate business. Our next priority is to operate these aircraft at SkyWest Charter or SWC. We currently have 18 SWC aircraft flying on demand charter service. You'll also recall that our minority ownership stake in Contour includes an asset provisioning agreement under which SkyWest will provide CRJ airframes and engines to Contour.

[Wade Steel, Chief Commercial Officer at SkyWest]

As far as our prorate business, demand remains extremely strong with great community support. We are seeing opportunities to return SkyWest service to several communities as we restore CRJ production. We will continue to work with the communities we serve on the best way to expand our service. As we increase our prorate business, we will see more seasonality reintroduced into our model. As typical with all airlines, and are strong revenue quarters and and are softer.

[Wade Steel, Chief Commercial Officer at SkyWest]

We feel good about our ongoing effort to reduce risk and enhance fleet and financing flexibility and remain committed to continuing our work with each of our major partners to provide creative solutions to the continued demand for our products.

[Robert Simmons, Chief Financial Officer at SkyWest]

Okay. Operator, we're ready now for our Q and A.

[Operator]

Thank you. And we will now begin the question and answer session. And your first question comes from the line of Savi Syth with Raymond James. Your line is open.

[Savanthi Syth, Managing Director at Raymond James Financial]

Hey, good afternoon, everyone. Maybe I can start off where Wade ended there just on the kind of ability to kind of bring back service to small communities. And I did notice SkyWest Charter had 1 more aircraft this quarter. I was curious just as you think about bringing back prorate, is that more of a kind of post this summer or if you're expecting a lot of that prorate to come back this summer? And then just kind of specifically related to SkyWest charter, was curious if you've kind of reengaged with the FAA any differently on getting that commuter authority now that the administration has changed or if it's still too early?

[Wade Steel, Chief Commercial Officer at SkyWest]

Yes. Hey, Savi, this is Wade. I'll talk a little bit about the pro rate side. So as far as pro rate, we have added a few markets in the and there will be a couple in the But the majority of what we're seeing is the demand for the summer flying on a contract basis and our existing prorate is very, very strong for the summertime. And so we're looking more to the end and to add a lot of additional or other additional markets on the pro rate side.

[Chip Childs, President and CEO at SkyWest]

Yes. Savi, this is Chip. I'll answer the second half of your question. I think the term that you use being reengaged in this is an understatement. We certainly do see a very good opportunity relative to the two point five year challenges at SkyWest Charter to get commute authority.

[Chip Childs, President and CEO at SkyWest]

We certainly are extraordinarily sensitive to the events that happened last night and the priorities at the Department of Transportation, but we look forward with optimism to reengaging this incredibly important, strategic opportunity that we have to better serve communities. And so yes, we are definitely reengaging in that process.

[Savanthi Syth, Managing Director at Raymond James Financial]

Appreciate that. And if Anay, just along those lines, Air Wisconsin recently lost the American contract and talked a lot about doing a lot of prorate and EAS. And just curious if you're seeing that as an impacting your opportunities or still too early?

[Chip Childs, President and CEO at SkyWest]

No. We don't sense that it's going to impact what our strategy is. Again, we have a tremendous model with deep roots to all of these communities. It's what we were built on fifty years ago. And I think we deliver an exceptional product that's going to be very difficult to compete with mostly because of our passion and how integrated we are with these communities.

[Chip Childs, President and CEO at SkyWest]

So we're going to continue to press forward and do this in a very calculated safe manner.

[Savanthi Syth, Managing Director at Raymond James Financial]

Appreciate it. Thank you.

[Operator]

And your next question comes from the line of Michael Linenberg with Deutsche Bank. Your line is open.

[Shannon Doherty, Analyst at Deutsche Bank]

Hi, there. This is Shannon Darya on for Mike. Just my first question, on the contract extension with American, can you give us some color on how the terms of that extension may compare to the previous contract?

[Wade Steel, Chief Commercial Officer at SkyWest]

Yes, this is Wade. So as we said, we extended up to 74 aircraft. The term goes through close to the end of the decade and the economics are very similar to what we have today.

[Shannon Doherty, Analyst at Deutsche Bank]

Got it. Thanks. And, maybe just touching on this EAS flying and I know that you're focused on growing this service. Is there a risk that the Trump administration, perhaps under Doge, eliminates any certain markets under the EAS flying? Any insights on policy changes from your conversations with the Department of Transportation or any other government officials would be helpful?

[Chip Childs, President and CEO at SkyWest]

Yes. Look, I mean, I think we monitor this this is Chip we monitor this very, carefully. Essential Air Service is something that has a lot of deep roots in a lot of locations throughout The United States. We understand what the direction of Doge is and obviously there's been some things this last week that we know that they're going to be very aggressive about it. I would also take you back to the confirmation, hearings of the new transportation secretary.

[Chip Childs, President and CEO at SkyWest]

There was a lot of comments, you know, 6 or 7 times about his commitment to essential air service. There's a lot of, political support for this program, not mostly because, you know, you deem it as, you know, wasteful spending, which is prevalent throughout the federal government, mostly because of the investment and the circular nature, which it gives back to the economy in extraordinarily positive ways for these small communities. So, look, our job is to make sure that we find the right tools and systems to serve these small communities. And we've been doing this for a long time and have faced a lot of challenges through various aspects of making sure small communities are served. And I think that we've got some good approaches and plans to make sure that we're successful for the long term in this.

[Shannon Doherty, Analyst at Deutsche Bank]

That's great. Thanks for taking my questions.

[Operator]

And your next question comes from the line of Catherine O'Brien with Goldman Sachs. Your line is open.

[Catherine O'Brien, Vice President at Goldman Sachs]

Good afternoon, everyone. Thanks for the time. So we continue to hear more about the larger U. S. Airlines needing to grow into their pilot workforces given aircraft delivery delays the industry continues to face.

[Catherine O'Brien, Vice President at Goldman Sachs]

In some cases, we're seeing headcount reductions in pilots. You had called out last year, I think, like on the same call, you needed 1000 pilots to get back to twenty nineteen levels and then another 1000 to meet demand. How many more pilots do you have today versus a year ago and in the pipeline? And then just based on what you're saying about demand, is it perhaps you still need another 1? Like even if you have 1200 more pilots, do you still need another 1000 just as demand continues to grow?

[Catherine O'Brien, Vice President at Goldman Sachs]

Any color there would be helpful.

[Chip Childs, President and CEO at SkyWest]

Yes. Katie, this is Chip. I'm going to put a twist into probably what we said a year to eighteen months ago because there's been some minor changes in how our aircraft are being flown, still very good for SkyWest. But, we certainly have I think the major carriers have been very disciplined with our schedules to be a little bit more strategic and our utilization levels are slightly down compared to what it was obviously back in 2019. And I think that's worked out well for both of us.

[Chip Childs, President and CEO at SkyWest]

So with we probably today have another 700 pilots than we did a year to eighteen months ago for sure. We're not at the 2019 levels of pilots yet. But I think from our perspective, we've got a very disciplined approach. We've got some good slow, consistent growth coming, which is at a better pace than what I think we were initially looking at, certainly what Wade mentioned with aircraft coming out and being maintained and some supply challenges with that helps us. And so to be candid, we're on a very, very good pace of our growth.

[Chip Childs, President and CEO at SkyWest]

We like the way that it's come out and I think it's stable, it's predictable and in a manner which we have a very, very strong pipeline. But as of today, we are not hiring as many pilots as we anticipated we needed and our attrition levels are extremely low. So from that perspective, I think for us, we're in a very, very good place with a good consistent growth plan that's going to enable us to do things on a very, very strong consistent basis in the future.

[Catherine O'Brien, Vice President at Goldman Sachs]

Thanks. And then maybe just 1 on the uptick in the block hour production for this year. Now that growth looks a little more stable than perhaps the pace at which you thought was going to come back a year or so ago. What would provide further upside to that now 12% increase in block hours? Like where around the edges could that move up?

[Catherine O'Brien, Vice President at Goldman Sachs]

Is it more prorate flying? Is it incremental aircrafts going to add in the year? I'm not even sure if that's possible with Nov. 0 aircraft or I don't know if that would be like new partner aircraft coming to your property away from someone else. Like what would drive further upside to that plus 12 that was plus 10 a quarter ago?

[Catherine O'Brien, Vice President at Goldman Sachs]

Thanks so much.

[Wade Steel, Chief Commercial Officer at SkyWest]

Yes. No, it's a great question. This is Wade. So there's really a couple of things that I would say. Number 1 is fleet utilization could continue to drive that number up.

[Wade Steel, Chief Commercial Officer at SkyWest]

That's probably the biggest thing. As Chip mentioned, our utilization is still a little bit lower than where it was in 2019. The second thing I would say is fleet availability. As we talked about, as we start to get through our MRO supply chain challenges both from a labor and parts standpoint, If we exceed some of our expectations, then that could drive additional utilization, additional block hours into the system, just as the aircraft become more and more available during 2025.

[Catherine O'Brien, Vice President at Goldman Sachs]

That makes sense. And maybe I'll squeeze one third one in. So it sounds like on the dual class CRJ700s, it's a rounding error of what's not on a long term contract at this point. I know you still have some more on the CRJ200 front and you walk through kind of your waterfall of preferences where they go to a partner or prorate or secondarily they go to charter. And then you also mentioned like the asset offtake agreement with Contour.

[Catherine O'Brien, Vice President at Goldman Sachs]

If we get to that part of the waterfall, I guess, those would be straight sales. Is that how we should think about that? Outside of Kontor, would the third choice also be the sale to sell to another entity? And what's the market look like in terms of demand for CRJ200? That was not a quick third question, so I apologize.

[Catherine O'Brien, Vice President at Goldman Sachs]

Thank you.

[Wade Steel, Chief Commercial Officer at SkyWest]

That's a good 1 though. So as far as the last part of the waterfall there, just getting rid of some of the assets, it is actually a combination with Contour. Generally, we sell the airframes and we lease the engines. The demand is still very strong out there. We're just very patient with our fleet.

[Wade Steel, Chief Commercial Officer at SkyWest]

There's a lot of interest in our assets because they've been well maintained and they have great records and things like that. So there is still good demand. And as Rob mentioned in his script, there was some sales during the quarter that added some value. So, we're still actively looking to monetize our fleet and we'll continue to do that.

[Operator]

And your next question comes from the line of Tom Fitzgerald with TD Cowen. Your line is open.

[Tom Fitzgerald, VP - Equity Research at TD Cowen]

Hi, everyone. Thanks so much for the time and congrats on a really incredible year. Just thinking about the long term and not trying to get too ahead of myself, but I'm just wondering if you could help us frame how as people start modeling '27 and beyond, how we should think about the fleet? And then just with the theme of restoring service to small communities and we've talked together about this deorganization that's occurred post pandemic. It seems like there's a lot of upside just beyond even just kind of getting back to 2019.

[Tom Fitzgerald, VP - Equity Research at TD Cowen]

So I'd love if you could just help frame how investors should think about the some of the long term secular tailwinds you guys have?

[Wade Steel, Chief Commercial Officer at SkyWest]

Yes. So great question. This is Wade. I'll answer the fleet portion of it and Chip can help out with some of those other ones there. But the fleet, as we talk about, we still have very strong deliveries in 2025 and 2026.

[Wade Steel, Chief Commercial Officer at SkyWest]

By the we'll have two seventy eight Embraer 175s under long term contracts. We will also have our CRJ550s all fully transitioned and up and flying. And then we still have dual class airplanes that are still under long term contracts on the CRJ side. So we will have continued growth getting into 2027 on the 175 fleet and then there's a lot of those 550s that will come up in that timeframe that will have a very stable, great fleet that will we think that we can continue to operate well into 02/30.

[Chip Childs, President and CEO at SkyWest]

Yes, Tom, this is Chip. I'll kind of tackle long term how to look at it. And I would probably just reiterate, I would say an eight to ten year playbook that we've been playing that's been extraordinarily good for, redeployment of our CRJ fleet across 4 amazing partners. And I would tell you that, that playbook is still alive and well and will likely be alive and well into the future. I think Wade talked on an earlier question about the impact of fleet utilization, fleet conversion to five fifty.

[Chip Childs, President and CEO at SkyWest]

But I would reiterate still probably 1 of our biggest strategic assets is fleet flexibility. We're very strategic in how we make sure that we're taking care of partners within the length of these contracts and terms. We're getting to a little bit more of a mature state with our 175s coming off contract in the next couple of years. And all of that gives us a tremendous amount of flexibility to do some things to potentially continue to order more 175s for the long term. We don't have anything to announce today, but I would tell you that we continue to have good strong robust conversations with our partners about being the leader of flying the E175.

[Chip Childs, President and CEO at SkyWest]

The Aspen market has proven that we know how to do certain things with the aircraft really, really well. But without getting into specifics, I just wanted to maybe reiterate that we've got a very strong playbook. We have incredible credibility within the marketplace. Our team is the best in the industry. From our professionals perspective, pilots, flight attendants, mechanics, dispatch, everything, that credibility combined with fleet flexibility, we are optimistic for the long, long term as well.

[Tom Fitzgerald, VP - Equity Research at TD Cowen]

Okay, great. That's all incredibly helpful and that makes a ton of sense. Thanks so much. And then just as a follow-up, I believe the non operating expense tailwind from the debt associated with the E175 fleet starts to kick in next year. So maybe I think it'd be helpful if you just reminded everybody about that aspect again.

[Tom Fitzgerald, VP - Equity Research at TD Cowen]

Thanks again for the time. Congrats.

[Robert Simmons, Chief Financial Officer at SkyWest]

Well, with respect hi, Tom, it's Rob here. So with respect to the non operating portion this quarter, I can say that in the there was about a dime worth of non operating benefit that came from the combination of asset sales and other items. But going forward, that won't yes, that's not something that you should expect on a run rate basis.

[Operator]

And your next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is open.

[Jacob Gunning, Equity Research Senior Associate at Evercore ISI]

Hey, good afternoon. This is Jake Gunning on for Duane. Thanks for taking our questions. To kind of follow-up on Tom's second question, leverage is at its lowest level in a decade. You mentioned the delevering occurring just as the E175 fleet starts to get fully paid off.

[Jacob Gunning, Equity Research Senior Associate at Evercore ISI]

Do you have any target leverage levels that you could speak to?

[Robert Simmons, Chief Financial Officer at SkyWest]

Hey, thanks, Jake. It's Rob here again. So with respect to target leverage, again, we've been sort of waiting for we've been building toward this moment for the last several years as we've been deleveraging, we've been derisking our balance sheet. So, as we're now to the point where we continue to have a strong order book, again, the 8 175s that we'll be taking in 2025 and the 8 in 2026, we will expect to finance those the usual way, with twelve year fully amortizing mortgage style debt like we have for the bulk of our fleet. So, similarly, as we see an increase in our other CapEx related to spare engines, we may or may not choose to leverage those.

[Robert Simmons, Chief Financial Officer at SkyWest]

We want to obviously continue to keep strong liquidity. And I think we've been again, as I said, we've been preparing for the past several years for these growth opportunities that we now see in front of us and being able to release those opportunities or take advantage of those opportunities because of the liquidity and the deleveraging that we've been able to do. So, we're proud of the flexibility that we've got, the debt capacity that we've been growing on our balance sheet, the unpledged collateral of over 1500000000.0 that we've got right now. We have a lot of flexibility depending on the nature of the growth opportunities in front of us.

[Jacob Gunning, Equity Research Senior Associate at Evercore ISI]

Okay. Thank you, Rob. That's helpful. And I guess just to

[Jacob Gunning, Equity Research Senior Associate at Evercore ISI]

follow-up, the 1220%, twenty five % block hour growth, can

[Jacob Gunning, Equity Research Senior Associate at Evercore ISI]

you just give any color on the mix between contract flying, prorate and charter flying?

[Wade Steel, Chief Commercial Officer at SkyWest]

Yes, this is Wade. The vast majority of that is contract flying. The vast majority of our flying is contract. And so it's really just getting airplanes better utilized on the contract side. That's number 1.

[Wade Steel, Chief Commercial Officer at SkyWest]

Number 2 is just bringing airplanes that have been parked, getting them up into service that are under long term contracts too. So the vast majority of that increase is on the contract side.

[Jacob Gunning, Equity Research Senior Associate at Evercore ISI]

Okay. Thank you.

[Operator]

And there are no further questions at this time. So I would now like to turn the conference back over to Mr. Chip Childs for closing remarks.

[Chip Childs, President and CEO at SkyWest]

Yes. I'll end with where we started. Again, our hearts and minds go out to those that were affected by the unfortunate event of last evening. We continue to support our colleagues in that effort. We're humbled to be associated with the most amazing team in the industry with our people and hats off to how good that they continue to support and buy into our integrated model that we have to continue to grow long term.

[Chip Childs, President and CEO at SkyWest]

We appreciate the support from shareholders and everyone that's interested in our call. We appreciate and are humbled at the opportunity which we have to do the things in which we do because we're very, very passionate about it. So with that, we'll end the call and talk to you next quarter. Thank you.

[Operator]

And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.

Participants

Executives

• Robert Simmons, Chief Financial Officer
• Eric Woodward, Chief Accounting Officer
• Chip Childs, President and CEO
• Wade Steel, Chief Commercial Officer

Analysts

• Savanthi Syth, Managing Director at Raymond James Financial
• Shannon Doherty, Analyst at Deutsche Bank
• Catherine O'Brien, Vice President at Goldman Sachs
• Tom Fitzgerald, VP - Equity Research at TD Cowen
• Jacob Gunning, Equity Research Senior Associate at Evercore ISI