Allowance for credit losses
The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of September 30, 2022,2023, the Company had gross receivables of $94.2$136.3 million in current assets and gross receivables of $227.6$200.0 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or notes receivable. During the nine months ended September 30, 2022, there2023, the Company wrote-off a $3.6 million receivable that was fully reserved as of December 31, 2022. There were no other significant changes in the outstanding accounts receivable, or notes receivable or the credit ratings of the entities.
The Company’sfollowing table summarizes the changes in allowance for credit loss reserve was $38.0 million at September 30, 2022, compared to $42.0 million at December 31, 2021. The $4.0 million decrease in the credit loss reserve for the nine months ended September 30, 2022, was reflected as a decrease to the credit loss expense.losses:
| | | |
| | Allowance for Credit Losses |
Balance at December 31, 2022 | | $ | 37,385 |
Adjustments to credit loss reserves | | | (1,789) |
Write-offs charged against allowance | | | (3,570) |
Balance at September 30, 2023 | | $ | 32,026 |
(3) Stock-Based Compensation
During the nine months ended September 30, 2022,2023, the Company granted 66,680125,780 restricted stock units and 225,345391,810 performance shares to certain employees of the Company under the SkyWest, Inc. 2019 Long-Term Incentive Plan. Both the restricted stock units and performance shares have a three-year vesting period, during which the recipient must remain employed with the Company. The number of performance shares awardable from the 20222023 grants can range from 0% to 250% of the original amount granted depending on the Company’s performance over three one-year measurement periods against the pre-established targets. Upon vesting, each restricted stock unit and performance share
will be replaced with one share of common stock. The weighted average fair value of these restricted stock units and performance shares on their date of grant was $32.76$18.65 per share. During the nine months ended September 30, 2022,2023, the Company did not grant any options to purchase shares of common stock to employees. Additionally, during the nine months ended September 30, 2022,2023, the Company granted 24,42337,534 fully vested shares of common stock to the Company’s directors at a grant date fair value of $32.86.$18.65.
The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur. The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods. Stock-based compensation expense for the performance shares is based on the Company’s anticipated outcome of achieving the performance metrics. During the nine months ended September 30, 20222023 and 2021,2022, the Company recorded pre-tax stock-based compensation expense of $12.9 million and $11.1 million, respectively.
(4) Stock Repurchase
The Company’s Board of Directors has adopted stock repurchase programs in both February 2019 and $7.3May 2023, which authorize the Company to repurchase shares of the Company’s common stock in the public market or in private transactions, from time to time, at prevailing prices. The Company’s February 2019 stock repurchase program authorized the repurchase of up to $250.0 million respectively.of the Company’s common stock. In May 2023, the Company’s Board of Directors authorized the repurchase of up to $250.0 million of the Company’s common stock, superseding the February 2019 authorization. At September 30, 2023, $135.9 million remains available under the May 2023 authorization.
During the nine months ended September 30, 2023, the Company repurchased 9.6 million shares of common stock for $244.1 million at a weighted average price per share of $25.44. The Company also recorded $2.4 million of excise tax related to the stock repurchases as Treasury Stock in the Company’s Stockholders Equity for the nine months ended September 30, 2023. The Company did not have any stock repurchases during the nine months ended September 30, 2022.
(6) Assets Held for Sale
During the nine months ended September 30, 2022, the Company committed to a formal plan to sell four CRJ-700 aircraft. The aircraft are expected to be disposed of via sale within the next 12 months. Accordingly, the Company determined the aircraft met the criteria to be classified as assets held for sale. The Company presented the $13.5 million of assets held for sale at the lower of their current carrying value or their fair market value less costs to sell and included the amount in “Other current assets” on the Company’s consolidated balance sheet. The fair values are based upon observable and unobservable inputs, including market trends and conditions. The assumptions used to determine the fair value of the assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes which the Company will continue to monitor in future periods as new information becomes available. Prior to the ultimate sale of the assets, subsequent changes in the estimate of the fair value of the assets held for sale will be recorded as a gain or loss with a corresponding adjustment to the assets’ carrying value. In connection with the classification of these assets as held for sale, the Company recorded an impairment loss of $15.2 million, which is included in “Other operating expenses” on the Company’s consolidated statements of comprehensive income and in the SkyWest Leasing segment for the nine months ended September 30, 2022.
(7) Leases, Commitments, Guarantees and Contingencies
The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Aircraft
During the nine months ended September 30, 2023, the Company acquired 35 CRJ aircraft under early lease buyout arrangements with the lessors for $142.4 million, which included three CRJ aircraft acquired during the three months ended September 30, 2023. The aircraft were in the Company’s operating fleet when the lease buyouts occurred. As of September 30, 2022,2023, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company was the lessee of 43leased eight aircraft under long-term lease agreements with remaining terms ranging from two yearssix to eightseven years.
Airport facilities
The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the various airports. The remaining lease terms for facility space vary from one month to 3433 years. The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance.
Leases
As of September 30, 2022, the Company’s right-of-use assets were $192.7 million, the Company’s current maturities of operating lease liabilities were $74.1 million, and the Company’s noncurrent lease liabilities were $117.8 million. During the nine months ended September 30, 2022, the Company paid $56.9 million in operating leases reflected as a reduction from operating cash flows.
The table below presents lease related terms and discount rates as of September 30, 2022.
| |
| As of September 30, 2022
|
Weighted-average remaining lease term for operating leases
| 6.4 years
|
Weighted-average discount rate for operating leases
| 6.0%
|
Leases
As of September 30, 2023, the Company’s right-of-use assets were $85.7 million, the Company’s current maturities of operating lease liabilities were $19.2 million, and the Company’s noncurrent lease liabilities were $66.5 million. During the nine months ended September 30, 2023, the Company paid $26.2 million under operating leases reflected as a reduction from operating cash flows.
The table below presents lease related terms and discount rates as of September 30, 2023:
| |
| |
Weighted-average remaining lease term for operating leases | 10 years |
Weighted-average discount rate for operating leases | 6.1% |
The Company’s lease costs for the three and nine months ended September 30, 20222023 and 20212022 included the following components (in thousands):
| | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | | $ | 21,697 | | $ | 23,370 | | $ | 65,360 | | $ | 67,582 |
Variable and short-term lease cost | | | 765 | | | 976 | | | 2,588 | | | 3,256 |
Sublease income | | | (1,845) | | | (1,888) | | | (5,492) | | | (4,717) |
Total lease cost | | $ | 20,617 | | $ | 22,458 | | $ | 62,456 | | $ | 66,121 |
| | | | | | | | | | | | |
| | For the three months ended September 30, | | For the nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Operating lease cost | | $ | 7,959 | | $ | 21,697 | | $ | 40,764 | | $ | 65,360 |
Variable and short-term lease cost | | | 868 | | | 765 | | | 2,205 | | | 2,588 |
Sublease income | | | (1,350) | | | (1,845) | | | (4,051) | | | (5,492) |
Total lease cost | | $ | 7,477 | | $ | 20,617 | | $ | 38,918 | | $ | 62,456 |
As of September 30, 2022,2023, the Company leased aircraft, airport facilities, office space and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. The Company expects that, in the normal course of business, such operating leases that expire may be renewed or replaced by other leases, or the property may be purchased rather than leased. The following table summarizes future minimum rental payments primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, 20222023 (in thousands):
| | | |
July 2022 through December 2022 | | $ | 22,328 |
2023 | | | 76,223 |
2024 | | | 33,452 |
2025 | | | 17,590 |
2026 | | | 15,491 |
Thereafter | | | 72,872 |
| | $ | 237,956 |
| | | |
October 2023 through December 2023 | | $ | 5,044 |
2024 | | | 19,553 |
2025 | | | 16,240 |
2026 | | | 13,511 |
2027 | | | 12,316 |
Thereafter | | | 54,367 |
Total future minimum operating lease payments | | $ | 121,031 |
As of September 30, 2022,2023, the Company had a firm purchase commitment for eight23 E175 aircraft from Embraer S.A. (“Embraer”) with anticipated delivery dates through 2025.2026.
As of September 30, 2022,2023, and December 31, 2021,2022, the Company held certain assets that are required to be measured at fair value on a recurring basis. The Company’s assets measured at fair value on a recurring basis are summarized below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements as of September 30, 2022 | | Fair Value Measurements as of September 30, 2023 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Marketable Securities | | | | | | | | | | | | | | | | | | | | | | | | |
Bonds and bond funds | | $ | 645,346 | | $ | — | | $ | 645,346 | | $ | — | | $ | 633,538 | | $ | — | | $ | 633,538 | | $ | — |
Commercial paper | | | 320,001 | | | — | | | 320,001 | | | — | | | 60,633 | | | — | | | 60,633 | | | — |
| | $ | 965,347 | | $ | — | | $ | 965,347 | | $ | — | | $ | 694,171 | | $ | — | | $ | 694,171 | | $ | — |
Investments in Other Companies | | | 26,112 | | | 9,240 | | | — | | | 16,872 | | | 18,465 | | | 4,380 | | | — | | | 14,085 |
Cash and Cash Equivalents | | | 38,850 | | | 38,850 | | | — | | | — | | | 125,330 | | | 125,330 | | | — | | | — |
Total Assets Measured at Fair Value | | $ | 1,030,309 | | $ | 48,090 | | $ | 965,347 | | $ | 16,872 | | $ | 837,966 | | $ | 129,710 | | $ | 694,171 | | $ | 14,085 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements as of December 31, 2021 | | Fair Value Measurements as of December 31, 2022 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Marketable Securities | | | | | | | | | | | | | | | | | | | | | | | | |
Bonds and bond funds | | $ | 54,673 | | $ | — | | $ | 54,673 | | $ | — | | $ | 624,254 | | $ | — | | $ | 624,254 | | $ | — |
Commercial paper | | | 547,316 | | | — | | | 547,316 | | | — | | | 319,977 | | | — | | | 319,977 | | | — |
| | $ | 601,989 | | $ | — | | $ | 601,989 | | $ | — | | $ | 944,231 | | $ | — | | $ | 944,231 | | $ | — |
Investments in Other Companies | | | | 21,380 | | | 7,200 | | | — | | | 14,180 |
Cash and Cash Equivalents | | | 258,421 | | | 258,421 | | | — | | | — | | | 102,984 | | | 102,984 | | | — | | | — |
Total Assets Measured at Fair Value | | $ | 860,410 | | $ | 258,421 | | $ | 601,989 | | $ | — | | $ | 1,068,595 | | $ | 110,184 | | $ | 944,231 | | $ | 14,180 |
The Company’s “marketable securities” classified as Level 2 securities primarily utilize broker quotes in a non-active market for valuation of these securities. See Note 10 “Investments in Other Companies” regarding the Company’s investment in other companies, for the nine months ended September 30, 2022.2023.
The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2022.2023. The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.
As of September 30, 2022,2023, and December 31, 2021,2022, the Company classified $965.3$694.2 million and $602.0$944.2 million of marketable securities, respectively, as short-term sincebecause it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year. As of September 30, 2022,2023, and December 31, 2021,2022, the cost of the Company’s total cash and cash equivalents and marketable securities was $1,010.2$694.4 million and $860.4$949.3 million, respectively.
As of September 30, 2023, the Company had $56.7 million in held-for-sale assets included in “Other current assets” on the Company’s consolidated balance sheet related to 14 CRJ700 aircraft. The fair values were based upon observable and unobservable inputs, including a third-party valuation, market trends and conditions of the airframes and engines, considered Level 3 within the fair value hierarchy. The assumptions used to determine the fair value of the assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes, which the Company will continue to monitor in future periods as new information becomes available. The Company did not record a gain or loss associated with its assets held for sale during the nine months ended September 30, 2023.
(9) Long-term Debt
Long-term debt consisted of the following as of September 30, 2022,2023, and December 31, 20212022 (in thousands):
| | | | | | | | | | |
| | September 30, 2022 | | | December 31, 2021 | | September 30, 2023 | | | December 31, 2022 |
Current portion of long-term debt | $ | 433,283 | | $ | 395,371 | $ | 446,924 | | $ | 442,360 |
Current portion of unamortized debt issue cost, net | | (3,858) | | | (3,573) | | (3,738) | | | (3,858) |
Current portion of long-term debt, net of debt issue costs | $ | 429,425 | | $ | 391,798 | $ | 443,186 | | $ | 438,502 |
| | | | | | | | | | |
Long-term debt, net of current maturities | $ | 3,008,451 | | $ | 2,745,567 | $ | 2,655,391 | | $ | 2,966,951 |
Long-term portion of unamortized debt issue cost, net | | (26,417) | | | (28,147) | | (21,684) | | | (25,179) |
Long-term debt, net of current maturities and debt issue costs | $ | 2,982,034 | | $ | 2,717,420 | $ | 2,633,707 | | $ | 2,941,772 |
| | | | | | | | | | |
Total long-term debt (including current portion) | $ | 3,441,734 | | $ | 3,140,938 | $ | 3,102,315 | | $ | 3,409,311 |
Total unamortized debt issue cost, net | | (30,275) | | | (31,720) | | (25,422) | | | (29,037) |
Total long-term debt, net of debt issue costs | $ | 3,411,459 | | $ | 3,109,218 | $ | 3,076,893 | | $ | 3,380,274 |
As of September 30, 2023, the Company had $3.1 billion of total long-term debt, which consisted of $2.9 billion of debt used to finance aircraft and spare engines and $200.6 million of unsecured debt payable to U.S. Treasury. The average effective interest rate on the Company’s debt was approximately 4.1% at September 30, 2023.
During the nine months ended September 30, 2022,2023, the Company took delivery of 21 new E175 aircraft that the Company financed through $430.9 million of long-term debt. executed a promissory note for $25.0 million. The debt associated with the E175 aircraftpromissory note has an eight-year5- to 12-year terms, term, is due in monthly or quarterly installments, has a fixed annual interest rate of 5.6% and is secured by the E175 aircraft.spare engines.
During the nine months endedAs of September 30, 2023 and December 31, 2022, the Company executed promissory notes for $167.9 million. The promissory notes have three- to four-year terms, are due in monthly installments with fixed annual interest rates of 3.6% to 4.7%had $50.8 million and are secured by spare engines.
As of both September 30, 2022, and December 31, 2021, the Company had $61.4$59.2 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.
As of September 30, 2022,2023, SkyWest Airlines had a $100$100.0 million line of credit with an expiration date of March 25, 2025.credit. The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets. As of September 30, 2022,2023, SkyWest Airlines had no amountamounts outstanding under the facility. However, at September 30, 2022,2023, SkyWest Airlines had $31.4$29.9 million in letters of credit issued under the facility, which reduced the amount available under the facility to $68.6$70.1 million. The line of credit expires March 25, 2025 and has a variable interest rate of 3.5% plus the one month SOFR rate.
The Company’s debt agreements are not traded on an active market and are recorded at carrying value on the Company’s consolidated balance sheet. The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt. Debt is primarily classified as Level 2 within the fair value hierarchy. The carrying value and fair value of the Company’s long-term debt as of September 30, 20222023 and December 31, 2021,2022, were as follows (in thousands):
| | | | | | | | | | | |
| | September 30, 2022 | | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Carrying value | $ | 3,441,734 | | $ | 3,140,938 | | $ | 3,102,315 | | $ | 3,409,311 |
Fair value | $ | 3,298,578 | | $ | 3,132,072 | | $ | 2,940,851 | | $ | 3,264,704 |
(10) Investments in Other Companies
Equity Method Investment
During 2019, the Company created a joint venture with Regional One, Inc. (“Regional One”) by investing $22.3and, as of September 30, 2023, has invested a total of $26.6 million for a 75%an ownership interest in Aero Engines, LLC. (“Aero Engines”). The Company invested an additional $1.0 million into Aero Engines in 2020 and $3.3 million during the first quarter of 2022 and retained a 75% ownership interest. The primary purpose of Aero Engines is to lease engines to third parties. Aero Engines requires unanimous approval from the Company and Regional One for its engine purchases, dispositions, lease agreements with third parties and all other material transactions. The Company determined Aero Engines is a variable interest entity as the Company
September 30, 2022,2023, the Company’s investment balance in Aero Engines was $24.7 million. The Company’s investment in Aero Engines$25.0 million and has been recorded in “Other Assets” on the Company’s consolidated balance sheet. The Company’s portion of earningsincome generated by Aero Engines for the nine months ended September 30, 2022,2023, was $1.2$0.1 million, which is recorded in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income.
Fair Value Method Investments
In 2021, the Company entered into a strategic partnership with Eve UAM, LLC (“Eve UAM”), to develop a network of deployment for Eve UAM’s electric vertical takeoff and landing (“eVTOL”) aircraft. The Company signed a non-binding letter of intent to purchase 100 eVTOL(eVTOL) aircraft.
During the nine months ended September 30,In 2022, the Company acquired 1,000,000 shares of common stock of Eve Holding, Inc. (“Eve”) and a warrant giving the Company the right to acquire 1,500,000 shares of common stock of Eve at an exercise price of $0.01 per share. The Company also received a put option from an Eve shareholder for the 1,000,000 shares of common stock of Eve payable in aircraft parts credits. The intent of the put option is to reduce the Company’s investment risk in Eve. The warrant expires in May 2032,Eve, and the put option expires in December 2031. The Company is restricted from selling the shares underlying the warrant until May 2025, and the warrant expires in May 2032. The Company acquired the shares of common stock, warrant and put option (collectively the “Eve Investments”) for $10.0 million. The Company evaluated the Eve Investments under Accounting Standard Codification (“ASC”) Topic 321, “Investments – Equity Securities” and ASC Topic 815, “Derivatives and Hedging,” and recorded the Eve Investments based on their pro rata share of the consideration paid using the fair value of the Eve Investments on the acquisition date, with subsequent changes in the fair value reported in earnings. During the three months ended September 30, 2023, the Company sold 471,654 shares of common stock of Eve, which concurrently forfeited the number of shares subject to the put option from the Eve shareholder by 471,654 shares. The Company’s sale of the Eve shares, net of the forfeited put options, resulted in a realized gain of $1.7 million and was included in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income for the three months ended September 30, 2023.
The shares of common stock of Eve are classified as Level 1 within the fair value hierarchy as Eve stock is actively traded on the New York Stock Exchange, and the value is determined using quoted market prices for the equity security. The warrant and put option are classified as Level 3 within the fair value hierarchy (“Eve Level 3 Investments”), and the Company used the Black Scholes Option Pricing Model to determine the estimated fair market value of the warrant and put option,Eve Level 3 Investments, including an expected volatility of 49%50%, which is a significant unobservable input that was derived from historical volatility of comparable companies.
The table below shows the reconciliation of the Eve Level 3 warrant and put option Eve Investments (in thousands):
| | | | | | |
Balance at March 31, 2022 | | $ | — | |
Eve Level 3 Investments: | | Eve Level 3 Investments: | | |
Balance at December 31, 2022 | | | $ | 14,180 |
Purchases | | | 6,551 | | | — |
Realized loss on forfeiture of put options | | | | (649) |
Unrealized gains | | | 6,773 | | | 554 |
Balance at June 30, 2022 | | $ | 13,324 | |
Unrealized gains | | | 3,548 | |
Balance at September 30, 2022 | | $ | 16,872 | |
Balance at September 30, 2023 | | | $ | 14,085 |
The Company recognized unrealized gainslosses of $16.1$0.6 million in “Other income(loss), net” on the Company’s consolidated statements of comprehensive income for the nine months ended September 30, 2022,2023, related to the Eve Investments. As of September 30, 2022,2023, the fair value of the Eve Investments was $26.1$18.5 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.
(11) Income Taxes
The Company’s effective tax rate for the threenine months ended September 30, 20222023 was 14.8%(6.0)%. The Company’s effective tax rate for the threenine months ended September 30, 20222023 varied from the federal statutory rate of 21.0% primarily due to a benefit from the release of $7.4$7.6 million of a previously recorded uncertain tax position liability withand a benefit from a partial release of the benefitvaluation allowance on state net operating losses anticipated to be utilized prior to expiration. These benefits were partially offset by the provision for state income taxes, the impact of non-deductible expenses and a discrete tax expense on employee equity transactions that occurred during the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization.nine months ended September 30, 2023.
The Company’s effective tax rate for the nine months ended September 30, 2022 was 22.2%. The Company’s effective tax rate for the nine months ended September 30, 2022 varied from the federal statutory rate of 21.0% primarily due to a benefit from the release of $7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the provision for state income taxes, the impact of non-deductible expenses and the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization.
The Company’s effective tax rate for the three and nine months ended September 30, 2021 was 31.9% and 26.1%, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2021 varied from the federal statutory rate of 21.0% primarily due to the provision for state income taxes and the impact of non-deductible expenses.
(12) Special Items – Impairment Charge
During the three and nine months ended September 30, 2021, the Company recorded a non-cash impairment charge of $84.6 million to write-down certain CRJ900 aircraft to their estimated fair value. In 2021, the Company evaluated its CRJ900 fleet and related CRJ900 assets for impairment. Pursuant to ASC 360-10, “Impairment and Disposal of Long-Lived Assets,” the Company determined that the asset group for the CRJ900 aircraft existed at the major airline partner level. A recoverability test was performed utilizing estimated undiscounted future cash flows for the CRJ900 aircraft pursuant to applicable capacity purchase agreement terms and forecasted cash flow including the estimated value the Company would realize upon disposal of aircraft. This was compared to the carrying value of the related assets resulting in a cash flow deficiency indicating that an impairment existed. The impairment analysis required the Company to perform an assessment of the fair value of its long-lived assets related to the CRJ900 aircraft within the asset groups utilized in the recoverability test. The Company engaged a third party to assist in determining the fair value of these aircraft. These values were estimated based on listed market values or recent third-party market transactions for similar assets, adjusted by the related maintenance status of the fleet. This special item impairment charge is reflected in the SkyWest Airlines operating expenses under Note 5, “Segment Reporting” for the three and nine months ended September 30, 2021. The Company did not have a similar impairment charge at the fleet level during the nine months ended September 30, 2022.
(13) Legal Matters
The Company is subject to certain legal actions which it considers routine to its business activities. As of September 30, 2022,2023, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations.
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“SkyWest” “we” or “us”) during the three- and nine-month periods ended September 30, 20222023 and 2021.2022. Also discussed is our financial condition as of September 30, 2022,2023, and December 31, 2021.2022. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and nine months ended September 30, 2022,2023, including the notes thereto, appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” for discussion of uncertainties, risks and assumptions associated with these statements.
Cautionary Statement Concerning Forward-Looking Statements
Certain of the statements contained in this Report should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “hope,” “likely,” and “continue” and similar terms used in connection with statements regarding our outlook, anticipated operations, the revenue environment, our contractual relationships, and our anticipated financial performance. These statements include, but are not limited to, statements regardingabout the impact ofcontinued demand for our product, recovery from the COVID-19 pandemic, economic conditions and the captain shortage on our
SkyWest’s business, financial condition and results of operations, and financial conditionthe scheduled aircraft deliveries for SkyWest in upcoming periods and the impactrelated execution of any measures, including travel restrictions, takenSkyWest’s fleet transition strategy and expected timing thereof, expected production levels in future periods and associated staffing challenges, pilot attrition trends, SkyWest’s coordination with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner” and together, “major airline partners”) to mitigateoptimize the effectdelivery of aircraft under previously announced agreements, the pandemic, our future growthexpected terms, timing and developmentbenefits related to SkyWest’s leasing and joint venture transactions, SkyWest’s plans including ourto operate public charter service to underserved communities in the United States and the expected timing thereof, as well as SkyWest’s future financial and operating results, our plans, objectives, expectations, estimates, intentions and intentionsoutlook, and other statements that are not historical facts. Readers should keepAll forward-looking statements included in mind that all forward-looking statementsthis Report are made as of the date hereof and are based on our existing beliefs about presentinformation available to SkyWest as of such date. SkyWest assumes no obligation to update any forward-looking statements unless required by law. Readers should note that many factors could affect the future operating and future events outsidefinancial results of our controlSkyWest and on assumptions that may provecould cause actual results to be incorrect. If one or more risks identifiedvary materially from those expressed in forward-looking statements set forth in this Report materializes,Report. These factors include, but are not limited to, uncertainty regarding recovery from the COVID-19 pandemic and other potential future outbreaks of infectious diseases or any other underlying assumption proves incorrect,health concerns, and the consequences of such outbreaks to the travel industry and our actualmajor partners in general and the financial condition and operating results of SkyWest in particular, the prospects of entering into agreements with existing or other carriers to fly new aircraft, ongoing negotiations between SkyWest and its major partners regarding their contractual obligations, uncertainties regarding operation of new aircraft, the ability to attract and retain qualified pilots, including captains, and related staffing challenges, the impact of regulatory issues such as pilot rest rules and qualification requirements, and the ability to obtain aircraft financing.
Actual operational and financial results of SkyWest will likely also vary, and may vary materially, from those anticipated, estimated, projected or intendedexpected for a number of other reasons, including, but not limited to: the uncertainty of the duration, scope and impact of COVID-19; a further spread or worsening of COVID-19 or other potential future outbreaks of infectious diseases or other health concerns; the consequences of the COVID-19 pandemicin addition to global economic conditions, the travel industry and our major airline partners in general and our financial condition and results of operations in particular;those identified above: the challenges of competing successfully in a highly competitive and rapidly changing industry; developments associated with fluctuations in the economy and the demand for air travel, including as a result ofrelated to recovery from the COVID-19 pandemic, inflationary pressures, and due to inflationary pressures;related decreases in customer demand and spending; the financial stability of United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “majorSkyWest’s major airline partner”)partners and any potential impact of their financial condition on our operations;the operations of SkyWest; fluctuations in flight schedules, which are determined by the major airline partners for whom SkyWest conducts flight operations; variations in market and economic conditions; significant aircraft lease and debt commitments; realizationestimated useful life of manufacturer residual value guarantees on applicable SkyWest aircraft;long-lived assets, residual aircraft values and related impairment charges; labor relations and costs;costs and labor shortages; the ability to attract and retain qualified pilots; potential fluctuations inimpact of global instability; rapidly fluctuating fuel costs and potential fuel shortages; the impact of global instability, including the ongoing military conflict between Russia and the Ukraine; the impact of weather-related or other natural disasters on air travel and airline costs; aircraft deliveries; uncertainty regarding ongoing hostility between Russia and new aircraft deliveries,the Ukraine, as well as the Israeli-Palestinian military conflict, and the related impacts on macroeconomic conditions and on the international operations of any of our major
airline partners as a result of such conflict; recovery from the global COVID-19 pandemic and the outbreak of any other disease or similar public health threat that affects travel demand or travel behavior; as well as the other factors identified under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, under the heading “Risk Factors” in Part II, Item 1A of this Report, elsewhere in this Report, in our other filings with the Securities and Exchange Commission (the “SEC”) and other unanticipated factors.
There may be other factors that may affect matters discussed in forward-looking statements set forth in this Report, which factors may also cause actual results to differ materially from those discussed. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that we have filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by applicable law.
Overview
We have the largest regional airline operation in the United States through our operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”). As of September 30, 2022,2023, we offered scheduled passenger and air freight service with approximately 2,1002,030 total daily departures to destinations in the United States, Canada and Mexico. Our fleet of Embraer E175 regional jet aircraft (“E175”), Canadair CRJ900 regional jet aircraft (“CRJ900”) and Canadair CRJ700 regional jet aircraft (“CRJ700”) have a multiple-class seat configuration, whereas our Canadair CRJ200 regional jet aircraft (“CRJ200”) aircraft have a single-class seat configuration. During 2022, we formed SkyWest Charter, LLC (“SWC”), with the intent to offer on-demand charter service and public charter service to underserved communities in the United States. As of September 30, 2022,2023, we had 642607 total aircraft in our fleet, including 530493 aircraft in scheduled service or under contract under our code-share agreements, summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | E175 | | CRJ900 | | CRJ700 | | CRJ200 | | Total | | E175 | | CRJ900 | | CRJ700 | | CRJ200 | | Total |
United | | 90 | | — | | 19 | | 111 | | 220 | | 90 | | — | | 19 | | 89 | | 198 |
Delta | | 80 | | 44 | | 5 | | 29 | | 158 | | 83 | | 37 | | 9 | | 15 | | 144 |
American | | 20 | | — | | 90 | | — | | 110 | | 20 | | — | | 89 | | — | | 109 |
Alaska | | 42 | | — | | — | | — | | 42 | | 42 | | — | | — | | — | | 42 |
Aircraft in scheduled service or under contract | | 232 | | 44 | | 114 | | 140 | | 530 | | 235 | | 37 | | 117 | | 104 | | 493 |
SWC | | | — | | — | | — | | 13 | | 13 |
Leased to third parties | | — | | 5 | | 35 | | — | | 40 | | — | | 5 | | 35 | | — | | 40 |
Other* | | — | | — | | 18 | | 54 | | 72 | |
Other (1) | | | — | | 7 | | 15 | | 39 | | 61 |
Total Fleet | | 232 | | 49 | | 167 | | 194 | | 642 | | 235 | | 49 | | 167 | | 156 | | 607 |
* As of September 30, 2022, other aircraft included: supplemental spare aircraft supporting our code-share agreements
As of September 30, 2022,2023, approximately 41.5%40.2% of our aircraft in scheduled service or under contract were operated for United, approximately 29.8%29.2% were operated for Delta, approximately 20.8%22.1% were operated for American and approximately 7.9%8.5% were operated for Alaska.
Historically, multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee arrangements (referred to as “capacity purchase agreements”)purchase” agreements) and revenue-sharing arrangements (referred to as “prorate” agreements). For the nine months ended September 30, 2022,2023, capacity purchase revenue and prorate revenue represented approximately 88.0%87.2% and 12.0%12.8%, respectively, of our total flying agreements revenue. On capacity purchase routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours (measured from takeoff to landing, including taxi time), flight departures, the number of aircraft under contract and other operating measures. On prorate routes, we have more control over scheduling, pricing and seat inventories, and we share passenger fares with our major airline partners according to prorate formulas. Our prorate revenue and profitability may fluctuate based on ticket prices and passenger loads, and we are responsible for the operating costs of the prorate flights, including fuel and airport costs.
Third Quarter Summary
We had total operating revenues of $766.2 million for the three months ended September 30, 2023, a 2.9% decrease compared to total operating revenues of $789.4 million for the three months ended September 30, 2022, a 6.0% increase compared to total operating revenues2022. We had net income of $744.8$23.5 million, or $0.55 per diluted share, for the three months ended September 30, 2021. We had2023, compared to net income of $48.4 million, or $0.96 per diluted share, for the three months ended September 30, 2022, compared to net income of $9.7 million, or $0.19 per diluted share, for the three months ended September 30, 2021.2022. The significant items affecting our revenue and operating expenses during the three months ended September 30, 2022,2023, are outlined below:
Revenue
The number of aircraft we have in scheduled service or under contract underpursuant to our code-share agreements and the number of block hours we incur on our flights are primary drivers of our flying agreements revenue under our capacity purchase agreements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers of our revenue under our prorate flying agreements. The number of aircraft we have in scheduled service or under contract under code-share agreements increaseddecreased from 486 as of September 30, 2021 to 530 as of September 30, 2022;2022 to 493 as of September 30, 2023; and the number of block hours decreased from 370,462 for the three months ended September 30, 2021 to 323,742 for the three months ended September 30, 2022 to 290,830 for the three months ended September 30, 2023, or by 12.6%10.2%, due to a reduction in scheduled daily utilization of our aircraft primarily caused by pilot availability constraints.
Our capacity purchase revenue increased $78.0decreased $36.6 million, or 13.2%5.5%, from the three months ended September 30, 20212022 to the three months ended September 30, 2022,2023, primarily as a result of temporary rate reductions we provideda reduction in completed block hours for the comparable periods and amendments to
our major airline partners under our certain capacity purchase agreements since September 30, 2022 that resulted in deferring the recognition of revenue on fixed monthly payments we received during the three months ended September 30, 2021, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. We did not provide our major airline partners temporary rate reductions during the three months ended September 30, 2022. Additionally, our capacity purchase agreement revenue increased during the three months ended September 30, 2022, due to more aircraft under contract, partially offset by a reduction in completed block hours compared to the three months ended September 30, 2021.2023. As a result of fewer departureshigher passenger fares under our prorate agreements, and fewer passengers carried on our prorate routes, our prorate revenue decreased $33.6increased $14.9 million, or 26.2%15.8%, for the three months ended September 30, 2022,2023, as compared to the three months ended September 30, 2021.2022.
Operating Expenses
Our total operating expenses increased $16.1$3.0 million, or 2.3%0.4%, for the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021.2022. The increase in operating expenses was primarily due to an increase in salaries, wages and benefits offset by a decrease in maintenance expense for the three months ended September 30, 2022, as a result of the timing of heavy maintenance events for the three months ended September 30, 2022, as2023, compared to the three months ended September 30, 2021. Our operating expenses for the three months ended September 30, 2021 also included a $115.4 million grant benefit from the payroll support program reflected as a reduction to our operating expenses,2022, partially offset by an $84.6 million, non-cash impairment charge. We did not have a similar payroll grant benefit or impairment duringdecrease in aircraft rent expense due to the three months endedearly lease buyouts of 35 CRJ aircraft since September 30, 2022.2022 and lower operating costs as a result of lower production. Departures decreased from 210,251 for the three months ended September 30, 2021 to 194,683 for the three months ended September 30, 2022 to 180,069 for the three months ended September 30, 2023, or by 7.4%7.5%. Additional details regarding the increase in our operating expenses are described in the section of this Report entitled “Results of Operations.”
Fleet Activity
The following table summarizes our fleet scheduled for service or under contract as of:
| | | | | | | | | | | | |
Aircraft in Service or Under Contract | | September 30, 2022 | | December 31, 2021 | | September 30, 2021 | | September 30, 2023 | | December 31, 2022 | | September 30, 2022 |
E175s | | 232 | | 211 | | 199 | | 235 | | 236 | | 232 |
CRJ900s | | 44 | | 44 | | 40 | | 37 | | 41 | | 44 |
CRJ700s | | 114 | | 114 | | 106 | | 117 | | 104 | | 114 |
CRJ200s | | 140 | | 140 | | 141 | | 104 | | 136 | | 140 |
Total | | 530 | | 509 | | 486 | | 493 | | 517 | | 530 |
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 20212022, and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are presented in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, long-lived assets, and income tax. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates. There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2022.2023.
Results of Operations
Three Months Ended September 30, 20222023 and 20212022
Operational Statistics
The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The decrease in block hours, departures and passengers carried during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021,2022, was primarily due to labor constraints, including the number of available captains during the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
| | | | | | | |
| | For the three months ended September 30, |
Block hours by aircraft type: | | 2023 | | 2022 | | % Change |
E175s | | 171,615 | | 169,679 | | 1.1 | % |
CRJ900s | | 18,979 | | 25,134 | | (24.5) | % |
CRJ700s | | 56,117 | | 62,540 | | (10.3) | % |
CRJ200s | | 44,119 | | 66,389 | | (33.5) | % |
Total block hours | | 290,830 | | 323,742 | | (10.2) | % |
| | | | | | | |
| | | | | | | |
Departures | | 180,069 | | 194,683 | | (7.5) | % |
Passengers carried | | 10,208,005 | | 10,715,415 | | (4.7) | % |
Passenger load factor | | 85.1 | % | 84.6 | % | 0.5 | pts |
Average passenger trip length (miles) | | 446 | | 488 | | (8.6) | % |
including the number of available captains, offset by additional E175 aircraft operating under our capacity purchase agreements.
| | | | | | | |
| | For the three months ended September 30, |
Block hours by aircraft type: | | 2022 | | 2021 | | % Change |
E175s | | 169,679 | | 169,143 | | 0.3 | % |
CRJ900s | | 25,134 | | 34,031 | | (26.1) | % |
CRJ700s | | 62,540 | | 78,788 | | (20.6) | % |
CRJ200s | | 66,389 | | 88,500 | | (25.0) | % |
Total block hours | | 323,742 | | 370,462 | | (12.6) | % |
| | | | | | | |
| | | | | | | |
Departures | | 194,683 | | 210,251 | | (7.4) | % |
Passengers carried | | 10,715,415 | | 10,862,343 | | (1.4) | % |
Passenger load factor | | 84.6 | % | 79.1 | % | 5.5 | pts |
Average passenger trip length (miles) | | 488 | | 537 | | (9.0) | % |
Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the three months ended September 30, |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Flying agreements | | $ | 763,514 | | $ | 719,084 | | $ | 44,430 | | 6.2 | % | | $ | 741,898 | | $ | 763,514 | | $ | (21,616) | | (2.8) | % |
Lease, airport services and other | | | 25,929 | | | 25,699 | | | 230 | | 0.9 | % | | | 24,273 | | | 25,929 | | | (1,656) | | (6.4) | % |
Total operating revenues | | $ | 789,443 | | $ | 744,783 | | $ | 44,660 | | 6.0 | % | | $ | 766,171 | | $ | 789,443 | | $ | (23,272) | | (2.9) | % |
Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties, separate from our capacity purchase agreements, and providing airport counter, gate and ramp services.
We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the three months ended September 30, |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Capacity purchase agreements revenue: flight operations | | $ | 376,596 | | $ | 308,273 | | $ | 68,323 | | 22.2 | % | |
Capacity purchase agreements revenue: aircraft lease and fixed revenue | | | 292,174 | | | 282,498 | | | 9,676 | | 3.4 | % | |
Capacity purchase agreements flight operations revenue | | | $ | 511,929 | | $ | 534,781 | | $ | (22,852) | | (4.3) | % |
Capacity purchase agreements aircraft lease revenue | | | | 120,289 | | | 133,989 | | | (13,700) | | (10.2) | % |
Prorate agreements revenue | | | 94,744 | | | 128,313 | | | (33,569) | | (26.2) | % | | | 109,680 | | | 94,744 | | | 14,936 | | 15.8 | % |
Flying agreements revenue | | $ | 763,514 | | $ | 719,084 | | $ | 44,430 | | 6.2 | % | | $ | 741,898 | | $ | 763,514 | | $ | (21,616) | | (2.8) | % |
The increasedecrease in “Capacity purchase agreements revenue: flight operations” of $68.3$22.9 million, or 4.3%, was primarily due to temporary rate reductions we providedan increase in deferred revenue related to our major airline partnersfixed monthly payments for flight operations received under our capacity purchase agreements duringfor the three months ended September 30, 2021, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. We did not provide our major airline partners temporary rate reductions during the three months ended September 30, 2022.
The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $9.7 million was primarily a result of the 33 E175 aircraft added to our fleet since September 30, 2021, offset by a decrease in deferred revenue and unbilled revenue recognized during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021.2022. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Based on the number of
completed block hours during the three months ended September 30, 2022,2023, we recognized $8.2deferred recognizing $37.2 million of previously deferred revenue, and $5.1 millionnet of unbilled revenue, onrelated to fixed monthly payments we received associated with our capacity purchase agreements.flight operations revenues. For the three months ended September 30, 2021,2022, we recognized $19.2$13.3 million of previously deferred revenue. Our deferred revenue, andnet of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues. The timing of our revenue recognition related to the fixed payments associated with our flight operations will adjustbe adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement. The decrease in “Capacity purchase agreements revenue: flight operations” from deferred revenue was offset by block hour rate increases in certain capacity purchase agreements since September 30, 2022.
The decrease in “Capacity purchase agreements aircraft lease revenue” of $13.7 million, or 10.2%, was primarily due to an increase in deferred revenue for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, offset by lease revenue from the four additional E175 aircraft placed under contract since September 30, 2022. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, which decreased the future scheduled fixed monthly lease payments, we deferred recognizing lease revenue on $19.3 million of the allocated fixed monthly lease payments received during the three months ended September 30, 2023, under the straight-line method.
The deferred revenue balance applicable to each contract will be recorded as revenue byover the endterm of each respective contract term.contract. Our total deferred revenue andbalance, net of unbilled revenue, balances were $78.1 million and $22.8was $304.7 million as of September 30, 2022, respectively.2023.
The decreaseincrease in prorate agreements revenue of $33.6$14.9 million, or 15.8%, was primarily due to an increase in government essential air service subsidies we received on certain prorate routes and an increase in passenger fares offset by the decrease in prorate departures and passenger revenue we received on routesthe number of flights we operated under our prorate agreements, resulting in fewer prorate passengers. We operated fewer flights under our prorate agreements during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021. Due2022 due to labor constraints, including the number of available captains, we operated fewer aircraft under our prorate agreements during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.captains.
The increasedecrease in lease, airport services and other revenues of $0.2$1.7 million, or 6.4%, was primarily due to an increasea decrease in airport service revenue driven by a decrease in the number of flights operated at locations where we were contracted to provide airport customer service during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021.2022.
Operating Expenses
Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the three months ended September 30, |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Salaries, wages and benefits | | $ | 307,727 | | $ | 265,603 | | $ | 42,124 | | 15.9 | % | | $ | 333,017 | | $ | 307,727 | | $ | 25,290 | | 8.2 | % |
Aircraft maintenance, materials and repairs | | | 183,182 | | | 209,795 | | | (26,613) | | (12.7) | % | | | 178,465 | | | 183,182 | | | (4,717) | | (2.6) | % |
Depreciation and amortization | | | 97,433 | | | 109,597 | | | (12,164) | | (11.1) | % | | | 96,560 | | | 97,433 | | | (873) | | (0.9) | % |
Aircraft fuel | | | 28,179 | | | 32,561 | | | (4,382) | | (13.5) | % | | | 23,330 | | | 28,179 | | | (4,849) | | (17.2) | % |
Airport-related expenses | | | 17,501 | | | 25,992 | | | (8,491) | | (32.7) | % | | | 18,398 | | | 17,501 | | | 897 | | 5.1 | % |
Aircraft rentals | | | 16,089 | | | 16,098 | | | (9) | | (0.1) | % | | | 2,099 | | | 16,089 | | | (13,990) | | (87.0) | % |
Special items - impairment charges | | | — | | | 84,592 | | | (84,592) | | 100.0 | % | |
Payroll support grant | | | — | | | (115,352) | | | 115,352 | | (100.0) | % | |
Other operating expenses | | | 63,756 | | | 68,847 | | | (5,091) | | (7.4) | % | | | 65,011 | | | 63,756 | | | 1,255 | | 2.0 | % |
Total operating expenses | | $ | 713,867 | | $ | 697,733 | | $ | 16,134 | | 2.3 | % | | $ | 716,880 | | $ | 713,867 | | $ | 3,013 | | 0.4 | % |
Interest expense | | | 33,283 | | | 28,980 | | | 4,303 | | 14.8 | % | |
Total airline expenses | | $ | 747,150 | | $ | 726,713 | | $ | 20,437 | | 2.8 | % | |
Salaries, wages and benefits. The $42.1$25.3 million, or 15.9%8.2%, increase in salaries, wages and benefits was due to increased costs to attract and retain aviation professionals duringan increase in employee compensation, including higher pilot pay scales, for the three months ended September 30, 2022,2023, compared to the three months ended September 30, 20212022.
Aircraft maintenance, materials and repairs. The $26.6$4.7 million, or 12.7%2.6%, decrease in aircraft maintenance expense was primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets, including engine maintenance expense, throughout the 2021 year, including the three months ended September 30, 2021. As a result oflower production, which decreased the maintenance work completed in 2021,activity directly associated with our maintenance events were lowerflight volume, for the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021.2022.
Depreciation and amortization. The $12.2$0.9 million, or 11.1%0.9%, decrease in depreciation and amortization expense was primarily due to certain CRJ200CRJ aircraft and engines that became fullywere depreciated to their estimated residual value since September 30, 2021.2022. This reduction in depreciation on our CRJ200CRJ fleet was partially offset by an increase in depreciation expense due to the acquisition of 33four new E175 aircraft and spare engines since September 30, 2021.2022.
and station rents. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and benefits and the customer service labor costs we outsource to third parties are included in airport-related expenses. The $8.5$0.9 million, or 32.7%5.1%, decreaseincrease in airport-related expenses for the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021,2022, was primarily due to a decrease in subcontracted airport services and landing fees as a result of a decrease in the number of flights we operated under our prorate arrangements and a decreasean increase in station rents as a result of exiting certain prorate markets.and associated costs.
Aircraft rentals. AircraftThe $14.0 million, or 87.0%, decrease in aircraft rentals was primarily includesrelated to a decrease in our leased aircraft and engines we lease from third parties. For the three months ended September 30, 2021, andsince the three months ended September 30, 2022 there were no significant changes toas a result of our leasedacquisition of 26 CRJ700 aircraft, eight CRJ200 aircraft and engines.
Special items - impairment charges. Special items for the three months ended September 30, 2021, consisted of a non-cash impairment charge on certain SkyWest Airlines’one CRJ900 aircraft of $84.6 million. We did not have a comparable non-cash impairment chargeunder early lease buyouts during the three months ended September 30, 2022.
Payroll support grant.In April 2021, we entered into an agreement with U.S. Treasury and received $250.0 million in emergency relief through the American Rescue Plan Act payroll support program, of which $205.0 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. We recognized $115.4 million in payroll support grant proceeds we received as a reduction to our operating expenses for the three months ended September 30, 2021. We did not have a comparable payroll support grant during the three months ended September 30, 2022.2023.
Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs and credit loss reserves.costs. The $5.1$1.3 million, or 7.4%2.0%, decrease in other operating expensesincrease was primarily related to a reductionan increase in other operatingcrew hotel rates and training costs that correspond to the decrease in the number of flights we operated during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021, such as crew per diem2022.
Summary of interest expense, interest income, other income (loss), net and crew hotel costs.provision for income taxes
Interest Expense. The $4.3$0.7 million, or 14.8%2.2%, increasedecrease in interest expense was primarily related to the interest expense associated with 33 new E175 aircraft added to our fleet subsequent toa decrease in outstanding debt from $3.4 billion at September 30, 2021, which were debt financed.
Total airline expenses.Our total airline expenses, comprised of our total operating expenses and interest expense, increased $20.4 million, or 2.8%, primarily due2022 to the payroll support program grant reflected as an offset to operating expenses,$3.1 billion at September 30, 2023, partially offset by a non-cash impairment charge for the three months endedhigher fixed interest rates on debt issued since September 30, 2021 and a decrease in direct operating costs attributed to the lower number of completed flights, offset by an increase in direct labor costs during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
As our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and as revenue earned under our capacity purchase agreements is intended to compensate us for our
aircraft ownership costs, including interest expense, we believe our total airline expense is a meaningful expense measure for management discussion and analysis purposes.
Summary of interest income, other income (expense) and provision for income taxes:2022.
Interest income. Interest income increased $6.1$4.9 million, from $0.2 million for the three months ended September 30, 2021, to $6.3 million for the three months ended September 30, 2022.2022, to $11.2 million for the three months ended September 30, 2023. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities subsequent tofor the three months ended September 30, 2021.2023, compared to the three months ended September 30, 2022.
Other income (expense)(loss), net. Other income increased $12.2(loss), net decreased $11.7 million during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021. The increase2022. Other income (loss), net primarily consists of the realized and unrealized gains on our investments in other income was primarily a result of an increase in the fair market value of our equity investments andcompanies, income related to our investment in a joint venture with a third party.party and gains or losses on the sale of assets. The decrease in other income (loss), net was primarily a result of a decrease in unrealized gains on our investments in other companies, partially offset by gains from the sale of assets for the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
Provision for income taxes. For the three months ended September 30, 20222023 and 2021,2022, our effective income tax rates were 14.8%3.6% and 31.9%14.8%, respectively, which includeincluded the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses. The decrease in the effective tax rate primarily relatesrelated to lower pre-tax income for the three months ended September 30, 2023, compared to the three months ended September 30, 2022 and a partial release of $7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the recording of a valuation allowance on state net operating losses anticipated to expirebe utilized prior to utilization that occurred duringexpirationfor the three months ended September 30, 2022,2023, compared the three months ended September 30, 2021.2022.
Net income. Primarily due to the factors described above, we generated net income of $23.5 million, or $0.55 per diluted share, for the three months ended September 30, 2023, compared to net income of $48.4 million, or $0.96 per diluted share, for the three months ended September 30, 2022, compared to net income of $9.7 million, or $0.19 per diluted share, for the three months ended September 30, 2021.2022.
Nine Months Ended September 30, 20222023 and 20212022
Operational Statistics
The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increasedecrease in block hours, departures and passengers carried during the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021,2022, was primarily due to additional aircraft operating under our capacity purchase agreements and the continued demand recovery from reduced flight schedules in 2021 resulting from the COVID-19 pandemic, partially offset by labor constraints, including thea smaller number of available captains induring the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
| | | | | | | |
| | For the nine months ended September 30, |
Block hours by aircraft type: | | 2022 | | 2021 | | % Change |
E175s | | 481,080 | | 446,867 | | 7.7 | % |
CRJ900s | | 78,468 | | 87,750 | | (10.6) | % |
CRJ700s | | 202,538 | | 215,263 | | (5.9) | % |
CRJ200s | | 207,402 | | 220,809 | | (6.1) | % |
Total block hours | | 969,488 | | 970,689 | | (0.1) | % |
| | | | | | | |
| | | | | | | |
Departures | | 570,572 | | 550,643 | | 3.6 | % |
Passengers carried | | 30,627,250 | | 25,872,805 | | 18.4 | % |
Passenger load factor | | 82.9 | % | 72.0 | % | 10.9 | pts |
Average passenger trip length (miles) | | 498 | | 536 | | (7.1) | % |
| | | | | | | |
| | For the nine months ended September 30, |
Block hours by aircraft type: | | 2023 | | 2022 | | % Change |
E175s | | 500,782 | | 481,080 | | 4.1 | % |
CRJ900s | | 59,390 | | 78,468 | | (24.3) | % |
CRJ700s | | 158,239 | | 202,538 | | (21.9) | % |
CRJ200s | | 131,278 | | 207,402 | | (36.7) | % |
Total block hours | | 849,689 | | 969,488 | | (12.4) | % |
| | | | | | | |
| | | | | | | |
Departures | | 514,529 | | 570,572 | | (9.8) | % |
Passengers carried | | 28,671,654 | | 30,627,250 | | (6.4) | % |
Passenger load factor | | 83.7 | % | 82.9 | % | 0.8 | pts |
Average passenger trip length (miles) | | 456 | | 498 | | (8.4) | % |
Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the nine months ended September 30, | | For the nine months ended September 30, |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Flying agreements | | $ | 2,245,351 | | $ | 1,863,242 | | $ | 382,109 | | 20.5 | % | | $ | 2,106,130 | | $ | 2,245,351 | | $ | (139,221) | | (6.2) | % |
Lease, airport services and other | | | 78,329 | | | 73,086 | | | 5,243 | | 7.2 | % | | | 77,515 | | | 78,329 | | | (814) | | (1.0) | % |
Total operating revenues | | $ | 2,323,680 | | $ | 1,936,328 | | $ | 387,352 | | 20.0 | % | | $ | 2,183,645 | | $ | 2,323,680 | | $ | (140,035) | | (6.0) | % |
Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp services.
We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the nine months ended September 30, | | For the nine months ended September 30, |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Capacity purchase agreements revenue: flight operations | | $ | 1,112,526 | | $ | 792,501 | | $ | 320,025 | | 40.4 | % | |
Capacity purchase agreements revenue: aircraft lease and fixed revenue | | | 864,178 | | | 770,548 | | | 93,630 | | 12.2 | % | |
Capacity purchase agreements flight operations revenue | | | $ | 1,479,987 | | $ | 1,589,128 | | $ | (109,141) | | (6.9) | % |
Capacity purchase agreements aircraft lease revenue | | | | 356,900 | | | 387,576 | | | (30,676) | | (7.9) | % |
Prorate agreements revenue | | | 268,647 | | | 300,193 | | | (31,546) | | (10.5) | % | | | 269,243 | | | 268,647 | | | 596 | | 0.2 | % |
Flying agreements revenue | | $ | 2,245,351 | | $ | 1,863,242 | | $ | 382,109 | | 20.5 | % | | $ | 2,106,130 | | $ | 2,245,351 | | $ | (139,221) | | (6.2) | % |
The increasedecrease in “Capacity purchase agreements revenue: flight operations” of $320.0$109.1 million, or 6.9%, was primarily due to an increase in the number of E175 aircraft we operateddeferred revenue related to fixed monthly payments for flight operations received under our contracts with our major airline partners duringcapacity purchase agreements for the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021. From September 30, 2021, to September 30, 2022, we added 33 E175 aircraft under capacity purchase agreements. Our completed departures increased 3.6%, our E175 aircraft completed block hours increased 7.7%, and total completed block hours were similar during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Additionally, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021, we provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the nine months ended September 30, 2021. We did not provide our major airline partners temporary rate reductions during the nine months ended September 30, 2022.
The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $93.6 million was primarily due to recognizing previously deferred revenue and unbilled revenue during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Based on the number of completed block hours during the nine months ended September 30, 2022,2023, we recognized $25.8deferred recognizing $120.6 million of previously deferred revenue, and $14.4 millionnet of unbilled revenue, onrelated to fixed monthly payments we received associated with our capacity purchase agreements.flight operations revenues. For the nine months ended September 30, 2021,2022, we deferred recognizing revenue on $7.7recognized $40.2 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly cash payments we received underassociated with our capacity purchase agreements. Our deferredflight operations revenues. The timing of our revenue and unbilled revenuerecognition related to the fixed payments associated with our flight operations will adjustbe adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement. The decrease in “Capacity purchase agreements revenue: flight operations” from deferred revenue balance applicable to each contract will be recorded as revenuewas offset by the end of each respective contract term. Our total deferred revenue and unbilled revenue balances were $78.1 million and $22.8 million, respectively, as ofblock hour rate increases in certain capacity purchase agreements since September 30, 2022. Additionally, our aircraft lease and fixed rate revenue increased as a result of the 33 E175 aircraft added to our fleet since September 30, 2021.
The decrease in “Capacity purchase agreements aircraft lease revenue” of $30.7 million, or 7.9%, was primarily due to an increase in deferred revenue for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, offset by lease revenue from the four additional E175 aircraft placed under contract since September 30, 2022. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, which decreased the future scheduled fixed monthly lease payments, we deferred recognizing lease revenue on $59.3 million of the allocated fixed monthly lease payments received during the nine months ended September 30, 2023, under the straight-line method.
The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. Our total deferred revenue balance, net of unbilled revenue, was $304.7 million as of September 30, 2023.
The increase in prorate agreements revenue of $31.5$0.6 million, or 0.2%, was primarily due to an increase in government essential air service subsidies we received on certain prorate routes and an increase in passenger fares offset by the decrease in prorate passengers and passenger revenue we received on routesthe number of flights we operated under our prorate agreements.agreements, resulting in fewer prorate passengers. Due to labor constraints, including the number of available captains, we operated fewer aircraftflights under our prorate agreements during the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021.2022.
The increasedecrease in lease, airport services and other revenues of $5.2$0.8 million, or 1.0%, was primarily due to an increasea decrease in airport service revenue due to the increasedriven by a decrease in the number of flights operated at locations where we were contracted to provide airport customer service during the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021.2022.
Operating Expenses
Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the nine months ended September 30, | | For the nine months ended September 30, |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Salaries, wages and benefits | | $ | 896,347 | | $ | 718,868 | | $ | 177,479 | | 24.7 | % | | $ | 990,659 | | $ | 896,347 | | $ | 94,312 | | 10.5 | % |
Aircraft maintenance, materials and repairs | | | 506,478 | | | 604,501 | | | (98,023) | | (16.2) | % | | | 483,182 | | | 506,478 | | | (23,296) | | (4.6) | % |
Depreciation and amortization | | | 297,427 | | | 329,089 | | | (31,662) | | (9.6) | % | | | 287,878 | | | 297,427 | | | (9,549) | | (3.2) | % |
Aircraft fuel | | | 85,089 | | | 77,622 | | | 7,467 | | 9.6 | % | | | 62,573 | | | 85,089 | | | (22,516) | | (26.5) | % |
Airport-related expenses | | | 54,196 | | | 72,478 | | | (18,282) | | (25.2) | % | | | 53,648 | | | 54,196 | | | (548) | | (1.0) | % |
Aircraft rentals | | | 48,109 | | | 47,311 | | | 798 | | 1.7 | % | | | 24,055 | | | 48,109 | | | (24,054) | | (50.0) | % |
Special items - impairment charges | | | — | | | 84,592 | | | (84,592) | | 100.0 | % | |
Payroll support grant | | | — | | | (422,669) | | | 422,669 | | (100.0) | % | |
Other operating expenses | | | 219,808 | | | 181,621 | | | 38,187 | | 21.0 | % | | | 205,203 | | | 219,808 | | | (14,605) | | (6.6) | % |
Total operating expenses | | $ | 2,107,454 | | $ | 1,693,413 | | $ | 414,041 | | 24.5 | % | | $ | 2,107,198 | | $ | 2,107,454 | | $ | (256) | | (0.0) | % |
Interest expense | | | 92,308 | | | 94,274 | | | (1,966) | | (2.1) | % | |
Total airline expenses | | $ | 2,199,762 | | $ | 1,787,687 | | $ | 412,075 | | 23.1 | % | |
Salaries, wages and benefits. The $177.5$94.3 million, or 24.7%10.5%, increase in salaries, wages and benefits was due to increased costs to attract and retain aviation professionals and increased direct labor costs resulting from thean increase in employee compensation, including higher number of flights we operated duringpilot pay scales, for the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 20212022.
Aircraft maintenance, materials and repairs. The $98.0$23.3 million, or 16.2%4.6%, decrease in aircraft maintenance expense was primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets, such as engine maintenance expense, throughout the 2021 year, including the nine months ended September 30, 2021. As a result oflower production, which decreased the maintenance work completed in 2021,activity directly associated with our maintenance events were lowerflight volume, for the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021.2022.
Depreciation and amortization. The $31.7$9.5 million, or 9.6%3.2%, decrease in depreciation and amortization expense was primarily due to certain CRJ200CRJ aircraft and engines that became fullywere depreciated to their estimated residual value since September 30, 2021.2022. This reduction in depreciation on our CRJ200CRJ fleet was partially offset by an increase in depreciation expense due to the acquisition of 33four new E175 aircraft and spare engines since September 30, 2021.2022.
Aircraft fuel. The $7.5$22.5 million, or 9.6%26.5%, increasedecrease in fuel cost was primarily due to an increase in our average fuel cost per gallon from $2.37 for the nine months ended September 30, 2021, to $4.13 for the nine months ended September 30, 2022, offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased.purchased,
| | | | | | | | | | | | | | | | | | |
| | For the nine months ended September 30, | | For the nine months ended September 30, |
(in thousands) | | 2022 | | 2021 | | % Change | | 2023 | | 2022 | | % Change |
Fuel gallons purchased | | | 20,618 | | | 32,771 | | (37.1) | % | | | 16,863 | | | 20,618 | | (18.2) | % |
Fuel expense | | $ | 85,089 | | $ | 77,622 | | 9.6 | % | | $ | 62,573 | | $ | 85,089 | | (26.5) | % |
Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. The $18.3$0.5 million, or 25.2%1.0%, decrease in airport-related expenses for the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021,2022, was primarily due to a decrease in subcontracted airport services and landing fees and deicing events as a result of a decrease in the number of flights we operated under our prorate arrangements and a decrease in station rents as a result of exiting certain prorate markets.arrangements.
Aircraft rentals. The $0.8$24.1 million, or 1.7%50.0%, increasedecrease in aircraft rentals was primarily duerelated to an increasea decrease in our leased aircraft and engines we leased during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
Special items - impairment charges. Special items for the nine months ended September 30, 2021, consisted of a non-cash impairment charge on certain SkyWest Airlines’ CRJ900 aircraft of $84.6 million. We did not have a comparable non-cash impairment charge duringsince the nine months ended September 30, 2022. During 2023,
Payroll support grant.In January 2021, we entered into an agreement with U.S. Treasuryacquired 26 CRJ700 aircraft, eight CRJ200 aircraft and received $233.1one CRJ900 aircraft under early lease buyouts for $142.4 million, in emergency relief through the 2021 Appropriations Act payroll support program, of which $193.2$102.4 million was in the form of payroll support grants that were recognizedcapitalized as a reduction in labor expense over the periods the grants intended to compensate. Additionally, in April 2021, the Company received an additional $35.0 million in proceeds under the PSP Extension Agreement, of which $24.5fixed assets and $40.0 million was in the form of payroll support grants that were recognized as a reduction of labor expense during the period the grant was intended to compensate. In April 2021, we also entered into an agreement with U.S. Treasury and received $250.0 million in emergency relief through the American Rescue Plan Act payroll support program, of which $205.0 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. We recognized $422.7 million in payroll support grant proceeds we received as a reduction to our operating expenses for the nine months ended September 30, 2021. We did not have a comparable payroll support grant during the nine months ended September 30, 2022.applied towards previously recorded lease liabilities.
Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs and credit loss reserves.costs. The $38.2$14.6 million, or 21.0%6.6%, increasedecrease was primarily related to an increasea decrease in other operating costs that correspond toas a result of the higherlower number of flights we operated during the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021,2022, such as crew per diem and crew hotel costscosts.
Summary of interest expense, interest income, other income (loss), net and simulator costs, as well as an asset heldprovision for sale write-down of $15.2 million during the nine months ended September 30, 2022.income taxes
Interest Expense. The $2.0$7.6 million, or 2.1%8.2%, decreaseincrease in interest expense was primarily related to an overall lower effectivehigher fixed interest rate during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, offset by an increase in long-termrates on debt issued since September 30, 2021.
Total airline expenses.Our total airline expenses, comprised of our total operating expenses and interest expense, increased $412.1 million, or 23.1%, during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due the payroll support program grant reflected as an offset to operating expenses for the nine months ended September 30, 2021, and an increase in direct operating costs attributed to the higher number of completed flights.
Summary of interest income, other income (expense) and provision for income taxes:2022.
Interest income. Interest income increased $8.6$22.4 million, from $0.7 million for the nine months ended September 30, 2021, to $9.3 million for the nine months ended September 30, 2022.2022, to $31.7 million for the nine months ended September 30, 2023. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities subsequent tofor the nine months ended September 30, 2021.2023, compared to the nine months ended September 30, 2022.
Net income. Primarily due to the factors described above, we generated net income of $16.8 million, or $0.37 per diluted share, for the nine months ended September 30, 2023, compared to net income of $120.1 million, or $2.37 per diluted share, for the nine months ended September 30, 2022, compared to net income of $107.6 million, or $2.12 per diluted share, for the nine months ended September 30, 2021.2022.
Our Business Segments
Three Months Ended September 30, 20222023 and 20212022
For the three months ended September 30, 2022,2023, we had two reportablereporting segments, which were the basis of our internal financial reporting: (1) SkyWest Airlines and SWC (collectively, “SkyWest Airlines and SWC”) and (2) SkyWest Leasing. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended September 30, | | For the three months ended September 30, |
| | (dollar amounts in thousands) | | (dollar amounts in thousands) |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Operating Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
SkyWest Airlines operating revenue | | $ | 651,494 | | $ | 614,377 | | $ | 37,117 | | 6.0 | % | |
SkyWest Leasing operating revenues | | | 137,949 | | | 130,406 | | | 7,543 | | 5.8 | % | |
SkyWest Airlines and SWC | | | $ | 626,780 | | $ | 651,494 | | $ | (24,714) | | (3.8) | % |
SkyWest Leasing | | | | 139,391 | | | 137,949 | | | 1,442 | | 1.0 | % |
Total Operating Revenues | | $ | 789,443 | | $ | 744,783 | | $ | 44,660 | | 6.0 | % | | $ | 766,171 | | $ | 789,443 | | $ | (23,272) | | (2.9) | % |
Airline Expenses: | | | | | | | | | | | | | |
SkyWest Airlines airline expense | | $ | 653,533 | | $ | 635,307 | | $ | 18,226 | | 2.9 | % | |
SkyWest Leasing airline expense | | | 93,617 | | | 91,406 | | | 2,211 | | 2.4 | % | |
Total Airline Expenses (1) | | $ | 747,150 | | $ | 726,713 | | $ | 20,437 | | 2.8 | % | |
Operating Expenses and Interest Expense: | | | | | | | | | | | | | |
SkyWest Airlines and SWC | | | $ | 657,049 | | $ | 653,533 | | $ | 3,516 | | 0.5 | % |
SkyWest Leasing | | | | 92,374 | | | 93,617 | | | (1,243) | | (1.3) | % |
Total Operating Expenses and Interest Expense (1) | | | $ | 749,423 | | $ | 747,150 | | $ | 2,273 | | 0.3 | % |
Segment profit (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
SkyWest Airlines segment loss | | $ | (2,039) | | $ | (20,930) | | $ | 18,891 | | (90.3) | % | |
SkyWest Leasing profit | | | 44,332 | | | 39,000 | | | 5,332 | | 13.7 | % | |
SkyWest Airlines and SWC | | | $ | (30,269) | | $ | (2,039) | | $ | (28,230) | | 1,384.5 | % |
SkyWest Leasing | | | | 47,017 | | | 44,332 | | | 2,685 | | 6.1 | % |
Total Segment Profit | | $ | 42,293 | | $ | 18,070 | | $ | 24,223 | | 134.1 | % | | $ | 16,748 | | $ | 42,293 | | $ | (25,545) | | (60.4) | % |
Interest Income | | | 6,348 | | | 238 | | | 6,110 | | 2,567.2 | % | | | 11,234 | | | 6,348 | | | 4,886 | | 77.0 | % |
Other Income (Expense), net | | | 8,112 | | | (4,098) | | | 12,210 | | (298.0) | % | |
Other Income (Loss), net | | | | (3,631) | | | 8,112 | | | (11,743) | | (144.8) | % |
Consolidated Income Before Taxes | | $ | 56,753 | | $ | 14,210 | | $ | 42,543 | | 299.4 | % | | $ | 24,351 | | $ | 56,753 | | $ | (32,402) | | (57.1) | % |
(1) | Total Airline Expenses includes operatingWe include interest expense in our segment profit (loss) given our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements, and revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense. |
SkyWest Airlines and SWC Segment Loss. SkyWest Airlines and SWC segment loss decreased $18.9was $30.3 million for the three months ended September 30, 2022,2023, compared to segment loss of $2.0 million for the three months ended September 30, 2021.2022.
SkyWest Airlines and SWC block hour production decreased to 323,742,290,830, or 12.6%10.2%, for the three months ended September 30, 2022,2023, from 370,462323,742 for the three months ended September 30, 2021,2022, primarily due to reduced flight schedules as a result of labor constraints, including the number of available captains. Significant items contributing to the SkyWest Airlines and SWC segment loss for the three months ended September 30, 2023 are set forth below.
SkyWest Airlines and SWC operating revenues decreased $24.7 million, or 3.8%, from the three months ended September 30, 2022, to the three months ended September 30, 2023. SkyWest Airlines recognizes revenue attributed to flight operations received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. During the three months ended September 30, 2023, SkyWest Airlines deferred recognizing $37.2 million of revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues, compared to recognizing $13.3 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the three months ended September 30, 2022. The decrease in SkyWest Airlines and SWC operating revenues related to deferred
revenue was offset by block hour rate increases in certain capacity purchase agreements since September 30, 2022 and an increase in prorate revenue for the three months ended September 30, 2023, compared to the three months ended September 30, 2022.
SkyWest Airlines and SWC operating revenuesexpenses and interest expense increased $37.1$3.5 million, or 6.0%0.5%, from the three months ended September 30, 2021,2022, to the three months ended September 30, 2022, primarily due to temporary rate reductions SkyWest Airlines provided to our major airline partners under our capacity purchase agreements during the three months ended September 30, 2021 in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. SkyWest Airlines did not provide similar rate reductions to our major airline partners in 2022. The increase in revenue was partially offset by a decrease in prorate revenue during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
SkyWest Airlines airline expense increased $18.2 million, or 2.9%, from the three months ended September 30, 2021, to the three months ended September 30, 2022,2023, due to the following primary factors:
| ● | SkyWest Airlines’Airlines and SWC’s salaries, wages and benefits expense increased by $42.0$25.4 million, or 15.9%8.3%, primarily due to increased costs to attract and retain aviation professionalsemployee compensation, including higher pilot pay scales, during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021.2022. |
| ● | SkyWest Airlines’Airlines and SWC’s aircraft maintenance, materials and repairs expense decreased by $26.0$3.8 million, or 12.7%2.1%, primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets throughoutlower block hour production, which decreased the 2021 year, such as engine maintenance expense, included inactivity directly associated with our flight volume, for the three months ended September 30, 2021.2023, compared to the three months ended September 30, 2022. |
| ● | SkyWest Airlines’Airlines and SWC’s depreciation and amortization expense decreased by $9.6$6.5 million, or 18.0%14.8%, primarily due to certain CRJ200CRJ aircraft and engines that became fullywere depreciated to their estimated residual value since September 30, 2021, partially offset by an increase in depreciation expense related to the acquisition of used CRJ700 aircraft since September 30, 2021.2022. |
| ● | SkyWest Airlines’Airlines and SWC’s fuel expense decreased $4.4$4.8 million, or 13.5%17.2%, due to a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased, offset by an increasecombined with a decrease in our average fuel cost per gallon from $2.55 for the three months ended September 30, 2021, to $4.39 for the three months ended September 30, 2022. |
| ● | SkyWest Airlines recorded a non-cash impairment charge on its CRJ900 aircraft of $84.6 million2022, to $3.83 for the three months ended September 30, 2021. SkyWest Airlines did not have a comparable non-cash impairment charge for the three months ended September 30, 2022. |
| ● | SkyWest Airlines recognized $115.4 million in payroll support grant proceeds as a reduction to our operating expenses for the three months ended September 30, 2021. SkyWest Airlines did not have a comparable grant for the three months ended September 30, 2022.2023. |
| ● | SkyWest Airlines’Airlines and SWC’s remaining airline expenses decreased $14.6$6.8 million, or 13.1%7.0%, primarily related to a decrease in aircraft rent expense due to the early lease buyouts of 35 CRJ aircraft in 2023, offset by an increase in other operating costs that correspond to the lower numberas a result of flights we operated forincreases in crew hotel rates and training costs during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021, such as crew per diem and crew hotel costs.2022. |
SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $5.3$2.7 million, or 13.7%6.1%, during the three months ended September 30, 2022,2023, compared to the three months ended September 30, 2021,2022. The increase in SkyWest Leasing profit was primarily due to additional lease revenue from the acquisition of 33 newfour E175 aircraft added to our fleet subsequent toplaced under contract since September 30, 2021.2022, offset by an increase in deferred revenue. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, which decreased the future scheduled fixed monthly lease payments, the SkyWest Leasing segment deferred recognizing lease revenue on $19.3 million of the allocated fixed monthly lease payments received during the three months ended September 30, 2023, under the straight-line method.
Nine Months Ended September 30, 20222023 and 20212022
For the nine months ended September 30, 2022,2023, we had two reportablereporting segments, which were the basis of our internal financial reporting: (1) SkyWest Airlines and SWC and (2) SkyWest Leasing. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker.
| | | | | | | | | | | | |
| | For the nine months ended September 30, |
| | (dollar amounts in thousands) |
| | 2022 | | 2021 | | $ Change | | % Change |
Operating Revenues: | | | | | | | | | | | | |
SkyWest Airlines operating revenue | | $ | 1,918,746 | | $ | 1,548,422 | | $ | 370,324 | | 23.9 | % |
SkyWest Leasing operating revenues | | | 404,934 | | | 387,906 | | | 17,028 | | 4.4 | % |
Total Operating Revenues | | $ | 2,323,680 | | $ | 1,936,328 | | $ | 387,352 | | 20.0 | % |
Airline Expenses: | | | | | | | | | | | | |
SkyWest Airlines airline expense | | $ | 1,915,245 | | $ | 1,509,713 | | $ | 405,532 | | 26.9 | % |
SkyWest Leasing airline expense | | | 284,517 | | | 277,974 | | | 6,543 | | 2.4 | % |
Total Airline Expenses (1) | | $ | 2,199,762 | | $ | 1,787,687 | | $ | 412,075 | | 23.1 | % |
Segment profit: | | | | | | | | | | | | |
SkyWest Airlines segment profit | | $ | 3,501 | | $ | 38,709 | | $ | (35,208) | | (91.0) | % |
SkyWest Leasing profit | | | 120,417 | | | 109,932 | | | 10,485 | | 9.5 | % |
Total Segment Profit | | $ | 123,918 | | $ | 148,641 | | $ | (24,723) | | (16.6) | % |
Interest Income | | | 9,332 | | | 732 | | | 8,600 | | 1,174.9 | % |
Other Income (Expense), net | | | 21,011 | | | (3,802) | | | 24,813 | | (652.6) | % |
Consolidated Income Before Taxes | | $ | 154,261 | | $ | 145,571 | | $ | 8,690 | | 6.0 | % |
| | | | | | | | | | | | |
| | For the nine months ended September 30, |
| | (dollar amounts in thousands) |
| | 2023 | | 2022 | | $ Change | | % Change |
Operating Revenues: | | | | | | | | | | | | |
SkyWest Airlines and SWC | | $ | 1,781,429 | | $ | 1,918,746 | | $ | (137,317) | | (7.2) | % |
SkyWest Leasing | | | 402,216 | | | 404,934 | | | (2,718) | | (0.7) | % |
Total Operating Revenues | | $ | 2,183,645 | | $ | 2,323,680 | | $ | (140,035) | | (6.0) | % |
Operating Expenses and Interest Expense: | | | | | | | | | | | | |
SkyWest Airlines and SWC | | $ | 1,923,688 | | $ | 1,915,245 | | $ | 8,443 | | 0.4 | % |
SkyWest Leasing | | | 283,391 | | | 284,517 | | | (1,126) | | (0.4) | % |
Total Operating Expenses and Interest Expense (1) | | $ | 2,207,079 | | $ | 2,199,762 | | $ | 7,317 | | 0.3 | % |
Segment profit (loss): | | | | | | | | | | | | |
SkyWest Airlines and SWC | | $ | (142,259) | | $ | 3,501 | | $ | (145,760) | | (4,163.4) | % |
SkyWest Leasing | | | 118,825 | | | 120,417 | | | (1,592) | | (1.3) | % |
Total Segment Profit (Loss) | | $ | (23,434) | | $ | 123,918 | | $ | (147,352) | | (118.9) | % |
Interest Income | | | 31,761 | | | 9,332 | | | 22,429 | | 240.3 | % |
Other Income, net | | | 7,544 | | | 21,011 | | | (13,467) | | (64.1) | % |
Consolidated Income Before Taxes | | $ | 15,871 | | $ | 154,261 | | $ | (138,390) | | (89.7) | % |
(1) | Total Airline Expenses includes operatingWe include interest expense in our segment profit (loss) given our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements, and revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense. |
SkyWest Airlines and SWC Segment Profit.Loss. SkyWest Airlines and SWC segment profit decreased $35.2loss was $142.3 million for the nine months ended September 30, 2022,2023, compared to segment profit of $3.5 million for the nine months ended September 30, 2021.2022.
SkyWest Airlines and SWC block hour production decreased slightly to 969,488,849,689, or 0.1%12.4%, for the nine months ended September 30, 2022,2023, from 970,689969,488 for the nine months ended September 30, 2021,2022, primarily due to labor constraints, including the number of available captains. Significant items contributing to the SkyWest Airlines and SWC segment profitloss for the nine months ended September 30, 2023 are set forth below.
SkyWest Airlines and SWC operating revenues increased $370.3decreased $137.3 million, or 23.9%7.2%, from the nine months ended September 30, 2021,2022, to the nine months ended September 30, 2022, due to additional aircraft operating under our capacity purchase agreements, as well as temporary rate reductions2023. SkyWest Airlines providedrecognizes revenue attributed to flight operations received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. During the nine months ended September 30, 2023, SkyWest Airlines deferred recognizing $120.6 million of revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our major airline partners underflight operations revenues, compared to recognizing $40.2 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly payments received associated with our capacity purchase agreementsflight operations revenues during the nine months ended September 30, 2021,2022. Additionally, the decrease in responseSkyWest Airlines and SWC operating revenues was also attributed to the COVID-19 demand reduction experienced by our major airline partnersa decrease in 2021. Additionally,block hour production during the nine months ended September 30, 2022, SkyWest Airlines recognized $25.8 million of previously deferred revenue and $14.4 million of unbilled revenue on our capacity purchase agreements,2023, compared to deferring revenue of $7.7 million during the nine months ended September 30, 2021.2022. The decrease in revenue was partially offset by block hour rate increases in certain capacity purchase agreements since September 30, 2022.
SkyWest Airlines airlineand SWC operating expenses and interest expense increased $405.5$8.4 million, or 26.9%0.4%, from the nine months ended September 30, 2021,2022, to the nine months ended September 30, 2022,2023, due to the following primary factors:
| ● | SkyWest Airlines’Airlines and SWC’s salaries, wages and benefits expense increased by $177.4$94.4 million, or 24.7%10.6%, primarily due to increased costs to attract and retain aviation professionals and increased direct labor costs resulting from theemployee compensation, including higher number of flights we operatedpilot pay scales, during the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021. |
| ● | SkyWest Airlines’ aircraft maintenance, materials and repairs expense decreased by $95.4 million, or 16.2%, primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets throughout the 2021 year, such as engine maintenance expense, included in the nine months ended September 30, 2021. |
| ● | SkyWest Airlines’ depreciation and amortization expense decreased by $20.4 million, or 13.0%, primarily due to certain CRJ200 aircraft that became fully depreciated since September 30, 2021, partially offset by an increase in depreciation expense related to the acquisition of used CRJ700 aircraft since September 30, 2021.2022. |
| ● | SkyWest Airlines’ fuelAirlines and SWC’s aircraft maintenance, materials and repairs expense increased $7.5decreased by $22.8 million, or 9.6%4.6%, primarily due to an increase inlower block hour production, which decreased the maintenance activity directly associated with our average fuel cost per gallon from $2.37flight volume, for the nine months ended September 30, 2021,2023, compared to $4.13 for the nine months ended September 30, 2022, offset2022. |
| ● | SkyWest Airlines and SWC’s depreciation and amortization expense decreased by $22.9 million, or 16.8%, primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since September 30, 2022. |
| ● | SkyWest Airlines and SWC’s fuel expense decreased $22.5 million, or 26.5%, due to a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased. |
| ● | SkyWest Airlines recordedpurchased, combined with a non-cash impairment charge on its CRJ900 aircraft of $84.6 milliondecrease in our average fuel cost per gallon from $4.13 for the nine months ended September 30, 2021. SkyWest Airlines did not have a comparable non-cash impairment charge2022, to $3.71 for the nine months ended September 30, 2022. |
| ● | SkyWest Airlines recognized $422.7 million in payroll support grant proceeds as a reduction to our operating expenses for the nine months ended September 30, 2021. SkyWest Airlines did not have a comparable grant for the nine months ended September 30, 2022.2023. |
| ● | SkyWest Airlines’Airlines and SWC’s remaining airline expensesexpense decreased $1.7$17.8 million, or 0.5%5.8%, primarily related to a decrease in other operating costs that correspond to a decrease in our prorate operations for the nine months ended September 30, 2022, comparedaircraft rent expense due to the nine months ended September 30, 2021, such as subcontracted airport services, landing fees, and deicing events.early lease buyouts of 35 CRJ aircraft in 2023. |
SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $10.5decreased $1.6 million, or 9.5%1.3%, during the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021, primarily due2022. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, which decreased the acquisitionfuture scheduled fixed monthly lease payments, the SkyWest Leasing segment deferred recognizing lease revenue on $59.3 million of 33 newthe allocated fixed monthly lease payments received during the nine months ended September 30, 2023, under the straight-line method. The decrease in SkyWest Leasing profit attributed to deferred revenue was partially offset by additional lease revenue from the E175 aircraft added to our fleet subsequent toplaced under contract since September 30, 2021, offset by the $15.2 million impairment charge related to the write down of assets held for sale.2022.
Liquidity and Capital Resources
As of September 30, 2022,2023, we had $1.0 billion$819.5 million in cash and cash equivalents and marketable securities. As of September 30, 2022,2023, we had $68.6$70.1 million available for borrowings under our line of credit. Given our available liquidity as of September 30, 2022, and given the measures we have implemented to reduce the impact of the COVID-19 pandemic on our financial position and operations,2023, we believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments and debt service obligations for at least the next 12 months.
Our total cash and marketable securities increaseddecreased from $860.4 million$1.0 billion as of December 31, 2021,2022 to $1.0 billion$819.5 million as of September 30, 2022,2023, or by $143.8$227.7 million. At September 30, 2022,2023, our total capital mix was 44.6%44.8% equity and 55.4%55.2% long-term debt, compared to 45.5%44.4% equity and 54.5%55.6% long-term debt at December 31, 2021.2022. During the nine months ended September 30, 2023, we repurchased 9.6 million shares of our common stock for $244.1 million under share repurchase programs authorized by our Board of Directors.
As of September 30, 2022,2023, and December 31, 2021,2022, we had $61.4$50.8 million and $59.2 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of September 30, 2022,2023, and December 31, 2021.2022.
| | | | | | | | | | | | |
| | For the nine months ended September 30, |
| | 2023 | | 2022 | | $ Change | | % Change |
Net cash provided by operating activities | | $ | 511,907 | | $ | 343,535 | | $ | 168,372 | | 49.0 | % |
Net cash provided by (used in) investing activities | | | 61,003 | | | (864,569) | | | 925,572 | | (107.1) | % |
Net cash provided by (used in) financing activities | | | (550,564) | | | 301,463 | | | (852,027) | | (282.6) | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, | | December 31, | | | | | | | | September 30, | | December 31, | | | | | | |
| | 2022 | | 2021 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
Cash and cash equivalents | | $ | 38,850 | | $ | 258,421 | | $ | (219,571) | | (85.0) | % | | $ | 125,330 | | $ | 102,984 | | $ | 22,346 | | 21.7 | % |
Marketable securities | | | 965,347 | | | 601,989 | | | 363,358 | | 60.4 | % | | | 694,171 | | | 944,231 | | | (250,060) | | (26.5) | % |
Total | | $ | 1,004,197 | | $ | 860,410 | | $ | 143,787 | | 16.7 | % | | $ | 819,501 | | $ | 1,047,215 | | $ | (227,714) | | (21.7) | % |
Cash Flows provided by Operating Activities
Our cash flows provided by operating activities was $511.9 million for the nine months ended September 30, 2023, compared to $343.5 million for the nine months ended September 30, 2022, compared to $687.0 million for the nine months ended September 30, 2021.2022. Our operating cash flows are typically impacted by various factors including our net income, adjusted for non-cash expenses and gains such as depreciation expense, stock-based compensation expense and gains or losses on the disposal of assets; and timing of cash payments and cash receipts attributed to our various current asset and liability accounts, such as accounts receivable, inventory, accounts payable, accrued liabilities, deferred revenue and unbilled revenue.
The decreaseincrease in our cash flow from operations for the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021,2022, was primarily due to an impairment charge of $84.6 million reflected as a non-cash reconciling addition to income for the nine months ended September 30, 2021 and the timing of cash payments on our current liability accounts and changescash received in our deferredexcess of revenue and unbilled revenue accountsrecognized for the nine months ended September 30, 2022,2023, compared to the nine months ended September 30, 2021.2022, offset by a decrease in net income for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.
Cash Flows used inprovided by (used in) Investing Activities
Our cash flows provided by investing activities was $61.0 million for the nine months ended September 30, 2023, compared to cash flows used in investing activities wasof $864.6 million for the nine months ended September 30, 2022, compared to cash flows used in investing activities of $396.8 million for the nine months ended September 30, 2021.2022. Our investing cash flows are typically impacted by various factors including our capital expenditures, such as the acquisition of aircraft and spare engines; deposit payments and refunds of previously made deposits on new aircraft; purchase and sales of marketable securities; proceeds from the sale of assets; and timing of cash payments and cash receipts attributed to our various long-term asset and long-term liability accounts.
CashFor the nine months ended September 30, 2023, cash provided by the sale of marketable securities, net of purchases of marketable securities, was $253.7 million, an increase of $621.6 million from cash used for the purchase of marketable securities, net of sales of marketable securities of $367.9 million, for the nine months ended September 30, 2022. Additionally, cash used for the acquisition of property and equipment, net of aircraft deposits applied towards acquired aircraft, increased by $195.9 million from $223.1decreased $253.4 million for the nine months ended September 30, 2021,2023, compared to $419.0 million for the nine months ended September 30, 2022, primarily due to the purchase of 21 new E175 aircraft during the nine months ended September 30, 2022, compared to the purchase of six new E175 aircraft and 10 used CRJ700 aircraft during the nine months ended September 30, 2021.2022.
Cash used for purchases of marketable securities, net of sales of marketable securities, increased by $337.4 million from $30.5 million for the nine months ended September 30, 2021, to $367.9 million for the nine months ended September 30, 2022, resulting from the transfer of cash into marketable securities accounts. Additionally, we reduced cash used on new aircraft deposits to $37.1 million for the nine months ended September 30, 2022, from $100.1 million for the nine months ended September 30, 2021, based on the timing of new aircraft orders.
from the issuance of long-term debt, primarily related to the acquisition of 21 E175 aircraft and an increase of $31.4 million in principal payments on long-term debt secured by enginesand $246.5 million of cash used to purchase treasury stock during the nine months ended September 30, 2022. Additionally, cash used for principal payments on long-term debt decreased $148.7 million from the nine months ended September 30, 2021, to the nine months ended September 30, 2022, primarily due to paying off a portion of our long-term debt during the nine months ended September 30, 2021.2023.
Significant Commitments and Obligations
General
See Note 7, "Leases, Commitments and Contingencies," to the condensed consolidated financial statements for our commitments and obligations for each of the next five years and thereafter.
Purchase Commitments and Options
As of September 30, 2022,2023, we had a firm purchase commitment for eight23 new E175 aircraft from Embraer with delivery dates anticipated into 2025.2026.
At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select one or more of these methods to fund the acquisition. In recent years, we have issued long-term debt to finance our new aircraft. At present, we intend to fund our aircraft purchase commitments through cash on hand and debt financing. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft. We intend to finance the firm purchase commitment for eight23 E175 aircraft with approximately 80-85%75-85% debt and the remaining balance with cash.
Aircraft Lease and Facility Obligations
We also have significant long-term lease obligations, primarily relating to our aircraft fleet.maintenance and other facilities. Excluding aircraft financed by our major airline partners that we operate for them under contract, we had 43eight aircraft under lease with remaining terms ranging from two yearssix year to eightseven years as of September 30, 2022.2023. Future minimum lease payments due under all long-term operating leases were approximately $238.0$121.0 million at September 30, 2022.2023. Assuming a 6.0%6.1% discount rate, which is the average incremental borrowing rate we anticipate we would have incurred on debt obtained over a similar term to acquire these assets, the present value of these lease obligations would have been equal to approximately $192.0$85.7 million at September 30, 2022.2023.
Long-term Debt Obligations
As of September 30, 2022,2023, we had $3.1 billion of long-term debt, obligations relatedwhich consisted of $2.9 billion of debt used to finance aircraft and spare engines and $200.6 million of unsecured debt payable to U.S. Department of the acquisition of aircraft.Treasury. The average effective interest rate on those long-termour debt obligations was approximately 4.0%4.1% at September 30, 2022. We also had $200.6 million of long-term debt obligations under the PSP1, PSP2 and PSP3 programs with U.S. Treasury and $160.5 million of long-term debt secured by spare engines.2023.
Under our capacity purchase agreements, theour major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis. The aircraft compensation structure varies by agreement, but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract.
somewhat favorably affected by increased travel on our prorate routes, historically occurring during the summer months, and unfavorably affected by decreased travel during the months of November through February and by inclement weather, which may occasionally or frequently, depending on the severity of the inclement weather in any given winter, result in cancelled flights during the winter months.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aircraft Fuel
In the past, we have not experienced sustained material difficulties with fuel availability, and we currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our contract flying arrangements, United, Delta, American and Alaska have agreed to bear the economic risk of fuel price fluctuations on our contracted flights. We bear the economic risk of fuel price fluctuations on our prorate operations. For the nine months ended September 30, 2022,2023, approximately 12.0%12.8% of our total flying agreements revenue was derived from prorate agreements. For the nine months ended September 30, 2022,2023, the average price per gallon of aircraft fuel was $4.13.$3.71. For illustrative purposes only, we have estimated the impact of the market risk of fuel price fluctuations on our prorate operations using a hypothetical increase of 25% in the price per gallon we purchase. Based on this hypothetical assumption, we would have incurred an additional $21.3$15.6 million in fuel expense for the nine months ended September 30, 2022.2023.
Interest Rates
As of September 30, 2022,2023, our long-term debt had fixed interest rates. We currently intend to finance the acquisition of new aircraft through manufacturer financing or long-term borrowings. Changes in interest rates may impact theour actual cost to us to acquire future aircraft. To the extent we place new aircraft in service under our capacity purchase agreements with United, Delta, American, Alaska or other carriers, our capacity purchase agreements currently provide that reimbursement rates will be adjusted to reflect the interest rates effective at the closing of the respective aircraft financing. A hypothetical 50 basis point change in market interest rates would not have a material effect on our financial results.
Labor and Inflation Risk
IfThe global economy has experienced, and continues to experience high rates of inflation. We cannot predict how long these inflationary pressures will continue, or how they may change over time, but we expect to see continued impacts on the global economy and our Company.
As a result, our costs have become, and we expect they will continue to be, subject to significant inflationary pressures, and we may not be able to fully offset such higher costs through price increases under our capacity purchase agreements. Salaries, wages and benefits expense represented 42.5%47.0% of our total operating expense for the nine months ended September 30, 2022.2023. For illustrative purposes, a hypothetical increase of 25% into our salaries, wages and benefits during the nine months ended September 30, 2022,2023, would have increased our operating expenses by approximately $224.1$247.7 million. In September 2022, we amended our collective bargaining agreement with our pilots, which was in effect for only a portion of our results for the three months ended September 30, 2022. The amended collective bargaining agreement is anticipated to result in an increase to our pilot costs. For illustrative purposes, under SkyWest Airlines’ amended collective bargaining agreement, the first-year pay rate for first officers increased from approximately $46/flight hour to $90/flight hour and the first-year CRJ and E175 captain pay rate increased from approximately $76/flight hour and $81/flight hour, respectively, to $140/flight hour for both CRJ and E175 captains.
Our inability or failure to offset a material increase in costs due to inflation and/or labor
disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of September 30, 2022,2023, those controls and procedures were effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control
During the nine months ended September 30, 2022,2023, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to certain legal actions which we consider routine to our business activities. As of September 30, 2022,2023, our management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on our financial position, liquidity or results of operations.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, and in our other filings with the SEC, which factors could materially affect our business, financial condition and results of operations. The risks described in our reports filed with the SEC are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Our Board of Directors has adopted stock repurchase programs which authorize us to repurchase shares of our common stock in the public market or in private transactions, from time to time, at prevailing prices. Our current stock repurchase program was authorized in May 2023 for the repurchase of up to $250.0 million of our common stock. The following table summarizes the repurchases under our stock purchase program during the three months ended September 30, 2023:
| | | | | | | | | | |
| | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Program (1) | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in Thousands) |
July 1, 2023 - July 31, 2023 | | 363,957 | | $ | 41.21 | | 363,957 | | $ | 170,922 |
August 1, 2023 - August 31, 2023 | | 477,258 | | $ | 41.91 | | 477,258 | | $ | 150,922 |
September 1, 2023 - September 30, 2023 | | 350,743 | | $ | 42.77 | | 350,743 | | $ | 135,922 |
Total | | 1,191,958 | | $ | 41.95 | | 1,191,958 | | $ | 135,922 |
(1) | In May 2023, our Board of Directors approved a stock purchase program, which superseded our prior repurchase program and authorized us to repurchase up to $250.0 million of our common stock. Purchases are made at management’s discretion based on market conditions and financial resources. As of September 30, 2023, we had repurchased 3,253,530 shares of our common stock for $114.1 million and had $135.9 million remaining availability under the May 2023 authorization. |