SkyWest Inc (SKYW) 2004 Q4 法說會逐字稿

Good morning. My name is Rudy and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Skywest Inc. fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone key pad. If you would like to withdraw your question, press star then the number 2.

In addition to historical information, this call contains forward-looking statements. The company may, from time to time, make written or oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements encompass the company's beliefs, expectations, hopes or intentions regarding future events. Words such as "expects", "intends", "believes", "anticipates", "should", "likely" and similar expressions identify forward-looking statements. All forward-looking statements included in this call are made as of the date hereof and are based on information available to the company as of such date. The company assumes no obligation to update any forward-looking statements. Actual results will vary and may vary materially from those anticipated, estimated, projected or expected for a number of reasons, including, among others, developments associated with fluctuations in the economy and the demand for air travel, bankruptcy proceedings involving United Airlines Inc., potential bankruptcy proceedings involving Delta Airlines, Inc., ongoing negotiations between the company and its major partners regarding their contractual relationships, variations in market and economic conditions, employee relations and labor costs, rapidly escalating fuel costs, the degree of nature of competition, the company's ability to expand services in new and existing markets and to maintain profit margins in the face of pricing pressures, aircraft deliveries and the company's ability to obtain financing and other unanticipated factors. Risk factors, cautionary statements and other conditions which could cause actual results to differ from the company's current expectations are contained in the company's filings with the securities and exchange commission including the section of the company's annual report 10K as amended entitled "Factors That May Affect Future Results."

I would now like to turn the call over to Mr. Brad Rich. Thank you. Mr. Rich, you may begin your conference.

Thank you. Thanks to all of you for joining us this morning. We recognize that everyone's busy and your time is valuable. But we do always appreciate your willingness to participate with us and appreciate your interest in Skywest. I appreciate the members of our staff here at Skywest that have helped us prepare for the conference call today.

I have both Mike Croft and Chip Childs, officers of the company with me today. We're obviously pleased with the results that we released this morning, especially given some of the continuing issues and challenges facing our industry and we would just like to begin by just expressing appreciation to all of the men and women of Skywest that have helped to create the results. We just have a wonderful group of people that are doing everything they can to help the company succeed. And we recognize that the results and the performance that we've realized would not be possible without those diligent efforts of all of our people. We thank them for all of their efforts.

I'm going to use, as the discussion outlined, the press release that went out this morning, I will make the assumption that all of you participating have access to that press release. It certainly is available in various spots on the Internet this morning amongst other places. So, I'll assume that you all have that. We'll use that as an outline. I'm going to try to go through things fairly quickly and briefly. And allow some time for questions at the end.

First of all, as you've seen from the release, our revenues in the fourth quarter were $326.7 million which represented 37.6 percent increase over the fourth quarter of last year. We generated $21.2 million in net income or $0.37 per diluted share which is a 23.3 percent increase compared to the fourth quarter of last year. Now, all of that compiles up into our full year for '04 results as $1.2 billion in revenue which is a 30.2 percent increase, $82 million of net income, $1.40 per diluted share which is 21.7 percent increase compared to the prior year.

I'll quickly review some of what we have considered some of the more significant issues affecting the quarter. I apologize that I'll make several references to the impact of fuel and fuel increases. And I apologize for it up-front because I know some of us are tired about hearing the increased fuel and the impact on results. Unfortunately, it is a factor that is making some of the results a little bit confusing when we look at year-over-year comparisons, when we look at running rates and trends and we just want to reference it enough to make sure that the results and some of the trends are clear and what they would have been in a more normal fuel comparative type period.

Having said that, let's talk for a minute about our operating revenues. In the fourth quarter, the 28.3 percent increase is primarily attributable -- excuse me, the increase is primarily attributable to the increase in our ASMs, which was 28.3 percent. But in addition to that, we also have increased fuel costs which I think most of you know are directly passed through -- the majority of our fuel costs are directly passed through to our major partners and are reimbursed. That fuel increase has had a fairly significant impact on both our operating revenue increase as well as our operating expense increase. I bring it up here only because -- well, to point out two things.

First of all, in a more normal fuel environment, our operating revenue increase in the quarter would have been 26.4 percent instead of the 37.6 percent increase. I'm just saying that if fuel prices were the same in the fourth quarter of this year as to what they were in the fourth quarter of last year, the increase would have been 26.4 percent which makes the 23.3 percent increase in diluted earnings per share a little easier to understand. The other thing that I want to point out is that although these fuel expenses are directly passed through to our major partners, again, the majority of these fuel increases are passed through, it has no impact on our absolute dollars of net income. We get no margin on the increased fuel cost due to the way that our contracts with our major partners work. Which also would then indicate that the increased fuel costs do have a negative impact on our margins. Okay? Because the cost and expenses are in essence growth stop, but there's no margin on the increased cost which, therefore, reduces our reported operating and net income margins. But again, the thing that I wanted really to emphasize is that although these expenses are up and passed through, they really don't have any impact on the absolute dollars of net income.

I guess just for your information, in the quarter, our fuel expenses in the fourth quarter of this year averaged $1.70 per gallon compared to $1.14 per gallon last year on a full year calendar '04 versus calendar '03, our average price is $1.45 versus $1.12. In looking at our operating expenses and interest per ASM for the fourth quarter, again excluding fuel charges, just because of the comparability issue, our ASM cost was down 2.9 percent to $.10.2 from $.10.5 cents the same quarter last year. Most of this, certainly, we recognize is due to the addition of larger and newer aircraft to the fleet. In addition to that though, we're still pleased with improvements that we're seeing throughout the system. We're working very hard on improving utilization. That's had some impact fourth quarter and I think we'll have a larger impact as we move into calendar '05 as we're working together with our major partners and improving fleet utilization. The more we can improve fleet utilization, that then flows through the system and we seem to get better utilization out of not only the fleet but out of our people and facilities and equipment, et cetera. And I'm optimistic that we'll have some positive impact as we move through '05 just because of utilization improvements.

In talking a little bit about our ASMs and our fleet and production and that type of thing, as you can see from the release, we've been busy. Not only in the full year but also in the quarter. Let me just try to summarize a few things for you here. In the fourth quarter, we brought on 9 additional CRJs. 5 of those were new 700s then we brought on 4 used 200s. On a full calendar year, during '04, we brought on 28 additional aircraft that were delivered. 12 of those were 700. 16 were 200s. Then we had three Embraers that we retired during the year. And moving into '05, that leaves us with 20 deliveries that we'll have in '05. They're all 700s, CRJ 700s. 11 of those have already been delivered in the month of January. So, a good share of those will be with us for in essence the full year. Brings our total fleet at the end of December to 137 regional jets and the breakout of that at year end was 12 700s, 125 200s then of course 73 EMB-120s. Our ASM production again, as you can see from the release, during the fourth quarter was just over 2 billion ASMs compared to 1.6 billion in the same period last year. The activity that I've described here in '05 will have a pretty significant impact on growth and just increased ASM production in '05.

I will give you now some guidance relative to the ASM growth for '05 by quarter. In the first quarter, we would expect 2.26 billion ASMs. Second quarter, 2.44 billion. Quarter three, 2.65. And the same amount in the fourth quarter. 2.65 billion. That gets you right on top of 10 billion ASMs for the full calendar '05 which would be about 32.5 percent growth in ASM production for calendar '05.

Let me move on to a few of the other significant items. Just by way of reference, it is probably important for you to know that we do have agreement with Delta Airlines on our rates for '05. We have not actually signed the agreement. We're working on the definitive agreement. We're very close. Don't anticipate any issues. I think it's probably easy to understand there have been a few distractions at Delta. But we don't expect any issues at all with getting that agreement signed. We have had verbal agreement and understanding for actually several months relative to the '05 rates. We're pleased that that is done and should have that agreement signed very shortly.

I'm going to -- there are a few things -- you know, that are included in the release that are there for your information. That I'm going to go ahead and skip through. I do want to talk a little bit about the balance sheet. Our cash and marketable security balances at the end of December were very strong. $549.7 million of cash in marketable securities compared to $480.4 million at December 31 of '03. That's a $69.3 million increase in cash and securities during the year. That's after we paid cash for 4 used 200s. And also spent $12.3 million in repurchasing some treasury shares. So, very strong cash generation during the year. Obviously we're pleased with the condition of our balance sheet, our capital structure, all of our liquidity type ratios and things we really believe are really the best in the regional industry at least. We've had good success in the financing of the fleet. I think you all know this has been a very difficult area in the industry. We have continued to have success in the financing area. I believe we have a fairly strong competitive advantage in this area. We're still having success at placing aircraft in U.S. leverage leases. During the quarter, we financed some of the acquisitions in a combination of U.S. leverage leases as well as third party long-term debt. And believe that we're in good shape with commitments in place for our deliveries in -- through '05.

Our book value per share at the end of the year was $13.56. Cash and securities per share, $9.57. So, again, from really all perspectives, we feel really good about our balance sheet liquidity and all of that. Long-term debt remained relatively constant in spite of the fact we did bring aircraft on balance sheet. We also just took care of some of the obligations and paying off some of the long-term debt. As we have included here in the release, the present value of the off balance sheet obligations is $1.4 billion December 31st. But again, when adding the off balance sheet obligations into any of the coverage ratios and those sorts of things, again, we're in good shape. We've included, as we have said that we would, the mismatch on our maintenance issue relative to our United agreement. We've been talking about this quarter after quarter after quarter. And again, we've said that we wanted to make people aware of this and we would continue to emphasize it and point it out just so people don't become confused by the impact of this. The impact was $6.2 million pretax in the quarter. I think that's actually a good running rate to assume going forward. I'm not going to spend a lot of time of it in the prepared remarks but we have signed an agreement with a third party vendor for maintenance on the 700 which is eliminating any potential mismatch in our 700 fleet. Which we think is a very positive thing.

I'll mention very quickly, kind of the last item in the prepared remarks, I think most of you know that we are in the process of terminating our Turboprop flying agreement with Continental Airlines. I think this may have been a little bit misperceived in the market. I think the primary issue here was that with some of the operational constraints, some of the weight limitations, with the Brasilia fleet, it was having an impact in some of our Houston markets. Continental had a desire to -- they took the opportunity to look at alternative type aircraft that might have slightly better performance in some of these hot and high type markets. They did have a desire to change the type of aircraft providing that service. We were approached and given the opportunity to acquire a different type. And that's -- we just -- I think we all understand the impacts of additional fleet types. It can lead to inefficiencies, that was not something that we were really interested in doing, especially given the size of the operation and so we jointly decided that was best left to somebody else that already had the type of aircraft that they wanted in that operation. We have a very good relationship with Continental which was one of our primary objectives all along was to re-establish the relationship. We hope that it will lead to some growth and development of some opportunities in the future and we continue to have discussions with Continental about things like that. So, I'll just leave that at that.

With that, I'll go ahead and conclude the prepared remarks and open it up for questions.

At this time, I would like to remind everyone if you would like to ask a question, press star 1 on your telephone key pad. We'll pause for a moment to compile the Q&A roster.

Your first question comes from William Green with Morgan Stanley.

Yeah, good morning. Brad, can you talk about growth opportunities beyond '05? Are you in discussions with anybody that's serious or are there opportunities to grow more within United and Delta? Where can growth come beyond this year?

Good question. The first thing, Bill, I want to do in answering this question which I know is not directly part of the question, but just remind people that it wasn't but a couple of years ago we were in this very same spot with coming into a year where we had firm deliveries that took us part way through the year and people asking "Okay, now what are you going to do?" And where's the growth coming from, et cetera. And then right on the tail of that year, we put in place agreements that led to the three consecutive largest growth years in the history of our company.

Yes, we find ourselves in a similar position today but at the same time, it is hard to describe and I'm not going to, in any amount of detail, the types of things we're doing, but only to say that we are as busy today with development of new opportunities than I think we've ever been at our company.

That should tell you a couple of things. First of all, that's what you would expect us to be doing. We're doing everything we can to look for and develop opportunities within our current code sharing and partnership arrangements, and are discussing growth opportunities with current partners. In addition to that, we're evaluating a lot of things, everywhere from looking at certain external type growth opportunities. We're looking at some -- what I'll call just slight variations to our existing business model. Which could include some additional prorate flying. And I don't -- I say -- I don't say that to scare people other than to let you know that we think we're identifying some interesting and productive opportunities. We have -- I think most of you know that we did buy 4 additional used 200s. And one of the purposes for those aircraft were to -- to have a fleet -- a small fleet that we could use in -- I'll use -- I guess just in development type opportunities. Those aircraft, by the way are currently in service with one of our current partners. Two of the airplanes are -- two are being used as operational spares today to get some modifications done to the fleet. But in the next couple of months, those airplanes will be -- I suspect they'll be used in some new development type opportunities.

So, we're very busy looking at new opportunities. We're very busy in bidding work to not only our current partners but to other carriers. So, we're actually very optimistic about the potential that's out there and the opportunity although I can't tell you that anything is real firm today.

So, from where you sit, do you sense that growth, if we describe the growth as having come from potentially three areas, sort of contract flying, new opportunities, we'll call them prorate and other opportunities like that or acquisitions. I mean, how should we be thinking about -- I think of those as having different risk profiles. So, how do you see the percentage of growth or just in broad terms, playing out?

I don't know how to answer it -- I certainly understand the question. I understand that the market would perceive growth in any of those areas with varying degrees of risk. I mean I understand that. All I can tell you is that we're looking at growth in all three. I will tell you that as I -- and others of our company have stated, you know, almost as an ongoing theme, our strong preference is to grow organically, to continue to realize efficiencies in our own system. Okay? We think that's the best, the most productive, most efficient, lowest risk type of growth. So, that's our strong preference. We're working very hard on that. We're working hard on it with a preference toward diversification into other codes. I will say that.

Okay. Brad, last question. Can you offer any margin guidance for 2005?

I actually would prefer not to only just because I'm a little concerned about some of the reg FD type implications, but I certainly don't see anything dramatically different than what we're doing.

Okay. Thanks for your help.

You're welcome.

Your next question comes from Ray Neidl with Calyon Securities.

Yes, just a follow-up on the previous question. Would you consider things like doing independent flying again or do acquisitions in possibly non-airline areas, such as maintenance or services, and would you have any interests in flying assets?

No.

For all three? Okay. Good. To verify one thing that you said during the conference call, in the fourth quarter, margins were down by almost a point. Were you saying that the bulk of that was because of higher fuel prices?

I appreciate you pointing that out. If you normalize fuel, it is exactly one margin point of operating margin.

Oh, okay. The final question is can you give us any guidance -- with the share buyback program, can you give us any guidance on what your share count may be by quarter through 2005.

Oh. I haven't actually gone through that, at least in detail I have, you know, readily available. But I think on average, you would -- we just did -- I think on average, we would say that you'll have about a million -- 1.5 million additional options that have been granted. Not quite sure off the top of my head how that will affect the weighted average count. Whether they'll be diluted of because of the uncertainty about the stock price but I can tell you that we have granted about a million five. We'll have another probably .5 million shares that come through our employee stock purchase plan which is a section 423 type plan. Then that would be reduced by you know, any activity that we have in the market buying our own shares which, obviously, again will be dependent upon market conditions.

I think -- you know, one thing I will say, we did put in the release that just under our current authorization, we have available 1.8 million additional shares. Certainly if we wanted to buy more than that, we could get authorization to do more. But I think in our buying activity, we have made it pretty clear about what levels we will be buying in the market. And at the same time, I'll say we're paying very close attention to the potential accretion generated by repurchasing our own shares and using that as a bench for the returns of other growth and development type opportunities. So, this is an area we're paying very close attention to.

You contend for the time being on sitting on those very large cash reserves that you have?

Yes. And again, I mean a lot of people are asking, you know, why so much cash? Why so much liquidity? You know, it is for times like this. Now, again, having said that, that's why we're looking but at the same time, we're going to be very careful.

I mean and when I say careful, I mean -- I know I sometimes get long-winded in these explanations but I want to make sure people understand that when I say that we're aggressively looking, we do -- we are doing I think exactly what people would expect us to do in pursuing opportunities. But at the same time, we have a very good thing going here. In our company. We have a good culture. We have good relationships with our work force. You know, we want to be very careful that in anything we pursue or develop or would potentially expand into or acquire, we need -- we have got to be very careful not to cause enough distractions or do things that will compromise our culture and our working relationships with employees. And those types of things. So, we are going to be very careful but at the same time, it is times like this, why we've maintained this type of liquidity.

Good. Thank you, Brad.

You're welcome.

Your next question comes from Helene Becker with Benchmark.

Thank you very much, operator. Hi, guys.

Hi, Helene.

Just a couple of questions. One, I missed the January traffic results. Did you publish them or could you give us an idea of what the load factor looked like? Just so we have a sense of what the March quarter traffic would be?

Helene, you're not the only one that missed it. They're coming out today.

Oh, okay. Will you comment in there on the trends for January and forward-looking for February and March? And in line with that, I'm kind of curious, since most of your traffic is done on a deeper departure basis now, why you continue to publish a yield number?

That's a good question. Let me answer the first part of the question first of all. I think I would prefer to let the January release go out, get that into the market before we -- before we spend really any time answering questions about that. So, go ahead and look for the release later today. And then if you have follow-up questions, certainly feel free to call.

Relative to the latter question, it is a good question. We do continue to publish a yield number. We do it because although -- I mean I think you all understand pretty well how the contracts work. We're not the only ones that have them and you understand this pretty well. But we still paid very close attention to that internally. Because we want to -- a lot of people say well, you continue to grow. You're adding a lot of capacity with major partners that admittedly are having their share of challenges and difficulties. We do it because it constantly reminds us of the -- of the importance of making sure that this growth and the markets that we're going into are markets that are going to work. We don't want to bring on a lot of capacity and put it in markets that just fundamentally don't work or load factors aren't there or wherewe're having to buy the traffic to get the load factors. We put it out as much as anything as a reminder to ourselves to pay close attention to the fundamentals and make sure that the growth is going in the markets that work.

Great. Okay. Then one other question on depreciation. Since you took in these 11 additional aircraft in January already and you only have 9 to come, unless you obviously use the used market or whatever. Can you give us a sense of what depreciation should look like for '05 now?

I don't think depreciation will look a whole lot different other than -- the 11 that came on in January are leased aircraft.

Okay.

The only real difference that I would expect right now is just the depreciation on the 4 that we paid cash for which is roughly $50,000 a month per aircraft.

Okay.

That's the only addition we've got really to what I would say is a normal running rate.

Okay. That's great. Thank you very much for your help.

You're welcome.

Your next question comes from Tony Cristello with BB & T.

Hi, good morning, Brad.

Good morning.

I guess I have a question on the maintenance contract and the agreement that you have. I was wondering if you can just sort of give me an indication of what the quarterly run rate will be in terms of will it be dramatically different from what we've been seeing on a unit basis of what you've been paying for maintenance?

No. In fact -- we've had this agreement in place all of the fourth quarter. And so I don't think it is really going to be any -- much different at all from what we've seen in the fourth quarter as far as maintenance run rate.

Now, with some changes that we had made and announced and disclosed all over the place, I want to make sure everybody knows we've disclosed this so I'm not talking out of turn here, but in some of the contractual changes with our partners and the corresponding adjustments we've made in our accounting. We expect really very little -- very little skewing of results because of maintenance. I mean most of that now -- the fact that we're on a time and materials basis with the 200s, most of that is in our agreements that we're reporting the mismatch on the United side. On the Delta side, there really is no mismatch. The expense will spike but so will the revenue.

So, I just -- I don't expect anything really materially different than the run rate and the trends and things that you saw in the fourth quarter.

Okay. And did you give a Cap Ex number for the year and also what your expectations were for 2005?

Oh, did I give a Cap Ex number for calendar '04?

Yes.

$68 million roughly in non aircraft related Cap Ex. For '04. And I expect roughly around $75 million or so -- not materially different in '05. Around $75 million or so.

Ok. And you talked a little bit about financing and the aircraft and I'm assuming all your aircraft -- how many of your 20 deliveries for this year are permanently financed? How many are left and maybe it was -- maybe you've already talked about this, are left on interim financing? And with respect to your cash balance, has that helped you at all? I mean obviously it has. Given the size -- if it was less, if it was a couple of hundred million dollars less, do you think you would have as easy a time as getting aircraft finance or working with vendors?

Okay. Well, first of all, no. I think the condition of our balance sheet, the liquidity obviously being a significant component of the structure of the balance sheet, obviously is giving us a competitive advantage. It is giving us access to capital sources that otherwise would not be available to us. So, I think it is creating a very strong advantage. Both in access to capital and the price of the capital.

In answer to the first part of the question, we have -- well, the short answer to this is that all -- we have committed lease financing on every delivery coming in '05. Now, we may choose for tax management purposes to acquire some of those aircraft. We've not made that determination yet. We're currently evaluating that. But we do have lease financing committed. But we may change that at our discretion for tax management purposes.

So, it sounds like you're less willing to part with cash whether it be acquisition or some other type of start-up in part because of the finance benefit that it's giving you right now.

That is certainly a factor, yes.

All right. Thank you.

You're welcome.

Your next question comes from Sam Panella with Raymond James.

Good morning. With respect to your pilot's rates in '04, they agreed to rates on the 70 and on 90 seat equipment similar to the rate on the 50 seaters. I believe that expired in '05, is that correct? And then also are you negotiating this again?

Yes on all counts.

Okay.

You know, Sam, this is a sensitive area. We're having discussions with our pilots as we speak. So, I really am not in a position to say a whole lot about it but other than to say that as I talked earlier about some of the Skywest culture and those types of things. I have got to tell you, I don't understand all of the reasons why but -- and we certainly have our issues and our challenges and things like all airlines do with employee type relations. But our work groups and particularly the pilots, they have just -- they've been so good to work with us. They've been so good to recognize the things that we're trying to accomplish. And how important their role is in this. How important it is that we remain in a position to be competitive as we're developing business and bidding for work.

So, as I said at the beginning, without their help and their cooperation and their understanding of what we're trying to do, we wouldn't be in as good a competitive position as we are today. So, you know, our thanks and our hat goes off to our work groups, our pilots, our flight attendants, the whole group have just been very willing to work with us on this issue.

Okay. Thank you. And how much did you have on deposit for aircraft at the end of the year?

Roughly $70 million. I don't know the number exactly but it's right around $70 million. They're telling me $66 million.

Great. Thank you.

Thanks, Sam.

Your next question comes from Robert Ashcroft with UBS.

Hey. Good morning. You said that one of the drivers of the decision to move away from flying for Continental was weight issues at the Brasilias. There are a couple of different models of engines on Brasilias. Does this have any implication to the utility of the other Brasilias that you're using for United and for Delta?

Not a significant. It had a particular -- it had a particularly difficult impact on some of the markets that were not only current markets but some of the markets that Continental was looking at out of Houston. Whether it was the length of haul or the altitude of airports where this problem becomes even more difficult. It had a -- I'll just say it this way. It had a larger impact there on some of the current, as well as potential markets in and out of Houston than we see it having in our current system.

Okay. I guess -- where are you with the Delta commitment for the seven more CRJ 200s? Is that a matter that's up for discussion at the moment? Have you thought about restructuring that toward 70-seaters or where do you stand with that?

That's certainly what our preference is at the moment. We've had some discussions with Delta about doing exactly that. And first of all, let me make it very clear that we have not included those seven aircraft in any of the ASM projections that I gave you earlier.

Now, having said that, though, we're still having discussions with Delta about those aircraft. But with some of it -- I think probably most of are you aware of the changes that are going on at Delta. We really don't -- we really don't know the status of those seven airplanes and that's why we've taken them out of our projections. We still think that there's some possibility that they'll be in our plans. We would prefer for them to be 700s versus 200s. If we had to defer the aircraft, even out of this year, in order to take them as 700s instead of 200s, that would still be our preference. So, those are the types of things that our discussions are around. And that's why we've not included them in our plans at this point.

Ok. Thank you. One last question about your fleet. Originally, I think the delivery schedule for 700s called for 15 or perhaps 17 to be delivered by the end of 2004.

Yes.

It looks like you had a dozen by that time. Then it seems like you suddenly had a whole bunch hit in January. What was driving this? Was this a Bombardier issue or something that United wanted?

No. In fact I appreciate you bringing that up. I didn't know how much detail to go into on that. I appreciate you bringing it up. It simply was driven around management of property taxes.

Okay.

So, we worked with Bombardier and took the airplanes in January basically at our request.

So, this is like being driven by leverage of lease concerns or something?

No. It was more driven by fleet valuation for -- end of year fleet valuation for property taxes is what was driving it.

Thank you very much.

You're welcome. Any other questions?

Your next question comes from Glenn Engel with Goldman Sachs.

Good morning.

Hi, Glenn.

Couple of questions. One is can you help us with the tax rate on 2005?

I think we would lead you to about 39.5 percent.

Secondly, when you talk about the ASM growth this year, what percent is planes and what percent is utilization?

Oh, okay. That's a good question. On about -- this is different by type. I'm going to -- at 10 percent utilization to be about 5 percent increase in utilization.

On the revenue at-risk groups, how did they do in the quarter?

On the at-risk markets?

Yes.

You know, surprisingly well. Even with the increased fuel prices, we're seeing some actually good improvement where we've -- where we're in control of the revenue management. So, I mean you know, the Continental markets that we're in the process of transitioning out of, you know, there is some margin there. Not a lot. In our Delta at-risk, they're actually performing quite well. I'm a little hesitant to give you exact numbers, but we're not displeased with the performance.

Now, on the Salt Lake routes, I thought you did a fare restructuring that's similar to what Delta has just announced recently. Can you talk about that at all?

Well, I wouldn't say we did the fare restructuring. Certainly what Delta did and its impact on the systems relative to through fares, that will have some impact, but keep in mind we're still controlling the availability of inventories in the fare classes affected by that fare structure change. So we have -- still have and maintain the ability to manage through that to some extent. So, we will manage that situation. At the same time, we'll continue our revenue optimization objectives on the other portions of the inventories. So we're not that concerned about the impact of that.

I'm sorry. What I meant was that I thought that you had felt that the fare structure wasn't working for you at your at-risk points about a year or two ago and that you had changed your own fares around to try to stimulate more local demand.

Oh, okay.

I was just curious how that has proceeded.

No. That's why I'm telling you we're pretty -- we're very optimistic because -- because since -- I apologize. I misunderstood your question. Since those changes, we've seen good improvement in our yields particularly in the local traffic.

Finally, do you see any progress in moving to a power by hour agreements for your 50 seaters at United?

I will be a little careful with this one. We're certainly looking and evaluating that possibility. I mean it is probably our preference to move to that type of program but it is still under consideration.

And I guess that's because the rates being offered to you aren't attractive enough yet? Have you seen any movement in that to get closer?

Certainly the rates are obviously part of that evaluation. But I probably am not comfortable talking more about it at this point.

Thank you.

You're welcome.

Your next question comes from Jim [Altchell] with Aviation Advisory Service.

Good morning, Brad. How are you today?

Good. Thank you.

I had to step away at one point so I apologize if you already addressed this question. Why did you choose to acquire four used aircraft last year? Was that part of your fleet plan?

It was not exactly part of our fleet plan. We see some opportunity and we wanted to have some aircraft available to pursue some development opportunities. And that's why we acquired them. By the way, we intend to -- the -- I did mention earlier that currently two of those aircraft are in service with one of our current partners. Two are being used as what we refer to as modification spares. We're doing some mods to reconfigure some of the first 700s that were delivered into 2.5 class configuration. Those are being used to cover the lines that the mods are being done. Within a couple of months, those four aircraft will be available and we expect to be doing some different business development and opportunity development with those airplanes.

Oh, great. In the past, there were not a lot of used CRJs or for that matter Embraer jets on the market, period. Is there more availability than they used to be? Are they available at attractive prices?

Yes, they are. The market certainly is changing. I think most of are you aware there are some situations out there that are creating some availability. So, yes.

Are you planning to back the leverage or finance those planes or just keep them on the balance sheet as it is?

We are -- it has certainly been a stated objective to refinance some of that equipment. We actually have been successful at refinancing some of it. But you know, relative to -- for tax management type purposes, we're not -- we're ok keeping some of these on the balance sheet.

Great. Thank you very much.

Operator, we're approaching an hour on the call. Why don't we take one more question.

Ok. Your final question comes from Robert Toomey with RBC.

Good morning. Did you say what operating cash flow was in 2004? Or do you have that number?

You're asking just cash flow from operations only?

Yes.

Yeah, we do have that number right there. Okay Year-to-date, right there. Let's see. 245. $245 million.

Okay. And what was shareholder equity at the end of the year?

Okay. Seven something. $779 million.

Okay. And just a point of clarification on the maintenance mismatch. I'm not quite clear on that. The $6.2 million. Was there -- was there some part of that that was not what you call a normalized expense? Was it usually high for the fourth quarter then that goes away under the new contracts?

No. That's one of the reasons we keep putting it out there and making sure people are seeing the number. We just don't want to confuse anybody and I admit I know by putting the number out there, if you don't understand it, it creates confusion. We're just trying to make sure people understand first of all that there is a mismatch. We're collecting revenue for expenses that aren't incurred yet. But there's nothing unusual about the number. No unusual trending or spiking. That is just a good -- I think a good number to kind of trend out. At least through '05.

Ok. Then my last question, Brad, is how do you feel about your long-term growth potential with United and Delta, given the fact that United has announced they'll be reducing some of their domestic capacity? Delta as well is obviously going through some restructuring. You sounded pretty optimistic about your long-term growth opportunities. I'm trying to get a better understanding of -- given the fact that there's restructuring going on with your two major code share partners. Why are you so optimistic?

I'm optimistic because -- and certainly we're -- we understand that there are differing views amongst analysts, amongst industry experts, et cetera, et cetera about this point. We continue to be very optimistic about potential for regional jets for two reasons. Because they are very effective in the medium -- the medium to shorter haul markets that have -- that are what we refer to as "thin" markets, relative to demographics. So, rather than putting a larger aircraft in those shorter, thinner markets where you are relying on a lot of discretionary which is lower yielding traffic to get the load factors up, I think it is being proven that the R.J.s are very effective at going in and very specifically targeting a higher percentage of the higher yielding business type traffic in those shorter, thinner markets. The airplanes are very effective at doing that.

And at the same time, we're finding them very successful as we continue to penetrate the hubs that ourselves and our major partner in that respective hub where we dominate the market share. So, I mean they're going into markets that we think really fit the profile as the majors continue to restructure, we see it creating opportunity in those shorter, thinner markets. And that's how we're utilizing the airplanes. So, for that reason, we think as continuing fleet restructuring and rationalization goes on at the major level, it should create continuing demand for aircraft in those targeted market segments. That's why we feel optimistic.

You feel that there's a lot of opportunity in those kinds of markets still available?

We do, yes. I mean admittedly, you know, a lot of this is dependent on what the majors do and the extent of their restructuring, et cetera, et cetera. But we certainly see -- and are having -- are having discussions not only with current partners but with non current partners about their needs for growing R.J. capacity.

Okay. And how does that square with any long-term -- do you have any expressed long-term earnings growth objectives? I know that historically, the pre-9/11 days, you were growing 20 percent. Do you feel that that's -- can you talk about your long-term -- do you have any expressed long-term growth objectives in terms of an actual number or earnings growth?

I don't really think I'm in a position to discuss that, Bob.

How about philosophically, Brad? I mean obviously you want to grow. Okay. That answers my question.

It's not that I'm unwilling to do it. I'm just a little sensitive about doing it is all because I mean as I discussed earlier, we have so many things going on that we're looking at, we genuinely honestly feel very optimistic about the potential, but I mean admittedly, I mean there's nothing that -- where -- ink's ready to go on pages. So, I just need to be very careful. I think I've fairly well explained kind of our position, the types of things that we're doing. And I probably need to leave it at that.

That's great. Thanks, Brad.

Okay. Thank you. Ladies and gentlemen, I think with that, I apologize if there are more questions and things. But we have been on the phone for an hour. I want to be respectful of people's time. So, with this, we'll go ahead and conclude. Again, just by expressing appreciation for your support and your interest in Skywest. And with that, we'll go ahead and conclude the call. Thank you.