SkyWest Inc (SKYW) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen. My name is Tina and I will be your conference operator today. At this time I would like to welcome everyone to the SkyWest Incorporated announces second quarter '07 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

I would now like to turn the conference over to Mr. Bradford rich, Executive Vice President and CFO. Sir, you may begin.

Thank you very much and thank you to all of you for taking the time to join us this morning. We always recognize that there are a lot of time demands, other people releasing, et cetera. We appreciate your interest in SkyWest and taking the time to participate with us this morning. I assume that most of you have seen this morning's press release. We are generally pleased with our results for the quarter and we appreciate the opportunity to review them with you this morning. I will actually make -- try to do this call a little differently than we have done in the past. I will make an attempt at making our prepared remarks very brief and leave the majority of the time for question and answers to make sure that we're covering the information that you who are interested in SkyWest and following us are interested in.

First of all, let's just use the text -- the press release from this morning. Oh, excuse me. Before we start, we're going to have our forward-looking statement. Mike Kraupp, our Vice President of finance and treasurer will read that. Before he reads that, I also would like to just make sure we make some proper introductions. We also have participating with us Chip Childs, President and Chief Operating Officer of SkyWest Airlines. We also have participated Brian Labrecque, the President and Chief Operating Officer of Atlantic Southeast Airlines. With that we'll turn the time to Mike.

Okay, here we go. In addition to historical information, this release and conference call may contain forward-looking statements. SkyWest 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 SkyWest'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 release and conference call are made as of the date hereof and are based on information available to SkyWest as of such date. SkyWest assumes no obligation to update any forward-looking statements and actual results will vary and may vary materially from those anticipated, estimated, projected or expected for a number of reasons.

Okay, thank you. Now we'll move in to the press release, use it for the text, at least for the beginning of the discussion today. As you can see from the release, we reported today offering revenues of $855 million for the quarter ended June 30th. That is an 8.2% increase from the same period last year. We reported $40.6 million in net income, which is $0.62 in diluted earnings per share, compared to $39.3 million of net income and $0.62 in diluted earnings per share for the same period last year. When you combine that to the first quarter performance, the six months totals are $1.64 billion in operating revenues, which is a 7.2% increase and -- let's see, net income is $75.4 million for the six months, which is $1.15 in diluted earnings per share.

I'd like to make just a general comment as we talk a little bit about our operating revenues for the quarter. First of all, the general statistics that we normally look to as a relevant indicator of operating revenue growth are things like our increases in block hour growth or increases in ASM production, and you can see from our statistics that we are up 11.5% in our block hours flown. Our ASMs were up 14.5%. The unfortunate part about this is that our operating revenues are not correlating very well with some of the normal indicators. And the unfortunate part about it is that we are seeing some difficulty in period-to-period comparisons, simply because of changes in fuel -- not only the changes in the pricing of fuel, but in the way that fuel is being handled by our major partners. For example, in the current quarter, there is some distortion simply related to the fact that beginning in January, United Airlines began purchasing fuel on our behalf in Chicago, and then in -- beginning June 1st, they also began purchasing fuel on our behalf in San Francisco and Los Angeles. So that has caused some distortion in the top-line revenue performance, but has had little, if any, impact, on net income. To put it in a little bit more meaningful terms, that amounts to somewhere around $25 million of revenue that previously was grossed up, both in our top- line operating revenue and in our expenses that is not there anymore, so it has had some impact on margin but it has little, if any, impact on net income, as I said.

One of the main items in our financials that I think will be noticed is, within our operating expense categories really the only item that I think appears at all unusual is our maintenance expenses for the quarter. They are higher than we had expected and planned, and higher than our normal running rates. The primary reason for that is that we have acquired -- really for the first time in our history we have been very active in the used aircraft market and in total, we have acquired -- or are in the process of acquiring approximately 21 aircraft from the used market. Those aircraft are taking additional expenses in bringing them up to SkyWest maintenance standards and just some of the processes and the things that are required to bring used aircraft into the fleet, which has not typically been in our run rates. At the same time, there's some distortion again in that, in the maintenance category, simply due of the timing of some of the pass-through maintenance that again, just -- that flows through our contracts and is grossed up both in expense and in revenue.

Having said all of that, our cost per ASM, including interest, for the quarter did come down slightly, came down 2.2%. I recognize that's a modest decrease, given what is happening with the maintenance that I just explained. We're pleased with that performance. It's hard to emphasize strongly enough our commitment to continued improvements in our cost structure. We continue to be very aggressive in working to improve processes and increase utilization and productivity wherever we can. We're reviewing all of our contracts, reviewing vendor relationships wherever possible to reduce our cost structure and create increased value for our partners, which really translates to stability for our employees and a better product for our passengers.

I want to talk for just a minute about our ASMs for the quarter. I previously mentioned that we increased ASMs 14.5% for the second quarter, primarily as a result of the increasing -- of increasing the size of the fleet, which increased to 434 total aircraft at the end of June, compared to 397 aircraft at the end of June of '06. I won't take the time to review all of the composition of the fleet. That is included in the press release and you can review that as you would like to. I would just mention, though, that relative to future deliveries, we'll have two additional 700s that will go into service in the third quarter and the remaining four 200s - CRJ200s in the Midwest operation that will go into service in the third quarter.

Let me mention just briefly that we have been very active in repurchasing our shares in the second quarter. We previously announced that our board had authorized a five million share repurchase program. At the end of June, we had repurchased 2.3 million shares at a cost of approximately $60.2 million. Let me bring you as current as I can on the repurchase program, as of the close of business yesterday, we had repurchased a total of 3.5 -- just under 3.5 million shares at a cost of approximately $87 million. I will just add that we remain committed to the repurchase program as it has been explained. We would expect to continue with some repurchasing, as you've seen us do in the quarter, up to the five million that was authorized by our board, at which time we will reconsider the program and make a decision whether to continue.

The part that I do feel strongly about, as we previously indicated our intentions to be active enough in the market to -- from time to time and on a fairly consistent basis repurchase enough shares to offset any dilution created from our equity-based compensation programs -- as we have previously indicated, we do have a very broad based -- in fact, I believe the broadest-based equity compensation program in the industry -- in an effort to try to align our employees' interest with those of our shareholders. Our expenses relative to the stock based compensation programs were up higher than our normal run rates in the quarter. In the release, we indicated that those expenses were $3.9 million pretax, $2.5 million after tax for the quarter. The real only comment I would make about that is that those numbers. I believe. are slightly higher than we would expect in our normal run rates, which have been down more in the mid $3.5 million, $3.2 million , to $3.5 million range, which is closer to what I would expect as more of an indication of the true run rate.

At the end of the quarter, our cash balance was $676.9 million, cash and securities. A couple of highlights. That is the cash balance. of course. net of the $60.2 million that we spent in the repurchase program. At the same time, we paid cash out of our reserves for a CRJ200, which would indicate that we do have very strong free cash flow generation going on from operations. We don't expect anything different from that in upcoming quarters, just good, strong cash generation from the operation. Our long-term debt increased slightly, again, but not -- it's all what we think is pretty aggressively priced debt and all related to aircraft acquisition. Relative to a few -- just balance sheet ratios, our working capital is 2.7 times equity, which really approximates tangible net worth. Most of our equity is tangible. $1.2 billion book value per share is $19.43.

With that, I think I've covered most of the highlights. I know that there have been some questions just about the operational reliability of the two entities. That has gotten a little bit of press and something that I don't -- I know nobody follows closer than we do. We are -- we feel pleased with the improvements that we've seen on the SkyWest Airlines' side. We saw steady improvement through the quarter and in fact, in June, the DOT reports in their measurement of on-time performance, SkyWest Airlines returned to the number one position for mainline U.S. carriers.

On the ASA side, a little different story. We'd seen very good improvement in both April and May and then in June we slipped basically to 18 of 18 carriers. something we're not proud of. The one thing I would mention, though, is June is the month that Delta took over ground handling operations in Atlanta and this is not any -- in any way meant to be a negative comment about Delta's performance, other than it was a month of transition and I think goes without saying that in that size and magnitude of transition, there are bound to be some difficulties. The good news is that with the cooperative efforts of both ASA and Delta, we really believe that this will get back on track. There will be significant improvements made, and again, with the cooperative efforts of both parties, we will produce a better and better product for our passengers in Atlanta.

Having said all of that, I think the only other thing that I would mention -- just in prepared remarks -- is just the April -- or the June quarter was also significant for us in that it -- we began the operation of our Midwest service, which began April -- in the first part of April. We're pleased with the results thus far and really hopeful that at some point that might be something that could lead to some additional growth in the future. We're proud of our people who have successfully launched this new service. This type of new service launch doesn't go without significant effort on the part of a lot of people, to the point where we had -- at some points our vice president of flight ops flying lines, our vice president of in-flight providing the in cabin service, et cetera, to make sure this went off as seamless as possible. We don't take for granted the efforts of all of our 15,000 employees who were just -- we're genuinely grateful for the efforts that they put in day in and day out to contribute to the success of our operations.

With that, I will go ahead and close and open it up for

(OPERATOR INSTRUCTIONS) Your first question will come from the line of Ray Neidl with Calyon.

Good morning, everybody.

Hi, Ray.

A couple of small things. One is your cash ratio, it's about 20% of annual revenue, which is normal to a good level. But you were talking about your stock buy-back program, counter acting your liberal equity compensation program. Is that your plan on the future, to use any surplus cash to continue buying back stock to avoid the dilution?

Yes, Ray, I'd say that that's our -- I'd put it more in terms that that's kind of our minimum expectation. And then on top of that, of course we'll consider rebuy back, just like I'm sure everyone else does, as an investment alternative to other growth opportunities that we see. So I think we are committed to offsetting the dilution as a minimum and then we'll consider above that just relative to other opportunities.

Okay, great. And then going into next fiscal year, can you give us any hint at all what you think the growth in block hours and ASMs might be?

I would -- I think a little too early for that, Ray. When we have better gui -- I think what I would lead you to -- normally I go through quarter by quarter and give you the ASA to ASM expectations. I don't really at this point expect anything different than the guidance we've given you, and then if you take the growth that has come into this year, extrapolate that through a full year of the current year's growth, it would translate somewhere to about 7% growth, okay? If we do nothing beyond what we have executed so far. So that's really the best guidance I can give you, other than to just say that on top of that, we still see signif -- we're very optimistic. I know there's a lot being said and a lot of press being put out about this is now a slow-growth industry and things to that nature. That is not how we see it. We still see opportunity within our core business, we see opportunity to develop business. We see opportunity just within our sector in general and we've got a lot on our plates that we're looking at and evaluating. So I'm optimistic and things about growth. It's just a little too early for us to give you any guidance above what we just gave you.

Okay. And there's been some yield erosion, I guess, in the past couple of quarters. Is that pretty well over with, do you think?

Yes, I think that what we've produced is pretty indicative of our run rates. I do think we have a few -- I mean, there are a few things relative -- there are some factors that I think are coming to the surface that are creating some volatility. One is performance incentives and those can move the numbers slightly. The timing of some of the maintenance and things, I mean, we do have -- we are moving into a period where we've got a little heavier maintenance requirement, as some of the airplanes are coming off warranty and they're coming up for their first A&C checks and those types of things, but I don't think they're going to move the dial significantly. So I think what we've just done is fairly indicative of what you should expect in the future.

Okay, great. And finally, Midwest, that agreement there, is that in any danger if Midwest does a merger or any other financial restructuring?

I could put a lot of commentary to this if would you like. The short answer is no. I mean, our contracts are there and they'll be in place and if the deal happens, they'll need to be honored, and we think that AirTran has every expectation of doing that.

Okay, great. Thank you.

You're welcome.

Your next question will come from the line of Jim Parker with Raymond James.

Good morning.

Hi, Jim.

Brad, when will this United Airlines maintenance honeymoon kind of cross over the line? You're getting benefits looks like $0.07 per share in the quarter, second quarter. When does it cross over the line and you begin to have a charge?

I don't think it's in the near term, Jim. And as I mentioned earlier, we are aggressively -- and I emphasize aggressively -- pursuing everything that we can in all vendor relationships, whether it's service providers, parts providers, you name it, we're reviewing it and pursuing improvements. And most -- a good share of those things that we're doing are aimed at managing that future expense down. So there's just a timing of when it will naturally happen and the magnitude to which it happens that we're very aggressively trying to do the best we can to manage and to bring that number down. So I don't have an exact time for you, Jim, but it's not in the near term. It's not in the next year or so.

Okay. It appears that there may be some growth opportunities in other countries around the world, but most other countries have foreign ownership restrictions, which means you would be minority investor should you elect to pursue some of those opportunities. How do you overcome that and what's the logic or why would you become a minority partner?

Good question. First of all, our strategic approach to this type of growth, first of all, is that we're going to be very careful and very thoughtful as we approach or evaluate any kind of international opportunities. I think it goes without saying that a lot of the carriers now in pursuing growth are looking for international opportunities and we're no different. The issue relative to foreign ownership rules and the 49% or minority interest issue you brought up doesn't -- it's not something that's a difficult issue for us from the standpoint that our strategic approach to it would be to partner with people who are local to any area that we look at, who have relationships established that are experienced in the locale that we'd be looking at.

So to partner in a minority way with the local expertise is the way that we would look at and evaluate and pursue any of these type of opportunities. In an effort to combine our strengths, which is experience in regional flying, we do have financial strengths and those things, and bring that together with the strengths of the local area in which we would be pursuing. So to do that in a minority interest, that's not frustrating to us. It's not something that would cause us to not pursue those type of opportunities. So I don't know what else to say about it. We know that's the case. but we'll -- we're looking at and pursuing some opportunities in spite of that.

Okay. That's fine. Thanks.

You're welcome.

Your next question will come from the line of Mike Linenberg with Merrill Lynch.

Oh, yes. Hey, good morning.

Mike.

I guess a couple questions here. You know, you talked about ASA and June was a transition month and it was 18 out of 18. How did the operation perform in July? And I realize we don't have industry data out, but I'm sure you can sense whether you're seeing improvement there versus the prior month, and then how does early August look for that operation?

Okay. I've been doing a lot of talking here. The short answer is that we're seeing steady improvement and that's the very good news. But Brian Labrecque, you're on the phone. Why don't you add some color to this?

We (inaudible) --

Mr. Labrecque your line is cutting out.

Yes, Brian, you're breaking out pretty good. Brian, if you don't mind, simply because of the breaking up, let me take a shot at it, and if I say anything you want to correct, feel free, okay? There's a couple of issues here. First of all, as I said, we're seeing steady improvement and Delta is working very specifically and aggressively with us to make some changes, both in the schedule and in the gating of the operation in Atlanta, that we are seeing good improvement. They're committed to the facilities. We're making some facility improvements. And so in total, we really see a strong commitment there on both sides -- both the ASA side and the Delta side -- to make the changes and improvements and things there on the ground in Atlanta that we really think are going to make some improvement. And I think -- I mean, it's going to take some time. I mean, these are not things that just change overnight.

The third quarter performance we know is still going to be difficult. There was a schedule put in place months ago. With the volume of activity and the gating requirement, it's going to be very difficult in the third quarter. But as I mentioned, Delta has been willing to work with us on some scheduling changes, making available additional gates for the operation, so once we get beyond a near term transition period, we really think that then, quite quickly, after the third quarter ends we should start seeing some real meaningful improvement. But again, this is something that's been hard on our people and it's -- they're not the kind of changes and the transition that just is fixed and solved overnight. But having said all that, we're very optimistic that ultimately this is going to lead to a better product for our passengers.

And then just my second question, are you aware of any RFPs out there?

We are not aware of specific RFPs. We -- maybe I should just say, we're optimistic and hopeful that there will be some additional RFPs by the end of the year. Just in our talking with some in the industry we hear things here and there, just like you guys do, that would indicate that there are some major carriers that will be looking for some regional growth. And again, as I said, we feel really good about a number of things. I mean, we've got really solid -- I think our financial performance right now was a good, solid performance. Our financial positioning is excellent. We've got operational performance that is good and improving. Our cost structure is good. It's competitive. But as I said, we are aggressively working to improve it and make it more competitive. So combine all of that, we see some opportunity, we're hopeful that there will be some RFPs, and we think we're very well positioned.

And Brandon, maybe just as a follow up on that note, when -- I think it was -- it seems like the last deal that (inaudible) was handed out, was either for some CRJ900s or the Q400's that Continental awarded to Pinnacle. Is that a line of business that you'd be interested in? Would that be something that would you have bid on? Because I know you've talked about the Q400 on -- it's been talked about on numerous calls over the years and I'm just -- I'm not sure if it's something that you would -- it's a path you would go down at all?

It is a path we would go down. We have not been bashful at all in saying we really like the Q400 It's a great airplane. It does have a specific mission and we certainly are not -- as some other carriers may have expressed some preference about just avoiding turbo props, I mean, that obviously is not us. And we just need to find the right opportunity in the right location.

I see. Did you bid on the Continental business?

We actually -- well, we have bid on some Continental business, yes.

But the Q400?

Yes. This round though of Q400s, we felt like there was not enough volume to justify an additional type, especially in the location.

Yes, the no northeast.

Yes.

Okay, I did not realize that. Okay. No, that's helpful then. It gives me a sense of where you guys are on that. Okay, thank you.

You're welcome.

Your next question will come from the line of James Higgins with Soleil Securities.

Hi, just a quick question. Talking a lot about the Delta taking over ground handling in Atlanta, can you give us a sense of what revenue and income impact that might have for you?

Top line revenue might take about 40 to -- I'm looking for a little help here. Okay, so little less than that. Maybe $30 million of top-line revenue that'll come out. Maybe even slightly under that, I'm being told. The net income impact is not -- it's pretty immaterial, actually.

Okay. And Comair is widely thought potentially to be on the block at some point. As you think about opportunities like that, how do you weigh your exposure to a single mainline carrier, et cetera, in thinking about those kinds of opportunities?

That's a very good question. The quick answer to that is, is that first of all, one of our -- certainly one of our corporate strategic objectives is to diversify our risk and to diversify codes, add codes as we can.

Right.

So our growth in that way -- I mean our first priority would be if there's an opportunity outside of our current partner relationships. Having said that, though, we're looking for opportunity wherever we can find it, but it has to be the right opportunity. So I mean, it's -- and our decisions on what to pursue and what not to pursue, I wouldn't say which code it's operating or with which partner is the ultimate -- I mean, it's not the number one factor in the equation. It's looking at the right equa -- the right opportunity, given the economics, the right operating environment, good employee relations, those kind of things are more important to us than which code.

Very good. Thank you very much.

You're welcome.

(OPERATOR INSTRUCTIONS) Your next question is a follow-up question from Ray Neidl with Calyon.

One thing I forgot to ask before was -- I don't think you talked about it much -- was the pilot situation. Last quarter, you had told us that unlike some other regionals you weren't having a big drain on your pilots to the major carriers. Is that still pretty much the case?

I'm going to let Chip address that first and then we'll make another attempt at Brian Labrecque.

Ray, I think relative to our current attrition in pilots, we actually have -- we're starting to hear and feel the rumblings throughout the industry that the majors are starting to hire again and there's more demand for pilots now than there has been in several years. Our attrition rates so far this year have still stayed below 10%, around the high 8%, so we feel very good about that also. The classes that we are trying to fill with pilots, we've had good success in not lowering any of the minimums that we've had in the recent history and have had good luck in getting very qualified aviation professionals.

Brian, are you on and ?

I am.

Okay.

Yes, Ray, we too are seeing the pressure from the major airlines hiring. I would like to say that our attrition rate is certainly higher than we would like it to be, but it's certainly not out of the realm of plausible. We're running and around the 18% range right now. We are hiring and our hiring is continuing to move into positive direction. We're taking in more than we're losing. But there's no question that the drain on the system is a little higher than we had anticipated or expected, with the majors taking the bulk of those aviation professionals that we have. Once again, just like SkyWest, we are not lowering our standards to hire pilots, but we do see a higher-than-usual attrition rate.

Okay. And Brad, I assume that will drive up your training costs going forward?

I don't -- I don't expect it really much different than we've had in our run rates. The pi -- the rapid expansion that we did in the first of the year drove them up slightly higher than a normal run rate, okay? But now we're back down to just covering attrition and recurrent and upgrade-type training, which should just be within our normal run rates.

Okay, great. Thank you, guys.

You're welcome.

(OPERATOR INSTRUCTIONS)

Tina, can you -- are there other questions in the queue?

Your next question will come from the line of Bradley Bennett with Goldman Sachs.

Good morning. Is there any chance you guys to update us on what the expected full-year 2007 and '08 CapEx expectations are?

We'll give you some -- kind of some high-level round numbers, which we're just in the process actually, and will be over the next couple months, of compiling in a lot more detail our upcoming plans. First of all, in a -- this is an interesting question. I'll give you -- as we have things planned right now, I wouldn't expect a whole lot different than what we have just had in this current year, what we're expecting in this current year. Hold on, I'm being given a number here. And the way we typically look at this, Brad, is that we take our -- we look at CapEx non-aircraft related, so our aircraft acquisition's out and we -- I would think we will be somewhere around -- it'll still be a couple of hundred million in non -- well, hold on. Brad, what we need to do -- we're trying to keep our non-aircraft CapEx right at or below our depreciation and amortization number, okay? And if anything, this'll be a year where we'll try to keep it under that number, given that we don't currently have a lot of booked growth, okay? So this year was a little heavier because of some rapid expansion and growth in the first quarter. Our number, I would think, will be under $150 million for all of next year, and that's about as far out as I dare give you at this point.

So, I'm sorry, just want to make sure. The number that you're using for 2008 is under $150 million?

For '08, yes.

Okay. Can you tell me what cash CapEx was in the quarter? I'm not sure I saw it in the press release.

I think we better have you wait for the Q, and that Q, by the way, will be filed actually either this afternoon or tomorrow.

Okay. And then can we talk a little bit about the shares that were issued during the quarter? I think that you mentioned that your repurchase plan is to offset -- initially to offset equity-based compensation based program stock issuances. Can you talk a little bit about what that share number is typically throughout each quarter and then what we should expect, whether it's going to be consistent going forward or how it moves up and down?

Okay. So what we have is -- the primary issue here is -- or the shares that are being issued are coming out of our 423 plan, really, and that's about a couple hundred -- 200,000 shares per quarter. And then, of course, in our normal -- the normal grants relative to the equity-based compensation programs that we've just -- I've been talking about, those come in one quarter and then their impact on EPS and outstandings, of course, is relative to the stock price and whether they're in the money or out of the money, dilutive or anti-dilutive, so I don't know how to really tell you the impact of that. But the grants for that, I wouldn't expect to be any different than what we have been doing.

I got it.

The 423 options, they're coming in at a couple hundred thousand, about 200,000 a quarter.

I see, that's helpful. I'm just attempting to back into the number and I just wanted to check my math.

Okay.

Okay. And then as it relates to -- or relating to Jim Parker's question earlier on international opportunities, can you guys talk to what sort of return you target on your capital when you thing about these strategic opportunities abroad?

Well, I think we've been -- we haven't been very public about specific return targets. We have certainly been targeting -- the one number that we may have been more vocal about and public about is that we certainly target 15% ROE. As we look at these and we look at -- very specifically on the return on specific investments, we look at this a couple of ways. We would look at it first of all with an expectation in just the share of earnings generated return on the investment, as well as the upside created from the enterprise value, and those types of things, we would obviously have a higher expectation ultimately than we do on our normal return-on-equity target.

Right. Okay, that's helpful. We've spoken a little bit about this before and I just wanted to reiterate that, with the stock where it is I think it's pretty attractive and just wanted to encourage the management team to carefully weigh the risk adjusted, expected return on any use of cash for growth relative to the risk adjusted return of increasing the buyback program beyond the current five million shares.

Yes, I understand and I appreciate the encouragement.

Great. Okay. Well, thanks a lot, guys. Good job for the quarter.

Thank you.

Your next question will come from the line of Frank Bisk with Pilot Advisors.

Good morning, guys.

Hi, Frank.

Hi. In terms of -- I guess one, on the maintenance issues, I guess you mentioned two things and I didn't hear them so clearly. One, I guess, which you talked about even in your last call about the used aircraft, there's additional maintenance to get them up to SkyWest standards. Is that pretty much done or is that going to continue into the third quarter?

No, I think that -- that particular issue, I think, has been fairly isolated to both first -- it showed itself somewhat in the first quarter and then we certainly had it here in the second quarter, but I think it's pretty well contained to these two quarters. The item that I also mentioned that is probably not contained in the first and second quarter that we'll see some impact from is just that we've had a wave of aircraft coming off warranty and some -- kind of a wave of aircraft that are coming due for their A&C checks. And that's something that's normal, we're planning on. But it does drive that number up a bit and we'll have slight margin impact.

Okay.

Unanticipated or unexpected.

Sure. Okay. Thank you.

You're welcome.

Ladies and gentlemen, we have reached the end of our allotted time for Q&A. I would like to turn the call back over to Mr. Rich for closing remarks.

Okay. Again, thank you and I genuinely appreciate your time this morning. I apologize, the call seemed to have gone a little lengthy this morning. We're respectful of your time. We appreciates you sticking with us. We do appreciate the thoughtful questions that are coming. In summary and just in closing remarks, I do just want to emphasize that although we feel very good about our performance and feel like we just delivered and produced a very solid quarter financially, we know there's still a lot to be done. And we're working very aggressively in pursuit of opportunities, in pursuit of even a more aggressive cost structure, and very committed in spite of all of that to maintaining very good productive, cooperative relationships with both our partners and our employees. And again, a lot of thanks and gratitude to our whole group of 15,000 employees that are working very hard with us every day. And with that, again, I'll thank you for your time and your interest in SkyWest and we'll go ahead and close. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may all disconnect.