SkyWest Inc (SKYW) 2025 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Colby and I'll be your conference operator today. At this time, I would like to welcome you to the SkyWest Inc third quarter 2025 results call.

(Operator Instructions)

I'll now turn the call over to Rob Simmons, Chief Financial Officer.

Thanks Colby, and thanks everyone for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest's Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer, Wade Steel, Chief Commercial Officer, and Eric Woodward, Chief Accounting Officer.

I'd like to start today by asking Eric to read the safe harbor. Then I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results. Then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our cell side analyst. Eric.

Today's discussion contains forward-looking statements that represent our current beliefs, expectations, and assumptions regarding future events and are subject to risks and uncertainties.

We assume no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Actual results will likely vary and may vary materially from those anticipated, estimated, or projected for a number of reasons. Some of the factors that may cause such differences are included in our most recent Form 10K and other reports and filings with the Securities and Exchange Commission.

And now I'll turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone.

Thank you for joining us on the call today.

Today, SkyWest reported net income of $116 million or $2.81 per diluted share for the third quarter of 2025. These results reflect the seasonally strong third quarter and ongoing strong demand for our products.

Year-to-date through the third quarter, SkyWest has achieved more than 185 days of 100% controllable completion, a significant accomplishment with over 2,500 daily scheduled departures.

Our people continue working with focus and teamwork to plan, execute, and deliver an exceptional and consistent product.

I want to thank our team of nearly 15,000 aviation professionals for their continued teamwork and dedication to excellence.

Our teams have delivered well despite the ongoing federal government shutdown in navigating the challenges of a strained ATC system with professionalism and vigilance. We're working with each community we serve and evaluating our capabilities in the event of a longer-term government shutdown. It is our intent to honor our service commitments, including those under the federal EAS program who rely on SkyWest's reliable air service as an essential economic lifeline.

Also during the third quarter, the Department of Transportation finalized SkyWest Charter, or SWC's commuter authorization.

This approval comes after a lengthy review process that took over 3 years, and we look forward to the future opportunities this authorization will provide. SWC is in the midst of busy sports charter season, and we are evaluating additional opportunities this commuter authority will provide.

You'll recall last quarter we announced an agreement to purchase and operate 16 new E-175s under a multi-year contract with Delta, with deliveries expected to begin in 2027.

We also secured firm delivery positions with Embryer for 44 more E175s from 2028 to 2032.

As we shared previously, it is our intent to deliver those aircraft. These agreements continue to deliver unparalleled fleet flexibility for the future, and that flexibility has never been more important. With today's announcement to extend CRJ 200s with United and our continued deployment of additional CRJ 550s for our partners, we expect our existing CRJ fleet to produce assertively well into the next decade.

In the near term, we anticipate our remaining embryo deliveries scheduled for this year will be delivered in fourth quarter or early 2026.

Demand for our product is very strong, and SkyWest continues to lead our segment in the industry in service and in the value of our diverse assets. We remain disciplined and steady as we execute on our growth opportunities to restore or bring new service to underserved communities.

2, redeploy and fully use our existing fleet, and 3, prepare to receive our deliveries in the coming years for a total of nearly 300 E-175s by the end of 2028.

We have spent several years strengthening our balance sheet and fleet flexibility as well as reinvesting in our future growth.

Overall with our well positioned fleet operation and our strong partnerships and demand, we remain optimistic about 2026.

We continue to play the long game and to invest in our fleet in the future to ensure we are in the best possible situation to respond to market demands. Rob will now take us through the financial data.

Today we reported a third quarter GAAP net income of $116 million or $2.81 earnings per share. Q3 pre-tax income was $157 million. Our weighted average share count for Q3 was $41.4 million and our effective tax rate was 26%.

Let's start today with revenue. Total Q3 revenue of 1.1 billion is up from 1 billion in Q2 2025 and up 15% from $913 million in Q3 2024.

Q3 revenue includes the contract revenue of $844 million up from $842 in Q2 2025 and up from $761 million dollars in Q3 2024.

Pro rate and charter revenue was $167 million in Q3, up from $145 million in Q2, and up from $123 million in Q3 2024.

Leasing and other revenue was $39 million in Q3, down from $48 million in Q2 and up from $29 million in Q3 2024.

These Q3 GAAP results include the effect of recognizing $17 million of previously deferred revenue this quarter down from the $23 million recognized in Q2 2025.

As of the end of Q3, we have $269 million of cumulative deferred revenue that will be recognized in future periods. We anticipate recognizing approximately $5million to $15 million of previously deferred revenue in Q4, subject to production levels and other factors.

Now let's discuss the balance sheet. We ended the quarter with cash of $753 million up from $727 million dollars last quarter, and down from $836 million dollars at Q3 2024. The ending cash balance for the quarter included the effects from, one, repaying $112 million in debt, buying back 244,000 shares of SkyWest stock in Q3 for $27 million. But the volatility in the equity markets in Q3, we opportunistically repurchased 25% more shares than we bought in Q2.

As of September 30th, we had $240 million remaining. Under our current share repurchase authorization, and three, investing $122 million in CapEx, including the purchase of used CRJ aircraft, spare engines and other fixed assets. We ended Q3 with debt of $2.4 billion down from $2.7 billion as of 12/31/2024.

Cash flow is obviously an important component of our capital deployment strategy. We generated approximately $500 million in free cash flow in 2024 and deployed it primarily to delever and de-risk the balance sheet to the benefit of our partners, our employees, and our shareholders. We generated nearly $400 million in free cash flow in the first three quarters of 2025, including $144 million in Q3.

Our balance sheet and strong liquidity are powerful tools as we pursue a variety of growth and capital deployment opportunities, including acquiring and financing 30 additional E-175s to be placed under our flying agreements by the end of 2028 and repaying approximately $500 million in debt in 2025.

As we remain focused on improving our return on invested capital, we'd like to highlight the following. Both our debt net of cash, and leverage ratios continue at favorable levels at their lowest point in over a decade. Our total debt level is $1 billion lower today than it was at the end of 2022, in spite of acquiring and debt financing 9E-175s during that time.

We anticipate that total 2025 capital expenditures funding our growth initiatives will be approximately $550 million including the purchase of 5 new E-175s, CRJ 900 airframes, and aircraft and engines supporting our CRJ 550 opportunity.

This implies approximately $190 million in CapEx in Q4. We are scheduled to take delivery of three E175s in Q4 2025 and eleven E175s during 2026. We expect approximately $575million to $625 million in CapEx in 2026.

Consistent with our policy and practice, we're not giving any specific EPS guidance today, but let me give you some updated color on Q4 and some commentary on 2026.

We now anticipate our 2025 block hours to be up approximately 15% over 2024. We now expect our 2025 GAAP EPS could be in the mid $10 per share area for the year. This implies Q4 EPS in the $2.30 area.

For 2026, we expect to see low single-digit percentage growth in block hours translate into mid to high single-digit percentage growth in EPS in the area of $11.

For modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at current rates as we invest in bringing more aircraft back into service. We also anticipate our effective tax rate will be approximately 26% to 27% for Q4 and in the area of 24% for 2026.

We are optimistic about our growth possibilities going into 2026, including the following three focus areas. First, growth in our ability to increase service to underserved communities driven partially by the redeployment of approximately 20 part dual class CRJ aircraft.

Second, good demand for our pro rate product. And third, Placing 14 new E-175s into service for United and Alaska by the end of 2026 and 16 new E-175s for Delta in 2027 and 2028.

We believe that our strong balance sheet, operating leverage, free cash flow and liquidity, and the actions we will be taking to deploy our capital against a variety of accretive opportunities will position us well to drive total shareholder returns.

Wade.

Thank you, Rob. Last quarter we announced a new flying agreement with Delta for 16 new E-175s under a multi-year flying contract. The 16 new E-175s are expected to replace 11 SkyWest owned CRJ 900s and 5 CRJ 700s that we are currently operating. We expect the 16 new E-175s will be delivered in 2027 and 2028.

We expect to redeploy the 16 SkyWest owned CRJ aircraft with our major partners. We also currently operate 24 Delta-owned CRJ 900s. We anticipate most of these aircraft will be returned to Delta over the next couple of years and are preparing to return 4 of them during the 4th quarter of this year.

Today we announced an agreement with United to extend up to 40 CRJ 200s into the 2030s. These aircraft were set to expire at the end of this year, and we are pleased that we are pleased with the continued strength of our united agreement.

As we previously announced, we have a multi-year flying agreement for a total of 50 CRJ 5 50s with United. As of September 30th, we had 21 CRJ 5 50s under contract and expect to operate 30 by the end of this year, with the last 20 entering into service during 2026. We also have 20 E-175s coming up for contract extension in 2026 with United.

We are currently in discussions to extend these aircraft and look forward to enhancing our partnership with United.

We also began a pro rate agreement with American during the second quarter.

We are currently operating 4 aircraft under this agreement, with up to 9 anticipated by the middle of next year. We are very excited to expand our relationship with American. We currently have 74 E-175 on firm order with Embryer, including 16 for Delta, 13 for United, and 1 for Alaska. We expect delivery of 3 aircraft during the fourth quarter and 11 next year. We did not receive any E-175s during the third quarter, and as we continue experiencing delivery delays with Embryer, we expect that some of the aircraft previously planned for this year will push into 2026. Let me talk a little bit more about our firm order of 74. Of the 74, 30 are allocated to major partners, and 44 have not been assigned yet.

Our long-term fleet plan has positioned as well, and refleeting continues to be an important part of that strategy. This order locks in delivery slots starting in 2027 through 2032. However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them. After we finished the Delta deliveries expected in 2028, our E-175 fleet total will be nearly 300, continuing to enhance SkyWest's position as the largest Embryer operator in the world. Let me review our production. Q3 block hours were up 2% compared to Q2 2025. Based on our current Q4 schedules from our major partners, we anticipate a 4% decrease in Q4 as compared to Q3. This decrease is due to the normal seasonality we see in our business. For the full year, we anticipate an increase of approximately 15%. 2025 compared to 2024, similar to our 2019 levels. We anticipate that our 2026 block hours will be up low single-digits compared to 2025. For 2026, we anticipate taking delivery of 11 new E-175, placing 20 CRJ 550s into service, and capitalizing on strong prorate demand.

These increases are offset by the return of approximately 24 Delta-owned CRJ 900s over the next couple of years. Our revenue seasonality has returned to the model as utilization improves during the strong summer months. We still have approximately 20 part dual class CRJ aircraft that will be returned to service. Many of these aircraft are currently. Under flying agreements and will begin operating in late 2025 and 2026. We also have over 40 Par CRJ 200s further enhancing our overall fleet flexibility. Under a previously announced agreement with another regional carrier, we expect to purchase 30 CRJ 900 airframes for $29 million. We expect to utilize many of these airframes for parts to mitigate any supply chain challenges we may face over the next few years. We do anticipate operating 6 of these aircraft in the future.

As of September 30th, we had closed on 18 of these aircraft. As far as our pro rate business, demand remains extremely strong with great community support. We are seeing opportunities to return SkyWest service to several communities, and we will continue to work with the airports we serve in the best way to expand our service as we discussed last quarter, the increase in our pro rate business will reintroduce more seasonality into our model. Consistent with the airline industry, we expect Q2 and Q3 to be strong revenue quarters and Q1 and Q4 are softer. We feel good about our ongoing efforts to reduce risk and enhance fleet flexibility and remain committed. To committed to continuing our work with each of our major partners to provide strong solutions to the continued demand for our products.

Okay, operator, we're now ready for our Q&A session.

(Operator Instructsions)

Tom Fitzgerald from TD Cowen.

It seems like a really constructive outlook for 2026. I was just wondering if you'd mind, walking us through some of the puts and takes on the fleet and the mixed benefit you guys get as you bring on more E175s, and then some of the CRJs come out.

I can give you a little bit more color on that, as we talked about, we still have CRJ 550s that are parked or being transitioned, so we still have by the end of the year we think there'll be additional 20 that we'll put into service during 2026.

We have 14 more E175 that need to go in. Three of them we believe will go in the fourth quarter of 2025 and then 11 more in 2026.

And then we also have strong prorate demand, as we said, we believe there will be some increase in our pro rate flying during 2026.

Some of those will be offset. Some of those increases will be offset by some of the Delta owned CRJ 900s that we have that will be going back to Delta, and we've already started returning a few of those, and we think four of those will go back by the end of this year.

So I hope that that helps, Tom.

And then I guess maybe just on pro rate, where as a percentage of like where you work pre-pandemic, I just wonder if you'd mind updating us on where pro rate stands today and then I guess maybe unpacking a little bit more like the the opportunities you see next year. Thanks again for the time.

Yeah, so we're about at 70% of where we were at in 2019 pre-pandemic.

We're seeing strong demand throughout the whole country on pro rate. There's still a lot of opportunities with small community service, both enhancing frequency and then also restoring dots on the map. And so we are working with each of our major partners on pro rate agreements, as I said. You know we do a lot of that for United. We also have started an agreement with American. We also do that with Delta as well. So all of our major partners, we're working with them on additional dots on the map. And so we're excited about the opportunities that are in front of us and we'll continue to execute on those.

Mike Linenberg from Deutsche Bank.

Hey, Chip, can you just update us on, the EAS funding? I think the last I heard was that they had found money that would get you into November. Where, what's the latest on that they seem to be finding pockets of money for various.

Activities whether it's the military or whatever, where do we hit, the wall on that and then what's the mechanism if you continue to fly and serve but not receive a subsidy.

What's the recourse for like Sky West to ultimately get repaid or maybe not.

Yeah, Mike, those are outstanding questions and something that's very, pertinent to today. The latest that we've heard is that we believe that there's funding for the program through the 18th of November, so that gives us a lot of good leeway for the government to continue to deal with this shutdown. We've said early on since when it started, like we really value the communities that we serve. We know that through the captain shortages and that type of stuff, it's a difficult process to make sure we're executing on our commitments, but we are committed to the communities.

As much as we possibly can, not knowing how long this is going to go on, and after the 18th, I think the message has been pretty clear. It's unsure if we will get reimbursed or not, but it is clearly our intention to continue to fly and execute on some of the commitments that we've made with these communities, and if it continues to go on without funding after November 18th, we'll see what we can do to best serve those communities, but it's going to take a conversation likely.

Because clearly the essential air service communities do need the subsidies to make it viable. We're trying to develop, them to where they can continue to be stronger and stronger, but we still definitely need those subsidies, and we'll work with the communities depending on how long this shutdown goes. So from that perspective, I hope it's clarifying. We're all over working with our partners and the communities and you know the associated government agencies that we can do under the circumstances, but as of now we feel pretty good about at least the current short-term timeline.

Okay, thank you for that. Just my second question to Wade, the multi-year agreement with United on the CRJ 200s and I think I heard the 2030s, so obviously a much longer time frame than I think anybody has anticipated about these airplanes. You currently have 80 with United, 50 under contract, 30 under pro rate, presumably the 40 that are extended, are those all contract, or is that a mix of contract and pro rate.

Yeah, Mike, that's a great question. So the 40 that were extended are all contract airplanes, so we'll continue to fly the pro rate, expand the pro rate, but the 40 contract, as you said, they're there extended into the 2030s and we're excited about continuing to enhance our partnership with United on all of that.

Okay, I just to follow-up on that though, you should expand the pro rate so it sounds like you're going to go from maybe a mix of 50/30 potentially to 40/40. Is that a reasonable?

Potentially, I think, we'll continue to, as we said, we have 40 Par CRJ 200s still available to us. There's still great opportunities, small communities need air service, so we will continue to find opportunities. But yes, I'd like your your breakdown. I think it's directionally correct.

Okay, this is my last one. I hate to ask all these questions, but the nuances, there are just so many from this call.

The pro rates going into American. It looks like they're all CRJ 900s, at least, and I want to confirm that, but when I think about your prorate business historically, it was single class with CRJ 200s. It now seems like we're moving into a pro rate world of dual class CRJ 900. And as we think about just the up gauging across the industry among all the carriers, it seems like it may be opening up a whole bunch of opportunities. In small and medium sized markets to go in with dual class on a pro rate business, that seems like that's kind of a new angle for you. Can you just Clarify or confirm what.

No, Mike, you're once again, you're spot on, you're very good at this. So this American agreement, yes, we are flying CRJ 900s in pro rate for American. As their scope's a little bit unique. They also have the large RJ scope that could fly in 65 seats and so, if they hit their scope caps in their large RJ, we could obviously transition those still into a 65 seat dual class A fleet. We are also flying CRJ 5 50s, as you said for Delta under under pro rate and so there's great opportunities there as well. So you know we do like it. We like the model, we like the opportunities and it does expand the opportunity into some different markets with the larger gauge airplanes for sure. So we're excited about what's going on.

Mike, this is Chip. I'll add on to that just real quick. I think you've heard from conversation from our partners about, their premium service. Clearly there's a strong element of what their models are evaluating and within their network of having good premium service throughout their networks, and I think it's being reflected in some of the deals that we're trying to do even in small communities. So your assessment is the momentum there is good.

Savi Syth from Raymond James.

I actually just following up a little bit on Mike's question, you addressed the EAS side of the government shutdown I was curious.

If there's any other impacts that you're seeing or you're watching because you do, fly into smaller communities and just a little bit tight to that too just with the, I think Brazil's still at a 10% tariff and just if there's any kind of meaningful impact on that or you're, that's just something you're absorbing.

Yeah, so, good question.

Thank you so much. To start with, when it comes to TSA and, ATC, we really hats off to the work being done with those groups to continue to show up and work and do the things we need to keep the NAS system operational. From our perspective on the small community stuff, I mean, like I think we said before, we fly to a lot of unpowered. Ports. So from our perspective, a lot of our small community flying is actually not affected, but when you go back into the hub, it's every bit as effective as everything else. So look, we monitor all of the things that we do with our major partners along the same lines. We're in constant conversation with the with the authorities as well as with our partners to manage these operational challenges with the shutdown and hats off to our people as well. They're doing a fantastic job. The team's doing a great job and so far things are really well relative to the 10% tariff, Brazil, I think the last time we were talking on the call it was at 50%, and that was a no go absolutely for us. We do not like 10%, but nonetheless, we have an environment where we've got to continue to execute on some of the commitments that we have, but also be strategic in how we're, continuing to deploy our capital and so far we're going to continue to. Give our opinion about what the tariff is doing to small community service as well as us as a company, but at some point you still have to continue to move forward and do the best that you can. So it's not that we've accepted the 10% tariff, but in our strategy as of today we are dealing with it, and I think that's what we would say is that we're dealing with it. But from our perspective, we do believe that this does have an impact on small community service in the long run, but our job is to be the best in the industry at evolving, and we'll continue to evolve with some of these issues.

And this actually another follow-up on Mike's question as well, just on the CRJ 200 front, they are getting along with the tooth, but you're also having these opportunities, whether it's Sky charter or, continuing to operate them on the kind of the 50 seat side.

Could you talk about like just if you look out to like 2027, 2028 or pick a year a couple of years down the road, just, where could we see that sleep size be, considering that some probably have to get retired or maybe they don't, but just curious across the network like how big do you see the CRJ fleeting or arrange for it?

Oh, that's a great question. This is Wade, we just announced today we extended 40 of those through, the early 2030s. The prorate demand is still very strong, that we have today and SkyWest charter, the demand is very strong and all of that. So, between all of that, we do anticipate flying somewhere around 100 CRJ 200s well into the, early 2030s.

We're investing in maintenance. We've invested in these engines. A few quarters ago we were talking about 5 million cycles that we have on those engines that we still have. We've obviously reduced that number as we continue to fly, but we have definitely made a lot of investments in that airframe to continue to make that work and continue to have it go. We're also investing in the customer experience and other things on that, so we're, we think that that airplane, the CRJ 200, is going to go for well into the 2030s.

Duane Pfennigwerth with Evercore ISI.

Just focus on the contractual capacity purchase business. I wonder if you could speak more comprehensively about net fleet editions for 2026. You noted the 11 E175 deliveries on the table. You talked about 20 additional 550s.

Understand there can be movement between now and next year, but based on what you know today.

What else will be added and what will likely be rolling off? How do we think about that net fleet change?

We talked about it a little bit in my prepared remarks. Like you said, we have 20 CRJ 550s that are on the books that are coming in next year. We have the 11 E-175s, and then we have the 24 Delta owned airplanes that are coming off over the next couple of years. So net, it's flatish to small increases in our in our capacity purchase flying next year just when you net it all up so small like we said in my prepared remarks, it's low single-digit growth next year in the block hours.

Got it. And then in the table I wonder for the deliveries, do those numbers like are there options embedded in that 40 or are there options over above the numbers in that table?

You're talking about the CRJ 200?

E-175175, those firm orders or are there options embedded in the future, this 40 in the you know the 10 for 2028 and the 40 thereafter, do those include options?

Those do not include options. Those are firm orders. Those will be very helpful in fleet replacements and continuing to enhance the fleet. So those are all firm orders. We do have flexibility. They are not allocated to our partners yet. They're, I said in my prepared remarks that there are 44 of those that have not been allocated at this point. And so we'll continue to work with our partners to allocate those, but we do have flexibility if we do not get them allocated to a partner to defer or cancel those but they are firm orders going through 2032.

Great. And then just one last one, thank you.

Does the mid to high single-digit EPS growth guidance for 2026, what does that assume about incremental buyback, if anything?

Yeah, Duane, this is Rob here. So in terms of the EPS denominator, we'll continue to be opportunistic as we have been in the past, as you've seen, this quarter we bought, in a fairly volatile market we bought another 25% more shares than we did the quarter before. So you know it'll depend on the markets, but we'll continue to be opportunistic in how we look at deploying capital against share repurchase.

Thank you, and with no further questions in queue, I would like to turn the conference back over to Chip Childs, CEO for Closing comments.

Thank you, Colby. I appreciate everybody's interest in the call today. In the quarter we obviously had a very good quarter. We've got some good challenges ahead of us. I want to reiterate that we continue to play the long game and make sure that some of the current effects that are happening to the industry do not affect our long-term strategy. We know that we can evolve with the best aviation professionals in the world, continue to do the things in which we need to to provide good shareholder value as well to that of our partners, and with that we will.

We will end the call and see you next quarter.

Thank you.

This concludes today's conference call. You may now disconnect.