SkyWest Results

SkyWest, Inc. Announces Fourth Quarter 2018 Profit

Net income of $67 million, or $1.28 per diluted share - Pre-tax income of $91 million, up from $68 million in Q4 2017

SkyWest

SkyWest, Inc. (NASDAQ: SKYW) last week reported financial and operating results for Q4 2018, including net income of $67 million, or $1.28 per diluted share, compared to net income of $290 million, or $5.46 per diluted share for Q4 2017. Adjusted net income in Q4 2017 was $43 million, or $0.81 per diluted share, excluding a special income tax benefit from the tax law change in 20171. There was no comparable adjustment in 2018. Pre-tax income of $91 million increased 33% from Q4 2017, primarily due to SkyWest's ongoing fleet transition. Since Q4 2017, SkyWest added 39 new E175 aircraft and five new CRJ900 aircraft, while removing 48 older aircraft from its fleet.

SkyWest reported net income of $280 million, or $5.30 per diluted share for the 2018 year, compared to net income of $429 million, or $8.08 per diluted share for the 2017 year. Adjusted net income for the 2017 year was $182 million, or $3.43, excluding a special income tax benefit from the tax law change in 20172.

Commenting on the results, Chip Childs, Chief Executive Officer and President of SkyWest, said, "The fourth quarter completed a strong 2018 for SkyWest, with our people continuing to produce an exceptional product for each of our mainline partners and customers. We look forward to moving ahead as one airline in 2019 as we continue to reduce risk, increase flexibility and ensure we're best positioned for continued opportunities."

Financial Highlights

Revenue was $803 million in Q4 2018, up from $771 million in Q4 2017. The increase in revenue included the impact of adding 39 new E175 aircraft, and other economic improvements within SkyWest's fleet mix since Q4 2017, partially offset by the removal of aircraft from less-profitable contracts over the same period.

Operating expenses were $682 million in Q4 2018, up slightly from $678 million in Q4 2017. The increase in operating expenses was due to higher fuel costs and increased labor costs.

Operational Update

New flying agreement

SkyWest announced today it has secured a new flying contract with Delta to acquire nine new E175s and operate the aircraft for a nine-year term. SkyWest is scheduled to take delivery of five new E175 aircraft during the first half of 2019 and four new E175 aircraft in 2020. SkyWest anticipates removing nine used CRJ900 aircraft from its Delta contract as these nine E175 aircraft are placed into service. Following the removal of service with Delta, SkyWest anticipates returning four CRJ900s to the lessor, and SkyWest has an agreement to lease five CRJ900s to a third party under a six-year term.

Flying contract extension

SkyWest also announced today that it has agreed to a multi-year extension with Delta on 15 CRJ900 aircraft, 14 CRJ200 aircraft and three CRJ700 aircraft. These 32 aircraft had various contract maturities previously scheduled in 2019 and 2020. The economics associated with these extensions became effective January 1, 2019. Additionally, Delta extended the term on the first 19 E175s under contract with SkyWest from nine years to eleven years.

Deliveries under previously announced agreements

SkyWest took delivery of eight new E175 aircraft during Q4 2018 under a previously announced agreement with Delta. SkyWest also anticipates taking delivery of three new E175 aircraft in 2021 under a previously announced agreement with Alaska Airlines.

SkyWest took delivery of four CRJ900s during Q4 2018, for a total of five CRJ900s during 2018, under a previously announced agreement with Delta for 20 new CRJ900s. Delta will finance the 20 CRJ900 aircraft and SkyWest will operate these aircraft for a nine-year term. SkyWest anticipates taking delivery of the remaining 15 CRJ900s under this agreement between Q1 2019 and mid-2020. SkyWest expects to individually remove 20 CRJ700s from contracts with Delta as each of these new 20 CRJ900s are placed into service. As previously announced, SkyWest has an agreement with American Airlines to place 20 CRJ700s into service by early 2019.

January 2019 Updates

In January 2019, SkyWest completed the previously announced sale of ExpressJet to ManaAir, LLC. The transaction was completed in two parts, through an asset sale and stock sale, for a total of $76 million. As part of the transaction, SkyWest retained ownership of 30 CRJ700 aircraft that were previously operated by ExpressJet. The majority of these 30 CRJ700 aircraft are currently being utilized under existing SkyWest agreements. SkyWest has also agreed to lease 16 CRJ200s to ExpressJet for up to five years.

Also, in January 2019, SkyWest reached an agreement with a lessor on an early leveraged lease buyout on 16 CRJ700s and 36 CRJ200s. SkyWest estimates it will use $110 million in cash during Q1 2019 to acquire these aircraft. SkyWest anticipates that owning these aircraft will provide additional fleet flexibility, reduce tail risk and avoid future lease return costs along with being immediately accretive to earnings.  

Operating Performance:

Flight completion rates at SkyWest Airlines and ExpressJet for Q4 2018 and Q4 2017 were as follows:

SkyWest Airlines

ExpressJet

Q4 2018

Q4 2017

Q4 2018

Q4 2017

Adjusted Completion *

99.9%

99.9%

98.8%

99.9%

Raw Completion

99.0%

98.8%

96.9%

98.9%

* Adjusted Completion excludes weather cancellations. Raw Completion includes weather cancellations.

Capital and Liquidity

SkyWest had $689 million in cash and marketable securities at December 31, 2018, down from $705 million at September 30, 2018. During the fourth quarter of 2018, SkyWest:

  • Used $28 million toward the purchase of eight E175 aircraft
  • Used $29 million to repurchase stock under its $100 million share repurchase program, of which $26 million remains authorized
  • Used $39 million for other capital investments, primarily related to spare engines, aircraft parts and maintenance assets

Total debt at December 31, 2018 was $3.2 billion, up $51 million from September 30, 2018, which included debt issued for eight E175 aircraft acquired during the quarter, partially offset by scheduled principal payments.

Reconciliation to Adjusted Net Income and Diluted Earnings per Share (unaudited)

(Dollars in thousands, except per diluted share)

For the three months ended December 31, 2017

Pre-tax

income

Income tax

benefit (expense)

Net income

Net income per

Diluted Share

GAAP income

$  68,238

$ 221,690

$  289,928

$ 5.46

Q4 2017 adjustments (1)

-

(246,845)

(246,845)

Adjusted income

$  68,238

$ (25,155)

$  43,083

$ 0.81

For the year ended December 31, 2017

Pre-tax

income

Income tax

benefit (expense)

Net income

Net income per

Diluted Share

GAAP income

$  288,183

$ 140,724

$  428,907

$ 8.08

2017 year adjustments (1)

-

(246,845)

(246,845)

Adjusted income

$  288,183

$ (106,121)

$  182,062

$ 3.43

These adjustments allow investors to better understand and analyze our recurring core performance in the periods presented.

(1)

Adjusts for tax benefit resulting from the Tax Cuts and Jobs Act enacted during Q4 2017 that resulted in a revaluation of SkyWest's deferred tax assets and liabilities.

About SkyWest

SkyWest, Inc. is the holding company for SkyWest Airlines and SkyWest Leasing, an aircraft leasing company. SkyWest Airlines has a fleet of nearly 500 aircraft connecting millions of passengers each month to over 250 destinations and provides commercial air service in cities throughout North America with more than 2,100 daily flights. SkyWest Airlines operates through partnerships with United Airlines, Delta Air Lines, American Airlines and Alaska Airlines to carry more than 35 million passengers annually. Based in St. George, Utah, SkyWest continues to set the standard for excellence across the regional industry with exceptional value for customers, shareholders and its nearly 14,000 employees.

SkyWest, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Dollars and Shares in Thousands, Except per Share Amounts)

(Unaudited)

Three Months Ended

December 31

Twelve Months Ended

December 31

2018

2017

2018

2017

OPERATING REVENUES

 Flying agreements

$   791,862

$   761,079

$  3,169,520

$  3,078,297

 Airport customer service and other

11,628

10,162

52,159

44,295

  Total operating revenues

803,490

771,241

3,221,679

3,122,592

OPERATING EXPENSES

 Salaries, wages and benefits

299,744

295,591

1,201,518

1,192,067

 Aircraft maintenance, materials and repairs    

132,594

145,996

556,259

579,463

 Depreciation and amortization

88,203

77,353

334,589

292,768

 Aircraft rentals

35,929

47,709

154,945

215,807

 Aircraft fuel

30,449

23,841

117,657

85,136

 Airport-related expenses

28,753

27,268

109,605

118,374

 Other operating expenses

66,315

60,544

272,826

250,778

  Total operating expenses

681,987

678,302

2,747,399

2,734,393

OPERATING INCOME

121,503

92,939

474,280

388,199

OTHER INCOME (EXPENSE)

 Interest income

3,131

1,111

8,823

4,509

 Interest expense

(33,924)

(26,212)

(120,409)

(104,925)

 Other income (loss), net

150

400

3,620

400

 Total other expense, net

(30,643)

(24,701)

(107,966)

(100,016)

INCOME BEFORE INCOME TAXES

90,860

68,238

366,314

288,183

PROVISION (BENEFIT) FOR INCOME TAXES

23,754

(221,690)

85,942

(140,724)

NET INCOME

$   67,106

$   289,928

$   280,372

$   428,907

BASIC EARNINGS PER SHARE

$    1.30

$    5.60

$    5.40

$    8.28

DILUTED EARNINGS PER SHARE

$    1.28

$    5.46

$    5.30

$    8.08

Weighted average common shares

 Basic

51,650

51,811

51,914

51,804

 Diluted

52,556

53,140

52,871

53,100

SkyWest, Inc. and Subsidiaries

Summary of Consolidated Balance Sheets

(Dollars in Thousands)

(Unaudited)

December 31,

2018

December 31,

2017

Cash and marketable securities

$    689,329

$    685,295

Other current assets

331,465

309,838

Total current assets

1,020,794

995,133

Property and equipment, net

4,963,732

4,134,003

Deposit on aircraft

42,012

49,000

Other long-term assets

286,674

296,264

Total assets

$   6,313,212

$  5,474,400

Current portion, long-term debt

$    350,206

$   309,678

Other current liabilities

574,620

511,147

Total current liabilities

924,826

820,825

Long-term debt, net of current maturities

2,809,768

2,377,346

Other long-term liabilities

614,337

521,907

Stockholders' equity

1,964,281

1,754,322

Total liabilities and stockholders' equity

$   6,313,212

$  5,474,400

Unaudited Operating Highlights

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2018

2017

 Change

2018

2017

 Change

Block hours

433,481

450,095

(3.7)%

1,757,047

1,839,779

(4.5)%

Departures

244,983

260,943

(6.1)%

1,010,053

1,087,052

(7.1)%

Passengers carried

11,878,239

12,622,527

(5.9)%

48,350,470

51,483,552

(6.1)%

Passenger load factor

80.4%

81.8%

(1.4) pts

80.5%

80.4%

 0.1 pts

Average passenger trip length

526

520

1.2%

523

512

2.1%

SkyWest, Inc. and Subsidiaries

Additional Operational Information (unaudited)

SkyWest's total fleet in service increased by 22 aircraft during Q4 2018, as follows:

Aircraft in scheduled service at September 30, 2018:

574

Additions:

New E175 aircraft:

8

New CRJ900 aircraft:

4

  Total new aircraft added:

12

CRJ200 aircraft placed back into service

15

Removals:

CRJ700 aircraft:

(5)

Aircraft in scheduled service at December 31, 2018:

596

SkyWest's total fleet in service increased by one aircraft over the last twelve months, as follows:

Aircraft in scheduled service at December 31, 2017:

595

Additions:

New E175 aircraft:

39

New CRJ900 aircraft:

5

  Total new aircraft added:

44

CRJ200 aircraft placed back into service

5

Removals, net:

CRJ700 aircraft:

(20)

CRJ900 aircraft:

(16)

ERJ145 aircraft:

(12)

Total net removals:

(48)

Aircraft in scheduled service at December 31, 2018:

596

SkyWest, Inc. and Subsidiaries

Additional Operational Information (continued and unaudited)

Completed Block Hours by Aircraft Type and by Airline

Three months ended December 31,

Twelve months ended December 31,

By Aircraft Type:

2018

2017

Variance

%

2018

2017

Variance

%

E175s

127,616

98,553

29.5%

457,285

367,601

24.4%

CRJ700/900s

109,514

139,178

(21.3)%

482,173

571,937

(15.7)%

Dual-class aircraft

237,130

237,731

(0.3)%

939,458

939,538

0.0%

CRJ200s

130,530

135,544

(3.7)%

543,165

543,195

0.0%

ERJ145

65,821

76,820

(14.3)%

274,424

357,046

(23.1)%

50-seat aircraft

196,351

212,364

(7.5)%

817,589

900,241

(9.2)%

Total Block Hours

433,481

450,095

(3.7)%

1,757,047

1,839,779

(4.5)%

Three months ended December 31,

Twelve months ended December 31,

By Airline:

2018

2017

Variance

%

2018

2017

Variance

%

SkyWest Airlines

351,928

329,182

6.9%

1,380,420

1,237,547

11.5%

ExpressJet

81,553

120,913

(32.6)%

376,627

602,232

(37.5)%

Total Block Hours

433,481

450,095

(3.7)%

1,757,047

1,839,779

(4.5)%

Quarterly Fleet and Block Hour Production Forecast for 2019

As of

12/31/2018

As of

3/31/2019

As of

6/30/2019

As of

9/30/2019

As of

12/31/2019

Fleet (1):

(Actual)

(Estimate)

(Estimate)

(Estimate)

(Estimate)

E175s

146

147

151

151

151

CRJ900s

41

44

43

43

43

CRJ700s

109

99

96

94

94

CRJ200s

200

184

184

186

186

ERJ145s

100

-

-

-

-

Totals

596

474

474

474

474

Q4-2018

Q1-2019

Q2-2019

Q3-2019

Q4-2019

Total 2019

Production (2):

(Actual)

(Estimate)

(Estimate)

(Estimate)

(Estimate)

(Estimate)

Block Hours

433,481

368,000

370,000

375,000

364,000

1,477,000

(1) Fleet count excludes aircraft removed from scheduled service. Actual fleet counts may vary from the forecast due to timing of aircraft removed from service, timing of aircraft transitioned into service and timing of new aircraft deliveries. The December 31, 2018 fleet included 100 ERJ145s, 16 CRJ200s and 10 CRJ700s operated by ExpressJet.  

(2) Actual production may vary from estimates for various reasons including, but not limited to, timing of aircraft removals and deliveries and anticipated flight completion rates. SkyWest has discontinued providing ASM forecasts, as ASMs are not a meaningful metric in SkyWest's capacity purchase agreements.

__________________

1 See Reconciliation of non-GAAP financial measures section of this release for more information

2 See Reconciliation of non-GAAP financial measures section of this release for more information

SOURCE SkyWest, Inc.



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