ITEM 2:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“SkyWest” “we” or “us”) during the three and six-month periods ended June 30, 2017 and 2016. Also discussed is our financial condition as of June 30, 2017 and December 31, 2016. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and six months ended June 30, 2017, including the notes thereto, appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” for discussion of uncertainties, risks and assumptions associated with these statements.
Cautionary Statement Concerning Forward-Looking Statements
Certain of the statements contained in this Report should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “hope,” “likely,” and “continue” and similar terms used in connection with statements regarding our outlook, anticipated operations, the revenue environment, our contractual relationships and our expected financial performance. These statements include, but are not limited to, statements about our future growth and development plans, including our future financial and operating results, our plans for SkyWest Airlines, Inc. (“SkyWest Airlines”) and ExpressJet Airlines, Inc. (“ExpressJet”), our objectives, expectations, estimates, intentions and other statements that are not historical facts. All forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this Report materializes, or any other underlying assumption proves incorrect, our actual results will likely vary, and may vary materially, from those anticipated, estimated, projected, or intended for a number of reasons, including but not limited to: the challenges of competing successfully in a highly competitive and rapidly changing industry; developments associated with fluctuations in the economy and the demand for air travel; the financial stability of United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”) and any potential impact of their financial condition on the operations of SkyWest, SkyWest Airlines or ExpressJet; fluctuations in flight schedules, which are determined by the major airline partners for whom SkyWest’s operating airlines conduct flight operations; variations in market and economic conditions; significant aircraft lease and debt commitments; realization of manufacturer residual value guarantees on applicable SkyWest aircraft; residual aircraft values and related impairment charges; the impact of global instability; labor relations and costs; potential fluctuations in fuel costs, and potential fuel shortages; the impact of weather-related or other natural disasters on air travel and airline costs; new aircraft deliveries; the ability to attract and retain qualified pilots; the other factors identified under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, under the heading “Risk Factors” in Part II, Item 1A of this Report, elsewhere in this Report, in our other filings with the Securities and Exchange Commission (the “SEC”) and other unanticipated factors.
There may be other factors not identified above of which we are not currently aware that may affect matters discussed in the forward-looking statements, and may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by law.
Overview
Through SkyWest Airlines and ExpressJet, we have the largest regional airline operations in the United States. As of June 30, 2017, SkyWest Airlines and ExpressJet offered scheduled passenger service with approximately 3,000 total daily departures to destinations in the United States, Canada, Mexico and the Caribbean. As of June 30, 2017, SkyWest Airlines and ExpressJet had a total fleet of 649 aircraft, of which 626 were in scheduled service, summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRJ200
|
|
CRJ700
|
|
CRJ900
|
|
ERJ135
|
|
ERJ145
|
|
E175
|
|
Total
|
|
United
|
|
69
|
|
20
|
|
—
|
|
5
|
|
119
|
|
65
|
|
278
|
|
Delta
|
|
105
|
|
60
|
|
64
|
|
—
|
|
—
|
|
18
|
|
247
|
|
American
|
|
32
|
|
49
|
|
—
|
|
—
|
|
—
|
|
—
|
|
81
|
|
Alaska
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
20
|
|
20
|
|
Aircraft in scheduled service
|
|
206
|
|
129
|
|
64
|
|
5
|
|
119
|
|
103
|
|
626
|
|
Subleased to an un-affiliated entity
|
|
4
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4
|
|
Other*
|
|
1
|
|
9
|
|
—
|
|
—
|
|
9
|
|
—
|
|
19
|
|
Total
|
|
211
|
|
138
|
|
64
|
|
5
|
|
128
|
|
103
|
|
649
|
|
*As of June 30, 2017, these aircraft have been removed from service and are in the process of being returned under the applicable leasing arrangement or are aircraft transitioning between flying code-share agreements with our major airline partners. During the three months ended June 30, 2017, we sold eleven owned Embraer Brasilia EMB120 (“EMB120”) 30-seat turboprop aircraft at net book value.
As of June 30, 2017, approximately 44.4% of our aircraft in scheduled service operated for United, approximately 39.5% was operated for Delta, approximately 12.9% was operated for American and approximately 3.2% was operated for Alaska.
Historically, multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee arrangements (referred to as “fixed-fee arrangements,” “fixed-fee contracts” or “contract flying arrangements”) and revenue-sharing arrangements (referred to as “prorate” arrangements). For the six months ended June 30, 2017, contract flying revenue and prorate revenue represented approximately 88.6% and 11.4%, respectively, of our total passenger revenues. On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours (measured from takeoff to landing, including taxi time), flight departures and other operating measures. On prorate routes, our revenue may fluctuate based on ticket prices and passenger loads and we are responsible for all costs to operate the flight, including fuel.
Second Quarter Summary
Our total operating revenues of $809.8 million for the three months ended June 30, 2017 increased 1.1% compared to total operating revenues of $801.3 million for the three months ended June 30, 2016. We had net income of $50.5 million, or $0.95 per diluted share, for the three months ended June 30, 2017, compared to net income of $40.2 million, or $0.77 per diluted share, for the three months ended June 30, 2016.
Significant items affecting our financial performance during the three months ended June 30, 2017 are outlined below:
Revenue
The number of aircraft we have under contract and the number of actual block hours we incur on completed flights are significant revenue drivers under our fixed-fee arrangements. We are currently in the process of a fleet transition that involves increasing the number of large dual-class regional jets we operate, including the Embraer E175 dual-class regional jet aircraft (“E175s”), while reducing the number of less profitable 50-seat regional jets we operate,
including a portion of our Embraer ERJ145 regional jet aircraft (“ERJ145s”), Embraer ERJ135 regional jet aircraft (“ERJ135s”) and Canadair CRJ200 regional jet aircraft (“CRJ200s”). Our objective in the fleet transition is to improve our profitability through the addition of new dual class aircraft, while removing aircraft from service that have been operating under unprofitable or less profitable fixed-fee contracts.
Although the number of our aircraft operating in scheduled service decreased by 4.4% since June 30, 2016, and we had a 5.3% reduction in our block hour production since June 30, 2016, our total revenues increased $8.4 million for the three months ended June 30, 2017 compared to the three months ended June 30, 2016. This was primarily driven by the increase in revenue from 47 new E175 aircraft added to flying arrangements since June 30, 2016, significantly offset by the removal of 76 CRJ200s, ERJ145s and Canadair CRJ700 regional jet aircrafts (“CRJ700s”) from unprofitable or less-profitable flying agreements since June 30, 2016.
Operating Expenses
Our total operating expenses decreased $14.0 million for the three months ended June 30, 2017, compared to the three months ended June 30, 2016. This decrease was primarily due to lower direct operating costs from operating 4.4% fewer aircraft since June 30, 2016. Additional details regarding the reduction to our operating expenses are described in the section of this Report entitled “Results of Operations.”
Fleet activity
The following table summarizes our fleet scheduled for service as of June 30, 2017 and 2016:
|
|
|
|
|
|
Aircraft in Service
|
|
June 30, 2017
|
|
June 30, 2016
|
|
CRJ200s
|
|
206
|
|
224
|
|
CRJ700s
|
|
129
|
|
136
|
|
CRJ900s
|
|
64
|
|
64
|
|
ERJ145/135s
|
|
124
|
|
175
|
|
E175s
|
|
103
|
|
56
|
|
Total
|
|
626
|
|
655
|
|
Changes in our fleet activity from June 30, 2016 to June 30, 2017 are summarized as follows:
|
|
|
|
|
Aircraft available for scheduled service at June 30, 2016:
|
|
|
655
|
|
Additions:
|
|
|
|
|
New E175 aircraft added with United:
|
18
|
|
|
|
New E175 aircraft added with Alaska:
|
11
|
|
|
|
New E175 aircraft added with Delta:
|
18
|
|
|
|
Total Additions:
|
|
|
47
|
|
Removals:
|
|
|
|
|
ERJ145 aircraft removed from service:
|
(51)
|
|
|
|
CRJ200 aircraft removed from service:
|
(18)
|
|
|
|
CRJ700 aircraft removed from service:
|
(7)
|
|
|
|
Total Removals:
|
|
|
(76)
|
|
Aircraft available for scheduled service at June 30, 2017:
|
|
|
626
|
|
Critical Accounting Policies
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2016, which are presented in our Annual Report on Form 10-K for the year ended December 31, 2016. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, maintenance, aircraft leases, impairment of long-lived assets and stock-based compensation expense. The
application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates.
Other Accounting Items
Directly-reimbursed expenses under our fixed-fee arrangements.
Under our fixed-fee arrangements, our major airline partners directly reimburse us for certain operating expenses such as fuel, station rents and landing fees. When we incur directly-reimbursed expenses under our fixed-fee arrangements, we record the reimbursement as passenger revenue. Thus, the price and volume volatility of directly-reimbursed expenses may impact the comparability of revenue to previous periods and may impact the comparability of operating expenses to previous periods, without impacting the comparability of our operating income of those same periods.
Reimbursement for engine overhaul expenses under our fixed-fee arrangements.
Under certain of our fixed fee arrangements, we are directly-reimbursed for engine overhaul costs when incurred (“Directly-Reimbursed Engine Contracts”). Under our other fixed-fee arrangements, we are paid fixed hourly rates intended to cover certain operating expenses, including engine overhaul costs (“Fixed-Rate Engine Contracts”). Because these reimbursed expenses are recognized as revenue from our partners, the price and volume volatility of directly-reimbursed engine expenses may impact the comparability of revenue to previous periods and may impact the comparability of operating expenses to previous periods, without impacting the comparability of our operating income of those same periods.
Engine maintenance expense.
We use the direct-expense method of accounting for our regional jet aircraft engine overhaul costs. Under this method, the maintenance liability is recorded when the maintenance services are performed. For a portion of our engines, a third-party vendor provides our long-term engine maintenance services, covering scheduled and unscheduled repairs for covered engines. Under the terms of the vendor agreement, we pay a set dollar amount per engine hour flown on a monthly basis and the third-party vendor assumes the obligation to repair the engines at no additional cost to us, subject to certain specified exclusions (“Power-by-the-Hour Contracts”). Under our Power-by-the-Hour Contracts, we expense the engine maintenance cost as flight hours are incurred on the engines using the contractual rate set forth in the applicable Power-by-the-Hour Contract.
The table below summarizes how we are compensated by our major airline partners under our flying contracts for engine maintenance expense and the method we use to recognize the corresponding expense:
|
|
|
|
|
Fixed-fee contract
|
|
Compensation of Engine Expense
|
|
Expense Recognition
|
SkyWest Delta Connection (CRJs)
|
|
Fixed-Rate Engine Contracts and Directly-Reimbursed Engine Contracts
|
|
Direct Expense
|
SkyWest Delta Connection (E175)
|
|
Fixed-Rate Engine Contracts
|
|
Power-by-the-Hour Contract
|
ExpressJet Delta Connection
|
|
Directly-Reimbursed Engine Contracts
|
|
Direct Expense
|
SkyWest United Express (CRJ200, CRJ700, E175)
|
|
Fixed-Rate Engine Contracts
|
|
Power-by-the-Hour Contract
|
ExpressJet United (ERJ145)
|
|
Directly-Reimbursed Engine Contracts
|
|
Power-by-the-Hour Contract
|
Alaska Agreement (CRJ700)
|
|
Fixed-Rate Engine Contracts
|
|
Power-by-the-Hour Contract
|
Alaska Agreement (E175)
|
|
Fixed-Rate Engine Contracts
|
|
Power-by-the-Hour Contract
|
SkyWest American Agreements (CRJ200, CRJ700)
|
|
Fixed-Rate Engine Contracts
|
|
Power-by-the-Hour Contract
|
ExpressJet American Agreement (CRJ200)
|
|
Fixed-Rate Engine Contracts
|
|
Direct Expense
|
ExpressJet American Agreement (CRJ700)
|
|
Fixed-Rate Engine Contracts
|
|
Power-by-the-Hour Contract
|
Recent Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements for a description of recent accounting pronouncements.
Results of Operations
Three Months Ended June 30, 2017 and 2016
Operational Statistics.
The following table sets forth our major operational statistics and the associated percentages-of-change for the periods identified below:
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
Block hours
|
|
467,100
|
|
493,336
|
|
(5.3)
|
%
|
Departures
|
|
280,326
|
|
296,454
|
|
(5.4)
|
%
|
Passengers carried
|
|
13,364,974
|
|
13,915,405
|
|
(4.0)
|
%
|
Passenger load factor
|
|
81.8
|
%
|
83.2
|
%
|
(1.4)
|
pts
|
Average passenger trip length (miles)
|
|
511
|
|
521
|
|
(1.9)
|
%
|
Revenues
. Total operating revenues increased $8.4 million, or 1.1%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. Our total operating revenue includes passenger revenues, which primarily consist of revenue earned on flights we operate under our fixed-fee and prorate arrangements, and airport customer service revenue, including airport counter, gate, and ramp services, on flights we operate under our flying arrangements. Our total operating revenue also includes ground handling and other revenues, which primarily consist of revenue earned from providing airport counter, gate and ramp services to other airlines on flights operated by other airlines, and government subsidy revenue we receive for providing flight service to certain locations under our prorate arrangements. Changes in our passenger revenue and ground handling and other revenue are summarized below.
Passenger revenues.
Under our fixed-fee contracts, we are directly-reimbursed for certain expenses from our major airline partners and we record such reimbursements as passenger revenue. The following table summarizes our passenger revenues less directly-reimbursed expenses that impacted the comparability of our passenger revenues for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Passenger revenues
|
|
$
|
791,341
|
|
$
|
784,813
|
|
$
|
6,528
|
|
0.8
|
%
|
Less: directly-reimbursed fuel from airline partners
|
|
|
17,112
|
|
|
13,425
|
|
|
3,687
|
|
27.5
|
%
|
Less: directly-reimbursed landing fee and station rent from airline partners
|
|
|
4,036
|
|
|
4,025
|
|
|
11
|
|
0.3
|
%
|
Less: directly-reimbursed engine maintenance from airline partners
|
|
|
18,753
|
|
|
15,425
|
|
|
3,328
|
|
21.6
|
%
|
Passenger revenue excluding directly-reimbursed fuel, landing fee, station rent and engine maintenance
|
|
$
|
751,440
|
|
$
|
751,938
|
|
$
|
(498)
|
|
(0.1)
|
%
|
Passenger revenues (excluding directly-reimbursed fuel, landing fees, station rents and engine overhaul expenses from our major airline partners) decreased $0.5 million, or 0.1%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease in passenger revenues (excluding fuel, landing fees, station rents and engine overhaul reimbursements) was primarily driven by the removal of 76 CRJ200, ERJ145 and CRJ700 aircraft from flying arrangements since June 30, 2016, significantly offset by 47 new E175 aircraft added to flying arrangements since June 30, 2016. Additionally, our revenue for the three months ended June 30, 2016 included an $11.5 million favorable resolution of a flying agreement matter with one of our major airline partners, and we did not have a comparable matter for the three months ended June 30, 2017.
Our passenger revenue attributed to our directly-reimbursed fuel, landing fees, station rents and engine overhaul expenses increased by $7.0 million, or 21.4%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. This increase in directly-reimbursed expenses was primarily due to an increase in directly-reimbursed engine events and an increase in our average fuel cost per gallon from $1.69 for the three months ended June 30, 2016, to $1.89 for the three months ended June 30, 2017.
Ground handling and other
. Total ground handling and other revenues increased $1.9 million, or 11.5%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase was primarily related to an increase in ground handling operations provided to third party airlines on a short-term contract basis.
Individual expense components attributable to our operations are expressed in the following table (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
|
|
Amount
|
|
Amount
|
|
Amount
|
|
Percent
|
|
Salaries, wages and benefits
|
|
$
|
295,929
|
|
$
|
304,228
|
|
$
|
(8,299)
|
|
(2.7)
|
%
|
Aircraft maintenance, materials and repairs
|
|
|
152,356
|
|
|
142,289
|
|
|
10,067
|
|
7.1
|
%
|
Depreciation and amortization
|
|
|
71,206
|
|
|
69,887
|
|
|
1,319
|
|
1.9
|
%
|
Aircraft rentals
|
|
|
55,413
|
|
|
72,567
|
|
|
(17,154)
|
|
(23.6)
|
%
|
Aircraft fuel
|
|
|
37,183
|
|
|
32,306
|
|
|
4,877
|
|
15.1
|
%
|
Ground handling services
|
|
|
15,902
|
|
|
16,743
|
|
|
(841)
|
|
(5.0)
|
%
|
Other operating expenses
|
|
|
75,174
|
|
|
79,181
|
|
|
(4,007)
|
|
(5.1)
|
%
|
Total operating expenses
|
|
$
|
703,163
|
|
$
|
717,201
|
|
$
|
(14,038)
|
|
(2.0)
|
%
|
Interest expense
|
|
|
27,063
|
|
|
18,287
|
|
|
8,776
|
|
48.0
|
%
|
Total airline expenses
|
|
$
|
730,226
|
|
$
|
735,488
|
|
$
|
(5,262)
|
|
(0.7)
|
%
|
Salaries, wages and employee benefits.
Salaries, wages and employee benefits decreased $8.3 million, or 2.7%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease in salaries, wages and employee benefits was primarily due to a decrease in direct labor costs resulting from a net reduction in our fleet size and related level of departures and block hours, which was partially offset by costs incurred to hire and train pilots prior to the E175 aircraft deliveries.
Aircraft maintenance, materials and repairs.
Aircraft maintenance expense increased $10.1 million, or 7.1%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The following table summarizes our aircraft maintenance, materials and repairs less the directly-reimbursed engine overhaul costs under our fixed-fee arrangements for the periods indicated (dollar amounts in thousands). Additionally, our aircraft maintenance, materials and repairs expense for the three months ended June 30, 2016 included $3.0 million of maintenance costs associated with an early lease termination on three CRJ700 aircraft, and we did not have a comparable expense for the three months ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Aircraft maintenance, materials and repairs
|
|
$
|
152,356
|
|
$
|
142,289
|
|
$
|
10,067
|
|
7.1
|
%
|
Less: directly-reimbursed engine maintenance from airline partners
|
|
|
18,753
|
|
|
15,425
|
|
|
3,328
|
|
21.6
|
%
|
Aircraft maintenance, materials and repairs excluding directly-reimbursed engine maintenance from airline partners
|
|
$
|
133,603
|
|
$
|
126,864
|
|
$
|
6,739
|
|
5.3
|
%
|
Other aircraft maintenance, materials and repairs, excluding our directly-reimbursed engine overhaul costs, increased $6.7 million, or 5.3%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase in aircraft maintenance expense (excluding directly-reimbursed engine overhaul costs) was primarily due to an increase in non-directly-reimbursed engine overhaul costs primarily associated with the additional E175 aircraft added to our fleet since June 30, 2016, which was partially offset by a decrease in direct maintenance costs that corresponds with our net decrease in fleet size and block hour reduction of 5.3%.
Depreciation and amortization.
Depreciation and amortization expense increased $1.3 million, or 1.9%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase in depreciation and amortization expense was primarily due to the purchase of 47 E175 aircraft and spare engines subsequent to June 30, 2016, which was partially offset by a reduction of 50-seat owned aircraft and related depreciation since June 30, 2016.
Aircraft rentals.
Aircraft rentals decreased $17.2 million, or 23.6%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease in aircraft rentals was primarily due to a reduction of our fleet size that was financed through leases subsequent to June 30, 2016. Additionally, our aircraft rental expense for the three months ended June 30, 2016 included $6.8 million of costs associated with an early lease termination on three CRJ700 aircraft, and we did not have a comparable expense for the three months ended June 30, 2017.
Aircraft Fuel.
Fuel costs increased $4.9 million, or 15.1%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The following table summarizes our aircraft fuel expenses less directly-reimbursed fuel expense under our fixed-fee arrangements for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Aircraft fuel expenses
|
|
$
|
37,183
|
|
$
|
32,306
|
|
$
|
4,877
|
|
15.1
|
%
|
Less: directly-reimbursed fuel from airline partners
|
|
|
17,112
|
|
|
13,425
|
|
|
3,687
|
|
27.5
|
%
|
Aircraft fuel less directly-reimbursed fuel from airline partners
|
|
$
|
20,071
|
|
$
|
18,881
|
|
$
|
1,190
|
|
6.3
|
%
|
The increase in fuel cost (less directly-reimbursed fuel from major airline partners) was primarily due to an increase in our average fuel cost per gallon from $1.69 for the three months ended June 30, 2016 to $1.89 for the three months ended June 30, 2017. Aircraft fuel cost not directly-reimbursed from major airline partners consists of fuel cost incurred under our prorate arrangements. In the event one of our major airline partners purchases fuel directly from vendors on flights we operate pursuant to a fixed-fee arrangement, we do not incur the fuel expense. The following table summarizes the gallons of fuel we purchased directly from fuel vendors and our fuel expense, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
(in thousands)
|
|
2017
|
|
2016
|
|
% Change
|
|
Fuel gallons purchased
|
|
|
19,709
|
|
|
19,075
|
|
3.3
|
%
|
Fuel expense
|
|
$
|
37,183
|
|
$
|
32,306
|
|
15.1
|
%
|
Ground handling service.
Ground handling service expense decreased $0.8 million, or 5.0%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. Ground handling service expense includes airport-related customer service costs (our employee customer service labor costs are reflected in salaries, wages and benefits), such as outsourced airport gate and ramp agent services, airport security fees and passenger interruption costs. The decrease in ground handling service expense was primarily due to a reduction in passenger interruption related costs during the three months ended June 30, 2017.
Other operating expenses.
Other operating expenses, primarily consisting of property taxes, hull and liability insurance, landing fees, station rents, simulator costs, crew per diem, and crew hotel costs, decreased $4.0 million, or 5.1%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. Under our fixed-fee arrangements, landing fee and station rental expense are directly-reimbursed expenses. The following table summarizes our other operating expenses (less directly-reimbursed landing fees and station rents under our fixed-fee arrangements) for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Other operating expenses
|
|
$
|
75,174
|
|
$
|
79,181
|
|
$
|
(4,007)
|
|
(5.1)
|
%
|
Less: directly-reimbursed landing fee and station rent from airline partners
|
|
|
4,036
|
|
|
4,025
|
|
|
11
|
|
0.3
|
%
|
Other operating expenses excluding directly-reimbursed landing fee and station rent from airline partners
|
|
$
|
71,138
|
|
$
|
75,156
|
|
$
|
(4,018)
|
|
(5.3)
|
%
|
The decrease in other operating expense (less directly-reimbursed landing fees and station rents, expenses) was primarily related to the decrease in our fleet size and in other operating costs that resulted from the reduction in
departures and block hour production of 5.4% and 5.3%, respectively, for the three months ended June 30, 2017 compared to the three months ended June 30, 2016.
Interest Expense.
Interest expense increased $8.8 million, or 48.0%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase in interest expense was primarily related to the additional interest expense associated with the 47 E175 aircraft added to our fleet since June 30, 2016 which were debt financed.
Total airline expense.
Total airline expense (consisting of total operating expense and interest expense) decreased $5.3 million, or 0.7%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The following table summarizes our total airline expense less the directly-reimbursed expenses that impacted comparability for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Total airline expense
|
|
$
|
730,226
|
|
$
|
735,488
|
|
(5,262)
|
|
(0.7)
|
%
|
Less: directly-reimbursed fuel from airline partners
|
|
|
17,112
|
|
|
13,425
|
|
3,687
|
|
27.5
|
%
|
Less: directly-reimbursed landing fee and station rent from airline partners
|
|
|
4,036
|
|
|
4,025
|
|
11
|
|
0.3
|
%
|
Less: directly-reimbursed engine maintenance from airline partners
|
|
|
18,753
|
|
|
15,425
|
|
3,328
|
|
21.6
|
%
|
Total airline expense excluding directly-reimbursed fuel, landing fee, station rent and engine maintenance
|
|
$
|
690,325
|
|
$
|
702,613
|
|
(12,288)
|
|
(1.7)
|
%
|
Total airline expenses (excluding directly-reimbursed fuel, engine overhaul, landing fees and station rents) decreased $12.3 million, or 1.7%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease in total airline expenses (excluding directly-reimbursed fuel, engine overhaul, landing fees and station rents) was primarily due to the reduction in fleet size and related block hour production of 5.3% during the three months ended June 30, 2017 compared to the three months ended June 30, 2016.
Income taxes.
Our provision for income taxes was 37.6% and 39.3% for the three months ended June 30, 2017 and 2016, respectively. The reduction in our effective tax rate was primarily due to a $0.3 million discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the three months ended June 30, 2017 pursuant to ASU No. 2016‑09, and a year over year increase in income before income taxes which diluted the effective tax rate impact related to expenses not deductible for tax purposes. The effective rate of our income tax provision may vary in future periods under ASU No. 2016‑09 based on multiple variables including changes in our stock price, timing of employee stock option exercises and timing of restricted share vesting, among other factors.
Net income.
Primarily due to the factors described above, we generated net income of $50.5 million, or $0.95 per diluted share, for the three months ended June 30, 2017, compared to net income of $40.2 million, or $0.77 per diluted share, for the three months ended June 30, 2016.
Six Months Ended June 30, 2017 and 2016
Operational Statistics.
The following table sets forth our major operational statistics and the associated percentages-of-change for the periods identified below:
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
Block hours
|
|
919,783
|
|
980,209
|
|
(6.2)
|
%
|
Departures
|
|
544,188
|
|
582,929
|
|
(6.6)
|
%
|
Passengers carried
|
|
25,385,351
|
|
26,583,951
|
|
(4.5)
|
%
|
Passenger load factor
|
|
80.3
|
%
|
81.1
|
%
|
(0.8)
|
pts
|
Average passenger trip length (miles)
|
|
515
|
|
526
|
|
(2.1)
|
%
|
Revenues
. Total operating revenues increased $11.8 million, or 0.8%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. Our total operating revenue includes passenger revenues, which primarily consist of revenue earned on flights we operate under our fixed-fee and prorate arrangements, and airport customer service revenue, including airport counter, gate, and ramp services, on flights we operate under our flying arrangements. Our total operating revenue also includes ground handling and other revenues, which primarily consist of revenue earned from providing airport counter, gate and ramp services to other airlines on flights operated by other airlines, and government subsidy revenue we receive for providing flight service to certain locations under our prorate arrangements. Changes in our passenger revenue and ground handling and other revenue are summarized below.
Passenger revenues.
Under our fixed-fee contracts, we are directly-reimbursed for certain expenses from our major airline partners and we record such reimbursements as passenger revenue. The following table summarizes our passenger revenues less directly-reimbursed expenses that impacted the comparability of our passenger revenues for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Passenger revenues
|
|
$
|
1,536,752
|
|
$
|
1,529,203
|
|
$
|
7,549
|
|
0.5
|
%
|
Less: directly-reimbursed fuel from airline partners
|
|
|
32,989
|
|
|
23,916
|
|
|
9,073
|
|
37.9
|
%
|
Less: directly-reimbursed landing fee and station rent from airline partners
|
|
|
8,288
|
|
|
6,464
|
|
|
1,824
|
|
28.2
|
%
|
Less: directly-reimbursed engine maintenance from airline partners
|
|
|
33,882
|
|
|
32,990
|
|
|
892
|
|
2.7
|
%
|
Passenger revenue excluding directly-reimbursed fuel, landing fee, station rent and engine maintenance
|
|
$
|
1,461,593
|
|
$
|
1,465,833
|
|
$
|
(4,240)
|
|
(0.3)
|
%
|
Passenger revenues (excluding directly-reimbursed fuel, landing fees, station rents and engine overhaul expenses from our major airline partners) decreased $4.2 million, or 0.3%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease in passenger revenues (excluding fuel, landing fees, station rents and engine overhaul reimbursements) was primarily driven by the removal of 76 CRJ200, ERJ145 and CRJ700 aircraft from flying arrangements since June 30, 2016, significantly offset by 47 new E175 aircraft added to flying arrangements since June 30, 2016. Additionally, our revenue for the six months ended June 30, 2016 included an $11.5 million favorable resolution of a flying agreement matter with one of our major airline partners, and we did not have a comparable matter for the six months ended June 30, 2017.
Our passenger revenue attributed to our directly-reimbursed fuel, landing fees, station rents and engine overhaul expenses increased by $11.8 million, or 18.6%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. This increase in directly-reimbursed expenses was primarily due to the increase in our average fuel cost per gallon from $1.60 for the six months ended June 30, 2016, to $1.92 for the six months ended June 30, 2017.
Ground handling and other
. Total ground handling and other revenues increased $4.2 million, or 12.3%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase was primarily related to an increase in ground handling operations provided to third party airlines on a short-term contract basis.
Individual expense components attributable to our operations are expressed in the following table (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
|
|
|
Amount
|
|
Amount
|
|
Amount
|
|
Percent
|
|
|
Salaries, wages and benefits
|
|
$
|
595,969
|
|
$
|
609,785
|
|
$
|
(13,816)
|
|
(2.3)
|
%
|
|
Aircraft maintenance, materials and repairs
|
|
|
284,681
|
|
|
281,149
|
|
|
3,532
|
|
1.3
|
%
|
|
Depreciation and amortization
|
|
|
141,320
|
|
|
137,688
|
|
|
3,632
|
|
2.6
|
%
|
|
Aircraft rentals
|
|
|
113,123
|
|
|
139,691
|
|
|
(26,568)
|
|
(19.0)
|
%
|
|
Aircraft fuel
|
|
|
71,493
|
|
|
57,638
|
|
|
13,855
|
|
24.0
|
%
|
|
Ground handling services
|
|
|
35,436
|
|
|
37,727
|
|
|
(2,291)
|
|
(6.1)
|
%
|
|
Other
|
|
|
150,262
|
|
|
153,790
|
|
|
(3,528)
|
|
(2.3)
|
%
|
|
Total operating expenses
|
|
$
|
1,392,284
|
|
$
|
1,417,468
|
|
$
|
(25,184)
|
|
(1.8)
|
%
|
|
Interest expense
|
|
|
51,612
|
|
|
36,012
|
|
|
15,600
|
|
43.3
|
%
|
|
Total airline expenses
|
|
$
|
1,443,896
|
|
$
|
1,453,480
|
|
$
|
(9,584)
|
|
(0.7)
|
%
|
|
Salaries, wages and employee benefits.
Salaries, wages and employee benefits decreased $13.8 million, or 2.3%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease in salaries, wages and employee benefits was primarily due to a decrease in direct labor costs resulting from a net reduction in our fleet size and related level of departures and block hours, which was partially offset by costs incurred to hire and train pilots prior to the E175 aircraft deliveries.
Aircraft maintenance, materials and repairs.
Aircraft maintenance expense increased $3.5 million, or 1.3%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The following table summarizes our aircraft maintenance, materials and repairs less the directly-reimbursed engine overhaul costs under our fixed-fee arrangements for the periods indicated (dollar amounts in thousands). Additionally, our aircraft maintenance, materials and repairs expense for the six months ended June 30, 2016 included $3.0 million of maintenance costs associated with an early lease termination on three CRJ700 aircraft, and we did not have a comparable expense for the six months ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Aircraft maintenance, materials and repairs
|
|
$
|
284,681
|
|
$
|
281,149
|
|
$
|
3,532
|
|
1.3
|
%
|
Less: directly-reimbursed engine maintenance from airline partners
|
|
|
33,882
|
|
|
32,990
|
|
|
892
|
|
2.7
|
%
|
Other aircraft maintenance, materials and repairs
|
|
$
|
250,799
|
|
$
|
248,159
|
|
$
|
2,640
|
|
1.1
|
%
|
Other aircraft maintenance, materials and repairs, excluding our directly-reimbursed engine overhaul costs, increased $2.6 million, or 1.1%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase in aircraft maintenance expense (excluding directly-reimbursed engine overhaul costs) was primarily due to an increase in non-directly-reimbursed engine overhaul costs primarily associated with the additional E175 aircraft added to our fleet since June 30, 2016, which was partially offset by a decrease in direct maintenance costs that corresponds with our net decrease in fleet size and block hour reduction of 6.2%.
Depreciation and amortization.
Depreciation and amortization expense increased $3.6 million, or 2.6%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase in depreciation and amortization expense was primarily due to the purchase of 47 E175 aircraft and spare engines subsequent to June 30, 2016, which was partially offset by a reduction in owned 50-seat aircraft and related depreciation since June 30, 2016.
Aircraft rentals.
Aircraft rentals decreased $26.6 million, or 19.0%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease in aircraft rentals was primarily due to a reduction of our fleet size that was financed through leases subsequent to June 30, 2016. Additionally, our aircraft rental expense for the six months ended June 30, 2016 included $6.8 million of costs associated with an early lease termination on three CRJ700 aircraft, and we did not have a comparable expense for the six months ended June 30, 2017.
Aircraft Fuel.
Fuel costs increased $13.9 million, or 24.0%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The following table summarizes our aircraft fuel expenses less directly-reimbursed fuel expense under our fixed-fee arrangements for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Aircraft fuel expenses
|
|
$
|
71,493
|
|
$
|
57,638
|
|
$
|
13,855
|
|
24.0
|
%
|
Less: directly-reimbursed fuel from airline partners
|
|
|
32,989
|
|
|
23,916
|
|
|
9,073
|
|
37.9
|
%
|
Aircraft fuel less directly-reimbursed fuel from airline partners
|
|
$
|
38,504
|
|
$
|
33,722
|
|
$
|
4,782
|
|
14.2
|
%
|
The increase in fuel cost (less directly-reimbursed fuel from major airline partners) was primarily due to an increase in our average fuel cost per gallon from $1.60 for the six months ended June 30, 2016 to $1.92 for the six months ended June 30, 2017. Aircraft fuel cost not directly-reimbursed from major airline partners consists of fuel cost incurred under our prorate arrangements. In the event one of our major airline partners purchases fuel directly from vendors on flights we operate pursuant to a fixed-fee arrangement, we do not incur the fuel expense. The following table summarizes the gallons of fuel we purchased directly from fuel vendors and our fuel expense, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
(in thousands)
|
|
2017
|
|
2016
|
|
% Change
|
|
Fuel gallons purchased
|
|
|
37,160
|
|
|
36,107
|
|
2.9
|
%
|
Fuel expense
|
|
$
|
71,493
|
|
$
|
57,638
|
|
24.0
|
%
|
Ground handling service.
Ground handling service expense decreased $2.3 million, or 6.1%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. Ground handling service expense includes airport-related customer service costs (our employee customer service labor costs are reflected in salaries, wages and benefits), such as outsourced airport gate and ramp agent services, airport security fees and passenger interruption costs. The decrease in ground handling service expense was primarily due to a reduction in passenger interruption related costs during the six months ended June 30, 2016.
Other operating expenses.
Other operating expenses, primarily consisting of property taxes, hull and liability insurance, landing fees, station rents, simulator costs, crew per diem, and crew hotel costs, decreased $3.5 million, or 2.3%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. Under our fixed-fee arrangements, landing fee and station rental expense are directly-reimbursed expenses. The following table summarizes our other operating expenses (less directly-reimbursed landing fees and station rents under our fixed-fee arrangements) for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Other operating expenses
|
|
$
|
150,262
|
|
$
|
153,790
|
|
$
|
(3,528)
|
|
(2.3)
|
%
|
Less: directly-reimbursed landing fee and station rent from airline partners
|
|
|
8,288
|
|
|
6,464
|
|
|
1,824
|
|
28.2
|
%
|
Other operating expenses excluding directly-reimbursed landing fee and station rent from airline partners
|
|
$
|
141,974
|
|
$
|
147,326
|
|
$
|
(5,352)
|
|
(3.6)
|
%
|
The decrease in other operating expense (less directly-reimbursed landing fees and station rents, expenses) was primarily related to the decrease in our fleet size and in other operating costs that resulted from the reduction in departures and block hour production of 6.6% and 6.2%, respectively, for the six months ended June 30, 2017 compared to the six months ended June 30, 2016.
Interest Expense.
Interest expense increased $15.6 million, or 43.3%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase in interest expense was primarily related to the additional interest expense associated with the 47 E175 aircraft added to our fleet since June 30, 2016 which were debt financed.
Total airline expense.
Total airline expense (consisting of total operating expense and interest expense) decreased $9.6 million, or 0.7%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The following table summarizes our total airline expense less the directly-reimbursed expenses that impacted comparability for the periods indicated (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Total airline expense
|
|
$
|
1,443,896
|
|
$
|
1,453,480
|
|
(9,584)
|
|
(0.7)
|
%
|
Less: directly-reimbursed fuel from airline partners
|
|
|
32,989
|
|
|
23,916
|
|
9,073
|
|
37.9
|
%
|
Less: directly-reimbursed landing fee and station rent from airline partners
|
|
|
8,288
|
|
|
6,464
|
|
1,824
|
|
28.2
|
%
|
Less: directly-reimbursed engine maintenance from airline partners
|
|
|
33,882
|
|
|
32,990
|
|
892
|
|
2.7
|
%
|
Total airline expense excluding directly-reimbursed fuel, landing fee, station rent and engine maintenance
|
|
$
|
1,368,737
|
|
$
|
1,390,110
|
|
(21,373)
|
|
(1.5)
|
%
|
Total airline expenses (excluding directly-reimbursed fuel, engine overhaul, landing fees and station rents) decreased $21.4 million, or 1.5%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease in total airline expenses (excluding directly-reimbursed fuel, engine overhaul, landing fees and station rents) was primarily due to the reduction in fleet size and related block hour production of 6.2% during the six months ended June 30, 2017 compared to the six months ended June 30, 2016.
Income taxes.
Our provision for income taxes was 36.0% and 39.3% for the six months ended June 30, 2017 and 2016, respectively. The reduction in our effective tax rate was primarily due to a $3.3 million discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the six months ended June 30, 2017 pursuant to ASU No. 2016‑09 and a year over year increase in income before income taxes which diluted the effective tax rate impact related to expenses not deductible for tax purposes. The effective rate of our income tax provision may vary in future periods under ASU No. 2016‑09 based on multiple variables including changes in our stock price, timing of employee stock option exercises and timing of restricted share vesting, among other factors.
Net income.
Primarily due to the factors described above, we generated net income of $85.3 million, or $1.61 per diluted share, for the six months ended June 30, 2017, compared to net income of $67.3 million, or $1.29 per diluted share, for the six months ended June 30, 2016.
Our Business Segments
Three Months Ended June 30, 2017 and 2016
For the three and six months ended June 30, 2017 and 2016, we had three reportable segments which are the basis of our internal financial reporting: SkyWest Airlines, ExpressJet and SkyWest Leasing. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker. Our operating segments consist of SkyWest Airlines, ExpressJet and SkyWest Leasing. Corporate overhead expense is allocated to the operating expenses of SkyWest Airlines and ExpressJet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
|
|
(dollar amounts in thousands)
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
|
|
Amount
|
|
Amount
|
|
Amount
|
|
Percent
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyWest Airlines operating revenue
|
|
$
|
537,749
|
|
$
|
504,107
|
|
$
|
33,642
|
|
6.7
|
%
|
ExpressJet operating revenues
|
|
|
212,025
|
|
|
266,241
|
|
|
(54,216)
|
|
(20.4)
|
%
|
SkyWest Leasing operating revenues
|
|
|
59,985
|
|
|
30,990
|
|
|
28,995
|
|
93.6
|
%
|
Total Operating Revenues
|
|
$
|
809,759
|
|
$
|
801,338
|
|
$
|
8,421
|
|
1.1
|
%
|
Airline Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyWest Airlines airline expense
|
|
$
|
466,376
|
|
$
|
434,896
|
|
$
|
31,480
|
|
7.2
|
%
|
ExpressJet airline expense
|
|
|
216,158
|
|
|
276,473
|
|
|
(60,315)
|
|
(21.8)
|
%
|
SkyWest Leasing airline expense
|
|
|
47,692
|
|
|
24,119
|
|
|
23,573
|
|
97.7
|
%
|
Total Airline Expense(1)
|
|
$
|
730,226
|
|
$
|
735,488
|
|
$
|
(5,262)
|
|
(0.7)
|
%
|
Segment profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyWest Airlines segment profit
|
|
$
|
71,373
|
|
$
|
69,211
|
|
$
|
2,162
|
|
3.1
|
%
|
ExpressJet segment loss
|
|
|
(4,133)
|
|
|
(10,232)
|
|
|
6,099
|
|
(59.6)
|
%
|
SkyWest Leasing profit
|
|
|
12,293
|
|
|
6,871
|
|
|
5,422
|
|
78.9
|
%
|
Total Segment Profit
|
|
$
|
79,533
|
|
$
|
65,850
|
|
$
|
13,683
|
|
20.8
|
%
|
Interest Income
|
|
|
1,330
|
|
|
485
|
|
|
845
|
|
174.2
|
%
|
Consolidated Income Before Taxes
|
|
$
|
80,863
|
|
$
|
66,335
|
|
$
|
14,528
|
|
21.9
|
%
|
|
(1)
|
|
Total Airline Expense includes operating expense and interest expense
|
SkyWest Airlines Segment Profit.
SkyWest Airlines segment profit increased $2.2 million, or 3.1%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. SkyWest Airlines block hour production increased to 303,921, or 7.9%, for the three months ended June 30, 2017, from 281,622 for the three months ended June 30, 2016, primarily due to the additional block hour production from the new E175 aircraft added subsequent to June 30, 2016. Significant items contributing to the SkyWest Airlines segment profit are set forth below.
SkyWest Airlines Operating Revenues increased by $33.6 million, or 6.7%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase was primarily due to revenue associated with 47 additional E175 aircraft subsequent to June 30, 2016. SkyWest Airlines revenue for the three months ended June 30, 2016 included an $11.5 million favorable resolution of a flying agreement matter with one of its major airline partners, and SkyWest Airlines did not have a comparable matter for the three months ended June 30, 2017.
SkyWest Airlines Airline Expense increased by $31.5 million, or 7.2%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase in the SkyWest Airlines Airline Expense was primarily due to the following factors:
|
·
|
|
SkyWest Airlines’ salaries, wages and benefits expense increased by $15.7 million, or 9.2%, for the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase was primarily due to the additional block hour production along with crew training associated with the new E175 aircraft deliveries.
|
|
·
|
|
SkyWest Airlines’ aircraft maintenance, materials and repairs expense increased by $15.4 million, or 19.0%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase was primarily attributable to a higher number of engines placed under its Power-by-the-Hour engine maintenance contracts for its additional E175 aircraft and direct maintenance costs related to the increased volume of departures.
|
|
·
|
|
SkyWest Airlines’ aircraft rental expenses decreased $5.7 million, or 11.2%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016, primarily due to a reduction in the number of aircraft financed through leases in its fleet subsequent to June 30, 2016.
|
|
·
|
|
SkyWest Airlines’ fuel expense increased $4.9 million, or 15.4%, compared to the three months ended June 30, 2016. The increase in fuel expense was primarily due to an increase in the average fuel cost per gallon in 2017 compared to 2016 along with an increase in the volume of gallons purchased. The average fuel cost per gallon was $1.89 and $1.69 for the three months ended June 30, 2017 and 2016, respectively.
|
ExpressJet Segment Loss.
ExpressJet segment loss decreased $6.1 million, or 59.6%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. ExpressJet’s block hour production decreased to 163,179, or 22.9%, for the three months ended June 30, 2017, from 211,714 for the three months ended June 30, 2016, primarily due to the removal of 50-seat aircraft. Significant items contributing to the ExpressJet segment loss are set forth below.
ExpressJet Operating Revenues decreased by $54.2 million, or 20.4%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease in ExpressJet Operating Revenues was primarily due to a reduction in scheduled departures in ExpressJet’s 50-seat aircraft.
ExpressJet’s Airline Expense decreased $60.3 million, or 21.8%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease in ExpressJet Airline Expense was primarily due to the following factors:
|
·
|
|
ExpressJet’s salaries, wages and benefits expense decreased $24.1 million, or 17.9%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016, primarily due to a reduction in direct labor costs associated with 22.9% fewer block hours produced year over year.
|
|
·
|
|
ExpressJet’s aircraft maintenance, materials and repairs expense decreased $5.3 million, or 8.6%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease was primarily due to the decrease in fleet size subsequent to June 30, 2016, and a decrease in the number of directly-reimbursed engine events. Additionally, ExpressJet’s aircraft maintenance, materials and repairs expense for the three months ended June 30, 2016 included $3.0 million of maintenance costs associated with an early lease termination on three CRJ700 aircraft, and ExpressJet did not have a comparable expense for the three months ended June 30, 2017.
|
|
·
|
|
ExpressJet’s aircraft rental expenses decreased $11.5 million, or 53.4%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016, primarily due to a reduction of our fleet size that were financed through leases subsequent to June 30, 2016. Additionally, ExpressJet’s aircraft rental expense for the three months ended June 30, 2016 included $6.8 million of costs associated with an early lease termination on three CRJ700 aircraft, and ExpressJet did not have a comparable expense for the three months ended June 30, 2017.
|
|
·
|
|
ExpressJet’s depreciation expense decreased $9.7 million, or 45.4%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease in depreciation expense was primarily due to a reduction in owned 50-seat aircraft related long-lived assets since June 30, 2016.
|
|
·
|
|
ExpressJet’s other operating expense decreased $8.3 million, or 26.2%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease was primarily due to a
|
decrease in direct operating costs associated with a 22.9% reduction in block hour production year over year.
|
SkyWest Leasing Segment Profit.
SkyWest Leasing profit increased $5.4 million, or 78.9%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016, primarily due to 47 E175 aircraft added to our fleet subsequent to June 30, 2016.
Six Months Ended June 30, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
(dollar amounts in thousands)
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
|
|
Amount
|
|
Amount
|
|
Amount
|
|
Percent
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyWest Airlines operating revenue
|
|
$
|
1,020,703
|
|
$
|
970,403
|
|
$
|
50,300
|
|
5.2
|
%
|
ExpressJet operating revenues
|
|
|
440,683
|
|
|
534,048
|
|
|
(93,365)
|
|
(17.5)
|
%
|
SkyWest Leasing operating revenues
|
|
|
113,788
|
|
|
58,963
|
|
|
54,825
|
|
93.0
|
%
|
Total Operating Revenues
|
|
$
|
1,575,174
|
|
$
|
1,563,414
|
|
$
|
11,760
|
|
0.8
|
%
|
Airline Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyWest Airlines airline expense
|
|
$
|
907,545
|
|
$
|
855,639
|
|
$
|
51,906
|
|
6.1
|
%
|
ExpressJet airline expense
|
|
|
446,765
|
|
|
552,215
|
|
|
(105,450)
|
|
(19.1)
|
%
|
SkyWest Leasing airline expense
|
|
|
89,586
|
|
|
45,626
|
|
|
43,960
|
|
96.3
|
%
|
Total Airline Expense(1)
|
|
$
|
1,443,896
|
|
$
|
1,453,480
|
|
$
|
(9,584)
|
|
(0.7)
|
%
|
Segment profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
SkyWest Airlines segment profit
|
|
$
|
113,158
|
|
$
|
114,764
|
|
$
|
(1,606)
|
|
(1.4)
|
%
|
ExpressJet segment loss
|
|
|
(6,082)
|
|
|
(18,167)
|
|
|
12,085
|
|
(66.5)
|
%
|
SkyWest Leasing profit
|
|
|
24,202
|
|
|
13,337
|
|
|
10,865
|
|
81.5
|
%
|
Total Segment Profit
|
|
$
|
131,278
|
|
$
|
109,934
|
|
$
|
21,344
|
|
19.4
|
%
|
Interest Income
|
|
|
1,990
|
|
|
915
|
|
|
1,075
|
|
117.5
|
%
|
Consolidated Income Before Taxes
|
|
$
|
133,268
|
|
$
|
110,849
|
|
$
|
22,419
|
|
20.2
|
%
|
|
(1)
|
|
Total Airline Expense includes operating expense and interest expense
|
SkyWest Airlines Segment Profit.
SkyWest Airlines segment profit decreased $1.6 million, or 1.4%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. SkyWest Airlines block hour production increased to 581,756, or 5.2%, for the six months ended June 30, 2017, from 553,158 for the six months ended June 30, 2016, primarily due to the additional block hour production from the new E175 aircraft added subsequent to June 30, 2016. Significant items contributing to the SkyWest Airlines segment profit are set forth below.
SkyWest Airlines Operating Revenues increased by $50.3 million, or 5.2%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase was primarily due to revenue associated with 47 additional E175 aircraft subsequent to June 30, 2016. SkyWest Airlines revenue for the six months ended June 30, 2016 included an $11.5 million favorable resolution of a flying agreement matter with one of its major airline partners, and SkyWest Airlines did not have a comparable matter for the six months ended June 30, 2017.
SkyWest Airlines Airline Expense increased by $51.9 million, or 6.1%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase in the SkyWest Airlines Airline Expense was primarily due to the following factors:
|
·
|
|
SkyWest Airlines’ salaries, wages and benefits expense increased by $27.1 million, or 8.0%, for the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase was primarily due to the additional block hour production along with crew training associated with the new E175 aircraft deliveries.
|
|
·
|
|
SkyWest Airlines’ aircraft maintenance, materials and repairs expense increased by $21.5 million, or 14.1%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase was primarily attributable to a higher number of engines placed under its Power-by-the-Hour engine maintenance contracts for its additional E175 aircraft and direct maintenance costs related to the increased volume of departures.
|
|
·
|
|
SkyWest Airlines’ aircraft rental expenses decreased $9.1 million, or 8.9%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016, primarily due to a reduction in the number of aircraft financed through leases in its fleet subsequent to June 30, 2016.
|
|
·
|
|
SkyWest Airlines’ fuel expense increased $13.7 million, or 24.2%, compared to the six months ended June 30, 2016. The increase in fuel expense was primarily due to an increase in the average fuel cost per gallon in 2017 compared to 2016 along with an increase in the volume of gallons purchased. The average fuel cost per gallon was $1.92 and $1.60 for the six months ended June 30, 2017 and 2016, respectively.
|
ExpressJet Segment Loss.
ExpressJet segment loss decreased $12.1 million, or 66.5%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. ExpressJet’s block hour production decreased to 338,027, or 20.8%, for the six months ended June 30, 2017, from 427,051 for the six months ended June 30, 2016, primarily due to the removal of 50-seat aircraft. Significant items contributing to the ExpressJet segment loss are set forth below.
ExpressJet Operating Revenues decreased by $93.4 million, or 17.5%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease in ExpressJet Operating Revenues was primarily due to a reduction in scheduled departures in ExpressJet’s 50-seat aircraft.
ExpressJet Airline Expense decreased $105.5 million, or 19.1%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease in ExpressJet Airline Expense was primarily due to the following factors:
|
·
|
|
ExpressJet’s salaries, wages and benefits expense decreased $41.2 million, or 15.1%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016, primarily due to a reduction in direct labor costs associated with 20.8% fewer block hours produced year over year.
|
|
·
|
|
ExpressJet’s aircraft maintenance, materials and repairs expense decreased $18.0 million, or 14.0%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease was primarily due to the decrease in fleet size subsequent to June 30, 2016 and a decrease in the number of directly-reimbursed engine events. Additionally, ExpressJet’s aircraft maintenance, materials and repairs expense for the six months ended June 30, 2016 included $3.0 million of maintenance costs associated with an early lease termination on three CRJ700 aircraft and ExpressJet did not have a comparable expense for the six months ended June 30, 2017.
|
|
·
|
|
ExpressJet’s aircraft rental expenses decreased $17.5 million, or 46.9%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016, primarily due to a reduction of our fleet size that was financed through leases subsequent to June 30, 2016. Additionally, ExpressJet’s aircraft rental expense for the six months ended June 30, 2016 included $6.8 million of costs associated with an early lease termination on three CRJ700 aircraft and ExpressJet did not have a comparable expense for the six months ended June 30, 2017.
|
|
·
|
|
ExpressJet’s depreciation expense decreased $16.5 million, or 38.6%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease in depreciation expense was primarily due to a reduction in 50-seat owned aircraft related long-lived assets since June 30, 2016.
|
|
·
|
|
ExpressJet’s other operating expense decreased $9.6 million, or 15.9%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The decrease was primarily due to a decrease in direct operating costs associated with a 20.8% reduction in block hour production year over year.
|
SkyWest Leasing Segment Profit.
SkyWest Leasing profit increased $10.9 million, or 81.5%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016, primarily due to 47 E175 aircraft added to our fleet subsequent to June 30, 2016.
Liquidity and Capital Resources
Sources and Uses of Cash
Cash Position and Liquidity.
The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the six months ended June 30, 2017 and 2016, and our total cash and marketable securities positions as of June 30, 2017 and December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Net cash provided by operating activities
|
|
$
|
331,783
|
|
$
|
228,034
|
|
$
|
103,749
|
|
45.5
|
%
|
Net cash used in investing activities
|
|
|
(528,340)
|
|
|
(313,183)
|
|
|
(215,157)
|
|
68.7
|
%
|
Net cash provided by financing activities
|
|
|
193,239
|
|
|
110,096
|
|
|
83,143
|
|
75.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
Cash and cash equivalents
|
|
$
|
143,448
|
|
$
|
146,766
|
|
$
|
(3,318)
|
|
(2.3)
|
%
|
Restricted cash
|
|
|
8,262
|
|
|
8,243
|
|
|
19
|
|
0.2
|
%
|
Marketable securities
|
|
|
482,809
|
|
|
409,898
|
|
|
72,911
|
|
17.8
|
%
|
Total cash and marketable securities
|
|
$
|
634,519
|
|
$
|
564,907
|
|
$
|
69,612
|
|
12.3
|
%
|
Cash Flows provided by Operating Activities
Net cash provided by operating activities increased $103.7 million, or 45.5%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase in net cash provided by operating activities was primarily due to an increase in income before income taxes of $22.4 million for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 and cash provided by changes in current assets and liabilities of $80.3 million.
Cash Flows used in Investing Activities
Net cash used in investing activities increased $215.2 million, or 68.7%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase in cash used in investing activities was primarily due to net purchases of marketable securities, which increased by $83.1 million from the six months ended June 30, 2016 to the six months ended June 30, 2017, and the acquisition of 17 E175 aircraft and the related spare aircraft assets during the six months ended June 30, 2017, compared to eleven E175 aircraft and the related spare aircraft assets purchased during the six months ended June 30, 2016, which in total represented an increase of $199.8 million. These uses of cash were partially offset by proceeds received from the sale of 15 CRJ200 aircraft, eleven EMB120 aircraft and one CRJ700 aircraft for $50.7 million during the six months ended June 30, 2017.
Cash Flows provided by Financing Activities
Net cash provided by financing activities increased $83.1 million, or 75.5%, during the six months ended June 30, 2017, compared to the six months ended June 30, 2016. The increase was primarily related to proceeds from the issuance of long-term debt of $384.8 million associated with 17 E175 aircraft acquired during the six months ended June 30, 2017, compared to the proceeds from issuance of debt of $249.0 million associated with eleven E175 aircraft
acquired during the six months ended June 30, 2016. This increase in cash provided by financing activities was partially offset by an additional $33.2 million used as principal payments on long-term debt primarily due to the payoff of debt on 15 CRJ200 aircraft and one CRJ700 aircraft that we sold during the six months ended June 30, 2017. Additionally, during the six months ended June 30, 2017, we used $13.9 million to purchase treasury shares and towards the net settlement of income taxes on employee equity awards that vested or stock options that were exercised.
Liquidity and Capital Resources
We believe that in the absence of unusual circumstances, the working capital currently available to us will be sufficient to meet our present financial requirements, including anticipated expansion, planned capital expenditures, and scheduled lease payments and debt service obligations for at least the next 12 months.
At June 30, 2017, our total capital mix was 36.7% equity and 63.3% long-term debt, compared to 37.6% equity and 62.4% long-term debt at December 31, 2016.
Significant Commitments and Obligations
General
The following table summarizes our commitments and obligations as noted for each of the next five years and thereafter (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
July - 2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Operating lease payments for aircraft and facility obligations
|
|
|
$
|
842,292
|
|
$
|
76,117
|
|
$
|
157,512
|
|
$
|
123,878
|
|
$
|
135,746
|
|
$
|
112,536
|
|
$
|
236,503
|
|
Firm aircraft and spare engine commitments
|
|
|
|
67,590
|
|
|
33,087
|
|
|
14,787
|
|
|
14,787
|
|
|
4,929
|
|
|
—
|
|
|
—
|
|
Interest commitments(1)
|
|
|
|
566,265
|
|
|
54,790
|
|
|
99,990
|
|
|
87,424
|
|
|
75,152
|
|
|
64,007
|
|
|
184,902
|
|
Principal maturities on long-term debt
|
|
|
|
2,786,258
|
|
|
155,887
|
|
|
309,850
|
|
|
312,188
|
|
|
279,007
|
|
|
266,011
|
|
|
1,463,315
|
|
Total commitments and obligations
|
|
|
$
|
4,262,405
|
|
$
|
319,881
|
|
$
|
582,139
|
|
$
|
538,277
|
|
$
|
494,834
|
|
$
|
442,554
|
|
$
|
1,884,720
|
|
|
(1)
|
|
At June 30, 2017, we had variable rate notes representing 3.3% of our total long-term debt. Actual interest commitments will change based on the actual variable interest.
|
Purchase Commitments and Options
In 2014, we announced an agreement with Embraer, S.A. for the purchase of new E175 aircraft. We have entered into contracts for firm deliveries of 104 aircraft under the agreement. As of June 30, 2017, we had taken delivery of 103 E175s. We anticipate taking delivery of the remaining E175 covered by the firm order by the end of 2017.
We have not historically funded a substantial portion of our aircraft acquisitions with working capital. Rather, we have generally funded our aircraft acquisitions through a combination of operating leases and long-term debt financing. At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select one or more of these methods to fund the acquisition. At present, we intend to fund our acquisition of any additional aircraft through debt financing. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft. We intend to finance the remaining firm order for one E175 aircraft purchase with approximately 85% debt and the remaining balance with cash.
Aircraft Lease and Facility Obligations
We also have significant long-term lease obligations primarily relating to our aircraft fleet. At June 30, 2017, we had 372 aircraft under lease with remaining terms ranging from one year or less to eight years. Future minimum lease payments due under all long-term operating leases were approximately $842.3 million at June 30, 2017. Assuming a 4.77% discount rate, which is the average rate used to approximate the implicit rates within the applicable aircraft leases, the present value of these lease obligations would have been equal to approximately $687.5 million at June 30, 2017.
Long-term Debt Obligations
As of June 30, 2017, we had $2.8 billion of long-term debt obligations, including current maturities, related to the acquisition of CRJ200, CRJ700, CRJ900 and E175 aircraft and spare engine financings. The average effective interest rate on the debt related to such aircraft and spare engine financings was approximately 3.9% at June 30, 2017.
Guarantees
We have guaranteed the obligations of SkyWest Airlines under the SkyWest Airlines Delta Connection Agreement and the SkyWest Airlines United Express Agreement for the E175 aircraft. We have also guaranteed the obligations of ExpressJet under the ExpressJet Delta Connection Agreement and the ExpressJet United ERJ Agreement.
Seasonality
Our results of operations for any interim period are not necessarily indicative of those for an entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased travel on our prorate routes, historically occurring during the summer months, and unfavorably affected by decreased travel during the months November through February and by inclement weather, which may occasionally or frequently, depending on the severity of the inclement weather in any given winter, result in cancelled flights during the winter months.
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aircraft Fuel
In the past, we have not experienced difficulties with fuel availability and we currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our fixed-fee arrangements, United, Delta, Alaska and American have agreed to bear the economic risk of fuel price fluctuations on our contracted flights. We bear the economic risk of fuel price fluctuations on our prorate operations. For the six months ended June 30, 2017, prorate flying arrangements represented approximately 11.4% of our total passenger revenue. For illustrative purposes only, we have estimated the impact of the market risk of fuel price fluctuations on our prorate operations using a hypothetical increase of 25% in the price per gallon we purchase. Based on this hypothetical assumption, we would have incurred an additional $9.6 million in fuel expense for the six months ended June 30, 2017.
Interest Rates
Our earnings are affected by changes in interest rates due to the amounts of variable rate long-term debt and the amount of cash and securities held. The interest rates applicable to variable rate notes may rise and increase the amount of interest expense. We would also receive higher amounts of interest income on cash and securities held at the time; however, the market value of our available-for-sale securities would likely decline. At June 30, 2017, we had variable rate notes representing 3.3% of our total long-term debt compared to 5.1% of our long-term debt at December 31, 2016. For illustrative purposes only, we have estimated the impact of market risk using a hypothetical increase in interest rates of one percentage point for both variable rate long-term debt and cash and securities. Based on this hypothetical assumption, we would have incurred an additional $0.5 million in interest expense and received $2.9 million in additional interest income for the six months ended June 30, 2017. However, under our contractual arrangements with our major airline partners, the majority of the increase in interest expense would be passed through and recorded as passenger revenue in our consolidated statements of operations and comprehensive loss. Also for illustrative purposes only, we have estimated the impact of a hypothetical decrease in interest rates of one percentage point for both variable rate long-term debt and cash and securities. Based upon this hypothetical example, we would have recognized $0.5 million less in interest expense and received $2.9 million less in interest income for the six months ended June 30, 2017. If interest rates were to decline, our major airline partners would receive the principal benefit of the decline, since interest expense is generally passed through to our major airline partners, resulting in a reduction to passenger revenue in our consolidated statement of operations and comprehensive income.
We currently intend to finance the acquisition of aircraft through manufacturer financing, third-party leases or long-term borrowings. Changes in interest rates may impact the actual cost to us to acquire these aircraft. To the extent we place these aircraft in service under our code-share agreements with Delta, United, Alaska or other carriers, our code-share agreements currently provide that reimbursement rates will be adjusted higher or lower to reflect changes in our aircraft financing interest rates.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures, which have been designed to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of June 30, 2017, those controls and procedures were effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control
During the quarter ended June 30, 2017, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to certain legal actions which we consider routine to our business activities. As of June 30, 2017, there were no pending legal proceedings that, if decided against us, were likely to have a material adverse effect on our financial position, liquidity or results of operations.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and in our other filings with the SEC, which factors could materially affect our business, financial condition and results of operations. The risks described in our reports filed with the SEC are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Our Board of Directors has adopted a stock repurchase program which authorizes us to repurchase shares of our common stock in the public market or in private transactions, from time to time, at prevailing prices. Our stock repurchase program currently authorizes the repurchase of up to $100.0 million of our common stock. During the three months ended June 30, 2017, we did not repurchase any additional shares of our common stock.
ITEM 6. EXHIBITS
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31.1
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Certification of Chief Executive Officer
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31.2
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Certification of Chief Financial Officer
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32.1
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Certification of Chief Executive Officer
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32.2
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Certification of Chief Financial Officer
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, to be signed on its behalf by the undersigned, thereunto duly authorized, on August 4, 2017.
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SKYWEST, INC.
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By
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/s/ Robert J. Simmons
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Robert J. Simmons
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Chief Financial Officer
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