SkyWest, reported financial and operating results for Q3 2021

SkyWest, reported financial and operating results for Q3 2021, including net income of $10 million, or $0.19 per diluted share, compared to net income of $34 million, or $0.66 per diluted share, for Q3 2020. Adjusted net income in Q3 2021 was $74 million, up 119% from Q3 2020. The financial results improved from Q3 2020 due to the flying demand recovery from COVID-19.

The pre-tax results for Q3 2021 and Q3 2020 included $115 million and $190 million, respectively, in payroll support program grants received from the U.S. Treasury Department (“Treasury”) reflected as a reduction to operating expenses.

Commenting on the results, Chip Childs, Chief Executive Officer of SkyWest, said, “We continued to see strong demand for our product during the third quarter. We are excited to place 45 new E175 aircraft into service in the next 18 months and remain focused on our long-term strategy as we continue navigating the pandemic. I want to thank the exceptional people of SkyWest for their dedication and resilience as we work through this very dynamic period.”

Financial Results

Revenue was $745 million in Q3 2021, up from $457 million in Q3 2020, or 63%, as SkyWest’s Q3 2021 block hours on completed flights were up 67% from Q3 2020. Revenue in Q3 2021 was down $16 million, or 2%, from Q3 2019 (pre-COVID) and completed block hours in Q3 2021 were down 1% from Q3 2019. SkyWest provided temporary rate reductions to its major airline partners under its flying contracts during Q3 2021 and Q3 2020 in response to the COVID-19 demand disruption impact to its partners.

SkyWest recognized $19 million of previously deferred revenue of fixed monthly payments in Q3 2021 compared to Q3 2020 where SkyWest deferred recognizing revenue on $30 million of fixed monthly payments. SkyWest will recognize the remaining $118 million of deferred revenue from the fixed monthly payments on a completed block hour basis over the term of the remaining contracts.

Operating expenses were $698 million in Q3 2021, up from $383 million in Q3 2020, or 82%. The increase in operating expenses was primarily due to an increase in flights operated in Q3 2021 compared to the same period in 2020 and a non-cash impairment charge of $85 million recorded in Q3 2021. As previously announced, we reached an agreement with Delta to place 16 new E175 aircraft under contract with deliveries scheduled in 2022. These E175 aircraft will replace 16 older SkyWest-owned or financed CRJ900 aircraft currently operating under contract with Delta. As we do not anticipate extending the contract term with Delta on these 16 CRJ900s and based on the market value of our CRJ900 aircraft, we recorded an impairment charge of $85 million on our CRJ900 aircraft. Operating expenses were up $84 million, or 14%, from Q3 2019 (pre-COVID). The increase in operating expenses from Q3 2019 was primarily due to the CRJ900 impairment charge and an increase in maintenance expenses, partially offset by $115 million in payroll support grants recognized in Q3 2021.

Capital and Liquidity

SkyWest had $913 million in cash and marketable securities at September 30, 2021, up from $826 million at December 31, 2020.

Total debt at September 30, 2021 was $3.0 billion, down from $3.2 billion at December 31, 2020. Capital expenditures during Q3 2021 were $150 million for the purchase of six new E175 aircraft, one used CRJ700 aircraft and spare engines and $12 million for other fixed assets.

Status Update on Previously Announced Agreements

SkyWest is coordinating with its major airline partners to optimize the timing of upcoming fleet deliveries under previously announced agreements. The anticipated future delivery dates summarized below are based on currently available information and are subject to change.

Flying contract with American for 20 E175 aircraft

• Six aircraft were delivered in Q3 2021, twelve aircraft deliveries are anticipated in Q4 2021, and two deliveries are expected in the first half of 2022. The aircraft are scheduled to be placed into contract service in 2022.
• SkyWest anticipates financing the aircraft through debt.

Flying contract with Delta for 16 E175 aircraft

• 16 aircraft deliveries are anticipated in 2022. The aircraft are scheduled to be placed into service in 2022.
• SkyWest anticipates financing the aircraft through debt.
• The 16 new E175 aircraft will replace 16 CRJ900 aircraft under contract with Delta.

Flying contract with Alaska for nine E175 aircraft

• Eight aircraft deliveries are anticipated in 2022 and one aircraft delivery is anticipated in the first half of 2023. The aircraft are scheduled to be placed into service in 2022 and 2023.
• SkyWest anticipates financing the aircraft through debt.

Flying contract with American for CRJ700 aircraft

• SkyWest placed two used CRJ700s in service during Q3 2021.
• SkyWest anticipates placing eight used CRJ700s into service during Q4 2021 and eleven used CRJ700s into service in 2023.
• SkyWest is scheduled to have 101 CRJ700s in service with American by mid-2023.

Other matters

In mid-October 2021, we identified malware on our system resulting from a cyberattack. We successfully quarantined the malware without disruption to our operations. This quarantine breach required a rebuild of a triple-redundant server. A week later, while moving one of our critical systems to a newly rebuilt server, we experienced a server outage that resulted in approximately 1,700 flight cancelations. We anticipate impact of the outage may negatively impact our Q4 2021 financial results from $15 million to $20 million (pre-tax).

In addition, SkyWest has included in the schedules attached to this release a reconciliation of certain non-GAAP information to the most directly comparable GAAP information. The non-GAAP information presented in this release should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP. The non-GAAP information may also be inconsistent with the manner in which similar measures are derived or used by other companies. Management uses such non-GAAP information for financial and operational decision-making purposes and as a means to evaluate period-over-period comparisons and in forecasting SkyWest’s business going forward. Management believes that the presentation of such non-GAAP information, when considered in conjunction with the most directly comparable GAAP information, provides additional useful comparative information for investors in their assessment of the underlying performance of SkyWest’s business without regard to these items. SkyWest has provided reconciling information in the attached schedules.

SkyWest, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Dollars and Shares in Thousands, Except per Share Amounts) (Unaudited)
		Three months ended								Nine months ended
		September 30,								September 30,
		2021				2020				2021				2020
OPERATING REVENUES:
Flying agreements		$	719,084			$	445,048			$	1,863,242			$	1,490,912
Lease, airport services and other			25,699				12,445				73,086				46,557
Total operating revenues			744,783				457,493				1,936,328				1,537,469
OPERATING EXPENSES:
Salaries, wages and benefits			265,603				194,516				718,868				613,895
Aircraft maintenance, materials and repairs			209,795				150,148				604,501				431,654
Depreciation and amortization			109,597				121,467				329,089				364,813
Airport-related expenses			25,992				18,003				72,478				70,192
Aircraft fuel			32,561				13,641				77,622				45,875
Aircraft rentals			16,098				15,785				47,311				49,537
Special items - impairment charges			84,592				—				84,592				—
Payroll support grant			(115,352	)			(190,200	)			(422,669	)			(342,138	)
Other operating expenses			68,847				59,580				181,621				167,170
Total operating expenses			697,733				382,940				1,693,413				1,400,998
OPERATING INCOME			47,050				74,553				242,915				136,471
OTHER INCOME (EXPENSE):
Interest income			238				1,403				732				5,652
Interest expense			(28,980	)			(30,150	)			(94,274	)			(91,280	)
Other income (expense), net			(4,098	)			405				(3,802	)			1,205
Total other expense, net			(32,840	)			(28,342	)			(97,344	)			(84,423	)
INCOME BEFORE INCOME TAXES			14,210				46,211				145,571				52,048
PROVISION FOR INCOME TAXES			4,526				12,549				37,993				14,113
NET INCOME		$	9,684			$	33,662			$	107,578			$	37,935
BASIC EARNINGS PER SHARE		$	0.19			$	0.67			$	2.14			$	0.76
DILUTED EARNINGS PER SHARE		$	0.19			$	0.66			$	2.12			$	0.75
Weighted average common shares:
Basic			50,380				50,181				50,337				50,199
Diluted			50,725				50,622				50,726				50,445

SkyWest, Inc. and Subsidiaries Summary of Consolidated Balance Sheets (Dollars in Thousands) (Unaudited)
		September 30,			December 31,
		2021			2020
Cash and marketable securities		$	912,504		$	825,908
Other current assets			184,163			156,894
Total current assets			1,096,667			982,802
Property and equipment, net			5,164,164			5,330,423
Deposits on aircraft			121,293			31,625
Other long-term assets			558,378			542,772
Total assets		$	6,940,502		$	6,887,622
Current portion, long-term debt		$	359,888		$	402,158
Other current liabilities			777,867			539,564
Total current liabilities			1,137,755			941,722
Long-term debt, net of current maturities			2,605,063			2,801,538
Other long-term liabilities			935,877			1,004,817
Stockholders' equity			2,261,807			2,139,545
Total liabilities and stockholders' equity		$	6,940,502		$	6,887,622

SkyWest, Inc. and Subsidiaries Additional Operational Information (unaudited)
SkyWest’s fleet in scheduled service or under contract by aircraft type:
		September 30, 2021		December 31, 2020		September 30, 2020
E175 aircraft		199		193		189
CRJ900 aircraft		40		39		39
CRJ700 aircraft		106		90		86
CRJ200 aircraft		141		130		134
Total aircraft in service		486		452		448

As of September 30, 2021, SkyWest leased 34 CRJ700s and five CRJ900s to third parties (these aircraft are excluded from the table above).

Selected operational data:
		For the three months ended September 30,									For the nine months ended September 30,
Block hours by aircraft type:		2021			2020			% Change			2021			2020			% Change
E175s		169,143			117,342			44.1	%		446,867			311,476			43.5	%
CRJ900s		34,031			12,861			164.6	%		87,750			45,214			94.1	%
CRJ700s		78,788			45,807			72.0	%		215,263			144,547			48.9	%
CRJ200s		88,500			46,551			90.1	%		220,809			204,573			7.9	%
Total block hours		370,462			222,561			66.5	%		970,689			705,810			37.5	%
Departures		210,251			137,493			52.9	%		550,643			427,531			28.8	%
Passengers carried		10,862,343			4,916,403			120.9	%		25,872,805			15,583,236			66.0	%
Adjusted flight completion		99.8	%		99.9	%		(0.1	)pts		99.9	%		99.9	%		—	pts
Raw flight completion		98.8	%		99.3	%		(0.5	)pts		98.6	%		97.3	%		1.3	pts
Passenger load factor		79.1	%		54.1	%		25.0	pts		72.0	%		56.7	%		15.3	pts
Average trip length		537			503			6.8	%		536			495			8.3	%

Adjusted flight completion percent excludes weather cancellations. Raw flight completion includes weather cancellations.

Reconciliation to Adjusted Net Income and Diluted Earnings per Share (Dollars in Thousands, Except per Diluted Share Amounts) (Unaudited)
		For the three months ended September 30, 2021
		Pretax income			Income tax benefit (expense)				Net income			Net income per diluted share
GAAP Income		$	14,210		$	(4,526	)		$	9,684		$	0.19
Q3 2021 Adjustments (1)			84,592			(20,683	)			63,909
Non-GAAP Adjusted Income		$	98,802		$	(25,209	)		$	73,593		$	1.45

		For the nine months ended September 30, 2021
		Pretax income			Income tax benefit (expense)				Net income			Net income per diluted share
GAAP Income		$	145,571		$	(37,993	)		$	107,578		$	2.12
Q3 2021 Adjustments (1)			84,592			(20,683	)			63,909
Non-GAAP Adjusted Income		$	230,163		$	(58,676	)		$	171,487		$	3.38

(1) Adjusts for a non-cash impairment charge on SkyWest Airlines operated CRJ900 aircraft. These CRJ900 aircraft will be replaced by new E175 aircraft in 2022 and 2023 and are not expected to be extended under the existing flying contract.

 

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