SkyWest (SKYW) 26 Apr 182018 Q1 Earnings call transcript

Good afternoon, everyone, and welcome to the SkyWest First Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be opportunity to ask questions. [Operator Instructions] Please also note today’s event is being recorded. At this time, I’d like to turn the conference call over to Mr. Financial Chief SkyWest’s Simmons, Officer. Rob ahead. Sir, please go

call Thanks, the everyone, joining us for today. on

indicated, Simmons, As Officer. is the this operator Rob SkyWest’s Financial Chief

Harbor. On read and Steel, like for by today I’ll Chief me time Mike Officer. Thompson, Then Woodward, the I’d Childs, Chief Officer; the ExpressJet call and Operating asking over Airlines’ Airlines’ President Operating Officer; Chief are Accounting today Executive Vais, the Commercial Eric to Chip Chief Chip Wade Safe start SkyWest to Officer; Terry Eric turn Officer; to with comments. Chief some

I the will flying Wade take Chip, Following and arrangements. will us financial results. related fleet the through Then discuss

Q&A Wade, with analysts. our will sell-side the Following we customary session Eric? have

expectations risks regarding subject and from any likely discussion estimated and are may uncertainties. events and forward-looking and will materially assumptions number of obligation Today’s statements statement. current forward-looking contains to to future vary reasons. vary assume that or a We no represent results update projected for anticipated, Actual beliefs, those our

that the Exchange and XX-K included are our in filings of such differences may Form Some reports Chip? the Securities XXXX and Commission. with and other cause factors

and Thank Rob you, Eric.

a but particularly delivered challenging is terms of in weather, quarter first during the The both generally airlines our of one well quarter.

with delivered XX.X% SkyWest their severe delivered being strong continued We thank our for East and affected in weather. operated an during exceptional to by special reliability. for completion want XX.X% delivering EXXX configuration Our than product Coast we accepted a forward first ExpressJet of quarter Airlines operation. ongoing aircraft, factor the XXX,XXX more plan quarter. move operations I that adjusted their fleeting impressive during a business flights to despite approximately EXXX when XX,XXX an and aircraft the adjusted to the number weather of commitment completion operating including new our Delta professionals for

and for both strong year-end expect to products. dual-class and our XX to We remainder these see we additional continue XX-seat previous beyond. anticipate ExpressJet by growth at of demand cash the do our to business, of we’ve will in guidance, solid year. continue year, property create the in the an to breakeven XXXX expect remind we to Specific and you I mentioned aircraft forward any Looking not this very on our flow as want and EXXXs

footprint. strong and performance progress making for up shows than this focused well them sets they’re operational improvement. more XXXX However smaller they quarter’s This as ever with are progress a

see legacy and We which also just continue our contracts on perspective, working a picture critical aircraft, we provide color improving of financing more Rob opportunity to our the both economics. reducing industry, as This solid of across we evolution and From going continue of Wade within demand. a focus through and to some a organization will part in opportunities our terrorist in minute. is on big

previously discussed well beyond. fleet we’ve year XXXX just a is and for in As very XXXX another us up transition our strong set that’s busy

objectives. Again their We’re professionals remain summer thank during want our discipline aviation business the I Rob? our of and ahead on looking for execution busy strategic to work a quarter. XX,XXX our focused to outstanding

removal aircraft offset XX period, in XXXX. or was This XX $XX Pretax income million the million the aircraft. XX% for including QX first same increase from net of from of from over QX million from in or new XX XXXX, unprofitable of during share share income million million was up million per we $XX per quarter of earnings $XX aircraft of QX by the Today, first XXXX. Revenue QX since up adding less-profitable net partially included XX-seat revenue impact of $X.XX in XXXX, of reported $X.XX or net up quarter income EXXX the $XX $XXX the XXXX. QX XXXX, $XX

Our The than business volume up quarter, higher our QX higher rate item from total under and per $X.XX reflecting ago, P&L the model. our in gallon higher gallon a XXXX. per year the in million first was during line pretax $X both fuel $X.XX for cost averaged aircraft fuel prorate

price lower Just quarter of model both than lower and quarter. X rate, year. We this The invest board only for equity first rest continue fuel the is and pattern that had first rate timing impact share would a the in was new accounting we to a tax expect as tax is performance, primarily year to we exercises several also last factors. provision risk. other year based around not grants XX% would driven option compensation effective because reminder future provision grants related on fact vary our year lower the amount during subject during the of typically that this by of to Similar provision what the XX% equity rules tax stock on restricted the last over annual new about QX this quarter. a issues where of was year, The stock and we points and QX points trend once our will had expect than vesting, our certain

year for the we full neighborhood We XX% the year. quarters three still the to to our as in approximately expect quarter. tax remaining continue be last rate should be XX% of estimated to The XX%

net net a of recorded items. was quarter gain $X investment an gain mark-to-market This million other in a of that other on we income

We lease. from million down important couple XXXX, about model. time. of things from from XX, cash was planes to cash acquiring $XX say acquired million per point slightly off in with ended $XX in lease. SkyWest me QX XXXX for new five quarter. up We new differentiation March Let an our cash million of $XXX of spending XXXX as nine $XX in $XX used aircraft million $XXX billion, $X.X during debt used $XXX $XXX of planes financing share $XX the run quarter repurchases. our equity million should debt Total capital in up sheet, last for at balance long-term the with acquisition a quarter range. of along EXXXs CapEx toward in Non-aircraft this to million year in and and other and issued last of million continue quarter last in million,

be by planes. this raise these remaining expected XX invest plan million our year, we and in the $XXX EXXX $XXX delivered year to debt approximately capital the to With million of new of term for the end own

in will the three We next be XXXX, in only $X.X are debt $XXX expect from billion, to our because million our fully principal the payments now, over where end debt by embedded $XXX quarters. million term approximately of normal amortizing the up we of

are debt end no that excess airplanes, million new XXXX, peak in and plan at debt by Assuming to XXXX We flow where orders free to of million of invest including new in continue and equity year. an the the the end in cash our year. per for end up be $XXX would $XXX this pay cash toward of down we XXXX now, additional will from airplanes of of XXXX expect to we year’s in we XX expect another

will are cash to the free to deploy We explore opportunities generating. flow we continue accretive

million drive Because expected reduction during this the that earlier, to we $XX represent risk pretax type and of XXXX $X.XX exploring is XXXX way Wade opportunity EPS movements capital, small in for just repurchase opportunities our return to stock to We today under a we an to capital. many earnings year and on commentary expect the a in benefit $XX that ins allocation. quarter results to in nine creation repurchased where and GAAP of another engineering off the will accretive had fleet outs we made inflexible expect of $X.XX and quarter moment. I of of in but reference million around the Negotiating financial structure As update $XXX in out another example with we unattractive XXXX, Including QX, our tail QX made reducing and we $X.XX fleet. share authorization value to million deployed year through now us But beyond risk, year. a within will our three actual Earlier, XX% annual This for finished XXXX. under number. a under referenced and our legacy fully lease are our in the a comment last by last the quarter’s acquire utilize is last another would financing would we million another be our aircraft all as drive this in equity discuss adding have it. on transaction per board remaining come transaction, little Wade? the in that comments lease. program busy $XX we authorized I capital with by program we fleet to to

of successfully fleet March current our review expectations discuss fleet. first total XXXX From XXXX. fleet and to total year-end XXX moved the from I’ll for XXX during Rob. you, we XXXX, then our Thank aircraft to in rest aircraft changes our QX XX,

our the five Specifically, EXXX we added during quarter. fleet new to

Alaska’s during XX As the We of QX, XX we with defer and for have under XX taking during previously to we XXXX. XX Alaska delivery QX. fleet had to anticipate XXXX At agreed United, EXXX end with total the fourth of during XX three bringing X with request, during EXXXs EXXXs QX scheduled until delivery of contract and EXXXs Delta, QX, our of XXX. quarter

X, its United The ERJXXX quarter, stability for As its agreement XXXX. partnership, years reduces enhances ExpressJet we January new to significantly and last contract extended contract discussed ExpressJet-United’s effective model. have long-term provides risk five

ERJXXXs XX, we As XXXX, of March had United. with contract under XXX

our to connection of the quarter. as of to remaining returned ExpressJets down has the second We quarter. the part Delta XX of agreement by Delta CRJXXX dual-class six As returning CRJXXX anticipate end to been wind flying, first

quarter. the to from of under remaining removing been We which owned we XX returned Delta also redeploy during our Delta remaining American We the XX expect to three Delta. contract. began own ExpressJet service have CRJXXXs CRJXXXs, CRJXXX The eight

be forecast XX aircraft these assumes QX will not renewed. Our

positive regarding end at XXXX. However, we will and XX remaining be are expiration confident the their to CRJXXXs SkyWest prior they remain that placement conversations the placed of of owned

also several during airline On we the SkyWest side, contracts expiring have CRJXXX XXXX.

working for strong, meet are we demand their XX-seat them Our partners remains of needs. XX-seat to each with flying

During CRJXXXs United to contract. quarter, the added we the eight

strategy continues producing fleet model Our our to and overall tangible results profitability.

commercial to discussed, continue throughout place As fleet as aircraft to and new continue expect we service transition our we XXXX into deliver on agreements. we’ve

for now Operator, Okay. ready we’re Q&A.

we’ll question. first from time, Our this Syth gentlemen, Please go question-and-answer today session. ahead with Instructions] at [Operator Raymond question Savi James. the begin comes and from Ladies your

you afternoon. XX that is don’t some with questions data on here. or just of couple with the that have they level timing the year-end of the I things of go that Delta confidence an the Is [indiscernible] out by the year. end of a – function of additional numbers, necessarily that good Hey, down by fleet had by CRJXXX/CRJXXX a some notice I coming

this Savi, Wade. Hi is

lines still So what going there six CRJXXX/CRJXXX CRJXXX Xs my QX. and There pressure have that more also other is that going XX will and is what script some talk in in The during we our this about as also well there other CRJXXXs as are some CRJXXXs are in model removed I release. away are the away. be

able so that be And place upside. will those, are if we to

Okay.

adjusting XXX, its So think from was XXX okay. it to like I –

So that’s XX the just coming down.

Yes. That’s right.

just how the a with at? with CRJXXX number – place those king ones prorate with you’re you going And wondering contracts prorate Okay. and of how – long all has of United, increase flying the the many that at then

Yes.

is this Savi. way again So

And XX% we the of far about those contract we as past, CRJXXX, with two-year is on consistent our very the yet. then what the United it’s as side, it X prorate, a that have off sign So its fleet. the total in

– seeing a attrition on hiring Okay. that supply, And that with just on a kind opportunity thought ExpressJet that on from you of I more to things least provide just then has can question and on is United pilot update side. they at an can like agreement I an that? path through, And do you’re for what could front somewhat there maybe interview heard

pilots, I observations very of Thanks, that we think Savi. pilot supply, This a is quick position as current relative make good I can to in position. couple still update tell our a usually you me about now we’re with right Chip. just Yes, let

be needs in dealing to to Going of about. some optimistic see they the the that United do. XX-seat ExpressJet longer meet career. able continue to struggle, into those This to think the with footprint to grow. we a with. and those down think ways. just gradually with both feel the for sure happening model, to within around not front have that do continue of we comfortable provide of our believe All some pilots of in effort what being to sure a we we this that lot does ever should, got lot I partners been we It’s we that we been good conversation continues the it’s is pipeline that relation say as their to schools And the their good of fly a we with pilot summer, the this are as what a something still as opportunity energy centered and have to of continue need. making supply and with do that’s relative I to growing it’s we go in we’re flying this have provide ways dynamic we’ve safe necessarily The that pipeline. future, forecasted clarity are to being one we strong able And – of of recruiting things still to different time progress very enough spent – do partners. the the a number pipeline our that a that changing that but additional being pathway things fast have end pathway our and with I and a carriers able for make throughout they probably conversation both an is – can is situation

look So optimistic. we’re

that to honor carriers. our spend but time commitments and making not it have be amount a sure we with that an We’re oblivious can significant we can good major effort that issue, of the continue we

guys. Thanks,

Our comes Bank. go Michael your from Deutsche from next question. ahead Please question Linenberg with

afternoon, What What is good investment Rob, dollars. in small everybody. again? mentioned Hey, a question, you is Hey that Yes. other on again few just quick a the million that? a

items Its net. during investment couple but million just had of a item, line that mark-to-market $X in the on quarter other that small they net it it’s a a

Okay.

us can So the what – you that… of investment the nature tell or now

we that investment equity had. an just It’s

think is question Okay, on be were How would ExpressJet I think a well to what’s I year breakeven. then ExpressJet, this this you And I characterizing better I my little just results sure did said ExpressJet get okay. XXXX. that you I heard to or what I I I not track you of what just this just want that second its breakeven Chip, was any that when either make right there, but than the for of characterize? know view transition to sense there’s is a – on on again bit you want don’t a heard

Yes.

row. a had a conversation quarters about we’ve XXXX, for good So ExpressJet several in

We goal to is a it continue way main to we transition that sure sustainable. long-term is that transition to make where the have

Okay.

said year. going be in this So its breakeven I my script, not to that

this going money So to bit we’re year. still of lose a

Okay.

United main and year As this embedded primarily and American pulling a this it of but spend to forecast, one with we’re – within actually our out in significant the it’s we transition about in our interruption transition money all Delta the it to are is this flying it particularly why year share priority is transitioning a that losing make cotton number lot we’re a there of service sure with no and partners. one is reason what to taking saying

So we we much. fleet the can pulling down have say that

for during of our to turn does We of strong, transition way operation hopefully that flight and maintenance have it XXXX. good, its set rest partners, solid sure throughout pilot your plenty make us and professional, the that summer other in attendant and the well but throughout to the a

Okay.

was fully on that profitable year like nonetheless setup it should to be basis allocated that seems next it So so I not it that things standalone that next everything paper, the guess that’s on sounds fair happened profitable, this question, all what maybe aggressive? be. in in a be at for being that to I going least a it but too My like still Is I block year. assessment am still XXXX, should or

be investments the lot track, past But we’ve No, imagine that on in pretty to you’re of to pretty setup I a point. that’s year. pretty to the couple a the of assessment get Michael fair fair next a think assessment be and can to you block years made over that’s

my great. Thanks to Appreciate Okay, it. answer questions.

Thank you.

from comes Cowen. go ahead Helane question Becker question. next from Please Our your with

are it’s How you? guys, actually Hey Connor.

Connor. Hey,

talk I that can can network around Thanks. If your a just there’s release around a talk a Or or lot discussion scope. carriers had just your actually question about that you how partners? to you just of been with to not. scope, pass regarding bit expectations about is Maybe the it little scope your happening outlook important see maybe XXXX

if three, model major doesn’t. we release that to well question set look consolidation. prepared if I back since get carriers model question. going real it’s love scope near-term think really or that really, it’s the an area for what our a up need the to one on. a two, we it of have time us it’s our that not we done it, if scope mean I would the set it its in of this well And But to either we’ve deal great is did. really Connor, strategy to there past of have pretty any four part we a speculate way. to not, if long over I years, at with have of mean is of be the think release opinion the genuine you take We really really, happen Certainly even scope bankruptcy answer I been to was we Because

business investments for think demand our right that release, a So upside, XX-seat not sustainable or given near be scope if need, just long-term. planning certainly from scope scope to all then any to aircraft very the showing pure all made is in the get the we’re today I the between good do gambling partners we’ve is relief that our that’s our able good to aircraft just having relief enable to both. respond or but which to they scope If that places to have. we dual-class And the in perspective, our and on continue very, right mix in demand model in view, there future, strategically not have is

jet prorate talk guys been you this Have profitability, your can then, a on its about? about And little differently Thanks. bit around thought down fuel year? What’s just obviously great. so you arise. expectation to pull Okay, if has

fuel. of Yes. about causing I’ll evaluated there’s tell to give and I speculation change in It’s us to speculate, we’ve what’s fuel. you fuel. or script happen as continue immune sensitivity is or model near those view we still from just our a his prorate capacity and lot as to XX% Rob analysis business that comfortable what with with side seeing execute totally know long-term. today. indicated of to can out the that fuel you prices any of some like fuel our in on levels The dialogue a I high about, we’re very all given plan. our the hard it None there three entire we’re at we’re business, of factors of direction least yield, Certainly, going a strategy

quarter, one just heard housekeeping make sure you correctly. the didn’t it the over And you Rob, want go to transaction believe during aircraft Okay. can – I I – the a one. just last one you I just bought when did

big had is been now. lease to under to strategy long-term the that partner Those sort sort we’re lead this nine leverage model. fans of was that structure of executing of our structures aircraft not tend where of It detrimental be sort Yes. type

way look away to legacy risk nine more capital in accretive where And to million of cure exploring additional at back to inflexible do and we’ll this in to flexibility. and for we were and able a had incremental lease take airplanes the we $XX we’re opportunities ourselves an transaction small deploy go our and and any all equity give across tail structures So quarter, that opportunities fleet. some those continue

this there potentially aircraft How do are you left? that incremental your many in fleet could

I Well, come to going that, it think down to all is economics.

this. opportunities extent do that be We’re we’re like – way stay only this going it going there’ll deploy the mean hopeful way. accretive we’re in But to we that to do about we’re the going to come. we capital to against that Obviously, tuned, more an be to smart I can

Great. Thanks guys.

from go Please comes Instructions] [Operator O’Hara & Company. next from your Our ahead Steve question Sidoti with question.

afternoon. Hi, good

Steve. Hey,

across that that forward. you feel and XX-seat mean confident that of can projection estimates I I some talk something that – demand great, the on like estimates, you assume at today feel guess downside I upside would I fleet. your you today. beyond that that. do getting going Just demand maybe and And makes good today updated solid confident kind closer about side mean I is things you and rates mean, of you the I more to mean that more of your sense kind capture to like you’re but

Yes. Steve, Chip. it’s

Let respect parameter me just kind a with we’ve what we see of as of I fundamentally mentioned give earlier you there. out that to believe scope. for demand

sustainable and be We’re but engineering to regional to business about scope can still certainly be there’s kind the scope, continue be model With that, scope. people for demand no to without model. of concerned successful there’s able if our

Airlines. growth orderly to be the year terms SkyWest a high do today. relative model good for very to major we economics, our – And that’s level, there it out From sustainable taking can probably pure look lot what manner. to a for that model aircraft XXXX do perspective, so demand what the very, in we’re and the very a regional we in and And we at in of is good able carriers it’s extent a just maximum it from Steve, this I of that the the would at is new take reiterate

on XX-seat. relief, get very If so is then is economics scope there there we if fundamentally perspective if back certainly aircraft can are relief. we good, certainly the with future scope from look not, more very, a these And a – of to

large XX-seat a we invest we of for if product extent the to continue that them lot scenario with To more business likely So relief, a to is. fleet good aircraft. we not very capital can model then there’s an have scope our do be and us, and the extremely could for what

So needs looking put to with hard it’s predict go, to job going it’s term, the ourselves We’ve that or general our that’s of cost seen a operating in good as financing, performance, our elements. to on partner. aircraft long the where recently mostly those continue meets thing happen demanding details outstanding position approach four to of it’s to focused as discipline three good we’re

go just a comments, is back then in I’m into qualified terms go. And needed the that change in maybe your the you to to pilot of diligence hiring to attrition line Okay. Or misreading candidates. keeping your just or this. going that there way and ability process But was normal recently or kind hire it of of quarter

yes. Yes,

a pretty been more to platform, should attrition the seeing that I on think across have with consistent last previous the we’re me from today, color, I bit I it’s little years. pilots So our are question. probably as of over that’s perspective, let much mean where give the done our same we couple

Our hiring it’s we’re the as strong is spending. and as years of last couple been

do Just of are. diligence, retirements of have matter major respect healthy as what still for we a carriers the the a good

relates to being we to status got want now a don’t we’ve for that to are of with our near-term operators continue growth very schools imperative to lot it’s at we’ve ever bigger make given additional So our the numbers through quo, we through but like that for partners, work it’s as the lot that I it commitments investment – that That’s continue strong feel we make. But I a and pilots it comfortable call producing which we to do us more is aircraft of do said, and And to an as put the for the to before, pipeline year believe fundamentally pre-regional fly. EXXX got said SkyWest, us. commitments to the have also that.

but we’re So like able everything of we’ve credibility recruit are still optimistic, as enterprises extremely today, diligent front end both our well with the of to pipeline great got the and cultures we’re of on also is as that well. working as

right, much. All Thank Okay. you great. very

we I’d and any question-and-answer closing I’m the to over back like questions. to gentlemen, close this session. ladies And for Chip turn no today’s at additional time, remarks. conference showing Childs call

for today. thanks joining call Again the on Jamie. Thanks, us

to think I reliability continue delivering out aviation strategic partnerships attract the strong are summary, there. we good by operating objectives maintaining in professionals on remain continue that our to solid best focused mainline and

as to executing business We forward. And very believe for partners. product of forward that is going meeting continue our plan, – – our we our demands continue strong needs there we to and customers a of demand the look

next talking that, to So we with look forward to you quarter.

Ladies and conclude gentlemen, does for presentation. call. that today’s today’s conference thank attending We you do

now lines. may your disconnect You