SkyWest (SKYW) 31 Jan 192018 Q4 Earnings call transcript

Good afternoon, and welcome to the SkyWest Incorporated Fourth Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. Please go ahead.

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

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

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

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

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

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

included may Securities Some XXXX and of the turn that With and factors Exchange with Form the the differences Commission. cause to that, in reports filings Chip. over XX-K I'll our other and call are such

our strong Rob The flow. XXXX you, our quarter call joining the us a and and cash on today. to reduce with continued commitments objectives on appreciate key executing flexibility afternoon, to Eric. maintain on We're we fleet Thank everyone, strong report pleased and and your on discipline. we're completed solid fourth Good progress delivering enhance risk, focused

these As to great areas. our make of in progress release press all continue outlines, we

focus achieve an objectives significant risk us believe model. completion Airlines entity we this ExpressJet mitigated partners. for With our on exceptional a our month, better in operating We of our help SkyWest to ManaAir deliver our X will the and product the ability to sell to successfully

of previous our quarters, our leverage and reduce to is further in risk-reduction our discussed across fleet. of component strategy expensive another utilization inflexible we've As leases

XX will more aircraft buyouts this we're our our a and Rob continue in As to delever that executing sheet month, press balance talk in early we about release, risk. we as on lease minute. outlined tail reduce

from our secure aircraft to on for extensions purchase in credibility operating Delta regional remove as most performance off attribute and departures with has months. helped XX.X% strong leading across them want X great first is admired top-tier for most nearly operating an of a to under caps that over XXXX the work multiyear companies XX the the Delta adjusted the This the remained year, that Our XX,XXX the the only Airlines all-electronic we from thank of work professionals. airline flying entire the distinction fourth producing list. log, the XXX,XXX year operated in we SkyWest additional contracts coming us And will operations flights in our history. and as Embraer industry. we completion quarter. reliability their year one SkyWest our which our airline XXXX as X Also for delivering during CRJXXXs well during agreements been We EXXX these during on in operation Magazine's SkyWest contract quarter for their and as of to credibility each aircraft aircraft. EXXX new will Fortune launch became stay maintenance SkyWest to XX team the That of named year, incredible prestigious on edge our everyday. we with

lessor. returned of to to the Some Canada of will Air some leased will be these be CRJXXXs and

meaningfully we we're that to more minutes. flying an strong positioned SkyWest uniquely quarter, about enabled And to agreement Wade risk are opportunities we the we've are and quarter. will last a largest last last above existing in is over collective and pursue now this balance essential agreements multiyear running assets This area as year. have been platform a opportunities leasing create business With be fourth of few all talk hiring And which and is as operator with our finalization lease in within than To will As employee opportunities of develop. clear, the Pilot and that is XXXX. limitations. includes earnings XXXX these still with we people demonstrated our the for levels good to and we another these XX% sheet agreements workgroups. nonflying the with year's in has of our world, recruiting discussed believe pilot us more growth still any opportunities scope current reduced incremental progress. there remain the quarter, in be smaller and innovative assets.

thank January of risk position gives to us of lease the future. want aviation nearly fourth on us for the for visibility I long-term ExpressJet Rob? So excellent focused with the during contract the XX with leverage again, and for reduction sell, remain professionals success. the that announcements, closing flying the extensions We sustainable fleet work latest buyout, combined and our quarter. their predictability this XX,XXX better opportunities very

or $XX reported $X.XX QX for XXXX. per $X.XX we per the of million Today share to XXXX, net of of fourth or income income $XX share adjusted compared quarter net million in

per income reported $X.XX or adjusted net net XXXX, per of For million XXXX. from $XXX income or we of share compared million $X.XX share $XXX to all of

As profitable This in in million the Pretax related a tax million impact since QX $XXX XX% adding the aircraft gain a numbers included change. $XXX from net the EXXX to QX less from new the increase reminder, over by law XXXX, in out QX partially was $XX removal of Revenue large XXXX of aircraft offset to million period. XX $XX to the up QX XXXX. XX income of during revenue the adjustment million XXXX. same up 'XX, take QX was was

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

risk. subject a our of Just is fuel approximately reminder that model XX% to not

the in XX% was full was rate for and QX tax XX.X%. effective Our year

to We tax XX% for our to as XX% approximately whole. a expect rate be to continue XXXX

say was the me $XXX We couple differentiation of for XXXX, with financing debt us. Total last quarter. as December cash non-aircraft in balance acquisition billion, per XXXX $XX to of should and million $XX spending issued for billion CapEx. million up last $X.X of $XX quarter and new new toward in from million $XX ended an other to SkyWest of during capital continue about in a million, Normal point the slightly deposits range. planes X used from debt our equity EXXXs. sheet, things XX, quarter. cash $XXX long-term important Let $XXX QX We in million in run XXXX new quarter down $X.X million million

over plan in With expected X XXXX, for to be planes. million spread invest the of middle new these and by XXXX we and the term capital new EXXXs of $XX $XXX to own approximately debt million XXXX our of delivery raise

debt, to below We amortized to, principal where our expect now embedded are normal XXXX additional by aircraft our likely new billion million by where billion, the be XXXX, approximately fully Absent of EXXX XXXX, the $XXX of because is the we the debt payments end in debt orders, a $X.X right million close offset for debt in $XXX we $X in the any now, in in term by from -- EXXXs deliveries of are peak. down end today. announced will

our to in be down part our aircraft, capital But the expect debt inflexible reduction sheet of to let's of This to we continue is buy XXXX obligation lease ExpressJet's after $XXX XX be over removal the cash neighborhood ExpressJet things X accretive $XXX and to buyout down XXXX debt lease year. transaction and of out with was noncash to risk to estimate to an the of million, and expensive on $XXX meaningfully obligations million rent lowers $XXX million depreciation deployed road clear, future the the immediately delever obligations on XXXX, this replaces story. tail that by lease total just balance year-end, million SkyWest's important We in happened. would closed spending Subsequent the leverage We current expense, paying is approximately out we us XXXX, of and leveraged end helps buyout, avoid At return earnings. structure. million. conditions, I to $XXX down in lease lease sale future will lease per expense lease

the XXXX in this did good program During under million could authorization about still and capture QX, in we per baseline over quarter, We program how this we potential million Last initiatives. that million growth in X-year it. utilize in repurchased but see upside by board expect discussed authorized We XXXX. have positioned we $XXX to not are in under single-digit we fully from feel remaining stock earnings share $XX repurchase our into going that other XXXX necessarily the high expectation XXXX. $XX

including leasing the lease a low accretion moment, of but expect we $X.XX expect discuss a of XXXX, earnings which announced EPS growth base contract buyout double-digit per XXXX XXXX it. we share X we would today off the in in other in see that and still and While leveraged from Wade for have will could opportunities to the front now

in inflexible end disciplined set we new in deploy shareholder ready spending to generation flow to million liquid leasing million investment expensive be confidence But and continue strong if XXXs include $XX contract future XXXX, we out opportunities visibility dramatically. way year-end aircraft closer in the create cash us cash as any value. the buy $XXX million opportunities and opportunities at capital as on future $XXX be a in million as be This organic other the the lease our balance deployment investments flying, our new to investment of structures to sheet. flying QX When cash should buyouts something new prior of from maturity. This well to other items. opportunities, to or come, could XXXX absent goes growth As and leasing to Cash and increase prorate XXXX. is make our range back $XXX with to in for to should by will gives

on commercial organic will repurchase and to addition dividends. to will other share give color opportunities fleet at capital shareholders some you movements opportunities, initiatives. growth we and to In via of returning also Wade? look and course, now the Wade continue

our review changes we'll and I'll Rob. these changes walk and you, implementation the flying related the the to of contracts opportunities. through signed, and new the Thank fleet leasing agreements new then discuss

quarter, fourth we new agreement Delta under a the During entered X to operate EXXXs with acquire and an X-year into term.

take during half first year the and during XXXX. delivery to aircraft X expect this X of the of first the We other

returned be CRJXXXs other to the X are contract service, the our from to remove leased Canada. of used CRJXXXs to into Delta as EXXXs be placed will expect Air will the X CRJXXXs lessor, We X those new

You set year we may and recall that aircrafts under have Delta to expire number our next CRJ of contract. year a this

including and During the were quarter, and and to additional from Delta fourth CRJXXXs, our we for extended December XXXs XX through were XXXX aircraft XX XX X CRJ extended X CRJXXXs the contract. CRJXXXs an years. X The legacy CRJXXXs extended CRJXXXs

also was under XXXX come. years, We busy for Delta contract XX extended SkyWest XX for with EXXX's first from to term success on years us this up year the an work the for sets incredibly and X many to

received with X-year we are contract under the XX year, a EXXXs, During XX Delta.

XX XX under under other fleet contract XX-year this are EXXX Delta, with contract puts Alaska. to XXX, Alaska. United, our The At year-end, total a XX with with X of with a

for and under to long-term delivery to contract As our end XXXX. take during of to to expect during have By Alaska XXXX I with total of scheduled fleet XXXX, EXXXs X XX. X Delta mentioned, Delta. the expect XX more EXXXs receive Alaska for we we also EXXXs We're XXXX bringing

delivery took for Delta the also during X year. of We CRJXXXs new

years. additional quarter will with under XX as agreement take to XX new agreements CRJXXXs, we for for all additional a During an XXXX extend long-term an result flying remains strong that Demand 'XX, we very demand, reached with and of CRJs X Delta. XX-seat last and United flying of delivery

contracts Delta extension beyond We goes the now our the expiring ability of CRJ of find before flying other this for those fleet, contract and these opportunities to end of confident in means With with legacy XX% XXXX. planes our remain XXXX.

flying ManaAir we the As our previously we XX and to the wind American of removed Delta completed from Delta service. American CRJXXXs down the ExpressJet-owned completed ExpressJet transaction, remainder for prior

of For these expect the current short we majority term, American agreement. the our retain to under aircraft flying

or agreements, utilizing we own leasing under them, to these parties them options evaluating However, prorate debt for very aircraft third or remaining, with since aircraft these including various little and operating parts. contract we're selling them selling their

have Airlines. agreements, are engines lease long-term been XX which leases able Delta place under XX these of We with to under to belonging aircraft

leasing to business. in see our opportunities continue We

We X the to to have for up leased new XX CRJXXXs years. ExpressJet

lease X quarters believe with the engines this Canada Canada aircraft and we also start We Air strong a for entered and to aircraft for leasing Air transition X-year into is and of CRJXXX. second, to year. during short These third opportunities. are there Demand long-term high,

be leasing As will of business within Chip mentioned, assets. any existing our platform

outlined, of and reduce beyond. very of a significantly changes single to with our XXXX model. year, on leaves productive for lower these us our fleet efficient well and of us risk our years. all a movement, overall The strong risk positions improve ExpressJet I've the and and successful with was next impact airline XXXX This part net a for highly is focused setting strategy broader refleeting several As sell foundation

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

comes Please go Raymond Syth [Operator The first Instructions] James. question with from ahead. Savi

afternoon, good everyone. Hey,

definitely guys beginning of year gave end the the You busy at been and here.

fleet of to the what XX about led end that or now the with count year? projected. aircraft the that on related higher aircraft kind of Delta, confirmed year of aircrafts end Just the than at you've Is the more counts, was to previously

so Savi, the majority this Yes, -- Wade. is

as those of the aircraft the CRJXXXs that for ExpressJet So operating as majority year-end of of the increase there United are that was was. what That's year-end. in are

by engines questions want just that a have under mid-XXXX do CRJXXXs to of Okay. movements, are the that figure still bunch about And you agreements, the with -- you to that you I the have XX does so different with? but have Is out mean lease only what smaller related that XX that correct? to

Yes, Savi, this again. is Wade

have those we XX of So airplanes. yes,

XX so my said the are said, in American, As and engines that majority as you airplanes XX there's being the of still leased are agreements just, I for we're aircraft to script, currently homes with under those looking flying for.

the and jump one the of where this last going it. to kind to question I'll fleet just aircraft -- to to queue. Got I'm you and consider out aircraft that going these lease opportunities arises, Or have? you out, brand to. Like is the leasing with work opportunity X And Related that back buying your airlines you lease? on the going that specifically to if out going would have, want new

Chip. Savi. Thanks, This is

to we're more as to within activities, we platform, important portfolio. to start existing leasing that it's That's what relative first remember today we objective I additional and the incrementally number existing for have. them fleet this quick activity that continue. real this We we Most either sure think utilize point, is make if our assets by evaluating we a maybe objective about would leasing the be we partners to different deploy The or we is that with these flying. lot to platform. meet to our already of talk find open with very opportunities within through assets that ways and needs entire another Just us is the within talking about X that our our that to foremost, other where are along leasing today, no question lot very purchase strong are is assets that of a flexibility external to there already that part. the can assets deploying tool existing on multitude a There's and utilize are already call available of that we of are

model. market this to the demand updated the keep relative there's patiently if will the new of monitor movement future So in any we and and you stuff for some this

Appreciate it. it. Thank Got you.

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

also engines, the to talked CRJs to How expenses? going ExpressJet to Canada. the you leasing the CRJ's, like of from airplanes in you associated are there then the the revenue of Air depict and Is a So and P&L? to leasing your this the about be going the leasing

Hey, Mike. This Rob. is

So this reflected our be will of activity all sort segment. in leasing

previously? completed or renewals you Okay, of my the the renewals extensions extensions is the average that with Then it you've of is in okay. that what fair economics Delta, place to on similar question all had with with assume or second

We've Delta adjusted we've been this. working very with for is Obviously, They're that Yes, have, costs but obviously Michael, Wade. what additional with had. yes. consistent pilot this we on

savings better a I rather of just it's then as and recall, it of helping ExpressJet is different you you a P&L XXXX that only trying I sizable a benefit gave the business that of increase what's a even And us for X. us manage maybe jettisoned my to Is dispatch, question, of believe, separate great. stand-alone clearly the base, separate running of a There's ExpressJet the entity guide Okay, And I single quarter. last now give instead higher in was this executives. COO, strength entity you've partly single what and the the on cost about elimination can the some sense than fourth given think a X and separate here to being number? just that operations? drive When

Chip. is great Yes, question. It's the appreciate Michael, I one. this a

was operation focus made with a execute has being such able fantastic focus think no why carrier. well single significant to There's it's no lot to also decade that SkyWest here since it. with increased that there's of portion been a a partners a I cost own. to want. a as no efficiency, there's question I deliver on decision doubt a strategically on And of this mean, we was and aspect on over SkyWest well what cultural question as opportunity its our

a be -- has that to press aviation with culture Airline SkyWest hard it'd as what as along strong you'd find I think professionals. be outstanding

but just some provide to road be, behind reduce I operations intangible SkyWest moving is transaction can strategic a from significantly focus us forward down and risk provide. opportunities of think, is the good so to continue solid perspective, and for what the couple Airlines that the And our going our weeks

that XXXX that, Now Difficulty] that guidance transaction we've largely discussed script relative in that embedded the and think for is of relative [Technical guidance. I all within his to

Okay, Thank great. good. you. Very

with Duane ISI. comes The go next Please question Evercore from ahead. Pfennigwerth

Thanks.

Mike Would Just you like XXXX off. to left for revenue to along ex ExpressJet? forma follow where be able pro provide a

Rob here. it's Duane,

we a you'll out X-K XXXX of on some level during million. but So that of contributed that, in know $XX of in terms just fiscal you filed January, high a million XXst and ExpressJet the if loss had split had of as revenue -- $XXX segment level an

And aircraft or is outsourced Okay, on is Canada, on is that then aircraft opportunity the total it What Air just that's an basis? great. there?

Yes, so Wade. Duane, this is

just and engines. So this is aircraft

We will flying. not be the doing

I major think X they've got selected flying operator of do another partners. that. plenty to we've our with And

And taking last us why -- P&L per impact through out? thanks is you the these for for then impact, just walk can one of this the you And on on benefit question. a accounting buy a basis, just my maybe aircraft the to for

the you're buyouts. On referring leverage, assume to leverage lease I the

to not characteristic -- sort of that a nice into the that but the capital EPS and So money, much of a and neighborhood we're that double-digit, we're going too deploying year. of, I on should got ROI has in that can get against $X.XX say the granularity a contribute

Thank you.

Your and Helane Becker comes Company. Please next with from go ahead. Cowen question

is mentioned couple so talk your of time. Hi, on. pilot retention? much for you Can about everybody. track just Thank A so being and you on you things. hiring as little your One,

is this Yes, Chip. Helane,

position is anticipation have our that feel also in. for pilots year we what this real-time flying as very, we're -- a well needs where we as XXXX was into partners net-net about certainly We any we agreements completely hiring ever pipeline very And year. flat been. closely existing our assist like may of and think for the monitor throughout can honor coming And as they our good So is throughout I XXXX going year. mentioned in year. X, the extremely between all the of do again, compared it's good to the as Retention is it that last pilot as

the anything fleet? of write-down then purchase be like Great. have would And one probably -- we you aircraft the Or other Rob, a my should off-lease, that? to do with question the is for looking you for

No, nothing like Helane. that,

my actually. answered question you then I last is, have And might Okay. think this

that? lease You were what you talking agreements. about stubborn were saying having you Can just about clarify

said inflexible. Well and I expensive what I think, was

so And we couple pockets there attacking. there, a sort of were were of

to got the to going wouldn't that, done one, we opportunity work longer-term a as did. that But maturity One that, of still on we year of reflects get happen not expect done on the we'll we're to continue get and piece but that in delighted I on. closer that I we them continue we give another again, up to next were that. it. think will piece But We'll

can't you And Okay. right? say many, how

that XX was we capital it again, And today. the the is airplanes $XXX deal Well, got in done deployed million.

they And sneak stuff that? I one partners in offsets of provide what your to Okay, doing you, Eco-Skies you the follow Or ask area Do for with in jet sustainability on then fuel you're and making Do with you, providing question. that like that and you. at last just got program. in United your to carbon up and one, that employees and that you if area all? just example, can they're the their they do like,

-- Helane, this Yes, think Chip. is I

Just real quick.

have in any from without doubt together Anything fuel that to of type partnership. And that an real our lot say environmental have that that's do in to about. partners works topic I want procedures, I'm anyway, As can environmental can we can responsibility naturally, in with that us are actually a impressed how of any process very we anything there a our flight be engaged with with our we very platform partners. dialogue conversation with as some partners, we perspective, work savings, have we relative time a absolutely for we a

word So yes. the to answer long that's of a

helpful. Its really you. Thank Okay.

Catherine go Please Your comes Sachs. from next Goldman question ahead. O'Brien with

everyone. Hey,

profit of of leases part on one just thinking be about aircraft? business. more ownership covering the business? should closer to we a we the Should the on decent this be maybe part cost these Or this on leasing of new expecting So as breakeven, these

activity a do asset or try I sense, Chip. talked opportunities, say a not have can that or very this opportunity, we to Each fly assets. we view we've are These general it. in in an lease is is we of breakeven. amount sell this that about this to can our to relative it it can we would Catie, fair even

view, we profitable view asset my forward our opportunity as in this would as base move have. a I So within existing we that

Is Okay, the thinking And based about of just a since characterization of and of you [indiscernible] about be we've Just then between that of the new high at seen largest gave more of takes since Delta, a lease an digit, aircraft last the seems guided? some Rob's about or should think contract trying that being be you the now the got It changes about might it. the seems $X.XX that equal the about maybe of single last like think few, like thinking math. quick aircraft change it a change, to from the some year. puts we to that we're split low way chunk some guidance. like double-digit It on extensions? EPS on

Rob Catie, Yes, it's here.

more lease the in other business. the opportunities the that about related half and Wade is and the of Deltas was some probably think I side yes, slightly So the of of the that sort of buyout commercial Delta to leasing leverage talking than

last quick one sneak just could I if in? And one Great.

Sure.

extended up and about your partners EXXX profitable most some aircraft in these Should we caught new other contracts profitability-wise? on be have your still with being fleet? thinking the of Or your

them profitability, we're is into don't making level get on We fleet all this but today. Catie, Wade. money of Yes,

I the you. time. Thank appreciate

Steve ahead. The comes with next O'Hara Sidoti question & Company. go Please from

of mean, that, were of many that when like than provided. to of impacting on net, the contract, good Maybe relative sell contemplated Hi, lease how buyouts. I guess, a of assume guidance expected pilot be would the many the you the improvement, factored these original just seem negative ExpressJet the I that but less then your afternoon. something to or guided be How would things and in previously? so maybe you have kind things I that

we leasing -- think and original accretion of to these I from I that And buyout with as clearly to did our Steve, lease contemplated that we year. that of of we that said, contract what opportunities. that some So that the sort respect related think some last additional guidance, well get had we cost pilot get is the largely the incremental we as leverage --

as talked things Okay. asked missed about hiring it. as And it's pilot this the maybe that strong you And then Helane but ever being been. and like I

attrition that Just mean attrition kind of or wondering the is you I'm I mean, that been be? still aircraft taking terms like very did more should on a you're slowing taking from was what guess, be seems the guess has to it but aircraft? I rate, big I in Delta should in I which year relative there it rate, think an just of increase you where last year

deal as and our monitor look is We be. pilots that. continue the that at question. the think we should you But With and hiring, with a our we monitor of XXXX, that we is no, and today we major many. the question Yes, maybe We we perspective closely think where have to think at it the to Steve, should a same, forecast, be where reality very from attrition. up the it we very, any retention strong about this is not Chip. what so it's hiring Well, and but take slightly good pilot it's will partners we the it think have from don't should Again, look of be. it yes, as

too we in pilots is increased our opportunities lot this do. with mean of smaller math much real me approach and partners, conversations You good of paper to deals, on growth relative does what with in we on XXXX and is as have flexible a they as we time do have time but and pilots basis think fleet have of we And monitor going our sure I needs customers to many, all the our to make to the volume arise be higher things needs to quarter, that's have not our more last of we with it anticipate we attrition, basis know with what enough the and our same to partners. always aggressive flexible have the in XXXX seems a coming very that a all that don't make which mentioned sure respond definitely we had

Okay. opportunities that I are buyout? the you negative leverage lease this accounting line along there did in lease have one, And because net the Did affects the quick And maybe guys any more change -- account year? one -- of impact? the that or think, positive

But of earlier, think leasing of quarter. pockets years we that place of standards of Steve, have got had in lease what these leverage many, as with -- them, adopt next opportunity done. one that for No, new many we structures couple I been and some we'll I the a mentioned

The that that's other similar expiration done to of don't in the that to opportunity couple again, know size in of to get get contract. potentially that, start years closer it is get I something of we'd going like XXXX, to I done of next we as but sort pocket we're try to of the

you very Thank much. Okay.

to closing Childs for concludes question-and-answer turn back conference session. remarks. like This our over any the I would Chip to

what great questions to as to SkyWest. about in model well. our the and and everyone, want give sure XX,XXX of some I take of showing we you, is. the throughout us care and do professionals pleasure our to our make a more than for and the our more shareholders credibility company interest the they our partners that strategy to Thank address Again, It's again, thank elaborate work

next quarter. interest, for and thank meet So we'll you back the up

now The conference Thank for has concluded. attending presentation. today's you

disconnect. You may now