Q1 2021 SkyWest Inc Earnings Call
Hello, and welcome to the Skywest, Inc. First quarter 'twenty to 'twenty one earnings call.
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After todays presentation, there will be and opportunity to ask questions.
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Now I'd like to turn over the conference to Rob Simmons Chief Financial Officer. Mr. Simmons. Please go ahead.
Thanks, everyone for joining us on the call today as the operator indicated this is Rob Simmons Skywest Chief Financial Officer on the call with me today are chip Childs, President and Chief Executive Officer, Wade Steel, Chief Commercial Officer, and Eric Woodward, Chief Accounting Officer.
Like to start today by asking Eric to read the Safe Harbor, and then I will turn the time over to chip for some comments following chip I will take us through the financial results, then Wade will discuss the fleet and related flying arrangements.
Following Wade we will have the customary Q&A session with our sell side analysts Eric.
Today's discussion contains forward looking statements that represent our current beliefs expectations and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward looking statement.
Actual results will likely vary and may vary materially from those anticipated estimated or projected for a number of reasons.
Some of the factors that may cause such differences are included in our 2020 form 10-K, and other reports and filings with the Securities and Exchange Commission and now I'll turn the call over to chip.
Thank you, Rob and Erick and good afternoon, everyone and thank you for joining us on the call today.
One year ago at this time, we were only beginning to feel the massive impact of COVID-19, and around the world and across our industry. We have learned much over this past year and we continue to make good progress on our strategy to emerge from this crisis, a better stronger company and.
Want to thank our outstanding team of professionals for their continued teamwork flexibility and dedication and order to deliver an exceptional product in any situation.
We made some good headway towards recovery and the first quarter and while there was still ground to cover we're seeing strong demand improvement.
We are working across all areas of the operation to ensure were quick and responsive to what our partners need from us to lead the recovery.
Under previously announced agreements we took delivery of one new CR J 900 for Delta and placed nine U T. R. J seven hundreds into our American system.
We still have 16 more aircraft to transition into our American network. This year, and we're making maintenance investments with those aircraft as we bring them out of storage and get them ready for profitable operations.
As I just mentioned, we are seeing significant demand for all of our products.
These maintenance investments are a critical part of our long term strategy to build reliability into our fleet as well and is preparing for what we expect will be a busy summer ahead weighted will talk more about our maintenance programs and associated costs and a minute.
During the quarter. We also began hiring mechanics flight attendants and just recently accepting pilot applications. Once again, we continued to advance our commitment to diversity through important partnerships with organizations across the industry to ensure we continue attracting the best professionals to join our team.
In addition to receiving a glassdoor employees choice award for the second year in a row as previously announced we're also named to Forbes America's Best employers 2021 list during the first quarter. Once again is the only regional airline on the list were on.
He's working this debt skywest apart as a leader and the industry and as an exceptional employer and.
I'm incredibly proud of our outstanding team of professionals for their network that helps us continue to advance. Thank you.
As vaccinations across the U S increased its clear our it's clear people are anxious to resume a sense are enormously normalcy, including travel and we're seeing more leisure travelers onboard all aircrafts and there is some reason for optimism in terms of demand, especially for Skywest fleet and product.
We believe our ability to deliver a solid product is more important than ever as we work with our partners to support the return to travel are.
Our operational performance for the quarter improved year over year with a 90 997 completion adjusted for weather and nearly 81% of our flights departing on time.
Our teams worked hard through severe weather events impacting our operations across Texas, and Colorado and I want to thank them for their teamwork and diligence through these challenges.
During the first quarter report, we reported net income of $36 million driven by a slight improvement and production over Q4, and the extension of the payroll support program.
Revenue was $535 million down from the fourth quarter, mainly due to pro rate seasonality and temporary P. S. P. Two related partner concessions.
These concessions are temporary ways, we can support our partners through the current challenges.
In terms of liquidity, we had 836 million cash at quarter end and while he we have until the end of may to decide further participation. We do not expect to draw additional funds under the cares Act secured loan facility, Rob will discuss more about this and a minute.
Over the past several months Skywest has seen strong utilization compared to our competitors. The first quarter is seasonally the seasonally the weakest for our industry, but in Q1, we did see an increase from the fourth quarter of 2020.
While the second and third quarters will still have lower production in 2019 levels. We anticipate the fourth quarter of 2021 will be similar to the fourth quarter of 2000 22019 production levels pending continued recovery.
Ensuring we are a solid partner is critical to our business and our ongoing agility remains key a key component to our recovery strategy.
While we are still below 2019 levels, we remain optimistic about the shape of the recovery. So far as demand returns. We're confident our fleet will continue to fill a critical role and the country's returned to travel.
We are focused on remaining aggressive and deliberate and taking care of our people and our customers as we preserve our liquidity and plan for recovery and <unk>.
Sure, we emerge as a better stronger company.
Rob will now take us through the financial data.
Today, we reported first quarter net income of $36 million or <unk> 71.
Diluted earnings per share Q1, pretax income was $50 million, our diluted share count for Q1 was $50 7 million shares and our effective tax rate in Q1 was 28, 2%.
First let's talk about revenue total Q1 revenue of $535 million is down 27% from Q1, 2020 and is down 9% from last quarter although.
Although our Q1 block hour production was up 3% sequentially from Q4 as chip mentioned the sequential reduction in revenue was primarily driven by PSP two related temporary partner revenue concessions and pro rate seasonality.
This breaks down with contract revenue down, 27% from Q1, 2020 and down 11% from Q4 and.
And both of these comparative and we have temporary partner revenue concessions in Q1 2021, but not in Q4 2020, or Q1 2020 pro rate revenue was still down 32% year over year and was down 4% from last quarter due to seasonality.
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As we've previously said pro rate revenue is nicely levered to a demand recovery leasing and other revenue is up 14% year over year and 18% sequentially.
These GAAP results include the effect of a deferral of $21 million of revenue this quarter compared to $111 million during 2020.
As of the end of Q1, we have $132 million of cumulative deferred revenue that will be recognized in future periods as discussed last quarter, the timing and amount of future deferrals and the reversal thereof into revenue depends on the shape and cadence of the recovery of our fly.
And.
All deferred revenue will be reversed into revenue by the end of the various contract periods. We may continue to defer some revenue into later 2021, when it could begin to reverse.
Let's move to the balance sheet.
We ended the quarter with cash of $836 million up from $826 million last quarter.
Our capex during the first quarter was $56 million for four used aircraft spare engines and other fixed assets our expectation for 2021, Capex is approximately $650 million to $700 million Inc.
Including the purchase of 18, New <unk> hundred 70 Fives later this year under our previously announced contract with American and this compares to $438 million and Capex. In 2020, we ended Q1 with debt of $3 1 billion down from $3 2 billion.
As of year end 2020.
Let's talk about liquidity as of March 31, 2020, our cash position was $836 million and addition to availability of $665 million.
Undrawn and our cares act loan and approximately $40 million available on our revolving line of credit we have until later in May 2021 to decide how much and additional draws we will make under the cares Act secured loan facility if any.
Based on the high cost of warrant coverage of any additional draws on that facility. It is likely that we will not draw any additional amounts and may choose to also repay the $60 million outstanding currently on that facility and let that additional availability go this.
Would release $1 5 billion of pledged collateral under this government facility.
During Q1 and $193 million and PSP two grants was recognized as income in the form of a contra expense laid out clearly as its own line item in our P&L.
This is a change from grant income of only $3 million recognized in Q4.
Subsequent to quarter and Skywest entered into an agreement with the U S Treasury for approximately $250 million and funding under the PSP three program for airlines and $45 million of this amount represents a low interest no amortization 10 year loan $205 million.
Of the $250 million is the payroll grant expected to be recorded as income largely in Q2 and Q3 2021.
Under PSP three Skywest will issue the U S. Treasury Department warrants to purchase approximately 78317 shares of Skywest common stock at a strike price of $57 and 47.
Also subsequent to quarter and Skywest received an additional $35 million top up to PSP to this.
And this pop up breaks down is $10 million and debt and $25 million and grants with warrants to purchase 25958 shares of Skywest common stock at a strike price of $40 and 41.
Last quarter, we estimated that we would burn cash and the first half of 2021 at a rate of about $250000 per day or $7 million per month.
Based on March ending cash of $836 million, we are running a bit better than our forecast, we expect to be slightly cash positive and the first half of 2021 before the possible voluntary repayment of the $60 million outstanding under our cares Act secured loan.
And depending on the pace of the recovery, we could be cash positive and the second half of 2021.
If the economic effects turned out to be worse and the recovery is slower than we currently expect we have additional liquidity tools that we can call on including our cash balances, our revolver and either $665 million of Undrawn availability under our secured cares act loan facility.
Or the $1 5 billion of collateral that frees up if we decide to let that facility expire next month.
In addition to our strong core liquidity position, we are expecting 2021, and 2022 to be years, where we continue to focus on our balance sheet as of March 31, 2021, our debt net of cash balance is actually $200 million lower than it.
Was as of the end of the year 2019.
In 2021, we expect to repay over $400 million and principle debt balances related to existing aircraft financing of course, we continue to expect to take delivery of additional aircraft and 2021 that as usual will be financed with long term debt financing, but over the.
Next couple of years, we expect to reduce our absolute debt balance while maintaining strong liquidity.
During Q1 the debt on another 24 used aircraft was fully repaid and.
Including partner owned aircraft over 50% of our fleet and service now has no financing obligation. We also continue to have minimal tail risk of around $100 million.
The dollar delta between financing term and contract term on our fleet.
Our next pocket of tail risk is now out to late 2022.
Especially in times of great uncertainty like this and consistent with our policy and practice, we are not and are positioned to give any specific EPS guidance at this time, but let me give you a little color.
Ignoring the effect of PSP three net of related temporary partner concessions, we expect Q2 earnings to be close to breakeven with the second half of 2021 likely positive both in earnings and cash flow.
And continued headwinds to our model includes several factors I'd like to call out.
Number one our pro rate business was still unprofitable and Q1 wage will talk more about this and a minute.
And number two maintenance expense was up $17 million from Q4, as we continue to prepare our fleet for a busy summer.
And it's expense for 2021 will likely continue at the current run rate before finding a new lower normal level later in 2022.
And number three deferred revenue was $21 million and Q1 2021 and now it's a cumulative $132 million, we expect to defer additional revenue until later in 2021, when it could start to reverse.
And now some tailwind number one production is trending higher into the summer with good demand for our product number two new PSP three program brings us $205 million and grant income to be recognized in Q2 and Q3 before any new temporary.
<unk> partner concessions and number three deferred revenue may begin reversing later in 2021 pending the timing of the recovery.
We are excited that the actions we are taking now and expect to take over the next few quarters are setting us up nicely for the new normal in the future.
Wade.
Thank you, Rob I'll provide a fleet and production status update as well as an update on our pro rate and leasing businesses to update by partner during the quarter, we put nine <unk> seven hundreds into service with American and bringing our total <unk> seven hundreds under contract with American to 74, we.
Placing 16 additional <unk> seven hundreds into service from our existing fleet throughout the remainder of the year, bringing our American C. R. J 700 fleet total to 90 by year and these 25 aircraft have been and long term storage for the past few years and have required a lot of maintenance to return.
His service.
We also have 20, new E 175 scheduled for American service and 2022 with deliveries scheduled from Q3 of this year to the first quarter of 2022.
This will bring our total American fleet to 110 and 2022.
Let me briefly talk about our Delta agreement during the first quarter, we took delivery of one new C. Rj's at 900 under our Delta agreement that aircraft is owned and financed by Delta as of March 31.
<unk> 2021 we have 116 aircraft under our Delta under contract with Delta.
During the quarter, we worked with all of our major partners on a second round of contract concessions that included temporary rate reductions. These concessions are reflected in our first quarter results. We expect to bring we expect to work with our major partners during the second and third quarters for a third round of concessions.
Let me review our current production during the first quarter, our completed block hours were down by approximately 23% compared to the same quarter last year based on the current schedules. We have from our major partners for the second quarter of 2021, we anticipate that our block hours will be up by approximately 10.
10% compared to the first quarter of 2021.
And we and as we look at the third quarter, we anticipate that our block hours will be down by approximately 5% compared to Q3 2019, and the fourth quarter will be approximately the same as the fourth quarter of 2019 pending continued improvement and the recovery curve the EBIT dollars.
75 fleet continues to fill an important need for our major partners, while the majority of the reductions and block hours have been on the <unk> 200 fleet.
Q1 E 175 block hours were down by 3% compared to Q1 last year, while our Q1 <unk> 200 block hours were down by 53%, Let me talk a little bit about our pro rate business. During the first quarter, we reduced our prorate block hours by 6% and revenue decreased by 32.
2% or approximately $32 million.
Compared to Q1 2020, we anticipate our pro rate block hours for Q2 to be up by approximately 14% and the pro rate revenue to increase by 30% as compared to Q1 2021 as we see demand beginning to recover our pro rate.
Model is nicely levered to the recovery with pro rate revenue down 32%, we expect the incremental revenue coming back to the prorate business will have attractive margin characteristics. Let me shift gears to our leasing business last quarter, we announced that we signed a purchase agreement to acquire 13 additional you'd see RJ seven.
100, and as of today, we have closed on five of the 13 aircraft and expect to close on the others. Throughout 2021, we are working with several parties for skywest to either operate or lease. These aircraft. Following the purchase of these 13 aircrafts, we will own or control of 106.
<unk> nine <unk> 700 aircraft, we are fortunate to be and a unique position to purchase. These aircrafts as we believe the <unk> 700 is an exceptional asset that will continue to set skywest apart with strong demand from our major partners.
Let me talk briefly about our current maintenance expense, which is up $44 million or 27% from Q1 2020.
The increase is primarily due to anticipated recovery of our flying.
And bringing the 25 aircraft from the American agreement out of long term storage. We currently have 30 and lines of heavy maintenance at at our third party providers and the ramp up of the suppliers have been slower than anticipated to provide some context. This level this level of maintenance on.
Precedented and our history, we anticipate that we will continue maintenance at roughly these levels through this year and expect to return to more normal levels. During the second half of 2022.
We have spent the last several years, reducing risk and enhancing fleet and financing flexibility to ensure we're well positioned we are committed to continuing our work with each of our major partners to provide creative solutions as we work towards full demand recovery.
Okay, operator, we're ready for our sell side Q&A.
Yes. Thank you we will.
And now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from Michael Lindenberg with Deutsche Bank.
Hey, good afternoon, everyone, Hey, just a couple here.
Sure.
And the temporary rate reductions so if I heard you correctly, Rob the second phase was obviously this march quarter right and there was nothing in the fourth quarter of last year. The first quarter. So the first phase I think covered the second and third quarter of 2020 and.
And I think we have a third phase that will be and the second and third quarter of 2021 is that is that the timing on these temporary right.
And our redemptions that concessions.
Yes, that's correct.
Have you called out the magnitude and those reductions and your Qs or can you give us a feel or how do they tie.
When we look at deferred revenue.
As that builds up to give us a sense of what these reductions are I'm, just I'm trying to get a sense as to the magnitude and I don't want to double count on on a couple of items here.
Yeah. Michael This is this is wade so on day rate on the temporary rate.
On the temporary rate reductions, we've been working with our partners.
For several quarters as you said during the second and third quarter of last year. There were there were temporary rate reductions this quarter, we're not going to get into the magnitude of these but they are they are.
Efficacy, we've worked with them we want to make sure. We're a good partner and we're proactively helping them with their businesses and their recovery as well.
And so wait as I think about modeling forward, though because these are temporary when they come back.
Well as a reversal and deferred revenue.
As we go out to 'twenty, two 'twenty, three and there will be a meaningful bump up right is that.
Yeah, Mike look.
As we talked about for the rest of the year, where we expect.
And Q2 to be in the breakeven neighborhood and then.
Positive earnings in Q3, and Q4 that is ignoring the effect of the net effect of the PSP Grant income that will come in over Q2, and Q3 and the partner concessions related to that that will also come in and <unk>.
And Q3.
So that that guidance just to be clear was was before any PSP three noise and those numbers okay.
Helpful.
And then wait.
I'll, probably hate you on this question as it relates to the 18 American airplanes. So.
They're coming.
I guess 18 are going to come in the third and fourth quarter two are going to come in 2022, youre going to incur.
The Capex this year, it's pretty sizable but it looks like youre not going to go into service until the March quarter of 2022. So are you just going to deliver them to American and get some sort of compensation.
Not on.
I'm just it seems like there's like a two three quarter mismatch between when the planes come in and when they actually go into productive service I'm curious about the timing on that.
Yes, so youre right. So we have 20, new 175 coming in and as you said the majority of those are coming in and Q3 and Q4 of this year and we've we've worked with either the OEM or the partner to cover.
And the cost associated with carrying those firms for a little bit okay. Okay. That's great and then just my last one this is just on pilots.
Hard to believe you know we obviously.
And we're dealing with a pilot shortage and and I think at one point, we thought we all of a sudden and went from a deficit to surface.
And now the set and everybody's hiring again, including yourselves as well as new entrants and velo breeze, and even carriers like expressjet and it looks like that they're gonna be reincarnated as a as a pro rate operator.
So I'm curious sort of where your pipeline is.
Tie into either flight schools and are we going to go from a situation, where we thought we were going to have a lot of pilots out, but because of the PSP and new entrants coming into the market and it's actually going to get.
Pretty tight pretty quickly combined with the fact that we.
And a slew of retirements across the industry. I mean, you know you get a pretty great work force so.
It's a broad question there, but I'm just curious if we're going to start running into pilot problems over the next six to 12 months.
Thanks.
And so my guess is chip thank you.
That's a great. That's a great question and I think that the teed us up really really well and it's on.
If I could wanted to go back to where we were over a year ago.
Remember the conversation we had on previous pre COVID-19 earnings calls that we are built.
For a pilot shortage.
300, and we have 300 schools that we work with.
And we had a very strong machine going and tremendous demand to come fly at Skywest now I will say this as we opened the doors.
Back a couple of weeks ago to start hiring again, bringing guys back to class getting the pipeline up we were astonished at the response and we knew it would be strong because of how we've managed through the pandemic.
We've had a lot of.
Incredible awards and things happen to us as we try to manage through what's happened. This last year and I think it goes to show the demand to come and Skywest. So I would I would say honestly, we've been overwhelmed and the demand to come here, we've been pleasantly surprised I don't think that Skywest is.
And I have a problem anytime in the next foreseeable future long term is it going to get is it going to get tight, possibly but so far there is still very strong supply.
And there's a lot of new entrants, but I don't think Theres Skywest and I think a lot of people feel the same way. So we're excited about the opportunity. It's never been theres never been a better time to come to Skywest I will say that and we're excited to do some things with the schools to enhance the professionalism and diversity that we want on the type of company that.
We want to be.
Great great. Thanks, Jay Thanks, everyone.
Thank you Mike.
Thank you and our next question comes from Duane and funding horse with Evercore ISI.
Hey, thanks.
On your <unk> block hours back to flat I Wonder if you could just outline what the.
<unk> changes year over year.
And does that imply a higher or lower utilization.
And for my follow up if we assume kind of keeping that more normalized utilization into 2022 plus.
Plus your book growth.
What sort of.
Topline high level top line should we be looking at into into 2022.
Hi, Duane this is Wade I'll talk a little bit about the production so the production mix.
If you compare Q4 of 2019 to Q4 of 2021 we are going to see a pretty sizable production.
Mix difference right as I said in my script, even this quarter. This the E 170, fives are only down 3% compared to where they were a.
A year ago, and as we continue to bring on airplanes and continue to put them and service that mix is going to change and our 50 seat mix. The C. R. J 200 were down about 53% and so the mix will definitely change quite significantly.
And the revenue side of this should.
Net of if you exclude the concessions.
Once those get out and you should be.
Very consistent to the revenue side should be very consistent with where we were at and 2019.
Thanks, and I guess, just just to extend that right. If we if we keep that more normalized level of production.
Combined with the book to growth that you have what is sort of baseline production growth into <unk> into 'twenty. Two if we just sort of run rate that forwards.
Yeah. So at this point I don't think were prepared to quite talk about 'twenty 'twenty two but we will see continued growth as I talked about the American.
<unk> hundred 70, fives, and we have 20 of those coming into service and and basically Q1 and Q2 and so we will continue to see growth there.
And so we.
We will have additional growth on top of that but at this point, we're not prepared to give guidance on where it'll be in 2022. Okay. That's fair and then just just to follow up on Mike's question and maybe you answered it in and your response to him, but should we be thinking about the consent concessions very similarly to the <unk>.
Non of PSP Grant funding net you're receiving.
Yeah. So so directionally it'll it'll be very close and it's directionally. The same amount, yes, some of it that stick a little bit with us, but not all of them, but thanks. Thanks so much.
Thank you next question comes from Savi <unk> with Raymond James.
Okay.
Hey, good afternoon, everyone.
And so the Avon and certify slate is pretty clear, but I wonder if you could talk a little bit about how you're thinking about what your other fleet types would look like kind of exiting this year from now on.
And fleet count standpoint.
Yes Savi. This is this is wade so the <unk> seven hundreds we have a lot of a lot of movement and our C. R. J seven hundreds right now.
As of today is at the end of the quarter, We had 74 C. R. J seven hundreds under contract with American and by the end of the year. We will have 90 with those guys. So there's 16 airplanes that we are going to put into service with American through the back half of 2021.
Non.
So that is the primary fleet.
Fleet growth on the other ones. The <unk> two hundreds are very consistent with where they are at.
We shrunk the Delta fleet few quarters ago on the C. R. J two hundreds and then on the CRD and 900 and Thats a very stable fleet at this point. So that's the primary growth on the C. R. J side is going to be and the <unk> 700.
Got it and for that.
The other like if I look at you had 74 CRD 700.
With American and 98 and total just the other 24 and kind of stick around or should I, just assume 90, plus 24 and when does that total go to yes. So yes. So that's a great question. So we have 19 under contract with United and they and we anticipate leaving those with those guys and then the rest of them are with Delta and they are.
And also under contract with Delta and we anticipate them staying there.
Thanks, Vince and thanks, Thanks for that weighted and then on just the.
On the <unk> quarter, and it seemed a little bit stronger than anticipated and is that fair and did that come from block hours as any anywhere else that maybe came in better and maybe and maybe came in line with what you were thinking.
Yeah, and I as we talked about savvy I mean production was up sequentially.
And I guess net net we're pleased with the level of demand that we're seeing for our product and we're obviously investing right now and in that product in the form of of maintenance and getting ready for our busy summer.
Okay makes sense.
And is it fair to say the surprise came on the CPA side and most other than the pro rate side.
Yeah, Yeah, I would say, yes demand continued was strong on the CPA side again, we continue to.
On the pro rate side again pro rate was not profitable and the first quarter, but again as we see volumes coming back in general debt, that's going to that that'll benefit that pro rate side of the business during the summer and beyond.
Makes sense. Thank you.
Thank you next question comes from Catherine O'brien from Goldman Sachs.
Hey, good afternoon, everyone. Thanks for the time.
So that's kind of a similar one to Mike's first question as well.
Yep.
Going forward and to back when you're fully up and running and full schedule with your partners again.
At a minimum contract contractual minimums.
Like more like back to pre COVID-19 levels.
How should we think about your margin profile.
And I can think of a couple of tailwind so higher percentage of one.
And 75 flying probably than pre COVID-19 and he takes on lease.
New deliveries and then the probably the positive impact of that deferred revenue coming back on and you talked about earlier.
So if we put those things together should we just think about margins probably being higher.
Post COVID-19 or are there some tailwind on I'm not giving enough deal. Thanks.
Hey, Thanks for the question Katy it's Rob So look I think that I mean, as we sort of indicated that there are some some.
Gibson takes and the margin question and I think and the near term.
And we indicated that.
And things like maintenance are going to continue to run hot as we bring.
New airplanes back into service again, as we prepare for.
And what's looking what's shaping up to be a pretty a pretty busy summer.
I think there is some some puts and takes and they're obviously pro rate is another area that that's a drag currently on our on our overall margins as pro rates not not profitable, but obviously, we're going to you were hoping that.
As we said that that business is nicely levered to the recovery and those will come back.
You mentioned deferred revenue that's another one you know that.
And the next quarter or so we could have.
Some modest amounts of incremental deferred revenue again, depending on how quickly things things come back, but obviously when that starts to reverse that that reversal will be 100% margin and net deferred revenue. So.
As things.
Ken.
And it's sort of.
A long winded answer to your question, but I think near term again, we've got those headwinds on the expense side.
Longer term, we hope that the combination of demand and the reversal of some of these other items will be positives.
Okay, great. Thanks for that and then yesterday, we had one of the Big Global Lessor is talking about airlines starting to make.
Starting to take action to plan for the future and lock and additional aircrafts hopefully, let me get back to the recovery and back to growth perhaps versus 19.
Not not asking about your leasing business, but just more in general are you starting to have conversations with your partners.
And on potential incremental regional flying over the next couple of years.
Imagine they are mostly just concern with Sem and cash burn and throughout 2020. So so I'd love just to hear you now.
And the long term growth planning conversations are back on the table or if it's a little too early for that thanks.
Katy This is chip that's a great question. Thanks for thanks for asking that because I think it adds good perspective as our strategy. You know first thing that we're still focused on through the rest of this year is out executing everybody relative to helping our partners recover but in all candidates we've been having those conversations.
Even through the pandemic because we also thought that that was a big part of how they could recover there's certainly today is big demand for a regional.
Lift and we think as the economy post COVID-19 continues to evolve that smaller locations and midsized cities are going to have more travel demand and so we're having a lot of conversations with our partners about this long term aircraft orders were also having a lot of conversations with manufacturers about evolution.
Canary ways that we can meet the needs.
The environmental footprint that we're trying to achieve with our partners and all of those things So and quick answer to your question, we're having a lot of dialogue with both partners and manufacturers.
But it's secondary to making sure we continue to recover from the pandemic, but those conversations are alive and well.
Got it and maybe I'll just sneak one more and since you brought it up but I guess any any thoughts on like what the.
On the future aircraft for growth will be for Skywest.
And I'm pretty sure the E. Two it's still not scope compliant.
Not sure what are there.
Option and there are out there in terms of next generation aircraft. So just love to hear what your thoughts are.
Yes. Thanks.
And that goes to an entirely different conversation as well.
Can't tell you very very clearly that we.
Part of our long term approach for the last almost 50 years of Skywest is to out execute the competition and continue to make sure that we're strategically and a strong spot.
And we're evaluating a lot of opportunities one thing I will say is that the world is recognize this as an excellent performer.
Dispatcher of aircraft and we do have a lot of conversation about the future of aviation with several.
And these were not going to get into more detailed conversation or announcements about anything of that nature and until we are comfortable with that but again I'll go back to the original premise of your other question is as we we need to get ourselves out of this pandemic and we need to get recovery, we need to take care of our people take care of our partners and our customer.
<unk>.
But again, we're we're also not oblivious to the needs of what the flying public is going to want and we stand to be our strategy to be at the forefront of all those things. So hopefully that helps kind of give.
And give you the perspective of where we are.
That's all very fair thanks for the time.
Thank you and then last question comes from Helane Becker with Cowen.
Thanks, very much operator, hi, gentlemen, and thanks for the time.
So two questions one is.
Great and John Mack.
What is the pro rate business ever profitable and the first quarter or is that just normally a seasonally weak quarter.
Yes, Helane. This is this is wade.
We're very consistent with the rest of the industry Q1 is always even pre pandemic was was was definitely weaker.
Historically, we did make a little bit of money and Q1, but not not not a lot on the pro rate side.
Okay and then my other question is I think.
Here are some of the airports for working with the airlines to.
Mitigate landing fees and other airport facility charges using their cares act funding rate to help you guys. So.
Yeah.
Decline in year over year.
And then.
And that line item more related to.
Is that the run rate or is that.
Should we think about that as being.
Yes.
And coming back is flying Comstock.
Yes, Helane. This is wade again, so on the lending fee side. The majority of those the partners take care of directly and are not reflected in our financial statements. The other line item on our expenses is primarily just volume related and Theyre and Theyre decreases.
And is associated with volume.
Okay very helpful. Thank you.
Okay. Thank you and then.
Next question comes from Joseph de Nardi with Stifel.
Thanks. Good afternoon, just one quick question from me I think I just want to understand weighed on the on the maintenance challenges you're facing with your third party providers.
Is that just a byproduct of the tight labor market are you kind of displeased with the performance of those providers.
No that's a great question.
There's a lot going on and obviously as we said there's 30, we have over 30 lines of C check going on a lot.
Part of it is just the ramp up right. So we never really stopped during the pandemic, but we definitely.
And have increased as we anticipate the fly and come back and as we got some of these American contracts.
Our third party providers, they're great partners of ours, and they do a lot of things there and.
They're just bringing back their workforces theyre getting them trained theyre getting them back up to speed. So I anticipate that there'll be able to execute at a very high level for us going forward.
Skywest is very uniquely positioned with the size of our fleet and the strength of our of our own internal maintenance capabilities that we can we should be able to navigate through any challenges that are in front of us. So.
Helpful. Thank you.
Yeah.
Thank you.
And this is a question and answer session I would now like to turn the conference back over to chip Childs for any closing remarks.
Thank you Keith and thanks, everyone for joining us again on the call today, we really appreciate your support and interest in Skywest, especially again want to thank our people and I'm proud of our airline and our teams and the great work, they're doing to support each other and the long term success of Skywest Couldnt.
Couldn't be more proud and fortunate to be involved with such a great team. Thanks, again, and we'll talk to you next quarter.
Thank you.
Conference with alcohol and limited. Thank you for attending today's presentation. You may now disconnect your lines.