Q4 2021 SkyWest Inc Earnings Call
[music].
Yeah.
Good day, and thank you for standing by welcome to the Skywest incorporated fourth quarter 2021 earnings call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
It's a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker for today, Mr. Rob Simmons Skywest Chief Financial Officer. Please go ahead Sir.
Right.
Yeah.
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.
Steele, Chief Commercial Officer, Eric Woodward, Chief Accounting Officer.
I'd like to start today by asking Eric to read the Safe Harbor, 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 Eric Good afternoon, everyone. Thank you for joining us on the call today.
We continue to see very strong demand for our product during the fourth quarter and beyond while we're facing new headwinds as the industry prepares to operate in a post pandemic environment. We remain focused on delivering an exceptional product as we enter the next phase of the recovery.
Recapping, our fourth quarter results, we reported pretax income of $5 million and net income of $4 million as expected and previously communicated Q4 results are absent any PSP grants or concessions, which concluded in the third quarter.
The holiday travel period was disrupted by the rapid surge in the Omicron variant that began last the last week in December and through the month of January .
A combination of winter weather and the surge in Covid cases over the final peak travel period over the over the year led to a lengthy irregular operation of vantage, we began the new year and well into January .
There were countless accounts of employees, who went above and beyond during this challenging I want thank our people for their flexibility and good work during this difficult period.
I wanted to address the current environment and where we are today.
We continue to experience very strong demand for flying in all fleet types, we expect to place 46, New E 170 fives into service this year and one more in 2023, putting us at 240 <unk> hundred 70 fives in service by early next year.
Our re fleeting that has been in progress for the last several years continues to be a priority as we execute on our long term strategy.
While demand is solid and we are facing new headwinds as the industry prepares to operate in a post pandemic environment Skywest is fortunate to enjoy the ability to attract and retain exceptional professionals across our operation, we maintain a robust hiring pipeline and strategy for all work group, while work groups and have new hire.
Pilot classes field well into summer, we have long been preparing for an increase in the mainline pilot retirements. However, the 6000 early retirements taken at the majors during Covid and the steep demand recovery has resulted in a new much higher demand for experienced skywest pilots, particularly captains.
This demand has created an imbalance of pilots here and across the regional industry of course pilot attrition was anticipated and planned for in our models and strategies. However, the rapid increase in captain attrition was not so while our pipeline for new pilots is strong we expect that upgrade timing creates an imbalance and a production and.
Production constrained for the next year or so.
To help correct. This imbalance, we're working with our major partners to notably reduce schedules for the foreseeable future and have worked with our pilot group to implement upgrade and retention incentives. We've also worked with our partners to offer a pilot sustainable pathways, including guaranteed pilot interview programs for captains overall these disciplined strategy.
<unk> to work with both our partners and our pilot group have already begun producing results but.
But given the timing required for training and upgrade this imbalance will likely constrained production into early 2023.
This pilot imbalances in industry wide challenge that services in various ways and we are working together with our people to ensure that we that we remain the best positioned to manage it aggressively.
With 46, New England 75 going into service in 2022, we continue to play the long game.
We have embedded flexibility in our prorate model to allow for the flex up and down of our pro rate flying.
And we are utilizing that flexibility going forward to significantly reduce pro rate. So that we can continue to deliver the highest reliability across our operation in short we are aggressively reducing our pro rate flying now with the option to flex back up as resources allow.
Against this backdrop, we're very honored and humbled to have been named one of Forbes Forbes best large employers for the second year running in 2022. The past couple of years have been incredibly challenging for all of our teams and our ability to work together with our people is a reason for our success I want to thank our nearly 15000.
Ploys for their dedication and teamwork.
In summary, 2022 looks to be the next phase of our Covid recovery and while demand for our product has never been stronger the current staffing imbalance and ongoing re fleeting doesn't allow us to monetize that demand in the short term.
As a result, we expect block hour production in 2022 to be down 10% to 15% from the 'twenty 'twenty. One production. We expect this will be another transition year with breakeven profit similar to 2021, excluding government grant income our strong balance sheet and cash position remain key.
<unk> for Skywest, we are focused on rebalancing, our pilot staffing and ensuring our resources are well allocated to deliver a solid and reliable product we remain aggressive and deliberate in the steps. We're taking now to ensure we are well positioned for 2024 and beyond Rob.
Rob will now take us through the financial data.
Today, we reported fourth quarter GAAP net income of $4 million earned nine cents diluted earnings per share.
Q4 pre tax income was $5 million, our diluted share count for Q4 was 50.8 million shares and our effective tax rate in Q4 was 14%.
First let's talk about revenue total Q4 revenue of $777 million is up 32% from Q4 2020, consistent with our year over year block hour production increase of 30% in Q4 revenue is up 4% from Q.
Three.
As discussed last quarter. Our Q3 revenue included certain revenue concessions to our partners related to government Covid support.
Q4 revenue breaks down with contract revenue up 29% from Q4, 2020 and up 9% from Q3.
Pro rate revenue was $109 million in Q4 up 53% year over year and down 15% from last quarter.
Leasing another revenue is up 28% year over year and flat sequentially.
These GAAP results include the effect of a release of $23 million of deferred revenue this quarter compared to $19 million released in Q3, and 21 million that was deferred during Q4 2020.
As of the end of Q4, we have $104 million of cumulative deferred revenue that will be recognized in future periods as discussed last quarter, the timing and amount of future deferrals or reversals into revenue depends on the shape and cadence of the recovery of our flying all deferred.
Revenue will be reversed into revenue by the end of the various contract periods.
As expected we did not have any additional grant income recognized in Q4.
Let me move to the balance sheet, we ended the quarter with cash of $860 million down from $913 million last quarter. Our capex. During the fourth quarter was $322 million for 12, New <unk> hundred 75 aircraft for used C. R. J 700 air.
Craft and other fixed assets.
<unk> 2021 capex was $556 million, including the purchase of 18, New <unk> hundred 75 aircraft 11 use C. R. J seven hundreds and other fixed assets.
This compares to $438 million in Capex in 2020, we ended Q4 with debt of $3 1 billion down from $3 $2 billion as of year end 2020.
The only government that we have on our balance sheet is a total of $201 million in PSP 10 year unsecured no amortization low coupon loans.
Let me say a couple of things about liquidity.
As of December 31, 21, our cash position of $860 million included the effect this quarter of having repaid an incremental $92 million of debt before adding $237 million of debt financing for the 12, New <unk> hundred 70 fives.
We also have approximately $1 $5 billion of Unpledged collateral that could be deployed for additional liquidity if ever needed.
As of 12, 31, 2021, our debt net of cash balance is actually $224 million lower than it was pre COVID-19 at the end of 2019 additional flexibility comes from the fact that including partner owned aircraft over 50% of our.
Fleet in service now has no financing obligation.
Especially in times of great uncertainty like this and consistent with our policy and practice, we are not in a position to give any specific EPS guidance at this time.
Let me give you a little color.
First at this time, we expect 2022 to be roughly breakeven for earnings flat with 2021, excluding over $200 million of government grants net of partner revenue concessions that were recognized in 2021.
Similarly, we expect EBITDA in 2022 to be in the neighborhood of $500 million also similar to 2021 adjusted for the net grant benefit.
Second we expect block hour production in 2022 to be down 10% to 15% from 2021 production related to the staffing imbalance as we focus on growing our ear J fleet and pulling down some of our CRE J fleet.
The staffing challenges related to Covid mix and attrition have extended our COVID-19 transition for another year or two.
Third.
We won't see the full year impact of the 47 accretive New E 175 aircraft going into service in 2022 and early 2023 until 2024.
31 of these are growth aircraft 16 are replacing other C. R. J 900 flying.
Fourth we will continue to focus on liquidity and expect to end 2022 with a strong cash position in spite of having a strong delivery pipeline of 28 accretive new <unk> hundred 70 fives this year.
2022, being flat with 2021 with breakeven profitability is caused primarily by lower expected year over year production from the labor imbalance higher investments in labor and training to go after the imbalance offset partially by lower maintenance expense.
In 2022.
We believe that the actions we are taking now to focus on the growth of our E. R. J fleet worked through the pilot imbalance affecting the industry and preserved the optionality of bringing back C. R. J opportunities over time will position us strongly in the regional sector.
<unk>.
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 last quarter, We announced an agreement with Delta to add 16, New <unk> hundred 70 Fives. We anticipate these aircraft will be placed into service beginning in the middle of this.
Year through the first part of 2023.
These aircraft will replace 16 older Skywest owned CR J 900 aircraft currently operating under contract with Delta. After we take delivery of these aircraft. We will have 87, <unk> hundred 70, fives under long term contracts with Delta.
Under our American contract. We currently have 90 C. R. J 700 under contract and in service, we placed 25 C. R. J seven hundreds into service during 'twenty 'twenty. One. We also have 20, new E 175 scheduled for service throughout this year, we have received 18 of those.
During the third and fourth quarter of 2021 and will receive two in the second quarter of this year.
Together. These E 170, fives NCR J seven hundreds will bring our total American fleet to 110 by the end of 'twenty 'twenty. Two we have an agreement with Alaska to add 11 E 170, fives to our contract we expect to place 10 of those aircraft into service this year and one more.
During the first half of 2023.
For a total of 43 aircraft under long term contracts with Alaska. After we take delivery of the E 170 Fives currently on order our fleet will be 240, <unk> hundred 70 fives the demand for E 170, fives remain very strong and it's becoming the backbone of our flying let me review our.
Current production based on the current schedules, we have from our major partners for the first quarter of 2022, we anticipate that our block hours will decrease by approximately 5% compared to the fourth quarter of 2021 as we look to Q2 2022 we anticipate that.
Our Q2 block hours will be 11% lower than the fourth quarter of 2021, let me talk a little bit about our pro rate business, we anticipate that our prorate model will continue to decrease during 2022 and 2023 as we expect to reallocate most of these block hours to our contract.
Fleet, we have intentionally built flexibility into our prorate model and we'll preserve that flexibility to return. This flying once we are comfortable with our staffing balance shifting gears to our leasing business. We currently have 39 C. R. J seven hundreds and nine hundreds under long term leases with third parties.
This line of business has very good cash flow and strong margin characteristics demand for engine leasing business is returning and we anticipate placing several engines under long term leases. This year next year, we'll have 16 <unk> nine hundreds that come out of the Delta contract and are not currently placed.
We anticipate placing these aircraft in our leasing entity after removal from the Delta contract where were we may pursue leasing opportunities for the aircraft or engines. We have spent the last several years, reducing risk and enhancing fleet and financing flexibility to ensure we're well positioned this flexible.
Ability will continue to be a differentiator for us and we are committed to continuing our work with each of our major partners to provide solutions.
Okay, operator, we're ready for our Q&A.
Thank you for your service.
As a reminder to ask a question you will need to press star one on your telephone keypad.
Can we draw your question press the pound key.
Stand by what we can pile the Q&A roster.
Our first question is from sort of the fifth with Raymond James Your line is open.
Hey, guys and good afternoon, everyone.
Provide maybe way.
I appreciate the block color Peter.
Cadence a little bit that's all through the year.
But I was curious is that mostly then coming out of pro rate and.
And CPA, Steve a little bit more steady or could you provide a little color as to kind of where that reduction is coming from in terms of the segments and then may be can aircraft type in.
Hmm.
And how this has maybe changed versus how you were thinking about it during the last earnings call.
Yes, Holly this is this is wade.
Yeah. So as I said in my script, we expect Q1 to be down about 5% compared to Q4 2021 in Q2 to be down 11% compared to Q4 2021, the majority of that as I as I talked about we are reallocating.
Several of the block hours from our Prorate model into our contract models. We have also seen kind of an overall decrease in utilization.
And <unk>.
Primarily in our C. R J fleets, but we've seen a little bit of reduction also in our in our E 175.
Daily utilization as well.
Got it and then.
And then Rob just maybe this is for you just as you talk.
Talk about breakeven.
Profits for the year is that is that fair to assume that kind of making money over the summer and losing in one.
Okay.
The income in <unk> or is there something about this year, we're at the normal seasonality would not play out.
Yes, I mean.
The breakeven guidance is obviously meant for the full year, but yeah, there will be some of the usual cadence throughout the seasons.
Got it.
Ask one last kind of longer term question Chip you mentioned that you know a lot of this.
Hopefully that gets resolved as we get into 2023, I'm just kind of curious.
Is there anything that youre seeing today, that's a little bit more kind of a permanent change where maybe certain aspects of your kind of business model that worked in kind of the prior.
Business cycle, maybe does not come back.
And when things recover.
So that again.
Again as a chip that's a great question, because I think back to a couple of your questions. You know, there's something that's fun foundational changes in our business model relative to this.
Honestly say that as we made our way through particularly the month of January .
On the backdrop that we have incredible recruiting of pilots.
Attrition is certainly higher and we're adapting to higher attrition. We also have adapted to higher hiring and so for the record. Our overall hiring continues to outpace attrition, but I think that one of the things that we've experienced.
Just recently is the pressure on the captain C relative to specifically our major partners hiring primarily captains.
Probably the paradigm has been in the past our attrition was like 50, 51st officer to Captain and that's probably moved to $75 25. So look I think that as you can understand the sensitivity in some of these models.
We certainly have re looked at the way we are going to allocate resources and do the things. We think are good for the long term to invest in the right level.
The right place within our business model with with Captain upgrades and those types of things that are going to get us to where we need to be in the long term. So there's a bit of.
Conservatism and caution in the breakeven analysis in the block hour reductions, but again everything is making sure that we.
Pivot and the right timing and in the right way to be positioned really really well for the long term.
Okay.
I appreciate that thanks.
Our next we have Mike Lindenberg with Deutsche Bank. Your line is open.
Hey.
Good afternoon, everyone. Just a quick question here wait what is the fleet count the total fleet count at the end of 2022 versus the end of 2021 do you have those numbers handy.
So at the end of 2021, you can look in our release today or as of today, we have or as at the end of the year, we have 509.
Aircraft, a couple of things that we'll be working on as I as I talked in my script. After we take delivery of all of our current E. 175, we will have 240, <unk> hundred 70 fives under under long term contracts. The C. R. J side is.
More especially the CRE J 200 is more of a flexible flexible fleet right and so we are going to have a lot of flexibility around our C. R. J 200 fleet.
We continue to have good hiring get caught back up on our balance we will be opportunistic and be able to put some of those back in there.
So we're going to have a lot of flexibility going forward on what we do.
So right now, it's probably a little too early to say, what we will be at the end of 2022, but we do know we will have 240 <unk>.
<unk> hundred 70 fives under long term contracts so okay and then when.
You lose a captain queue of major and I guess more specifically, a a major who happens to be one of your partners.
As a consequence, we're seeing oil airlines.
Being forced to.
Take rates out and so what sort of protection do you have under the CPA that as you take up your pay rates.
First officers and captains.
You can continue to get a healthy flow of feedstock.
Thats not going to undermine your margins and your CPA is are you protected, especially when some of this is being driven by.
Your partners.
Some of this wage inflation.
So Mike this is chip that's an exceptional question that we do we certainly have been dealing with in all honesty for decades.
The idea of rate resets and the strategies around all of that we have anticipated some of that when we knew about the pilot.
Shortage, you know five years ago, six years ago, 10 years ago and from our perspective, there's a couple of dynamics that we have as you look at the our fleet and the length of contract we have a lot of rate renewals coming up starting at the end of 2023.
They get heavier in 2024, and 2025 to give color our strategy as always with a fleet like our C. R. J fleet that is.
Very unencumbered, yet very valuable we typically enter into short term contracts for those shorter term two to three years certainly when we're going to go and put that type of capital outlay for 175 those are longer term.
But the way we.
And all those on the contract Theres, a couple of opportunities to look out a bit.
Back to your question as we've evaluated this issue and what we have to do to make sure that we get good aviation professionals into our system retain them train them and do the things that are that.
Provide the value that they do for us.
We've contemplated those economics and that's when we can fix it in a year, but as we move forward with our partners. There is a good dialogue and conversation about the long term business plan in this situation, okay, great and just if I can squeeze in one last one.
When I think about you.
Your fleet and the fact that the E 175, as he said it is the backbone and you do fly into a lot of smaller cities.
You can see the some of the issues the <unk> issues.
That carriers are facing especially those who operate some of these smaller jets the embraer.
Aircrafts.
And around airports say like a key west for example, which is a market that you may go in and out of our other markets. What are you. What are you seeing on that front and what do you have a good sense of timing when this will actually get resolved.
Alternative.
Methods could deal with if the alternative methods of compliance or are we going to get something very soon with the embraer airplanes or are we going to still be dealing with this problem three to six months from now and obviously that will have some impact on your ability to dispatch and operate obviously consequently take costs higher.
Any sort of light at the end of the tunnel on that thank you.
Yes look I think I think from our fleet specific.
Hey look we got a marks out there for our fleet, we have not seen a major amount of disruption on this issue like maybe other regional carriers have great to your bigger bed to your bigger question do we think that there is something going to happen in the near term to fix this I'm not optimistic about that.
This is a big issue between the aviation industry and.
So the cellular carriers and so look I think that this is something from our perspective first and foremost we're going to be safe in our approach to this.
Very transparent and cooperate collaborating with the FAA and those in our manufacturers. So we're all over the issue its a big enough issue I wouldn't assume that we're going to be rid of amdocs anytime soon and have a permanent solution. Okay. Thanks, Jeff.
Thanks, everyone.
Next we have Duane <unk>.
With Evercore your.
Your line is open.
Thank you I appreciate the time.
Can you help us frame the gap between demand and your ability to execute so for example, obviously the <unk> is a little squirrelly, but if you think about the June quarter.
Relative to that block hour guidance that you gave us.
How much higher would that be.
If you didn't have these constraints and is the <unk>.
Is it all pro rate flying that you're cutting or is there. Some CPA flying that you just can't really deliver in this environment.
Okay.
Yes, Duane this is wade.
So yes, we've been working with all of our major partners on our schedules as as we've talked about.
The demand is extremely strong.
It would we'd probably 10% to 15% higher.
If we were able to fix our imbalance in our staffing issues in it and it's been a mix of both we've pulled down both pro rate and we've reduced utilization on our contracted fleet as well. So the demand is extremely strong out there.
We're going to continue to work with our partners, but we are going to have a balanced approach on how we do this between prorate and decreasing contract utilization.
Okay. That's super helpful. And then maybe as a follow up to one of mikes questions.
Can you can you speak to this from a from a network perspective.
What is the profile of markets that are that are losing service here is this all about frequency kind of any anecdotes you could share about.
The markets that are losing as a result of these constraints would be great.
Yes. So Duane this is Wade again, so it's a combination once again of both.
We've looked at frequency there may have been a market pre.
Pre pandemic that we were having three to four flights.
A day into that market now we're down to one or two something like that there are certain markets that are going to go dark right that just won't have service going forward.
From Skywest, so it's going to be a combination of both frequency and there'll be certain markets as you've probably seen that just arent going to have service.
Okay and then maybe just for my last on this <unk> partnership I know, it's very early.
But when do you think you'd be in a position to take delivery of some of these new aircraft types and then just conceptually how are you thinking about utilizing these would you would you be flying them on behalf of majors would it be your own service.
And any thoughts on the type of pilot that would be required to operate that thanks for taking the questions guys really appreciate it.
Yes, Duane this is Wade again, so you know as far as the Eve opportunity.
We work very closely with Embraer on this we really like the opportunity we thought it was.
Good partnership with them in the Eve entity.
We think it's a great thing for our sustainability initiatives as well.
As far as delivery of these these are going to be more in the back half of the decade for sure.
We're still working on potential commercial solutions for this we don't have those quite yet we're still developing and operating plan. So this is still it's still very much a work in progress, but we wanted to get out in front of it and start working with Embraer on some potential solutions here okay.
So sorry to be persistent there, but again super long range conceptually would this potentially replace some of the flying that you've done historically on like <unk> or is it just a totally different.
Network thought.
It's a totally different network thought the 50 Seaters have a average stage length of 350 to 400 miles.
This aircraft or this vehicle will not have near that range, so and its something its more in urban type settings and it is in the regional historical markets.
Thank you.
Next we have Helane Becker with Cowen Your line is open.
Thanks, very much hi, everybody and thank you very much for your time.
Just maybe a couple of questions. The one question I had was one of the issues you guys talked about last year was maintenance and the ability to get spare parts of getting aircraft out of maintenance is that an issue. That's now behind you.
Yeah Helane. This is wade so we made a very large investment during 2021 and getting our fleet prepared and generally from a C. Check perspective, I think at the end of the year. We had approximately 30 lines of C checks are heavy maintenance going on and.
And that that issue is resolving itself right now and we're getting in a very good position and it will.
And our maintenance expenses, we look forward into 2022, we do see a.
A decrease in our maintenance expense going forward.
Okay. That's really helpful. Thanks, and then my other question.
With respect to the cancellations or I don't know, how you want to classify them, but flying the fewer block hours.
Is it a.
Is it.
You have to pay penalties or are you able to negotiate that way.
Yes, so so helane this is wade again.
We've been working with our major partners on these on these issues and many other issues during during the during the pandemic.
Now as we emerge from the pandemic, we've been doing with utilization issues for for a while and we've been able to work with them very collaborative on solving these issues and so that's something that we're working very very much hand in hand, with our partners right now and we've got great relationships with with with all.
All of our major partners and so that's something that we're working through is as as we speak.
Okay. So all right.
So are there penalties included as a deduction to revenue than for last year or.
I know maybe you can walk me through how the revenue comes and offset by the revenue you were.
Or whatever you want to call it.
Credit Chi, we're giving them.
For the government financing.
The penalties for not being able to.
We will live up to the commitments you made because of the staffing issues that are caused by them hiring your people away.
Yes, and that's the complexity with this issue Helane.
You know a lot of this is on the industry issues and.
In our forecast, we definitely have a reduction in our in our block hours and.
And the associated revenue associated with that.
Okay, Alright, I will I won't be less persistence than my colleagues.
I'll, let you go.
Thank you.
Next we have Catherine O'brien with Goldman Sachs. Your line is open.
Hey, good afternoon, everyone.
That's my first question I think is a bit of a follow up to something along the lines that.
Helene and green are below that.
So forgive me, but.
I understand staffing is what's driving our outlook for this year, but could you walk us through how that decision gets made between you and your partners like for 2022, specifically that you going to them to say you only have crew to fly X number of blackout or some of that decision also your partners coming to you.
Say, they need you to fly less than you're technically capable of because they don't have ground staff and some other workers they need to run the retail operation.
Yes. So Katy this is chip just relative to the process on that.
It's actually a.
A very seamless process. It's one thing I think that we've demonstrated we're probably one of the best that in the entire industry, where we we've foundational Lee fill that that communication and transparency is absolutely critical.
Primarily because of the demand that our partners want us to fly today.
Back to a previous question I mean, our reduction in block hours that we're talking about is based upon what we thought we were going to likely be able to provide three months ago. I can tell you that the actual demand for that what we thought we were going to produce three months ago is even much higher than that so so to go back to your point, who says what I mean right now.
Now they are asking us to fly a tremendous amount of flying more than we have even contracts for our perspective is we're very transparent with them about our staffing needs.
Given the fact that they're hiring our people they know exactly what.
What's happening to the model as well and in the spirit of three main things one we want to provide an outstanding opportunity for all of our aviation professionals to go directly to these partners that we fly for.
That's an outstanding model that our partners have absolutely embraced and two we are typically the ones that are saying here's our staffing models, we want to make sure that we deliver for you. We know we can particularly in the most sensitive times.
And we give them what our estimate is and they digested and work through it and it can even be domicile in location specific but also in general we do this you know a long ways out so.
Get to the plan that we presented to you guys. So far theres been a lot of thought going into it there's been a lot of assumptions going into it.
There's been some caution this year quite candidly with all of our partners and they all have worked really well.
With that dialogue and.
It goes to the fact that they value the product that we produced on a daily basis and yet also value our employees, which is also outstanding from our view.
Okay, Great that's really helpful.
Puts and takes between.
Staffing maybe.
Maybe just.
Would be great to get to that on the attrition.
Low cost care call yesterday attrition for them, usually five or 6% now it's low double digits based on commentary from other airlines on on where theyre hiring their pilot from I'm guessing that might be a bit more acute than you.
Any figures you can give us on attrition lately versus where youre running at 18 or 19.
Yeah, I mean, given the sensitivity that we have four partners and not our own brand compared to what others have we're going to probably keep those statistics.
Internal but I would tell you that the statistics of us pulling down flying in 2022 by 10% to 15% probably.
Max relatively well with what the attrition is so I think I think that's about as far as given the nature.
Of our relationship with our partners, we're probably best not to leave it at that.
Okay got it.
Yeah, maybe just one more quick modeling one if I can.
With block hours down 10 to 15.
For next year.
Expect to book deferred revenue from prior periods, just trying to get a sense of it like the threshold days.
For that you did book deferred revenue.
And the last two quarters of block hours down a bit.
The relative compare was a little bit closer to 19, then what youre expecting over the course of the next year. Thanks.
Hey, Katy this is rob so on the topic of deferred revenue going into the new year, we've got.
Owned $100 million of deferred revenue sitting on the books.
Again, the timing of how that will be.
Unwound will.
It's still a little bit up in the air it depends on sort of what the cadence of our recovery looks like but you know.
The key to that is that that's revenue that for which we've collected the cash already so.
But.
I don't know that were going to spend too many calories on modeling that to perfection, but again it will all be reversed by the time the individual contracts that that represented that $100 million of deferred revenue by the time those expire all of that revenue will eventually flow through for sure.
Okay.
Really quickly come back to you on that one Rob.
Sure.
Because I think in the past that you've guided to is that as you approach 19 levels. There Brian block hour. That's when we should start to see that come back on line and that has held true down.
Down 5% block hours.
In the fourth quarter, we saw some of that revenue show back up.
I guess, just looking back historically in our coronary where you've maybe even down 10, 13% have you been able to book that deferred revenue or alright. Thanks, so much for all the time.
Sure Katy no no that's fine.
Look I think if you go back and look at 2021 is an analog some of the early quarters of the year, which were still sort of in recovery mode.
Did book, a little a little more revenue in the first half of the year and then unwound.
$19 million in Q3, and then wound $23 million in Q4 so.
You've got the cadence of how the block hours work there. So I think as you go forward.
It'll it'll unwind slowly over the next few years as those contracts again approach their exploration point and.
And again, if if things get stronger than we expected.
So in 'twenty, three 'twenty four that that'll be likely wiped out by the end of that window.
Thank you very much.
Alright next we have saw the assist with Raymond James Your line is open.
Thanks for the follow up.
Real quick on some of the updates that you gave around kind of sleeping added with partners. It seemed like there was no mentioned, you're still planning to get to 101 C. R. J seven hundreds with American by mid 2023 or because of the current issues that getting deferred and also seemed like there were maybe a couple more with Alaska.
And then we had heard before just wondering if you know.
What the changes were there.
Yes.
Savi. This is wade so just on the American side, we are working with them on the timing of that I do not anticipate that the seven hundreds will come in the first half right now we have the ability to work with them and push them out and into the second half and we will continue to work with those guys on on our staffing models as we get better clarity and yes.
The Alaska question that that is correct there are two more assets.
Great. Thank you and.
And I don't know if.
This is another kind of.
Conceptual industry question, just I realize maybe M&A is unlikely for skywest given your size, but.
Do you think you know from the REIT.
The airline industry perspective.
The whole industry might benefit from further consolidation. So that you are not wasting resources in terms of recruiting and training pilots and flight attendants and mechanics and more importantly, what's your sense of what your partners have the appetite to see kind of further consolidation in the regional airline industry.
Yes, sorry. This is chip I don't I don't know exactly how our partners would view that I know we are so.
Anti M&A at this point as our history has proven that it has not worked out great for us.
I think that from our perspective, we still even under the current situation prefer an organic process.
<unk>.
To grow and to recover and all the things we want to do we we have the ability and reputation to attract outstanding aviation professionals and like we said earlier, that's not that's not the headwind we're talking about right now and that continues to be strong so that data point being strong really does take the M&A side out.
Of the equation for us.
Alright. Thanks.
Next we have Duane <unk> with Evercore Your line is open.
Hey, thanks for the follow up.
I just wondered if there was any.
Movement on the <unk> thousand 500 hour rule.
As you look at what used to be here in the U S.
And clearly much much lower requirements in other geographies in Europe et cetera.
Do you think theres any chance for kind of movement, just given the constraints, we're seeing across the industry.
Duane This is chip its a great question.
<unk>.
And I fundamentally as you know we have been working on this issue for a decade.
And I think that is.
To your previous question as we continue to get out of various flying in smaller communities. Some cities will lose service altogether.
And we will drastically reduce frequency I can tell you is we've had those conversations with the small communities we were having politicians.
Finally engaged after more than a decade of this of this talk so I guess my point is do we think there will be movement in 1500 hours I will tell you I don't know the answer but there is more engagement than ever before and that dialogue I think certainly even things like ESG.
And those types of things why were having people fly.
A $1 72 for that much time, where we know the data points are very clear there are much more efficient and safer ways to get it done that data is extraordinarily compelling we are very much in a mindset that if somebody wants to continue.
Particularly politicians have this dialogue we have the data we have real life now as we've talked about on the phone call today, that's going to show what we've been saying for over 10 years. So Duane I'm hopeful the data points point to something like this but again, it's a very interesting.
Political environment that we're at we fundamentally believe that the FAA also has the ability to do some things with this that would be extraordinarily helpful. And we hope that that dialogue continues to take place because at the end of the day. There are plans in place to make a safer and more efficient.
Process for people to become aviation professionals, and we love the prospects we've been talking about it for a long time and hopefully hopefully we can get more traction now than ever.
I appreciate the thoughts.
Okay.
<unk>.
And next we have again, Mike Lindenberg with Deutsche Bank. Your line is open.
Yes.
Chip I was thinking on the wage question also with all these question about one <unk>.
How do you address this in.
So you said that you'd rather kind of grow organically, but.
There are some sizeable part 135 carriers out there with a lot of pilots.
I don't know maybe it brings an another airplane type, but it does bring on a lot of capable pilots many.
With ours that probably arent that far away from 1500 and.
Maybe some of the communities that you pulled out of those are markets that maybe would work with some of these smaller airplanes again.
That may be the beauty of like investing in these.
E. Their mobility, if that becomes sort of your pipeline because you don't have to worry about 2500 hour rule, but unfortunately, we're not going to get that platform for I don't know five years eight years 10 years.
I don't I don't know I don't know if you've looked at.
A $1 35 carrier because there are several out there and there is some that.
Michael This is chip I E. You cut off but I will I think I know what your question is going to be and I will.
I will answer it just relative to what you're talking about for 135 operators. We do have a different view of that and we have a lot of relationships with some outstanding 135 operators.
And from the perspective that we may be engaged in some partnerships or additional flying relative to that we would be.
Very much engaged in looking at those opportunities, but going back to the previous question 121, operator any consolidation there we would not be interested in.
And there are no further questions at this time I will turn.
Turn the call back to chip Childs for closing remarks.
Thank you Eli and thank to everyone for joining us again on the call today. We appreciate your interest in Skywest.
I'll, just close by saying a couple of things despite.
Despite some of the headwinds we're facing the demand for our product has really never been stronger we will continue to work with our partners and our people to navigate the next phase of the recovery and we're confident in a very strong hiring pipeline as we work through this current staffing imbalance again want to thank you and thank our people for their great work.
That they do and the continued flexibility that they have and their ability to look at the things that we need to accomplish long term with that we'll end the call and talk to you next quarter.
And this concludes today's conference call. Thank you all for your participation you may now disconnect.
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