Q2 2022 SkyWest Inc Earnings Call
[music].
Good day and welcome to the Skywest, Inc. Second quarter 2022 earnings call.
Today's call has been or is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I would like to ask a question. During this time simply press star one on your telephone keypad. If he would like to withdraw your question for any reason you can press star one again.
I would now like to turn the conference over Rob Simmons Chief Financial Officer. Please go ahead.
Yeah.
Thanks to 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, Eric Woodward, Chief Accounting Officer I'd.
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.
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 2021 Form 10-K, and other reports and filings with the Securities and Exchange Commission and now I'll turn the call over.
Chip.
Thank you, Rob and Eric Good afternoon, everyone. Thank you for joining us on the call today.
<unk> celebrates 50 years in 2022.
Commemorating our first departure in June of $19 72 for.
Over the past five decades, Skywest has weathered many storms continues to adapt and evolve to lead the regional industry. That's a testament to our more than 14000 people who are truly unparallel.
It wouldnt be here, where we wouldn't be where we are today without the outstanding work of our people and I'm humbled and grateful that I get to work alongside them.
Demand for Skywest product during the second quarter remained exceptionally high with our main constraint being crew imbalance as we discussed last quarter. We made good headway during the quarter to realign our schedules and resources producing results that were slightly better than we anticipated.
Reported pretax income of 73 million and net income of $54 million.
<unk> in our second quarter results from the first quarter was largely driven by outstanding operational performance, including a 99, 9% adjusted flight completion rate during the quarter as well as the block hour production increase of 13% on our E 175 fleet and an increase in pro rate revenue.
I want to thank our people for their teamwork and efforts to deliver strong operating performance as we launched a very busy summer travel season.
We received 870 fives during the second quarter and will receive 16 more this year with a with a total of 240 <unk> hundred 75.
Land in service by early next year or be fleeting that has been in progress for the last several years continues to be a priority as we execute on our long term strategy.
During the second quarter, nearly 80% of our block hours were flown utilizing our dual class fleet.
While demand is solid clearly our largest constrained as captain availability.
<unk> is fortunate to maintain a robust hiring pipeline and strategy for all work groups and I have new hire classes filled through year end.
We expect that the ongoing high demand for pilots will continue to result in Skywest pilots being the most sought after in the industry and are planning our models accordingly.
We have long been investing in tuition reimbursements incentives and various other partnerships and methods to reduce barriers to entry and clear the path to help increase the quality among the pilot.
Notably of those who have joined our pilot pathway program. This year over 40% are women or people of color.
As we discussed last quarter, we've taken a number of steps to address our new crew imbalance, including managing schedules with our partners working with our pilot group to implement upgrade and captain retention incentives and offering sustainable career pathways, including guaranteed pilot interview programs for our captains.
These disciplined strategies are producing results the timing required for training and upgrades will likely constrained production into late 2023 in early 2024, we.
We will continue to work with our people to ensure we remain the best positioned to aggressively manage this challenge. We are currently in PE conversations with our pilots and expect to increase our pilot investment going forward to ensure we continue to provide more stability opportunity and options than any other regional care can provide.
During the second quarter, we formed Skywest charter.
As an additional entity of Skywest, Inc, or.
Our intent is to enter the strong charter business within existing regulations and we've applied for commuter of 40 with the department of transportation. We appreciate the strong support from many communities in airports as well as the efforts of the D O T and FAA to enable this service that would provide essential connections that many small airports rely on.
We undoubtedly have the asset base best fleet.
High standards and expertise to execute this operation well and intend to hold Skywest charter to the exceptional high standards of safety and service associated with the Skywest name.
While demand for our products has never been stronger the current staffing imbalance imbalance.
And ongoing re fleeting doesn't allow us to monetize that demand in the short term. We continue to expect 2022 production to be reduced by about 5% from 2021 production.
We also continue to expect production in the second half of the year to be lower than the first half due to the crew imbalance.
However, there are three components in the environment today that gives us great confidence in Skywest is in <unk>.
As an investment.
First there's undoubtedly significant unmet demand for regional flying.
Second our strong pipeline and our ability to attract train and retain captains is far greater than our competitors and third skywest asset value is unparalleled in the market.
Our disciplined approach over the last decade, and acquiring profitable assets at strong economics will enhance our ability to meet our objectives in this new economy.
Although we continue to expect the recovery will remain choppy as we worked through some headwinds over the next couple of years, we remain aggressive and deliberate in the steps. We're taking now to ensure we are well positioned for 2024 and beyond.
Rob will now take us through the financial data.
Today, we reported second quarter GAAP net income of $54 million or $1 seven diluted earnings per share Q2, pre tax income was $72 $7 million, our diluted share count for Q2 was $50 6 million shares and our effective tax.
Right in Q2 was 26%.
First let's talk about revenue total Q2 revenue of $799 million is up 9% sequentially from Q1, 2022 and F. 'twenty.
22% from Q2 2021.
Q2 revenue breaks down with contract revenue up 8% from Q1, 2022, and 28% from Q2, a year ago Pro rate revenue was $95 million in Q2 up 20% from Q1, 2022 and down 8% from Q2.
To 2021.
Leasing and other revenue was down 7% sequentially and up 5% year over year.
These GAAP results include the effect of a release of $16 million of deferred revenue this quarter compared to $11 million released in Q1 and $6 million that was deferred during Q2 2021.
As of the end of Q2, we have $69 million of cumulative deferred revenue that will be recognized in future periods.
This quarter's results also include two items I wanted to note. The first is a $15 million impairment charge. We took this quarter on four of our older <unk> seven hundreds that were part of our Expressjet fleet and our held for sale.
This impairment is in the line item other operating expense. The second is a $10 million mark to market gain on our investment in <unk> as it started trading publicly during the second quarter.
This gain is recorded below the line in other income.
Let me move to the balance sheet, we ended the quarter with cash of $979 million up from $856 million last quarter. Our capex. During the second quarter was $197 million for eight new E 175 aircraft and other fixed assets.
Total 2022, Capex is expected to be approximately $775 million, including the purchase of 28, New E 175, aircrafts compared to $556 million in 2021, we.
We ended Q2 with debt of $3 3 billion up slightly from $3 1 billion as of year end 2021, just a reminder, that 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 June 32020 to our cash position of $975 million included the effect this quarter of having repaid an incremental $103 million of debt before adding $191 million of debt financing for eight new <unk> hundred 75.
And $25 million in engine financing, we also have over $1 billion of unpledged collateral that could be deployed for additional liquidity if ever needed.
Additional flexibility comes from the fact that including partner owned aircraft, 50% of our fleet and service has no financing obligation.
Consistent with our policy and practice, we are not in a position to give any specific EPS guidance at this time, but let me give you a little directional color.
Q2 results were slightly better than expected for a variety of reasons referenced earlier by chip, including optimizing our schedules by aircraft type strong demand that we monetized opportunistically and benefits from our evolving fleet mix, we expect Q3 results. However.
<unk> to be slightly down from Q2 due to labor constraints and cost the second half of 2022 will likely be worse than the first half of 2022 for similar reasons with the second half of 'twenty to modestly profitable, we don't expect to rebuild production from there.
This pilot imbalance challenge until the end of 2023.
Second we won't see the full year impact of the 47 accretive new E 170, fives going into service in 2022 and early 2023 until 2024, our actions today are setting us up for success in 2024.
Third we will continue to focus on liquidity and expect to end 2022 with a strong cash position in spite of the investment we are making in 28 accretive new E 170 fives. This year, we believe that the actions we are taking now to invest in the growth of our <unk> worked through the pilot in <unk>.
Balance affecting the industry and preserve the optionality of monetizing strong demand opportunities over time will position us well for 2024.
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. We continue a strong delivery scheduled this year as we've discussed in recent quarters, We previously announced an agreement with Delta for 16.
New <unk> hundred 70 fives to replace 16 older Skywest owned C. R. J 900 aircraft during the quarter, we took delivery of two of the 16 aircraft. We anticipate taking delivery of the remaining 14 <unk> hundred 70 fives during the second half of the year and will be placed into service began.
In the third quarter of this year through the first part of 2023. After we received these aircraft. We will have 87, <unk> hundred 70, fives under long term contracts with Delta.
Under our American contract, we have 20, new E 175 scheduled for service throughout this year. We received 18 of those aircraft during the third and fourth quarters of 2021 and will receive two in the third quarter of this year, we have an agreement with Alaska to either to add 11 E 170 fives to our.
<unk> during the second quarter, we took delivery of six and had already taken four during the first quarter of 2022, we expect to take delivery of the last E. 175. During 2023 for a total of 43 aircraft under long term contracts with Alaska.
Demand for our E 175 product remains very strong following delivery of those currently on order or E. 175 fleet will be 240 aircrafts. Let me review our current production in 2022 based on the current schedules, we have from our major partners for the third quarter.
We anticipate that our block hours will be down by approximately 3% to 5% in the third quarter as compared to the second quarter as.
As we look to Q4, we anticipate our Q4 block hours will be down 13% to 17% as compared to the second quarter, Let me talk a little bit about our pro rate business. As we've discussed we are experienced at CRU imbalance that is impacting our ability to fully meet.
Strong demand for our product as a result of this imbalanced during the first quarter, we filed a 90 day notice with the D. O T to discontinue service to 29 Essentials Air service communities. This was a very difficult decision and one we would have preferred not to make we have been serving most of these commute.
<unk> for several years. It appears nine of these 29 communities will transition to another airline by year end. We continue working through this challenge and remain committed to help find good solutions for these and other underserved communities shifting gears to our leasing business.
<unk> and <unk>.
During the quarter, we entered into one long term lease for ACR J 700. This brings our total <unk> 709 hundred to under long term leases with third parties to 40. This line of business has very good cash flow and strong margin characteristics demand for our engine leasing business is returning and we are.
Placed a few more engines under third party leases during the second quarter and anticipate placing more engines under leases by the end of the year, we had a strong delivery schedule. This year and we'll continue to and we'll continue working efficiently and effectively allocating our resources as we optimize our fleet mix.
We have spent the last several years, reducing risk and enhancing fleet and financing flexibility to ensure we're well positioned this flexibility we will continue to be a differentiator for us and we are committed to continuing our work with each of our major partners to provide creative solutions.
Okay, Lisa we're ready for the Q&A now.
Thank you Sir.
Reminder, everyone that is star one on your telephone keypad.
We will take our first question from Savi <unk> with Raymond James.
Hey, good afternoon.
I'm just kind of curious as you know.
American <unk>.
The pilot contracts for their in house subsidiaries that you know the base pay is quite a big increase but when you include the bonus.
It's temporary a pretty significant jump out I was curious as to what have you if you've seen any impact.
In terms of kind of retention our ability to attract since that past that or what do you think the kind of the <unk>.
Read throughs to the industry from that contract there.
Well Savi. This is chip. Thanks for the question. It's a good question and you know candidly I think when we look at what American has done with some of our wholly owned Theres.
There's a couple of things that we can some some ideas about it that we can embrace and some that we don't.
Embrace I think one of the things that for our perspective is that we want to long term.
Find a solution for pilots over the long term and not just for the next year or two that package is very heavily heavily weighted for the next.
24 months I said in my script that we're investing in our.
Pilots and we're getting close to having some.
Good things to work out with with our pilots, but I think that there is a little different color from our perspective, there's no doubt in the economy that we're living today that labor costs are a big issue for everybody. It's much even just our industry by the way. So as we I think the most important thing for us to do is to come together as we work with our pilot group.
We have that evaluation for what's the most meaningful.
Process for our pilots and our group and we're getting some very good traction and having some good conversations with them as it relates to the industry. You know obviously there are some things that some of our partners have done with wholly owned carriers that are.
Very close to this and we're having good conversations with them as well.
As far as long term partnering ideas surrounding various labor shortages, especially with pilot. So look I think we've got some very good momentum and some good direction.
And think we've got some good solutions to help get us back on track like we've said closer to the 2024 timeframe.
Okay. That's helpful.
Should I think of that.
Clearly the partners are well aware of this.
Hiring constraints and needing to.
Drive pay raises.
How quickly do you think youll be able to pass that through.
Cross here in a contract like this is going to be kind of a five year process to your process.
Could it be faster how should we think about.
Once you pass that pilot pay agreement they hit and how long it would take to then just kind of get back to kind of a normalized margin.
Well I don't want to get into too many of the strategies, we have but I will give you. Some assurance is one we have a very good.
Fleet renewal timeline from starting in 2023 through the next five or six years and obviously when you come up with.
That type of contract explorations and people want to renew that's the ultimate reset of some of these things we also see some opportunity.
Relative to the sooner that we can fix.
The turnaround relative to our captain issue the faster we can go back at capacity.
I said in my script that the demand for our product is extremely high and you can see not just us, but but most other regionals are pulling down significant capacity, which means there is a tremendous amount of scope. We think in the next year or two that's going to be left out there that we could get.
Pretty aggressive with so.
I would suggest that this is not going to happen overnight. We don't have any partner that's going to just wonderfully right out of checks for all of these costs, but it is a gradual process and the more that we can deliver the easier those conversations go because of the strong demand for flying particularly in small and mid sized communities today. So.
That's kind of the way, we're looking at it without getting into any of the nuts and bolts.
Last one just following up on that before I get out and start on the Q C. It.
It seems like you're kind of into service timeline at American and Delta a little bit faster than you were thinking earlier this year I'm guessing it's a function of the operations have been good at it seems like you're gaining more confidence I'm kind of surprised to see that.
Sequential drop from three <unk> on block hours. It seems like it's more than seasonal so is there something.
That I'm missing in that forecast or is there a lot of conservatism in there.
Yes.
Yes Tobey. This is this is wade so the first part of your question about our timelines with American and Delta those have been very consistent for the last couple of quarters, we've been saying that theres really been no no differences in the timeline of the 170 fives coming in as far as the <unk>.
<unk> coming forward.
As we talked about in our script. There is a crew imbalance that we're working through right now where obviously.
We are.
Modeling it conservative as we're looking at it.
You know and we're trying to do the best we can to share.
Sure up and stabilize the fleet going forward.
But there is that crew imbalance that we are working through over the next several quarters. So.
Got it thank you.
We will take our next question from Mike Lindenberg with Deutsche Bank.
Oh, Hey.
Good afternoon guys.
I wanted to go back on <unk> question on on the pilots I know you don't have a union contract is it but that said you still have kind of agreement.
They're a structure in place where rates are set for several years and then you sort of negotiate and then they're replaced by new rates like what what's the timing I'm just trying to get a sense of.
If in fact over the next year or two we do see a meaningful bump up in pilot pay rates that we're frankly, we're seeing across the entire industry and I just wanted to know whether or not it is not going to show up until you guys renew.
Kind of your agreements like Chip you said I think.
'twenty three 'twenty four 'twenty five.
Things renew and that's usually a good time to kind of go back and discuss kind of where things are on the cost side et cetera.
Yes, Mike. This is chip again, just just to be clear, we have a very clear collective bargaining agreement with our pilots that is structured like any other.
Contract with pilots since it and so are our current agreement expires at the end of this year. Okay. Ben income we've been in conversation with our pilots over the last several months system. It's a long process, there's a lot going on in the world.
Lots of concerns about various aspects of the industry and <unk>.
The focus of our packages clearly on the captain side and retention in those.
Those types of things.
So, but we intend I mean look we're pretty close we intend to have something probably coming out of agreement here within the next month or so and.
Even if we were not bound by an exploration of our pilot contract. This year, we probably would given the market circumstances. We've always open things up if we feel like we needed to as we've done in the past and would be here anyway. So.
The timing of the contract is what it is but more importantly, we're in a situation where we've always utilized some market opportunities to take care of our people and do it in a way that's going to benefit them long term and I think thats I.
I think that's the element that we want to emphasize of what our strategy is we want a long term.
Element of our pilot contract Thats going to make sure that we can continue to achieve what we've achieved over the last.
Several decades of Skywest and the conversations are going well and we continue to go down that pathway.
That's helpful.
And then.
Back to.
Maybe it was rather wager talk to that just on the pro rate revenue $95 million it was pretty good.
I know that withstand anything.
8% versus a year ago, but it was up 20%.
This march quarter.
I was just kind of working under the assumption that that was really going to start to come down as you reduced block hours and I guess, presumably you may be benefiting from a strong pricing environment strong revenue environment. So can you give us the block hours.
Maybe maybe that's going to tell me that you did drop your pro rate flying by a lot more than what the revenue suggests.
Yeah.
Yes, Mike this is wade so.
Yes, we've been hey, how are you. So we are on the pro rate side, the block hours have definitely gone down quarter over quarter year over year.
Really the strong revenue as we were.
Our pro rate is very similar to what the major partners are seeing right now the yields are very strong the demand is very good and a lot of these small communities.
People are working with us to stay in there and do what we need to do so the revenue environment on our prorate is very good and so it's really a yield.
We've just seen the yields very strong and a lot of these communities over the last couple of quarters and as we look forward into Q3, it looks pretty good as well so.
And then just lastly, I know you've been making all sorts of interesting investments you highlighted the eve gain.
Maybe I can try and picture cannot think southern <unk> Express could you could you guys make a few or a piece of that company I can't remember if you own another piece of another regional carrier.
Yes, Mike This is Wade again, so yes, we've made an investment in southern and local lately that whole combination.
Several years ago, and they're a good partner Theyre growing theyre doing a lot of good things and we're helping them with their strategic plans and how they're moving forward. So yes, we do on a.
There are 135 are there 135 carrier.
They are there they primarily operate.
Caravans.
135 certificate Thats right, Okay, Okay would it ever make sense to use then it could be the backbone of this charter operation or you want it makes maybe more sense on the mainland.
Nova operation.
Yes, Michael This is chip I think it's primarily relative to the fleet that we want to utilize relative to this which we have a significant amount of assets in the <unk> 200.
There's no doubt that as we strategically look and make sure that we take care of the communities that we're serving today want to serve and some that we have to back out of it. It's all part of a bigger conversation with the communities. I mean, we are deeply invested in these communities. We have invested in them for years, sometimes it may make sense to southern.
Backfill this sum makes sense that we utilize.
Our commuter authority to have 30.
C R J 200 to do it so well.
The best part about it is is we've got a tremendous amount of assets tremendous amount of expertise.
Relative to the situation with most importantly, a lot of flexibility with our other business relationships, including our partners to try to work some of these things out and given the given the current environment.
Thanks, Thanks, Tim Thanks, Lee Thanks, everyone.
Okay.
Okay.
Okay.
We will take our next question from Helane Becker with Cowen.
Thanks, very much operator, hi, everybody. Thanks for the time.
Ken can you say, if there's been any update on the application with the FAA on the.
Part 135 carrier.
I learned this this is Wade we filed for commuter authority in the middle of June on on our on the application and we had many communities that.
Youll put letters of support in there right now we're working through the application with the D O T.
We're currently reviewing it.
So hopefully in the next.
A couple of months, we will get this all sorted out the commuter authority and we'll be able to.
To start buying some some flights.
Yeah.
Is there a way we should just like fourth quarter first quarter event is that how we should think about it.
So we're still working through the exact timing I will tell you that we are going to operate this as a charter as well as on demand charters and we believe we will start flying that you on demand charters definitely during sometime during this year as far as the commuter authority, we're still working through with the <unk>.
On some things on that so I don't I don't know if I necessarily want to give an exact timeframe, but I don't think it will drag on too long, but we are working through it but we will be flying on demand.
Charters here hopefully shortly so.
Okay. That's very helpful. Thank you can I just shift gears and ask Rob question on that.
On the cash position how are you thinking about the right number for our cash and liquidity.
Going forward because it seems.
Cash exceeds revenue.
I'm not sure.
That's the right level of cash to have or maybe it is.
Yes, Helane look I think as we think of our liquidity position.
Obviously.
I think the way that we have thought about it has evolved over the last couple of years through Covid and whatnot.
But I think that.
Given.
What the next 18 months is likely going to look like for the industry, We're happy having a higher than usual level of liquidity and we think that it's one and frankly, it's one of our.
One of our real competitive advantages that we've got out there the strength of our balance sheet. The fact that should other opportunities arise that we've got the ability to to finance additional airplanes.
Given the strength of our of our balance sheet.
As you'll note, it's like our debt net of cash really hasnt budged through.
Olive Covid and I think it's I think it's frankly, one of our competitive advantages that.
That really helps.
Helps helps us.
Great. Thanks very much.
We have a follow up question from Savi <unk> with Raymond James. Please go ahead.
Hey, Thanks for the follow up here.
Kind of curious I know.
United on their call mentioned.
As you know the current situation, probably accelerating where they thought they would get to from a regional mix, which is a lot smaller I think they talked about it being maybe half the size.
Clearly still.
I think big fans of the large RJ is that you do you have.
70, <unk> hundred flying with United and I Wonder if you've had any conversations about another.
The interest on continuing with those C. R. J 200, do you expect that to kind of wind down over the next kind of couple of years here.
Yes, so I think that fleet mix and strategies are going to be very dynamic over the next couple of years and I think I would also just take two seconds to at least three reiterate what our strategy is our regional carrier is I think theres a lot of news in the world is talking about.
Less regional flying and I think it is not because of the demand for regional flying is going away because we see it being the exact opposite I think that the supplier regional flying is going to be a constraint and that's why we're going to be aggressive in making sure. We can fill that demand. So when it comes to <unk> 200, there's a lot of conversations.
About 200, certainly the dual class 170, fives in the larger <unk> or the priority relative to the capacity that they can carry particularly with our major partners.
C. R. J 200 fit very well within the charter operation and what we want to do flying charters.
And so look it's sort of a dynamic.
Conversation about fleet, all the way around and is going to continue to stay that way.
We have been.
More than surprised at the interest in our charter operation since we've had some more development of it and we've been more public about this last quarter.
We're surprised about pilot interest in it were surprised about.
Immunity interest in it and we're surprised also.
There is a lot of a lot of parties that want this thing to work.
Cited about it doesn't.
Doesn't mean, we're going to move all the two hundreds over but it certainly gives us an opportunity to be flexible and prioritize the dual class fleet at Skywest.
That's a good segue into my next question so kind.
And then follow up on I think Helane was asking with the 135 and starting that like what would you I mean, it seems like you have the systems in place to be able to start selling those fares and.
And our lining perhaps with the majors or how should we think about it.
Is that opportunity become feasible or when that opportunity becomes feasible how much infrastructure you have in place today that you can just leverage off versus maybe there needs to be some investment to get that operation off the ground.
Well, let me let me give you some perspective of what we're trying to do this is not.
Let's remember we're not pioneering this business model.
This is not a business model that needs to be invented.
There are other carriers today with the authority that we're seeking that are doing the exact same thing relative to scheduled charter service. There is a lot of charter operators out there that we don't need anything from the docs to do this with and when you talk about flying.
Flying charters and a $1 35 are our perspective of this is to operate it at the exact same level of safety as Skywest Airlines and to leverage all of the expertise that skywest has developed over the past 50 years and apply it to an existing business model that other people have the authority to do this with.
So from our perspective, when we talk about leveraging usually the most difficult thing when you start an airliner transition is the intellectual property that you don't have or the pilot pipeline that you don't have or the connections or the relationships that you don't have to get it up off the ground, we will knock that out of the park.
And we have all of those things in place we have very strong assets and very strong expertise. Many of our expertise is left skywest and what's coming back deeply interested in this stuff and again were amazed at the outside interest in this business model and so from our perspective.
We're not going to let this model be ever be the baseline model of what we do but it certainly is a great opportunity for us to capitalize on some assets in some expertise that we have so from a timeline perspective, I think Wade basically said that we expect in <unk>.
Q4 will do some chartering.
On demand charter operations like I said employee interest in this is a very very high and we will continue to work with the Dod to get the other authorities that we're looking for to continue to develop this business model.
And just a follow up this is probably a little bit of a dumb question in there. So if I think about.
What a great opportunity to kind of help bridge the gap for pilots.
Coming out with that 250 hour and needing to build up like how do you see kind of pilots moving theory here and into Skywest what would they be.
What kind of hours rose Kevin how will this help you address the captain supply side of things.
I would suggest savi.
95% of this relative to pilots is captive supply.
Im going to go backwards and say look there are a lot of pilots available that we see in our pipeline that have 1500 out the cap and suppliers become most intriguing to us because of the applications and the interest that we've seen from existing experienced captains in the industry and that of <unk>.
At Sky that are been at Skywest.
That wanted to participate in this in this operation so to the extent that how the pilot supply thing works with this.
I think it does help out on the capital side, because you need captains to create captains and I think that we have got a lot of work to do still to figure out exactly the flow of how pilots would work in and out of this but I would assure you of something thats important about how we run this.
This charter operation, we intend to run it just like we run the commercial side of Skywest is at one point in one operator.
Fundamentally we will have SMS system, we will have a SF systems voluntary systems, we will continue to.
I have accountability to the board.
It's important to note that over every single year Skywest Airlines.
We actually fail several hundred pilots out of our initial training courses.
And.
They have 500 hours they are very well qualified by FAA standards, but they don't meet the Skywest standard and that standard for this charter operation will be the exact same standards. So.
From our perspective this is a prime opportunity, particularly as communities are facing other forms of service.
That may replace this.
West Airlines comes out a great alternative to what I think these communities are looking for that having been said. We're also extremely excited about some of the feedback we're getting is an on demand charter operators.
Thank you.
Take a follow up question from Michael Lindenberg with Deutsche Bank.
Oh, Hey.
Just back on the charter operation I mean, I know you mentioned that a lot of parties wanted to work it would seem that first and foremost one of those parties would be the DLP given the fact that you're out there looking.
To discontinue service to 29 small cities and you got nine takers, but you still have 20 small cities and then.
A lot of other major carriers with their regional partners also pulling down small city service as well. So we're looking at lots of airports that could be losing service.
Did I see it the same way number one number two the charter operation as envisioned.
Are you looking to go back into some of those.
Other cities that you are pulling out of.
That you would backfill with this charter operation.
Yes, Michael I can't speak for the <unk> I can just tell you what's out there within the marketplace and.
The nine that we are coming out of there are some that are this exact same model with a different carrier and the same authority going back in so from our perspective.
I don't know that you ever get an opinion, particularly from a government agency.
Data points favorable I would say secondly, yes, I mean secondarily.
We're not too concerned about what you could look at from an upside from the charter operation yet because we've got so much work to just get the first 10 to 20 aircraft up and going and seeing how that works, but there certainly can be some opportunities, but that having been said I will be I will be candid.
<unk> hundred with 56 is still a lot better than a series a 230 <unk>. So the priority is still going to be making.
Making sure that Skywest airlines is maximizing their capacity and doing what we can in these communities that can.
Withstand an economically support of 50 <unk> as we continue to work through the crew imbalance issue.
No. It just it seems like from a policy perspective that this is that this is a good solution.
Just read your filing and you look at all the.
Exhibits that or frame chambers of commerce is an mayors in various cities that are going to lose all service and that have lost service and that are out there pushing for this and you start looking at.
The number of.
Americans, who are potentially going to lose regional service. There's a lot of people. It's a lot of voters, maybe 50 60 I saw a number that I think it was 70 million people are at risk of losing a good portion or all of their air service. So this seems like a no brainer, but whatever.
Im just a pioneer well.
And Michael the other thing from our perspective and there is some resistance to this ironically the other thing from our perspective, either you may lose service.
You may in the very slim chance gift service from another operator that is seeking the same authority that we are or you may end up with service and a nine C single engine turboprop.
And in a completely different set.
Set of rules and we would ever consider in their service so from our perspective.
From our perspective, I think that where we are in a good position relative to what our application processes. Okay great.
Well thanks, Thanks for answering all the questions.
And that does conclude today's question and answer session I would like to turn the call over to chip Childs for closing remarks.
Thank you all again for joining us on the call today. We appreciate your interest in Skywest look I mean in conclusion, we want to reiterate there is a tremendous need for regional product in small and midsize and understand underserved communities reliable quality Air service is unquestionable positive economic impact for any community in <unk>.
We're focused on ensuring we're strategically positioned to respond to all of that demand with significant available scope and incredibly strong demand. We're bullish on the long term future of Skywest also as we celebrate 50 years I want to again congratulate and thank our people for their work and great continued support and flexibility.
With that we'll cut we will end the call and reconnect with you next quarter. Thank you.
And that does conclude todays presentation. Thank you for your participation you may now disconnect.
Okay.
[music].
Okay.
[music].
Yes.
[music].
Okay.
[music].
Yes.
Thank you.
[music].
Okay.
[music].
Yes.
Okay.
[music].
Yes.