Q2 2023 SkyWest Inc Earnings Call
Okay.
Hello, and welcome to the Skywest incorporated second quarter 2023 results calls all language has been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad. If you would like to withdraw your question again press Star one now.
Ill turn the conference over to Rob Simmons Chief Financial Officer. Please go ahead.
Thanks to everyone for joining us on the call today.
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 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 and.
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, whether as a result of new information future events or otherwise.
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 2022 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 and thank you for joining us on the call again today.
Today's Skywest reported net income of 15 million or <unk> 35 per diluted share reflected in those results were $60 million of deferred revenue.
Way through 2023, we're making strong progress on all of our strategic objectives, including one enhancing our partnerships and ensuring we continue to deliver on our partners' needs to effectively and efficiently utilize our industry, leading flexible fleet.
Three maintaining a healthy strong balance sheet and four continuing to ensure that we take care of our people and create value for our shareholders. We are pleased to exceed all of our internal all of these internal targets for the first couple of quarters in a row now.
The second quarter was the first full quarter, reflecting our updated partner contracts, helping to offset our new pilot costs.
We appreciate the confidence that each of our partners have in our product and their continued support of our efforts in the new environment, we remain committed to working with them to evolve adapt and provides strong solutions to their needs.
During the second quarter, we purchased three 3 million shares for 94 million under our previously communicated share repurchase plan and have acquired 17% of total shares outstanding year to date.
Captain availability remains an industry wide constrained and we're making good headway. We also continue to work with our pilot group to ensure skywest remains a career destination and not just a stepping stone for exceptional pilots we are prioritizing upgrades.
While prioritizing upgrades, we continue to fill new higher pilot classes. Additionally, captain attrition has continued to stabilize although we've seen a slight increase in first officer attrition overall attrition was slightly lower than planned for the quarter. These improved metrics continued to improve our outlook on block hours for 2023 or two or now.
Expected to be about 11% lower than 2022.
It will take some time over the next couple of years to regain our crew balance and restore production and full utilization of our fleet.
I would remind you that as we do so our ability to restore even a portion of production becomes accretive with our existing fleet mix, our existing fleet can accommodate large future growth without additional capex spend.
We invested heavily in our people over the past year and continue to believe it is our most important investment.
To that end Skywest became the only regional and second airline ever to implement flight attendant boarding pay during the second quarter. This is in addition.
And the last year's pay increases we're fortunate to have positive working relationship with our labor Representatives.
That enables us to move quickly on behalf of our teams. This unique relationship continues to benefit our people and helps us consistently deliver an outstanding product.
Constant strong operating performance is a key differentiator for Skywest and we remain disciplined in ensuring we deliver on our commitments. Our teams began the second quarter by ranking number one in the department of Transportation's on time performance list for April and producing over 99, 9% adjusted completion for the quarter.
I also want to mention that so far this year Skywest has recorded over a 160 days of 100% controllable completion. This feed does not happen without extensive planning and resource allocation to manage through challenges. Our people continued to do a tremendous job as we go.
Adapt and lead the industry I don't want to thank them for their commitment to reliability and great service.
Skywest charter or Swc has continued to successfully complete on demand charter flying as we await the dot's approval of a commuter authority. It is unclear to US why this approval has taken longer than similar applications. However, we are committed to seeing this application through to completion.
WC has completed all requirements necessary to provide what is already available to numerous operators within the existing regulations and well established precedent.
Additionally, we've committed that Swc will enhance safety in the part 135 space by hiring ATP pilots in both seats active flight dispatching advanced qualification program training SMS.
Our 117 rest rules and many more enhancements to part 135 requirements, even above what is being done at some 121 carriers, particularly low cost carriers.
We are committed to doing the right thing regardless of what is required.
Small airports have suffered with the loss of connectivity in recent years and we continue to believe Swc is the best possible answer for small community Air service, while Swc will be a small portion of our overall business. We look forward to continuing to raise the bar for the national aerospace and utilize existing assets to deliver <unk>.
<unk> service and small in underserved communities.
Overall demand for all of our flying remains exceptionally strong as we deliver on our business fundamentals, we remain laser focused on executing reliably for the long game and ensuring we are best positioned to respond to opportunities, we're putting solid components in place and have set ourselves up to be a fundamentally better.
By focusing on the core areas of our business that will set us up for growth in 2024 and beyond and ensure we have a solid sustainable future.
Rob will now take us through the financial data.
Today, we reported our second quarter GAAP net profit of $15 million or <unk> 35 earnings per share Q2 pre tax income was $18 million, our weighted average share count for Q2 was $44 $2 million and our effective tax rate was 13.
Percent.
First let's talk about revenue total Q2 revenue of $726 million is up 5% sequentially from Q1 and down 9% from Q2 2022.
Q2 revenue breaks down with contract revenue up 5% from Q1 and down 9% from Q2 'twenty two.
Pro rate revenue was $82 million in Q2 up 6% from Q1 and down 13% from Q2 2022.
Our leasing and other revenue was down $3 million sequentially and flat year over year.
These GAAP results include the effect of $60 million of revenue deferred this quarter compared to $63 million deferred in Q1 and 16.
$16 million that was released in Q2 2022.
As of the end of Q2, we have $248 million of cumulative deferred revenue that will be recognized in future periods as indicated last quarter, we expect to defer revenue of approximately $60 million per quarter in Q3 and Q4.
We anticipate we will begin to recognize previously deferred revenue in Q1 2024 and beyond.
Let me move to the balance sheet, we ended the quarter with cash of 862 million.
Down $74 million from $936 million last quarter, the $74 million reduction in cash this quarter includes the accretive actions.
Number one repaying $114 million in debt and number two buying back three 3 million shares of Skywest stock in the open market for $94 million at an average price of $28 per share.
During the first half of 2023, we repurchased eight 4 million shares or approximately 17% of the outstanding shares of the company for $194 million at an average price of $23 per share.
Our capex during the second quarter was $31 million. We ended Q2 with debt of $3 2 billion down from $3 4 billion as of year end 2022.
These cash related numbers tell an important story about the quarter that we continue to generate positive free cash flow from operations. Despite production constraints are positive free cash flow also benefits from a lower investment in capex than in prior years, we also.
To have well over $1 billion of Unpledged collateral that could be deployed for additional liquidity if ever needed our strong balance sheet and strong liquidity continue to be powerful tools to create shareholder value tools that have helped us repay over 200 million.
And debt and repurchased nearly $200 million in stock just in the first half of 2023.
Consistent with our policy and practice, we are not giving any specific EPS guidance at this time, but let me give you a little color.
We now anticipate achieving GAAP income both in the second half and for the full 2023 year driven by improved production forecast, resulting from favorable attrition trends. We're pleased several elements of our model have improved in the last 90 days we.
Expect Q3 pretax income to be flat to up from the Q2 results announced today and we would expect Q4 to be seasonally down from Q3 as usual.
Our outlook for block hour production that we expected last quarter to be down 14% in 2023 from 2022 has improved which Wade will discuss in a minute. We now expect block hours to be down approximately 11% for 2023 based on.
Being captain attrition metrics.
As I mentioned earlier strong cash flow enabled us to buy back $8 4 million shares or approximately 17% of the company's outstanding stock for $194 million during the first half of 2023 under our repurchase plan.
This is an important data point as analysts rebuild their EPS targets for the second half of 2023 and 2024 total shares outstanding as of June 30 were $42 4 million down from $56 million at year end as of June 30.
We had $186 million available under our current repurchase authorization.
There are four points I would like to call out regarding our return on invested capital trajectory number one.
The fleet in place today can accommodate 20% to 35% future growth in block hours without incremental capital investment Wade will give more quantification around this in a minute.
Number two the 17% reduction in shares outstanding in the first half of the year will set the stage nicely for EPS growth as we expect to generate GAAP profitability in the second half and full year of 2023 and beyond.
We expect capex to be down over $300 million year over year in 2023 compared to 2022.
In this year's Capex reduction along with our improving production outlook, although still negative year over year could drive the best free cash flow in 2023 that we have had in the last five years.
We believe that our strong cash position and the actions we are taking now to prepare the way over the next couple of years for incremental utilization of our fleet to work through the pilot shortage affecting the industry and to preserve the optionality of monetizing strong demand opportunities.
Time will position us well to drive total shareholder returns Wade thank.
Thank you, Rob I'll provide a fleet and production status update as well as an update on our charter and pro rate businesses as discussed last quarter. We are nearing completion of our strong delivery schedule. We have four remaining <unk> hundred 70 fives on order, we anticipate taking two of those in the fall.
Quarter of this year.
I ask you $1 75 in 2025.
We also returned one partner owned aircraft to that partner during the second quarter. This will bring our E 175 fleet total to 239 aircrafts as.
As we previously discussed we worked with each of our main line partners to address the increased pilot pay agreement ratified last year. The second quarter was the first complete quarter to include the full impact of all partner reimbursements. We appreciate all of our partner support and continued confidence in our.
With this additional cost reimbursement.
Let me review our production the second quarter block hours increased by approximately 2% as compared to the first quarter of 2023 based on the current schedules we have from our major partners.
For Q3, we anticipate that our block hours will increase by approximately 2% in the third quarter as compared to the second quarter, we have seen a positive trend in our captain attrition with the captain attrition lower than planned we anticipate that our 2023 block hours will be <unk>.
111% as compared to 2022, which is an improvement from the down 14%, we communicated last quarter as we look into 2024 and beyond we can add approximately 20% more block hours to our E. RJ fleet without any additional aircraft the same number.
<unk> has over 35% for our CR J fleet and makes each additional block hour very accretive to the model given our conversations with our partners. We are very engaged in supporting our efforts to restore production.
Let me give a brief update about the status of Swc, our new charter business. During March we completed all proving runs and received all the approvals necessary from the FAA to operate as an airline during April April we operated our first on demand revenue charter.
Right.
We are pleased with the progress of our on demand charter business and look forward to the fall when the sports charter demand increases substantially. However, we still have not received commuter authority from the Dod.
The commuter authority application is meant to demonstrate the fitness of the carrier in terms of financial managerial and operational matters. Among other things. We believe swc is a well capitalized entity and has some of the best operational leaders in the industry. We have provided the data with all the.
The information they requested and are still waiting for them to approve an issue. The commuter authority once granted commuter authority swc will be able to better serve small communities regardless of the status of our commuter application. We are moving forward with our plans for Swc do operate on demand charters.
As far as our prorate business. The demand remains extremely strong just like the rest of the industry. We have seen very strong yields and great community support we will continue to work with the communities on the best way to continue our surface.
We have spent the last several years, reducing risk and enhancing fleet and financing flexibility to ensure we're well positioned this flexibility 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 to the continued exceptional demand for our.
<unk>.
Okay, operator, we're now ready for the Q&A.
Thank you if you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue simply press Star One again, one moment for your first question.
And your first question comes from the line of Duane <unk> Evercore ISI. Please go ahead.
Okay.
Dwayne perhaps your line is on mute.
Duane are you there.
Yes.
Move on to the next question. Your next question comes from the line of Savi sites.
Raymond James Please go ahead.
Thanks Pete.
Good afternoon, everyone.
The point about and congratulations on the results here.
I was kind of curious on the on the point about kind of being able to increase your block hours.
25% to 30% without incremental investment I'm curious if you can share a little bit more about do you have the pilots.
Needed to kind of get to that level of increase or like how long would it take.
To get that increase into into your block hours and what kind of is there any can opex cost of investments that need to be made as we try to figure out what your once you're at full utilization you know what your cost of a block of it might look like.
Yes, Savi. This is chip Thats a great question. We appreciate it I think from our perspective, I mentioned, a little bit of it in the script.
We have a lot of underutilization within our fleet today, and we do need pilots to get the utilization back up as I mentioned in the script. We believe that this is going to take place over.
At least an 18% to two year 18 months to two year period.
I think we've also indicated we're gaining some optimism about what's going on with the trajectory of <unk>.
Rates of attrition. So look we're hopeful I would also add we're we are keeping a very close eye on what's going to happen. This fall.
But as we've seen some trends compared to the previous years in 18 months.
Look we're gaining an optimism that even that it's going to take a while to produce captains.
We think we've got a good stable base, we've got some good things in place to make sure that we maximize what we can do relative to the fleet, but it's going to take a couple of years still to get to that pre pandemic very high utilization among our fleet, which has even increased.
Since 2019 as well so look we're hopeful but we still have to continue to be patient and hope that some of the rates and trajectory turnaround as well.
Is it so maybe without asking is kind of a specific possible I'll cover is at that.
Given where you're at you should be able to get it once you're at full utilization you should be able to get a disconnect similar pre tax margin is 19 is that right or.
We'd have to see what it looks like because it's going to it takes a little bit of investment to get there, but we're optimistic that we would be back to the pre pandemic.
Demick margins by the time, we get to actually fully utilized.
Thank you. Your next question comes from the line of Helena Becker of Cowen. Please go ahead.
Thanks, very much operator, hi, everybody and thank you for the time here.
So just.
Point of clarification.
Are you.
On the share repurchase program and what you have left are you thinking of getting that whole program done. This year. Then is that how we should think about that.
Hi, Helane, it's Rob here so.
The $185 million or $186 million that we've got left on the current program.
<unk> does not have a specific timeframe for.
Executing it so.
We intend to be.
On what opportunistic about this so but no timeframe, but again as in.
Many years in the past as we've as we've demonstrated.
Typically when we get aboard program proved it's executed.
Okay. That's very helpful. Thanks, Rob and then just for my follow up question unrelated.
Maybe even a follow up to <unk> have you guys looked at.
What happens if the pilot retirement age is successfully raised 265% to 67 in terms of the number of pilots who.
Who avoid.
Avoid retirement.
And what that does to the ability.
To continue to.
Get those captains.
In the left and then B. The other part of the question is on the charter.
Smith.
It.
Is there a political element to the D O T not giving you the approval do you think.
Well again.
Again Helane this is chip I'll address both of the issues.
No.
I think.
To your first point, we've evaluated the age 65 rule.
Several different factors and to us in our situation with charter in Skywest.
Airlines and what our major partners are hiring were largely neutral on what the data is showing that there are some special interest groups that are talking about the biggest concern about it is the fact that it does some things internationally with seniority of the wait list, which complicates it from the major carrier perspective from our perspective, we're in favor of.
From a from a pure perspective should someone older than 65 fly an airplane, but you have to understand we're coming from the point of view, where we probably have one of the best pilot training.
Training and monitoring programs in the entire world So from our perspective.
We have our own bars, you have to me we have our own programs that monitor all of these things. We don't believe a birth certificate is necessarily the key element that's going to make somebody is safe pilot or not just like we're not sure that 500 hours is going to do the same thing we believe in the programs and the safety programs and the training programs that are going to find out.
How how good and how safe pilot.
We there's a lot of 500 young 500, our pilots to do not cut the bar every month here at Skywest and so from our perspective.
It's our view that we are quite candidly.
Lee supportive of because of the confidence we have in our training and monitoring monitoring program.
But I think net net it's largely we think it would be good for skywest on the charter side do we think that it's political.
I would suspect it is fundamentally do believe that the department of transportation has a very strong internal priority and they want to sell.
All of this solution with small community service so from that perspective.
US and the Doc are absolutely perfectly aligned in what that overall objective is that there is no doubt that.
There's a lot of special interest group that don't want us in this space.
Our objective here is as Wayne said the on demand charter business is doing really well we are flying a lot of wealthy individuals as well as sport teams around right now and it's not what we necessarily want to put our priority is at 50.
<unk> 50, plus years ago, Skywest was build on small community service, we fundamentally have a passion for that and that's why we're going to do and continue to pursue what we.
We need to.
Relative to charter. So I think generally were aligned there is obviously probably our biggest problem is that we're probably the most qualified applicant in this process the dot's ever seen from a capital perspective, a safety perspective and an operating.
Reliability perspective, so we thought that it would be easy but.
It's definitely higher than what we thought it would be but we're going to continue.
Okay. Thank you very much.
Your next question comes from the line of Michael Lindenberg of Deutsche Bank. Please go ahead.
Yeah, Hey, good afternoon, everyone.
Nice results.
A couple quick ones here.
Block hours going from down 14 to down 11, just remind us at the start of the year data Scott. We're looking at what I think it was minus 19 does that is that.
We're starting client lines and Thats, we're at minus 11 now.
Yes, Michael this is Wade, yes, youre right on it was it was 19 and we have seen as we said in our scripted it.
We've had some positive trends in our in our captain attrition, we've been able to benefit from that so.
Okay, and then wait on the attrition front I think I did hear you say that first officer Tricia went up and maybe it was typically said that im curious whats the dynamic there on first first officers calling out.
Yes, I think Michael I think as we.
We go through this pilot shortage process now and we can talk about pilot shortage. It is absolutely real otherwise our results would be higher than what it is today, which we live.
To the extent that we go through this journey that we started post pandemic as time goes on the demand for pilot sort of change there I don't think theres any doubt we're trying to do with captains at Skywest is.
Certainly motivating them to stay and as that happens and I think that the recruiters have the low cost carriers and others have to go down.
Down a little bit further from our seniority list and we are seeing some things hit from a first officer perspective now from our perspective that it's very easy to replace a first officer at Skywest.
Our honestly, our cadet program and our long term classes can be full for several several months based on the candidates we see out there.
Don't like as much churn as what we have and so look we're doing some things internally and with.
Some various programs with our partners to make sure that we have people that are going to be willing to stay here longer.
Their eventual.
Objective is to go to our major partner, which by the way that that will be our long term objective for both captains and first officers is to make sure that we have programs aligned with going from directly from skywest directly to our major carrier and then.
Admittedly, it's taken us some time, but I think theres going to be some very cool things come out here in the next in the next month or two so it's just it's a journey and I think the fact that first officers are a part of the thing that we see an up tick it does give us confidence that we're at least on the right pathway. Although we're not done making sure we're retaining the captains and in a better fashion than we want because we are very very <unk>.
And that.
Great.
And just if I could sneak in a quick tax question for Rob I heard the effective tax rate of 13%.
How should we think about that for the rest of the year, Rob When you gave us the earnings guidance for the next two quarters Youre referencing a pretax number right not not after tax on EPS Youre looking at pre tax just to just to clarify. Thank you. Thanks for taking my questions sure.
Yes, Michael the comment on next year is that we expect to be GAAP profitable in the second half and for the full year, so that would be pre tax and EPS.
<unk>.
Both and then on the tax question.
As you know when your when your numbers.
Go from negative to positive during a year.
That's a little funky with tax rate so the tax rate for the second quarter was 13%.
Which is obviously a little below what a normalized rate would look like we expect that Q3 will also be unusually low and then Q4 will pop back up.
And then 'twenty four 'twenty five we think that will start to get back to a more normalized tax rate, but but for now.
13%.
A little lower than expected, but that said that's why some of the volatility there.
Thank you. Your next question comes from the line of Catherine O'brien of Goldman Sachs. Please go ahead.
Hey, good afternoon, gentlemen, thanks for getting me on.
So maybe just first a follow up.
Question on upside to block hours.
Full utilization on their DRG, he heard Jay and CRD fleets.
All of those aircraft are you talking about multipart Linzo forgive me in advance, but her all of those aircraft currently on contract one.
And then two I know you remove some of the minimum block our language in your in your contract.
But obviously the industry is short capacity I'm guessing your partners your line of flex up as much as you can.
I guess do you agree on that and then and then sorry.
If your staffing issues resolved tomorrow.
Would we see the RJ fleet start flying 20% more in.
The CR JCR fund, 35% more or are there. Some other things that go into the equation that we need to solve that Daphne. Thanks, so much.
Yes, so just.
I'll tackle a couple of these questions. So the first one was.
Just on the fleet itself or are all of those airplanes currently under contract and I'll answer it a couple of different ways right. The RJ fleet, yes, 100% of those airplanes are under contract. The C. RJ fleet. There are some <unk> two hundreds that we have had.
Had that are no longer under contract and are parked in the desert and would require some some some maintenance on and so as far as bringing up the fleet to two full utilization what I will say on that is the RJ fleet all of them are flying today, they're all being maintained today and so.
To get to that level of utilization if we have the pilots available yes, those can be flexed up very quickly.
And staff there would be no maintenance constraints on the <unk> side, we would we would need to definitely spool up some of our MRO capacity to get all of the benefit of that <unk> utilization, but the RJ would be ready ready to go as soon as we have the pilots to staff that so chip.
Yes.
This is chip just on your on your third point, there about if our attrition.
Sort of solved itself, how fast do you get back to those pre pandemic utilization I would say it depends on what your definition of salt is.
Had a fair amount of attrition back pre pandemic.
Are accustomed to.
If it got back down to those levels.
Still as we've talked about the last couple of years in a deep hole.
I don't think that were.
Not serious about some of the communication, we've put out there about small communities that we've had to get out of it because the situation is real.
And it is going to take us some effort to get out of but if our attrition went to zero.
Very optimistic at which the speed that we can get the utilization back up but we continue to evaluate what's the fall looks like we continue to evaluate what the holiday season in the middle.
Parse between those look like so that we can give some better projections for 2024 and beyond but.
I think that we're relatively conservative about our view about this and we're going to continue to be that way until we start to see some really good data further out on the horizon, but were still look we're still optimistic and theirs and I think to your point. In your question is is there is a tremendous amount of capital investment free upside in our business.
Model relative to the pilot recovery process that we're going to have over the next couple of years.
Thanks, a lot of sense. Thanks, so much and then maybe just beyond listen we saw an 18 to 24 months as you said a upside from just utilization so I do not want to underplay that.
But longer term as we look forward maybe over the next.
Three to five years, what do you think are the main buckets of earnings growth from that point on.
<unk>.
Is it adding that aircraft is it the impact of your charter in leasing businesses are there more accretive opportunities to buy aircraft off lease.
And I guess I'm speaking about.
Net income versus EPS, which obviously could continue to see upside from.
Share purchases. Thanks, so much.
Yes, that's a great question, because I think that the answer to what Youre looking for for the opportunities beyond. The next two years is still continued all of the all of the above of what we've been doing the last seven years, there's no doubt there's some things we need to do with share shareholders in number of shares that we have.
We are likely to continue to do those programs.
Based on the fact that we have invested so much in the model and our people and in our partners even post high utilization I can tell you we are very optimistic.
Once we get a further good string of supply of pilots that all the things that we've done in the past seven 810 years are going to continue to have even greater opportunities in the future and I hope that doesn't sound too optimistic but.
From our perspective, I think that we've done some things right through the pandemic and since the pandemic. We've made all the investments in all the right things and again as we say we play the long game. So we're actually playing the long game beyond the next two years and we're optimistic about what both charter and Skywest Airlines can do with these four amazing.
Partners with the best aviation professionals in the World. So look we're pretty optimistic over the long long game as well.
Thank you. Your next question comes from the line of saw the size of Raymond James. Please go ahead.
Hey, thanks for the follow up.
Just curious.
Called out your operational performance, which has been really stellar at if I look at it.
Partially this benefit on geography, and not having as much more exposure to the northeast, but if I look at some of your competitors they aren't doing as well on that is there something that's kind of different other than geography, that's driving skywest to kind of perform that much better and are you seeing that in your conversations with <unk>.
Partners, and maybe perhaps a willingness to.
Could you kind of give more responsibility or kind of opportunity is as things recover that to take him offline.
Yeah, I think Savi first and foremost I'm going to I'm going to I'm going to challenge your geography question a little bit.
We talk a lot about the north the northeast corridor, and I get all of that stuff.
We still have four partners spread out all over the United States.
And we are always impacted by something.
At least at one or two places every single day and holding four separate partners together as far as we're spread out as a fee as opposed to just playing in the in the northeast corridor and I get all of those elements that having been said I'll be very deliberate in my.
My answer to that we've learned the hard lessons over the last four or five years relative to capacity and investment and I know a lot of others have learned them this year, but I think.
We pride ourselves on agility, we pride ourselves on creativity and execution and I will tell you that the investments that we've made.
<unk> all been centered around making sure that we take care of our people on our people want us to be an outstanding performer, we only recruit people that want to perform we only.
On a higher folks that want to perform in that take pride in the fact that we invest in the right systems and look we benchmark ourselves not against other regional carriers are low cost carriers, we benchmark ourselves and our investments in our programs in it.
And everything against the major carriers like our partners the best carriers in the world United in.
Delta and Alaska, and American debt, that's our benchmark and we still want to even exceed them because we have the challenge of dealing with all four of them from a dispatch perspective, when they're having the same storms that we are so for us to be where we are I think is I will admit probably the biggest windfall is we do have a lot of assets that are in.
Not utilized as hard as they could be.
And as we get our utilization back up I think thats going to be a challenging because we truly have a lot of airplanes that hasn't been said I think we've become a lot more sophisticated about the partners that we work with from a vendor perspective.
I think our culture has gotten a lot better over the last two to three years and I just can't say enough for the engagement on our team I mean, our team is absolutely second to none.
I'll put them up against anybody, particularly when there is a challenge from senior.
Senior management to mid level management to the frontline employees.
The only thing I can say is that they are among the best in the world and they continue to deliver so that's our secret right there and it's probably not as eloquent as you want but it's pretty straightforward.
Thank you we have a follow up question from the line of Michael Lindenberg of Deutsche Bank. Please go ahead.
Yes, just a quick one team.
On demand charter business, which I know has not been running up up and running for several months now what are we talking about sort of the magnitude wise its contribution to top line.
You can see $20 million annual business that I'm, just trying to get a feel from a modeling perspective. Thanks.
Yes.
Yes. Michael This is this is Wade as you said this business is just getting up and going and we're.
We're filling the.
We're testing the demand right now and so we are we're definitely seeing that the fall and winter and spring are definitely busy season dry it and so we are we're staffing up for those those times were working towards those so we really we're still exploring what that's all going to be right now we have.
Got airplanes ready, we've got pilots flight attendants ready to go so as far as the topline number at this at this moment I think we're going to hold off on giving any of that kind of stuff, we need to test and see what the demands are but.
Preliminary indications is that it's going to be strong and thats going to be good. So we're excited about that and we'll see we'll see see where it goes this fall. So yes. Michael This is chip I would only add I think that's a good answer from way, but I don't I would only add that this year, it's not likely to make money because we are so heavy on on cruise I mean, we're stacked with <unk>.
Highlights in this entity right now we have almost 100 honored pilots in there and there's not enough flying for those almost 100 pilots and we have a very strong cadre of pilots that wants to be a part of this this organization. So.
Financially its not terrific right now we think that it will be.
As soon as we get some things in place with the Dot's, but but.
The commitments and everything that we've made the communities and what we're trying to do we're investing in it now it's not like we're going to invest in it later so.
Okay.
Thank you we have a follow up question from the line of Catherine O'brien of Goldman Sachs. Please go ahead.
Hey, Thanks, So let me back on here.
So maybe just digging into the demand from your partners a bit more can you just walk us through what percentage of your fleet is coming up to the end of its contract term over the next couple of years and how conversations on extensions are going and then.
A lot to tackle as we already covered.
Getting back to full utilization, but from beyond there.
Are your partners talking about adding net aircraft at skywest over the coming years is that a function of regional growth there or is that share shift.
Multi part question again for me I really appreciate the color. Thanks.
Yes, as far as the demand in the fleet renewals in the in the Q, we do give a little bit of information about when some of our.
Contracts expire we have a handful of airplanes that are expiring at the end of this year. We have some next year in 'twenty four but are 170 fives.
The backbone of what we do right now we signed up for 12 year contract. The first explorations aren't for several more years on those and so those are out there as far as the conversations go about renewals theyre very good all the partners are very supportive.
Renewing they want the fleet to be up they want them to be ready to go. So we are having great conversations with all of our partners about continuing to get the fleet.
Where it needs to be.
And going and so the conversations are very good with the partners. The demand is still very strong from our side.
About fleet renewals and growth.
We are always having conversations with our partners about not only.
Our current fleet about future fleet about refreshing our existing fleet. So those conversations are always ongoing and they're in their ongoing today as well so.
The partners have been great and Theyre very supportive of what we've got going on.
Thank you there are no further questions at this time I will turn the call over to chip Childs for closing remarks.
Thank you again for everybody to joining us today and we really appreciate your interest I think from the call you can understand that we feel like we've got some very good momentum in.
Some critical areas again, I want to reiterate a couple of things just briefly one is that we continue to invest in the long game of of our future and think that the things that we've been doing in the past, they're going to continue to magnify opportunities in the future.
Lastly, I want to reiterate what we've talked about on the call relative to our people and our performance.
At times, we get questions about what are your future opportunities long term short term.
I can tell you we've got just the best partners to work with and we have the most amazing group of people that are invested in the success of Skywest.
Now as much as ever and we are humbled by that opportunity and take it seriously and hope that we can do it we need to to return that value.
To all of our partners people and shareholders and with that we appreciate your interest and we will talk to you next quarter.
Thank you. This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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