Q4 2023 SkyWest Inc Earnings Call

Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the SkyWest Inc. 4th Quarter and Full Year 2023 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise.

Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Skywest, Inc. Fourth quarter and full year 2023 earnings results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. Please do so.

<unk> and answer session, if you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad I would now like to turn the conference over to Rob Simmons Chief Financial Officer. Please go ahead.

Robert J. Simmons: Thank you, Regina, and thanks everyone for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest's Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer, Wade Steel, Chief Commercial Officer, and Eric Woodward, Chief Accounting Officer. 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.

Thank you Regina and 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.

And 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.

Eric J. Woodward: Following the ship, 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 cell site analyst, Eric. Today's discussion contains forward-looking statements that represent our current beliefs, expectations, and assumptions regarding future events and are subject to risk and uncertainty. 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.

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, whether as a result of new information future events or otherwise.

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Actual results will likely vary and may vary materially from those anticipated estimated or projected for a number of reasons.

Russell A. Childs: 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. Now, I'll turn the call over to... Thank you, Rob and Eric, and good afternoon everyone. Thank you for joining us on the call again today. Today, I will recap our fourth quarter and full year 2023. Throughout the year, we executed on our business objectives to, first and foremost, take care of our people, deliver on our partner commitments, and maximize our risk as we optimize our capital deployment. Our unique model of collaborating with our people enables us to rapidly respond to both challenges and opportunities, as well as deliver the best products in the regional industry.

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 Robyn Erick and good afternoon, everyone. Thank you for joining us on the call again today.

I will recap our fourth quarter and full year 2023 throughout the year, we executed on our business objectives to first and foremost take care of our people.

To deliver on our partner commitments and to maximize our risk as we optimize our capital deployment.

Our unique model of collaborating with our people enables us to rapidly respond to both challenge and opportunity as well to deliver the best product in the regional industry.

Russell A. Childs: We believe this unique, collaborative approach not only benefits our people and our product, but it's been a fundamental part of our success for over 52 years and will continue to help the SkyWest team lead the industry forward in 2024 and beyond. I'm very proud to share that, in 2023, SkyWest teams delivered a historic 300 days of 100% adjusted completion, besting our last annual completion record by over 100 days. Safely and reliably connecting people with global access via our four major partners is the business of our product, and we're proud to do it better than anyone else in our space. This extraordinary achievement takes significant planning, preparation, and teamwork. And I want to thank our nearly 14,000 people who worked together to provide an exceptional product to 38 million passengers last year alone. Today, SkyWest reported net income of $18 million, or $0.42 per diluted share, for the fourth quarter of 2023, and four-year 2023 net income of $34 million, or $0.77 per diluted share.

We believe this unique collaborative approach not only benefits our people and our product it's been a fundamental part of our success for over 52 years and will continue to help the sky West team lead the industry forward in 2024 and beyond.

I'm very proud to share that in 2023 Skywest teams delivered a historic 300 days of 100% adjusted completion besting our last annual completion record by over 100 days.

Safely and reliably connecting people with the with global access via our four major partners is the business of our product and we're proud to do it better than anyone else in our space.

This extraordinary achievement it takes significant planning preparation and teamwork and want and I want to thank our nearly 14000 people who work together to provide an exceptional product to 38 million passengers last year alone.

Today's skywest reported net income of $18 million or <unk> 42 cents per diluted share for the fourth quarter of 2023 and full year 2023, net income of 34 million or <unk> 77.

Per diluted share overall, our partnerships are strong and demand for our product remains extremely high while 2023 has a was a little bumpy. We're pleased with the performance and our expectations for production and profit are improved since our estimates last quarter.

Russell A. Childs: Overall, our partnerships are strong, and demand for our product remains extremely high. While 2023 was a little bumpy, we're pleased with the performance, and our expectations for production and profit are higher since our estimates last quarter. As I shared last quarter, captain attrition has begun to improve, and the fourth quarter showed the lowest attrition we've experienced in two years.

As shared last quarter Captain attrition has begun to improve in the fourth quarter showed the lowest attrition we have experienced in two years with industry wide hiring also seeming to stabilize we expect continued progress in 2024.

Russell A. Childs: With industry-wide hiring also seeming to stabilize, we expect continued progress in 2024. However, as we all know, captain development takes extensive time, and it will still be years before fully restoring our crew balance and production. As I mentioned earlier, we are continually looking for ways to best take care of our people, through ongoing investment and enhanced compensation packages over the past couple of years, as well as improved opportunities for those who are looking to transition to Mainline. We recognize that pilots have more options than ever before and appreciate that they are recognizing their value proposition at SKYW. In Q4, we announced a new pilot program with United exclusively for SkyWest pilots. This program provides a clear path to United's early in their pilot career, with a conditional offer from United at 400 hours for those accepted.

As we all know Captain development takes extensive time and it will still be years to fully restore our crew balanced and production as I mentioned earlier, we are continually looking for ways to best take care of our people through ongoing investment in enhanced compensation packages over the past couple of years as well as improved opportunity.

For those who are looking to transition to mainline.

We recognize the pilots have more options than ever before and I. Appreciate that they are recognizing the value proposition at skywest.

In Q4, we announced a new pilot program with United exclusively for Skywest pilots. This program provides a clear path to United early in Sky West pilot career with a conditional offer from United at 400 hours for those accepted.

Russell A. Childs: This innovative program benefits both our pilots who want to transition to United, as well as those who want to build a successful career at SkyWest by ensuring that those in the program contribute flying through SkyWest captain requirements. Cheers Team Gears, We recently completed the acquisition of a 25% stake in Contour Airlines, a small operator in the Part 135 space, for $25 million. This minority interest state strategically positions us to further monetize our existing CRJ assets through an asset provisioning agreement and to establish another pipeline for private supply. We will continue to evaluate opportunities to smartly and accretively deploy our capital. SkyWest Charter, or SWC, has continued to successfully complete on-demand charter flying since it began operations last year.

This innovative program benefits, both our pilots who want to transition to United.

As well as those who want to build a successful career at sky west by ensuring that those in the program contribute contribute flying through Skywest captain requirements.

Shifting gears, we recently completed the acquisition of a 25% stake of contour Airlines a small operator.

In the part 135 space for $25 million.

This minority interest stake strategically positions us to further monetize our existing CRT assets through an asset provisioning agreement and to establish another pipeline for pilot supply.

We will continue to evaluate opportunities to smartly and accretively deploy our capital.

Sky West charter or Swc has continued to success successfully complete on demand charter flying since it began operations last year. We continue to believe that Swc is the best possible answer for small community Air service and.

Russell A. Childs: We continue to believe that SWC is the best possible answer for small community air service, and regardless of the status of our pending application for commuter authority at DOT, we're pleased with the strong demand for SkyWest's product and are very optimistic about its future. That said, it is and will remain a small portion of our overall business, with our primary focus remaining on our contract line and major partner relationships. As always, we remain disciplined to ensure our capital is deployed effectively and properly.

And regardless of the status of our pending application for commuter authority at D. O T. We're pleased with the strong demand for Skywest product and are very optimistic about its future.

That said it is and will remain a small small portion of our overall business with our primary focus remaining on our contract flying and major partner relationships.

As always we remain disciplined to ensure capital is deployed effectively and profitably.

Russell A. Childs: Overall, demand for each of our products remains exceptionally strong, and we remain aggressive and disciplined to advance our position at the forefront of the regional industry for our people, our partners, and our shareholders. As we deliver on our business fundamentals, we remain laser-focused on executing reliably for the long game. Looking forward, there are still headwinds, but we believe no regional entity is better positioned, and we're optimistic about the opportunities ahead. Rob will now take us through the financial data. Today we reported a fourth quarter net profit of $18 million, or $0.42 earnings per share.

Overall demand for each of our products remains exceptionally strong and we remain aggressive and disciplined to advance our position at the forefront of the regional industry for our people our partners and our shareholders as we deliver on our business fundamentals, we remain laser focused on executing reliably for the long.

Again looking forward there are still headwinds that we believe no regional entity is better positioned than we are optimistic about the opportunities ahead.

Rob will now take us through the financial data.

Today, we reported a fourth quarter GAAP net profit of $18 million or <unk> 42 cents earnings per share Q4 pre tax income was $24 million, our weighted average share count for Q4 was 41 $8 million and our effective tax rate was 28%.

Robert J. Simmons: Q4 pre-tax income was $24 million. Our weighted average share count for Q4 was $41.8 million, and our effective tax rate was 28%. First, let's talk about revenue. Total Q4 revenue of $752 million is down 2% sequentially from Q3 2023 and up 10% from Q4 2022. Q4 revenue breaks down with contract revenue down 2% from Q3 and up 8% from Q4 2022. ProRate and Charter revenue was $111 million in Q4, flat from Q3, and up 37% from Q4 2022. Leasing and other revenue was flat sequentially and down by $3 million year-over-year, reflecting a reduction in airport customer service contracts.

First let's talk about revenue total Q4 revenue of $752 million is down 2% sequentially from Q3 2023.

And up 10% from Q4 2022.

Q4 revenue breaks down with contract revenue down 2% from Q3 and up 8% from Q4 2022.

Pro rate in charter revenue was $111 million in Q4 flat from Q3 and up 37% from Q4 2022.

Leasing and other revenue was flat sequentially and down by $3 million year over year, reflecting a reduction in airport customer service contracts.

Robert J. Simmons: These GAAP results include the effect of $63 million of revenue deferred this quarter compared to $56 million deferred in Q3 and $70 million that was deferred in Q4 2022. As of the end of Q4, we have $367 million of cumulative deferred revenue that will be recognized in future periods. As indicated last quarter, we expect to recognize previously deferred revenue of roughly $5 to $10 million in Q1 and approximately $50 to $70 million in 2024. Additionally, for modeling purposes, about half of our non-operating, below-the-line other income in the fourth quarter included a non-recurring cash gain associated with the resolution of a prior-year max. Let me move to the balance sheet. We ended the quarter with cash of $835 million, up $15 million from $820 million last quarter.

These GAAP results include the effect of $63 million of revenue deferred this quarter compared to $56 million deferred in Q3 and $70 million that was deferred in Q4 2022.

As of the end of Q4, we have $367 million of cumulative deferred revenue that will be recognized in future periods.

As indicated last quarter, we expect to recognize previously deferred revenue.

Roughly $5 million to $10 million in Q1, and approximately $50 million to $70 million in 2024.

Additionally for modeling purposes about half of our non operating below the line other income in the fourth quarter included a nonrecurring cash gain associated with the resolution of a prior year matter.

Let me move to the balance sheet, we ended the quarter with cash of $835 million up $15 million from $820 million last quarter.

Robert J. Simmons: The $15 million increase in cash during the quarter included the accretive actions of, number one, repaying $116 million in debt; and, number two, buying back 1 million shares of SkyWest stock in Q4 for $45 million at an average price of $45.20 per share. During the full year of 2023, we repurchased 10.6 million shares, or approximately 21% of the outstanding shares of the company, for $289 million at an average price of $27.30 per share. And, number three, we acquired two new E-175 aircraft that were just finished. Our CapEx during the fourth quarter was $86 million.

The $15 million increase in cash during the quarter included the accretive actions number one repaying $116 million in debt.

<unk> to buying back 1 million shares of Skywest stock in Q4 for $45 million at an average price of $45 20 per share during the full year 2023, we have repurchased 10 6 million shares or approximately 21% of the outstanding shares of the <unk>.

<unk> for $289 million at an average price of $27 30 per share.

And number three acquiring two new <unk> hundred 75 aircrafts that were debt financed.

Our capex during the fourth quarter was $86 million. We ended Q4 with debt of 3 billion down from $3 4 billion as of year end 2022.

Robert J. Simmons: We ended Q4 with debt of $3 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. Our strong free cash flow also benefits from a lower investment in CapEx than in prior years. Our balance sheet and solid liquidity continue to be powerful tools to create shareholder value. Tools that have helped us repay over $400 million in debt and repurchase over 21% of our outstanding stock during 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 on 2024.

These cash related numbers tell an important story about the quarter, but we continued to generate positive free cash flow from operations. Despite production constraints, our strong free cash flow also benefits from a lower investment in capex than in prior years, our balance sheet and solve.

<unk> liquidity continue to be powerful tools to create shareholder value tools that have helped us repay over $400 million in debt and repurchased over 21% of our outstanding stock during 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 on 2024.

From last from.

Robert J. Simmons: From last quarter's color, we now expect 2024 to be even more profitable from higher expected production. This improvement versus our expectations a quarter ago is driven by Q4's pilot attrition being at the lowest level in two years. As Wade will discuss in a minute, we now anticipate our 2024 block hours to be up 3 to 5 percent over 2023, up from the expectation of flat year-over-year production a quarter ago. Our expectation for growth in block hours in 2024 is driven by improving pilot attrition, increasing utilization, and ongoing strong demand for our production from our partners. We anticipate our 2024 income tax rate will range between 25 to 27 percent.

From last quarter's color, we now expect 2024 to be even more profitable from higher expected production.

This improvement versus our expectations a quarter ago is driven by Q4 as pilot attrition being at the lowest level in two years.

As Wade will discuss in a minute, we now anticipate our 2024 block hours to be up 3% to 5% over 2023.

Up from the expectation of flat year over year production a quarter ago.

Our expectation for growth in block hours in 2024 is driven by improving pilot attrition, increasing utilization and ongoing strong demand for our production from our partners.

We anticipate our 2024 income tax rate will range between 25% to 27%.

Robert J. Simmons: As the 2023 GAAP noise from deferred revenue starts to reverse in 2024, and including the benefit from our share repurchase activity this year, we expect our 2024 GAAP EPS to again have a $6 handle where we were pre-COVID, reflecting our stronger production outlook. Our solid balance sheet, reliable cash flow from operations, and strong demand for our product provide a catalyst for improving our return on invested capital, including the following. As a result of repurchasing 10.6 million shares during 2023, we had 40.2 million shares outstanding as of December 31st, 2023. Additionally, as of December 31st, we had 91 million remaining under our current share repurchase authorization.

As the 2023 GAAP noise from deferred revenue starts to reverse in 2024 and including the benefit from our share repurchase activity. This year, we expect our 2020 for GAAP EPS.

Again have a $6 handle where we were pre COVID-19, reflecting our stronger production outlook.

Our solid balance sheet reliable cash flow from operations and strong demand for our products provide a catalyst for improving our return on invested capital including the following.

As a result of repurchasing $10 6 million shares during 2023, we had 42 million shares outstanding as of December 31, 2023.

As of December 31, we had $91 million remaining under our current share repurchase authorization, we anticipate continuing to be opportunistic in repurchasing shares going forward, although likely at a significantly slower cadence than in 2023.

Robert J. Simmons: We anticipate continuing to be opportunistic in repurchasing shares going forward, although likely at a significantly slower cadence than in 2023. In 2023, we executed on our balanced capital deployment by also repaying over $400 million in debt. Our debt net of cash continues to be lower than our pre-pandemic levels of 2019. The underutilization of the fleet in place today can accommodate 14% ERJ future block hour growth and 35% CRJ future growth in block hours. Wade will give more color around this in a minute.

Over 2023, we executed on our balanced capital deployment by also repaying over $400 million in debt our debt net of cash continues to be lower than our pre pandemic levels of 2019.

The under utilization of the fleet in place today can accommodate 14% E. R. J future block hour growth and 35% CR Jay future growth in block hours Wade will give more color around this in a minute.

Robert J. Simmons: Our capital expenditures were $252 million in 2023, including an early lease buyout on 35 CRJs earlier in the year and the acquisition of two new E175 aircraft. We anticipate our 2024 CapEx will be approximately $275-325 million, including the purchase of five new E175s in 2024. Our investment in Contour, mentioned earlier by Chip, will give us an important channel to deploy and monetize our excess CRJ-200 aircraft and engines in underserved communities. We believe that our strong tax 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 over time will position us well to Wade?

Our capital expenditures were $252 million in 2023, including an early lease buyout on 35, CR Jay's earlier in the year and the acquisition of two new <unk> hundred 75 aircraft, we anticipate our 2024 capex will be approximately.

$275 million to $325 million.

<unk> the purchase of five new <unk> hundred 70 fives in 2024.

Our investment in contour mentioned earlier by chip will give us an important channel to deploy and monetize our excess <unk> 200 aircraft and engines and underserved communities.

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 over time.

We will position us well to drive total shareholder returns Wade. Thank you Rob last quarter, we announced a flying agreement for 19, New <unk> hundred 70 fives to replace 19 <unk> seven hundreds under our United contract, we anticipate four of the E 100 <unk>.

Wade J. Steel: Thank you, Rob. Last quarter, we announced a flying agreement for 19 new E-175s to replace 19 CRJ-700s under our United contract. We anticipate four of the E-175s will be delivered in the fourth quarter of this year, seven in 2025, and eight in 2026. These 19 are in addition to the two remaining E-175s currently on order.

<unk> will be delivered in the fourth quarter of this year, seven and 2025 and eight and 2026. These 19 are in addition to the two remaining E 170 fives currently on order during the fourth quarter. We received two E 170, fives under our Delta contract.

Wade J. Steel: During the fourth quarter, we received two E-175s under our Delta contract. We expect delivery of one more in 2024 and the last one in 2025. At the end of 2026, our E-175V total will be 258, continuing to solidify SKYW as the largest Embraer operator in the world. There are still over 165 to 76 aircraft to be awarded, and we are optimistic about our chances to operate some of these scope aircraft. The debt remaining on the 19 CRJ700s will be repaid by the time they come out of contract with United.

We.

Spec delivery of one more in 2024 and the last in 2025.

At the end of 2026, our E 175 fleet total will be 258, continuing to solidify skywest as the largest embraer operator in the world. There are still over 165, two <unk> there are still over 165% to 76 seat aircraft to be.

Awarded and we are optimistic about our chances to operate some of these scope aircrafts the debt remaining on the 19th <unk> seven hundreds.

Will be repaid by the time they come out of contract with United We are working to place the seven hundreds under flying agreements and believe they will be extremely valuable to our partners as they move to replace single class 50 C product with dual class aircraft. These aircraft are some of the newest nextgen <unk> seven hundreds.

Wade J. Steel: We are working to place these 700s under flying agreements and believe they will be extremely valuable to our partners as they move to replace single-class 50C products with dual-class aircraft. These aircraft are some of the newest next-gen CRJ700s in the world. Let me review our production. The fourth quarter completed block hours were flat as compared to the third quarter of 2023.

And the World, Let me review our production the fourth quarter completed block hours were flat as compared to the third quarter of 2023 based on the current schedules. We have from our major partners for Q1, we anticipate that our first quarter block hours will be consistent with the fourth quarter with regard to staffing.

Wade J. Steel: Based on the current schedules we have from our major partners for Q1, we anticipate that our first quarter block hours will be consistent with the fourth quarter. With regard to staffing, we have seen an improving trend in our cap and attrition and anticipate that our 2024 block hours will increase by 3% to 5% as compared to 2023. I would also remind you that we can add approximately 14% more block hours to our ERJ fleets before adding any aircraft. This same number is over 35% for our CRJ fleet and makes each additional block hour attractive to the model.

We have seen an improving trend in our captain nutrition and anticipate that our 2024 block hours will increase by 3% to 5% as compared to 2023 I would also remind you that we can add approximately 14% more block hours to our E RJ fleet before adding any.

<unk> aircrafts this same numbers over 35% for our <unk> fleet and makes each additional block hour accretive to the model our partners remain very engaged in supporting our efforts to restore production.

Wade J. Steel: Our partners remain very engaged in supporting our efforts to restore production. During the quarter, we also came to an agreement with United on a pilot pathway program for SkyWest pilots. This new agreement will allow our current pilots to interview and receive a job offer with United at as early as 400 hours of flying time with SkyWest. The pilot will then transition to United once they have flown as a SkyWest captain for a certain amount of time.

During the quarter. We also came to an agreement with United on a pilot pathway program for Skywest pilots. This new agreement will allow our current pilots to interview and receive a job offer with United as early as 400 hours of flying time with Skywest. The pilot will then.

Transition to United once they have flown as a skywest captain for a certain amount of time. This new program provides enhanced career clarity for all of the Skywest pilot to join we also announced today, we acquired 25% ownership stake in contour Airlines a part $1.

Wade J. Steel: This new program provides enhanced career clarity for all of the SkyWest pilots who join. We also announced today that we acquired a 25% ownership stake in Contour Airlines, a Part 135 carrier, for $25 million. This arrangement also includes an asset provisioning agreement under which SkyWest will provide CRJ airframes and engines to Contour. This ownership stake is part of our strategy to accretively monetize our CRJ-200 assets. We have very little book value for our CRJ-200 assets and no debt, and we have approximately 5 million cycles remaining to monetize our CRJ engines through a variety of different platforms. Both SkyWest Airlines and SWC, our new charter business, will also continue to utilize our CRJ-200 assets. We continue seeing very good demand for selling and leasing these assets. For example, we sold over 15 million CRJ assets during 2023.

35 carrier for $25 million this arrangement.

Also includes an asset provisioning agreement under which Skywest will provide CR J airframes and engines to contour. This ownership stake as part of our strategy to Accretively monetize our <unk> 200 assets, we have very little book value for our <unk> 200 assets and no debt.

And we have approximately 5 million cycles remaining to monetize on our CRA engines through a variety of different platforms, both Skywest Airlines and Swc, our new charter business will also continue to utilize our <unk> hundred assets. We continue seeing very good demand for selling and leasing these.

Assets for example, we sold over $15 million of CRE assets. During 2023, let me give give a brief update about the status of Swc Swc began operating on demand revenue charter flights last April and we have been investing in training and hiring.

Wade J. Steel: Let me give a brief update about the status of SWC. SWC began operating on-demand revenue charter flights last April, and we have been investing in the training and hiring of employees since that time. We are pleased with SWC's progress, and the support charter bookings for this winter have been significantly higher than we originally anticipated. While SWC did not contribute to our Q4 earnings, we anticipate SWC will have a positive contribution to our earnings during Q1 of 2024. As far as our pro-rate business is concerned, the demand remains extremely strong, just like the rest of the industry.

Of employee since that time, we are pleased with Swc's progress and the sport charter bookings for this winter have been significantly higher than we had originally anticipated while swc did not contribute to our Q4 earnings we anticipate Swc will have a positive contribution to our.

Earnings during Q1 of 2024 as far as our pro rate business. The demand remains extremely strong just like the rest of the industry. We are seeing very strong yields and great community support we will continue to work with the communities. We serve on the best way to continue our service we feel good about our ongoing.

Operator: We are seeing very strong yields and great community support. We will continue to work with the communities we serve to find the best way to continue our service. We feel good about our ongoing efforts to reduce risk and enhance fleet and financing flexibility and remain committed to continuing our work with each of our major partners to provide creative solutions to the continued exceptional demand for our products. Okay, operator, we're ready for the Q&A with our cell site. As a reminder, to ask a question, press star 1 on your telephone keypad.

Efforts to reduce risk and enhance fleet and financing flexibility and remain committed to continuing our work with each of our major partners to provide creative solutions to the continued exceptional demand for our products.

Okay, operator, we're ready for the Q&A with our sell side.

As a reminder to ask a question press star one on your telephone keypad. Our first question will come from the line of Savi <unk> with Raymond James. Please go ahead.

Russell A. Childs: Your first question will come from the line of Salby Syth with Raymond James. Please go ahead. Hey, good afternoon.

Hey, good afternoon.

Russell A. Childs: I was wondering if you could, I know it's a smaller part of your business, but I was wondering if you could elaborate a little bit more on Southwest Charter and then how that interplays with maybe some of your pro-rate, because I know you mentioned $111 million. Does the pro-rate and Southwest Charter kind of balance each other out in the sense that it takes out the seasonality of that line item, and you know, you grew the aircraft there to $16 million? Just wondering how you're thinking about Southwest Charter as we get into 2024. Stavie, this is Chip.

I was wondering if you could.

It's a smaller part of your business, but I was wondering if you could elaborate a little bit more on southwest charter and then how that.

And it plays with maybe some of your pro rate because I know you mentioned $111 million, just prorate and southwest charter kind of balance each other out in the sense that it takes out the seasonality of that that line item then.

You agree with the aircraft there to 16, just wondering how youre thinking about self insured as you get into 2024.

Savi this is chip thanks.

Russell A. Childs: Thanks. Look, SkyWest Charter is a great entity from our perspective that has a tremendous opportunity in the future. The number one thing that SWC is doing today is largely doing on-demand charter for sports teams, which is a very surprising market. I think we talked about that last quarter.

Skywest charter is a great entity from our perspective that has a tremendous opportunity in the future.

The number one thing that Swc is doing today is largely doing on demand charter for sports teams, which is a very <unk>.

Surprising market I think we've talked about that last quarter, it's doing exceptionally well strong demand we're watching for the spring time to see what happens there.

Russell A. Childs: It's doing exceptionally well, with strong demand. We're watching for springtime to see what happens there. Again, we are limited today to just doing the on-demand charter business. There are a lot of other things that are happening besides just sports teams, but as of today, that's the primary basis of that business model.

And again, so we are limited today to just do on demand charter business Theres a lot of other things that are happening besides.

Just sports teams, but as of today, that's the primary basis of that business model, we still need.

Russell A. Childs: We still need to receive commuter authority before we can go back into some of the cities that we would like to, the smaller communities that we would like to serve. That's what our objective has been all along. There's tremendous demand from that standpoint, but we are still limited to the flying that we can do today. How does Contour fit into this?

Received commute authority before we can go back into some of the cities that we would like to the smaller communities. We would like to serve that's what our objective is all along and there is tremendous tremendous demand from that standpoint, but we still are.

Limited to the flying that we can do today.

And maybe just how does kind of contour fed into this is is contour. It. So it sounds like it's a way to put your CRE assets.

Russell A. Childs: Contour sounds like it's a way to put your CRJ assets to kind of operate there, but is there an opportunity to build pilot hours and build your captain roles as well? I'm just kind of curious as to the whole strategic relationship there. Yeah, let me maybe expand a little more than what we talked about in our opening comments. But I think I would probably say there are about four reasons why we were interested in the Contour transaction. First and foremost, it's a good financial investment that's anchored in small community demand.

And to kind of operate there, but is there kind of opportunity to build kind of pilot hours and kind of build your captain Rollins as well or just any.

Kind of curious as to kind of.

Full strategic relationship there.

Yes, let me maybe expand a little more than what we talked about.

In our opening comments.

I would probably say theres about four reasons why we were interested in the Con tour transaction first and foremost it's a good financial investment that's anchored in small community demand and we continue to say this a lot in the industry.

Russell A. Childs: And we continue to say this a lot in the industry, you know, as the United States de-urbanized during the pandemic. There's a tremendous amount of demand in these small communities, and we are very pro-small community. I mean, that's the foundation of what we started with 52 years ago, and that's only becoming more and more enhanced. So, it's a good investment in a very strong space that we really, really like. Two, you're right; it's a way to deploy unused CRJ200 aircraft and assets, engines, and the like.

As as the United States the urbanized during the pandemic there is a tremendous amount of demand in these small communities and we are very pro small community I mean, that's the foundation of what we started with 52 years ago and that is only becoming more and more enhanced so the good investment and a very strong.

Space that we really really liked.

To your right, it's a way to deploy unused <unk> J 200, aircrafts and assets engines and the like I think that that is a fantastic aircraft, particularly at that 30 seat level to really enhance the economics of small communities and the demand for that product is extremely strong today and as we deliver in that space we think.

Russell A. Childs: I think that that is a fantastic aircraft, particularly at the 30-seat level, to really enhance the economics of small communities, and the demand for that product is extremely strong today. And as we deliver in that space, we think it's only going to get stronger, just the same way that we've been doing, you know, at SWC. So, this is good for us and them. Again, the other thing is that you touched on, the expansion of supply, the pilot supply path is very, very strong here. You know, we can do some things.

It is only going to get stronger just the same way that we've been doing.

At Swc. So so this is good for us and them.

Again, the other thing is that you.

Touched on it the expansion of supply.

That supply path is very very strong here, we can do some things and we didn't really mentioned it in the opening comments, but the flight schools today are extremely full.

Russell A. Childs: We didn't really mention it in the opening comments, but the flight schools today are extremely full. So full that, given our captain's constraints, we may not be able to hire as much as there are out there or certainly as much as we feel like we should hire. But to the extent that we can, you know, expand that, particularly with this relationship with CONCOR, that's fantastic. And, lastly, it does provide some opportunity and some flexibility for us in 135 expansion down the road. You know, we can do some different things down the road with CONCOR that I think could be representative of our commitment to serve small communities in the 135 space. So, strategically, it's a great partnership. We've had these conversations with them for a while, and I think, you know, this is going to be something that works very well for both of us. That's super helpful. Just a clarification, do they have charter authority? Commuter authority?

So full that given our captain constraints, we may not be able to hire as much that's out there or certainly as much as what we feel like we should hire but to the extent that we can expand that.

Particularly with this relationship with contour that's fantastic.

And last it does provide some opportunity and some flexibility for us in 135 expansion down the road.

We can do some various things down the road with contour that I think could be rep.

A representative of our commitment to serve small communities in the 135 space. So strategic it's a great partnership.

We've had this conversation with them for a while.

And I think this is going to be something that works very well for both of us.

That's super helpful. Just a clarification do they have.

Alright charter authority centimeters already.

Russell A. Childs: Yeah, they do have commute authority, and ironically, as we've been constrained with captains and have had to come out of certain, you know, essential air service cities, they've been the ones that have gone back and replaced us along the East Coast. So, they can do some things that we can't as of today, but we're going to be very aggressive in continuing to, you know, pursue commute authority for SWC as well, even with the Concorn bus. Thank you. Your next question comes from the line of Duane Pfennigwerth with Evercore ISI. Please go ahead. Hey, thanks. Good afternoon.

Yes, they do have commute authority and Ironically is we've been constrained with captains and have had to come out of certain essential air service cities as they've been the ones that have gone back and replace this along the east coast. So they can do some things that we can as of today, but we are going to be very aggressive in continuing to.

You know pursue commute authority for Swc as well, even with the contour investment.

Thank you.

Your next question comes from the line of Duane <unk> with Evercore ISI. Please go ahead.

Hey, Thanks, good afternoon.

Just on the 14% headroom on E. R. J can you just remind us.

Wade J. Steel: Just on the 14% headroom on ERJ, can you just remind us what percent of your mix that is and, you know, how much higher you could take sort of system growth, system block hour growth, given that 14% headroom? And, relatedly, my follow-up question, like if pilot attrition continues to trend favorably, you know, how much higher could this, you know, up three to five be in 2024? Hey Duane, this is Wade.

What percent of your mix that is and you know how.

How much higher could you take sort of system growth.

System block hour growth given that 14% headroom.

And I guess Relatedly my follow up I guess pilot attrition continues to trend favorably.

How much higher could this up 3% to five b in 2024.

Hey, Duane. This is this has weighed on the 14% of the overall mix.

Wade J. Steel: Just on the 14%, the overall mix, the ERJ fleet is a bigger fleet right now than our CRJs, and those numbers are disclosed in the 10-Q. But the overall system, we said that there was 14% unused capacity on the ERJ side, and we said about 35%, so the mixed blend is over 20% that we could still increase without adding any additional aircraft. So, there's still plenty of headroom with our current fleet that we have there that's under contract, and on pilots, yeah, sure. On your second question about pilots, let me add some color to that and maybe some more colors than we've gone to in the past. We are still, you know, when we, when we, We're in pre-pandemic volume.

RJ fleet is a bigger fleet right now than our CR, Jay and those numbers are disclosed in the 10-Q, but the overall system, we said that it's 14%.

Unused capacity on the <unk> side, we said about 35%. So the mixed blend is over 20% that we could still increase without adding any additional aircraft in there. So there is still plenty of headroom with our current fleet that we have there that that's under contract.

And on the pilot, yes, sorry.

On your second question on pilots, let me, let me add some color to that and maybe some more color than we've gone through in the past.

We are still you know when we when we were in pre pandemic.

Wade J. Steel: We've had about 53 to 5400 pilots on property at SkyWest Inc., mostly SkyWest airlines, obviously. As of today, we're still about a thousand pilots short of that number. So, to get back to pre-pandemic levels, we need about 1,000 more pilots, 500 of them captains. The other 500 first officers, like I say, the schools are well-supplied, and that's not a problem.

Volumes, we've had about 53 to 5400 pilots on property at Skywest, Inc. Mostly Skywest Airlines, obviously as of today, we're still about a thousand pilots short of that number.

So to get back to pre pandemic levels, we need about 1000 more pilots 500 of them captains. The other 501st officers like I say the schools are.

Well supplied and that's not a problem and it's about the 500 cabinets. The demand that we see long term is that we probably could use another 1000 pilots on top of that so.

Wade J. Steel: It's about 500 captains. The demand that we see long-term is that we probably could use another 1,000 pilots on top of that. So, when we talk about small community service, when we talk about demand, and the conversations with our partners, to get back to the previous levels, we need another 1,000 pilots, and we think there's demand for another 1,000 pilots on top of that, of which we have taken several aircraft since 2019. So, this is a long-term plan, you know, to dig ourselves out of this hole. This is not going to take one year or two years.

When we talk about small community service when we talk about demand the conversations with our partners to get back to the previous levels, we need another 1000.

So this is a long term.

Dig ourselves out of this whole this is not going to take one year two year, it's going to take a couple of years. When we say we're optimistic about the captain.

Wade J. Steel: It's going to take a couple of years. When we say we're optimistic about the captain, you know, the supply model. I can say that we're producing captains as of today, but not as many as we want. And throughout 2024, we're going to evaluate additional programs to make sure that we're vertically integrated with our partners to, you know, try to, you know, expand that captain production even further. So I don't know if that kind of helps, you know, puts some framework around your question or not, Wayne. Yeah, no, it does.

Supply model I can say that we're producing captains as of today, but not as many as we want and throughout 2024, we're going to evaluate additional programs to make sure that we're verbally vertically integrated with our partners to.

To try to expand that Catherine production, even further so I don't know if that kind of helps.

Put some framework around your question or not Duane.

Wade J. Steel: Very helpful. Thank you. Your next question comes from the line of Mike Linenberg with Deutsche Bank. Please go ahead. Oh, hey, good afternoon.

No. It does it's very helpful. Thank you.

Your next question comes from the line of Mike Lindenberg with Deutsche Bank. Please go ahead.

Oh, Hey.

Wade J. Steel: Wade, I want to go back to, you know, you talked about, I guess, 165. 76 seat type opportunities among your partners, and I guess I want some clarification on that. Is that 165 available?

Good afternoon.

I wanted to go back to.

You talked about I guess the 165.

76 seat type opportunities.

Among I guess amongst your partners and I guess I want some some clarity clarification of that is that a 165.

Available available.

Wade J. Steel: Spots for 76-feeters, 70-feeters, 66-feeters, is it just me, or is there a lot more than that? The three, or I should say actually four, carriers that you do business with, do those include other major carriers that may be looking at bringing on a regional? Maybe you can just provide a little bit of color around that. Yeah, no, that's a great question, Mike. So first of all, just to clarify what I said in my script, there were a lot of numbers that I was saying, but it was 165 to 75 to 76-seat aircraft. So it's 100 airplanes in that scope category, right? So there are 100 airplanes that are available to be awarded between 65 and 76 seats between all of our major partners.

Spots for 76, Seaters 70, Seaters 66 theaters is it just.

The three or I should say actually four carriers that you you do business with does that include other major carriers that may be looking at bringing on a regional maybe if you can just provide a little bit of color around that statement.

Yes, no. That's a great question, Mike So first of all just to clarify what I said in my script was that a lot of numbers that I was saying, but it was 165 to <unk>.

65 to 76 seat aircraft. So it's a 100 airplanes in that scope category right. So theres 100 airplanes that are available to be awarded between 65 and 76 seats between all of our major partners and so just to add a little color. We've obviously got.

Wade J. Steel: And so just to add a little, we've obviously got our existing fleet that we have, and we have some assets that are still not under contract that fall into that category. There are obviously new airplanes out there, and there are obviously other carriers that have 76-seat or 70-seat aircraft that are not flying, right? So there are three very good buckets out there of potential opportunity to potentially get some of those 100 aircraft, right? And then, I want to go back to CONTOUR.

Our existing fleet that we have we have some assets that are still not under contract that are fall into that category.

Obviously, new airplanes out there and there's obviously other carriers that have 76 seat or 70 seat aircraft that are that are not flying right and so there is three very good buckets out there of potential opportunities to.

To potentially get some of those hundred aircraft right.

Okay, Great and then I just I want to go back to contour is that.

Robert J. Simmons: Is that, first off, I guess on Rob, is that going to be accounted for under the equity method, that 25% stake? For now, yes. Will that be a contributor to your P&O in 2024 or a detractor? Or maybe just both even?

First off I guess on Rob is that going to be accounted for under the equity method at 25% stake.

For now yes.

Well will will that be a contributor to your P&L in 2024, or a tractor or maybe just so yes. What we said is that it was not a contributor in the fourth quarter of 2023, but we would we would expected.

Robert J. Simmons: Yeah, what we said is that it was not a contributor in the fourth quarter of 2023 but that we would expect it. Sorry, I'm speaking now about our SWC operations. Yeah, I'm talking contour. We'll be... Sorry, yeah.

Sorry.

Speaker Change: I'm speaking now.

Our Swc operation I'm talking contour will be.

Robert J. Simmons: SWC will be a contributor. Contour, we've got a 25% ownership in that. We'll wait and see and get more color down the road. And how many, how big is Contour?

Sorry, Yeah, Yeah, Swc will be a contributor contour.

We've got a 25% ownership and that we'll wait and see and give more color down the road.

Okay, and then how many how big is contour how many pilots this contour have today.

Wade J. Steel: How many pilots does Contour have today? They have about 30 aircraft and somewhere around 200 pilots, somewhere in that range. And then, um, does Contour today, like other Part 135 carriers, like Silver and Cape Air, do they have interline agreements with various carriers, or do they not have any affiliation with any? Yeah, Mike, great question. So currently, as of the closing of the transaction, they have an interline agreement with American Air. And then just one last one, if I can squeeze in on this topic, because it is an interesting one. As I recall, you did have an investment in Southern Airways Express, but I now know that that's been kind of rolled into surf air. I'm not even sure if you have a residual stake there. What does this get you that maybe that couldn't get you, or maybe the structure with Surfair and Southern Airways Express wasn't a clean one, and this is a lot..., a lot easier to start kind of with a DeNovo type investment? Any color on that, and thanks for answering my question.

Yes, Mike This is wade they have about 30 aircraft and somewhere around.

200 pilot somewhere somewhere in that range. Okay. Okay. That's helpful and then.

Contour today.

Speaker Change: Other part 135 carriers like silver and Kate there do they have interline agreements with various carriers or they don't have any affiliation with anyone.

Yes, Mike Great question. So currently as of.

As of the closing of the transaction they have an interline agreement with American Airlines.

Okay, Great and then just one last one if I can squeeze in on this topic because it is an interesting one as I recall you did have an investment in southern Airways Express, but I now know that thats been kind of rolled into this sir fair I'm not even sure if you have a residual stake there.

What does this get you that maybe that could get you or maybe the structure with Sir fair in Southern Air was express wasn't a clean one and this is a lot.

A lot easier to start kind of with a de novo type investment.

Any color on that and thanks for answering my questions.

Speaker Change: Yes, so Mike I'll take the first part of that and then chip will that will tackle the last part of it so.

Russell A. Childs: Yeah, so Mike, I'll take the first part of that, and then Chip will tackle the last part of it. So as far as our investment in Southern, as part of their transaction with Cerf, we divested our ownership stake in that. So we no longer have ownership. And Michael, on the second half of that, there are some big differences between Southern and Contour, obviously. To be candid, Contour is almost exactly like SWC and what we'd like to accomplish with SWC. I mean, it's the same type of aircraft, and same type of flying.

So as far as our investment in southern as part of.

Their transaction with surf, we divested of our ownership stake in that so were no longer have ownership. So.

And Michael on the second half of that that there is some big differences between southern and contour obviously.

To be candid contour is almost exactly like swc and when we'd like to accomplish with Swc I mean, it's the same type of aircraft, yes same type of the same type of flying.

Russell A. Childs: And Southern was just a smaller aircraft, single-engine, turbo-prop, that type of stuff. So the fleet and asset connection is the number one difference, and there's a lot of strategic alignment with both of the carriers to do. And from that perspective, it seemed to work very, very well.

And southern we just just a smaller aircrafts single engine turboprop that type of stuff, so the fleet and asset.

Speaker Change: Connection is the number one difference.

And there's a lot of alignment in strategically with what both of the carriers could do and from that perspective, it seemed to work very very well.

Russell A. Childs: Great, great, thanks. Thanks for answering my question. Your next question comes from the line of Helaine Becker with TD Talon. Please go ahead.

Great great. Thanks, Thanks for taking my questions.

Yeah.

Your next question comes from the line of Helane Becker with PD Cowen. Please go ahead.

Robert J. Simmons: Thanks very much, Operator. Hi, team, and thank you for this time. How are you weighing debt repayment versus buybacks for capital?

Thanks, very much operator, hi team and thank you for this time.

How are you.

Debt repayment versus buybacks for capital allocation.

Robert J. Simmons: How should we think about that, like priorities? Yeah, thanks, Helene, and I would say that, you know, I don't see them as being mutually exclusive. You know, obviously, we're very focused on deploying capital in an optimal way, and I think, you know, we've done a pretty good job at that. But, you know, we definitely want to leave plenty of dry powder for, you know, flying opportunities that may be out there. You know, like, Wade and Chip have been talking about the, you know, 100-scope airplanes that are out there.

How should we think about that like priorities.

Yes, Thanks, Helane I would say that.

Don't see them.

As being mutually exclusive obviously, we're very focused on deploying capital in.

Speaker Change: And in an optimal way and I think we've done a pretty good job in that but we definitely want to leave plenty of dry powder for.

Speaker Change: Flying opportunities that may be out there like.

Wait and ship have been talking about.

Speaker Change: 100 scope airplanes that are out there we would love to.

Robert J. Simmons: We would love to, you know, obviously continue to grow that way, but, you know, we'll continue. We have an open forever purchase program as well, but, you know, we'll probably slow the cadence of that at the levels we're at now. But, you know, I think that, you know, we'll take things sort of a quarter at a time and, you know, look to, you know, potentially continue to do both. Okay, that's very helpful.

We continue to grow that way, but.

It will continue we have an open share repurchase program as well, but we will probably slow the cadence of that at the levels. We're at now but.

I think that we will.

We will take things sort of a quarter at a time and.

And look to potentially continue to do both.

Okay. That's very helpful. Thanks, and then my follow up questions.

Russell A. Childs: Thanks. And then my follow-up question... Um, how are you thinking about the timeline back to pre-COVID March? And I know how you're thinking about getting back to, you know, just size, roughly two thousand that Harry www.skywestincorporation.com. Yeah, thanks, Elaine. So look, I think we're not back to 2019 margins yet.

How are you thinking about the timeline back to pre Covid margins.

And I know, how youre thinking about getting back to.

The size with with the you know the roughly 2000 pilots that you would like to have.

But how are you thinking about margins or how should we think about margins.

Yes. Thanks, Helane, So look I think we're not back to 2019 margins yet.

Russell A. Childs: You know, and obviously, we're making, you know, good progress in that direction. But, you know, because of how we've deployed capital and the shares that we bought back, you know, we are there from an EPS standpoint. So even though margins are not back to, you know, 2019 levels, potentially in 2024, EPS will be. That's helpful. And then if I could just squish in one more.

And obviously, we're making good progress in that direction, but because of how we've deployed capital and the shares that we bought back we are there from an EPS standpoint, so even though margins are not back to 2019 levels.

Potentially in 2024 EPS will be.

Okay. That's helpful and then if I could just question one more.

Russell A. Childs: I don't know, and I don't even know if you would see this, but I think Alaska era..., flying for them, www.skywestinc.com The Bulletproof Executive 2013, Yeah, Helaine, this is Chip. I don't want to speak for us like business as usual. In fact, you know, certainly given some of the things that have been going on in the industry, we've been asked to fly more and that type of stuff, so it's not had a major impact relative to what our flying is. In fact, I think, you know, demand is strong, and I think when demand gets a little stronger, sometimes you don't even notice it, you know, where we are today. So that's kind of the situation with that.

I don't know and I don't even know if you would see this but I think Alaska Air and you do some flying for them has seen some book away.

Since the middle of the month and I'm just wondering if you would see any of that in your.

And the flying you do for them or if it's kind of been business as usual.

Yes, Helane this is chip.

<unk> for us it's business as usual in fact.

Certainly given some of the things have been going on in the industry. We've been asked to fly more in that type of stuff. So it has not had a major impact relative to.

What our flying is in fact I think.

Demand is strong and I think when when demand gets a little stronger sometimes you don't even notice it where we are today. So that's kind of the situation with that.

Got it that's really that's really helpful. You guys. Thank you.

Russell A. Childs: Got it. That's really helpful, you guys. Thank you. Thank you. Your next question comes from the line of Katherine O'Brien with Goldman Sachs. Please go ahead. Amy, good afternoon, everyone.

Speaker Change: Your next question comes from the line of Catherine O'brien with Goldman Sachs. Please go ahead.

Catherine O'brien: Hey, good afternoon, everyone. Thanks, so much for the time.

Wade J. Steel: Thanks so much for the time. Maybe one more on contour and the fair gaze in general. With these aircraft going to Contour, can you just remind us of how many of your CRJs are currently not on contract? I know there are some moving pieces. I just wanted to get a sense of, you know, what's not on contract now, what's about to come off, and what are the options for those to be rehomed now that you have this new Contour outing. Thanks. Yeah, Katie, this is Wade.

Contour in the CRE, Jason in general.

With these aircraft going to contour can you just remind us of how many of your CRE Jays are currently not on contract.

There are some moving pieces I'm just wondering if you get a sense of you know.

What's not on contract.

But to come off and what are the options for those to be re home value of this new contour Avenue.

Yes, Katy this is wade great questions. So on the <unk> 200 side.

Wade J. Steel: Great question. So, on the CRJ200 side, we own about 150 CRJ200s, and, you know, between pro-rate and contract, there's probably about 50 to 60 of those that are not under current contracts. But as we said, right now, there's no debt, there's very little book value, and we are monetizing those assets, as we talked about through SkyWest Carter, selling, and leasing, and so that's kind of the scope of it. Our 700s and our 900s, the vast majority of those are all under contract and have very high demand for them. Our next question is a follow-up from the line of Savi Syth with Raymond James. Please go ahead.

We own about 150 C. R. J 200, and between pro rate and contract Theres, probably about around 50 to 60 of those that are not under current contracts, but as we said.

Right now there is there is no that theres very little book value.

And we are monetizing those assets as we talked about through Sky was charter selling leasing.

And so that that's kind of the scope of it are 700 than our 900. The vast majority of those are all under contract and have very high demand for those.

Our next question is a follow up from the line of Savi side with Raymond James. Please go ahead.

Hey, Thanks, and I just wanted to follow up on your response.

The response to <unk> question that was super helpful color there.

Russell A. Childs: Hey, thanks. I just wanted to follow up on your response to Duane's question. That was super helpful, Jessica Culler, here.

Savi: I was curious.

Okay.

How many captain Alright are you able to create kind of any given year in your kind of net cabinets I suppose.

Russell A. Childs: I was curious, how many captains are you able to create in any given year, in your kind of net cap, I suppose, in your kind of main operation, and then just how much incremental is maybe SkyWest Charter helping you build as well? So it's a complicated question, and we probably have a little bit of conservatism in our answer to that, and basically today, a lot of our projections, I will say they get better all the time as we watch what's happening. We've seen that change, and I want to add some context. As we build back captains and we rebuild the operation, we're building it in a way that we don't think that this problem will go away just at this moment in the next couple of years. We fundamentally think that over the next decade or so, we need to build a model that's resilient relative to captains and first officers. As we build that back, we're doing it the right way. Back to your number. How many do you think that you can produce?

In Europe.

An operation and then just how much incremental is maybe sky with charter, helping you build as well.

So.

Speaker Change: It's a complicated question and we probably have a little bit of.

Conservatism in our answer to that and basically today a lot of our projections I will say they get better all the time as we watch what's happening.

We've seen that change and I want to add some context.

As we build back captains and we're back building back the operation We're building it in a way that we don't think that this problem goes away. Just this at this moment over the next couple of years. So we fundamentally think that over the next decade or so we need to build a model that's resilient relative to captains and first officers. Both so as we build that back.

We're doing it the right way back to your number how many do you think that you can produce.

Russell A. Childs: I'd back up and just say we have positive captain production today, but it's still going to take, at the rate we're going today, several years to get back to the 2019 level. The most important part that we probably would tag on to that is we're working very diligently with partners in creative ways in which we can produce Captain's Bashes and what we are producing today. That's the contour investment, that's the pilot program investment with United. Fundamentally and strategically, we are going to look to attract pilots that want to either have a career position here at SKYW or a career position at one of our four partners but not a career position anywhere else.

I'd add back up and just say, we have positive captain production today, but it's still going to take.

At the rate we're going today.

Several years to get back to the to the 2019 levels now.

Speaker Change: The most important part that we probably would tag onto that is we're working very diligently with partners in.

In creative ways in which we can produce captains faster than what we are what we're producing today. That's the contour investments that's the pilot in the <unk>.

Pilot program investment with United fundamentally and strategically we are going to look to attract pilots that want to be either have a career position here at skywest or career position at our four partners, but not career positions anywhere else. So we're going to continue to be far more surgical in the future.

Russell A. Childs: So we're going to continue to be far more surgical in the future than we have been in the past about identifying those that contribute to our culture and our partners' culture. So I think, you know, like I say, we're producing positives in the last couple of months, which is the first time we've been doing it in the last two and a half years, and it depends on a lot of levels of attrition. It could be captain attrition; it could even be first officer attrition right before they become captains, which honestly, Sabi, we really don't have a great grip on what those are going to be.

And then what we have been in the past about identifying those that contribute to our culture and our partners culture. So I think like I say, we're producing positive. The last couple of months, which is the first time, we've been doing it in the last two and a half years.

And it depends on a lot of levels of attrition it can be captain attrition that could even be first officer attrition right before they become captains, which honestly savi, we really don't have a great grip on what those are going to be the models are a little bit all over the place. So we can get super optimistic and we can be super Conservative, we're just not ready to get into that.

Russell A. Childs: The models are a little bit all over the place. We can be super optimistic, and we can be super conservative. We're just not ready to get into that level of detail now. I'll try to summarize. It's going to take a long time, but we're really focused on ways in which we can aggressively move this forward, not just for shareholders, but our people want this as well. We want high utilization for our employees, which obviously translates to the bottom line, but most importantly, it creates a lifestyle where captains are going to want to stay as well. So it's a cultural event as well that we're deeply focused on.

Level of detail now outside just summarized.

We have positive production today, it's going to take a long time, but we're really focused on ways in which we can.

Aggressively move this forward not just for shareholders, but look our people want this as well we want high utilization for our employees.

And which obviously translates to the bottom line, but most importantly, it creates a lifestyle where captains are going to want to stay as well. So it's a cultural event as well that we're deeply focused on.

Russell A. Childs: That's helpful, thank you. Our next question is a follow-up from Catherine O'Brien with Goldman Sachs. Please go ahead. Hi again, sorry about that. Rookie mistake; I hit the headset off instead of unmute.

That's helpful. Thank you.

Our next question is a follow up from Catherine O'brien with Goldman Sachs. Please go ahead.

Hi, again, sorry about that rookie mistake hit AR headset off instead of on mute.

Wade J. Steel: So thanks, thanks for getting back on. I had a follow-up for you, Wade. When you were talking about it, it just sparked my interest. On Contour, are you going to be leasing the aircraft or selling them outright? No, that's a great question.

So these are going to be back on I have a follow up for you right.

When you were talking about just like sparked my interest on contour or you're going to be leasing the aircraft they are selling them out right.

That's a great question. So the model that we currently have right now we are selling the airframes to them and we are leasing them the engines and so that's that's how we've currently structured that with them.

Wade J. Steel: So, the model that we currently have right now, we are selling the airframes to them, and we are leasing them the engines, and so that's how we've currently structured that with them. Okay. And then, you know, can you just remind us what the trigger is for you to flip from deferring incremental revenues and starting to recognize that deferred revenue balance? I know you've given us the guidance for next year. I think in the past, you've noticed tied to getting back, you know, block hours closer to 2019. I'm not sure if the contract changes earlier this year changed anything about where we think about hitting that threshold. And just in the context of, like, if that block hour target for 2024 moves around, you know, potentially higher, how could that impact the requisition? Thanks. Yeah, Katie Straub here.

Okay got it.

And then.

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Can you just remind us what the trigger is for you to flip from deferring incremental revenue is starting to recognize that deferred revenue balance I know you've given us the guidance for next year I think in the past you've noticed tied to getting back block hours closer to 2019.

Not sure if the contract changes earlier this year changed anything about where we think about hitting that threshold.

Context, like if that block hour target for 2024 moves around potentially higher how could that impact the recognition.

Yes.

Robert J. Simmons: So, you know, the deferred revenue model does depend on, you know, sort of our projection or forecast for future production and future block hours. But, you know, it's hard to imagine a scenario right now where we sort of flip back to the other direction. I think that starting in 2024, as we've indicated, we'll start to recognize, you know, sort of small amounts quarterly, and we would expect that to continue for many years. Got it, yeah. I was just more wondering if maybe there were further upsides to that recognition if the block hours moved higher, if the, you know, pile attrition was better. We'll keep you posted on that. Okay. And then maybe just kind of squeeze the last one in for you also, Rob.

Yes, Katy it's Rob here so.

The deferred revenue model does depend on sort of our projection or forecast for future production and future block hours, but.

It's hard to imagine a scenario.

Right now that we sort of flip back the other direction I think that starting in 2024 as we've indicated that.

We will start to recognize sort of small amounts.

Orderly and we would expect that to continue for many years.

Got it yeah. It was just more wondering if maybe there was.

Further upside to that recognition for block hours moved higher pilot attrition with better.

We'll keep you posted on that.

Okay, and then maybe just squeeze one last one and you also Rob.

Robert J. Simmons: You know, you mentioned you expect the pace of shareholder purchases to slow going forward. Is that a function of just CapEx stepping up over the next couple of years or something else? And, you know, kind of a rephrasing of Helene's earlier question, if your free cash flow projections came in better than expected, would you maybe change your tune on that pace of those repurchases for us? Thanks so much for your time. Sir Katie, thanks.

You mentioned, you expect the pace of share purchases going forward.

Is that a function of just capex stepping up over the next couple of years or something else.

And kind of <unk>.

<unk> earlier question.

Our free cash flow projections came in better than expected.

Speaker Change: Would you maybe change your tune on that piece of those repurchases fine. Thanks, So much for your time.

Robert J. Simmons: Yeah, I mean, in terms of how we think about deploying capital, you know, it starts, as you indicated, with, you know, generating free cash flow, and then we look at, you know, the best ways to deploy that, whether it be debt repayment, you know, whether it be, you know, other operational initiatives, whether it's new flying. I mean, there's a number of ways that we can accretively deploy capital. Obviously, you know, the share repurchase has been a very good one in 2023, but, you know, as we go forward and continue to generate that free cash flow, we'll look at the spectrum of capital opportunities we have and pick the best NPVs and go from there. Got it, and I know I said that was my last one, but maybe you should allow it.

Sure Katy Thanks, Yes, I mean in terms of how we think about deploying capital.

Starts as you indicated with generating free cash flow and then we look at the.

The best ways to deploy that whether it would be debt repayment.

Whether it be other operational initiatives, whether its new flying I mean, theres a number of.

Ways that we can accretively deploy.

Capital obviously.

Share repurchase has been a very good one and 2023, but.

As we go forward and continue to generate that free cash flow, we'll look at the spectrum of capital opportunities, we have and pick the best NPV is and go from there.

Got it and I know I said that was my last one but maybe silhouette.

Robert J. Simmons: You know, just on Southwest Charters, can you just help us think about what the Delta earnings should be between 4Q? I think you said it didn't contribute in 4Q and it's going to contribute in 1Q. So, you know, how much of a drag was it in 4Q, and how much do you think it will contribute in 1Q? You have that. Thanks again for your time. The specific profitability, we're not going to get into that now, but I can kind of indirectly give you some revenue numbers that may be helpful for you. So, like in the fourth quarter, it was around $5 or $6 million, and in the first quarter, we anticipated being over $10 million, you know, $10 to $12 million in revenue in the first quarter. So, there is a pretty big swing.

Just on southwest charter can you just help us think about what the Delta earnings will be between <unk> I think I think you said it didn't contribute in <unk> and is going through an <unk>. So.

How much of a drag within <unk> and how much they'll contribute.

If you have that thanks, again peloton decade, yes.

Yes, Hey, this is wade.

The specific profitability, we're not going to get into that now, but I can kind of directionally give you some with some revenue.

Wade: Numbers that may be helpful. For you so like in the fourth quarter. It was around five or $6 million and then the first quarter, we anticipate it being over $10 million $10 million to $12 million in revenue in the first quarter and so there is a pretty big swing, we're still growing that entity.

Wade J. Steel: We're still growing that energy right now, we're still learning a lot about the charter business, we're still learning about efficiencies and all of that. So, we're still growing, we're learning, we're getting better at it every day, and so I think with all of those things, we're going to get more cost efficient, and then we're also going to, you know, we're finding more and more revenue opportunities Thanks so much for that. I appreciate it. I'll now turn the call over to Chip Childs for his closing remarks. All right. Thank you, Regina.

Right now we're still learning a lot about the charter business, we're still learning about the efficiencies and all of that so we're still we're growing we're learning we're getting better at it every day and so I think with all of those things we're going to get more cost efficient and then we're also going to we're finding more and more revenue opportunities as well.

I'll now turn the call over to chip Childs for closing remarks.

Great. Thank you Regina.

Russell A. Childs: I'm really pleased with what we've done in 2023. I mean, there are a lot of challenges and a lot of headwinds, and thanks to our amazing professionals at SKYWest for everything that was done this last year. We really look forward to what's going to happen in 2024. We don't doubt that there will be some less headwinds and probably surprises along the way, but I think that we are in the process of making sure we're controlling the line of scrimmage, if you will, so that we have options and flexibility to work with our people and our partners to move forward in a very, very positive way. We appreciate the analysts that are following us as well and the interest that you've given to our company, and we look forward to talking to you next quarter. Thank you. And that does conclude today's conference. We thank you all for joining us, and you may now disconnect.

Really pleased with what we've done in 2023, I mean, theres a lot of challenges in a lot of headwinds and thanks to our amazing professionals at Skywest.

For everything that was done this last year, we really look forward to what's going to happen in 2024, we don't doubt that there will be any less headwinds than probably surprises along the way, but I think that we're in the process of making sure. We're controlling the line of scrimmage. If you will so that we have options and flexibility to work with our people and our partners too.

Move forward in a very very positive way. We appreciate the analysts that are following us as well and the interest that you you've given to our our company and we look forward to talking to you next quarter. Thank you.

And that does conclude today's conference. We thank you all for joining and you may now disconnect.

Speaker Change: Please wait the conference will begin shortly.

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