Q2 2024 SkyWest Inc Earnings Call

Thank you for standing by. My name is Jay Ell and I will be your conference operator today. At this time, I would like to welcome everyone to the SkyWest Inc. second quarter 2024 results call. All lines have been placed on mute to prevent any background noise.

Operator: At this time, I would like to welcome everyone to the SkyWest Inc. second quarter 2024 results call. All lines have been placed on mute to prevent any background noise.

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

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

Robert J. Simmons: Thank you 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. Following Chip, I will take us through the financial results, then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our sell-side analysts. Eric.

Thanks, everyone, for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest's Chief Financial Officer.

Speaker Change: 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.

Robert J. Simmons: 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.

Speaker Change: Following Wade, we will have the customary Q&A session with our sell-side analysts. Eric.

Eric J. Woodward: 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 cause such differences are included in our most recent Form 10-K and other reports and filings with the Securities and Exchange Commission.

Eric J. Woodward: 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.

Eric J. Woodward: 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.

Russell A. Childs: Some of the factors that may cause such differences are included in our most recent Forum 10-K and other reports and filings with the Securities and Exchange Commission. And now I'll turn the call over to Chip.

Robert J. Simmons: And now, I'll turn the call over to Chip.

Russell A. Childs: Thank you, Rob and Eric. Good afternoon, everyone, and thank you for joining us on the call today. Last week, most of our industry experienced significant worldwide disruption with a massive IT outage. SkyWest was fortunate not to utilize the software that triggered the event, and all teams across our operation worked extensively to minimize operational, crew, and customer impact. Despite FAA mandated ground stops at several of our hubs, we canceled just 55 total flights on Friday, and we're operating our full schedule by Saturday.

Russell A. Childs: Thank you Rob and Eric. Good afternoon everyone and thank you for joining us on the call today. Last week most of our industry experienced significant worldwide disruption with a massive IT outage.

Russell A. Childs: SkyWest was fortunate not to utilize the software that triggered the event and all teams across our operation worked extensively to minimize operational, crew and customer impact.

Russell A. Childs: Despite the FAA-mandated ground stops at several of our hubs, we cancelled just 55 total flights on Friday, and we're operating our full schedule by Saturday.

Russell A. Childs: This phenomenal performance is a result of smart decisions, proactive planning, and exceptional collaboration and dedication to quality and reliability by every team across our operations. The SkyWest team continues to stand apart and lead the industry through any challenge. Today, SkyWest reported net income of $76 million, or $1.82 per diluted share, for the second quarter of 2024.

Russell A. Childs: This phenomenal performance is a result of smart decisions, proactive planning, and exceptional collaboration and dedication to quality and reliability by every team across our operations.

Russell A. Childs: The SkyWest team continues to stand apart and lead the industry through any challenge.

Russell A. Childs: We also received eight of the 20 United Finance E-175s during the quarter. As announced last month, these aircraft are in addition to the 19 new aircraft we will begin receiving at the end of this year. In the second quarter, 86% of our block-hour production was from our dual-class aircraft, and we were pleased to launch our first CRJ-550 in our Delta ProRate operation just this month. We're pleased to continue enhancing our partnerships and ensuring we remain positioned to increase our regional market share.

Speaker Change: Today, SkyWest reported a net income of $76 million or $1.82 per diluted share for the second quarter of 2024.

Speaker Change: We also received 8 of the 20 United Finance E-175s during the quarter.

Speaker Change: As announced last month, these aircraft are in addition to the 19 new aircraft we will begin receiving at the end of this year.

Speaker Change: In the second quarter, 86% of our block-hour production was from our dual-class aircraft, and we were pleased to launch our first CRJ-550 in our Delta prorate operation just this month.

Speaker Change: We're pleased to continue enhancing our partnerships and ensure we remain positioned to increase our regional market share.

Russell A. Childs: Overall, with our well-positioned fleet, ongoing improvements in captain staffing, and our strong relationships and demand, we remain optimistic about the remainder of 2024 as we plan for 2025. During the second quarter, our team produced 99.99% adjusted completion on nearly 15,000 more flights than the same period last year. I want to thank our 14,000 people for their dedication and for working together each day to deliver a consistent, reliable, and exceptional product. Captain Attrition continues to improve, and we are maintaining very strong First Officer availability through our pathway program.

Speaker Change: Overall, with our well-positioned fleet, ongoing improvements in captain staffing, and our strong relationships and demand, we remain optimistic about the remainder of 2024 as we plan for 2025.

Speaker Change: During the second quarter, our team produced 99.99% adjusted completion on nearly 15,000 more flights than the same period last year.

Speaker Change: I want to thank our 14,000 people for their dedication and for working together each day to deliver a consistent, reliable, and exceptional product.

Speaker Change: Captain Attrition continues to improve, and we are maintaining very strong First Officer availability through our pathway programs.

Russell A. Childs: We expect to be at over 5,000 pilots by year-end, up about 1,000 pilots from the end of 2023. With continued progress in our cap and balance this year, we expect block-hour production for the second half of the year to be up 9 to 11 percent. We anticipate that we will be at or near full partner-requested contract utilization by year-end for the E175 fleet and by mid-2025 for our CRJ fleet. This is still lower than our production in 2019, and we still see strong opportunities in small and underserved markets where service hasn't been restored since COVID.

Speaker Change: We expect to be at over 5,000 pilots by year-end, up about 1,000 pilots from the end of 2023. With continued progress in our captain balance this year, we expect block-hour production for the second half of the year to be up 9 to 11 percent.

Speaker Change: We anticipate that we'll be at or near full partner-requested contract utilization by year-end for the E-175 fleet and by mid-2025 for our CRJ fleet.

Speaker Change: This is still lower than our production in 2019, and we still see strong opportunities in small and underserved markets where service still hasn't been restored since COVID.

Russell A. Childs: We see significant demand for regional lift nationwide, particularly as the industry works to right-size capacity. With the very strong demand for our product and the strong opportunity in small and underserved markets, we do expect maintenance expense to increase in the coming year as we increase utilization and return aircraft to service. Wade will speak more about that in a minute. In summary, we continue to play the long game and are focused on the core elements of our business, our people, our fleet, and our partners, to ensure we remain extremely well positioned in the industry.

Speaker Change: We see significant demand for regional lift nationwide, particularly as the industry works to right-size capacity.

Speaker Change: With the very strong demand for our product and the strong opportunity in small and underserved markets, we do expect maintenance expense to increase in the coming year as we increase utilization and return aircraft to service. Wade will speak more about that in a minute.

Wade J. Steel: In summary, we continue to play the long game and are focused on the core elements of our business, our people, our fleet, and our partners.

Wade J. Steel: to ensure we remain extremely well positioned in the industry. We've spent the last several years investing heavily in our fleet and in our people to ensure we are in the best possible situation to respond to market demands.

Russell A. Childs: We've spent the last several years investing heavily in our fleet and in our people to ensure we are in the best possible situation to respond to market demand. Rob will now take us through the financial data.

Wade J. Steel: Rob will now take us through the financial data.

Robert J. Simmons: Today we reported a second quarter net income of $76 million, or $1.82 earnings per share. Q2 pre-tax income was $102 million. Our weighted average share count for Q2 was 41.4 million shares, and our effective tax rate was 26%. First, let's talk about revenue.

Robert J. Simmons: Today, we reported a second quarter gap net income of $76 million, or $1.82 earnings per share.

Robert J. Simmons: Q2 pre-tax income was $102 million. Our weighted average share count for Q2 was 41.4 million shares, and our effective tax rate was 26%.

Robert J. Simmons: Total Q2 revenue of $867 million is up 8% sequentially from $804 million in Q1 2024 and up 19% from $726 million in Q2 2023. Q2 revenue breaks down with contract revenue up 8% from Q1 2024 and up 18% from Q2 2023. Pro rate and charter revenue was $107 million in Q2, up 6% from Q1 2024 and up 30% from Q2 2023 due to higher flight volume and passenger loads. Leasing and other revenue was up by $4 million sequentially and year-over-year, reflecting additional leasing opportunities.

Robert J. Simmons: These GAAP results include the effect of recognizing $6 million of previously deferred revenue this quarter compared to recognizing $1 million in Q1 2024 and deferring the recognition of $60 million of revenue in Q2 2023. As of the end of Q2, we have $361 million of cumulative deferred revenue that will be recognized in future periods. We expect to recognize previously deferred revenue of roughly $35 to $45 million in the second half of 2024.

Speaker Change: First, let's talk about revenue.

Speaker Change: Total Q2 revenue of $867 million is up 8% sequentially from $804 million in Q1 2024 and up 19% from $726 million in Q2 2023.

Speaker Change: Q2 revenue breaks down with contract revenue up 8% from Q1 2024 and up 18% from Q2 2023.

Speaker Change: ProRate and Charter revenue was $107 million in Q2, up 6% from Q1 2024, and up 30% from Q2 2023 due to higher flight volume and passenger loads.

Speaker Change: Leasing and other revenue was up by $4 million sequentially and year over year, reflecting additional leasing opportunities.

Speaker Change: These GAAP results include the effect of recognizing $6 million of previously deferred revenue this quarter.

Speaker Change: compared to recognizing $1 million in Q1 2024 and deferring the recognition of $60 million of revenue in Q2 2023.

Speaker Change: As of the end of Q2, we have $361 million of cumulative deferred revenue that will be recognized in future periods.

Speaker Change: We expect to recognize previously deferred revenue of roughly $35 to $45 million in the second half of 2024.

Robert J. Simmons: Let me move to the balance sheet. We ended the quarter with cash of $834 million, up $13 million from $821 million last quarter and flat with year-end. The $13 million increase in cash during the quarter included the accretive actions of repaying over $115 million in debt and buying back 177,000 shares of SkyWest stock in Q2 for $13 million at an average price of $75.23 per share.

Speaker Change: Let me move to the balance sheet. We ended the quarter with cash of $834 million, up $13 million from $821 million last quarter, and flat with year-end.

Speaker Change: The $13 million increase in cash during the quarter included the accretive actions of repaying over $115 million in debt.

Speaker Change: and buying back 177,000 shares of SkyWest stock in Q2 for $13 million at an average price of $75.23 per share.

Robert J. Simmons: Since the beginning of 2023, we have repurchased 10.9 million shares, or approximately 21.5% of the outstanding shares of the company, for $311 million at an average price of $28.54 per share. Our capex during the second quarter was $19 million. We ended Q2 with debt of $2.8 billion, down from $3 billion as of year-end 2023. These cash-related numbers continue to 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 lower investment in CapEx than in prior years.

Speaker Change: Since the beginning of 2023, we have repurchased 10.9 million shares, or approximately 21.5% of the outstanding shares of the company, for $311 million at an average price of $28.54 per share.

Speaker Change: Our capex during the second quarter was $19 million.

Speaker Change: We ended Q2 with debt of $2.8 billion down from $3 billion as of year-end 2023.

Speaker Change: These cash-related numbers continue to tell an important story about the quarter, that we continue to generate positive free cash flow from operations despite production constraints.

Speaker Change: Our strong free cash flow also benefits from lower investment in CapEx than in prior years.

Robert J. Simmons: Our balance sheet and solid liquidity continue to be powerful tools to create shareholder value, tools that we expect will help us repay over $400 million in debt in 2024 and allow us to take advantage of future growth opportunities and continue to execute on our share repurchase program. As we continue to focus on improving our return on invested capital, we would like to highlight the following. As a result of repurchasing 10.9 million shares since the beginning of 2023, we had 40 million shares outstanding as of June 30, 2024, compared to 50.6 million as of the start of 2023. As of June 30th, we had $69 million remaining under a free share repurchase authorization.

Speaker Change: Our balance sheet and solid liquidity continue to be powerful tools to create shareholder value.

Speaker Change: Tools that we expect will help us repay over $400 million in debt in 2024 and allow us to take advantage of future growth opportunities and continue to execute on our share repurchase program.

Speaker Change: As we continue to focus on improving our return on invested capital, we would like to highlight the following.

Speaker Change: As a result of repurchasing 10.9 million shares since the beginning of 2023, we had 40 million shares outstanding as of June 30, 2024, compared to 50.6 million as of the start of 2023.

Speaker Change: As of June 30th, we had $69 million remaining under a current share repurchase authorization. We anticipate continuing to be opportunistic in repurchasing shares going forward, although at a significantly slower cadence than in 2023.

Robert J. Simmons: We anticipate continuing to be opportunistic in repurchasing shares going forward, although at a significantly slower pace than in 2023. We are on track in 2024 to repay over $400 million in debt, a similar number to our debt repayment in 2023. Our net cash and leverage ratios continue to be lower than our pre-pandemic levels of 2019.

Speaker Change: We are on track in 2024 to repay over $400 million in debt, a similar number to our debt repayment in 2023.

Speaker Change: Our net of cash and leverage ratios continue to be lower than our pre-pandemic levels of 2019.

Robert J. Simmons: By the end of 2024, we are optimistic that both of these important balance sheet metrics could be at their lowest point in over a decade. We continue to anticipate our total 2024 CapEx will be approximately $300 to $350 million, including the purchase of five new E175s in the second half of 2024. 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.

Speaker Change: By the end of 2024, we are optimistic that both of these important balance sheet metrics could be at their lowest point in over a decade.

Speaker Change: We continue to anticipate our total 2024 CapEx will be approximately $300-$350 million, including the purchase of five new E175s in the second half of 2024.

Speaker Change: 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.

Robert J. Simmons: As Wade will discuss in a minute, we now anticipate our 2024 block hours to be up 9 to 11 percent over 2023, up from the expectation of up 7 to 9 percent a quarter. Our modestly improved outlook for our 2024 block hours is driven by improving pilot availability, increasing fleet 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.

Speaker Change: As Wade will discuss in a minute, we now anticipate our 2024 block hours to be up 9-11% over 2023, up from the expectation of up 7-9% a quarter ago.

Wade J. Steel: Our modestly improved outlook in our 2024 block hours is driven by improving pilot availability, increasing fleet utilization, and ongoing strong demand for our production from our partners.

Wade J. Steel: We anticipate our 2024 income tax rate will range between 25 to 27 percent.

Robert J. Simmons: We expect our 2024 GAAP EPS to be in the high $6 area, similar but slightly better than last quarter's expectation for the year and above where we were pre-COVID, reflecting our updated production outlook. It's too early to provide commentary on 2025 at this point, but we would like to give some near-term color on our fleet utilization that will likely carry into 2025. We're optimistic our ERJ fleet in place today, plus the 14 remaining 2024 E-175 deliveries, can be scheduled at or near full utilization by the end of the year. Similarly, we are hopeful our CRJ fleet currently under contract can be scheduled at full utilization by mid-2025. Wade will give more color around this in a minute.

Wade J. Steel: We expect our 2024 GAAP EPS to be in the high $6 area, similar but slightly better than last quarter's expectation for the year and above where we were pre-COVID, reflecting our updated production outlook.

Wade J. Steel: It's too early to provide commentary on 2025 at this point. However, we would like to give some near-term color on our fleet utilization that will likely carry into 2025.

Wade J. Steel: We're optimistic our ERJ fleet in place today, plus the 14 remaining 2024 E-175 deliveries, can be scheduled at or near full utilization by the end of the year.

Wade J. Steel: Similarly, we are hopeful our CRJ fleet currently under contract can be scheduled at full utilization by mid-2025. Wade will give more color around this in a minute.

Robert J. Simmons: As we look forward to reaching full utilization on our fleet and service, driven by solid organic net captain growth, our maintenance expense will likely run at somewhat elevated levels in 2025 compared to 2024, as our fleet returns to its normal maintenance schedule, including timing of airframe inspections. This higher maintenance in 2025, correlated with higher utilization and production, is also partially driven by the opportunity to start bringing more aircraft out of storage.

Wade J. Steel: As we look forward to reaching full utilization on our fleet in service, driven by solid organic net captain growth,

Wade J. Steel: Our maintenance expense will likely run at somewhat elevated levels in 2025 compared to 2024, as our fleet returns to its normal maintenance schedule, including timing of airframe inspections.

Wade J. Steel: This higher maintenance in 2025, correlated with higher utilization and production, is also partially driven by the opportunity to start bringing more aircraft out of storage.

Robert J. Simmons: These currently idle planes are expected to be placed into service in some combination of contract flying, prorate, charter, or placed for sale over the next several quarters. Over the next several years, we've included the expected benefits of higher utilization as well as the anticipated elevated maintenance expense in our earnings color for 2025. We are optimistic about our opportunity to recapture the economics in underserved communities over the next couple of years with our CRJ fleet, including many of the roughly 70 CRJ aircraft currently not in service.

Wade J. Steel: These currently idle planes are expected to be placed into service in some combination of contract flying, prorate, charter, or placed for sale over the next several quarters.

Wade J. Steel: Over the next several years, we've included the expected benefits of higher utilization as well as the anticipated elevated maintenance expense in our earnings color for 2024.

Wade J. Steel: We are optimistic about our opportunity to recapture the economics in underserved communities over the next couple of years with our CRJ fleet, including many of the roughly 70 CRJ aircraft currently not in service.

Robert J. Simmons: We believe that our strong balance sheet and the actions we will be taking to invest in incremental utilization of our fleet, to work through the rapidly improving captain shortage, and to preserve the opportunity to monetize and optimize strong demand opportunities over time will position us well to drive total shareholder return.

Wade J. Steel: We believe that our strong balance sheet and the actions we will be taking to invest in incremental utilization of our fleet

Wade J. Steel: to work through the rapidly improving captain shortage and to preserve the opportunity to monetize and optimize strong demand opportunities over time will position us well to drive total shareholder returns.

Wade J. Steel: Thank you, Rob. During last quarter, we announced a new flying agreement for 20 United-owned E-175s to replace 20 CRJ-200s under our United contract. These aircraft are coming from another United Express carrier. We anticipate that all 20 E-175s will be transitioned to SkyWest this year. As of June 30th, we had transitioned 11 of these aircraft. These 20 are in addition to the 21 currently on order. 19 for United Airlines, one for Delta Airlines, and one for Alaska Airlines.

Wade J. Steel: Wade.

Wade J. Steel: Thank you, Rob. During last quarter, we announced a new flying agreement for 20 United-owned E-175s to replace 20 CRJ-200s under our United contract.

Wade J. Steel: These aircraft are coming from another United Express carrier. We anticipate that all 20 E-175s will be transitioned to SkyWest this year.

Speaker Change: As of June 30th, we had transitioned 11 of these aircraft. These 20 are in addition to the 21 currently on order.

Speaker Change: 19 for United

Wade J. Steel: We expect delivery of five more this year, eight in 2025, and eight in 2026. At the end of 2026, our E-175 fleet total will be 278, continuing to solidify SkyWest as the largest Embraer operator in the world. With the addition of the large dual-class aircraft to our fleet, our regional market share has increased to 30% of the large dual-class aircraft from 23% in 2019. We are excited about our market share improvement.

Speaker Change: one for Delta and one for Alaska.

Speaker Change: We expect delivery of five more this year, eight in 2025, and eight in 2026. At the end of 2026, our E-175 fleet total will be 278.

Speaker Change: continuing to solidify SkyWest as the largest embryo operator in the world.

Speaker Change: with the addition of the large dual-class aircraft to our fleet.

Speaker Change: Our regional market share has increased to 30% of the large dual-class aircraft from 23% in 2019. We are excited about our market share improvements.

Wade J. Steel: Let's shift focus to our CRJ-700 fleet, which is a valuable asset and an ideal replacement for single-class CRJ-200s. The 19 CRJ-700s expiring from our American fleet during 2024 will transition to become CRJ-550s in our fleet. The first CRJ-550 began flying for Delta in July.

Speaker Change: Let's shift focus to our CRJ-700 fleet.

Speaker Change: which is a valuable asset and an ideal replacement for single-class CRJ-200s.

Speaker Change: The 19 CRJ-700s expiring from our American fleet during 2024 will transition to become CRJ-550s in our fleet.

Speaker Change: The first CRJ-550 began flying for Delta during July .

Wade J. Steel: We anticipate transitioning most of these aircraft to the Delta fleet by the end of 2024. Additionally, we have approximately 25 additional CRJ-700s that have contract expirations in 2025. We are working with our major partners to place these aircraft under prorate and contract flying agreements, with each of the new 19 E-175s we receive and finance for United, a CRJ-700 contract expires simultaneously. By the time these contracts conclude, the debt on the 19 CRJ-700s will be fully paid, and we're actively looking to place these aircraft under flying agreements, recognizing their value to our partners as they focus on dual-class aircraft. The CRJ-700s represent some of the newest next-gen models worldwide. Let me review our production.

Speaker Change: We anticipate transitioning most of these aircraft to the Delta fleet by the end of 2024.

Speaker Change: We have approximately 25 additional CRJ-700s that have contract expirations in 2025. We are working with our major partners to place these aircraft under prorate and contract flying agreements.

Speaker Change: with each of the new...

Speaker Change: With each of the new 19 E-175s we receive in finance for United, a CRJ-700 contract expires simultaneously. By the time these contracts conclude, the debt on the 19 CRJ-700s will be fully paid.

Speaker Change: We're actively looking to place these aircraft under flying agreements, recognizing their value to our partners as they focus on dual-class aircraft.

Speaker Change: The CRJ-700 represents some of the newest next-gen models worldwide.

Wade J. Steel: The second quarter's completed block hours were up more than 9% compared to the first quarter of 2024. Based on the current schedules we have from our major partners for Q3, we anticipate that our third quarter block hours will increase by approximately 5% compared to the second quarter. As our captain attrition continues to improve, we anticipate that our 2024 block hours will increase by 9% to 11% compared to last year. By the end of the year, we anticipate being at full utilization for the E-175s that we currently have on property.

Speaker Change: let me review our production.

Speaker Change: The second quarter completed block hours were up more than 9% compared to the first quarter of 2024. Based on the current schedules we have from our major partners for Q3, we anticipate that our third quarter block hours will increase by approximately 5% compared to the second quarter.

Speaker Change: As our captain attrition continues to improve, we anticipate that our 2024 block hours will increase by 9 to 11 percent compared to last year.

Speaker Change: By the end of the year, we anticipate being at full utilization for the E-175s that we currently have on property.

Wade J. Steel: As discussed previously, we will still be taking delivery of 30 E-175s between now and the end of 2026. As we take delivery of these aircraft, we expect each of them to be at full utilization. During 2019, our utilization on the E-175s was approximately 11 block hours per day. During the fourth quarter of 2024, we anticipate full utilization will be slightly over 10 block hours per day.

Speaker Change: As discussed previously, we will still be taking delivery of 30 E-175s between now and the end of 2026. As we take delivery of these aircraft, we expect each of them to be at full utilization.

Speaker Change: During 2019, our utilization on the E-175s was approximately 11 block hours per day.

Speaker Change: During the fourth quarter of 2024, we anticipate full utilization will be slightly over 10 block hours per day. We anticipate that our partners will continue to increase utilization as they rebuild their regional networks.

Wade J. Steel: We anticipate that our partners will continue to increase utilization as they rebuild their regional network. I would also remind you that we can add approximately 30% more block hours to our CRJ contract fleet before adding any aircraft. We expect to be near full utilization on our CRJ contract fleet by the middle of 2025. We still have approximately 30 dual-class CRJ aircraft and over 40 single-class CRJ-200s that are parked and could be returned to service either through an additional contract or pro-rate flying.

Speaker Change: I would also remind you that we can add approximately 30% more block hours to our CRJ contract fleet before adding any aircraft.

Speaker Change: We expect to be near full utilization on our CRJ.

Speaker Change: contract fleet by the middle of 2025.

Speaker Change: We still have approximately 30 dual-class CRJ aircraft and over 40 single-class CRJ-200s that are parked and could be returned to service either through an additional contract or pro-rate flying.

Wade J. Steel: As we return CRJs to service, we do anticipate challenges in our MRO network. We are seeing labor and parts challenges as the flying is coming back very quickly. As far as our maintenance expense, we anticipate a $40 million increase in the second half of 2024 as compared to the first half of 2024. We anticipate our maintenance expense to average $200 million a quarter during 2025, as we bring aircraft out of long-term storage to meet our production demands. As you would expect, the maintenance expense will happen before the aircraft goes back into service.

Speaker Change: As we return CRJs to service, we do anticipate challenges in our MRO network. We are seeing labor and parts challenges as the flying is coming back very quickly.

Speaker Change: As far as our maintenance expense...

Speaker Change: We anticipate a $40 million increase in the second half of 2024 as compared to the first half of 2024.

Speaker Change: We anticipate our maintenance expense to average $200 million a quarter during 2025 as we bring aircraft out of long-term storage to meet our production demands and to service the current fleet as production continues to increase.

Speaker Change: As you would expect, the maintenance expense...

Speaker Change: The maintenance expense will happen before the aircraft goes back into service. 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. I also want to review our plans to monetize our CRJ-200 assets. We still own over 140 CRJ-200 aircraft. These aircraft have very little book value and no debt.

Speaker Change: I also want to review our plans to monetize our CRJ-200 assets. We still own over 140 CRJ-200 aircraft. These aircraft have very little book value and no debt. We have approximately 4.5 million cycles remaining to monetize.

Wade J. Steel: We have approximately 4.5 million cycles remaining to monetize. Our priority for monetizing these assets is to fly them at SkyWest Airlines under contract with our partners or in our pro-rate business. We currently have 16 aircraft operating at SWC flying on-demand charter. You'll also recall that our minority ownership stake in Contour includes an asset provisioning agreement under which SkyWest will provide CRJ airframes and engines to contractors. As far as our prorate business is concerned, the demand remains extremely strong, and we have great community support.

Speaker Change: Our priority to monetize these assets is to fly them at SkyWest Airlines under contract with our partners or in our pro-rate business. Our next priority is to operate these aircraft at SkyWest Charter or SWC.

Speaker Change: We currently have 16 aircraft operating at SWC flying on-demand charters.

Speaker Change: You'll also recall that our minority ownership stake in Contour includes an asset provisioning agreement.

Speaker Change: under which SkyWest will provide CRJ airframes and engines to Contour.

Speaker Change: As far as our pro-rate business, the demand remains extremely strong and we have great community support. We are seeing opportunities to restore SkyWest service to several communities as we restore our CRJ production.

Wade J. Steel: We are seeing opportunities to restore SkyWest service to several communities as we restore our CRJ production. We will continue to work with the communities we serve on 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 demand for our products.

Speaker Change: We will continue to work with the communities we serve on the best way to continue our service.

Speaker Change: 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 demand for our products.

Operator: Okay, operator. We're ready for Q&A now.

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking a question. And again, that is Star 1 to join the queue. Your first question comes from the line of Savi Seif of Raymond James. Your line is open.

Speaker Change: Okay, operator, we're ready for Q&A now.

Speaker Change: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Speaker Change: If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking a question. And again, that is star 1 to join the queue.

Speaker Change: Your first question comes from the line of Savi Seif of Raymond James. Your line is open.

Savanthi Nipunika Prelis: Hey, good afternoon everyone. Just on the maintenance color that you gave, which was helpful to understand that, you know, that comes first as you restore this capacity. Curious as you kind of go through next year if that means, you know, margins, contractors stay steady, or it should still see an improvement because your utilization is improving on the kind of the full year impact of the E-175 fleet and the kind of the partial year impact of the CRJ fleet.

Savanthi Nipunika Prelis: Hey, good afternoon everyone. Just on the maintenance call that you gave, which is helpful and understand that, you know, that comes first as you restore this capacity.

Savanthi Nipunika Prelis: I'm curious, as you kind of go through into next year, if that means, you know, margins...

Speaker Change: contractors stay steady or it should still see an improvement because your utilization is improving on the kind of the full year impact of the E-175 fleet and the kind of the partial year of the CRJ fleet.

Robert J. Simmons: Yeah, thanks, Sabi. It's Rob here.

Robert J. Simmons: So, as we said on the call, we do expect there to be $40 million in more maintenance expense in the second half of 24 compared to the first half of 24. And then we expect to have roughly $200 million, a quarter of expenses in 2025. So your question, the calculus to your question is there will be puts and takes. Obviously, as production goes up, you know, we'll have some offset in revenue to offset the higher maintenance expense as we bring in, you know, as we both fly at higher utilization, which will drive more maintenance expense, and as we bring other airplanes out of storage, you know, which will have some one-time effect on our maintenance expense there as well. So I mean, it may not be a perfect answer to what you're asking, but there will be some puts and takes on both sides.

Speaker Change: Yeah, thanks, Sabi. It's Rob here.

Speaker Change: As we said on the call, that we do expect there to be $40 million in more maintenance expense in the second half of 24.

Speaker Change: compared to the first half of 24. And then we expect to have roughly $200 million a quarter of expense in 2025. So the calculus to your question is there will be puts and takes, obviously, as production goes up.

Speaker Change: You know, we'll have some offset in revenue to offset the higher maintenance expense as we bring

Speaker Change: You know, as we both fly at higher utilization which will drive more maintenance expense and as we bring other airplanes out of storage, you know, which will have some one-time

Speaker Change: affect, you know, to our maintenance expense there as well. So, I mean, it may be not a perfect answer to what you're asking, but there will be some puts and takes on both sides.

Robert J. Simmons: If I might, on the E-175, it looks like there are three more E-175s from United this quarter with the update than last quarter, 39 versus 36, but your year-end 26 E-175 assumption is unchanged at 278. Is that because some of these are going to go back or get retired before year-end 26, or why was that not up as well?

Speaker Change: If I might, on the E-175, it looks like there are three more E-175s from United this quarter with the update than last quarter.

Speaker Change: You know, 39 versus 36, but your year-end 26, even 75 assumption is unchanged at 278. Is that because some of these are going to go back or get retired before year-end 26, or why was that not up as well?

Robert J. Simmons: So just to make sure I follow your questions, so at the end of 2026, we've pretty much consistently been saying for the last several quarters and years that we're, you know, since we announced the United deal, that we'll have 278 E-175s at the end of 2026. We did take more E-175s during this quarter than we probably anticipated, and it was just the acceleration of bringing airplanes into our fleet quicker because of some of the operational needs that United had.

Speaker Change: So just to make sure I follow your questions, so at the end of 2026 we've pretty much consistently been saying for the last several quarters and year that we're, you know, since we've announced the United deal, that we'll have 278 E-175s at the end of 2026.

Speaker Change: We did take more E-175s during this quarter than we probably anticipated. It was just the acceleration of bringing airplanes into our fleet quicker.

Robert J. Simmons: And so the overall fleet is still the same, 278 is still our target by the end of 2026, but we did get some earlier than we had anticipated because of some operational needs that United. Okay, I guess I'm just looking at your kind of fleet table.

Speaker Change: because of some of the operational needs that United had. And so the overall fleet is still the same. 278 is still our target by the end of 2026, but we did get some earlier than we had anticipated because of some operational needs that United wanted. Those are in our hands quicker.

Robert J. Simmons: Okay, I guess just looking at your kind of fleet table from last quarter, you were expecting like 38 incremental E-175s from year-end 23, and now you're expecting 41. That was the reason for the question.

Speaker Change: Okay I guess I just looking at your kind of fleet table from last quarter you were expecting like 38 incremental E-175s from year-end 23 and now you're expecting 41. That was the reason for the question.

Speaker Change: Okay.

Speaker Change: All right. I'll.

Michael John Linenberg: Your next question comes from the line of Mike Linenberg of Deutsche Bank. Your line is open.

Speaker Change: Your next question comes from the line of Mike Linenberg of Deutsche Bank. Your line is open.

Michael John Linenberg: Oh, hey, yeah, good afternoon. Actually, um, this is kind of a follow-up to Savi's question. When you look at the United Fleet, it now looks like that they have moderated their retirement of their 50-seater ERJ-145, CRJ-200, and CRJ-550. Now, we don't know who operates them, but we know that you operate some of them. And so, while you've given us a plan of new airplanes coming in... Are you getting requests from your major partners to possibly maybe slow down the retirement of maybe, you know, what I will refer to as the much-vilified CRJ200 or, you know, maybe there's more CRJ 550 opportunities that you have there? Is that in those numbers?

Michael John Linenberg: Oh, hey, yeah, good afternoon. Actually, um, this is kind of a follow-up on Savi's question when you look at the United Fleet.

Speaker Change: It now looks like that they have...

Speaker Change: moderated their retirement of their 50-seaters.

Speaker Change: ERJ-145, CRJ-200, CRJ-550. Now we don't know who operates them but we know that you operate some of them and so while you've given us a plan of new airplanes coming in

Speaker Change: Are you getting requests from your major partners to possibly maybe slow down the retirement of maybe, you know, what I will refer to as the much vilified CRJ-200 or...

Speaker Change: You know, maybe there's more CRJ 550 opportunities that you have there.

Wade J. Steel: Yeah, yeah Mike, those are great questions. I think overall, just if you take a step back, you know, we work very closely with United on their fleet demands and what they want in the 50 seat category. At this point, you know, we have, by the end of the year, you know, we'll have 50 CRJ-200s under contract with them, and those are in contract, and they still, and United still wants them.

Speaker Change: Is that in those numbers? Yeah, Mike, those are great questions. I think overall, just if you take a step back, we work very closely with United on their fleet demands and what they want in the 50-seat category. At this point, we have...

Speaker Change: By the end of the year, we'll have 50 CRJ-200s under contract with them, and those are in contract and United still wants them. We're working with them on...

Wade J. Steel: We're working with them on multiple levels of the fleet related to the 50-seaters, both under contract and prorate. So there's a lot of ongoing discussion with those guys, both under contract and prorate. And so United's been very supportive of us and what we're trying to accomplish with that. And so we'll just continue to work with them, and hopefully, in the next couple of quarters, we'll have a couple of things we can kind of clarify for you on that. Okay, good.

Speaker Change: on a multiple levels of fleet related to the 50-seaters, both under contract and prorate. So there's a lot of ongoing discussion with those guys. And so.

Speaker Change: You know, both in contract and prorate. And so, United's been very supportive of us and what we're trying to accomplish in that. And so, you know, we'll just continue to work with them and hopefully in the next couple of quarters we'll have a couple of things we can kind of clarify for you on that.

Michael John Linenberg: Okay, good. And just kind of as a follow-up again, you know, back to the much-vilified 50 seater, we're seeing older CRJ 700s get converted into 550s. That is definitely a step up since that is a dual-class product. I understand that.

Speaker Change: Okay good and just kind of as a follow-up again you know back to the much vilified 50 seater we're seeing older CRJ 700s get converted into 550s that is definitely a step up since that is a dual class product I get that but then

Michael John Linenberg: But then, um... You know, even though Delta put out a press release that they were getting rid of all their 50-seaters, their single class... You know, now all of a sudden, you know, spotters are saying that 50-seaters are back. And I think that, you know, when you look at the number of airports that lost service during COVID, I don't know if it was 50, 60, or 70. Is it fair to assume that as pilot availability starts to improve at the regional level, that your partners will come back to you?

Speaker Change: You know, even though Delta put out a press release that they were getting out of all their 50-seaters, their single-class...

Speaker Change: You know, now all of a sudden, you know, spotters are saying that 50-seaters are back. And I think that, you know, when you look at the number of airports that lost service during COVID, I don't know if it was 50, 60, 70.

Speaker Change: Is it fair to assume that as pilot availability starts to improve at the regional level, that your partners will come back to you?

Michael John Linenberg: and they may actually request more CRJ-200 or more 50-seat usage, but maybe it's under a pro-rate basis, so they can still say that, as of now, we don't have any 50-seaters under contract, but that you then go in and fly to some of these small cities, you know, whether it's, you know, a Del Rio or Tyler Escanaba, you know, a lot of cities that lost a service during during COVID.

Speaker Change: And they may actually request more CRJ200 or more 50 seat usage, but maybe it's under a pro-rate basis. So they can still say that, as of now, we don't have any 50-seaters under contract.

Russell A. Childs: Am I am I am I going down the right track here? Or am I completely just, you know?

Speaker Change: But that you then go in and fly to some of these small cities, you know, whether it's, you know, a Del Rio or Tyler Escanaba, you know, a lot of cities that lost a service during during COVID. Am I, am I, am I going down the right track here? Or am I completely just, you know,

Russell A. Childs: Now, Mike, it's Chip. You're going down the right track. And I would say it for a couple of reasons, mostly because we're probably the carrier in the United States that's closest to all these underserved communities. And whether or not you bring a CRJ-200 back in 50 seats, in 42 seats, or in 30 seats, there's a lot of things to still do with our CRJ200 fleet, with both SkyWest Airlines as well as SWC.

Speaker Change: Off base.

Speaker Change: Now, Mike, it's Chip. You're going down the right track, and I would say it for a couple of reasons, mostly because

Michael John Linenberg: We're probably the carrier in the United States that's closest to all these underserved communities and and rather or not you bring a CRJ200 back in 50 seats in 42 seats or in 30 seats

Michael John Linenberg: There's a lot of things to still do with our CRJ200 fleet.

Russell A. Childs: And by the way, we're as optimistic, we haven't talked a lot about it on the call or script today, but we're as optimistic about SWC on demand, on-demand charter, as well as, eventually, commute authority. So, from the perspective of what we think the shell for a CRJ200 is, we have a lot of them, we've operated them for a long time, and it's actually still You know, to think that we may put 50 seats back in them and go back to some markets is a very strong possibility, but there are a lot of other possibilities with this aircraft as well that make us very excited.

Speaker Change: with both SkyWest Airlines as well as SWC, and by the way, we are...

Speaker Change: We're as optimistic, we haven't talked a lot about it on the call or script today, but we're as optimistic about SWC in...

Speaker Change: Demand, On Demand Charter, as well as eventually Commute Authority. So from the perspective of what we think the shell for a CRJ-200, we have a lot of them, we've operated them for a long time, it's actually still a fantastic aircraft.

Speaker Change: You know, to think that we may put 50 seats back in them and go back to some markets is a very strong possibility. But there's a lot of other possibilities with this aircraft as well that makes us very excited. But again, back to what the general tone is, we've got to get to full utilization on our dual-class fleet with pilots.

Russell A. Childs: But again, back to what the general tone is, we've got to get to full utilization on our dual-class fleet with pilots under contract with our partners before we can tap into this, but I will say we're more optimistic about that gap in the market that you keep bringing up in small communities than we even were back in 2019. So, a lot of good things are going to happen, but I think the story of the day is it's going to take us a lot now that we have some good pilot availability to get the aircraft up and ready for full utilization. Okay, can I...

Speaker Change: under contract with our partners before we can tap into this, but I will say

Speaker Change: We're more optimistic about that gap in the market that you keep bringing up in small communities.

Speaker Change: than we even were back in 2019. So, a lot of good things to happen, but I think the story of the day is it's going to take us a lot now that we have some good pilot availability to get the aircraft up and ready for full utilization.

Michael John Linenberg: Okay, if I could just squeeze in one last one. If you bring in an airplane that is fully depreciated and has no debt... What is the margin contribution on that versus maybe something new? Is it similar? Is it better? Is it not as good? I mean, can you give an opinion on that? I'm just curious. Anyway, thanks for taking my question.

Speaker Change: Okay, if I can just squeeze in one last one, if you bring on an airplane that is either fully depreciated and has no debt...

Speaker Change: What is the margin contribution on that versus maybe something new? Is it similar? Is it better? Is it not as good? I mean, can you opine on that? I'm just, I'm curious. Anyway, thanks for taking my question.

Wade J. Steel: The airplanes that we're bringing in, obviously, they have very little debt on them. They do have some book value. The margins are very consistent with the rest of our fleet that we have right now. However, offsetting the depreciation, there is a higher maintenance cost associated with those airplanes.

Speaker Change: [inaudible]

Speaker Change: The airplanes that we're bringing on, you know, obviously they have very little debt on them. They do have some book value.

Speaker Change: The margins are very consistent with the rest of our fleet that we have right now. Offsetting the depreciation, there is higher maintenance cost associated with those airplanes.

Wade J. Steel: And so, you know, they're very consistent with what we do with the rest of our fleet. Okay, great. Thank you.

Speaker Change: And so, you know, they're very consistent with what we do with the rest of our fleet.

Duane Thomas Pfennigwerth: Your next question comes from the line of Duane Pfennigwerth of Evercore ISI. Your line is open.

Speaker Change: Your next question comes from the line of Duane Pfennigwerth of Evercore ISI. Your line is open.

Duane Thomas Pfennigwerth: Hey, thanks. Can you talk about the environment for incremental agreements on the new aircraft side? And when should we expect you to put your balance sheet to work on incremental new aircraft?

Duane Thomas Pfennigwerth: Hey, thanks. Can you talk about the environment for incremental agreements on the new aircraft side and when we should expect you to put your balance sheet to work on incremental new aircraft?

Russell A. Childs: Yeah, Duane, this is Chip. I can tell you just at a very, very high level that, in the current climate that we have today, a lot of the major carriers are re-evaluating capacity. And we're a big part, I think, of those conversations with most of our partners. When you talk about capacity, you know, you can look at it in several different ways.

Speaker Change: Yeah Duane, this is Chip. I can tell you just at a very, very high level, you can imagine in the current climate that we have today that a lot of the major carriers are re-evaluating capacity.

Speaker Change: And we're a big part, I think, of those conversations with most of our partners.

Russell A. Childs: We're still extremely optimistic about regional capacity. You're right; we have a strong balance sheet that we want to put to work. We had a lot of developments with most of our partners today, as we usually do. I think that we're making some very good progress, but given the time and season where they are right now, we need to be a little bit more patient to let them strategize on, you know, some of their network needs, but we still fundamentally believe that we've got some great products and a great balance sheet to help them from a capital perspective.

Dwayne: When you talk about capacity, you know, you can look at it in several different ways. We're still extremely optimistic about the regional capacity. You're right, we have a strong balance sheet that we want to put to work. We have a lot of developments.

Dwayne: With most of our partners today, as we usually do, I think that we're making some very good progress.

Dwayne: But I think given the time and season where they're at right now, we need to be a little bit more patient to...

Dwayne: to let them strategize on, you know, some of their, more of their network needs. But we still fundamentally believe that we've got some great products and a great balance sheet to help them.

Russell A. Childs: I mean, I think if you look at the position where they are and where we are and what we can do to help, we're a front-runner in being able to help them with some of the capital and some of the, you know, regional lift needs that still have a very strong opportunity out there. So honestly, Duane, nothing obviously to announce today, but we continue to work hard, and we'll be patient and help become part of the strategy with our partners as those plans continue to develop, as they've said as well.

Dwayne: from a capital perspective. I mean, I think if you look at the position where they are and where we are and what we can do to help, we're a frontrunner in being able to help them with some of the capital and some of the...

Dwayne: you know, regional lift needs, it still has a very strong opportunity out there. So, honestly, Duane, nothing, obviously, to announce today, but we continue to work hard and we'll be patient and help become part of the strategy with our partners as those plans continue to develop, as they've said as well.

Dwayne: Appreciate those thoughts and it's probably, you know, too early at this point but maybe you could give us a, you know, range of outcomes on 2025 CapEx.

Duane Thomas Pfennigwerth: Duane, well, first of all, you know, we've got eight E-175s that are scheduled to be delivered in 2025, so, you know, you can start that. That's up from, you know, a little bit like that we had in

Dwayne: Duane, well, first of all, you know, we've got eight E-175s that are scheduled to be delivered in 2025, so.

Dwayne: You know, you can start that. That's up from, you know, a little bit like that we had in 2023, for instance.

Speaker Change: I would think at this point that, you know, obviously we'll keep you updated as we get closer to the end of the year, but just on the 175 front alone, we'll be up a little bit in 25, and then similar, eight planes to be delivered in 26.

Duane Thomas Pfennigwerth: Okay, great. And then maybe just lastly, remind me, is there a kind of target long-term margin that you speak to? Obviously, you've had a lot of great success here. Is this the level we should be thinking about, or do you think there's opportunities to expand maybe pre-tax margins from here? Thank you. Oh yeah, thanks Duane.

Speaker Change: Okay, great. And then maybe just lastly, remind me, is there a kind of a target long-term margin that you speak to? Obviously, you've made a lot of great success here. Is this the level we should be thinking about, or do you think there's opportunities to expand maybe pre-tax margins from here? Thank you.

Robert J. Simmons: Yeah, thanks, Duane. Well, I mean, as you know, if you go back to the, you know, pre-COVID level, we're not back to those margin levels yet, but that can, you know, continues to be something that we think is a strong possibility and keep working toward that.

Speaker Change: Hey, yeah, thanks Duane. Well, I mean, as you know, if you go back to the, you know, pre-COVID level, you know, we're not back to those margin levels yet, but that can, you know, continues to be something that we think is a strong possibility and keep working toward that.

Speaker Change: Thank you.

Tom Fitzgerald: Your next question comes from the line of Tom Fitzgerald of TD Cowen. Your line is open.

Speaker Change: Your next question comes from the line of Tom Fitzgerald of TD Cowen. Your line is open.

Tom Fitzgerald: Hi everyone, thanks very much for the time. Is there, just thinking about the concepts of shareholder returns in the future and buybacks slowing down, is there a leverage target that you and the board are looking forward to? to start contemplating resuming the dividend, or how should we think about that opportunity long-term?

Tom Fitzgerald: Hi everyone, thanks very much for the time.

Tom Fitzgerald: Is there, just thinking about the concepts of shareholder returns in the future and buybacks slowing down, is there a leverage target that you and the board are looking for to start contemplating resuming the dividend or how should we think about that opportunity long term?

Russell A. Childs: Yeah, Tom, this is Chip. By the way, welcome. We appreciate your continuing to cover us from Helane. We're excited to continue to have a relationship with you and engage in our business. You know, relative to all of the capital allocation strategies that we have relative to stock buybacks, dividends, investing in new aircraft, you know, all of those types of things, as of right now, certainly, as Rob, you know, noted in his script, we've backed off share repurchase quite a bit right now. We have a board meeting that's coming up here in the next little bit.

Tom Fitzgerald: Yeah, Tom, this is Chip. By the way, welcome. We appreciate your continuing to cover us from Helane. We're excited to continue to have a relationship with you and engage in our business.

Speaker Change: You know, relative to all of the capital allocation strategies that we have relative to stock buyback dividend.

Speaker Change: invest in new aircraft.

Speaker Change: You know, all of those types of things. As of right now, certainly, as Rob, you know, noted in his script, we've backed off share repurchase quite a bit right now. We have a board meeting that's coming up here in the next little bit. This will be top of mind in what we're talking about relative to

Russell A. Childs: This will be top of mind in what we're talking about relative to what our, you know, shareholder return strategy will be. But the majority of it still has to contemplate what the opportunities with the fleet are. Obviously, our priority with our capital is to reinvest in the fleet and make sure that we've got good, strong market share opportunities to continue to expand. And, you know, as we go down the pathway, and that's our top priority, after that, we'll continue to evaluate the other models that we think that the market would want and would be good for our shareholders relative to dividends and share repurchase.

Speaker Change: what our shareholder return strategy will be.

Speaker Change: The majority of it still has to contemplate what the opportunities with the fleet are. Obviously, our priority with our capital is to reinvest in the fleet, make sure that we've got good, strong market.

Speaker Change: share opportunities to continue to expand.

Speaker Change: And, you know, as we go down the pathway, and that's our top priority, after that we'll continue to, you know, evaluate.

Speaker Change: The other models that we think that the market would want and would be good for our shareholders relative to dividends and share repurchase.

Russell A. Childs: So, certainly, we feel like we're more mature than we were when we started our repurchase program a couple of years ago, so that comes and goes into play. But I think as we let the fleet strategy continue to evolve, we'll get to that point. And you'll be the first to know as we continue to find ways to continue to add shareholder value. Hey, Tom.

Speaker Change: Certainly, we feel like we're more.

Speaker Change: mature than we were when we started our repurchase program a couple of years ago. So that comes into a factor, but I think as we let the fleet strategy continue to evolve, we'll get to that point and you'll be the first to know as we continue to find ways to continue to add shareholder value.

Robert J. Simmons: Hey, Tom, I would just add one thing to that, that as I sort of indicated in my script, that, you know, by the end of this year, we expect to be at a point both from a leverage standpoint, you know, as a, you know, debt as a percentage of equity, as well as an overall absolute debt number that, you know, net of cash that we think that net of cash and our leverage will be, you know, at extremely favorable levels, like likely the best level it's been in a decade, which creates a lot of, you know, a lot of optionality for us and opportunities as we look at all of the, you know, potential deployments of capital that Chip made reference

Speaker Change: Hey Tom, I would just add one thing to that that as I as I sort of indicated in my script

Speaker Change: that, you know, by the end of this year, we expect to be at a point, both from a leverage standpoint

Speaker Change: You know, as a, you know, debt is a percentage of equity, as well as an overall absolute debt number that, you know, net of cash that we think that net of cash and our leverage will be.

Russell A. Childs: you know, at extremely favorable levels, like likely the best level it's been in a decade, which creates a lot of, you know, a lot of optionality for us and opportunities as we look at all of the, you know, potential deployments of capital that Chip made reference to.

Tom Fitzgerald: That's very helpful. Thank you. And then I'm just wondering, you kind of touched on it a little bit, and it hasn't come up yet. But what I'd love to just get the latest rundown on SkyWest Charter and Contour and your view on some of the government regulatory issues in the on demand charter market.

Speaker Change: That's very helpful, thank you. And then I'm just wondering, you know, you kind of touched on it a little bit and it hasn't come up yet, but what's just, I'd love to just get the latest run-through on SkyWest Charter and Contour and your view on some of the government regulatory issues on the on-demand charter market.

Russell A. Childs: Thanks, Tom. Just briefly, I'll give you our take on it. Our take is, Wade mentioned that we have 16 aircraft flying today. There are a lot of opportunities that we need to be prepared for this fall and winter with charter. There are things continuing to develop. We had some good things this last summer that went well.

Speaker Change: Thanks Tom. Just briefly, I mean I'll give you our take on it. Our take is, Wade mentioned that we have 16 aircraft flying today.

Speaker Change: There's a lot of opportunities that we need to be prepared for this fall and winter with Charter. There's things continuing to develop. We had some good things this last summer that went well. But I think that the overall thing is that we are still going down the road.

Russell A. Childs: But I think that the overall thing is that we are still, you know, going down the road from a government perspective about getting commute authority. We're still confused about why we don't meet the three big requirements of financial strength, management strength, and safety record. We think that we're probably among the best in the world relative to the qualifications to get commute authority. But the other interesting part is that, despite all the attention on 135s and commute authority, we still see a significant expansion in on-demand charter through sports teams and, you know, various corporate opportunities that are even bigger than, you know, commute authority as we continue to get prepared for that this fall, winter, and next year.

Speaker Change: From a government perspective about getting commute authority, you know, we're still confused about why we don't meet the three big requirements of

Speaker Change: Financial strength, management strength, and safety record. We think that we're probably among the best in the world relative to the qualifications to get commute authority. But the other interesting part is of all the attention on 135s and commute authority,

Speaker Change: We still see a significant expansion in on-demand charter through sports teams and, you know, various corporate opportunities.

Speaker Change: That is even bigger than, you know, commute authority as we continue to get prepared for that, you know, this fall, winter, and next year.

Russell A. Childs: So there's not a lot of new stuff, but we continue to be very optimistic about charter. We're very committed to seeing through the commute authority. We've obviously, maybe you've seen, we've taken it to court. We're going to go down that route. We're also going to continue to work with the government because there are obviously some things they want to change with 135 operations. We think we not only meet but massively exceed everything that they're talking about from a safety perspective.

Speaker Change: So, there's not a lot of new stuff, but we continue to be very optimistic about charter. We're very committed to seeing through the commute authority. We've obviously, maybe you've seen...

Speaker Change: You know, we've taken it to court. We're going to go down that route. We're also going to continue to work with the government because there's obviously some things they want to change with 135 operations.

Speaker Change: We think we not only meet, but massively exceed everything that they're talking about from a safety perspective. So, look, we're optimistic, but the opportunities, we're going to be patient with commute authority.

Russell A. Childs: So look, we're optimistic, but the opportunities are, we're going to be patient with commute authority, but there's honestly a tremendously bigger opportunity with on-demand charters that we're going to have. We think we're going to have a good fall and winter season with SkyWest Charter again.

Speaker Change: There's honestly a tremendously bigger opportunity with on-demand charters that we think we're going to have a good fall and winter season with SkyWest Charter again.

Tom Fitzgerald: Thanks very much. That's really helpful. And if I could squeeze one more in, just as we kind of think about the increases in utilization next year, is it reasonable for investors to think about another year of, you know, well above GDP, kind of high single-digit block hour growth? And, you know, I think even that would just put you kind of back at 90% of 2019 block hours. So still with a lot of, you know, recovery left to recapture, but just wanted to make sure the level was set on that and make sure we're all thinking about it the right way. Thanks again for the time. Yeah, Tom, this is really great.

Speaker Change: Thanks very much. That's really helpful. And if I could just squeeze one more in, just as we kind of think about the increases in utilization next year, is it reasonable to, you know, for investors to think about another year, you know, well above GDP, kind of high single-digit block hour growth? And, you know, I think even that would just put you kind of back at 90% of 2019.

Speaker Change: Thanks again for the time.

Wade J. Steel: Yeah, Tom, this is Wade. Yes, we do anticipate our block hours to be higher than GDP growth next year, and, you know, there's still recovery, right? There's still recovery going on, and yeah, we'll keep you up to date on that, but there will be higher than GDP growth there.

Speaker Change: Yeah, Tom, this is Wade. Yes, we do anticipate our block hours to be

Savanthi Nipunika Prelis: And we have a follow-up question from Savi Seith of Raymond James.

Savanthi Nipunika Prelis: Hey, thanks for the follow-up. Just kind of on Dom's questions there, just on the SkyWest charter side, could you talk about what you're seeing trends in the summer, just because it is a new product and I know in the wintertime it was a pretty strong product, I think, and just generally, you know pro-rate and charter just what you're thinking for the third quarter here?

Speaker Change: And we have a follow-up question from Savi Seith of Raymond James.

Savvy Scythe: Hey, thanks for the follow-up. Just to kind of answer some questions there, just on the SkyWest charter side.

Savvy Scythe: Can you talk about what you're seeing trends in the summer, just because it is a new product and I know in the wintertime it was a pretty strong product, I think, and just generally prorate and charter just what you're thinking for the third quarter here.

Wade J. Steel: So as far as the charter business is concerned, as you said, Q1, it's almost a little bit reverse seasonal from our pro-rate business, right? So Q1 is extremely strong in charter, and we saw that spring was also very good in April and May. You know, June, July, and August, because the college semesters are not as busy; there is definitely a lull in June, July, and August, but we have found some opportunities to fly during those periods of time.

Savvy Scythe: Yes, Avi, this is Wade. So as far as the the charter business, as you said, Q1, it's almost a little bit reverse seasonal from our pro-rate business, right? So Q1 is extremely strong in charter and we saw that that spring was was also very good, April and May. You know, June, July, and August, you know, because of the college

Savvy Scythe: seasons are not as busy. There is definitely a lull in June , July , and August , but we have found some opportunities to fly during those periods of time. But as we're going into the fall right now, as school will start back up in September and we go through, we've already signed multiple deals

Wade J. Steel: But as we're going into the fall right now, as schools will start back up in September and we go through, we've already signed multiple deals, multiple annual deals for that season. And so we're seeing the demand there being extremely strong on the charter side. And as far as pro-rate, and I talked about this a little bit in my script, the pro-rate is very strong as well right now. There are definitely opportunities for us to go back into communities and restore service that we had left, and the yields are still good, and the opportunities there we're still very optimistic about.

Savvy Scythe: multiple annual deals for for that season and so we we're seeing the demand there being extremely strong on the charter side and as far as pro-rate you know we and I talked about this a little bit in my script the the pro-rate is very it's strong as well right now there's there's definitely opportunities for us to go back

Savvy Scythe: into communities and restore service that we had left and the yields are still good and the opportunities there we're still very optimistic about.

Wade J. Steel: And just to follow up on that, I think I know the answer based on what you just answered, but your partners are pulling back capacity given kind of, you know, they think there is oversupply in some markets, but I suspect it's not the type of markets that you're flying for your partners, and there's no kind of indication from them that they want you to pull back on block covers or any flying.

Speaker Change: And just a follow-up on that, I think, I know the answer based on what you just answered, but, you know, your partners are pulling back capacity given kind of, you know, they think oversupply in some markets, but I suspect it's not the type of markets.

Speaker Change: that you're flying for your partners and there's no kind of indication from them that they want you to pull back on on block covers or any flying.

Wade J. Steel: Yeah, no, they are still very excited. You know, we are still very excited about some of these markets. These markets have been underserved or not served, and so it's a little bit different than the capacity that our major partners talk about, right? They're talking about gauge and frequency and all that. What we're talking about is markets that just haven't had service, or they've had service that they haven't enjoyed, maybe, right?

Speaker Change: Oh yeah, no, Savi. Yeah, no, they are still very excited, you know, we are still very excited about some of these markets. These markets have been underserved or not been served.

Speaker Change: And so it's a little bit different than the capacity that our major partners talk about, right? They're talking about gauge and frequency and all that. What we're talking about is markets that just haven't had service, or they've had service that they haven't enjoyed, maybe, right? So now they're going back to SkyWest Airlines that has multiple co-chairs with multiple partners.

Wade J. Steel: So, now they're going back to SkyWest Airlines, which has multiple co-chairs with multiple partners, and they're seeing that, and the demand in those kind of markets has been extremely good, and the communities are very welcoming us back as we're seeing the pilot and the aircraft availability improve, and so we are excited to get back into those markets. I appreciate that.

Speaker Change: and they're seeing that and the demand in those kind of markets has been extremely good and the communities are extremely welcoming to us back as we're seeing the pilot and the aircraft availability improve and so we are excited to get back into those markets.

Operator: I appreciate the call. Thank you.

Speaker Change: I appreciate the call. Thank you.

Russell A. Childs: With no further questions, this concludes our Q&A session. I'll now turn the conference back over to Chip Childs for closing remarks.

Speaker Change: With no further questions, this concludes our Q&A session. I will now turn the conference back over to Chip Childs for closing remarks.

Russell A. Childs: Thank you. Thanks, everybody, for, you know, following us each quarter. We appreciate your attention and your interest in SkyWest. We think that we've said consistently in our script that our strategy is to play the long game and be patient and opportunistic and be disciplined about our opportunities. We feel like we're continuing to be at that point where there are a lot of good opportunities in 2025 and beyond, and we really appreciate the amazing efforts of our 14,000 professionals.

Russell A. Childs: Thank you. Thanks everybody for, you know, following us each quarter. We appreciate your attention and your interest in SkyWest. We think that we...

Russell A. Childs: said consistently in our script that our strategy is to play the long game and be patient and opportunistic and be disciplined about our opportunities. We feel like we're continuing to be at that point where there's a lot of good opportunities.

Russell A. Childs: and 25 and 2025 and beyond and we really appreciate the amazing efforts of our 14,000 professionals.

Russell A. Childs: I think they're the absolute top in the entire industry. We couldn't have this success without them, and we appreciate all the effort that they give us as well as the partnerships we have with our amazing partners. And with that, we will return and talk more about the next quarter in three months. Thank you.

Russell A. Childs: I think they're the absolute top in the entire industry. We couldn't have this success without them, and we appreciate all the efforts that they give us, as well as...

Russell A. Childs: the partnerships we have with our amazing partners and with that we will return and talk more about the next quarter in three months. Thank you.

Operator: Thank you.

Operator: This concludes today's conference call.

Operator: This concludes today's conference call. You may now disconnect.

Operator: You may now disconnect.

Operator: Please wait. The conference will begin shortly.

Operator: Please wait. The conference will begin shortly.

Speaker Change: This concludes today's conference call, you may now disconnect.