SkyWest profits, revenues fall

While most of the news today was about SkyWest’s acquisition of ExpressJet Airlines, SkyWest Inc reported that its operating revenues and profits fell slightly, as did Pinnacle before it in what may be the story for the regional airline industry second quarter – falling profits and expenses while remaining profitable – and rising block hours.

See related report: Pinnacle maintains profitability, but net earnings ease in 2Q2010

SkyWest's yield per revenue passenger mile declined 13% to USD0.134 cents, while RASM dropped 12.8% to USD0.109. Meanwhile, cost per available seat mile declined 11% to USD0.105.

The company reported operating revenues of USD649.8 million for the quarter ended 30-Jun-2010, compared to USD698.8 million for the same period last year. SkyWest also reported net income of USD18.7 million or USD0.33 per diluted share, for the June quarter compared to USD26.2 million of net income or USD0.46 per diluted share, for the same period last year. Executive Vice President and CFO Brad Rich noted that in prior quarters the company experienced an operating loss, but the second quarter showed a USD1.9 million operating profit, reflecting strong improvement. He said that ASM production is anticipated at 6.3 billion in the third quarter and 5.7 billion in the fourth quarter for a full-year increase of 6.2% year on year.

See related report: SkyWest to acquire ExpressJet in continued US regional consolidation

Operating revenues for the second quarter, excluding fuel and engine overhaul reimbursements, increased 6.4% to USD561.8 million compared to USD528.2 million for the same period last year. The company reported a change in its fuel purchasing by buying some of its fuel which is ultimately reimbursed through operating revenues (as are engine overhauls), by its major partners. However, for financial reporting purposes, these reimbursements are recorded as operating revenues.

Block hours up

SkyWest cited an increase in the number of block hours in contract flying and additional pro-rate flying. SkyWest produced 357,645 block hours, a 4.2% increase, for the quarter, compared to 343,113 block hours for the same period last year.

Total operating expense and interest per available seat mile for 2Q2010, excluding fuel expense of USD85.5 million, or USD0.014 per ASM, decreased 4.2% to USD0.091 from USD0.095 for the comparable quarter of 2009. The company cited increased ASM production of approximately 6.4% for the comparable periods. Total operating expense and interest, excluding fuel expense, was USD536.7 million for the quarter, compared to USD531.1 million in the year-ago period. Rich also reported a USD1.1 million expense related to its Trip investment in Brazil on foreign exchange translations.

Rich explained the mismatch between overhaul of CRJ200 engines and the reimbursements from partners. “The expenses in Q2 exceeded revenues collected amounts to a USD13.7 million impact pre tax representing a USD16.4 million pre-tax swing,” he said. “Last quarter we told you we needed to plan for more of this happening but USD16.4 million was higher than we were expecting largely driven on the timing of engine events. We recognise this is a big issue with a material impact on the quarter and we’ll have this through the next year or so when it will stabilise and we will return to revenues exceeding expenses.”

SkyWest recorded stock-based compensation expense of approximately USD1.5 million for the quarter, compared to USD1.9 million for the same quarter of 2009 on fewer stock-based awards than previously granted.

Still committed to its stock buyback plan, the company said it did not repurchase any outstanding shares of its common stock owing to a black out period related to the ExpressJet acquisition. It is authorised to repurchase up to an additional 7.69 million shares of its common stock. Executive Vice President and CFO Brad Rich said it is still the intention to buy back enough stock to mitigate the dilutive effect of its employee equity compensation plan at the very least.

At the end of the second quarter, SkyWest had approximately USD746.1 million in cash and marketable securities, compared to approximately USD732.4 million at the end of 4Q-2009. Long-term debt was USD1.82 billion on the acquisition of four CRJ700s offset by payment of normal occurring debt obligations, and thus was flat from the fourth quarter.

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