SkyWest Inc reports 3Q2013 financial highlights

06-Nov-2013

SkyWest, Inc. ("SkyWest") (NASDAQ: SKYW) today reported net income of $26.4 million, or $0.50 per diluted share, for the quarter ended September 30, 2013, compared to net income of $20.9 million, or $0.40 per diluted share, for the same period last year.

SkyWest also reported net income of $50.3 million, or $0.96 per diluted share, for the nine months ended September 30, 2013, compared to $37.2 million, or $0.72 per diluted share, for the same period last year.

Quarter Highlights

SkyWest experienced improved financial results for the quarter ended September 30, 2013, compared to its financial results for the quarter ended September 30, 2012. SkyWest generated increased operating revenues (after giving effect to reduced fuel, certain engine overhaul and landing fee pass through amounts) primarily due to additional block hour production from increased aircraft utilization, larger fleet size and rate escalations in SkyWest contracts with its major airline partners. Following are selected highlights from SkyWest's quarter ended September 30, 2013, compared to the quarter ended September 30, 2012:

Increased pretax income 34.8% to $44.4 million, compared to $32.9 million
Increased fully-diluted EPS 25.0% to $0.50, compared to $0.40
Increased block hour production 2.8% to 613,821 block hours, compared to 596,901 block hours
Increased operating revenues by approximately $32.9 million (net of fuel, certain engine overhaul and landing fee pass through revenues), primarily related to rate escalations under SkyWest's agreements with its major partners and increased block hour production
Made cash payments of $22.9 million consisting of $11.5 million for the repurchase of 800,000 shares of treasury stock and $11.4 million for deposits on new aircraft
Increased total aircraft fleet to 756 aircraft as of September 30, 2013, compared to 739 aircraft as of September 30, 2012
Commenting on the results, Jerry C. Atkin, SkyWest's Chairman and CEO, said "We are pleased with the improved financial performance for the current quarter. However, in spite of current challenges we remain committed to further improvement in meeting our current and long-term operational and financial objectives."

Financial and Operating Results

Operating revenues totaled $850.7 million for the quarter ended September 30, 2013, compared to $865.3 million for the same period last year or a decrease of $14.6 million. The decrease was due primarily to the reduction of approximately $47.5 million in fuel, certain engine overhaul amounts and landing fees which were directly reimbursed by SkyWest's major partners and recorded as operating revenues. However, this reduction was mostly offset by recording approximately $32.9 million in additional operating revenues, primarily resulting from rate escalations under SkyWest's agreements with its major partners and a 2.8% increase in total block hours for the quarter ended September 30, 2013, compared to the quarter ended September 30, 2012.

Total airline expenses (consisting of total operating and interest expenses) decreased $18.2 million, or 2.2%, during the quarter ended September 30, 2013, compared to the same period in 2012. However, after excluding pass-through costs for fuel, certain engine overhaul expenses and landing fees, total airline expenses increased $29.3 million.

Under certain of its agreements with its major partners, SkyWest recognizes revenue at fixed hourly rates for mature engine maintenance on regional jet engines and SkyWest recognizes engine maintenance expense on its CRJ200 regional jet engines on an as-incurred basis as maintenance expense. During the quarter ended September 30, 2013, CRJ200 engine expense under these agreements decreased $4.0 million to $9.1 million, compared to $13.1 million for the quarter ended September 30, 2012, primarily as a result of decreased engine overhaul expense due to the timing of scheduled engine maintenance events. SkyWest was reimbursed approximately $12.8 million and $10.4 million for engine overhaul expense, under its agreements with its major partners, during the quarters ended September 30, 2013 and 2012, respectively.

Liquidity

At September 30, 2013, SkyWest had $727.8 million in cash and marketable securities, compared to $709.4 million as of December 31, 2012. The increase in cash and marketable securities of $18.4 million was primarily the result of increased profitability. Cash and marketable securities increased $62.2 million during the quarter ended September 30, 2013 compared to a balance of $665.6 as of June 30, 2013. SkyWest's long-term debt was $1.35 billion as of September 30, 2013, compared to $1.47 billion as of December 31, 2012. The decrease in long-term debt for the nine-months ended September 30, 2013 was due primarily to SkyWest's payment of normal recurring debt obligations. SkyWest has significant long-term lease obligations that are recorded as operating leases and are not reflected as liabilities on SkyWest's consolidated balance sheets. At a 4.7% discount rate, the present value of these lease obligations was approximately $1.6 billion as of September 30, 2013.

Recent Business Developments

On August 2, 2012, SkyWest announced the award of 34 additional dual-class aircraft and the removal of 66 CRJ200 aircraft under its Delta Connection Agreements with Delta Airlines, Inc. ("Delta"). As of May 2013, all 34 of these additional dual-class aircraft had been delivered. As of September 30, 2013 SkyWest had removed 30 (22 placed in contract with another partner; other 8 removed from fleet) of the 66 CRJ200 aircraft from service and currently anticipates removing another 18 CRJ200 aircraft between October 2013 and December 2013. SkyWest believes the remaining 18 CRJ200 aircraft will be removed at various times through 2014 and early 2015. Additionally, 41 of the 66 aircraft have been financed by Delta and will be returned to Delta with no further obligation by SkyWest.

On May 21, 2013, SkyWest announced it had entered into a Capacity Purchase Agreement ("CPA") with United Airlines, Inc. ("United") to operate 40 new Embraer E175 dual-class regional jet aircraft. The CPA is for 12 years and the new aircraft will be operated by SkyWest's wholly-owned subsidiary, SkyWest Airlines, Inc. ("SkyWest Airlines"). Deliveries for these aircraft are scheduled to begin in March 2014 and continue through August 2015.

Additionally, on May 21, 2013 SkyWest announced it reached an agreement with Embraer S.A. ("Embraer") for the purchase of 100 new E175 dual-class regional jet aircraft, 40 of which are considered firm orders and the remaining 60 aircraft remain conditional upon SkyWest entering into capacity purchase agreements with other major airlines. SkyWest intends to place the 40 new aircraft into service under the terms of the United CPA discussed above.

On June 17, 2013, SkyWest and Embraer jointly announced an aircraft purchase agreement covering 100 E175-E2 dual-class regional jet aircraft and an option to purchase an additional 100 of the same aircraft. Deliveries for these E2 aircraft are tentatively planned to start in 2020.

Refer to full documentation in attachments box, located at the top left, below the headline.