Skywest Inc 2026 Q3 Earnings Call

Please go ahead. Thanks, 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, SkyWest Airlines President and Chief Operating Officer, and Eric Woodward, Chief Accounting Officer. I would 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? Today's discussion contains forward-looking statements that represent our current beliefs, expectations, and assumptions regarding future events and are subject to risks and uncertainties.

We assume no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. Actual results will likely vary and may vary materially from those anticipated, estimated, or projected for a number of reasons. Some of the factors that may cause such differences are included in our most recent Form 10-K and other reports and filings with the Securities and Exchange Commission. Now I will turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone, and thank you again for joining us on the call today. Today, SkyWest reported net income of $120 million or $3.08 per diluted share for the third quarter of 2026. The third quarter's results include increased block hours and were affected by higher fuel costs impacting our prorate business. During the quarter, our people delivered 99.9% adjusted completion on over 230,000 flights. We were consistently a top three on-time carrier on the DOT's consumer reports, and this is only possible with the teamwork of our more than 16,000 professionals. I again want to thank them for their great work through the quarter. We are consistently disciplined as we execute on our long-term business plans. In recent years, we have strategically positioned our company to withstand unexpected headwinds like the fuel volatility we are experiencing. Specifically, we have, one, delevered our balance sheet.

We've continued to reduce our debt, and we now have $1 billion less debt than we did at the end of 2022. Overall, our debt ratios and leverage metrics are among the best in the industry. Second, we've invested in the fleet and continue to do so. During the third quarter, we took delivery of four new E175 aircraft for United. From Q4 through the end of 2028, we will take delivery of at least 30 new E175s, putting us over 300 in our fleet. Our model allows us to continue investing strategically in both the new E175 fleet and conversions of our CRJ fleet, including the new CRJ450, which will be placed into service later this year. With these transitions, we look forward to ultimately operating an all dual-class fleet. Third, we return capital to our shareholders through our stock repurchase program.

The resilience of our model is based on improving the cash flow quality of our earnings and strategically deploying our capital, not just against production metrics, but against value creation. We believe we are in an important window to continue to invest in our fleet, including the new E175s in our order book under contract, as well as the 33 delivery slots beginning in 2027 for future opportunities. We're also positioned to continue to invest in CRJ550 and 450 conversions, CRJ heavy maintenance, and pilot training. We believe the investments we're making today will deliver economic benefits in 2028. Our approach to capital deployment, as always, will reflect our view of the best long game strategy for our shareholders, our employees, and our partners.

As the industry evaluates capacity in 2027 and beyond, we're in the best position to respond to market demands and our partners' needs in a dynamic environment. Overall, our disciplined strategic choices and continued execution have strengthened our model. We remain engaged with our partners on navigating the headwinds of our industry better than anyone else. Rob Simmons will now take us through the financial data. Today, we reported a third quarter GAAP net income of $120 million, or $3.08 earnings per share. Q3 pretax income was $159 million, up 15% sequentially from Q2. Our weighted average share count for Q3 was 38.8 million, and our effective tax rate was 25%. Total Q3 revenue of $1.1 billion is up 6% from $1 billion in Q3 2025 on block hour demand from our partners and is up 1% sequentially from Q2 2026.

Q3 revenue includes contract revenue of $866 million, prorate and charter revenue of $218 million, and leasing and other revenue was $33 million. These Q3 GAAP results include the effect of recognizing $23 million of previously deferred revenue this quarter, up from the $17 million recognized in Q3 2025 and down from $27 million recognized in Q2 2026. As of the end of Q3, we have $190 million of cumulative deferred revenue that will be recognized in future periods. Our prorate fuel expense in Q3 was $66 million, up from $34 million in Q3 2025 and $61 million in Q2 2026. The year-over-year increase of $32 million was due to both a higher price per gallon, a $22 million negative impact, and incremental prorate production, a $10 million impact.

The fuel price per gallon on our prorate flying was $4.56 in Q3, up from $3.04 in Q3 2025 and $4.45 in Q2 2026. In Q3, we revised the estimated useful life on our E175 fleet to 30 years based on demand for this aircraft and current industry practices. With this change, our Q3 depreciation expense was down $16 million, both from Q3 2025 and from Q2 2026. Notwithstanding the puts and takes on our revenue and operating expenses this quarter, our Q3 pre-tax income was up $21 million sequentially from Q2 2026. Now let's discuss the balance sheet. We ended the quarter with cash of $569 million, down from $601 million last quarter.

The ending cash balance for the quarter included the effects from repaying $119 million in debt, issuing $187 million of new debt financing ongoing fleet deliveries, investing $163 million in CapEx, including the purchase of four E175s, and buying back shares of SkyWest stock in Q3, consistent with prior periods. As of September 30, we had $238 million remaining under our current share repurchase authorization. Cash flow continues to be the key driver of our value creation strategy. We generated over $700 million of EBITDA during the first three quarters of 2026, despite the headwind from prorate fuel cost. Since the end of 2025, we've invested over $400 million in CapEx for fleet and related assets. Consistent with our practice, let me first update you on some color on 2026.

For the full year 2026, we expect to see block hour production up approximately 5% from 2025, consistent with last quarter's outlook. We anticipate our GAAP EPS for 2026 will be in the $10.60 area, including the effect of ongoing fuel price volatility and crew training costs up from our 2025 GAAP EPS of $10.35. Last quarter, we shared that our 2026 EPS estimates in the area of $11 assumed average jet fuel of $3.65 a gallon for the second half of 2026 on 28 million gallons of jet fuel needed in the second half for our prorate business. Our Q3 actuals included fuel cost of $4.56 a gallon on 14.5 million gallons, a negative headwind of approximately $13 million or $0.26 of EPS on our third quarter results. Our updated 2026 area of $10.60 EPS color assumes fuel cost of $4.90 a gallon on 14 million gallons in Q4.

For other modeling purposes, we anticipate our depreciation expense in Q4 to be $80 million, up from $76 million in Q3. We also anticipate our effective tax rate for Q4 will be approximately 27%, translating to approximately 22% for the full year 2026. We anticipate our total CapEx in 2026 will be approximately $725 million. For 2027, we expect block hour production to be up modestly in the 1%-2% area from 2026, with EPS similar to 2026. Let me provide some additional color on our outlook for 2027. We anticipate recognizing approximately $70 million of previously deferred revenue in 2027, down from roughly $100 million anticipated for 2026. For comparability purposes, this estimated $30 million reduction represents a headwind of approximately $0.60 EPS in 2027 compared to 2026.