Business Context and Reporting Period
Company: SkyWest, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 31, 2000
Business Overview: SkyWest operates as a regional airline, primarily providing contract flying services for major carriers (Delta Connection and United Express). The company is currently undergoing significant fleet expansion, having taken delivery of five Canadair Regional Jets (CRJs) during the period and holding agreements to purchase 114 additional CRJs.
Key Financial Metrics
| Metric | Three Months Ended Dec 31, 2000 |
Nine Months Ended Dec 31, 2000 |
|---|---|---|
| Operating Revenues | $130.9 million | $399.9 million |
| Net Income | $12.6 million | $46.9 million |
| Diluted EPS | $0.22 | $0.88 |
| Operating Cash Flow | N/A | $78.8 million |
| Cash & Equivalents | $66.2 million | $66.2 million |
| Working Capital | $270.9 million | $270.9 million |
| Long-Term Debt | $75.8 million (net of current) | $75.8 million (net of current) |
| Debt-to-Equity | 13.6% | 13.6% |
Note: All figures in millions unless otherwise noted. Data derived from Condensed Consolidated Financial Statements.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 11.5% for the quarter and 13.7% for the nine-month period compared to the prior year, driven by a 12.4% increase in Revenue Passenger Miles (RPMs) and a 5.0% increase in yield per RPM.
- Profitability Decline (Quarterly): Despite revenue growth, quarterly net income decreased 7.8% to $12.6 million. This was primarily due to approximately 5,200 flight cancellations caused by inclement weather and Air Traffic Control (ATC) issues, which incurred costs without generating revenue.
- Profitability Growth (Nine Months): Net income for the nine-month period increased 8.7% to $46.9 million, reflecting record passenger enplanements and improved yields.
- Cost Increases: Operating expenses rose 17.8% for the quarter and 15.8% for the nine months. Fuel costs per Available Seat Mile (ASM) increased significantly (from 2.2 cents to 3.5 cents in the quarter) due to higher fuel prices ($1.29/gallon vs. $0.97/gallon).
- Liquidity Improvement: Working capital increased from $154.2 million to $270.9 million, and the current ratio improved from 2.9:1 to 4.2:1, largely due to a $122.1 million common stock offering in September 2000.
Guidance, Outlook, and Risks
- Fleet Expansion: SkyWest has agreements to purchase 114 CRJs at an aggregate cost of approximately $2.5 billion, with deliveries scheduled from January 2001 through December 2004. Options exist for 119 additional aircraft.
- Capital Strategy: Management intends to fund future aircraft acquisitions through third-party loans or lease agreements depending on market conditions. The company believes current working capital is sufficient for the next 12 months.
- Market Risks:
- Fuel Price Volatility: The company is exposed to fuel price fluctuations, though approximately 65% of ASMs are covered by contractual reimbursement from partners (Delta and United).
- Interest Rates: 22% of long-term debt is variable rate. A 1% increase in rates would increase interest expense by approximately $129,000 for the nine-month period, partially offset by increased interest income on securities.
- Subsidy Risk: A portion of debt related to Brasilia Turboprops relies on subsidy payments from the Federative Republic of Brazil. Default by Brazil could increase effective interest rates.
- Seasonality: Operations are historically affected by winter weather and reduced business travel in Q4, though contract flying is expected to mitigate some seasonal trends.
Investor Verification Checklist
- Flight Cancellation Impact: Verify the extent of revenue loss and cost absorption related to the 5,200 flight cancellations in Q4 2000.
- Fuel Hedging/Reimbursement: Confirm the stability of fuel reimbursement contracts with Delta and United, which cover 65% of operations.
- Debt Financing for Expansion: Monitor the terms and interest rates for the financing of the $2.5 billion aircraft purchase agreement.
- Brazilian Subsidy Status: Assess the risk of non-payment of export subsidies from Brazil affecting the cost of Brasilia Turboprop debt.
- Stock Offering Proceeds: Track the deployment of the $122.1 million raised in September 2000 to ensure alignment with capital expenditure plans.