SkyWest, Inc. FY2023 Form 10-K Summary
Business context and reporting period
SkyWest, Inc. operates the largest U.S. regional airline through SkyWest Airlines and SkyWest Charter (SWC), primarily under code-share and capacity purchase agreements with United, Delta, American and Alaska. The filing covers the fiscal year ended December 31, 2023; the requested “2023 Q4” is included in this annual filing, but separate fourth-quarter financial results are not presented in the supplied text.
- Approximately 1,850 daily departures and 603 total aircraft at year-end, including 485 in scheduled service or under code-share contract.
- Capacity purchase agreements represented approximately 86.5% of flying agreements revenue; approximately 87% of flying agreements revenue related to capacity purchase flying.
- SkyWest had 13,121 employees, approximately 89% of whom were represented by in-house labor associations.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total operating revenue | $2.935 billion | $3.005 billion | Down 2.3% |
| Operating income | $104.1 million | $181.2 million | Down 42.6% |
| Operating margin | 3.5% | 6.0% | Down 2.5 percentage points |
| Net income | $34.3 million | $73.0 million | Down 52.9% |
| Diluted EPS | $0.77 | $1.44 | Down 46.5% |
| Net margin | 1.2% | 2.4% | Down 1.2 percentage points |
| Operating cash flow | $736.3 million | $480.4 million | Up 53.3% |
- Flying agreements revenue declined 2.3% to $2.834 billion. Capacity purchase revenue decreased, while prorate and SWC revenue increased 9.2% to $381.4 million.
- Operating expenses increased 0.3% to $2.831 billion. Salaries, wages and benefits rose 9.2% to $1.323 billion, representing 46.7% of operating expenses. Aircraft maintenance increased 4.5% to $673.5 million.
- Fuel expense declined 20.8% to $85.9 million, reflecting fewer prorate flights and a lower average fuel price of $3.70 per gallon versus $4.14 in 2022. Major airline partners generally bear fuel costs under capacity purchase agreements.
- SkyWest Airlines and SWC generated a segment loss of $191.8 million, compared with a $45.6 million loss in 2022. SkyWest Leasing segment profit increased to $165.0 million from $99.6 million.
- Passenger volume declined 3.7% to 38.6 million, departures declined 6.4% to 691,962, and block hours declined 9.1% to 1.14 million. Passenger load factor increased slightly to 83.6% from 83.4%.
Liquidity, debt and capital allocation
- Cash, cash equivalents and marketable securities totaled $835.2 million at December 31, 2023, down from $1.047 billion at year-end 2022. Available liquidity, including $70.8 million available under the line of credit, was $906.0 million.
- Total long-term debt was $3.030 billion, including $2.8 billion of aircraft and spare-engine financing and $200.6 million owed to the U.S. Treasury. The average effective interest rate was approximately 4.1%; debt had fixed interest rates except for specified Treasury debt terms beginning in 2025.
- Debt principal maturities total $447.5 million in 2024, $532.3 million in 2025 and $510.6 million in 2026. Total commitments and obligations disclosed for 2024 were $729.2 million.
- SkyWest repurchased 10.6 million shares for $289.1 million in 2023. The May 2023 repurchase authorization had $90.9 million remaining at year-end. No dividends were declared in 2023 or 2022.
- Management stated that available working capital should be sufficient for present requirements, planned capital expenditures, lease payments and debt service for at least the next 12 months.
Material changes versus the prior comparable period
- Pilot shortages and attrition reduced scheduled aircraft, departures and block-hour production. The number of aircraft in scheduled service or under contract fell 6.2%, from 517 to 485.
- Higher pilot compensation and other labor costs materially pressured profitability. Management expects elevated pilot training costs to continue in 2024.
- Capacity purchase agreement amendments shifted compensation from fixed monthly payments toward variable payments and substantially increased deferred revenue. Deferred revenue reached $374.6 million at year-end 2023, versus $144.7 million at year-end 2022; the filing identifies forecasted block hours as a significant estimate affecting recognition.
- Aircraft rental expense declined 66.1% following early lease buyouts. SkyWest acquired 35 CRJ aircraft under early lease buyout arrangements for $142.4 million.
- The company recorded a $2.3 million impairment related to 14 CRJ700 aircraft held for sale, compared with a $51.4 million impairment in 2022.
- Firm commitments totaled $610.9 million for 21 new E175 aircraft and spare engines, with deliveries anticipated from 2024 through 2026. The company expects to finance approximately 75% to 85% of these purchases with debt.
Outlook, risks, contingencies and unusual items
- Scheduled aircraft additions include five E175s in 2024, eight in 2025 and eight in 2026 for United, Delta and Alaska, although delivery and in-service dates may change.
- The principal near-term operating constraint is pilot availability. Continued attrition or inability to upgrade and retain captains could reduce schedules, revenue and capacity purchase compensation and could trigger contractual penalties.
- The business is highly dependent on four major airline partners. Delta and United together represented approximately 70.9% of total revenue in 2023. Partner schedule reductions, financial distress, bankruptcy, contract termination or scope limitations could materially affect results.
- Approximately 5.0 million metric tons of CO2e were produced from fuel burned on code-share flights in 2023. Environmental requirements and partner decisions regarding sustainable aviation fuel and emissions reduction could increase costs.
- SWC began revenue-generating charter operations in May 2023 and generated $6.4 million of revenue during the year. Its expansion carries execution and resource-allocation risk.
- SkyWest guarantees third-party debt with $22.4 million outstanding at year-end 2023, secured by aircraft and engines. Defaults could create losses if collateral is insufficient.
- A 2021 cyberattack and related server outage caused approximately 1,700 flight cancellations and an estimated $16 million pre-tax impact; approximately half of the loss was recovered through cyber insurance in 2023. Management reported no known cybersecurity threat with a material impact in 2023.
- The company holds investments in Eve and Contour and participates in an engine-leasing joint venture. The filing notes uncertainty regarding returns, aircraft certification, partner performance and market values.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter involved valuation of deferred revenue based on forecasted block hours.
Most important facts for investors to verify
- Whether pilot hiring, retention and captain upgrades improve enough to restore or increase block-hour production in 2024.
- The timing and collectability of the $374.6 million deferred revenue balance and the sensitivity of revenue recognition to forecasted block hours.
- Renewal, removal and termination provisions for aircraft under the United, Delta, American and Alaska agreements.
- Liquidity after the $447.5 million of 2024 debt maturities, planned aircraft purchases and any additional share repurchases.
- Ability to finance the $610.9 million of committed aircraft and spare-engine purchases on acceptable terms.
- Future labor, maintenance and training costs, particularly for the aging CRJ700 and CRJ200 fleets.
- Potential impairment or residual-value losses on aircraft held for sale and other long-lived assets.
- Exposure to major airline partner credit quality, schedule decisions, scope restrictions and contractual disputes.