SkyWest, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
SkyWest operates regional airline services primarily under capacity purchase and prorate agreements with United, Delta, American and Alaska. The filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Operations continued to be materially affected by the COVID-19 pandemic, reduced passenger demand and lower flight schedules.
- Fleet: 605 aircraft, including 468 in scheduled service at March 31, 2021.
- Approximately 86.6% of flying-agreement revenue came from capacity purchase agreements and 13.4% from prorate agreements.
- Completed block hours declined 22.7%, departures declined 26.0% and passengers carried declined 35.6% year over year.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total operating revenue | $534.6 million | $729.9 million | (26.8%) |
| Operating income | $80.8 million | $66.3 million | 23.3% |
| Operating margin | 15.1% | 9.1% | Up 6.0 points |
| Income before taxes | $50.0 million | $39.1 million | 27.9% |
| Net income | $35.9 million | $30.0 million | 19.7% |
| Net margin | 6.7% | 4.1% | Up 2.5 points |
| Diluted EPS | $0.71 | $0.59 | 20.3% |
| Operating cash flow | $231.6 million | $269.5 million | (14.1%) |
- Flying-agreement revenue declined 27.9% to $511.2 million. Capacity purchase flight-operations revenue fell 42.4%, capacity purchase aircraft lease and fixed revenue fell 4.6%, and prorate revenue fell 31.6%.
- Total operating expenses declined 31.6% to $453.7 million. Results included a $193.2 million payroll support grant recognized as a reduction of operating expenses.
- Aircraft maintenance expense increased 27.2% to $203.8 million, primarily because of maintenance and engine work on older CRJ700 aircraft.
- Cash and marketable securities totaled $836.4 million at March 31, 2021, compared with $825.9 million at December 31, 2020.
- Total available liquidity was $1.542 billion, consisting of $836.4 million of cash and marketable securities, $41.0 million available under a bank line and $665.0 million available under the Treasury Loan Agreement.
- Total long-term debt, net of debt issuance costs, was $3.106 billion, down from $3.204 billion at December 31, 2020. Approximately 98.1% of long-term debt had fixed interest rates.
- Capital expenditures, including non-cash items, were $57.5 million. Net cash used in investing activities was $121.4 million, while net cash used in financing activities was $94.9 million.
Material changes versus the prior comparable period
- Revenue fell substantially because of COVID-19-related schedule reductions, temporary rate reductions under capacity purchase agreements and weaker prorate passenger demand.
- Despite lower revenue, operating and net income increased primarily because of the $193.2 million payroll support grant and lower flight-related expenses.
- Passenger load factor declined to 56.7% from 67.5%, while average passenger trip length increased to 540 miles from 493 miles.
- Aircraft maintenance expense increased despite lower utilization, reflecting efforts to extend the performance and reliability of older CRJ700 aircraft.
- The company deferred recognition of $21.2 million of fixed monthly aircraft payments because the payments were disproportionately high relative to reduced flight activity. Deferred revenue totaled $131.9 million at March 31, 2021.
- No shares were repurchased and no cash dividends were paid during Q1 2021, primarily because of government assistance-related restrictions.
Guidance, outlook, risks and unusual items
- Management expects COVID-19 to continue negatively affecting results during 2021 and possibly thereafter. The timing and strength of recovery depend substantially on passenger demand and schedules set by major airline partners.
- Management believes available working capital and government assistance will satisfy present requirements, including planned capital expenditures, lease payments and debt service, for at least the next 12 months.
- The company expects approximately $250 million of additional PSP 3 assistance during Q2 2021; $125 million was received on April 23, 2021. The filing also reports an additional $35 million under the PSP Extension Agreement received on April 23, 2021.
- Government assistance imposes restrictions on employee actions, dividends, share repurchases and executive compensation. PSP 3 restrictions on dividends and repurchases extend through September 30, 2022.
- SkyWest had firm commitments totaling $555.5 million for 20 new E175 aircraft and eight used CRJ700 aircraft. It expects to add 20 E175 aircraft and 16 used CRJ700 aircraft to American-related operations, subject to schedule changes.
- Total commitments and obligations were $4.570 billion, including $3.141 billion of principal maturities, $522.6 million of interest commitments, $350.8 million of operating lease payments and $555.5 million of firm aircraft and spare-engine commitments.
- Key risks include COVID-19 developments, dependence on major airline partners, changes in flight schedules, airline-partner financial condition, aircraft residual values, labor availability and costs, fuel prices, weather and substantial debt and lease obligations.
- A hypothetical 25% increase in fuel prices would have increased Q1 2021 fuel expense by approximately $4.8 million on prorate operations.
- Management stated that routine legal matters were not expected to have a material adverse effect on financial position, liquidity or results of operations.
Important facts for investors to verify
- Separate the recurring operating performance from the $193.2 million payroll support grant and other government assistance.
- Track passenger demand, load factors, block hours, departures and schedules controlled by United, Delta, American and Alaska.
- Assess the timing and eventual recognition of the $131.9 million deferred revenue balance.
- Review debt maturities, aircraft purchase commitments and the availability and conditions of Treasury borrowing facilities.
- Monitor maintenance costs and the economic viability, residual values and deployment plans for older CRJ aircraft.
- Confirm the amount and timing of PSP 3 proceeds, related promissory-note obligations and warrants issued to the U.S. Treasury.