SkyWest, Inc. 2021 Q2 SEC Filing Summary
Business context and reporting period
SkyWest filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company operates regional airline service primarily under capacity purchase and prorate agreements with United, Delta, American and Alaska, with SkyWest Airlines and SkyWest Leasing as reportable segments.
- Fleet: 608 aircraft, including 478 in scheduled code-share service.
- Scheduled service aircraft increased from 452 at December 31, 2020 and 471 at June 30, 2020.
- COVID-19 recovery increased second-quarter departures 129.7% year over year, but activity remained below second-quarter 2019 levels.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total operating revenue | $657.0 million | $350.0 million | $1.192 billion | $1.080 billion |
| Operating income | $115.0 million | $(4.4) million | $195.9 million | $61.9 million |
| Net income | $62.0 million | $(25.7) million | $97.9 million | $4.3 million |
| Diluted EPS | $1.22 | $(0.51) | $1.93 | $0.08 |
| Operating margin | 17.5% | (1.3)% | 16.4% | 5.7% |
| Net margin | 9.4% | (7.3)% | 8.2% | 0.4% |
- Q2 flying agreements revenue increased 88.2% to $633.0 million; prorate revenue increased 185.1% to $103.2 million.
- For the six months, capacity purchase flight-operation revenue declined 2.9% to $484.2 million because temporary rate reductions to major airline partners offset higher flying activity. Capacity purchase aircraft lease and fixed revenue rose 18.8% to $488.1 million.
- Q2 operating expenses increased 52.9% to $542.0 million, primarily due to higher flight activity, labor, maintenance and fuel costs. Payroll support grants reduced operating expenses by $114.1 million in Q2 and $307.3 million year to date.
- Q2 fuel expense increased 279.2% to $25.9 million, with average fuel cost rising from $1.45 to $2.36 per gallon. The company bears fuel-price risk primarily on prorate operations.
- Six-month operating cash flow was $498.7 million, compared with $492.3 million in the prior-year period. Investing cash flow used $182.4 million and financing cash flow used $186.2 million.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $345.9 million and marketable securities were $609.8 million at June 30, 2021, for total cash and marketable securities of $955.7 million.
- Total available liquidity was $996.7 million, including $41.0 million available under SkyWest Airlines’ credit facility.
- Long-term debt, net of debt issuance costs, was $3.013 billion, down from $3.204 billion at December 31, 2020. Total debt including current maturities was $3.046 billion.
- Net debt after cash and marketable securities declined to approximately $2.058 billion from $2.378 billion at year-end 2020.
- Operating lease liabilities totaled $266.1 million, consisting of $78.3 million current and $187.9 million noncurrent liabilities.
- Management stated that available working capital was sufficient for present requirements, planned capital expenditures, scheduled lease payments and debt service for at least the next 12 months.
Material changes versus the prior comparable period
- Passenger traffic, block hours and departures recovered substantially from the pandemic-depressed Q2 2020 base. Q2 passengers increased 416.1% to 9.3 million, block hours increased 157.1% to 324,045, and load factor increased to 76.4% from 34.4%.
- SkyWest Airlines segment profit improved to $44.2 million from a $51.5 million loss; SkyWest Leasing segment profit increased to $36.9 million from $16.2 million.
- Maintenance expense increased materially because the company performed additional work intended to extend the operating performance and reliability of older aircraft, including CRJ700s.
- Deferred revenue related to fixed capacity-purchase payments was $137.5 million at June 30, 2021. The company expects to recognize it over the remaining contract terms as flight activity increases.
- The company received approximately $268.1 million under the 2021 Appropriations Act program and approximately $250.0 million under the American Rescue Plan program. These amounts included grants, loans and warrants.
- SkyWest repaid and terminated its $60 million U.S. Treasury secured loan during Q2, including $3.6 million of deferred loan-cost expense.
Guidance, outlook, risks and unusual items
- No quantitative revenue or earnings guidance was provided. Management expects future flight levels to increase from first-half 2021 levels but cautions that results are not necessarily indicative of full-year performance.
- COVID-19 recovery remains uncertain because of vaccine effectiveness and distribution, virus variants, travel restrictions, passenger demand and flight schedules controlled by airline partners.
- Payroll support agreements restrict involuntary terminations, pay reductions and furloughs through September 30, 2021; restrict dividends and share repurchases through September 30, 2022; and impose executive-compensation limitations through April 1, 2023. The company did not repurchase shares or pay dividends during the first six months of 2021.
- Firm commitments included 29 new E175 aircraft and eight used CRJ700 aircraft, with total firm aircraft and spare-engine commitments of $791.3 million. Management expected to finance approximately 80% to 85% of the E175 commitments with debt.
- In August 2021, SkyWest agreed to purchase and operate 16 new E175 aircraft for Delta. The aircraft are expected to replace 16 SkyWest-owned or financed CRJ900s, and management was evaluating a potential non-cash impairment charge.
- Key risks include dependence on major airline partners, partner financial condition and schedule changes, aircraft residual values and impairment, labor availability and costs, fuel prices, weather, competition, debt and lease obligations, aircraft delivery timing and continuing pandemic effects.
Important facts for investors to verify
- How much of reported profitability and operating cash flow depends on payroll support grants, including the $115.3 million of grant proceeds expected to be recognized in Q3 2021.
- The timing and recoverability of the $137.5 million deferred revenue balance as flight activity and contract terms develop.
- Whether passenger demand and flight schedules return to pre-COVID levels and whether temporary partner rate reductions continue.
- Funding capacity and leverage implications of the $791.3 million aircraft and spare-engine commitments and planned debt financing.
- The potential impairment exposure from replacing 16 CRJ900 aircraft with new Delta E175 aircraft.
- Compliance with payroll-support restrictions, credit-facility covenants and the September 30, 2021 credit-line expiration.