SkyWest, Inc. (SKYW) Q2 2025 Earnings Call Transcript

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Overview

SkyWest's earnings call reveals strong financial performance with increased revenue and leasing activities. Despite a cash balance decline due to strategic debt repayment and share repurchases, the company is effectively deleveraging. The Q&A session highlights proactive management addressing supply chain challenges and maintaining flexibility in capital allocation. Optimistic guidance for 2025 and beyond, coupled with market share growth and fleet expansion, suggest a positive market reaction. However, management's lack of specific growth guidance for 2026 may temper expectations slightly, resulting in an overall positive sentiment.

Key Financial Performance

Net Income $120 million for Q2 2025, or $2.91 per diluted share, reflecting higher production and strong demand. This is a significant improvement from the previous year.

Total Revenue $1 billion in Q2 2025, up 19% year-over-year from $867 million in Q2 2024. The increase is attributed to higher contract revenue, prorate and charter revenue, and leasing and other revenue.

Contract Revenue $842 million in Q2 2025, up from $731 million in Q2 2024, driven by increased production and demand.

Prorate and Charter Revenue $145 million in Q2 2025, up from $107 million in Q2 2024, due to strong demand and increased flying agreements.

Leasing and Other Revenue $47 million in Q2 2025, up from $29 million in Q2 2024, reflecting growth in leasing activities.

Deferred Revenue Recognized $23 million in Q2 2025, up from $13 million in Q1 2025, contributing to the revenue increase.

Cash Balance $727 million at the end of Q2 2025, down from $834 million in Q2 2024, due to debt repayment, share repurchases, and capital expenditures.

Debt $2.5 billion at the end of Q2 2025, down from $2.7 billion at the end of 2024, reflecting efforts to deleverage the balance sheet.

Free Cash Flow $68 million in Q2 2025, contributing to over $200 million in free cash flow for the first half of 2025, used for debt repayment and share repurchases.

Capital Expenditures (CapEx) $169 million in Q2 2025, including purchases of new aircraft and investments in fleet expansion.

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Operating Highlights

New E175 Aircraft Agreement: SkyWest announced an agreement to purchase and operate 16 new E175s under a multiyear contract with Delta, with deliveries starting in 2027. Additionally, they secured firm delivery positions for 44 more E175s from 2028 to 2032.

CRJ550 Expansion: SkyWest plans to deploy 30 additional CRJ550s by the end of 2026 under a multiyear agreement with United.

Fleet Growth: SkyWest has a new purchase agreement with Embraer for 60 firm aircraft and purchase rights for an additional 50 aircraft, with deliveries starting in 2027.

Underserved Communities: SkyWest is focusing on restoring or bringing new service to underserved communities, supported by the deployment of additional CRJ550 aircraft.

Prorate Agreement with American: SkyWest began a prorate agreement with American Airlines, currently operating 3 aircraft and planning to expand to 9 by mid-2026.

Fleet Flexibility: SkyWest emphasized its fleet flexibility, allowing it to adapt to macroeconomic challenges such as tariffs on Brazil.

Maintenance Challenges: SkyWest is addressing third-party MRO network challenges, including labor and parts shortages, and expects maintenance expenses to remain at Q2 levels for the rest of 2025.

Long-term Fleet Strategy: SkyWest's long-term fleet strategy includes securing delivery slots for new aircraft and maintaining flexibility to defer or cancel orders as needed.

Shareholder Returns: SkyWest is focused on improving return on invested capital through debt repayment, share repurchases, and strategic fleet investments.

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Risk or Challenges

Tariffs on Brazil: Potential implementation of a 50% tariff on new aircraft deliveries from Brazil could disrupt delivery schedules and increase costs. SkyWest is unwilling to pay this tariff, which may lead to delays in receiving new aircraft.

Delivery Delays from Embraer: SkyWest anticipates delays in the delivery of Embraer aircraft, with most 2025 deliveries expected in Q4 or early 2026. This could impact fleet expansion and operational plans.

Third-party MRO Network Challenges: Labor and parts shortages in the third-party maintenance, repair, and overhaul (MRO) network are causing operational challenges and increased maintenance expenses.

Supply Chain Challenges: SkyWest is facing supply chain issues, particularly in sourcing parts for aircraft maintenance and operations. This has led to the purchase of used CRJ900 airframes for parts.

Debt Levels: Despite reductions, SkyWest still carries $2.5 billion in debt, which could pose financial risks if economic conditions worsen or revenue growth slows.

Seasonality in Revenue: The reintroduction of seasonality in the prorate business model could lead to softer revenue in Q4 and Q1, impacting financial performance.

Fleet Utilization and Availability: Challenges in improving fleet utilization and availability could hinder the company's ability to meet increasing demand and production targets.

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Guidance & Outlook

Fleet Expansion and Flexibility: SkyWest plans to purchase and operate 16 new E175s under a multiyear contract with Delta, with deliveries expected to begin in 2027. Additionally, the company secured firm delivery positions for 44 more E175s from 2028 to 2032, with flexibility to defer or cancel these aircraft. The company also plans to deploy additional CRJ550s and expects its existing CRJ fleet to remain operational well into the next decade.

Production and Block Hours: SkyWest anticipates a 14% increase in block hours for 2025 compared to 2024, driven by improved fleet utilization and strong demand. The company expects block hour seasonality to return, with higher utilization during summer months.

Revenue and Earnings Projections: SkyWest expects its 2025 GAAP EPS to be in the $10 per share area, representing a 28% increase in EPS compared to 2024. The company also anticipates recognizing $10 million to $20 million of previously deferred revenue per quarter for the remainder of 2025.

Capital Expenditures: SkyWest projects total 2025 capital expenditures to be approximately $575 million to $625 million, including the purchase of 8 new E175s and investments in CRJ900 airframes and engines.

Growth Opportunities: The company is optimistic about growth in 2026, focusing on increasing service to underserved communities, improving aircraft utilization, and placing 14 new E175s into service for United and Alaska by the end of 2026.

Tariff Impact and Mitigation: SkyWest is prepared to manage potential tariffs on Brazil, which are not expected to impact 2025 production forecasts. The company plans to delay aircraft deliveries if a 50% tariff is implemented, working with partners and Embraer to find sustainable solutions.

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Shareholder Return Plan

Share Repurchase Program: SkyWest repurchased 195,000 shares of its stock in Q2 2025 for $17.3 million. This represents a 39% increase in shares repurchased compared to Q1 2025. As of June 30, 2025, $267 million remained under the current share repurchase authorization, which was updated in May 2025.

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Key Q&A

Q:Could you talk about your CRJ200 fleet and the opportunities for the unassigned aircraft?

A:The CRJ200 fleet provides flexibility. There are about 50 parked airplanes. The priorities are: 1) adding them to current contracts with major partners, 2) flying prorate with major partners, 3) leasing them to entities like Contour, and 4) consuming excess parts and engines.

Q:Can you discuss the 29 airframes planned for parting out and the MRO challenges?

A:30 aircraft were purchased, with plans to operate 6 and part out 24. Challenges exist with parts and labor, especially on the CRJ side, but the situation is improving. MHI is working on mitigating risks, and the purchase was made to derisk the supply chain.

Q:Is the MRO challenge related to engine shortages or other parts?

A:The MHI issue is primarily an airframe issue. There are also engine challenges, but proactive planning during COVID and the pilot shortage has kept the engine situation in good shape.

Q:Regarding the 10% tariff, is it applied to the full aircraft cost or specific components?

A:The 10% tariff is not on the full aircraft cost. It applies to certain components, with many American components in the aircraft. The effective rate is between 1/3 and 1/2 of the 10%.

Q:What is the status of the SkyWest Charter commuter authorization and the impact of the new FAA administrator?

A:Optimism remains for the SkyWest Charter commuter authorization. The FAA had previously approved the profile, and the Department of Transportation is working through administrative changes. The new FAA administrator, Bryan Bedford, is expected to be effective, but the timeline for authorization remains uncertain.

Q:Can you provide an update on the recovery in the prorate and small community market?

A:Demand in small and midsized communities is very strong, stronger than ever before. Supply chain challenges are the main constraint. SkyWest is working with many communities to restore and enhance air service, with year-over-year and quarter-over-quarter growth expected to continue.

Q:How is SkyWest approaching capital allocation if CapEx is deferred?

A:SkyWest has flexibility in capital allocation. Options include investing in the fleet, buying back stock, and maintaining liquidity. Fleet flexibility allows for adjustments, such as deferring E175s and continuing to operate CRJ700s and CRJ200s.

Q:What is the early view for 2026 block hour growth, assuming tariff resolution?

A:SkyWest is optimistic about 2026 growth opportunities, with plans to reactivate 25 dual-class CRJ airplanes. While no specific growth rate was provided, the company emphasized flexibility and opportunities regardless of tariff scenarios.

Q:Was there a gain this quarter, and what were the assets sold?

A:There was a $10 million gain ($0.20 EPS) from mark-to-market equity investments and opportunistic asset sales.

Q:How does the E175 order fit into capital allocation plans, and what is the impact of delivery timing optimization?

A:The E175 order aligns with long-term capital allocation plans. Delivery timing optimization is related to tariff issues, not demand, which remains strong. SkyWest is working cohesively with partners and Embraer to address tariffs and maintain flexibility.

Q:What is the status of the 25 dual-class CRJ aircraft being reactivated?

A:The 25 dual-class CRJ aircraft are being reactivated due to new flying agreements signed in the last 6 months. Some were parked during COVID and pilot shortages, while others were purchased.

Q:Review of Unclear Management Responses

A:Management avoided providing specific growth rates for 2026 block hour growth, despite being asked for estimates (e.g., mid-single digits or low double digits). They deferred providing guidance until the next quarter. Additionally, while discussing delivery timing optimization, management emphasized flexibility and cohesion with partners but did not provide detailed plans or timelines.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

SKYW Transcript

SkyWest, Inc. (SKYW) Q3 2025 Earnings Call Transcript

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SkyWest's earnings call reveals strong financial performance with a 15% revenue increase and significant share repurchases. The Q&A section highlights strategic fleet expansion and potential growth opportunities. Although concerns about tariffs and EAS funding persist, management's optimistic guidance and firm orders for E175s suggest confidence in future growth. The market cap indicates moderate reaction sensitivity, leading to a positive stock price prediction (2% to 8%).

SkyWest, Inc. (SKYW) Q2 2025 Earnings Call Transcript

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SkyWest, Inc. (SKYW) Q1 2025 Earnings Call Transcript

Positive4-24

The earnings call indicates strong financial performance with a significant revenue increase and EPS growth. The company has reduced debt and continues to generate free cash flow, enhancing shareholder value. Although there were some uncertainties in the Q&A, particularly regarding regulatory approvals and fleet expansion, the overall sentiment from analysts seems optimistic. The market cap suggests a moderate reaction, so I predict a positive stock price movement of 2% to 8% over the next two weeks.

Earnings call transcript: SkyWest Q1 2025 earnings beat forecasts, stock rises

Positive4-24

The earnings call shows strong financial performance with significant revenue growth and stable EPS. The share repurchase program enhances shareholder returns, and the future growth plan, including fleet expansion, supports optimism. Despite macroeconomic uncertainties and supply chain challenges, the company maintains a positive outlook with increased block hour production and improved pilot staffing. The Q&A section reveals confidence in managing risks and capital deployment, although regulatory delays pose a minor concern. Overall, the positive financials and strategic initiatives outweigh the risks, suggesting a positive stock price movement over the next two weeks.

SKYW Report

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