SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14719
SKYWEST, INC.
Incorporated under the laws of Utah |
|
87-0292166 |
|
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(I.R.S. Employer ID No.) |
444 South River Road
St. George, Utah 84790
(435) 634-3000
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at October 31, 2015 |
Common stock, no par value |
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50,752,301 |
SKYWEST, INC.
QUARTERLY REPORT ON FORM 10-Q
3 | |||
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3 | ||
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Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 |
3 |
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5 | |
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6 | |
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7 | |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
14 | |
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31 | ||
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32 | ||
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33 | ||
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33 | ||
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33 | ||
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33 | ||
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34 | |
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Exhibit 31.1 |
Certification of Chief Executive Officer |
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Exhibit 31.2 |
Certification of Chief Financial Officer |
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Exhibit 32.1 |
Certification of Chief Executive Officer |
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Exhibit 32.2 |
Certification of Chief Financial Officer |
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SKYWEST, INC. AND SUBSIDIARIES
(Dollars in Thousands)
ASSETS
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September 30, |
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December 31, |
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(unaudited) |
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|
| ||
CURRENT ASSETS: |
|
|
|
|
| ||
Cash and cash equivalents |
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$ |
126,744 |
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$ |
132,275 |
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Marketable securities |
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429,806 |
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415,273 |
| ||
Restricted cash |
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11,584 |
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11,582 |
| ||
Income tax receivable |
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393 |
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2,779 |
| ||
Receivables, net |
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64,702 |
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83,099 |
| ||
Inventories, net |
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140,109 |
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137,452 |
| ||
Prepaid aircraft rents |
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402,685 |
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397,850 |
| ||
Deferred tax assets |
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148,054 |
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94,385 |
| ||
Other current assets |
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34,308 |
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16,308 |
| ||
Total current assets |
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$ |
1,358,385 |
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$ |
1,291,003 |
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PROPERTY AND EQUIPMENT: |
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|
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|
| ||
Aircraft and rotable spares |
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5,193,614 |
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4,608,663 |
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Deposits on aircraft |
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34,822 |
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40,000 |
| ||
Buildings and ground equipment |
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273,102 |
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274,900 |
| ||
|
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$ |
5,501,538 |
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$ |
4,923,563 |
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Less-accumulated depreciation and amortization |
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(2,029,907 |
) |
(1,902,375 |
) | ||
Total property and equipment, net |
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$ |
3,471,631 |
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$ |
3,021,188 |
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|
|
|
|
|
| ||
OTHER ASSETS |
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|
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Intangible assets, net |
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11,061 |
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12,748 |
| ||
Other assets |
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85,366 |
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84,989 |
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Total other assets |
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$ |
96,427 |
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$ |
97,737 |
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Total assets |
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$ |
4,926,443 |
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$ |
4,409,928 |
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See accompanying notes to condensed consolidated financial statements.
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS EQUITY
|
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September 30, |
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December 31, |
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2015 |
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2014 |
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(unaudited) |
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CURRENT LIABILITIES: |
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|
|
|
| ||
Current maturities of long-term debt |
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$ |
264,852 |
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$ |
211,821 |
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Accounts payable |
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265,807 |
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270,097 |
| ||
Accrued salaries, wages and benefits |
|
134,725 |
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138,902 |
| ||
Accrued aircraft rents |
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2,495 |
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3,303 |
| ||
Taxes other than income taxes |
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22,457 |
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17,457 |
| ||
Other current liabilities |
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43,798 |
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42,775 |
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Total current liabilities |
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$ |
734,134 |
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$ |
684,355 |
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OTHER LONG-TERM LIABILITIES |
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$ |
50,052 |
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$ |
49,625 |
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LONG-TERM DEBT, net of current maturities |
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$ |
1,842,855 |
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$ |
1,533,990 |
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DEFERRED INCOME TAXES PAYABLE |
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$ |
772,710 |
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$ |
669,385 |
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DEFERRED AIRCRAFT CREDITS |
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$ |
64,989 |
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$ |
72,227 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS EQUITY: |
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Preferred stock, 5,000,000 shares authorized; none issued |
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Common stock, no par value, 120,000,000 shares authorized; 78,705,286 and 77,951,411 shares issued, respectively |
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635,217 |
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626,521 |
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Retained earnings |
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1,236,627 |
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1,165,478 |
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Treasury stock, at cost, 28,015,386 and 26,765,386 shares, respectively |
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(410,090 |
) |
(391,364 |
) | ||
Accumulated other comprehensive (loss) |
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(51 |
) |
(289 |
) | ||
Total stockholders equity |
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$ |
1,461,703 |
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$ |
1,400,346 |
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Total liabilities and stockholders equity |
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$ |
4,926,443 |
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$ |
4,409,928 |
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See accompanying notes to condensed consolidated financial statements.
SKYWEST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars and Shares in Thousands, Except per Share Amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2015 |
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2014 |
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2015 |
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2014 |
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OPERATING REVENUES: |
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Passenger |
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$ |
777,480 |
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$ |
815,867 |
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$ |
2,293,085 |
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$ |
2,372,054 |
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Ground handling and other |
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16,524 |
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18,766 |
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49,734 |
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51,538 |
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Total operating revenues |
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$ |
794,004 |
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$ |
834,633 |
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$ |
2,342,819 |
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$ |
2,423,592 |
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OPERATING EXPENSES: |
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Salaries, wages and benefits |
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$ |
304,633 |
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$ |
315,766 |
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$ |
906,051 |
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$ |
944,253 |
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Aircraft maintenance, materials and repairs |
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147,396 |
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159,920 |
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461,972 |
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509,905 |
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Aircraft rentals |
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68,003 |
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72,899 |
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206,857 |
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232,682 |
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Depreciation and amortization |
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66,603 |
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65,822 |
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196,953 |
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192,389 |
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Aircraft fuel |
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31,762 |
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49,177 |
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90,254 |
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154,420 |
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Ground handling services |
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18,892 |
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31,114 |
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62,981 |
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100,446 |
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Special charges |
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4,713 |
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Other operating expenses |
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78,419 |
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80,855 |
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235,447 |
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240,236 |
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Total operating expenses |
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$ |
715,708 |
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$ |
775,553 |
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$ |
2,160,515 |
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$ |
2,379,044 |
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OPERATING INCOME |
|
$ |
78,296 |
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$ |
59,080 |
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$ |
182,304 |
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$ |
44,548 |
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OTHER INCOME (EXPENSE): |
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| ||||
Interest income |
|
$ |
311 |
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$ |
2,549 |
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$ |
1,647 |
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$ |
3,608 |
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Interest expense |
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(19,914 |
) |
(16,883 |
) |
(56,460 |
) |
(48,697 |
) | ||||
Other, net |
|
1,070 |
|
23,598 |
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1,070 |
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20,709 |
| ||||
Total other expense, net |
|
$ |
(18,533 |
) |
$ |
9,264 |
|
$ |
(53,743 |
) |
$ |
(24,308 |
) |
INCOME BEFORE INCOME TAXES |
|
$ |
59,763 |
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$ |
68,344 |
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$ |
128,561 |
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$ |
20,168 |
|
PROVISION FOR INCOME TAXES |
|
23,495 |
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27,006 |
|
51,198 |
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16,455 |
| ||||
NET INCOME |
|
$ |
36,268 |
|
$ |
41,338 |
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$ |
77,363 |
|
$ |
3,713 |
|
|
|
|
|
|
|
|
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| ||||
BASIC EARNINGS PER SHARE |
|
$ |
0.72 |
|
$ |
0.81 |
|
$ |
1.51 |
|
$ |
0.07 |
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DILUTED EARNINGS PER SHARE |
|
$ |
0.71 |
|
$ |
0.79 |
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$ |
1.49 |
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$ |
0.07 |
|
Weighted average common shares: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
50,616 |
|
51,322 |
|
51,143 |
|
51,324 |
| ||||
Diluted |
|
51,282 |
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52,036 |
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51,882 |
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51,562 |
| ||||
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| ||||
Dividends declared per share |
|
$ |
0.04 |
|
$ |
0.04 |
|
$ |
0.12 |
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$ |
0.12 |
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|
|
|
|
|
|
|
|
|
| ||||
COMPREHENSIVE INCOME: |
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
36,268 |
|
$ |
41,338 |
|
$ |
77,363 |
|
$ |
3,713 |
|
Proportionate share of other companies foreign currency translation adjustment, net of taxes |
|
|
|
(1,130 |
) |
|
|
(1,130 |
) | ||||
Net unrealized appreciation (depreciation) on marketable securities, net of taxes |
|
161 |
|
(222 |
) |
239 |
|
(157 |
) | ||||
TOTAL COMPREHENSIVE INCOME |
|
$ |
36,429 |
|
$ |
39,986 |
|
$ |
77,602 |
|
$ |
2,426 |
|
See accompanying notes to condensed consolidated financial statements
SKYWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
|
|
Nine Months Ended |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
$ |
313,540 |
|
$ |
186,369 |
|
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
Purchases of marketable securities |
|
$ |
(864,241 |
) |
$ |
(198,690 |
) |
Sales of marketable securities |
|
849,942 |
|
293,056 |
| ||
Proceeds from the sale of equipment |
|
5,771 |
|
3,468 |
| ||
Proceeds received from sale of Trip Linhas Aereas S.A. stock |
|
|
|
17,237 |
| ||
Acquisition of property and equipment: |
|
|
|
|
| ||
Aircraft and rotable spare parts |
|
(647,250 |
) |
(479,451 |
) | ||
Buildings and ground equipment |
|
(7,443 |
) |
(16,017 |
) | ||
Return of deposits on aircraft |
|
5,178 |
|
|
| ||
Increase in other assets |
|
(2,713 |
) |
(12,218 |
) | ||
|
|
|
|
|
| ||
NET CASH USED IN INVESTING ACTIVITIES |
|
$ |
(660,756 |
) |
$ |
(392,615 |
) |
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
Proceeds from issuance of long-term debt |
|
$ |
546,232 |
|
$ |
323,665 |
|
Principal payments on long-term debt |
|
(184,336 |
) |
(124,660 |
) | ||
Tax deficiency from exercise of common stock options |
|
(2,093 |
) |
(1,245 |
) | ||
Net proceeds from issuance of common stock |
|
6,791 |
|
3,831 |
| ||
Purchase of treasury stock |
|
(18,726 |
) |
(8,414 |
) | ||
Payment of cash dividends |
|
(6,183 |
) |
(6,174 |
) | ||
|
|
|
|
|
| ||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
$ |
341,685 |
|
$ |
187,003 |
|
|
|
|
|
|
| ||
Decrease in cash and cash equivalents |
|
$ |
(5,531 |
) |
$ |
(19,243 |
) |
Cash and cash equivalents at beginning of period |
|
132,275 |
|
170,636 |
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
126,744 |
|
$ |
151,393 |
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Cash paid during the year for: |
|
|
|
|
| ||
Interest, net of capitalized amounts |
|
$ |
56,117 |
|
$ |
46,757 |
|
Income taxes |
|
$ |
1,494 |
|
$ |
485 |
|
See accompanying notes to condensed consolidated financial statements.
SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A Condensed Consolidated Financial Statements
Basis of Presentation
The condensed consolidated financial statements of SkyWest, Inc. (SkyWest or the Company) and its operating subsidiaries, SkyWest Airlines, Inc. (SkyWest Airlines) and ExpressJet Airlines Inc. (ExpressJet) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. The Company suggests that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the three and nine-month periods ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results will likely differ, and may differ materially, from those estimates and assumptions.
Note B Passenger and Ground Handling Revenue
The Company recognizes passenger and ground handling revenues when the service is provided under its code-share agreements. Under the Companys fixed-fee arrangements (referred to as fixed-fee arrangements, contract flying or capacity purchase agreements) with Delta Airlines Inc. (Delta), United Airlines Inc. (United), American Airlines, Inc. (American) and Alaska Airlines, Inc. (Alaska), the major airline generally pays the Company a fixed-fee for each departure, flight or block time incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly reimburses the Company for certain direct expenses incurred under the fixed-fee arrangement, such as fuel expense and landing fee expenses. Under the fixed-fee arrangements, revenue is earned when each flight is completed and is reflected in passenger revenues. Ground handling revenue primarily consists of customer service functions such as gate and ramp agent services at applicable airports where the Company provides such services to other airlines.
Under the Companys revenue-sharing arrangements (referred to as revenue-sharing or pro-rate arrangements), the major airline and the Company negotiate a passenger fare proration formula when a passenger has a connecting flight operated by both the Company and the major airline partner, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for the portion of their trip operated by the Company, and the major airline retains the ticket revenues for the other portion of the passengers trips on the major airline. Revenue is recognized under the Companys pro-rate flying agreements when each flight is completed based upon the portion of the pro-rate passenger fare the Company anticipates that it will receive for each completed flight.
Other ancillary revenues commonly associated with airlines such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits are retained by the Companys major airline partners on flights that the Company operates under its code-share agreements.
In the event that the contractual rates under the Companys flying agreements have not been finalized at quarterly or annual financial statement dates, the Company records revenues based on the lower of the prior periods approved rates, as adjusted to reflect any contract negotiations, and the Companys estimate of rates that will be implemented in accordance with revenue recognition guidelines. In the event the Company has a reimbursement dispute with a major partner, the Company evaluates the dispute under its established revenue recognition criteria and, provided the revenue recognition criteria have been met, the Company recognizes revenue based on managements estimate of the resolution of the dispute.
In several of the Companys agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly.
The following table summarizes the significant provisions of each code share agreement the Company has with each major partner:
Delta Connection Agreements
Agreement |
|
Number of |
|
Term / Termination Dates |
SkyWest Airlines |
|
· CRJ 20048 |
|
· The contract expires on an individual aircraft basis with expirations that commenced in 2015 · The final aircraft expires in 2022 · Upon expiration, aircraft may be renewed or extended |
|
|
|
|
|
ExpressJet |
|
· CRJ 20044 |
|
· The contract expires on an individual aircraft basis with expirations that commenced in 2015 · The final aircraft expires in 2022 · Upon expiration, aircraft may be renewed or extended |
|
|
|
|
|
SkyWest Airlines |
|
· CRJ 20014 |
|
· Terminates with 30-day notice |
United Express Agreements
Agreement |
|
Number of |
|
Term / Termination Dates |
SkyWest Airlines |
|
· CRJ 200 50 |
|
· The contract expires on an individual aircraft basis with expirations that commenced in 2015 · The final aircraft expires in 2026 · Upon expiration, aircraft may be renewed or extended |
|
|
|
|
|
ExpressJet |
|
· ERJ 135 5 |
|
· The contract expires on an individual aircraft basis with expirations that commenced in 2015 · The final aircraft expires in 2017 · Upon expiration, aircraft may be renewed or extended |
|
|
|
|
|
SkyWest Airlines |
|
· CRJ 200 26 |
|
· Terminates with 120-day notice |
Alaska Capacity Purchase Agreement
Agreement |
|
Number of |
|
Term / Termination Dates |
SkyWest Airlines |
|
· CRJ 700 9 · E175 3 |
|
· CRJ 700 portion terminates 2016 · Upon expiration, aircraft may be renewed or extended |
American Agreements
Agreement |
|
Number of |
|
Term / Termination Dates |
SkyWest Airlines |
|
· CRJ 200 6 |
|
· Terminates by the end of 2015 · Upon expiration, aircraft may be renewed or extended |
|
|
|
|
|
SkyWest Airlines |
|
· CRJ 200 1 |
|
· Terminated October 2015 |
SkyWest Airlines |
|
· CRJ 200 12 |
|
· Terminates 2016 · Upon expiration, aircraft may be renewed or extended |
|
|
|
|
|
SkyWest Airlines American |
|
· CRJ 200 5 |
|
· Terminates with 120- day notice |
|
|
|
|
|
ExpressJet American |
|
· CRJ 200 12 · ERJ 145 16 |
|
· Terminates 2017 · Upon expiration, aircraft may be renewed or extended |
|
|
|
|
|
ExpressJet American Pro-rate |
|
· CRJ 200 2 |
|
· Terminates with 120- day notice |
In addition to the contractual arrangements described above, SkyWest Airlines has entered into agreements with Alaska, United and Delta to place additional Embraer E175 dual-class jet (E175) aircraft into service for those major partners. In June 2015, SkyWest Airlines reached an agreement with Alaska to place eight additional E175 aircraft into service pursuant to the SkyWest Airlines Alaska Agreement. The Company anticipates that those eight E175 aircraft, when added to the three E175 aircraft in service for Alaska and four additional E175 aircraft that Alaska has agreed to place into service under the SkyWest Airlines Alaska Agreement, will result in a total of 15 E175 aircraft under contract with Alaska. In September 2015, SkyWest Airlines reached an agreement with United to place 18 additional E175 aircraft into service pursuant to the SkyWest Airlines United Express Agreement, which the Company believes will result in a total of 58 E175 aircraft under contract with United. In October 2015, SkyWest Airlines reached an agreement with Delta to place 19 new E175 aircraft into service pursuant to the SkyWest Airlines Delta Connection Agreement. Under the agreement, the Company anticipates that delivery of the E175 aircraft to be flown for Delta will begin in August 2016, with all 19 aircraft being delivered by mid-2017.
Other Revenue Items
The Companys passenger and ground handling revenues could be impacted by a number of factors, including changes to the Companys code-share agreements with its major airline partners, contract modifications resulting from contract re-negotiations, the Companys ability to earn incentive payments contemplated under the Companys code-share agreements and settlement of reimbursement disputes with the Companys major airline partners.
Note C Share-Based Compensation and Stock Repurchases
The fair value of stock options granted by the Company has been estimated as of the grant date using the Black-Scholes option pricing model. The Company uses historical data to estimate option exercises and employee termination in the option pricing model. The expected term of options granted is derived from the output of the option pricing model and represents the period of time that options granted are expected to be outstanding. The expected volatilities are based on the historical volatility of the Companys traded stock and other factors. During the nine months ended September 30, 2015, the Company granted options to purchase 266,304 shares of common stock under the SkyWest, Inc. 2010 Long-Term Incentive Plan (the 2010 Incentive Plan). The following table shows the assumptions used and weighted average fair value for stock option grants during the nine months ended September 30, 2015.
Expected annual dividend rate |
|
1.18 |
% | |
Risk-free interest rate |
|
1.62 |
% | |
Average expected life (years) |
|
5.7 |
| |
Expected volatility of common stock |
|
0.401 |
| |
Forfeiture rate |
|
0.0 |
% | |
Weighted average fair value of option grants |
|
$ |
4.75 |
|
During the nine months ended September 30, 2015, the Company granted 36,950 fully-vested shares of common stock to the Companys directors. Additionally, during the nine months ended September 30, 2015, the Company granted 407,042 restricted stock units and 224,869 performance restricted stock units to employees of the Company and its subsidiaries under the 2010 Incentive Plan. Both the restricted stock and performance restricted stock units have a three-year vesting period, during which the recipient must remain employed with the Company or one of the Companys subsidiaries. In addition to the three-year vesting period, certain profit metrics of the Company must be met before the recipient will receive any shares of stock attributable to the performance restricted stock units. Upon vesting, a restricted stock unit and a performance restricted stock unit will be replaced with a share of common stock. The fair value of the restricted stock units on the date of grant was $13.51 per share.
The Company records share-based compensation expense only for those options and restricted and performance restricted stock units that are expected to vest. The estimated fair value of the stock options and restricted stock units is amortized over the applicable vesting periods. During the three months ended September 30, 2015 and 2014, the Company recorded pre-tax share-based compensation expense of $1.1 million and $0.9 million, respectively. During the nine months ended September 30, 2015 and 2014, the Company recorded pre-tax share-based compensation expense of $4.0 million and $3.7 million, respectively.
The Company repurchased 1.25 million shares of its common stock for $18.7 million during the nine months ended September 30, 2015. The Company repurchased 670,000 shares of its common stock for $8.4 million during the nine months ended September 30, 2014.
Note D Net Income (Loss) Per Common Share
Basic net income per common share (Basic EPS) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (Diluted EPS) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per common share. During the three and nine months ended September 30, 2015, options to acquire no shares and 672,871 shares, respectively, were excluded from the computation of Diluted EPS as their impact was anti-dilutive. During the three and nine months ended September 30, 2014, options to acquire 2,942,000 and 3,055,000 shares, respectively, were excluded from the computation of Diluted EPS as their impact was anti-dilutive.
The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS for the periods indicated (in thousands, except per share data) is as follows:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
(Unaudited) |
|
(Unaudited) |
| ||||||||
Numerator |
|
|
|
|
|
|
|
|
| ||||
Net Income |
|
$ |
36,268 |
|
$ |
41,338 |
|
$ |
77,363 |
|
$ |
3,713 |
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator |
|
|
|
|
|
|
|
|
| ||||
Weighted average number of common shares outstanding |
|
50,616 |
|
51,322 |
|
51,143 |
|
51,324 |
| ||||
Effect of outstanding share-based awards |
|
666 |
|
714 |
|
739 |
|
238 |
| ||||
Weighted average number of shares for diluted net income per common share |
|
51,282 |
|
52,036 |
|
51,882 |
|
51,562 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
|
$ |
0.72 |
|
$ |
0.81 |
|
$ |
1.51 |
|
$ |
0.07 |
|
Diluted earnings per share |
|
$ |
0.71 |
|
$ |
0.79 |
|
$ |
1.49 |
|
$ |
0.07 |
|
Note E Segment Reporting
Consistent with generally accepted accounting principles, the Company reports its operating results in two segments, based upon the operations of its two operating subsidiaries, SkyWest Airlines and ExpressJet. The following represents the Companys segment data for the three-month periods ended September 30, 2015 and 2014 (in thousands).
|
|
Three months ended September 30, 2015 |
| ||||||||||
|
|
SkyWest |
|
ExpressJet |
|
Corporate / |
|
Consolidated |
| ||||
Operating revenues |
|
$ |
504,531 |
|
$ |
283,034 |
|
$ |
6,439 |
|
$ |
794,004 |
|
Operating expense |
|
428,116 |
|
286,941 |
|
651 |
|
715,708 |
| ||||
Depreciation and amortization expense |
|
44,766 |
|
21,575 |
|
262 |
|
66,603 |
| ||||
Interest expense |
|
17,048 |
|
2,866 |
|
|
|
19,914 |
| ||||
Segment profit (loss)(1) |
|
59,367 |
|
(6,773 |
) |
5,788 |
|
58,382 |
| ||||
Identifiable intangible assets, other than goodwill |
|
|
|
11,061 |
|
|
|
11,061 |
| ||||
Total assets |
|
3,523,549 |
|
1,402,894 |
|
|
|
4,926,443 |
| ||||
Capital expenditures (including non-cash) |
|
144,367 |
|
5,137 |
|
|
|
149,504 |
| ||||
|
|
Three months ended September 30, 2014 |
| ||||||||||
|
|
SkyWest |
|
ExpressJet |
|
Corporate / |
|
Consolidated |
| ||||
Operating revenues |
|
$ |
493,606 |
|
$ |
340,553 |
|
$ |
474 |
|
$ |
834,633 |
|
Operating expense |
|
430,024 |
|
345,606 |
|
(77 |
) |
775,553 |
| ||||
Depreciation and amortization expense |
|
43,853 |
|
21,969 |
|
|
|
65,822 |
| ||||
Interest expense |
|
11,492 |
|
4,692 |
|
699 |
|
16,883 |
| ||||
Segment profit (loss)(1) |
|
52,090 |
|
(9,745 |
) |
(148 |
) |
42,197 |
| ||||
Identifiable intangible assets, other than goodwill |
|
|
|
13,311 |
|
|
|
13,311 |
| ||||
Total assets |
|
2,825,243 |
|
1,572,389 |
|
|
|
4,397,632 |
| ||||
Capital expenditures (including non-cash) |
|
186,678 |
|
6,152 |
|
|
|
192,830 |
| ||||
(1) Segment profit (loss) is equal to operating income less interest expense
The following represents the Companys segment data for the nine-month periods ended September 30, 2015 and 2014 (in thousands).
|
|
Nine months ended September 30, 2015 |
| ||||||||||
|
|
SkyWest |
|
ExpressJet |
|
Corporate / |
|
Consolidated |
| ||||
Operating revenues |
|
$ |
1,430,722 |
|
$ |
896,683 |
|
$ |
15,414 |
|
$ |
2,342,819 |
|
Operating expense |
|
1,246,378 |
|
911,782 |
|
2,355 |
|
2,160,515 |
| ||||
Depreciation and amortization expense |
|
131,249 |
|
64,917 |
|
787 |
|
196,953 |
| ||||
Interest expense |
|
46,515 |
|
9,945 |
|
|
|
56,460 |
| ||||
Segment profit (loss)(1) |
|
137,829 |
|
(25,044 |
) |
13,059 |
|
125,844 |
| ||||
Identifiable intangible assets, excluding goodwill |
|
|
|
11,061 |
|
|
|
11,061 |
| ||||
Total assets |
|
3,523,549 |
|
1,402,894 |
|
|
|
4,926,443 |
| ||||
Capital expenditures (including non-cash) |
|
652,714 |
|
19,860 |
|
|
|
672,574 |
| ||||
|
|
Nine months ended September 30, 2014 |
| ||||||||||
|
|
SkyWest |
|
ExpressJet |
|
Corporate / |
|
Consolidated |
| ||||
Operating revenues |
|
$ |
1,416,149 |
|
$ |
1,006,021 |
|
$ |
1,422 |
|
$ |
2,423,592 |
|
Operating expense |
|
1,289,218 |
|
1,089,923 |
|
(97 |
) |
2,379,044 |
| ||||
Depreciation and amortization expense |
|
125,811 |
|
66,578 |
|
|
|
192,389 |
| ||||
Interest expense |
|
32,180 |
|
14,309 |
|
2,208 |
|
48,697 |
| ||||
Segment profit (loss)(1) |
|
94,751 |
|
(98,211 |
) |
(689 |
) |
(4,149 |
) | ||||
Identifiable intangible assets, other than goodwill |
|
|
|
13,311 |
|
|
|
13,311 |
| ||||
Total assets |
|
2,825,243 |
|
1,572,389 |
|
|
|
4,397,632 |
| ||||
Capital expenditures (including non-cash) |
|
487,711 |
|
18,653 |
|
|
|
506,364 |
| ||||
(1) Segment profit (loss) is equal to operating income less interest expense
Note F Commitments and Contingencies
As of September 30, 2015, the Company leased aircraft, as well as airport facilities, office space, and various other property and equipment under non-cancelable operating leases which are generally on a long-term net rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. The Company expects that, in the normal course of business, such operating leases that expire will be renewed or replaced by other leases. The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2015 (in thousands):
October through December 2015 |
|
$ |
93,236 |
|
2016 |
|
267,353 |
| |
2017 |
|
191,506 |
| |
2018 |
|
153,042 |
| |
2019 |
|
120,072 |
| |
Thereafter |
|
472,800 |
| |
|
|
$ |
1,298,009 |
|
During the three months ended September 30, 2015, the Company took delivery of five E175 aircraft and financed the aircraft through the issuance of $113.7 million of long-term debt. During the nine months ended September 30, 2015, the Company took delivery of 23 E175s and financed the aircraft through the issuance of $521.2 million of long-term debt. The debt associated with the E175 aircraft delivered during the nine months ended September 30, 2015 has a twelve-year term with a fixed annual interest rate ranging from 3.4% to 4.0% and is secured by the 23 E175 aircraft.
As of September 30, 2015 and December 31, 2014, the Company had accrued future lease obligations of $1.5 million and $3.8 million, respectively, associated with Embraer Brasilia EMB120 aircraft (EMB120s) removed from service. The lease payments for the EMB120s are scheduled to continue through June 2016.
As of September 30, 2015, the Company had a firm purchase commitment for 49 E175 aircraft with scheduled delivery dates from October 2015 to mid-2017.
During the nine months ended September 30, 2015, the Company borrowed $25 million from a bank. The debt has a four year term with a fixed annual interest rate of 3.3% with monthly payments and is secured by spare engines.
Note G Fair Value Measurements
The Company holds certain assets that are required to be measured at fair value in accordance with GAAP. The Company determined fair value of these assets based on the following three levels of inputs:
Level 1 |
|
|
|
Quoted prices in active markets for identical assets or liabilities. |
Level 2 |
|
|
|
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Companys marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities. |
Level 3 |
|
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions. |
As of September 30, 2015 and December 31, 2014, the Company held certain assets that are required to be measured at fair value on a recurring basis. Assets measured at fair value on a recurring basis are summarized below (in thousands):
|
|
Fair Value Measurements as of September 30, 2015 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Marketable Securities |
|
|
|
|
|
|
|
|
| ||||
Bonds and bond funds |
|
$ |
429,756 |
|
$ |
|
|
$ |
429,756 |
|
$ |
|
|
Asset backed securities |
|
50 |
|
|
|
50 |
|
|
| ||||
|
|
$ |
429,806 |
|
|
|
$ |
429,806 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||||
Cash, Cash Equivalents and Restricted Cash |
|
138,328 |
|
138,328 |
|
|
|
|
| ||||
Other Assets |
|
2,313 |
(a) |
|
|
|
|
2,313 |
| ||||
Total Assets Measured at Fair Value |
|
$ |
570,447 |
|
$ |
138,328 |
|
$ |
429,806 |
|
$ |
2,313 |
|
|
|
Fair Value Measurements as of December 31, 2014 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Marketable Securities |
|
|
|
|
|
|
|
|
| ||||
Bonds and bond funds |
|
$ |
410,163 |
|
$ |
|
|
$ |
410,163 |
|
$ |
|
|
Asset backed securities |
|
5,110 |
|
|
|
5,110 |
|
|
| ||||
|
|
$ |
415,273 |
|
|
|
$ |
415,273 |
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||||
Cash, Cash Equivalents and Restricted Cash |
|
143,857 |
|
143,857 |
|
|
|
|
| ||||
Other Assets |
|
2,309 |
(a) |
|
|
|
|
2,309 |
| ||||
Total Assets Measured at Fair Value |
|
$ |
561,439 |
|
$ |
143,857 |
|
$ |
415,273 |
|
$ |
2,309 |
|
(a) Comprised of auction rate securities which are reflected in Other assets in the Companys unaudited condensed consolidated balance sheets
Based on market conditions, the Company uses a discounted cash flow valuation methodology for auction rate securities. Accordingly, for purposes of the foregoing condensed consolidated financial statements, these securities were categorized as Level 3 securities. The Companys Marketable Securities classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities.
The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2015. The Companys policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.
As of September 30, 2015 and December 31, 2014, the Company classified $429.8 million and $415.3 million of marketable securities, respectively, as short-term since it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year. As of September 30, 2015 and December 31, 2014, the cost in the Companys total cash and cash equivalents and available for sale securities (excluding restricted cash and auction rate securities, net of amortized discounts, recorded as other assets) was $556.5 million and $548.0 million, respectively. As of September 30, 2015 and December 31, 2014, the fair value of the Companys total cash and cash equivalents and available for sale securities (excluding restricted cash and auction rate securities recorded as other assets), was $556.6 million and $547.5 million, respectively.
The following table presents the Companys assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at September 30, 2015 (in thousands):
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
|
|
Auction Rate |
| |
Balance at January 1, 2015 |
|
$ |
2,309 |
|
Total realized and unrealized gains or (losses) |
|
|
| |
Included in earnings |
|
|
| |
Included in other comprehensive income |
|
4 |
| |
Transferred out |
|
|
| |
Settlements |
|
|
| |
Balance at September 30, 2015 |
|
$ |
2,313 |
|
The fair value of the Companys long-term debt classified as Level 2 was estimated using discounted cash flow analyses, based on the Companys current estimated incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Companys long-term debt is estimated based on current rates offered to the Company for similar debt and was estimated to be $2,129.6 million as of September 30, 2015, as compared to the carrying amount of $2,107.7 million as of September 30, 2015. The fair value of the Companys long-term debt is estimated based on current rates offered to the Company for similar debt and approximated $1,813.1 million as of December 31, 2014, as compared to the carrying amount of $1,745.8 million as of December 31, 2014.
Note H Income Taxes
The Companys estimated annual effective tax rate for the three and nine months ended September 30, 2015 varied from the federal statutory rate of 35% primarily due to the provision for state income taxes and the impact of non-deductible crew per diem meal expenses.
Note I Legal Matters
The Company is subject to certain legal actions which it considers routine to its business activities. As of September 30, 2015, the Companys management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Companys financial position, liquidity or results of operations.
Note J Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU No. 2015-03). In August 2015, ASU No. 2015-03 was amended to modify existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company anticipates reclassifying the unamortized debt issuance costs and present debt net of those unamortized costs on its balance sheet upon adoption of ASU No. 2015-03.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU No. 2014-09). Under ASU No. 2014-09, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. In July 2015, the FASB deferred the effective date of ASU No. 2014-09 to January 1, 2018. The FASB also proposed permitting early adoption of the standard, but not before January 1, 2017. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. The Companys management is currently evaluating the impact the adoption of ASU No. 2014-09 is anticipated to have on the Companys consolidated financial statements.
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (SkyWest we or us) during the three and nine-month periods ended September 30, 2015 and 2014. Also discussed is our financial position as of September 30, 2015 and December 31, 2014. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and nine months ended September 30, 2015, including the notes thereto,
appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled Cautionary Statement Concerning Forward-Looking Statements for discussion of the uncertainties, risks and assumptions associated with these statements.
Cautionary Statement Concerning Forward-Looking Statements
Certain of the statements contained in this Report should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as may, will, expect, intend, anticipate, believe, estimate, plan, project, could, should, hope, likely, and continue and similar terms used in connection with statements regarding our outlook, the revenue environment, our contract relationships and our expected financial performance. These statements include, but are not limited to, statements about our future growth and development plans, including our future financial and operating results, our plans for SkyWest Airlines and ExpressJet, our objectives, expectations and intentions, and other statements that are not historical facts. All forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this Report materializes, or any other underlying assumption proves incorrect, our actual results will likely vary, and may vary materially, from those anticipated, estimated, projected, or intended.
There may be other factors not identified above of which we are not currently aware that may affect matters discussed in the forward-looking statements, and may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by law.
Overview
Through SkyWest Airlines and ExpressJet, we operate the largest regional airline in the United States. As of September 30, 2015, SkyWest Airlines and ExpressJet offered scheduled passenger service with approximately 3,500 total daily departures to destinations in the United States, Canada, Mexico and the Caribbean. As of September 30, 2015, SkyWest Airlines and ExpressJet had a total fleet of 715 aircraft, of which 656 were in scheduled service, summarized as follows:
|
|
CRJ200 |
|
ERJ145 |
|
ERJ135 |
|
CRJ700 |
|
CRJ900 |
|
E175 |
|
EMB120 |
|
Total |
|
United |
|
76 |
|
169 |
|
5 |
|
70 |
|
|
|
40 |
|
|
|
360 |
|
Delta |
|
106 |
|
|
|
|
|
60 |
|
64 |
|
|
|
|
|
230 |
|
American |
|
38 |
|
16 |
|
|
|
|
|
|
|
|
|
|
|
54 |
|
Alaska |
|
|
|
|
|
|
|
9 |
|
|
|
3 |
|
|
|
12 |
|
Aircraft in scheduled service |
|
220 |
|
185 |
|
5 |
|
139 |
|
64 |
|
43 |
|
|
|
656 |
|
Subleased to an un-affiliated entity |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Unassigned (a) |
|
20 |
|
3 |
|
4 |
|
|
|
|
|
|
|
30 |
|
57 |
|
Total |
|
242 |
|
188 |
|
9 |
|
139 |
|
64 |
|
43 |
|
30 |
|
715 |
|
(a) As of September 30, 2015, these aircraft have been removed from service and are in the process for lease returns or are transitioning between flying code -share agreements with our major airline partners.
For the nine months ended September 30, 2015, approximately 57.6% of our aggregate capacity was operated for United, approximately 33.1% was operated for Delta, approximately 4.8% was operated for American, approximately 2.7% was operated for Alaska and approximately 1.8% was operated for US Airways.
Historically, multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of contract flying arrangements and our pro-rate flying arrangements. For the nine months ended September 30, 2015, contract flying revenue and pro-rate revenue represented approximately 88% and 12%, respectively, of our total passenger revenues. On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours, flight departures and other operating measures.
Third Quarter Summary
We had total operating revenues of $794 million for the three months ended September 30, 2015, a 4.9% decrease, compared to total operating revenues of $834.6 million for the three months ended September 30, 2014. We had net income of $36.3 million, or $0.71 per diluted share, for the three months ended September 30, 2015, compared to a net income of $41.3 million or $0.79 per diluted share, for the three months ended September 30, 2014.
The significant items affecting our financial performance during the three months ended September 30, 2015 are outlined below:
Revenue
The number of aircraft we have under contract and the number of actual block hours we incur on completed flights are significant revenue drivers under our fixed-fee arrangements. We are currently in the process of a fleet transition that involves increasing the number of large dual-class regional jets we operate, including the E175 aircraft, while reducing the number of less-profitable 50-seat regional jets we operate, including a portion of our Embraer ERJ145 regional jet aircraft (ERJ145s), Embraer ERJ135 regional jet aircraft (ERJ135s) and Canadair CRJ200 regional jet aircraft (CRJ200s). Additionally, during the three months ended June 30, 2015, we completed the removal of all EMB120 turboprop aircraft from our scheduled service. We anticipate our fleet transition will result in net decreases in our total fleet size, block hour production, and total revenue in quarterly year-over-year comparisons at least through 2015. Our objective in the fleet transition is to improve our profitability through the additional new dual class aircraft, including the E175 aircraft, placed into service, while removing aircraft from service that have been operating under less profitable fixed-fee flying contracts.
The reduction in our fleet size and the related reduction in our block hour production were the primary drivers for the reduction in our total revenues of $40.6 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. However, the revenue reduction was partially offset by revenue improvements of approximately $31 million from our additional E175 operations, improved contract rates from flying contract renewals and extensions, achieving higher operating performance incentives, and earning approximately $4 million from higher flight completion rates.
Operating Income and Operating Expenses
Our operating income increased $19.2 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase in our operating income was primarily due to placement of 29 E175 aircraft into service subsequent to September 30, 2014, higher operational performance incentives earned under our flying contracts and rate increases we received under new and extended flying contracts subsequent to September 30, 2014. Our total operating expenses decreased $59.8 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. This decrease was primarily due to the reduction in our fleet size and a reduction in the related number of departures and completed block hours and improved operating efficiencies, for the comparable period. Additional details regarding the reduction to our operating expenses are described in more detail in the section of this Report entitled Results of Operations.
Fleet activity
The following table summarizes our fleet scheduled for service as of December 31, 2014, March 31, 2015, June 30, 2015 and September 30, 2015:
Aircraft in Service |
|
December 31, 2014 |
|
March 31, 2015 |
|
June 30, 2015 |
|
September 30, 2015 |
|
CRJ200s |
|
242 |
|
234 |
|
234 |
|
220 |
|
CRJ700s |
|
139 |
|
139 |
|
139 |
|
139 |
|
CRJ900s |
|
64 |
|
64 |
|
64 |
|
64 |
|
ERJ145/135s |
|
225 |
|
215 |
|
201 |
|
190 |
|
E175s |
|
20 |
|
29 |
|
38 |
|
43 |
|
EMB120s |
|
27 |
|
12 |
|
|
|
|
|
Total |
|
717 |
|
693 |
|
676 |
|
656 |
|
Our fleet activity during the nine months ended September 30, 2015 is summarized as follows:
· SkyWest Airlines placed 20 E175 aircraft into service with United
· SkyWest Airlines placed three E175 aircraft into service with Alaska
· SkyWest Airlines placed five used CRJ200 aircraft into service with Delta (aircraft are leased from Delta)
· ExpressJet placed 16 used ERJ145 aircraft into service with American (aircraft are leased from American)
· SkyWest Airlines removed 27 EMB120 aircraft from service with multiple partners
· ExpressJet removed 51 ERJ145/135 aircraft from service with United
· SkyWest Airlines and ExpressJet removed 27 CRJ200 aircraft from service previously operated with multiple partners.
Anticipated significant fleet changes for the period between September 30, 2015 and December 31, 2015 are summarized as follows:
· SkyWest Airlines is scheduled to take delivery of two E175 aircraft for Alaska between October 2015 and December 2015.
· ExpressJet is scheduled to remove three ERJ145/ERJ135 aircraft from service with United reducing its ERJ145s/ERJ135s fleet with United to a total of 171 aircraft by December 31, 2015.
· ExpressJet is scheduled to remove three CRJ200 aircraft from service with Delta by December 31, 2015.
Critical Accounting Policies
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2014, which are presented in our Annual Report on Form 10-K for the year ended December 31, 2014. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require managements subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, maintenance, aircraft leases, impairment of long-lived assets and intangibles, stock-based compensation expense and fair value. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates.
Other Accounting Items
Directly reimbursed expenses under our fixed-fee arrangements. Under our fixed-fee arrangements, our major airline partners directly reimburse us for certain operating expenses such as fuel, station rents and landing fees. When we incur directly-reimbursed expenses under our fixed-fee arrangements, we record the reimbursement as passenger revenue. Thus, the price and volume volatility of directly-reimbursed expenses may impact the comparability of revenue to previous periods and may impact the comparability of operating expenses to previous periods, without impacting the comparability of our operating income to the same periods. Over the past few years, some of our major airline partners have paid for fuel, landing fees and station rents directly to vendors on flights we operated under our fixed-fee arrangements, which has decreased both revenue and operating expenses as compared to previous periods presented in this Report.
Reimbursement for engine overhaul expenses under our fixed-fee arrangements. Under certain of our fixed fee arrangements, we are directly reimbursed for engine overhaul costs when incurred (Directly-Reimbursed Engine Contracts). Under our other fixed-fee flying arrangements, we are paid fixed hourly rates intended to cover certain operating expenses, including engine overhaul costs (Fixed-Rate Engine Contracts). Under our Fixed-Rate Engine Contracts, the timing and amount of our engine overhaul expenses may impact the comparability of our operating expenses and operating income as compared to previous periods presented in this Report.
Engine maintenance expense. We use the direct-expense method of accounting for our regional jet aircraft engine overhaul costs. Under this method, the maintenance liability is recorded when the maintenance services are performed. For a portion of our engines, a third-party vendor provides our long-term engine maintenance services, covering scheduled and unscheduled repairs for covered engines. Under the terms of the vendor agreement, we pay a set dollar amount per engine hour flown on a monthly basis and the third-party vendor assumes the obligation to repair the engines at no additional cost to us, subject to certain specified exclusions (Power-by-the-Hour Contracts). Under our Power-by-the-Hour Contracts, we expense the engine maintenance cost as flight hours are incurred on the engines using the contractual rate set forth in the applicable Power-by-the-Hour Contract.
We used the deferral method of accounting for our EMB120 engine overhauls, which provides for engine overhaul costs to be capitalized and depreciated to the next estimated overhaul event or to the remaining useful life. We ceased operating the EMB120 aircraft as of June 30, 2015.
The table below summarizes how we are compensated by our major airline partners under our flying contracts for engine expense and the method we use to recognize the corresponding expense.
Fixed-fee flying contract |
|
Compensation of Engine Expense |
|
Expense Recognition |
SkyWest Delta Connection |
|
Directly-Reimbursed Engine Contracts |
|
Direct Expense Method |
ExpressJet Delta Connection |
|
Directly-Reimbursed Engine Contracts |
|
Direct Expense Method |
SkyWest United Express (CRJ200) |
|
Fixed-Rate Engine Contracts |
|
Direct Expense Method |
SkyWest United Express (CRJ700) |
|
Fixed-Rate Engine Contracts |
|
Power by the Hour Agreement |
SkyWest United Express (E175) |
|
Fixed-Rate Engine Contracts |
|
Power by the Hour Agreement |
ExpressJet United (ERJ145) |
|
Directly-Reimbursed Engine Contracts |
|
Power by the Hour Agreement |
Alaska Agreement (CRJ700 / E175) |
|
Fixed-Rate Engine Contracts |
|
Power by the Hour Agreement |
SkyWest American Agreement (CRJ200) |
|
Fixed-Rate Engine Contracts |
|
Direct Expense Method |
ExpressJet American Agreement (CRJ200) |
|
Fixed-Rate Engine Contracts |
|
Direct Expense Method |
ExpressJet American Agreement (ERJ145) |
|
Partner pays directly to vendor |
|
Not applicable |
US Airways Agreement (CRJ200 / CRJ900) |
|
Fixed-Rate Engine Contracts |
|
Direct Expense Method |
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU No. 2015-03). In August 2015, ASU No. 2015-03 was amended to modify existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. ASU No. 2015-03 is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We anticipate reclassifying the unamortized debt issuance costs and present debt net of those unamortized costs on our balance sheet upon adoption of ASU No. 2015-03.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU No. 2014-09). Under ASU No. 2014-09, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. In July 2015, the FASB deferred the effective date to January 2, 2018. The FASB also proposed permitting early adoption of the standard, but not before January 2, 2017. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. Our management is currently evaluating the impact the adoption of ASU No. 2014-09 is anticipated to have on our consolidated financial statements.
Results of Operations
Three Months Ended September 30, 2015 and 2014
Operational Statistics. The following table sets forth our major operational statistics and the associated percentages-of-change for the periods identified below.
|
|
For the three months ended September 30, |
| ||||
|
|
2015 |
|
2014 |
|
% Change |
|
Revenue passenger miles (000) |
|
7,753,692 |
|
8,342,394 |
|
(7.1 |
)% |
Available seat miles (ASMs) (000) |
|
9,265,717 |
|
10,037,729 |
|
(7.7 |
)% |
Block hours |
|
526,217 |
|
590,534 |
|
(10.9 |
)% |
Departures |
|
314,745 |
|
355,273 |
|
(11.4 |
)% |
Passengers carried |
|
14,757,355 |
|
15,630,168 |
|
(5.6 |
)% |
Passenger load factor |
|
83.7 |
% |
83.1 |
% |
0.60 |
Pts |
Revenue per available seat mile |
|
8.6 |
¢ |
8.3 |
¢ |
3.6 |
% |
Cost per available seat mile |
|
7.9 |
¢ |
7.9 |
¢ |
0 |
% |
Cost per available seat mile excluding fuel |
|
7.6 |
¢ |
7.4 |
¢ |
2.7 |
% |
Fuel cost per available seat mile |
|
0.3 |
¢ |
0.5 |
¢ |
(40.0 |
)% |
Average passenger trip length (miles) |
|
525 |
|
534 |
|
(1.7 |
)% |
Revenues. Total operating revenues decreased $40.6 million, or 4.9%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014, primarily due to the reduction in our fleet size and the related reduction in our block hour production. Our total operating revenue includes passenger revenues, which primarily consist of revenue earned on flights we operate under our fixed-fee and pro-rate arrangements, and airport customer service revenue, including airport counter, gate, and ramp services, on flights we operate under our flying arrangements. Our total operating revenue also includes ground handling and other revenues, which primarily consist of revenue earned from providing airport counter, gate and ramp services to other airlines on flights operated by other airlines, and government subsidy revenue we receive for providing flight service to certain locations.
Passenger revenues. Under our fixed-fee flying contracts, we are directly-reimbursed for certain expenses from our major airline partners and we record such reimbursements as passenger revenue. The price and volume volatility of directly-reimbursed expenses may impact the comparability of revenue to previous periods without impacting the comparability of our operating income to the same periods. The following table summarizes our passenger revenues less certain directly-reimbursed expenses that may impact the comparability for the periods indicated (dollar amounts in thousands).
|
|
For the three months ended September 30, |
| ||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| ||
Passenger revenues |
|
$ |
777,480 |
|
$ |
815,867 |
|
(38,387 |
) |
(4.7 |
)% |
Less: Fuel reimbursement from major airline partners |
|
12,065 |
|
16,666 |
|
(4,601 |
) |
(27.6 |
)% | ||
Less: Landing fee and station rent reimbursements from major airline partners |
|
5,152 |
|
4,699 |
|
453 |
|
9.6 |
% | ||
Less: Engine overhaul reimbursement from major airline partners |
|
17,840 |
|
31,470 |
|
(13,630 |
) |
(43.3 |
)% | ||
Passenger revenue excluding fuel, landing fee, station rent and engine overhaul reimbursements |
|
$ |
742,423 |
|
$ |
763,032 |
|
(20,609 |
) |
(2.7 |
)% |
Passenger revenues (excluding fuel, landing fee, station rent and engine overhaul directly-reimbursed expenses from our major airline partners) decreased $20.6 million, or 2.7%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The decrease in passenger revenues (excluding fuel, landing fees, station rents and engine overhaul reimbursements) was primarily related to a revenue decrease from the reduced fleet size, including a 10.9% reduction in block hours. However, the reduction in revenue from a reduced fleet size was partially offset by approximately $31 million from the additional E175 operations, improved contract rates from flying contract renewals and extensions, higher operating performance incentives earned under our fixed-fee arrangements, and approximately $4 million earned from higher flight completion rates.
Our directly-reimbursed fuel expense, landing fee, station rent and engine overhaul expenses decreased by $17.8 million, or 33.7%, during the three months ended September 30, 2015, from the three months ended September 30, 2014, due primarily to our major airline partners paying for such expenses directly to third party vendors, a reduction in the fuel costs per gallon and a reduction in directly-reimbursed engine events.
Ground handling and other. Total ground handling and other revenues decreased $2.2 million, or 11.9%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The decrease was primarily related to decreases in flight activity at locations that provide government subsidies.
Individual expense components attributable to our operations are expressed in the following table in total and on the basis of cents per ASM. (dollar amounts in thousands).
|
|
For the three months ended September 30, |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
2015 |
|
2014 |
| ||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
|
Cents Per |
|
Cents Per |
| ||
|
|
Amount |
|
Amount |
|
Amount |
|
Percent |
|
ASM |
|
ASM |
| ||
Salaries, wages and benefits |
|
$ |
304,633 |
|
$ |
315,766 |
|
(11,133 |
) |
(3.5 |
)% |
3.3 |
|
3.1 |
|
Aircraft maintenance, materials and repairs |
|
147,396 |
|
159,920 |
|
(12,524 |
) |
(7.8 |
)% |
1.6 |
|
1.6 |
| ||
Aircraft rentals |
|
68,003 |
|
72,899 |
|
(4,896 |
) |
(6.7 |
)% |
0.7 |
|
0.7 |
| ||
Depreciation and amortization |
|
66,603 |
|
65,822 |
|
781 |
|
1.2 |
% |
0.7 |
|
0.7 |
| ||
Aircraft fuel |
|
31,762 |
|
49,177 |
|
(17,415 |
) |
(35.4 |
)% |
0.3 |
|
0.5 |
| ||
Ground handling services |
|
18,892 |
|
31,114 |
|
(12,222 |
) |
(39.3 |
)% |
0.2 |
|
0.3 |
| ||
Other operating expenses |
|
78,419 |
|
80,855 |
|
(2,436 |
) |
(3.0 |
)% |
0.8 |
|
0.8 |
| ||
Total operating expenses |
|
$ |
715,708 |
|
$ |
775,553 |
|
(59,845 |
) |
(7.7 |
)% |
7.6 |
|
7.7 |
|
Interest |
|
19,914 |
|
16,883 |
|
3,031 |
|
18.0 |
% |
0.2 |
|
0.2 |
| ||
Total airline expenses |
|
$ |
735,622 |
|
$ |
792,436 |
|
(56,814 |
) |
(7.2 |
)% |
7.8 |
|
7.9 |
|
Salaries wages and employee benefits. Salaries, wages and employee benefits decreased $11.1 million, or 3.5%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The decrease in salaries, wages and employee benefits was primarily due to the decrease in our fleet size and related level of departures and block hours compared to the three months ended September 30, 2014, which was partially offset by additional training costs for the E175 aircraft deliveries.
Aircraft maintenance, materials and repairs. Aircraft maintenance expense decreased $12.5 million, or 7.8%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. Under our Directly-Reimbursed Engine Contracts, we are reimbursed for engine overhaul costs by our applicable major partner at the time the maintenance event occurs. Such reimbursements are reflected as passenger revenue in the same amount and during the same period we recognized the expense in our consolidated statements of comprehensive income. The following table summarizes our aircraft maintenance, materials and repairs less the directly-reimbursed engine overhaul costs under our fixed-fee arrangements for the periods indicated (dollar amounts in thousands).
|
|
For the three months ended September 30, |
| |||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| |||
Aircraft maintenance, materials and repairs |
|
$ |
147,396 |
|
$ |
159,920 |
|
$ |
(12,524 |
) |
(7.8 |
)% |
Less: Directly-reimbursed engine overhaul costs from major airline partners |
|
17,840 |
|
31,470 |
|
(13,630 |
) |
(43.3 |
)% | |||
Aircraft maintenance, materials and repairs excluding directly-reimbursed engine overhaul costs from major airline partners |
|
$ |
129,556 |
|
$ |
128,450 |
|
$ |
1,106 |
|
0.9 |
% |
Other aircraft maintenance, materials and repairs, excluding our directly-reimbursed engine overhaul costs, increased $1.1 million, or 0.9%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The increase in aircraft maintenance expense (excluding directly-reimbursed engine overhaul costs) was primarily due to an increase in airframe inspection costs and the related maintenance labor associated with those maintenance activities and an increase in power-by-the-hour costs associated with additional E175 aircraft.
Aircraft rentals. Aircraft rentals decreased $4.9 million, or 6.7%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The decrease in aircraft rentals was primarily due to a reduction of our fleet size subsequent to September 30, 2014 that were financed through leases.
Depreciation and amortization. Depreciation and amortization expense increased $0.8 million, or 1.2%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The increase in depreciation and amortization expense was primarily due to the purchase of 29 E175 aircraft and spare engines subsequent to September 30, 2014, which was partially offset by the removal of owned aircraft during the same period.
Aircraft Fuel. Fuel costs decreased $17.4 million, or 35.4%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. Under our fixed-fee flying arrangements, fuel is a directly-reimbursed expense. The following table summarizes our aircraft fuel expenses (less directly-reimbursed fuel expense under our fixed-fee flying arrangements) for the periods indicated (dollar amounts in thousands).
|
|
For the three months ended September 30, |
| |||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| |||
Aircraft fuel expenses |
|
$ |
31,762 |
|
$ |
49,177 |
|
$ |
(17,415 |
) |
(35.4 |
)% |
Less: Directly-reimbursed fuel from major airline partners |
|
12,065 |
|
16,666 |
|
(4,601 |
) |
(27.6 |
)% | |||
Aircraft fuel less fuel reimbursement from major airline partners |
|
$ |
19,697 |
|
$ |
32,511 |
|
$ |
(12,814 |
) |
(39.4 |
)% |
The decrease in fuel cost was primarily due to the decrease in our average fuel cost per gallon in 2015 compared to 2014, which was partially offset by an increase in the volume of gallons purchased. In the event one of our major airline partners purchases fuel directly from vendors on flights we operate pursuant to a fixed-fee arrangement, we do not incur the fuel expense. The average fuel cost per gallon was $2.02 and $3.42 for the three months ended September 30, 2015 and 2014, respectively. The following table summarizes the gallons of fuel we purchased directly from fuel vendors and our fuel expense, for the periods indicated:
|
|
For the three months ended September 30, |
| ||||||
(in thousands, except per gallon amounts) |
|
2015 |
|
2014 |
|
% Change |
| ||
Fuel gallons purchased |
|
15,739,115 |
|
14,370,097 |
|
9.5 |
% | ||
Fuel expense |
|
$ |
31,762 |
|
$ |
49,177 |
|
(35.4 |
)% |
Ground handling service. Ground handling service expense decreased $12.2 million, or 39.3%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. Ground handling service expense includes airport -related customer service costs, such as outsourced airport agent services, airport ramp services, airport security fees and passenger interruption costs. The decrease in ground handling service expense was primarily due to a reduction in the volume of departures at locations for which SkyWest Airlines provides ground handling services subsequent to September 30, 2014.
Other operating expenses. Other operating expenses, primarily consisting of property taxes, hull and liability insurance, landing fees, station rents, crew simulator training, crew per diem, and crew hotel costs, decreased $2.4 million, or 3.0%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. Under our fixed-fee flying arrangements, landing fee and station rent expense are directly-reimbursed expenses. The following table summarizes our other operating expenses (less directly-reimbursed landing fees and station rents under our fixed-fee flying arrangements) for the periods indicated (dollar amounts in thousands).
|
|
For the three months ended September 30, |
| |||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| |||
Other operating expenses |
|
$ |
78,419 |
|
$ |
80,855 |
|
$ |
(2,436 |
) |
(3.0 |
)% |
Less: Landing fee and station rent reimbursements from major airline partners |
|
5,152 |
|
4,699 |
|
453 |
|
9.6 |
% | |||
Other operating expenses less landing fee and station rent reimbursements from major airline partners |
|
$ |
73,267 |
|
$ |
76,156 |
|
$ |
(2,889 |
) |
(3.8 |
)% |
The decrease in other operating expense (less directly-reimbursed landing fees and station rents, expenses) was primarily related to a reduction in crew hotel costs and crew per diems associated with the decrease in the fleet size and related reductions in departures.
Total airline expense. Total airline expense (consisting of total operating expense and interest expense) decreased $56.8 million, or 7.2%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The following table summarizes our total airline expense less the directly-reimbursed expenses with significant changes impacting comparability for the periods indicated (dollar amounts in thousands).
|
|
For the three months ended September 30, |
| |||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| |||
Total airline expense |
|
$ |
735,622 |
|
$ |
792,436 |
|
$ |
(56,814 |
) |
(7.2 |
)% |
Less: Directly-reimbursed fuel |
|
12,065 |
|
16,666 |
|
(4,601 |
) |
(27.6 |
)% | |||
Less: Directly-reimbursed engine overhauls |
|
17,840 |
|
31,470 |
|
(13,630 |
) |
(43.3 |
)% | |||
Less: Directly-reimbursed landing fees and station rents |
|
5,152 |
|
4,699 |
|
453 |
|
9.6 |
% | |||
Total airline expense excluding directly reimbursed fuel, landing fee, station rent and engine overhaul reimbursements |
|
$ |
700,565 |
|
$ |
739,601 |
|
$ |
(39,036 |
) |
(5.3 |
)% |
Total airline expenses (excluding directly-reimbursed fuel, engine overhaul, landing fees and station rents) decreased $39.0 million, or 5.3%, during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. The overall decrease was primarily related to the reduction in fleet size, including a 10.9% reduction in block hours during the three months ended September 30, 2015 compared to the three months ended September 30, 2014.
Other income (expense), net. Other income, net, decreased $22.5 million, or 95.5% during the three months ended September 30, 2015, compared to the three months ended September 30, 2014. We recognized a gain of $1.1 million during the three months ended September 30, 2015, resulting primarily from the early payoff of debt. We recorded a gain of $24.9 million recorded during the three months ended September 30, 2014 resulting from the sale of stock we owned in Trip Linhas Aereas S.A., a Brazilian regional airline (TRIP), and recorded interest income of $2.1 million received in conjunction with the TRIP transaction.
Income taxes, our estimated annual effective tax rate for the three months ended September 30, 2015 and 2014 varied from the federal statutory rate of 35% primarily due to the provision for state income taxes and the impact of non-deductible crew per diem meal expenses.
Net income. Primarily due to factors described above, we generated net income of $36.3 million, or $0.71 per diluted share, for the three months ended September 30, 2015, compared to a net income of $41.3 million, or $0.79 per diluted share, for the three months ended September 30, 2014.
Nine Months Ended September 30, 2015 and 2014
Operational Statistics. The following table sets forth our major operational statistics and the associated percentages-of-change for the periods identified below.
|
|
For the nine months ended September 30, |
| ||||
|
|
2015 |
|
2014 |
|
% Change |
|
Revenue passenger miles (000) |
|
22,439,946 |
|
23,783,610 |
|
(5.6 |
)% |
Available seat miles (ASMs) (000) |
|
27,134,415 |
|
28,767,497 |
|
(5.7 |
)% |
Block hours |
|
1,574,364 |
|
1,716,419 |
|
(8.3 |
)% |
Departures |
|
933.430 |
|
1,029,619 |
|
(9.3 |
)% |
Passengers carried |
|
42,613,648 |
|
44,622,305 |
|
(4.5 |
)% |
Passenger load factor |
|
82.7 |
% |
82.7 |
% |
|
Pts |
Revenue per available seat mile |
|
8.6 |
¢ |
8.4 |
¢ |
2.4 |
% |
Cost per available seat mile |
|
8.2 |
¢ |
8.4 |
¢ |
(2.4 |
)% |
Cost per available seat mile excluding fuel |
|
7.9 |
¢ |
7.9 |
¢ |
0 |
% |
Fuel cost per available seat mile |
|
0.3 |
¢ |
0.5 |
¢ |
(40.0 |
)% |
Average passenger trip length (miles) |
|
527 |
|
533 |
|
(1.1 |
)% |
Revenues. Total operating revenues decreased $80.8 million, or 3.3%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. Our total operating revenue includes passenger revenues, which primarily consists of revenue earned on flights we operate under our fixed-fee and pro-rate arrangements and airport customer service revenue, including airport counter, gate and ramp services, on flights we operate under our flying arrangements. Our total operating revenue also includes ground handling and other revenues, which primarily consists of revenue earned from providing airport counter, gate and ramp services to other airlines on flights operated by other airlines and government subsidy revenue we receive for providing flight service to certain locations.
Passenger revenues. Under our fixed-fee flying contracts, we are directly-reimbursed for certain expenses from our major airline partners and we record such reimbursements as passenger revenue. The price and volume volatility of directly-reimbursed expenses may impact the comparability of revenue to previous periods without impacting the comparability of our operating income to the same periods. The following table summarizes our passenger revenues less certain directly-reimbursed expenses that may impact the comparability for the periods indicated (dollar amounts in thousands).
|
|
For the nine months ended September 30, |
| ||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| ||
Passenger revenues |
|
2,293,085 |
|
$ |
2,372,054 |
|
(78,969 |
) |
(3.3 |
)% | |
Less: Fuel reimbursement from major airline partners |
|
31,159 |
|
63,776 |
|
(32,617 |
) |
(51.1 |
)% | ||
Less: Landing fee and station rent reimbursements from major airline partners |
|
15,777 |
|
17,866 |
|
(2,089 |
) |
(11.7 |
)% | ||
Less: Engine overhaul reimbursement from major airline partners |
|
74,722 |
|
95,023 |
|
(20,301 |
) |
(21.4 |
)% | ||
Passenger revenue excluding fuel, landing fee, station rent and engine overhaul reimbursements |
|
$ |
2,171,427 |
|
$ |
2,195,389 |
|
(23,962 |
) |
(1.1 |
)% |
Passenger revenues (excluding fuel, landing fee, station rent, and engine overhaul directly-reimbursed expenses from our major airline partners), decreased $24.0 million during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. Our passenger revenues (excluding fuel, landing fees, station rents, and engine overhaul reimbursements) decreased primarily due to a reduction in our fleet size, including a related 8.3% reduction in block hours incurred. This reduction in passenger revenue was offset by $96 million from the additional E175 operations, improved contract rates from flying contract renewals and extensions, higher operating performance incentives earned under our fixed-fee arrangements, and approximately $36 million from higher flight completion rates.
Our directly-reimbursed fuel expense, landing fee, station rent and engine overhaul expenses decreased by $55.0 million, or 31.1%, during the nine months ended September 30, 2015, from the nine months ended September 30, 2014, due primarily to our major airline partners paying for such expenses directly to third party vendors, a reduction in fuel costs per gallon and a reduction in directly-reimbursed engine events.
Ground handling and other. Total ground handling and other revenues decreased $1.8 million, or 3.5%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. The decrease was primarily related to a reduction in flight activity at locations that provide government subsidies.
Individual expense components attributable to our operations are expressed in the following table in total and on the basis of cents per ASM (dollar amounts in thousands).
|
|
For the nine months ended September 30, |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
2015 |
|
2014 |
| ||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
|
Cents Per |
|
Cents Per |
| ||
|
|
Amount |
|
Amount |
|
Amount |
|
Percent |
|
ASM |
|
ASM |
| ||
Salaries, wages and benefits |
|
$ |
906,051 |
|
$ |
944,253 |
|
(38,202 |
) |
(4.0 |
)% |
3.4 |
|
3.3 |
|
Aircraft maintenance, materials and repairs |
|
461,972 |
|
509,905 |
|
(47,933 |
) |
(9.4 |
)% |
1.7 |
|
1.8 |
| ||
Aircraft rentals |
|
206,857 |
|
232,682 |
|
(25,825 |
) |
(11.1 |
)% |
0.8 |
|
0.8 |
| ||
Depreciation and amortization |
|
196,953 |
|
192,389 |
|
4,564 |
|
2.4 |
% |
0.7 |
|
0.7 |
| ||
Aircraft fuel |
|
90,254 |
|
154,420 |
|
(64,166 |
) |
(41.6 |
)% |
0.3 |
|
0.5 |
| ||
Ground handling services |
|
62,981 |
|
100,446 |
|
(37,465 |
) |
(37.3 |
)% |
0.2 |
|
0.3 |
| ||
Special charges |
|
|
|
4,713 |
|
(4,713 |
) |
(100.0 |
)% |
|
|
|
| ||
Other operating expenses |
|
235,447 |
|
240,236 |
|
(4,789 |
) |
(2.0 |
)% |
0.9 |
|
0.8 |
| ||
Total operating expenses |
|
$ |
2,160,515 |
|
$ |
2,379,044 |
|
(218,529 |
) |
(9.2 |
)% |
8.0 |
|
8.2 |
|
Interest |
|
56,460 |
|
48,697 |
|
(7,763 |
) |
15.9 |
% |
0.2 |
|
0.2 |
| ||
Total airline expenses |
|
$ |
2,216,975 |
|
$ |
2,427,741 |
|
(210,766 |
) |
(8.7 |
)% |
8.2 |
|
8.4 |
|
Salaries wages and employee benefits. Salaries, wages and employee benefits decreased $38.2 million, or 4.0%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. The decrease in salaries, wages and employee benefits was primarily due to the decrease in our fleet size and related decrease in the number of departures and block hours compared to the nine months ended September 30, 2014, which was partially offset by additional training costs for the E175 deliveries.
Aircraft maintenance, materials and repairs. Aircraft maintenance expense decreased $47.9 million, or 9.4%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. Under our Directly-Reimbursed Engine Contracts, we are reimbursed for engine overhaul costs by our applicable major airline partner at the time the maintenance event occurs. Such reimbursements are reflected as passenger revenue in the same amount and during the same period we recognized the expense in our consolidated statements of comprehensive income .The following table summarizes our aircraft maintenance, materials and repairs less the directly-reimbursed engine overhaul costs under our fixed-fee arrangements for the periods indicated (dollar amounts in thousands).
|
|
For the nine months ended September 30, |
| |||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| |||
Aircraft maintenance, materials and repairs |
|
$ |
461,972 |
|
$ |
509,904 |
|
$ |
(47,932 |
) |
(9.4 |
)% |
Less: Directly-reimbursed engine overhaul costs from major airline partners |
|
74,722 |
|
95,023 |
|
(20,301 |
) |
(21.4 |
)% | |||
Aircraft maintenance, materials and repairs excluding directly- reimbursed engine overhaul costs from major airline partners |
|
$ |
387,250 |
|
$ |
396,729 |
|
$ |
(27,632 |
) |
(6.7 |
)% |
Other aircraft maintenance, materials and repairs, excluding our directly-reimbursed engine overhaul costs, decreased $27.6 million, or 6.7%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. The decrease in aircraft maintenance expense (excluding directly-reimbursed engine overhaul costs) was primarily due to a decrease in our fleet size and a related decrease in the number of scheduled maintenance events. Additionally, our expense associated with engine overhauls not subject to direct-reimbursement under our Directly-Reimbursed Engine Contracts, decreased $6.4 million during the nine months ended September 30, 2015 compared to the nine months engine September 30, 2014, primarily due to a decrease in the number of engine overhaul events incurred under our Fixed-Rate Engine Contracts.
Aircraft rentals. Aircraft rentals decreased $25.8 million, or 11.1%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. The decrease in aircraft rentals was primarily due to a reduction in the number of aircraft that were financed through leases subsequent to September 30, 2014.
Depreciation and amortization. Depreciation and amortization expense increased $4.6 million, or 2.4%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. The increase in depreciation and amortization expense was primarily due to the purchase of 29 E175 aircraft and spare engines subsequent to September 30, 2014, which was partially offset by the removal of owned aircraft during the same period.
Aircraft Fuel. Fuel costs decreased $64.2 million, or 41.6%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. Under our fixed-fee flying arrangements, fuel is a directly-reimbursed expense. The following table summarizes our aircraft fuel expenses (less directly-reimbursed fuel expense under our fixed-fee flying arrangements) for the periods indicated (dollar amounts in thousands).
|
|
For the nine months ended September 30, |
| |||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| |||
Aircraft fuel expenses |
|
$ |
90,254 |
|
$ |
154,420 |
|
$ |
(64,166 |
) |
(41.6 |
)% |
Less: Directly-reimbursed fuel from major airline partners |
|
31,159 |
|
63,776 |
|
(32,617 |
) |
(51.1 |
)% | |||
Aircraft fuel less fuel reimbursement from major airline partners |
|
$ |
59,095 |
|
$ |
90,644 |
|
$ |
(31,549 |
) |
(34.8 |
)% |
The decrease in fuel cost was primarily due to our decrease in the average fuel cost per gallon in 2015 compared to 2014 and a decrease in the volume in gallons purchased. In the event the major airline partner purchases fuel directly from vendors on flights we operate pursuant to a fixed-fee arrangement, we do not incur the fuel expense. The average fuel cost per gallon was $2.19 and $3.46 for the nine months ended September 30, 2015 and 2014, respectively. The following table summarizes the gallons of fuel we purchased directly from fuel vendors and our fuel expense, for the periods indicated:
|
|
For the nine months ended September 30, |
| ||||||
(in thousands, except per gallon amounts) |
|
2015 |
|
2014 |
|
% Change |
| ||
Fuel gallons purchased |
|
41,263,366 |
|
44,609,431 |
|
(7.5 |
)% | ||
Fuel expense |
|
$ |
90,254 |
|
$ |
154,420 |
|
(41.6 |
)% |
Ground handling service. Ground handling service expense decreased $37.5 million, or 37.3%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. Ground handling service expense includes airport -related customer service costs, such as outsourced airport agent services, airport ramp services, airport security fees, and passenger interruption costs. The decrease in ground handling service expense was primarily due to a reduction in the volume of departures at locations for which SkyWest Airlines provides ground handling services subsequent to September 30, 2014.
Special charges. During the nine months ended September 30, 2014, we initiated the sale of a paint facility we owned in Saltillo, Mexico and we wrote down the value of assets to our estimated net realizable value of the facility. We subsequently sold the facility in 2014 for an amount that approximated our estimated net realizable value as of June 30, 2014.
Other operating expenses. Other operating expenses, primarily consisting of property taxes, hull and liability insurance, crew simulator training, crew per diem, crew hotel costs, landing fees and station rents, decreased $4.8 million, or 2.0%, during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014. Under our fixed-fee flying arrangements, landing fees and station rents are directly-reimbursed expenses. The following table summarizes our other operating expenses (less directly-reimbursed landing fees and station rents under our fixed-fee flying arrangements) for the periods indicated (dollar amounts in thousands).
|
|
For the nine months ended September 30, |
| |||||||||
|
|
2015 |
|
2014 |
|
$ Change |
|
% Change |
| |||
Other operating expenses |
|
$ |
235,447 |
|
$ |
240,236 |
|
$ |
(4,789 |
) |
(2.0 |
)% |
Less: Landing fee and station rent reimbursements from major airline partners |
|
15,777 |
|
17,866 |
|
(2,089 |
) |
(11.7 |
)% | |||
Other operating expenses less landing fee and station rent reimbursements from major airline partners |
|
$ |
219,670 |