SKYWEST INC 10-Q

ITEM 2:   MANAGEMENT’S 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, 2022 and 2021. Also discussed is our financial condition as of September 30, 2022, and December 31, 2021. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and nine months ended September 30, 2022, 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 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, anticipated operations, the revenue environment, our contractual relationships, and our anticipated financial performance. These statements include, but are not limited to, statements regarding the impact of the COVID-19 pandemic on our 21 Table of Contents business, results of operations and financial condition and the impact of any measures, including travel restrictions, taken to mitigate the effect of the pandemic, our future growth and development plans, including our future financial and operating results, our plans, objectives, expectations and intentions and other statements that are not historical facts. Readers should keep in mind that 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 vary, and may vary materially, from those anticipated, estimated, projected, or intended for a number of reasons, including but not limited to: the uncertainty of the duration, scope and impact of COVID-19; a further spread or worsening of COVID-19 or other potential future outbreaks of infectious diseases or other health concerns; the consequences of the COVID-19 pandemic to global economic conditions, the travel industry and our major airline partners in general and our financial condition and results of operations in particular; the challenges of competing successfully in a highly competitive and rapidly changing industry; developments associated with fluctuations in the economy and the demand for air travel, including as a result of the COVID-19 pandemic and due to inflationary pressures; the financial stability of United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”) and any potential impact of their financial condition on our operations; fluctuations in flight schedules, which are determined by the major airline partners for whom SkyWest conducts flight operations; variations in market and economic conditions; significant aircraft lease and debt commitments; realization of manufacturer residual value guarantees on applicable SkyWest aircraft; residual aircraft values and related impairment charges; labor relations and costs; the ability to attract and retain qualified pilots; potential fluctuations in fuel costs and potential fuel shortages; the impact of global instability, including the ongoing military conflict between Russia and the Ukraine; the impact of weather-related or other natural disasters on air travel and airline costs; and new aircraft deliveries, as well as the other factors identified under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, under the heading “Risk Factors” in Part II, Item 1A of this Report, elsewhere in this Report, in our other filings with the Securities and Exchange Commission (the “SEC”) and other unanticipated factors. There may be other factors that may affect matters discussed in forward-looking statements set forth in this Report, which factors may also cause actual results to differ materially from those discussed. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that we have filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. 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 applicable law. Overview We have the largest regional airline operation in the United States through our operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”). As of September 30, 2022, we offered scheduled passenger service with approximately 2,100 total daily departures to destinations in the United States, Canada, and Mexico. Our fleet of Embraer E175 regional jet aircraft (“E175”), Canadair CRJ900 regional jet aircraft (“CRJ900”) and Canadair CRJ700 regional jet aircraft (“CRJ700”) have a multiple-class seat configuration, whereas our Canadair CRJ200 regional jet aircraft (“CRJ200”) aircraft have a single-class seat configuration. As of September 30, 2022, we had 642 total aircraft in our fleet, including 530 aircraft in scheduled service or under contract under our code-share agreements, summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ E175 CRJ900 CRJ700 CRJ200 Total United 90 ​ — ​ 19 ​ 111 ​ 220 Delta ​ 80 ​ 44 ​ 5 ​ 29 ​ 158 American 20 ​ — ​ 90 ​ — ​ 110 Alaska 42 ​ — ​ — ​ — ​ 42 Aircraft in scheduled service or under contract ​ 232 ​ 44 ​ 114 ​ 140 ​ 530 Leased to third parties — ​ 5 ​ 35 ​ — ​ 40 Other* — ​ — ​ 18 ​ 54 ​ 72 Total Fleet 232 ​ 49 ​ 167 ​ 194 ​ 642 * As of September 30, 2022, other aircraft included: supplemental spare aircraft supporting our code-share agreements 22 Table of Contents that may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, aircraft held-for-sale, or aircraft that are scheduled to be disassembled for use as spare parts. Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements, typically in the form of capacity purchase agreements or prorate agreements, between airlines that, among other things, allow one airline to use another airline’s flight designator codes on its flights) with our major airline partners. Our success is principally dependent on our ability to meet the needs of our major airline partners by providing a reliable and safe operation at attractive economics. From September 30, 2021, to September 30, 2022, we made several changes to our fleet count under our flying agreements, primarily consisting of the addition of 33 new E175 aircraft and 8 used CRJ700 aircraft. We anticipate our fleet will continue to evolve, as we are scheduled to add seven new E175 aircraft with Delta by the end of 2024 and one new E175 aircraft with Alaska by the end of 2025. We also anticipate adding 11 used CRJ700 aircraft with American by the end of 2023. Anticipated delivery and in-service dates may be subject to change as we are coordinating timing with our major airline partners. Our primary objective in the fleet changes is to improve our profitability by adding new E175 aircraft and used CRJ aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require higher maintenance costs. As of September 30, 2022, approximately 41.5% of our aircraft in scheduled service or under contract were operated for United, approximately 29.8% were operated for Delta, approximately 20.8% were operated for American and approximately 7.9% were operated for Alaska. 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 fixed-fee arrangements (referred to as “capacity purchase agreements”) and revenue-sharing arrangements (referred to as “prorate” agreements). For the nine months ended September 30, 2022, capacity purchase revenue and prorate revenue represented approximately 88.0% and 12.0%, respectively, of our total flying agreements revenue. On capacity purchase 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 (measured from takeoff to landing, including taxi time), flight departures, the number of aircraft under contract and other operating measures. On prorate routes, we have more control over scheduling, pricing and seat inventories, and we share passenger fares with our major airline partners according to prorate formulas. Our prorate revenue and profitability may fluctuate based on ticket prices and passenger loads, and we are responsible for the operating costs of the prorate flights, including fuel and airport costs. Third Quarter Summary We had total operating revenues of $789.4 million for the three months ended September 30, 2022, a 6.0% increase compared to total operating revenues of $744.8 million for the three months ended September 30, 2021. We had net income of $48.4 million, or $0.96 per diluted share, for the three months ended September 30, 2022, compared to net income of $9.7 million, or $0.19 per diluted share, for the three months ended September 30, 2021. The significant items affecting our revenue and operating expenses during the three months ended September 30, 2022, are outlined below: Revenue The number of aircraft we have in scheduled service or under contract under our code-share agreements and the number of block hours we incur on our flights are primary drivers of our flying agreements revenue under our capacity purchase agreements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers of our revenue under our prorate flying agreements. The number of aircraft we have in scheduled service or under contract under code-share agreements increased from 486 as of September 30, 2021 to 530 as of September 30, 2022; and the number of block hours decreased from 370,462 for the three months ended September 30, 2021 to 323,742 for the three months ended September 30, 2022, or by 12.6%, due to a reduction in scheduled daily utilization of our aircraft primarily caused by pilot availability constraints. Our capacity purchase revenue increased $78.0 million, or 13.2%, from the three months ended September 30, 2021 to the three months ended September 30, 2022, primarily as a result of temporary rate reductions we provided to 23 Table of Contents our major airline partners under our capacity purchase agreements during the three months ended September 30, 2021, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. We did not provide our major airline partners temporary rate reductions during the three months ended September 30, 2022. Additionally, our capacity purchase agreement revenue increased during the three months ended September 30, 2022, due to more aircraft under contract, partially offset by a reduction in completed block hours compared to the three months ended September 30, 2021. As a result of fewer departures under our prorate agreements and fewer passengers carried on our prorate routes, our prorate revenue decreased $33.6 million, or 26.2%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. Operating Expenses Our total operating expenses increased $16.1 million, or 2.3%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase in operating expenses was primarily due to an increase in salaries, wages, and benefits, offset by a decrease in maintenance expense for the three months ended September 30, 2022, as a result of the timing of heavy maintenance events for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. Our operating expenses for the three months ended September 30, 2021 also included a $115.4 million grant benefit from the payroll support program reflected as a reduction to our operating expenses, partially offset by an $84.6 million, non-cash impairment charge. We did not have a similar payroll grant benefit or impairment during the three months ended September 30, 2022. Departures decreased from 210,251 for the three months ended September 30, 2021 to 194,683 for the three months ended September 30, 2022, or by 7.4%. Additional details regarding the increase in our operating expenses are described in the section of this Report entitled “Results of Operations.” Fleet Activity The following table summarizes our fleet scheduled for service or under contract as of: ​ ​ ​ ​ ​ ​ ​ Aircraft in Service or Under Contract September 30, 2022 December 31, 2021 September 30, 2021 E175s 232 211 199 CRJ900s 44 44 40 CRJ700s 114 114 106 CRJ200s 140 140 141 Total 530 509 486 Critical Accounting Policies and Estimates Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2021 and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are presented in our Annual Report on Form 10-K for the year ended December 31, 2021. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s 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, long-lived assets, and income tax. 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. There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2022. Results of Operations Three Months Ended September 30, 2022 and 2021 Operational Statistics The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The decrease in block hours, departures and passengers carried during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was primarily due to labor constraints, 24 Table of Contents including the number of available captains, offset by additional E175 aircraft operating under our capacity purchase agreements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, Block hours by aircraft type: 2022 2021 % Change E175s 169,679 ​ 169,143 ​ 0.3 % CRJ900s ​ 25,134 ​ 34,031 ​ (26.1) % CRJ700s ​ 62,540 ​ 78,788 ​ (20.6) % CRJ200s 66,389 ​ 88,500 ​ (25.0) % Total block hours ​ 323,742 ​ 370,462 ​ (12.6) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Departures 194,683 ​ 210,251 ​ (7.4) % Passengers carried 10,715,415 ​ 10,862,343 ​ (1.4) % Passenger load factor 84.6 % 79.1 % 5.5 pts Average passenger trip length (miles) 488 ​ 537 ​ (9.0) % Operating Revenues The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ 2022 2021 $ Change % Change Flying agreements ​ $ 763,514 ​ $ 719,084 ​ $ 44,430 ​ 6.2 % Lease, airport services and other ​ 25,929 ​ 25,699 ​ 230 ​ 0.9 % Total operating revenues ​ $ 789,443 ​ $ 744,783 ​ $ 44,660 6.0 % Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp services. We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ 2022 2021 $ Change % Change Capacity purchase agreements revenue: flight operations $ 376,596 $ 308,273 $ 68,323 22.2 % Capacity purchase agreements revenue: aircraft lease and fixed revenue ​ ​ 292,174 ​ ​ 282,498 ​ ​ 9,676 ​ 3.4 % Prorate agreements revenue ​ 94,744 ​ 128,313 ​ (33,569) (26.2) % Flying agreements revenue $ 763,514 $ 719,084 $ 44,430 6.2 % The increase in “Capacity purchase agreements revenue: flight operations” of $68.3 million was primarily due to temporary rate reductions we provided to our major airline partners under our capacity purchase agreements during the three months ended September 30, 2021, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. We did not provide our major airline partners temporary rate reductions during the three months ended September 30, 2022. The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $9.7 million was primarily a result of the 33 E175 aircraft added to our fleet since September 30, 2021, offset by a decrease in deferred revenue and unbilled revenue recognized during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Based on the number of 25 Table of Contents completed block hours during the three months ended September 30, 2022, we recognized $8.2 million of previously deferred revenue and $5.1 million of unbilled revenue on our capacity purchase agreements. For the three months ended September 30, 2021, we recognized $19.2 million of previously deferred revenue. Our deferred revenue and unbilled revenue related to the fixed payments will adjust over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement. The deferred revenue balance applicable to each contract will be recorded as revenue by the end of each respective contract term. Our total deferred revenue and unbilled revenue balances were $78.1 million and $22.8 million as of September 30, 2022, respectively. The decrease in prorate agreements revenue of $33.6 million was primarily due to the decrease in prorate departures and passenger revenue we received on routes we operated under our prorate agreements during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Due to labor constraints, including the number of available captains, we operated fewer aircraft under our prorate agreements during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase in lease, airport services and other revenues of $0.2 million was primarily due to an increase in airport service revenue at locations where we were contracted to provide airport customer service during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Operating Expenses Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ ​ 2022 ​ 2021 ​ $ Change ​ % Change Salaries, wages and benefits ​ $ 307,727 ​ $ 265,603 ​ $ 42,124 ​ 15.9 % Aircraft maintenance, materials and repairs ​ 183,182 ​ 209,795 ​ (26,613) (12.7) % Depreciation and amortization ​ 97,433 ​ 109,597 ​ (12,164) (11.1) % Aircraft fuel ​ 28,179 ​ 32,561 ​ (4,382) (13.5) % Airport-related expenses ​ 17,501 ​ 25,992 ​ (8,491) (32.7) % Aircraft rentals ​ 16,089 ​ 16,098 ​ (9) (0.1) % Special items - impairment charges ​ — ​ 84,592 ​ (84,592) 100.0 % Payroll support grant ​ ​ — ​ ​ (115,352) ​ ​ 115,352 ​ (100.0) % Other operating expenses ​ 63,756 ​ 68,847 ​ (5,091) (7.4) % Total operating expenses ​ $ 713,867 ​ $ 697,733 ​ $ 16,134 2.3 % Interest expense ​ 33,283 ​ 28,980 ​ 4,303 14.8 % Total airline expenses ​ $ 747,150 ​ $ 726,713 ​ $ 20,437 2.8 % Salaries, wages and benefits. The $42.1 million, or 15.9%, increase in salaries, wages and benefits was due to increased costs to attract and retain aviation professionals during the three months ended September 30, 2022, compared to the three months ended September 30, 2021 . Aircraft maintenance, materials and repairs. The $26.6 million, or 12.7%, decrease in aircraft maintenance expense was primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets, including engine maintenance expense, throughout the 2021 year, including the three months ended September 30, 2021. As a result of the maintenance work completed in 2021, our maintenance events were lower for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Depreciation and amortization. The $12.2 million, or 11.1%, decrease in depreciation and amortization expense was primarily due to certain CRJ200 aircraft that became fully depreciated since September 30, 2021. This reduction in depreciation on our CRJ200 fleet was partially offset by an increase in depreciation expense due to the acquisition of 33 new E175 aircraft and spare engines since September 30, 2021. 26 Table of Contents Aircraft fuel. The $4.4 million, or 13.5%, decrease in fuel cost was primarily due to a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased, offset by an increase in our average fuel cost per gallon from $2.55 for the three months ended September 30, 2021, to $4.39 for the three months ended September 30, 2022. We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, (in thousands) 2022 2021 % Change Fuel gallons purchased ​ ​ 6,422 ​ ​ 12,779 ​ (49.7) % Fuel expense ​ $ 28,179 ​ $ 32,561 (13.5) % ​ Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and benefits and the customer service labor costs we outsource to third parties are included in airport-related expenses. The $8.5 million, or 32.7%, decrease in airport-related expenses for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was primarily due to a decrease in subcontracted airport services and landing fees as a result of a decrease in the number of flights we operated under our prorate arrangements and a decrease in station rents as a result of exiting certain prorate markets. Aircraft rentals. Aircraft rentals primarily includes aircraft and engines we lease from third parties. For the three months ended September 30, 2021, and the three months ended September 30, 2022, there were no significant changes to our leased aircraft and engines. Special items - impairment charges. Special items for the three months ended September 30, 2021, consisted of a non-cash impairment charge on certain SkyWest Airlines’ CRJ900 aircraft of $84.6 million. We did not have a comparable non-cash impairment charge during the three months ended September 30, 2022. Payroll support grant. In April 2021, we entered into an agreement with U.S. Treasury and received $250.0 million in emergency relief through the American Rescue Plan Act payroll support program, of which $205.0 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. We recognized $115.4 million in payroll support grant proceeds we received as a reduction to our operating expenses for the three months ended September 30, 2021. We did not have a comparable payroll support grant during the three months ended September 30, 2022. Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, crew hotel costs and credit loss reserves. The $5.1 million, or 7.4%, decrease in other operating expenses was primarily related to a reduction in other operating costs that correspond to the decrease in the number of flights we operated during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, such as crew per diem and crew hotel costs. Interest Expense. The $4.3 million, or 14.8%, increase in interest expense was primarily related to the interest expense associated with 33 new E175 aircraft added to our fleet subsequent to September 30, 2021, which were debt financed. Total airline expenses. Our total airline expenses, comprised of our total operating expenses and interest expense, increased $20.4 million, or 2.8%, primarily due to the payroll support program grant reflected as an offset to operating expenses, partially offset by a non-cash impairment charge for the three months ended September 30, 2021 and a decrease in direct operating costs attributed to the lower number of completed flights, offset by an increase in direct labor costs during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. As our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and as revenue earned under our capacity purchase agreements is intended to compensate us for our 27 Table of Contents aircraft ownership costs, including interest expense, we believe our total airline expense is a meaningful expense measure for management discussion and analysis purposes. Summary of interest income, other income (expense) and provision for income taxes: Interest income. Interest income increased $6.1 million, from $0.2 million for the three months ended September 30, 2021, to $6.3 million for the three months ended September 30, 2022. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities subsequent to September 30, 2021. Other income (expense), net. Other income increased $12.2 million during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase in other income was primarily a result of an increase in the fair market value of our equity investments and income related to our investment in a joint venture with a third party. ​ Provision for income taxes. For the three months ended September 30, 2022 and 2021, our effective income tax rates were 14.8% and 31.9%, respectively, which include the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses. The decrease in the effective tax rate primarily relates to a release of $7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization that occurred during the three months ended September 30, 2022, compared the three months ended September 30, 2021. Net income. Primarily due to the factors described above, we generated net income of $48.4 million, or $0.96 per diluted share, for the three months ended September 30, 2022, compared to net income of $9.7 million, or $0.19 per diluted share, for the three months ended September 30, 2021. Nine Months Ended September 30, 2022 and 2021 Operational Statistics The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increase in departures and passengers carried during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was primarily due to additional aircraft operating under our capacity purchase agreements and the continued demand recovery from reduced flight schedules in 2021 resulting from the COVID-19 pandemic, partially offset by labor constraints, including the number of available captains in 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the nine months ended September 30, Block hours by aircraft type: 2022 2021 % Change E175s 481,080 ​ 446,867 ​ 7.7 % CRJ900s ​ 78,468 ​ 87,750 ​ (10.6) % CRJ700s ​ 202,538 ​ 215,263 ​ (5.9) % CRJ200s 207,402 ​ 220,809 ​ (6.1) % Total block hours ​ 969,488 ​ 970,689 ​ (0.1) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Departures 570,572 ​ 550,643 ​ 3.6 % Passengers carried 30,627,250 ​ 25,872,805 ​ 18.4 % Passenger load factor 82.9 % 72.0 % 10.9 pts Average passenger trip length (miles) 498 ​ 536 ​ (7.1) % 28 Table of Contents Operating Revenues The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the nine months ended September 30, ​ 2022 2021 $ Change % Change Flying agreements ​ $ 2,245,351 ​ $ 1,863,242 ​ $ 382,109 ​ 20.5 % Lease, airport services and other ​ 78,329 ​ 73,086 ​ 5,243 ​ 7.2 % Total operating revenues ​ $ 2,323,680 ​ $ 1,936,328 ​ $ 387,352 20.0 % Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp services. We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the nine months ended September 30, ​ ​ 2022 ​ 2021 ​ $ Change ​ % Change Capacity purchase agreements revenue: flight operations $ 1,112,526 $ 792,501 $ 320,025 40.4 % Capacity purchase agreements revenue: aircraft lease and fixed revenue ​ 864,178 ​ 770,548 ​ 93,630 12.2 % Prorate agreements revenue ​ 268,647 ​ ​ 300,193 ​ ​ (31,546) (10.5) % Flying agreements revenue ​ $ 2,245,351 ​ $ 1,863,242 ​ $ 382,109 20.5 % The increase in “Capacity purchase agreements revenue: flight operations” of $320.0 million was primarily due to an increase in the number of E175 aircraft we operated under our contracts with our major airline partners during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. From September 30, 2021, to September 30, 2022, we added 33 E175 aircraft under capacity purchase agreements. Our completed departures increased 3.6%, our E175 aircraft completed block hours increased 7.7%, and total completed block hours were similar during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Additionally, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021, we provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the nine months ended September 30, 2021. We did not provide our major airline partners temporary rate reductions during the nine months ended September 30, 2022. The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $93.6 million was primarily due to recognizing previously deferred revenue and unbilled revenue during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Based on the number of completed block hours during the nine months ended September 30, 2022, we recognized $25.8 million of previously deferred revenue and $14.4 million of unbilled revenue on our capacity purchase agreements. For the nine months ended September 30, 2021, we deferred recognizing revenue on $7.7 million of fixed monthly cash payments we received under our capacity purchase agreements. Our deferred revenue and unbilled revenue related to the fixed payments will adjust over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement. The deferred revenue balance applicable to each contract will be recorded as revenue by the end of each respective contract term. Our total deferred revenue and unbilled revenue balances were $78.1 million and $22.8 million, respectively, as of September 30, 2022. Additionally, our aircraft lease and fixed rate revenue increased as a result of the 33 E175 aircraft added to our fleet since September 30, 2021. 29 Table of Contents The decrease in prorate agreements revenue of $31.5 million was primarily due to the decrease in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements. Due to labor constraints, including the number of available captains, we operated fewer aircraft under our prorate agreements during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase in lease, airport services and other revenues of $5.2 million was primarily due to an increase in airport service revenue due to the increase in the number of flights operated at locations where we were contracted to provide airport customer service during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Operating Expenses Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the nine months ended September 30, ​ ​ 2022 ​ 2021 ​ $ Change ​ % Change Salaries, wages and benefits ​ $ 896,347 ​ $ 718,868 ​ $ 177,479 ​ 24.7 % Aircraft maintenance, materials and repairs ​ 506,478 ​ 604,501 ​ (98,023) (16.2) % Depreciation and amortization ​ 297,427 ​ 329,089 ​ (31,662) (9.6) % Aircraft fuel ​ 85,089 ​ 77,622 ​ 7,467 9.6 % Airport-related expenses ​ 54,196 ​ 72,478 ​ (18,282) (25.2) % Aircraft rentals ​ 48,109 ​ 47,311 ​ 798 1.7 % Special items - impairment charges ​ — ​ 84,592 ​ (84,592) 100.0 % Payroll support grant ​ ​ — ​ ​ (422,669) ​ ​ 422,669 ​ (100.0) % Other operating expenses ​ 219,808 ​ 181,621 ​ 38,187 21.0 % Total operating expenses ​ $ 2,107,454 ​ $ 1,693,413 ​ $ 414,041 24.5 % Interest expense ​ 92,308 ​ 94,274 ​ (1,966) (2.1) % Total airline expenses ​ $ 2,199,762 ​ $ 1,787,687 ​ $ 412,075 23.1 % Salaries, wages and benefits. The $177.5 million, or 24.7%, increase in salaries, wages and benefits was due to increased costs to attract and retain aviation professionals and increased direct labor costs resulting from the higher number of flights we operated during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 . Aircraft maintenance, materials and repairs. The $98.0 million, or 16.2%, decrease in aircraft maintenance expense was primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets, such as engine maintenance expense, throughout the 2021 year, including the nine months ended September 30, 2021. As a result of the maintenance work completed in 2021, our maintenance events were lower for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Depreciation and amortization. The $31.7 million, or 9.6%, decrease in depreciation and amortization expense was primarily due to certain CRJ200 aircraft that became fully depreciated since September 30, 2021. This reduction in depreciation on our CRJ200 fleet was partially offset by an increase in depreciation expense due to the acquisition of 33 new E175 aircraft and spare engines since September 30, 2021. Aircraft fuel. The $7.5 million, or 9.6%, increase in fuel cost was primarily due to an increase in our average fuel cost per gallon from $2.37 for the nine months ended September 30, 2021, to $4.13 for the nine months ended September 30, 2022, offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased. We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated: 30 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the nine months ended September 30, (in thousands) 2022 2021 % Change Fuel gallons purchased ​ ​ 20,618 ​ ​ 32,771 ​ (37.1) % Fuel expense ​ $ 85,089 ​ $ 77,622 9.6 % Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. The $18.3 million, or 25.2%, decrease in airport-related expenses for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was primarily due to a decrease in subcontracted airport services, landing fees, and deicing events as a result of a decrease in the number of flights we operated under our prorate arrangements and a decrease in station rents as a result of exiting certain prorate markets. Aircraft rentals. The $0.8 million, or 1.7%, increase in aircraft rentals was primarily due to an increase in aircraft and engines we leased during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Special items - impairment charges. Special items for the nine months ended September 30, 2021, consisted of a non-cash impairment charge on certain SkyWest Airlines’ CRJ900 aircraft of $84.6 million. We did not have a comparable non-cash impairment charge during the nine months ended September 30, 2022. Payroll support grant. In January 2021, we entered into an agreement with U.S. Treasury and received $233.1 million in emergency relief through the 2021 Appropriations Act payroll support program, of which $193.2 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. Additionally, in April 2021, the Company received an additional $35.0 million in proceeds under the PSP Extension Agreement, of which $24.5 million was in the form of payroll support grants that were recognized as a reduction of labor expense during the period the grant was intended to compensate. In April 2021, we also entered into an agreement with U.S. Treasury and received $250.0 million in emergency relief through the American Rescue Plan Act payroll support program, of which $205.0 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. We recognized $422.7 million in payroll support grant proceeds we received as a reduction to our operating expenses for the nine months ended September 30, 2021. We did not have a comparable payroll support grant during the nine months ended September 30, 2022. Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, crew hotel costs and credit loss reserves. The $38.2 million, or 21.0%, increase was primarily related to an increase in other operating costs that correspond to the higher number of flights we operated during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, such as crew per diem, crew hotel costs and simulator costs, as well as an asset held for sale write-down of $15.2 million during the nine months ended September 30, 2022. Interest Expense. The $2.0 million, or 2.1%, decrease in interest expense was primarily related to an overall lower effective interest rate during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, offset by an increase in long-term debt since September 30, 2021. Total airline expenses. Our total airline expenses, comprised of our total operating expenses and interest expense, increased $412.1 million, or 23.1%, during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due the payroll support program grant reflected as an offset to operating expenses for the nine months ended September 30, 2021, and an increase in direct operating costs attributed to the higher number of completed flights. Summary of interest income, other income (expense) and provision for income taxes: Interest income. Interest income increased $8.6 million, from $0.7 million for the nine months ended September 30, 2021, to $9.3 million for the nine months ended September 30, 2022. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities subsequent to September 30, 2021. 31 Table of Contents Other income (expense), net. Other income increased $24.8 million during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase in other income was primarily a result of an increase in the fair market value of our equity investments and income related to our investment in a joint venture with a third party. ​ Provision for income taxes. For the nine months ended September 30, 2022 and 2021, our effective income tax rates were 22.2% and 26.1%, respectively, which include the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes, the impact of non-deductible expenses and the discrete tax expense or benefit on employee equity transactions. The decrease in the effective tax rate primarily relates to a release of $7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization that occurred during the nine months ended September 30, 2022, compared the nine months ended September 30, 2021. Net income. Primarily due to the factors described above, we generated net income of $120.1 million, or $2.37 per diluted share, for the nine months ended September 30, 2022, compared to net income of $107.6 million, or $2.12 per diluted share, for the nine months ended September 30, 2021. Our Business Segments Three Months Ended September 30, 2022 and 2021 For the three months ended September 30, 2022, we had two reportable segments, which were the basis of our internal financial reporting: SkyWest Airlines and SkyWest Leasing. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ ​ (dollar amounts in thousands) ​ 2022 2021 $ Change % Change Operating Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines operating revenue ​ $ 651,494 ​ $ 614,377 ​ $ 37,117 6.0 % SkyWest Leasing operating revenues ​ 137,949 ​ 130,406 ​ 7,543 5.8 % Total Operating Revenues ​ $ 789,443 ​ $ 744,783 ​ $ 44,660 6.0 % Airline Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines airline expense ​ $ 653,533 ​ $ 635,307 ​ $ 18,226 2.9 % SkyWest Leasing airline expense ​ 93,617 ​ 91,406 ​ 2,211 2.4 % Total Airline Expenses (1) ​ $ 747,150 ​ $ 726,713 ​ $ 20,437 2.8 % Segment profit (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines segment loss ​ $ (2,039) ​ $ (20,930) ​ $ 18,891 (90.3) % SkyWest Leasing profit ​ 44,332 ​ 39,000 ​ 5,332 13.7 % Total Segment Profit ​ $ 42,293 ​ $ 18,070 ​ $ 24,223 134.1 % Interest Income ​ 6,348 ​ 238 ​ 6,110 2,567.2 % Other Income (Expense), net ​ 8,112 ​ (4,098) ​ 12,210 (298.0) % Consolidated Income Before Taxes ​ $ 56,753 ​ $ 14,210 ​ $ 42,543 299.4 % (1) Total Airline Expenses includes operating expense and interest expense. SkyWest Airlines Segment Loss. SkyWest Airlines segment loss decreased $18.9 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. SkyWest Airlines block hour production decreased to 323,742, or 12.6%, for the three months ended September 30, 2022, from 370,462 for the three months ended September 30, 2021, primarily due to reduced flight schedules as a result of labor constraints, including the number of available captains. Significant items contributing to the SkyWest Airlines segment loss are set forth below. 32 Table of Contents SkyWest Airlines operating revenues increased $37.1 million, or 6.0%, from the three months ended September 30, 2021, to the three months ended September 30, 2022, primarily due to temporary rate reductions SkyWest Airlines provided to our major airline partners under our capacity purchase agreements during the three months ended September 30, 2021 in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. SkyWest Airlines did not provide similar rate reductions to our major airline partners in 2022. The increase in revenue was partially offset by a decrease in prorate revenue during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. SkyWest Airlines airline expense increased $18.2 million, or 2.9%, from the three months ended September 30, 2021, to the three months ended September 30, 2022, due to the following primary factors: ● SkyWest Airlines’ salaries, wages and benefits expense increased by $42.0 million, or 15.9%, primarily due to increased costs to attract and retain aviation professionals during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. ● SkyWest Airlines’ aircraft maintenance, materials and repairs expense decreased by $26.0 million, or 12.7%, primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets throughout the 2021 year, such as engine maintenance expense, included in the three months ended September 30, 2021. ● SkyWest Airlines’ depreciation and amortization expense decreased by $9.6 million, or 18.0%, primarily due to certain CRJ200 aircraft that became fully depreciated since September 30, 2021, partially offset by an increase in depreciation expense related to the acquisition of used CRJ700 aircraft since September 30, 2021. ● SkyWest Airlines’ fuel expense decreased $4.4 million, or 13.5%, due to a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased, offset by an increase in our average fuel cost per gallon from $2.55 for the three months ended September 30, 2021, to $4.39 for the three months ended September 30, 2022 . ● SkyWest Airlines recorded a non-cash impairment charge on its CRJ900 aircraft of $84.6 million for the three months ended September 30, 2021. SkyWest Airlines did not have a comparable non-cash impairment charge for the three months ended September 30, 2022. ● SkyWest Airlines recognized $115.4 million in payroll support grant proceeds as a reduction to our operating expenses for the three months ended September 30, 2021. SkyWest Airlines did not have a comparable grant for the three months ended September 30, 2022. ● SkyWest Airlines’ remaining airline expenses decreased $14.6 million, or 13.1%, primarily related to a decrease in other operating costs that correspond to the lower number of flights we operated for the three months ended September 30, 2022, compared to the three months ended September 30, 2021 , such as crew per diem and crew hotel costs. SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $5.3 million, or 13.7%, during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to the acquisition of 33 new E175 aircraft added to our fleet subsequent to September 30, 2021. Nine Months Ended September 30, 2022 and 2021 For the nine months ended September 30, 2022, we had two reportable segments, which were the basis of our internal financial reporting: SkyWest Airlines and SkyWest Leasing. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker. 33 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the nine months ended September 30, ​ ​ (dollar amounts in thousands) ​ 2022 2021 $ Change % Change Operating Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines operating revenue ​ $ 1,918,746 ​ $ 1,548,422 ​ $ 370,324 23.9 % SkyWest Leasing operating revenues ​ 404,934 ​ 387,906 ​ 17,028 4.4 % Total Operating Revenues ​ $ 2,323,680 ​ $ 1,936,328 ​ $ 387,352 20.0 % Airline Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines airline expense ​ $ 1,915,245 ​ $ 1,509,713 ​ $ 405,532 26.9 % SkyWest Leasing airline expense ​ 284,517 ​ 277,974 ​ 6,543 2.4 % Total Airline Expenses (1) ​ $ 2,199,762 ​ $ 1,787,687 ​ $ 412,075 23.1 % Segment profit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines segment profit ​ $ 3,501 ​ $ 38,709 ​ $ (35,208) (91.0) % SkyWest Leasing profit ​ 120,417 ​ 109,932 ​ 10,485 9.5 % Total Segment Profit ​ $ 123,918 ​ $ 148,641 ​ $ (24,723) (16.6) % Interest Income ​ 9,332 ​ 732 ​ 8,600 1,174.9 % Other Income (Expense), net ​ 21,011 ​ (3,802) ​ 24,813 (652.6) % Consolidated Income Before Taxes ​ $ 154,261 ​ $ 145,571 ​ $ 8,690 6.0 % (1) Total Airline Expenses includes operating expense and interest expense. SkyWest Airlines Segment Profit. SkyWest Airlines segment profit decreased $35.2 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. SkyWest Airlines block hour production decreased slightly to 969,488, or 0.1%, for the nine months ended September 30, 2022, from 970,689 for the nine months ended September 30, 2021, primarily due to labor constraints, including the number of available captains. Significant items contributing to the SkyWest Airlines segment profit are set forth below. SkyWest Airlines operating revenues increased $370.3 million, or 23.9%, from the nine months ended September 30, 2021, to the nine months ended September 30, 2022, due to additional aircraft operating under our capacity purchase agreements, as well as temporary rate reductions SkyWest Airlines provided to our major airline partners under our capacity purchase agreements during the nine months ended September 30, 2021, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. Additionally, during the nine months ended September 30, 2022, SkyWest Airlines recognized $25.8 million of previously deferred revenue and $14.4 million of unbilled revenue on our capacity purchase agreements, compared to deferring revenue of $7.7 million during the nine months ended September 30, 2021. SkyWest Airlines airline expense increased $405.5 million, or 26.9%, from the nine months ended September 30, 2021, to the nine months ended September 30, 2022, due to the following primary factors: ● SkyWest Airlines’ salaries, wages and benefits expense increased by $177.4 million, or 24.7%, primarily due to increased costs to attract and retain aviation professionals and increased direct labor costs resulting from the higher number of flights we operated during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. ● SkyWest Airlines’ aircraft maintenance, materials and repairs expense decreased by $95.4 million, or 16.2%, primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets throughout the 2021 year, such as engine maintenance expense, included in the nine months ended September 30, 2021. ● SkyWest Airlines’ depreciation and amortization expense decreased by $20.4 million, or 13.0%, primarily due to certain CRJ200 aircraft that became fully depreciated since September 30, 2021, partially offset by an increase in depreciation expense related to the acquisition of used CRJ700 aircraft since September 30, 2021. 34 Table of Contents ● SkyWest Airlines’ fuel expense increased $7.5 million, or 9.6%, due to an increase in our average fuel cost per gallon from $2.37 for the nine months ended September 30, 2021, to $4.13 for the nine months ended September 30, 2022 , offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased. ● SkyWest Airlines recorded a non-cash impairment charge on its CRJ900 aircraft of $84.6 million for the nine months ended September 30, 2021. SkyWest Airlines did not have a comparable non-cash impairment charge for the nine months ended September 30, 2022. ● SkyWest Airlines recognized $422.7 million in payroll support grant proceeds as a reduction to our operating expenses for the nine months ended September 30, 2021. SkyWest Airlines did not have a comparable grant for the nine months ended September 30, 2022. ● SkyWest Airlines’ remaining airline expenses decreased $1.7 million, or 0.5%, primarily related to a decrease in other operating costs that correspond to a decrease in our prorate operations for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 , such as subcontracted airport services, landing fees, and deicing events. SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $10.5 million, or 9.5%, during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to the acquisition of 33 new E175 aircraft added to our fleet subsequent to September 30, 2021, offset by the $15.2 million impairment charge related to the write down of assets held for sale. Liquidity and Capital Resources As of September 30, 2022, we had $1.0 billion in cash and cash equivalents and marketable securities. As of September 30, 2022, we had $68.6 million available for borrowings under our line of credit. Given our available liquidity as of September 30, 2022, and given the measures we have implemented to reduce the impact of the COVID-19 pandemic on our financial position and operations, we believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments, and debt service obligations for at least the next 12 months. Our total cash and marketable securities increased from $860.4 million as of December 31, 2021, to $1.0 billion as of September 30, 2022, or by $143.8 million. At September 30, 2022, our total capital mix was 44.6% equity and 55.4% long-term debt, compared to 45.5% equity and 54.5% long-term debt at December 31, 2021. As of September 30, 2022, and December 31, 2021, we had $61.4 million in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of September 30, 2022, and December 31, 2021. 35 Table of Contents Sources and Uses of Cash Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the nine months ended September 30, 2022 and 2021, and our total cash and marketable securities positions as of September 30, 2022, and December 31, 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the nine months ended September 30, ​ 2022 2021 $ Change % Change Net cash provided by operating activities ​ $ 343,535 ​ $ 686,955 ​ $ (343,420) ​ (50.0) % Net cash used in investing activities ​ (864,569) ​ (396,785) ​ (467,784) 117.9 % Net cash provided by (used in) financing activities ​ 301,463 ​ (234,062) ​ 535,525 (228.8) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ ​ ​ ​ 2022 ​ 2021 ​ $ Change ​ % Change Cash and cash equivalents ​ $ 38,850 ​ $ 258,421 ​ $ (219,571) (85.0) % Marketable securities ​ 965,347 ​ 601,989 ​ 363,358 60.4 % Total ​ $ 1,004,197 ​ $ 860,410 ​ $ 143,787 16.7 % Cash Flows provided by Operating Activities Our cash flows provided by operating activities was $343.5 million for the nine months ended September 30, 2022, compared to $687.0 million for the nine months ended September 30, 2021. Our operating cash flows are typically impacted by various factors including our net income, adjusted for non-cash expenses and gains such as depreciation expense, stock-based compensation expense, and gains or losses on the disposal of assets; and timing of cash payments and cash receipts attributed to our various current asset and liability accounts, such as accounts receivable, inventory, accounts payable, accrued liabilities, deferred revenue and unbilled revenue. The decrease in our cash flow from operations for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was primarily due to an impairment charge of $84.6 million reflected as a non-cash reconciling addition to income for the nine months ended September 30, 2021 and the timing of cash payments on our current liability accounts and changes in our deferred revenue and unbilled revenue accounts for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Cash Flows used in Investing Activities Our cash flows used in investing activities was $864.6 million for the nine months ended September 30, 2022, compared to cash flows used in investing activities of $396.8 million for the nine months ended September 30, 2021. Our investing cash flows are typically impacted by various factors including our capital expenditures, such as the acquisition of aircraft and spare engines; deposit payments and refunds of previously made deposits on new aircraft; purchase and sales of marketable securities; proceeds from the sale of assets; and timing of cash payments and cash receipts attributed to our various long-term asset and long-term liability accounts. Cash used for the acquisition of property and equipment, net of aircraft deposits applied towards acquired aircraft, increased by $195.9 million from $223.1 million for the nine months ended September 30, 2021, to $419.0 million for the nine months ended September 30, 2022, primarily due to the purchase of 21 new E175 aircraft during the nine months ended September 30, 2022, compared to the purchase of six new E175 aircraft and 10 used CRJ700 aircraft during the nine months ended September 30, 2021. Cash used for purchases of marketable securities, net of sales of marketable securities, increased by $337.4 million from $30.5 million for the nine months ended September 30, 2021, to $367.9 million for the nine months ended September 30, 2022, resulting from the transfer of cash into marketable securities accounts. Additionally, we reduced cash used on new aircraft deposits to $37.1 million for the nine months ended September 30, 2022, from $100.1 million for the nine months ended September 30, 2021, based on the timing of new aircraft orders. 36 Table of Contents Cash Flows provided by (used in) Financing Activities Our cash flows provided by financing activities was $301.5 million for the nine months ended September 30, 2022, compared to cash used in financing activities of $234.1 million for the nine months ended September 30, 2021. Our financing cash flows are typically impacted by various factors including proceeds from issuance of debt, principal payments on debt obligations, repurchases of our common stock and payment of cash dividends. The $535.5 million increase in cash provided by financing activities for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, was primarily due to an increase of $388.1 million in proceeds from the issuance of long-term debt primarily related to the acquisition of 21 E175 aircraft and an increase in debt secured by engines during the nine months ended September 30, 2022. Additionally, cash used for principal payments on long-term debt decreased $148.7 million from the nine months ended September 30, 2021, to the nine months ended September 30, 2022, primarily due to paying off a portion of our long-term debt during the nine months ended September 30, 2021. Significant Commitments and Obligations General See Note 7, "Leases, Commitments and Contingencies," to the condensed consolidated financial statements for our commitments and obligations for each of the next five years and thereafter. Purchase Commitments and Options As of September 30, 2022, we had a firm purchase commitment for eight new E175 aircraft from Embraer with delivery dates anticipated into 2025. At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select one or more of these methods to fund the acquisition. In recent years, we have issued long-term debt to finance our new aircraft. At present, we intend to fund our aircraft purchase commitments through cash on hand and debt financing. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft. We intend to finance the firm purchase commitment for eight E175 aircraft with approximately 80-85% debt and the remaining balance with cash. Aircraft Lease and Facility Obligations We also have significant long-term lease obligations, primarily relating to our aircraft fleet. Excluding aircraft financed by our major airline partners that we operate for them under contract, we had 43 aircraft under lease with remaining terms ranging from two years to eight years as of September 30, 2022. Future minimum lease payments due under all long-term operating leases were approximately $238.0 million at September 30, 2022. Assuming a 6.0% discount rate, which is the average incremental borrowing rate we anticipate we would have incurred on debt obtained over a similar term to acquire these assets, the present value of these lease obligations would have been equal to approximately $192.0 million at September 30, 2022. Long-term Debt Obligations As of September 30, 2022, we had $3.1 billion of long-term debt obligations related to the acquisition of aircraft. The average effective interest rate on those long-term debt obligations was approximately 4.0% at September 30, 2022. We also had $200.6 million of long-term debt obligations under the PSP1, PSP2 and PSP3 programs with U.S. Treasury and $160.5 million of long-term debt secured by spare engines. Under our capacity purchase agreements, the major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis. The aircraft compensation structure varies by agreement, but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract. 37 Table of Contents Guarantees We have guaranteed the obligations of SkyWest Airlines under the United Express Agreement and the Delta Connection Agreement for the E175 aircraft. In addition, we have guaranteed certain other obligations under SkyWest Airlines’ aircraft financing and leasing agreements. We have guaranteed $19.8 million in promissory notes of a third party in event the third party defaults on its payments. The third party’s loans are secured by aircraft and engines. Seasonality Our results of operations for any interim period are not necessarily indicative of those for an entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased travel on our prorate routes, historically occurring during the summer months, and unfavorably affected by decreased travel during the months of November through February and by inclement weather, which may occasionally or frequently, depending on the severity of the inclement weather in any given winter, result in cancelled flights during the winter months.