What changed in this filing

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Item 1. Business

2023-02-16 compared with 2022-02-17 · 54 added, 73 removed, 306 unchanged (29% of the section changed)

Through SkyWest Airlines, we offer scheduled passenger service to destinations in the United States, Canada, Mexico and the Caribbean.

Substantially all of our flights are operated as United Express, Delta Connection, American Eagle or Alaska Airlines flights under code-share arrangements (commercial agreements between airlines that, among other things, allow one airline to use another airline’s flight designator codes on its flights) with United, Delta, American

or Alaska, respectively.

Through SkyWest Airlines, we offer scheduled passenger service to destinations in the United States, Canada and Mexico.

As of December 31, 2022, we offered approximately 1,620 daily departures, of which approximately 600 were United Express flights, 530 were Delta Connection flights, 330 were American Eagle flights and 160 were Alaska Airlines flights.

The number of flights we operated during 2021 was negatively impacted by the COVID-19 pandemic.

See the section entitled “Competition and Economic Conditions” below for additional information regarding the COVID-19 impact on our operations.

We generally provide regional flying to our major airline partners under long-term, fixed-fee, code-share agreements.

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*As of December 31, 2022, other aircraft included:

supplemental spare aircraft supporting our code-share agreements which may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, or aircraft that are scheduled to be disassembled for use as spare parts.

**The Company took delivery of the 18 E175 aircraft under its contract with American as of December 31, 2021.

The 18 E175 aircraft are scheduled to begin service in 2022.

supplemental spare aircraft supporting our code-share agreements 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.

Bombardier and Embraer are the primary manufacturers of regional jets operated in the United States and offer many of the amenities of larger commercial jet aircraft, including flight attendant service, a stand-up cabin, overhead and under seat storage, lavatories and in-flight snack and beverage service.

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We maintain an internet website at inc.skywest.com, which provides links to our annual, quarterly and current reports and any amendments to those reports filed with or furnished to the Securities and Exchange Commission (“SEC”).

We use our investor relations website as a

means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.

We use our investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.

Investors should monitor our website, in addition to following our press releases, SEC filings and public conferences calls and webcasts.

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As of December 31, 2022, SkyWest Leasing leased 35 CRJ700 aircraft, five CRJ900 aircraft and regional jet aircraft engines to third parties.

ExpressJet was a reportable segment prior to our sale of ExpressJet in January 2019.

ExpressJet’s operations were conducted principally from airports located in Atlanta, Chicago (O’Hare), Houston, Newark and New York.

SkyWest Charter

In 2022, we formed a new subsidiary, SkyWest Charter, with the intent to offer public charter service to underserved communities in the United States and on-demand charter services using CRJ200 aircraft in a 30-seat configuration.

We anticipate SkyWest Charter will begin operations in 2023.

Competition and Economic Conditions

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(“Horizon”) (owned by Alaska Air Group, Inc.);

GoJet Airlines, LLC;

GoJet Airlines, LLC (“GoJet”);

Mesa Air Group, Inc.

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ability to fly contracted schedules, availability of labor resources, including pilots, low operating cost, financial resources, geographical infrastructure, overall customer service levels relating to on-time arrival and flight completion percentages and the overall image of the regional airline.

Additionally, each major airline may be limited in the number and type of regional aircraft it may use in its network due to agreements the major airline has with its own labor groups, commonly referred to in the industry as “scope limitations.” Given our major airline partners’ scope limitations, we currently do not operate a regional aircraft configured with more than 76 seats.

major airline partners’ scope limitations, we currently do not operate a regional aircraft configured with more than 76 seats.

The principal competitive factors for regional airline code-share arrangements include labor resources, code-share agreement terms, reliable flight operations, operating cost structure, ability to finance new aircraft, certification to operate certain aircraft types and geographical infrastructure supporting markets and routes served.

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Generally, the airline industry is sensitive to changes in general economic conditions.

Economic downturns, combined with competitive pressures, have contributed to a number of reorganizations, bankruptcies, liquidations and

business combinations among major and regional carriers.

Economic downturns, combined with competitive pressures, have contributed to a number of reorganizations, bankruptcies, liquidations and business combinations among major and regional carriers.

The effect of economic downturns may be somewhat mitigated by our predominantly contract-based flying arrangements.

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Additionally, attrition of our pilots or other workgroups may reduce our flying schedules and have a negative impact on our operations and financial condition.

Impact of the COVID-19 Pandemic

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, had a significant, negative impact on our business, revenue and financial results in 2020 with moderate improvement in 2021.

The ongoing spread of the virus and its variants continues to negatively impact our business, and the domestic and international networks of our major airline partners for whom we conduct flight operations and rely on to set our flight schedules.

Various factors outside our control may impact the demand for air travel and our flight schedules, such as the distribution and efficacy of vaccines, government-imposed vaccine mandates, new variants of the virus, and continued or new government travel restrictions.

Additionally, indirect factors, such as employee attrition, workforce shortages and third-party labor shortages that may result in delays in outsourced maintenance work and availability of aircraft parts, will likely impede the timing of our recovery from the pandemic and impact operations in 2022 and possibly thereafter, even if passenger demand returns to pre-COVID-19 levels.

In response to the COVID-19 pandemic, we have implemented measures to focus on the personal safety of our passengers and employees, while at the same time seeking to mitigate the impact on our financial position and operations.

These measures include, but are not limited to, working with our major airline partners to enhance cleaning procedures for our aircraft and our training and other facilities, provide masks for crewmembers and ensuring that all fleet service personnel have the necessary personal protective equipment for disinfecting the aircraft, and encouraging vaccination for our employees through paid-time off incentives and education.

Recovery from the COVID-19 Pandemic and Labor Impact

COVID-19 had a significant, negative impact on our business, revenue and financial results in 2020 with moderate improvement in 2021.

During 2022, passenger demand recovered;

however, indirect factors associated with the recovery from COVID-19, such as employee attrition, particularly captain attrition, workforce shortages and third-party labor shortages impacted our operations in 2022.

Capacity and flight schedule impact.

We completed the following number of flights and related block hours in 2019, 2020 and 2021, demonstrating our ongoing flight schedule recovery from the COVID-19 pandemic:

We completed the following number of flights and related block hours in 2020, 2021 and 2022, demonstrating our ongoing flight schedule recovery toward pre-pandemic (2019) levels:

For the year ended December 31,

Although the number of flights we completed and related block hours incurred in 2021 was 89.1% and 90.1% of 2019 levels, respectively, future passenger demand in 2022 and beyond is uncertain.

Additionally, a significant increase in hiring of our pilots by major airlines, low-cost carrier airlines and air freight companies may negatively impact our attrition rates and our ability to operate flight schedules requested by our major airline partners.

We may receive requests by our major airline partners, or we may request our major airline partners to defer deliveries of new or used aircraft that were previously scheduled for delivery in 2022 and 2023.

At December 31, 2021, we had $904.0 million in total available liquidity, consisting of $860.4 million in cash and marketable securities, and $43.6 million available under SkyWest Airlines’ line of credit with a bank.

Additionally, we have approximately $1.5 billion in unpledged aircraft engines and aircraft parts that we temporarily used as collateral in 2020 and 2021.

The number of flights we completed and related block hours incurred in 2022 was 87.8% and 85.7% of 2019 levels, respectively, compared to 2021, when the number of flights we completed and related block hours incurred was 89.1% and 90.1% of 2019 levels.

In 2022, a significant increase in hiring of our pilots, particularly captains, by major airlines, low-cost carrier airlines and air freight companies negatively impacted our attrition rates and our ability to operate flight schedules requested by our major airline partners, in part leading to the year-over-year decline in both flights completed and block hours incurred.

At December 31, 2022, we had $1.1 billion in total available liquidity, consisting of $1.0 billion in cash, cash equivalents and marketable securities, and $70.1 million available for borrowings under SkyWest Airlines’ line of credit.

Industry Overview

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(“Southwest”), JetBlue Airways Corporation (“JetBlue”), Spirit Airlines, Inc.

(“Spirit”) and Frontier Group Holdings, Inc.

(“Frontier”), generally have lower cost structures than major airlines, which permits them to offer flights to and from many of the same markets as the major airlines, but at lower prices.

(“Spirit”), Allegiant Travel Company (“Allegiant”) and Frontier Group Holdings, Inc.

(“Frontier”), generally have lower cost structures than major airlines, which permits them to offer flights to and from many of the

same markets as the major airlines, but at lower prices.

Low-cost carriers typically operate using a point-to-point network strategy, rather than a hub-and-spoke network.

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Rather, regional airlines typically enter into agreements with one or more major airlines, pursuant to which the regional airline agrees to use its smaller, lower-cost aircraft to carry passengers booked and ticketed by the major airline between a hub of the major airline and a smaller outlying city.

In exchange for such services, the major airline pays the regional airline either fixed fees to operate the flight, termed “capacity purchase agreement,” “capacity purchase contract,” “contract” or “fixed-fee” flights, or the regional airline receives a percentage of applicable passenger ticket revenues on designated flights operated by the regional airline, termed “prorate” or “revenue-sharing” flights, as described in more detail below.

In exchange for such services, the major airline pays the regional airline either fixed fees to operate the flight, termed “capacity purchase agreement,” “capacity purchase contract,” “flying contract,” “fixed-fee arrangement,” or a “fixed-fee contract,” or the regional airline receives a percentage of applicable passenger ticket revenues on designated flights operated by the regional airline, termed “prorate agreement” or “revenue-sharing” arrangement, as described in more detail below.

Code-Share Agreements

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● Capacity Purchase Arrangements.

Under a capacity purchase arrangement (also referred to as a “capacity purchase agreement,” “capacity purchase contract,” “flying contract,” “fixed-fee arrangement,” or a “fixed-fee contract,”), the major airline generally pays the regional airline a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) and block hour (measured from takeoff to landing, including taxi time), and an amount per aircraft in service each month with additional incentives based on completion of flights, on-time performance and other operating metrics.

Under a capacity purchase arrangement, the major airline generally pays the regional airline a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) and block hour (measured from takeoff to landing, including taxi time), and an amount per aircraft in service each month with additional incentives based on completion of flights, on-time performance and other operating metrics.

The regional airline typically acquires or finances the aircraft used under the capacity purchase arrangement, which is accounted for as a lease of the aircraft to our major airline partner.

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● Prorate Arrangements.

Under a prorate arrangement (also referred to as a “prorate agreement” or “revenue-sharing” arrangement), the major airline and regional airline negotiate a passenger fare proration formula for specifically identified routes, pursuant to which the regional airline receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on the regional airline and the other portion of their trip on the major airline.

Under a prorate arrangement, the major airline and regional airline negotiate a passenger fare proration formula for specifically identified routes, pursuant to which the regional airline receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on the regional airline and the other portion of their trip on the major airline.

On the other hand, the regional airline receives all of the passenger fare when a passenger purchases a ticket on a route solely operated by the regional airline.

Substantially all costs associated with the regional airline flight are borne by the regional airline.

In a prorate arrangement, the regional airline may realize increased profits as ticket prices and passenger loads increase or fuel prices

decrease and, correspondingly, the regional airline may realize decreased profits as ticket prices and passenger loads decrease or fuel prices increase.

In a prorate arrangement, the regional airline may realize increased profits as ticket prices and passenger loads increase or fuel prices decrease and, correspondingly, the regional airline may realize decreased profits as ticket prices and passenger loads decrease or fuel prices increase.

We have code-share agreements with United, Delta, American and Alaska.

During the year ended December 31, 2021, approximately 84% of our flying agreements revenue related to capacity purchase agreement flights, where United, Delta, American and Alaska controlled scheduling, ticketing, pricing, and seat inventories.

The remainder of our flying agreements revenue during the year ended December 31, 2021, related to prorate flights for United or Delta, where we controlled scheduling, pricing and seat inventories, and shared passenger fares with United or Delta according to prorate formulas.

During the year ended December 31, 2022, approximately 88% of our flying agreements revenue related to capacity purchase agreement flights,

where United, Delta, American and Alaska controlled scheduling, ticketing, pricing, and seat inventories.

The remainder of our flying agreements revenue during the year ended December 31, 2022, related to prorate flights for United or Delta, where we have more control over scheduling, pricing and seat inventories, and shared passenger fares with United or Delta according to prorate formulas.

The routes placed under our prorate arrangements typically include flight service between one of our partners’ hub cities and a city not served under our capacity purchase arrangements.

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The average remaining term of the aircraft under contract is 4.3 years

Total under American Agreements

Total under American Agreement

Alaska Capacity Purchase Agreement

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(capacity purchase agreement)

Individual aircraft have scheduled removal dates in 2030

Individual aircraft have scheduled removal dates from 2030 to 2034

The average remaining term of the aircraft under contract is 8.8 years

* Our prorate agreements are based on specific routes, not a specific aircraft count.

The number of aircraft listed above for each prorate agreement approximates the number of aircraft we use to serve the prorate routes.

In addition to the aircraft operating under the respective arrangements outlined above, SkyWest Airlines has agreed with its major airline partners to place additional aircraft under a capacity purchase arrangement as summarized below.

We are coordinating with our major airline partners to optimize the timing of upcoming fleet deliveries and the delivery timing referenced below is subject to change.

● Capacity purchase agreement with American for two new E175 aircraft.

Aircraft deliveries are scheduled for early 2022, and the aircraft are expected to be placed into service in 2022.

● Capacity purchase agreement with Delta for a total of three new E175 aircraft.

Two new E175 aircraft are currently scheduled for delivery in 2023 and one new E175 aircraft is scheduled for delivery in 2024.

We anticipate financing the aircraft through debt.

● Capacity purchase agreement with Delta for 16 new E175 aircraft.

The delivery dates for the 16 new E175 aircraft are currently scheduled for 2022, and the aircraft are expected to be placed into service in 2022.

● Capacity purchase agreement with Alaska for one new E175 aircraft.

The delivery date for the new E175 aircraft is currently scheduled for 2025.

We anticipate financing the aircraft through debt.

The 16 E175 aircraft are expected to replace 16 CRJ900 aircraft that are scheduled to be removed from the capacity purchase agreement with Delta.

We are evaluating alternative uses for our CRJ900s that will be displaced by the 16 E175 aircraft.

● Capacity purchase agreement with Alaska for eleven new E175 aircraft.

The delivery dates for the eleven new E175 aircraft are currently scheduled for 2022 and 2023, and the aircraft are expected to be placed into service in 2022 and 2023.

● Capacity purchase agreement with American for eleven used CRJ700 aircraft.

The aircraft are anticipated to be placed into service by the end of 2023.

We anticipate using CRJ700s we already possess that are not currently under contract with a major airline partner to fulfill this agreement.

● In January 2022, we extended the term for 19 CRJ700 aircraft under contract with United for three years with new expiration dates scheduled between 2025 and 2026.

United Express Agreements

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We and Alaska are parties to a Capacity Purchase Agreement (the “Alaska Agreement”) for the operation of E175 aircraft.

Each aircraft placed under the agreement has a 12-year term and the last aircraft placed into service with Alaska is scheduled to terminate in 2030.

The Alaska Agreement is subject to early termination in various circumstances including:

The Alaska Agreement has a latest scheduled termination date of 2034 and is subject to early termination in various circumstances including:

● if we or Alaska fail to fulfill an obligation under the Alaska Capacity Purchase Agreement for a period of 30 days after written notice to cure;

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Under our prorate agreements with United and Delta, we are responsible for the costs to operate the flights, including fuel costs, and therefore we are exposed to fuel price fluctuations for flights operated under our prorate agreements.

During the year ended December 31, 2021, our major airlines partners purchased the majority of the fuel for our aircraft flying under their respective capacity purchase agreements directly from their fuel vendors or reimbursed us for the fuel costs we incurred under the capacity purchase agreements.

Historically, we have not experienced sustained material problems with the availability of fuel and believe we will be able to obtain fuel in quantities sufficient to meet our existing and anticipated future requirements at

competitive prices.

During the year ended December 31, 2022, our major airline partners purchased the majority of the fuel for our aircraft flying under their respective capacity purchase agreements directly from their fuel vendors or reimbursed us for the fuel costs we incurred under the capacity purchase agreements.

We typically purchase fuel from third-party suppliers for our prorate agreements.

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Our total employees at December 31, 2022, included 1,730 part-time employees.

All our employees are employed by SkyWest Airlines.

As of December 31, 2022, all our employees are employed by SkyWest Airlines, or to a limited extent, by SkyWest Charter, in preparation of the anticipated launch of SkyWest Charter operations in 2023.

Certain SkyWest Airlines employees also provide administrative support to the SkyWest Leasing segment.

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SkyWest Airlines has never experienced a work stoppage due to a strike or other labor dispute, and we consider our relationships with our employees to be good.

In September 2022, we entered into a collective bargaining agreement with our pilots, increasing the pay rates for pilots.

Our relations with labor are governed by the Railway Labor Act (the “RLA”), the federal law governing labor relations between air carriers and their employees.

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● Aviation Safety Action Program is a non-punitive program that allows employees in participating work groups to self-disclose violations of policies and procedures.

Each report is reviewed by an Event Review Committee who helps identify any potential trends and whether corrective actions have been put into place to prevent the problem from occurring in the future.

Each report is reviewed by an Event Review Committee who helps identify any potential trends and determines whether corrective actions have been put into place to prevent the problem from occurring in the future.

● Safety Concern Reporting is a confidential program that allows all employees to identify potential safety risks within the operation.

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● The SkyWest Pilot Pathway Program provides a direct path for qualified pilots seeking to begin their aviation career in the regional airline industry.

Participants benefit from the SkyWest Pilot Pathway Program through accelerated starting seniority at SkyWest, final interview privileges and access to pilot mentors.

Participants benefit from the SkyWest Pilot Pathway Program through certain starting seniority at SkyWest, final interview privileges and access to pilot mentors.

The Pilot Pathway Program allows students to remain at their campus to complete their flight training until they meet SkyWest's Airline Transport Pilot standards and achieve their required minimum hours of flight time.

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We also reinforce our guiding principles, including but not limited to, health and safety, excellent service and quality, and respect and teamwork through our training and development programs, as well as through our employee appreciation and recognition programs.

As the larger airlines recover from the COVID-19 pandemic and look to hire pilots, we anticipate seeing a significant turnover of our pilots, specifically our captains.

As we work to train and promote our first officers to captains, we will likely have higher training costs.

Additionally, if our captain attrition levels exceed our upgrade replacement levels, we will likely need to reduce future flight schedules with our major airline partners, negatively impacting our revenue.

During 2022, we experienced significant turnover of our pilots, specifically our captains.

As we work to train and promote our first officers to captains, we anticipate incurring continued elevated training costs in 2023.

Diversity & Inclusion

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As part of SkyWest’s commitment to diversity, we have:

● Organized an Inclusion Council made up of frontline employees who work directly with the C-Suite to continue enhancing SkyWest’s culture of respect and inclusion.

● Developed required training for all employees, which reviews our Company policies, provides opportunities to apply policy to real-world examples and reaffirms our commitment to diversity and inclusion.

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Total Rewards

SkyWest Airlines operates in a customer-focused, team-based environment and provides opportunities for dedicated individuals develop their career while receiving competitive compensation, benefits, and rewards.

SkyWest Airlines operates in a customer-focused, team-based environment and provides opportunities for dedicated individuals to develop their career while receiving competitive compensation, benefits and rewards.

Our employees receive several compensation benefits, including but not limited to:

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Our flight operations, maintenance programs, recordkeeping and training programs are conducted under FAA approved procedures.

All air carriers operating in the United States are required to comply with federal laws and regulations pertaining to noise abatement and

engine emissions.

All air carriers operating in the United States are required to comply with federal laws and regulations pertaining to noise abatement and engine emissions.

All such air carriers are also subject to certain provisions of the Federal Communications Act of 1934, as amended, because of their extensive use of radio and other communication facilities.

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We are not aware of any active material environmental investigations related to our assets or properties.

As the largest regional airline in the United States, we remain committed to lowering our environmental footprint while continuing to offer the best service to our customers and the communities we serve.

As the largest regional airline in the United States, we remain committed to working with our major airline partners to lower our environmental footprint while continuing to offer the best service to our customers and the communities we serve.

Our largest source of emissions and environmental impact comes from utilizing jet fuel on flights operated under our code-share agreements with our major airline partners.

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We anticipate our major airline partners will take responsibility for carbon emissions incurred on our contract flights.

Alternatively, we may purchase carbon offsets as an alternative strategy to reduce our carbon emissions.

Our board of directors has oversight of our environment-related performance.

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Additionally, we collaborate with aircraft and engine manufacturers and our major airline partners regarding innovations and emerging technologies that could improve fuel efficiencies and minimize environmental impact.

We are also collaborating with our major airline partners and fuel providers regarding long-term opportunities to use sustainable aviation fuel in the future.

We are evaluating opportunities to increase the number of electric powered ground equipment, including tugs and pushbacks used at airports where we provide ramp services.

We participate with our major airline partners in recycling programs, and we have implemented recycling initiatives in our facilities to reduce the amount of paper, plastic and other recyclables going to landfills.

We have worked aggressively to reduce our reliance on paper manuals, further eliminating unnecessary waste while increasing efficiencies.

We have entered into a strategic partnership with Eve UAM, LLC (“Eve”), an Embraer company, to develop a network of deployment for Eve’s electric vertical takeoff and landing (“eVTOL”) aircraft.

We have entered into a strategic partnership with Eve UAM, LLC (“Eve UAM”), an Embraer company, to develop a network of deployment for Eve UAM’s electric vertical takeoff and landing (“eVTOL”) aircraft.

This partnership includes the option for SkyWest to purchase up to 100 eVTOL aircraft.

Eve anticipates its four-passenger eVTOL aircraft will be certified and available for service after 2025.

Eve UAM anticipates its four-passenger eVTOL aircraft will be certified and available for service after 2025.

Safety and Security

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We maintain insurance policies we believe are of types customary in the industry and in amounts we believe are adequate to protect against material loss.

These policies principally provide coverage for public liability, passenger

liability, baggage and cargo liability, property damage, including coverage for loss or damage to our flight equipment, and workers’ compensation insurance.

These policies principally provide coverage for public liability, passenger liability, baggage and cargo liability, property damage, including coverage for loss or damage to our flight equipment, and workers’ compensation insurance.

Our results of operations for any interim period are not necessarily indicative of those for the entire year, in part because the airline industry is subject to seasonal fluctuations and changes in general economic conditions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business