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-month periods ended March 31, 2023 and 2022. Also discussed is our financial condition as of March 31, 2023, and December 31, 2022. You should read this discussion in conjunction with our condensed consolidated financial statements for the three months ended March 31, 2023, 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 about the continued demand for our product, the impact of the COVID-19 pandemic, economic conditions and the captain shortage on SkyWest’s business, financial condition and results of operations, the scheduled aircraft deliveries for SkyWest in upcoming periods and the related execution of SkyWest’s fleet transition strategy and expected timing thereof, expected production levels in future periods and associated staffing challenges, pilot attrition trends, SkyWest’s coordination with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner” and together, “major airline partners”) to optimize the delivery of aircraft under previously announced agreements, the expected terms, timing and benefits related to SkyWest’s leasing and joint venture transactions, SkyWest’s plans to operate public charter service to underserved communities in the United States and the expected timing thereof, as well as SkyWest’s future financial and operating results, plans, objectives, expectations, estimates, intentions and outlook, and other statements that are not historical facts. All forward-looking statements included in this Report are made as of the date hereof and are based on information available to SkyWest as of such date. SkyWest assumes no obligation to update any forward-looking statements unless required by law. Readers should note that many factors could affect the future operating and financial results of SkyWest and could cause actual results to vary materially from those expressed in forward-looking statements set forth in this Report. These factors include, but are not limited to, uncertainty regarding the COVID-19 pandemic and other potential future outbreaks of infectious diseases or other health concerns, and the consequences of such outbreaks to the travel industry and our major partners in general and the financial condition and operating results of SkyWest in particular, the prospects of entering into agreements with existing or other carriers to fly new aircraft, ongoing negotiations between SkyWest and its major partners regarding their contractual obligations, uncertainties regarding operation of new aircraft, the ability to attract and retain qualified pilots, including captains, and related staffing challenges, the impact of regulatory issues such as pilot rest rules and qualification requirements, and the ability to obtain aircraft financing. Actual operational and financial results of SkyWest will likely also vary, and may vary materially, from those anticipated, estimated, projected or expected for a number of other reasons, including, in addition to those identified above: 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 related to the COVID-19 pandemic, inflationary pressures, and related decreases in customer demand and spending; the financial stability of SkyWest’s major airline partners and any potential impact of their financial condition on the operations of SkyWest; 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; estimated useful life of long-lived assets, residual aircraft values and related impairment charges; labor relations and costs and labor shortages; the impact of global instability; rapidly fluctuating fuel costs and potential fuel shortages; the impact of weather-related or other natural disasters on air travel and airline costs; aircraft deliveries; uncertainty regarding ongoing hostility between Russia and the Ukraine and the related impacts on macroeconomic conditions and on the international operations of any of our major airline partners as a result of such conflict; the existing global COVID-19 pandemic and the outbreak of any other disease or similar public health threat that affects travel demand or travel behavior; as well as 20 Table of Contents 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, 2022, 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. 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 March 31, 2023, we offered scheduled passenger and air freight service with approximately 1,900 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 March 31, 2023, we had 623 total aircraft in our fleet, including 491 aircraft in scheduled service or under contract under our code-share agreements, summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ E175 CRJ900 CRJ700 CRJ200 Total United 90 ​ — ​ 19 ​ 95 ​ 204 Delta ​ 84 ​ 36 ​ 5 ​ 21 ​ 146 American 20 ​ — ​ 79 ​ — ​ 99 Alaska 42 ​ — ​ — ​ — ​ 42 Aircraft in scheduled service or under contract ​ 236 ​ 36 ​ 103 ​ 116 ​ 491 SkyWest Charter ​ — ​ — ​ — ​ 3 ​ 3 Leased to third parties — ​ 5 ​ 35 ​ — ​ 40 Other* — ​ 8 ​ 29 ​ 52 ​ 89 Total Fleet 236 ​ 49 ​ 167 ​ 171 ​ 623 * As of March 31, 2023, other aircraft included: 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. Our business model is based on providing scheduled regional airline service under code-share agreements (commercial 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 centered on our ability to meet the needs of our major airline partners by providing a reliable and safe operation at attractive economics. From March 31, 2022, to March 31, 2023, we made changes to our fleet count under our flying agreements, including the addition of 21 new E175 aircraft. We anticipate our fleet will continue to evolve, as we are scheduled to add a total of three new E175 aircraft with Delta in 2023 and 2024 and one new E175 aircraft with Alaska in 2025. Timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to the COVID-19 recovery, labor availability or other factors. 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 March 31, 2023, approximately 41.5% of our aircraft in scheduled service or under contract were operated for United, approximately 29.7% were operated for Delta, approximately 20.2% were operated for American and approximately 8.6% 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 21 Table of Contents to as “capacity purchase” agreements) and revenue-sharing arrangements (referred to as “prorate” agreements). For the three months ended March 31, 2023, capacity purchase revenue and prorate revenue represented approximately 88.4% and 11.6%, 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. First Quarter Summary We had total operating revenues of $691.8 million for the three months ended March 31, 2023, a 5.9% decrease compared to total operating revenues of $735.2 million for the three months ended March 31, 2022. We had a net loss of $22.1 million, or $0.45 loss per share, for the three months ended March 31, 2023, compared to net income of $17.7 million, or $0.35 per diluted share, for the three months ended March 31, 2022. The significant items affecting our revenue and operating expenses during the three months ended March 31, 2023, are outlined below: Revenue The number of aircraft we have in scheduled service or under contract pursuant to 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 decreased from 513 as of March 31, 2022 to 491 as of March 31, 2023; and the number of block hours decreased from 310,993 for the three months ended March 31, 2022 to 276,241 for the three months ended March 31, 2023, or by 11.2%, due to a reduction in scheduled daily utilization of our aircraft primarily caused by pilot availability constraints. Our capacity purchase revenue decreased $42.4 million, or 6.7%, from the three months ended March 31, 2022 to the three months ended March 31, 2023, primarily as a result of deferring the recognition of revenue on fixed monthly payments we received, offset by rate increases under our capacity purchase agreements during the three months ended March 31, 2023. As a result of fewer departures under our prorate agreements and fewer passengers carried on our prorate routes, our prorate revenue decreased $1.8 million, or 2.3%, for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022. Operating Expenses Our total operating expenses increased $13.4 million, or 2.0%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase in operating expenses was primarily due to an increase in salaries, wages, and benefits, offset by decreases in other operating costs as a result of lower production for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Departures decreased from 176,211 for the three months ended March 31, 2022 to 160,623 for the three months ended March 31, 2023, or by 8.8%. 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 March 31, 2023 December 31, 2022 March 31, 2022 E175s 236 236 215 CRJ900s 36 41 44 CRJ700s 103 104 114 CRJ200s 116 136 140 Total 491 517 513 22 Table of Contents 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, 2022, 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, 2022. 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 three months ended March 31, 2023. Results of Operations Three Months Ended March 31, 2023 and 2022 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 March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to labor constraints, including the number of available captains during the three months ended March 31, 2023 compared to the three months ended March 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, Block hours by aircraft type: 2023 2022 % Change E175s 160,751 ​ 146,177 ​ 10.0 % CRJ900s ​ 20,713 ​ 25,855 ​ (19.9) % CRJ700s ​ 52,028 ​ 67,878 ​ (23.4) % CRJ200s 42,749 ​ 71,083 ​ (39.9) % Total block hours ​ 276,241 ​ 310,993 ​ (11.2) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Departures 160,623 ​ 176,211 ​ (8.8) % Passengers carried 8,575,870 ​ 8,787,367 ​ (2.4) % Passenger load factor 80.2 % 77.6 % 2.6 pts Average passenger trip length (miles) 472 ​ 515 ​ (8.3) % Operating Revenues The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, ​ 2023 2022 $ Change % Change Flying agreements ​ $ 663,838 ​ $ 708,063 ​ $ (44,225) ​ (6.2) % Lease, airport services and other ​ 27,993 ​ 27,089 ​ 904 ​ 3.3 % Total operating revenues ​ $ 691,831 ​ $ 735,152 ​ $ (43,321) (5.9) % 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. 23 Table of Contents We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, ​ ​ 2023 ​ 2022 ​ $ Change ​ % Change Capacity purchase agreements flight operations revenue $ 468,916 $ 504,808 $ (35,892) (7.1) % Capacity purchase agreements aircraft lease revenue ​ 117,585 ​ 124,085 ​ (6,500) (5.2) % Prorate agreements revenue ​ 77,337 ​ ​ 79,170 ​ ​ (1,833) (2.3) % Flying agreements revenue ​ $ 663,838 ​ $ 708,063 ​ $ (44,225) (6.2) % The decrease in “Capacity purchase agreements revenue: flight operations” of $35.9 million was primarily due to an increase in deferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. 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 three months ended March 31, 2023, we deferred recognizing $42.6 million of revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues. For the three months ended March 31, 2022, we recognized $11.1 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues. The timing of our revenue recognition related to the fixed payments associated with our flight operations will be adjusted 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. Additionally, the decrease in “Capacity purchase agreements revenue: flight operations” associated with a decrease in block hour production during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was largely offset by block hour rate increases in certain capacity purchase agreements since March 31, 2022. The decrease in “Capacity purchase agreements aircraft lease revenue” of $6.5 million was primarily due to an increase in deferred revenue for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, offset by lease revenue from the 21 additional E175 aircraft placed under contract since March 31, 2022. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, we deferred recognizing lease revenue on $20.6 million of the allocated fixed monthly lease payments received during the three months ended March 31, 2023, under the straight-line method. The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. Our total deferred revenue balance, net of unbilled revenue, was $188.0 million as of March 31, 2023. The decrease in prorate agreements revenue of $1.8 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 three months ended March 31, 2023, compared to the three months ended March 31, 2022. The increase in lease, airport services and other revenues of $0.9 million was primarily due to an increase in airport service revenue driven by an increase in the number of flights operated at locations where we were contracted to provide airport customer service during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. 24 Table of Contents 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 March 31, ​ ​ 2023 ​ 2022 ​ $ Change ​ % Change Salaries, wages and benefits ​ $ 335,201 ​ $ 300,058 ​ $ 35,143 ​ 11.7 % Aircraft maintenance, materials and repairs ​ 142,226 ​ 148,413 ​ (6,187) (4.2) % Depreciation and amortization ​ 94,149 ​ 102,745 ​ (8,596) (8.4) % Aircraft fuel ​ 20,964 ​ 25,090 ​ (4,126) (16.4) % Aircraft rentals ​ 19,528 ​ 15,996 ​ 3,532 22.1 % Airport-related expenses ​ 18,295 ​ 19,205 ​ (910) (4.7) % Other operating expenses ​ 66,172 ​ 71,597 ​ (5,425) (7.6) % Total operating expenses ​ $ 696,535 ​ $ 683,104 ​ $ 13,431 2.0 % Salaries, wages and benefits. The $35.1 million, or 11.7%, increase in salaries, wages and benefits was due to an increase in employee compensation, including higher pilot pay scales, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022 . Aircraft maintenance, materials and repairs. The $6.2 million, or 4.2%, decrease in aircraft maintenance expense was primarily due to lower production for the three months ended March 31, 2023, compared to the three months ended March 31, 2022 . Depreciation and amortization. The $8.6 million, or 8.4%, decrease in depreciation and amortization expense was primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since March 31, 2022. This reduction in depreciation on our CRJ fleet was partially offset by an increase in depreciation expense due to the acquisition of 21 new E175 aircraft and spare engines since March 31, 2022. Aircraft fuel. The $4.1 million, or 16.4%, 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 $3.40 for the three months ended March 31, 2022, to $4.01 for the three months ended March 31, 2023. 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 March 31, (in thousands) 2023 2022 % Change Fuel gallons purchased ​ ​ 5,228 ​ ​ 7,381 ​ (29.2) % Fuel expense ​ $ 20,964 ​ $ 25,090 (16.4) % Aircraft rentals. The $3.5 million, or 22.1%, increase in aircraft rentals was primarily related to an accelerated lease expense on certain leased CRJ aircraft that were in the process of being stored prior to the lease expiration. Prior to March 31, 2023, we acquired 24 CRJ700 aircraft and eight CRJ200 aircraft under an early lease buyout for $125.5 million, of which $86.9 million was capitalized as fixed assets and $38.6 million was applied towards previously recorded lease liabilities. 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 $0.9 million, or 4.7%, decrease in airport-related expenses for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, 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. 25 Table of Contents Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs. The $5.4 million, or 7.6%, decrease was primarily related to a decrease in other operating costs as a result of the lower number of flights we operated during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, such as crew per diem and crew hotel costs. Summary of interest expense, interest income, other income, net and provision for income taxes: Interest Expense. The $5.0 million, or 17.6%, increase in interest expense was primarily related to an increase in long-term debt from $3.2 billion at March 31, 2022 to $3.3 billion at March 31, 2023, combined with higher interest rates on debt issued since March 31, 2022. Interest income. Interest income increased $9.6 million, from $0.4 million for the three months ended March 31, 2022, to $10.0 million for the three months ended March 31, 2023. The increase in interest income was primarily related to an increase in our average investment in marketable securities for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, and an increase in average interest rates attributed to our marketable securities for the same comparable periods. Other income, net. Other income increased $1.3 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Other income, net primarily consists of the unrealized gains on our investments in other companies, income related to our investment in a joint venture with a third party and gains or losses on the sale of assets. The increase in other income was primarily a result of gains on the sale of assets. ​ Provision (benefit) for income taxes. For the three months ended March 31, 2023 and 2022, our effective income tax rates were 15.5% and 28.4%, 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 a discrete tax expense on employee equity transactions. The decrease in the effective tax rate primarily relates to pre-tax loss for the three months ended March 31, 2023, compared to pre-tax income for the three months ended March 31, 2022 and the impact of increases in non-deductible expenses for the three months ended March 31, 2023, compared the three months ended March 31, 2022. Net income (loss). Primarily due to the factors described above, we generated a net loss of $22.1 million, or $0.45 loss per share, for the three months ended March 31, 2023, compared to net income of $17.7 million, or $0.35 per diluted share, for the three months ended March 31, 2022. Our Business Segments Three Months Ended March 31, 2023 and 2022 For the three months ended March 31, 2023, we had two reporting 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. 26 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, ​ ​ (dollar amounts in thousands) ​ 2023 2022 $ Change % Change Operating Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines ​ $ 568,173 ​ $ 603,048 ​ $ (34,875) (5.8) % SkyWest Leasing ​ 123,658 ​ 132,104 ​ (8,446) (6.4) % Total Operating Revenues ​ $ 691,831 ​ $ 735,152 ​ $ (43,321) (5.9) % Operating Expenses and Interest Expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines ​ $ 637,454 ​ $ 622,817 ​ $ 14,637 2.4 % SkyWest Leasing ​ 92,701 ​ 88,879 ​ 3,822 4.3 % Total Operating Expenses and Interest Expense (1) ​ $ 730,155 ​ $ 711,696 ​ $ 18,459 2.6 % Segment profit (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SkyWest Airlines ​ $ (69,281) ​ $ (19,769) ​ $ (49,512) 250.5 % SkyWest Leasing ​ 30,957 ​ 43,225 ​ (12,268) (28.4) % Total Segment Profit (Loss) ​ $ (38,324) ​ $ 23,456 ​ $ (61,780) (263.4) % Interest Income ​ 10,033 ​ 425 ​ 9,608 2,260.7 % Other Income, net ​ 2,174 ​ 880 ​ 1,294 147.0 % Consolidated Income (Loss) Before Taxes ​ $ (26,117) ​ $ 24,761 ​ $ (50,878) (205.5) % (1) We include interest expense in our segment profit (loss) given our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense. SkyWest Airlines Segment Loss. SkyWest Airlines segment loss increased $49.5 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. SkyWest Airlines block hour production decreased to 276,241, or 11.2%, for the three months ended March 31, 2023, from 310,993 for the three months ended March 31, 2022, primarily due to labor constraints, including the number of available captains. Significant items contributing to the SkyWest Airlines segment loss are set forth below. SkyWest Airlines operating revenues decreased $34.9 million, or 5.8%, from the three months ended March 31, 2022, to the three months ended March 31, 2023. SkyWest Airlines recognizes revenue attributed to flight operations received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. During the three months ended March 31, 2023, SkyWest Airlines deferred recognizing $42.6 million of revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues, compared to recognizing $11.1 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the three months ended March 31, 2022. SkyWest Airlines operating expenses and interest expense increased $14.6 million, or 2.4%, from the three months ended March 31, 2022, to the three months ended March 31, 2023, due to the following primary factors: ● SkyWest Airlines’ salaries, wages and benefits expense increased $35.1 million, or 11.7%, primarily due to increased employee compensation, including higher pilot pay scales, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. ● SkyWest Airlines’ aircraft maintenance, materials and repairs expense decreased by $6.4 million, or 4.4%, primarily due to lower block hour production for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. ● SkyWest Airlines’ depreciation and amortization expense decreased by $9.4 million, or 19.8%, primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since March 31, 2022. 27 Table of Contents ● SkyWest Airlines’ fuel expense decreased $4.1 million, or 16.4%, 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 $3.40 for the three months ended March 31, 2022, to $4.01 for the three months ended March 31, 2023 . ● SkyWest Airlines’ remaining airline expense decreased $0.6 million, or 0.6%, primarily related to a decrease in other operating costs that correspond to the lower number of flights we operated during the three months ended March 31, 2023, compared to the three months ended March 31, 2022 , such as crew per diem and crew hotel costs, offset by an increase in the cost of aircraft rentals, primarily related to accelerated lease expense on certain leased CRJ aircraft that were in the process of being stored prior to the lease expiration. SkyWest Leasing Segment Profit. SkyWest Leasing profit decreased $12.3 million, or 28.4%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022 . Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, the SkyWest Leasing segment deferred recognizing lease revenue on $20.6 million of the allocated fixed monthly lease payments received during the three months ended March 31, 2023, under the straight-line method. The decrease in SkyWest Leasing profit attributed to deferred revenue was partially offset by additional lease revenue from the 21 E175 aircraft placed under contract since March 31, 2022. Liquidity and Capital Resources As of March 31, 2023, we had $935.9 million in cash and cash equivalents and marketable securities. As of March 31, 2023, we had $70.1 million available for borrowings under our line of credit. Given our available liquidity as of March 31, 2023, 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 decreased from $1.0 billion as of December 31, 2022, to $935.9 million as of March 31, 2023, or by $111.4 million. At March 31, 2023, our total capital mix was 43.9% equity and 56.1% long-term debt, compared to 44.4% equity and 55.6% long-term debt at December 31, 2022. As of March 31, 2023, and December 31, 2022, we had $59.6 million and $59.2 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of March 31, 2023, and December 31, 2022. 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 three months ended March 31, 2023 and 2022, and our total cash and marketable securities positions as of March 31, 2023, and December 31, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, ​ 2023 2022 $ Change % Change Net cash provided by operating activities ​ $ 150,203 ​ $ 20,508 ​ $ 129,695 ​ 632.4 % Net cash provided by (used in) investing activities ​ 3,032 ​ (124,667) ​ 127,699 (102.4) % Net cash provided by (used in) financing activities ​ (181,695) ​ 91,739 ​ (273,434) (298.1) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ ​ ​ ​ 2023 ​ 2022 ​ $ Change ​ % Change Cash and cash equivalents ​ $ 74,524 ​ $ 102,984 ​ $ (28,460) (27.6) % Marketable securities ​ 861,335 ​ 944,231 ​ (82,896) (8.8) % Total ​ $ 935,859 ​ $ 1,047,215 ​ $ (111,356) (10.6) % 28 Table of Contents Cash Flows provided by Operating Activities Our cash flows provided by operating activities was $150.2 million for the three months ended March 31, 2023, compared to $20.5 million for the three months ended March 31, 2022. 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 increase in our cash flow from operations for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to the timing of cash payments on our current liability accounts and cash received in excess of revenue recognized for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Cash Flows provided by (used in) Investing Activities Our cash flows provided by investing activities was $3.0 million for the three months ended March 31, 2023, compared to cash flows used in investing activities of $124.7 million for the three months ended March 31, 2022. 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. For the three months ended March 31, 2023, cash provided by the sale of marketable securities, net of purchases of marketable securities, was $84.4 million, an increase of $92.8 million from cash used for the purchase of marketable securities, net of sales of marketable securities of $8.5 million, for the three months ended March 31, 2022 . Cash used for aircraft deposits decreased $28.0 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, based on the timing of new aircraft orders. Additionally, cash provided by other long-term assets increased $20.2 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, due to reductions in our long-term receivables. Cash Flows provided by (used in) Financing Activities Our cash flows used in financing activities was $181.7 million for the three months ended March 31, 2023, compared to cash provided by financing activities of $91.7 million for the three months ended March 31, 2022. 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 $273.4 million increase in cash used for financing activities for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to a decrease of $160.7 million in proceeds from the issuance of long-term debt and $100.0 million of cash used to purchase treasury stock during the three months ended March 31, 2023. Significant Commitments and Obligations General See Note 6, "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 March 31, 2023, we had a firm purchase commitment for four new E175 aircraft from Embraer with delivery dates anticipated into 2025. 29 Table of Contents 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 four 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 maintenance and other facilities. Excluding aircraft financed by our major airline partners that we operate for them under contract, we had 11 aircraft under lease with remaining terms ranging from one year to eight years as of March 31, 2023. Future minimum lease payments due under all long-term operating leases were approximately $133.3 million at March 31, 2023. 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 $95.2 million at March 31, 2023. Long-term Debt Obligations As of March 31, 2023, we had $3.3 billion of long-term debt, which consisted of $3.1 billion of debt used to finance aircraft and spare engines and $200.6 million of unsecured debt payable to U.S. Treasury. The average effective interest rate on our debt was approximately 4.0% at March 31, 2023. Under our capacity purchase agreements, our 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. 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 the 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, because 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.