Item 2. Management’s Discussion and Analysis
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 six-month periods ended June 30, 2024 and 2023. Also discussed is our financial condition as of June 30, 2024, and December 31, 2023. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and six months ended June 30, 2024, 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,” “forecast,” “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 effect of economic conditions on SkyWest’s business, financial condition and results of operations, the scheduled aircraft deliveries and fleet size 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 provision of assets to Corporate Flight Management, Inc. d/b/a Contour Airlines (“Contour”), 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 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 inflationary pressures, and related decreases in customer demand and spending; uncertainty regarding continued recovery from 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, including travel demand and travel behavior, and our major airline 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 airline 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; the ability to obtain aircraft financing; 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, natural disasters and other air safety incidents on air travel and airline costs; aircraft deliveries; uncertainty regarding ongoing hostility between Russia and the Ukraine, as well as Israel and Hamas, 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; 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, 2023, 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.
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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 June 30, 2024, we offered scheduled passenger and air freight service with approximately 2,130 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”) have a single-class seat configuration. During 2022, we formed SkyWest Charter, LLC (“SWC”), which offers on-demand charter services. As of June 30, 2024, we had 608 total aircraft in our fleet, including 475 aircraft in scheduled service or under contract pursuant to our code-share agreements, summarized as follows:
E175
CRJ900
CRJ700
CRJ200
Total
United
101
—
19
87
207
Delta
85
41
9
—
135
American
20
—
71
—
91
Alaska
42
—
—
—
42
Aircraft in scheduled service or under contract
248
41
99
87
475
SWC
—
—
—
16
16
Leased to third parties
—
5
35
—
40
Other (1)
—
3
33
41
77
Total Fleet
248
49
167
144
608
(1) As of June 30, 2024, other aircraft included: supplemental spare aircraft supporting our code-share agreements that may be placed under 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.
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 June 30, 2023, to June 30, 2024, we made changes to our fleet, including the addition of two new E175 aircraft and 11 partner-financed E175 aircraft.
We anticipate our fleet will continue to evolve, as we are scheduled to add one new E175 aircraft with Delta in the second half of 2024, 28 new E175 aircraft with United (13 in the second half of 2024, seven in 2025 and eight in 2026, of which 19 aircraft are financed by us and nine aircraft are financed by United) 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 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 June 30, 2024, approximately 43.6% of our aircraft in scheduled service or under contract were operated for United, approximately 28.4% were operated for Delta, approximately 19.2% were operated for American and approximately 8.8% 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 “prorate” agreements. For the six months ended June 30, 2024, our capacity purchase revenue represented approximately 87.1% of our total flying agreement revenue and our prorate and SWC revenue, combined, represented approximately 12.9% of our total flying agreements revenue. On capacity purchase
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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. We control scheduling, pricing and seat inventories on certain prorate routes, and we share passenger fares with our major airline partners according to prorate formulas. We are also responsible for the operating costs of the prorate flights, including fuel and airport costs.
Second Quarter Summary
We had total operating revenues of $867.1 million for the three months ended June 30, 2024, a 19.5% increase compared to total operating revenues of $725.6 million for the three months ended June 30, 2023. We had net income of $75.6 million, or $1.82 per diluted share, for the three months ended June 30, 2024, compared to net income of $15.4 million, or $0.35 per diluted share, for the three months ended June 30, 2023. The significant items affecting our revenue and operating expenses during the three months ended June 30, 2024, 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 pursuant to our code-share agreements decreased from 492 as of June 30, 2023 to 475 as of June 30, 2024; and the number of block hours increased from 282,617 for the three months ended June 30, 2023 to 317,462 for the three months ended June 30, 2024, or by 12.3%, due to an increase in scheduled daily utilization of our aircraft.
Our capacity purchase revenue increased $112.9 million, or 18.3%, from the three months ended June 30, 2023 to the three months ended June 30, 2024, primarily as a result of an increase in completed block hours for the comparable periods and recognizing previously deferred revenue for the three months ended June 30, 2024, compared to deferring revenue for the three months ended June 30, 2023. As a result of a higher number of passengers carried on our prorate routes and an increase in the number of prorate and charter flights operated year-over-year, our prorate and SWC revenue increased $24.8 million, or 30.2%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.
Operating Expenses
Our total operating expenses increased $53.7 million, or 7.7%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in operating expenses was primarily due to an increase in our direct operating expenses associated with the increase in the number of flights we operated. Departures increased from 173,837 for the three months ended June 30, 2023 to 189,325 for the three months ended June 30, 2024, or by 8.9%. 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
June 30, 2024
December 31, 2023
June 30, 2023
E175s
248
237
235
CRJ900s
41
41
41
CRJ700s
99
118
110
CRJ200s
87
89
106
Total
475
485
492
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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, 2023, 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, 2023. 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 six months ended June 30, 2024.
Recent Accounting Pronounceme nts
See Note 1 to the condensed consolidated financial statements for a description of recent accounting pronouncements.
Results of Operations
Three Months Ended June 30, 2024 and 2023
Operational Statistics
The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increase in block hours, departures and passengers carried during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily due to an increase in the number of available captains during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, which allowed for a higher scheduled utilization of our aircraft.
For the three months ended June 30,
Block hours by aircraft type:
2024
2023
% Change
E175s
195,207
168,416
15.9
%
CRJ900s
20,823
19,698
5.7
%
CRJ700s
58,311
50,094
16.4
%
CRJ200s
43,121
44,409
(2.9)
%
Total block hours
317,462
282,617
12.3
%
Departures
189,325
173,837
8.9
%
Passengers carried
10,691,017
9,887,779
8.1
%
Passenger load factor
84.4
%
85.5
%
(1.1)
pts
Average passenger trip length (miles)
460
451
2.0
%
Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the three months ended June 30,
2024
2023
$ Change
% Change
Flying agreements
$
838,170
$
700,394
$
137,776
19.7
%
Lease, airport services and other
28,948
25,249
3,699
14.7
%
Total operating revenues
$
867,118
$
725,643
$
141,475
19.5
%
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 and on-demand charter flights. Lease,
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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 June 30,
2024
2023
$ Change
% Change
Capacity purchase agreements flight operations revenue
$
595,127
$
499,142
$
95,985
19.2
%
Capacity purchase agreements aircraft lease revenue
135,972
119,026
16,946
14.2
%
Prorate agreements and SWC revenue
107,071
82,226
24,845
30.2
%
Flying agreements revenue
$
838,170
$
700,394
$
137,776
19.7
%
The increase in “Capacity purchase agreements flight operations revenue” of $96.0 million, or 19.2%, was primarily due to a 12.3% increase in block hour production and a decrease in deferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. 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 related to operating the 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. Beginning January 1, 2024, certain scheduled fixed monthly payments under our capacity purchase agreements transitioned to variable payments, which are calculated at a rate per block hour. Based on the number of completed block hours during the three months ended June 30, 2024, we recognized $5.0 million of previously deferred revenue, net of unbilled revenue, related to the non-lease fixed monthly payments we received associated with our flight operations revenues. For the three months ended June 30, 2023, we deferred recognizing $40.7 million of 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.
The increase in “Capacity purchase agreements aircraft lease revenue” of $16.9 million, or 14.2%, was primarily due to an increase in variable lease revenue as a result of certain scheduled fixed monthly lease payments that transitioned beginning January 1, 2024 to variable payments under our capacity purchase agreements. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue, including fixed monthly payments and variable payments. We recognize the fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments are recognized in the period when the block hours are completed. W e recognized $0.5 million of previously deferred lease revenue during the three months ended June 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $19.5 million during the three months ended June 30, 2023.
The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. For clarity, in total we recognized $5.5 million of previously deferred revenue, net of unbilled revenue, during the three months ended June 30, 2024, compared to deferring revenue, net of unbilled revenue, of $60.2 million during the three months ended June 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $360.9 million as of June 30, 2024, compared to total deferred revenue, net of unbilled revenue, of $367.3 million as of December 31, 2023.
The increase in prorate agreements and SWC revenue of $24.8 million, or 30.2%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Additionally, a portion of the increase is attributed to SWC revenue during the three months ended June 30, 2024, as SWC began operations in May 2023.
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The increase in lease, airport services and other revenues of $3.7 million, or 14.7%, was primarily due to an increase in lease rates for leases to third parties during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
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 June 30,
2024
2023
$ Change
% Change
Salaries, wages and benefits
$
355,005
$
322,441
$
32,564
10.1
%
Aircraft maintenance, materials and repairs
183,267
162,491
20,776
12.8
%
Depreciation and amortization
96,814
97,169
(355)
(0.4)
%
Aircraft fuel
21,328
18,279
3,049
16.7
%
Airport-related expenses
17,535
16,955
580
3.4
%
Aircraft rentals
1,310
2,428
(1,118)
(46.0)
%
Other operating expenses
72,219
74,020
(1,801)
(2.4)
%
Total operating expenses
$
747,478
$
693,783
$
53,695
7.7
%
Salaries, wages and benefits. The $32.6 million, or 10.1%, increase in salaries, wages and benefits was primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Aircraft maintenance, materials and repairs. The $20.8 million, or 12.8%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased maintenance activity, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023 .
Depreciation and amortization. The $0.4 million, or 0.4%, decrease in depreciation and amortization expense was primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since June 30, 2023, offset by an increase in depreciation expense due to the acquisition of two new E175 aircraft and spare engines since June 30, 2023.
Aircraft fuel. The $3.0 million, or 16.7%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased combined with an increase in our average fuel cost per gallon from $3.30 for the three months ended June 30, 2023, to $3.32 for the three months ended June 30, 2024. We purchase and incur expense for all fuel on flights operated under our prorate agreements and SWC. 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 and SWC, for the periods indicated:
For the three months ended June 30,
(in thousands)
2024
2023
% Change
Fuel gallons purchased
6,415
5,538
15.8
%
Fuel expense
$
21,328
$
18,279
16.7
%
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 customer service labor costs we outsource to third parties are included in airport-related expenses. The $0.6 million, or 3.4%, increase in airport-related expenses for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily due to an increase in subcontracted airport services and landing fees as a result of an increase in the number of flights we operated under our prorate agreements.
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Aircraft rentals. The $1.1 million, or 46.0%, decrease in aircraft rentals was primarily related to a decrease in our leased aircraft since the three months ended June 30, 2023. During 2023, we acquired 26 CRJ700 aircraft, eight CRJ200 aircraft and one CRJ900 aircraft under early lease buyouts.
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 $1.8 million, or 2.4%, decrease was primarily related to the timing of training events and other non-direct operating expenses for the three months ended June 30, 2023, compared to the three months ended June 30, 2024, offset by an increase in other operating costs as a result of the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, such as crew per diem and crew hotel costs.
Summary of interest expense, interest income, other income (loss), net and provision for income taxes
Interest Expense. The $4.8 million, or 14.1%, decrease in interest expense was primarily related to a decrease in outstanding debt. At June 30, 2024 we had $2.8 billion of outstanding debt, compared to $3.2 billion at June 30, 2023.
Interest income. Interest income increased $1.5 million, from $10.5 million for the three months ended June 30, 2023, to $12.0 million for the three months ended June 30, 2024. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Other income (loss), net. Other income (loss), net decreased $9.5 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Other income (loss), net primarily consists of the unrealized and realized gains and losses on our investments in other companies, income or loss related to our equity method investments and gains or losses on the sale of assets. The decrease in other income (loss), net was primarily a result of a decrease in the fair value of our investments in other companies for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Provision (benefit) for income taxes. For the three months ended June 30, 2024 and 2023, our effective income tax rates were 26.0% and 12.6%, respectively, which included 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 increase in the effective tax rate primarily related to the impact of non-deductible expenses relative to the pre-tax earnings for the three months ended June 30, 2024, compared to pre-tax loss for the three months ended June 30, 2023 .
Net income. Primarily due to the factors described above, we generated net income of $75.6 million, or $1.82 per diluted share, for the three months ended June 30, 2024, compared to net income of $15.4 million, or $0.35 per diluted share, for the three months ended June 30, 2023.
Six Months Ended June 30, 2024 and 2023
Operational Statistics
The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increase in block hours, departures and passengers carried during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to an increase in the number of available captains during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
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For the six months ended June 30,
Block hours by aircraft type:
2024
2023
% Change
E175s
374,192
329,167
13.7
%
CRJ900s
38,215
40,411
(5.4)
%
CRJ700s
116,596
102,122
14.2
%
CRJ200s
78,260
87,159
(10.2)
%
Total block hours
607,263
558,859
8.7
%
Departures
358,757
334,460
7.3
%
Passengers carried
19,840,470
18,463,649
7.5
%
Passenger load factor
82.7
%
83.0
%
(0.3)
pts
Average passenger trip length (miles)
461
461
—
%
Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the six months ended June 30,
2024
2023
$ Change
% Change
Flying agreements
$
1,616,459
$
1,364,232
$
252,227
18.5
%
Lease, airport services and other
54,273
53,242
1,031
1.9
%
Total operating revenues
$
1,670,732
$
1,417,474
$
253,258
17.9
%
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 and on-demand charter flights. 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 six months ended June 30,
2024
2023
$ Change
% Change
Capacity purchase agreements flight operations revenue
$
1,139,287
$
968,058
$
171,229
17.7
%
Capacity purchase agreements aircraft lease revenue
269,017
236,611
32,406
13.7
%
Prorate agreements and SWC revenue
208,155
159,563
48,592
30.5
%
Flying agreements revenue
$
1,616,459
$
1,364,232
$
252,227
18.5
%
The increase in “Capacity purchase agreements flight operations revenue” of $171.2 million, or 17.7%, was primarily due to a 8.7% increase in block hour production and a decrease in deferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. 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 related to operating the 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. Beginning January 1, 2024, certain scheduled fixed monthly payments under our capacity purchase agreements transitioned to variable payments, which are calculated at a rate per block hour. Based on the number of completed block hours during the six months ended June 30, 2024, we recognized $5.4 million of previously deferred revenue, net of unbilled revenue, related to the non-lease fixed monthly payments we received associated with our flight operations revenues. For the six months ended June 30, 2023, we deferred recognizing $83.4 million of 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.
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The increase in “Capacity purchase agreements aircraft lease revenue” of $32.4 million, or 13.7%, was primarily due to an increase in variable lease revenue as a result of certain scheduled fixed monthly lease payments that transitioned beginning January 1, 2024 to variable payments under our capacity purchase agreements. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue, including fixed monthly payments and variable payments. We recognize the fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments are recognized in the period when the block hours are completed. W e recognized $1.0 million of previously deferred lease revenue during the three and six months ended June 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $40.0 million during the six months ended June 30, 2023.
The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. For clarity, in total we recognized $6.4 million of previously deferred revenue, net of unbilled revenue, during the six months ended June 30, 2024, compared to deferring revenue, net of unbilled revenue, of $123.4 million during the six months ended June 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $360.9 million as of June 30, 2024, compared to total deferred revenue, net of unbilled revenue, of $367.3 million as of December 31, 2023.
The increase in prorate agreements and SWC revenue of $48.6 million, or 30.5%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Additionally, a portion of the increase is attributed to SWC revenue during the three months ended June 30, 2024, as SWC began operations in May 2023.
The increase in lease, airport services and other revenues of $1.0 million, or 1.9%, was primarily due to an increase in lease rates for leases to third parties during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Operating Expenses
Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):
For the six months ended June 30,
2024
2023
$ Change
% Change
Salaries, wages and benefits
$
706,004
$
657,642
$
48,362
7.4
%
Aircraft maintenance, materials and repairs
328,682
304,717
23,965
7.9
%
Depreciation and amortization
192,684
191,318
1,366
0.7
%
Aircraft fuel
42,492
39,243
3,249
8.3
%
Airport-related expenses
38,423
35,250
3,173
9.0
%
Aircraft rentals
2,586
21,956
(19,370)
(88.2)
%
Other operating expenses
140,715
140,192
523
0.4
%
Total operating expenses
$
1,451,586
$
1,390,318
$
61,268
4.4
%
Salaries, wages and benefits. The $48.4 million, or 7.4%, increase in salaries, wages and benefits was primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Aircraft maintenance, materials and repairs. The $24.0 million, or 7.9%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased maintenance activity, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023 .
Depreciation and amortization. The $1.4 million, or 0.7%, increase in depreciation and amortization expense was primarily due to an increase in depreciation expense due to the acquisition of two new E175 aircraft and spare engines since June 30, 2023.
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Aircraft fuel. The $3.2 million, or 8.3%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased, offset by a decrease in our average fuel cost per gallon from $3.65 for the six months ended June 30, 2023, to $3.42 for the six months ended June 30, 2024. We purchase and incur expense for all fuel on flights operated under our prorate agreements and SWC. 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 and SWC, for the periods indicated:
For the six months ended June 30,
(in thousands)
2024
2023
% Change
Fuel gallons purchased
12,440
10,766
15.5
%
Fuel expense
$
42,492
$
39,243
8.3
%
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 customer service labor costs we outsource to third parties are included in airport-related expenses. The $3.2 million, or 9.0%, increase in airport-related expenses for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to an increase in subcontracted airport services and landing fees as a result of an increase in the number of flights we operated under our prorate agreements.
Aircraft rentals. The $19.4 million, or 88.2%, decrease in aircraft rentals was primarily related to a decrease in our leased aircraft since the six months ended June 30, 2023. During 2023, we acquired 26 CRJ700 aircraft, eight CRJ200 aircraft and one CRJ900 aircraft under early lease buyouts.
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 $0.5 million, or 0.4%, increase was primarily related to an increase in other operating costs as a result of the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, such as crew per diem and crew hotel costs, offset by the timing of training events and other non-direct operating expenses for the six months ended June 30, 2023, compared to the six months ended June 30, 2024.
Summary of interest expense, interest income, other income (loss), net and provision for income taxes
Interest Expense. The $8.5 million, or 12.7%, decrease in interest expense was primarily related to a decrease in outstanding debt. At June 30, 2024 we had $2.8 billion of outstanding debt, compared to $3.2 billion at June 30, 2023.
Interest income. Interest income increased $3.1 million, from $20.5 million for the six months ended June 30, 2023, to $23.6 million for the six months ended June 30, 2024. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Other income (loss), net. Other income (loss), net decreased $12.9 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Other income (loss), net primarily consists of the unrealized and realized gains and losses on our investments in other companies, income or loss related to our equity method investments and gains or losses on the sale of assets. The decrease in other income (loss), net was primarily a result of a decrease in the fair value of our investments in other companies for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Provision (benefit) for income taxes. For the six months ended June 30, 2024 and 2023, our effective income tax rates were 25.5% and 21.6%, respectively, which included 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 benefit or expense on employee equity transactions. The increase in the effective tax rate primarily related to the impact of non-deductible expenses relative to the pre-tax earnings for the six months ended June 30, 2024, compared to pre-tax loss for the six months ended June 30, 2023, and the impact of a discrete tax benefit from excess tax deductions
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generated from employee equity transactions that occurred during the six months ended June 30, 2024, compared to a discrete tax expense from excess tax deductions generated from employee equity transactions that occurred during the six months ended June 30, 2023.
Net income. Primarily due to the factors described above, we generated net income of $135.9 million, or $3.28 per diluted share, for the six months ended June 30, 2024, compared to a net loss of $6.7 million, or $0.14 loss per share, for the six months ended June 30, 2023.
Our Business Segments
Three Months Ended June 30, 2024 and 2023
For the three months ended June 30, 2024, we had two reportable segments, which were the basis of our internal financial reporting: (1) the operations of SkyWest Airlines and SWC and (2) SkyWest Leasing activities. 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 June 30,
(dollar amounts in thousands)
2024
2023
$ Change
% Change
Operating Revenues:
SkyWest Airlines and SWC
$
711,784
$
586,476
$
125,308
21.4
%
SkyWest Leasing
155,334
139,167
16,167
11.6
%
Total Operating Revenues
867,118
725,643
141,475
19.5
%
Operating Expenses and Interest Expense:
SkyWest Airlines and SWC
681,357
629,185
52,172
8.3
%
SkyWest Leasing
95,087
98,316
(3,229)
(3.3)
%
Total Operating Expenses and Interest Expense (1)
776,444
727,501
48,943
6.7
%
Segment profit (loss):
SkyWest Airlines and SWC
30,427
(42,709)
73,136
(171.2)
%
SkyWest Leasing
60,247
40,851
19,396
47.5
%
Total Segment Profit (Loss)
90,674
(1,858)
92,532
(4,980.2)
%
Interest Income
12,040
10,494
1,546
14.7
%
Other Income (Loss), net
(548)
9,001
(9,549)
(106.1)
%
Consolidated Income Before Taxes
$
102,166
$
17,637
$
84,529
479.3
%
(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 and SWC Segment Profit (Loss). SkyWest Airlines and SWC segment profit was $30.4 million for the three months ended June 30, 2024, compared to a segment loss of $42.7 million for the three months ended June 30, 2023.
SkyWest Airlines and SWC block hour production increased to 317,462, or 12.3%, for the three months ended June 30, 2024, from 282,617 for the three months ended June 30, 2023, primarily due to improvements in the number of available captains, which allowed for a higher scheduled utilization of our aircraft. Significant items contributing to the SkyWest Airlines and SWC segment profit for the three months ended June 30, 2024 are set forth below.
SkyWest Airlines and SWC operating revenues increased $125.3 million, or 21.4%, from the three months ended June 30, 2023, to the three months ended June 30, 2024. 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 June 30, 2024, SkyWest Airlines recognized $5.0 million of previously
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deferred revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues, compared to deferring $40.7 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the three months ended June 30, 2023. Additionally, the increase in SkyWest Airlines and SWC operating revenues was attributed to an increase in block hour production during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
SkyWest Airlines and SWC operating expenses and interest expense increased $52.2 million, or 8.3%, from the three months ended June 30, 2023, to the three months ended June 30, 2024, due to the following primary factors:
● SkyWest Airlines and SWC’s salaries, wages and benefits expense increased $32.6 million, or 10.1%, primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
● SkyWest Airlines and SWC’s aircraft maintenance, materials and repairs expense increased $17.4 million, or 11.0%, primarily due to higher flight volume, which increased the maintenance activity, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
● SkyWest Airlines and SWC’s depreciation and amortization expense decreased by $1.0 million, or 2.5%, primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since June 30, 2023.
● SkyWest Airlines and SWC’s fuel expense increased $3.0 million, or 16.7%, due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased combined with an increase in our average fuel cost per gallon from $3.30 for the three months ended June 30, 2023, to $3.32 for the three months ended June 30, 2024 .
● SkyWest Airlines and SWC’s remaining airline expense increased $0.2 million, or 0.2%, primarily related to an increase in other operating costs as a result of the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, such as crew per diem and crew hotel costs, offset by the timing of training events and other non-direct operating expenses for the three months ended June 30, 2023, compared to the three months ended June 30, 2024.
SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $19.4 million, or 47.5%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023 . For the three months ended June 30, 2024, SkyWest Leasing recognized $0.5 million of previously deferred lease revenue, compared to deferring $19.5 million of lease revenue on the fixed monthly lease payments received for the three months ended June 30, 2023, under the straight-line basis. Additionally, SkyWest Leasing profit increased due to additional lease revenue from the E175 aircraft placed under contract since June 30, 2023, and a decrease in interest expense as a result of a lower outstanding debt balance for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Six Months Ended June 30, 2024 and 2023
For the six months ended June 30, 2024, we had two reportable segments, which were the basis of our internal financial reporting: (1) the operations of SkyWest Airlines and SWC and (2) SkyWest Leasing activities. 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.
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For the six months ended June 30,
(dollar amounts in thousands)
2024
2023
$ Change
% Change
Operating Revenues:
SkyWest Airlines and SWC
$
1,358,593
$
1,154,649
$
203,944
17.7
%
SkyWest Leasing
312,139
262,825
49,314
18.8
%
Total Operating Revenues
1,670,732
1,417,474
253,258
17.9
%
Operating Expenses and Interest Expense:
SkyWest Airlines and SWC
1,326,196
1,266,639
59,557
4.7
%
SkyWest Leasing
184,185
191,017
(6,832)
(3.6)
%
Total Operating Expenses and Interest Expense (1)
1,510,381
1,457,656
52,725
3.6
%
Segment profit (loss):
SkyWest Airlines and SWC
32,397
(111,990)
144,387
(128.9)
%
SkyWest Leasing
127,954
71,808
56,146
78.2
%
Total Segment Profit (Loss)
160,351
(40,182)
200,533
(499.1)
%
Interest Income
23,666
20,527
3,139
15.3
%
Other Income (Loss), net
(1,676)
11,175
(12,851)
(115.0)
%
Consolidated Income (Loss) Before Taxes
$
182,341
$
(8,480)
$
190,821
(2,250.2)
%
(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 and SWC Segment Profit (Loss). SkyWest Airlines and SWC segment profit was $32.4 million for the six months ended June 30, 2024, compared to a segment loss of $112.0 million for the six months ended June 30, 2023.
SkyWest Airlines and SWC block hour production increased to 607,263, or 8.7%, for the six months ended June 30, 2024, from 558,859 for the six months ended June 30, 2023, primarily due to improvements in the number of available captains, which allowed for a higher scheduled utilization of our aircraft. Significant items contributing to the SkyWest Airlines and SWC segment profit for the six months ended June 30, 2024 are set forth below.
SkyWest Airlines and SWC operating revenues increased $203.9 million, or 17.7%, from the six months ended June 30, 2023, to the six months ended June 30, 2024. 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 six months ended June 30, 2024, SkyWest Airlines recognized $5.4 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues, compared to deferring $83.4 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the six months ended June 30, 2023. Additionally, the increase in SkyWest Airlines and SWC operating revenues was attributed to an increase in block hour production during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
SkyWest Airlines and SWC operating expenses and interest expense increased $59.6 million, or 4.7%, from the six months ended June 30, 2023, to the six months ended June 30, 2024, due to the following primary factors:
● SkyWest Airlines and SWC’s salaries, wages and benefits expense increased $48.4 million, or 7.4%, primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
● SkyWest Airlines and SWC’s aircraft maintenance, materials and repairs expense increased $20.7 million, or 7.0%, primarily due to higher flight volume, which increased the maintenance activity, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
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● SkyWest Airlines and SWC’s depreciation and amortization expense decreased by $3.1 million, or 4.1%, primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since June 30, 2023.
● SkyWest Airlines and SWC’s fuel expense increased $3.2 million, or 8.3%, due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased, offset by a decrease in our average fuel cost per gallon from $3.65 for the six months ended June 30, 2023, to $3.42 for the six months ended June 30, 2024 .
● SkyWest Airlines and SWC’s remaining airline expense decreased $9.6 million, or 4.8%, primarily related to a decrease in aircraft rent expense due to the early lease buyouts of 35 CRJ aircraft in 2023, offset by an increase in other operating costs as a result of the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, such as crew per diem and crew hotel costs.
SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $56.1 million, or 78.2%, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023 . For the six months ended June 30, 2024, SkyWest Leasing recognized $1.0 million of previously deferred lease revenue, compared to deferring $40.0 million of lease revenue on the fixed monthly lease payments received for the six months ended June 30, 2023, under the straight-line basis. Additionally, SkyWest Leasing profit increased due to additional lease revenue from the E175 aircraft placed under contract since June 30, 2023, a decrease in interest expense as a result of a lower outstanding debt balance for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, and a gain related to reclassifying assets held for sale as held and used during the six months ended June 30, 2024.
Liquidity and Capital Resources
As of June 30, 2024, we had $834.3 million in cash and cash equivalents and marketable securities. As of June 30, 2024, we had $75.1 million available for borrowings under our line of credit. Given our available liquidity as of June 30, 2024, 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 $835.2 million as of December 31, 2023 to $834.3 million as of June 30, 2024, or by $1.0 million. At June 30, 2024, our total capital mix was 49.4% equity and 50.6% long-term debt, compared to 45.2% equity and 54.8% long-term debt at December 31, 2023. During the six months ended June 30, 2024, we repurchased 313,381 shares of our common stock for $22.1 million under share repurchase programs authorized by our Board of Directors.
As of June 30, 2024, and December 31, 2023, we had $45.0 million and $49.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of June 30, 2024, and December 31, 2023.
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 six months ended June 30, 2024 and 2023, and our total cash and marketable securities positions as of June 30, 2024, and December 31, 2023 (in thousands):
For the six months ended June 30,
2024
2023
$ Change
% Change
Net cash provided by operating activities
$
322,962
$
333,023
$
(10,061)
(3.0)
%
Net cash provided by (used in) investing activities
(75,993)
69,991
(145,984)
(208.6)
%
Net cash used in financing activities
(253,486)
(391,565)
138,079
(35.3)
%
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June 30,
December 31,
2024
2023
$ Change
% Change
Cash and cash equivalents
$
141,760
$
148,277
$
(6,517)
(4.4)
%
Marketable securities
692,509
686,946
5,563
0.8
%
Total
$
834,269
$
835,223
$
(954)
(0.1)
%
Cash Flows provided by Operating Activities
Our cash flows provided by operating activities was $323.0 million for the six months ended June 30, 2024, compared to $333.0 million for the six months ended June 30, 2023. 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 six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to the timing of cash payments on our current liability accounts and a decrease in cash received in excess of revenue recognized for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, offset by the increase in net income, adjusted for non-cash items, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Cash Flows provided by (used in) Investing Activities
Our cash flows used in investing activities was $76.0 million for the six months ended June 30, 2024, compared to cash flows provided by investing activities of $70.0 million for the six months ended June 30, 2023. 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.
Excluding the purchase and sale of marketable securities, which results in the transfer of dollars between our investments in marketable securities and our cash accounts, our cash used in investing activities decreased from $129.3 million for the six months ended June 30, 2024, to $69.6 million for the six months ended June 30, 2023. The decrease in cash used in investing activities was primarily due to a decrease of $75.7 million in the acquisition of property and equipment for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, due to the early lease buyouts we executed during the six months ended June 30, 2023. This was offset by an increase in our cash used to acquire other long-term assets , including our investment in Contour, fo r the six months ended June 30, 2024.
Cash Flows provided by (used in) Financing Activities
Our cash flows used in financing activities was $253.5 million for the six months ended June 30, 2024, compared to cash used in financing activities of $391.6 million for the six months ended June 30, 2023. 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 $138.1 million decrease in cash used for financing activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to a decrease of $173.8 million in cash used to purchase treasury stock, offset by a decrease of $25.0 million in proceeds from the issuance of long-term debt during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
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.
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Purchase Commitments and Options
As of June 30, 2024, we had a firm purchase commitment for 21 new E175 aircraft from Embraer with delivery dates anticipated into 2026.
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 21 E175 aircraft with approximately 75-85% debt and the remaining balance with cash.
Aircraft Lease and Facility Obligations
We also have long-term lease obligations, primarily relating to our facilities, aircraft and engines. Excluding aircraft financed by our major airline partners that we operate for them under contract, we had eight aircraft under lease with remaining terms ranging from five years to six years as of June 30, 2024. Future minimum lease payments due under all long-term operating leases were approximately $123.4 million at June 30, 2024. Assuming a 6.2% 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 $82.4 million at June 30, 2024.
Long-term Debt Obligations
As of June 30, 2024, we had $2.8 billion of long-term debt, which consisted of $2.6 billion of debt used to finance aircraft and spare engines and $200.6 million of unsecured debt payable to U.S. Department of the Treasury. The average effective interest rate on our debt was approximately 4.1% at June 30, 2024.
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 $26.2 million in promissory notes of third parties in event the third parties default on their payments. The third parties’ 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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.