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 nine-month periods ended September 30, 2024 and 2023. Also discussed is our financial condition as of September 30, 2024, and December 31, 2023. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and nine months ended September 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 September 30, 2024, we offered scheduled passenger and air freight service with approximately 2,240 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 using CRJ200 aircraft in a 30-seat configuration. As of September 30, 2024, we had 615 total aircraft in our fleet, including 484 aircraft in scheduled service or under contract pursuant to our code-share agreements, summarized as follows:
E175
CRJ900
CRJ700 (2)
CRJ200
Total
United
110
—
19
81
210
Delta
86
36
19
—
141
American
20
—
71
—
91
Alaska
42
—
—
—
42
Aircraft in scheduled service or under contract
258
36
109
81
484
SWC
—
—
—
17
17
Leased to third parties
—
5
35
—
40
Other (1)
—
8
24
42
74
Total Fleet
258
49
168
140
615
(1) As of September 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.
(2) Includes CRJ550 aircraft, a 50-seat configuration of the CRJ700 aircraft.
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 September 30, 2023, to September 30, 2024, we made changes to our fleet, including the addition of three new E175 aircraft and 20 partner-financed E175 aircraft.
We anticipate our fleet will continue to evolve, as we are scheduled to add 19 new E175 aircraft with United (four in the fourth quarter of 2024, seven in 2025 and eight in 2026) and one new E175 aircraft with Alaska in 2025. We also entered into multiple agreements with United in September and October 2024 to place a total of 40 used CRJ550 aircraft into service between the fourth quarter of 2024 and the end of 2026. 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 September 30, 2024, approximately 43.4% of our aircraft in scheduled service or under contract were operated for United, approximately 29.1% were operated for Delta, approximately 18.8% were operated for American and approximately 8.7% 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
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to as “capacity purchase” agreements) and “prorate” agreements. For the nine months ended September 30, 2024, our capacity purchase revenue represented approximately 86.8% of our total flying agreement revenue and our prorate and SWC revenue, combined, represented approximately 13.2% 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. 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.
Third Quarter Summary
We had total operating revenues of $912.8 million for the three months ended September 30, 2024, a 19.1% increase compared to total operating revenues of $766.2 million for the three months ended September 30, 2023. We had net income of $89.7 million, or $2.16 per diluted share, for the three months ended September 30, 2024, compared to net income of $23.5 million, or $0.55 per diluted share, for the three months ended September 30, 2023. The significant items affecting our revenue and operating expenses during the three months ended September 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 493 as of September 30, 2023 to 484 as of September 30, 2024; and the number of block hours increased from 290,830 for the three months ended September 30, 2023 to 334,459 for the three months ended September 30, 2024, or by 15.0%, due to an increase in scheduled daily utilization of our aircraft driven by an increase in the number of available captains.
Our capacity purchase revenue increased $128.5 million, or 20.3%, from the three months ended September 30, 2023 to the three months ended September 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 September 30, 2024, compared to deferring revenue for the three months ended September 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 $13.1 million, or 11.9%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.
Operating Expenses
Our total operating expenses increased $64.5 million, or 9.0%, for the three months ended September 30, 2024, compared to the three months ended September 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 180,069 for the three months ended September 30, 2023 to 201,397 for the three months ended September 30, 2024, or by 11.8%. Additional details regarding the increase in our operating expenses are described in the section of this Report entitled “Results of Operations.”
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Fleet Activity
The following table summarizes our fleet scheduled for service or under contract as of:
Aircraft in Service or Under Contract
September 30, 2024
December 31, 2023
September 30, 2023
E175s
258
237
235
CRJ900s
36
41
37
CRJ700s
109
118
117
CRJ200s
81
89
104
Total
484
485
493
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 nine months ended September 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 September 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 September 30, 2024, compared to the three months ended September 30, 2023, was primarily due to an increase in the number of available captains during the three months ended September 30, 2024, compared to the three months ended September 30, 2023, which allowed for a higher scheduled utilization of our aircraft.
For the three months ended September 30,
Block hours by aircraft type:
2024
2023
% Change
E175s
206,607
171,615
20.4
%
CRJ900s
22,957
18,979
21.0
%
CRJ700s
59,807
56,117
6.6
%
CRJ200s
45,088
44,119
2.2
%
Total block hours
334,459
290,830
15.0
%
Departures
201,397
180,069
11.8
%
Passengers carried
11,263,322
10,208,005
10.3
%
Passenger load factor
83.7
%
85.1
%
(1.4)
pts
Average passenger trip length (miles)
455
446
2.0
%
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Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the three months ended September 30,
2024
2023
$ Change
% Change
Flying agreements
$
883,494
$
741,898
$
141,596
19.1
%
Lease, airport services and other
29,292
24,273
5,019
20.7
%
Total operating revenues
$
912,786
$
766,171
$
146,615
19.1
%
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 three months ended September 30,
2024
2023
$ Change
% Change
Capacity purchase agreements flight operations revenue
$
624,342
$
511,929
$
112,413
22.0
%
Capacity purchase agreements aircraft lease revenue
136,392
120,289
16,103
13.4
%
Prorate agreements and SWC revenue
122,760
109,680
13,080
11.9
%
Flying agreements revenue
$
883,494
$
741,898
$
141,596
19.1
%
The increase in “Capacity purchase agreements flight operations revenue” of $112.4 million, or 22.0%, was primarily due to a 15.0% 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 September 30, 2024, compared to the three months ended September 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 September 30, 2024, we recognized $18.2 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 September 30, 2023, we deferred recognizing $37.2 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 $16.1 million, or 13.4%, 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 September 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $19.3 million during the three months ended September 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 $18.7 million of previously deferred revenue, net of unbilled
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revenue, during the three months ended September 30, 2024, compared to deferring revenue, net of unbilled revenue, of $56.5 million during the three months ended September 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $342.2 million as of September 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 $13.1 million, or 11.9%, 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 September 30, 2024, compared to the three months ended September 30, 2023. Additionally, a portion of the increase was attributed to an increase in SWC revenue during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.
The increase in lease, airport services and other revenues of $5.0 million, or 20.7%, was primarily due to an increase in leased assets and lease rates for leases to third parties during the three months ended September 30, 2024, compared to the three months ended September 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 September 30,
2024
2023
$ Change
% Change
Salaries, wages and benefits
$
377,435
$
333,017
$
44,418
13.3
%
Aircraft maintenance, materials and repairs
181,652
178,465
3,187
1.8
%
Depreciation and amortization
96,662
96,560
102
0.1
%
Aircraft fuel
22,724
23,330
(606)
(2.6)
%
Airport-related expenses
22,642
18,398
4,244
23.1
%
Aircraft rentals
1,339
2,099
(760)
(36.2)
%
Other operating expenses
78,897
65,011
13,886
21.4
%
Total operating expenses
$
781,351
$
716,880
$
64,471
9.0
%
Salaries, wages and benefits. The $44.4 million, or 13.3%, 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 September 30, 2024, compared to the three months ended September 30, 2023.
Aircraft maintenance, materials and repairs. The $3.2 million, or 1.8%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased our maintenance activity and related expenses, offset by a decrease in our engine maintenance events and related expenses for the three months ended September 30, 2024, compared to the three months ended September 30, 2023 .
Depreciation and amortization. The $0.1 million, or 0.1%, increase in depreciation and amortization expense was primarily due to an increase in depreciation expense related to the acquisition of three new E175 aircraft and spare engines since September 30, 2023, offset by certain CRJ aircraft and engines that were depreciated to their estimated residual value since September 30, 2023.
Aircraft fuel. The $0.6 million, or 2.6%, decrease in fuel cost was primarily due to a decrease in our average fuel cost per gallon from $3.83 for the three months ended September 30, 2023, to $3.10 for the three months ended September 30, 2024, offset by 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. 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:
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For the three months ended September 30,
(in thousands)
2024
2023
% Change
Fuel gallons purchased
7,336
6,097
20.3
%
Fuel expense
$
22,724
$
23,330
(2.6)
%
Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. 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 $4.2 million, or 23.1%, increase in airport-related expenses for the three months ended September 30, 2024, compared to the three months ended September 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 $0.8 million, or 36.2%, decrease in aircraft rentals was primarily related to a decrease in our leased aircraft since the three months ended September 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 $13.9 million, or 21.4%, increase was primarily a result of the higher number of flights we operated during the three months ended September 30, 2024, compared to the three months ended September 30, 2023, such as increased 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 $4.7 million, or 14.5%, decrease in interest expense was primarily related to a decrease in outstanding debt. At September 30, 2024 we had $2.7 billion of outstanding debt, compared to $3.1 billion at September 30, 2023.
Interest income. Interest income increased $1.3 million, from $11.2 million for the three months ended September 30, 2023, to $12.5 million for the three months ended September 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 September 30, 2024, compared to the three months ended September 30, 2023.
Other income (loss), net. Other income (loss), net increased $3.7 million during the three months ended September 30, 2024, compared to the three months ended September 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 increase in other income (loss), net was primarily a result of a decrease in the loss on the fair value of our investments in other companies for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.
Provision (benefit) for income taxes. For the three months ended September 30, 2024 and 2023, our effective income tax rates were 22.8% and 3.6%, 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 was primarily related to lower pre-tax income for the three months ended September 30, 2023, compared to the three months ended September 30, 2024, and a release of $7.6 million of a previously recorded uncertain tax position liability for the three months ended September 30, 2023.
Net income. Primarily due to the factors described above, we generated net income of $89.7 million, or $2.16 per diluted share, for the three months ended September 30, 2024, compared to net income of $23.5 million, or $0.55 per diluted share, for the three months ended September 30, 2023.
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Nine Months Ended September 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 nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to an increase in the number of available captains during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
For the nine months ended September 30,
Block hours by aircraft type:
2024
2023
% Change
E175s
580,799
500,782
16.0
%
CRJ900s
61,172
59,390
3.0
%
CRJ700s
176,403
158,239
11.5
%
CRJ200s
123,348
131,278
(6.0)
%
Total block hours
941,722
849,689
10.8
%
Departures
560,154
514,529
8.9
%
Passengers carried
31,103,792
28,671,654
8.5
%
Passenger load factor
83.0
%
83.7
%
(0.7)
pts
Average passenger trip length (miles)
467
456
2.4
%
Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the nine months ended September 30,
2024
2023
$ Change
% Change
Flying agreements
$
2,499,953
$
2,106,130
$
393,823
18.7
%
Lease, airport services and other
83,565
77,515
6,050
7.8
%
Total operating revenues
$
2,583,518
$
2,183,645
$
399,873
18.3
%
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 nine months ended September 30,
2024
2023
$ Change
% Change
Capacity purchase agreements flight operations revenue
$
1,763,629
$
1,479,987
$
283,642
19.2
%
Capacity purchase agreements aircraft lease revenue
405,409
356,900
48,509
13.6
%
Prorate agreements and SWC revenue
330,915
269,243
61,672
22.9
%
Flying agreements revenue
$
2,499,953
$
2,106,130
$
393,823
18.7
%
The increase in “Capacity purchase agreements flight operations revenue” of $283.6 million, or 19.2%, was primarily due to a 10.8% 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 nine months ended September 30, 2024, compared to the nine months ended September 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
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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 nine months ended September 30, 2024, we recognized $23.6 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 nine months ended September 30, 2023, we deferred recognizing $120.6 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 $48.5 million, or 13.6%, 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 $1.5 million of previously deferred lease revenue during the three and nine months ended September 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $59.3 million during the nine months ended September 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 $25.1 million of previously deferred revenue, net of unbilled revenue, during the nine months ended September 30, 2024, compared to deferring revenue, net of unbilled revenue, of $179.9 million during the nine months ended September 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $342.2 million as of September 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 $61.7 million, or 22.9%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Additionally, a portion of the increase was attributed to an increase in SWC revenue during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, as SWC began operations in May 2023.
The increase in lease, airport services and other revenues of $6.1 million, or 7.8%, was primarily due to an increase in leased assets and lease rates for leases to third parties during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
Operating Expenses
Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):
For the nine months ended September 30,
2024
2023
$ Change
% Change
Salaries, wages and benefits
$
1,083,439
$
990,659
$
92,780
9.4
%
Aircraft maintenance, materials and repairs
510,334
483,182
27,152
5.6
%
Depreciation and amortization
289,346
287,878
1,468
0.5
%
Aircraft fuel
65,216
62,573
2,643
4.2
%
Airport-related expenses
61,065
53,648
7,417
13.8
%
Aircraft rentals
3,925
24,055
(20,130)
(83.7)
%
Other operating expenses
219,612
205,203
14,409
7.0
%
Total operating expenses
$
2,232,937
$
2,107,198
$
125,739
6.0
%
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Salaries, wages and benefits. The $92.8 million, or 9.4%, 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 nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
Aircraft maintenance, materials and repairs. The $27.2 million, or 5.6%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased maintenance activity and related expenses, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 .
Depreciation and amortization. The $1.5 million, or 0.5%, increase in depreciation and amortization expense was primarily due to an increase in depreciation expense related to the acquisition of three new E175 aircraft and spare engines since September 30, 2023.
Aircraft fuel. The $2.6 million, or 4.2%, 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 $3.71 for the nine months ended September 30, 2023, to $3.30 for the nine months ended September 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 nine months ended September 30,
(in thousands)
2024
2023
% Change
Fuel gallons purchased
19,776
16,863
17.3
%
Fuel expense
$
65,216
$
62,573
4.2
%
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 $7.4 million, or 13.8%, increase in airport-related expenses for the nine months ended September 30, 2024, compared to the nine months ended September 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 $20.1 million, or 83.7%, decrease in aircraft rentals was primarily related to a decrease in our leased aircraft since the nine months ended September 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 $14.4 million, or 7.0%, increase was primarily related to an increase in other operating costs as a result of the higher number of flights we operated during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, such as crew per diem and crew hotel costs, offset by the timing and the higher number of training events during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2024.
Summary of interest expense, interest income, other income (loss), net and provision for income taxes
Interest Expense. The $13.3 million, or 13.3%, decrease in interest expense was primarily related to a decrease in outstanding debt. At September 30, 2024 we had $2.7 billion of outstanding debt, compared to $3.1 billion at September 30, 2023.
Interest income. Interest income increased $4.3 million, from $31.8 million for the nine months ended September 30, 2023, to $36.1 million for the nine months ended September 30, 2024. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
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Other income (loss), net. Other income (loss), net decreased $9.1 million during the nine months ended September 30, 2024, compared to the nine months ended September 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 nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
Provision (benefit) for income taxes. For the nine months ended September 30, 2024 and 2023, our effective income tax rates were 24.4% and (6.0)%, 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 was primarily related to higher pre-tax earnings for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and a release of $7.6 million of a previously recorded uncertain tax position liability for the nine months ended September 30, 2023, partially offset by the impact of non-deductible expense on lower pre-tax earnings for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2024.
Net income. Primarily due to the factors described above, we generated net income of $225.6 million, or $5.44 per diluted share, for the nine months ended September 30, 2024, compared to net income of $16.8 million, or $0.37 per diluted share, for the nine months ended September 30, 2023.
Our Business Segments
Three Months Ended September 30, 2024 and 2023
For the three months ended September 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 September 30,
(dollar amounts in thousands)
2024
2023
$ Change
% Change
Operating Revenues:
SkyWest Airlines and SWC
$
758,425
$
626,780
$
131,645
21.0
%
SkyWest Leasing
154,361
139,391
14,970
10.7
%
Total Operating Revenues
912,786
766,171
146,615
19.1
%
Operating Expenses and Interest Expense:
SkyWest Airlines and SWC
715,514
657,049
58,465
8.9
%
SkyWest Leasing
93,645
92,374
1,271
1.4
%
Total Operating Expenses and Interest Expense (1)
809,159
749,423
59,736
8.0
%
Segment profit (loss):
SkyWest Airlines and SWC
42,911
(30,269)
73,180
(241.8)
%
SkyWest Leasing
60,716
47,017
13,699
29.1
%
Total Segment Profit
103,627
16,748
86,879
518.7
%
Interest Income
12,460
11,234
1,226
10.9
%
Other Income (Loss), net
109
(3,631)
3,740
(103.0)
%
Consolidated Income Before Taxes
$
116,196
$
24,351
$
91,845
377.2
%
(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 $42.9 million for the three months ended September 30, 2024, compared to a segment loss of $30.3 million for the three months ended September 30, 2023.
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SkyWest Airlines and SWC block hour production increased to 334,459, or 15.0%, for the three months ended September 30, 2024, from 290,830 for the three months ended September 30, 2023, primarily due to an increase 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 September 30, 2024 are set forth below.
SkyWest Airlines and SWC operating revenues increased $131.6 million, or 21.0%, from the three months ended September 30, 2023, to the three months ended September 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 September 30, 2024, SkyWest Airlines recognized $18.2 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 $37.2 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the three months ended September 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 September 30, 2024, compared to the three months ended September 30, 2023.
SkyWest Airlines and SWC operating expenses and interest expense increased $58.5 million, or 8.9%, from the three months ended September 30, 2023, to the three months ended September 30, 2024, due to the following primary factors:
● SkyWest Airlines and SWC’s salaries, wages and benefits expense increased $44.4 million, or 13.4%, primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.
● SkyWest Airlines and SWC’s aircraft maintenance, materials and repairs expense decreased $0.6 million, or 0.3%, primarily due to a decrease in our engine maintenance events and related expenses for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, offset by higher flight volume, which increased the other maintenance activity and related expenses, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.
● SkyWest Airlines and SWC’s depreciation and amortization expense decreased by $0.2 million, or 0.6%, primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since September 30, 2023.
● SkyWest Airlines and SWC’s fuel expense decreased $0.6 million, or 2.6%, due to a decrease in our average fuel cost per gallon from $3.83 for the three months ended September 30, 2023, to $3.10 for the three months ended September 30, 2024 , offset by 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.
● SkyWest Airlines and SWC’s remaining airline expense increased $15.5 million, or 17.2%, 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 September 30, 2024, compared to the three months ended September 30, 2023, such as crew per diem and crew hotel costs.
SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $13.7 million, or 29.1%, during the three months ended September 30, 2024, compared to the three months ended September 30, 2023 . For the three months ended September 30, 2024, SkyWest Leasing recognized $0.5 million of previously deferred lease revenue, compared to deferring $19.3 million of lease revenue on the fixed monthly lease payments received for the three months ended September 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 September 30, 2023, a decrease in interest expense as a result of a lower outstanding debt balance for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, offset by an increase in maintenance costs for certain leased engines for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.
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Nine Months Ended September 30, 2024 and 2023
For the nine months ended September 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 nine months ended September 30,
(dollar amounts in thousands)
2024
2023
$ Change
% Change
Operating Revenues:
SkyWest Airlines and SWC
$
2,117,018
$
1,781,429
$
335,589
18.8
%
SkyWest Leasing
466,500
402,216
64,284
16.0
%
Total Operating Revenues
2,583,518
2,183,645
399,873
18.3
%
Operating Expenses and Interest Expense:
SkyWest Airlines and SWC
2,041,710
1,923,688
118,022
6.1
%
SkyWest Leasing
277,830
283,391
(5,561)
(2.0)
%
Total Operating Expenses and Interest Expense (1)
2,319,540
2,207,079
112,461
5.1
%
Segment profit (loss):
SkyWest Airlines and SWC
75,308
(142,259)
217,567
(152.9)
%
SkyWest Leasing
188,670
118,825
69,845
58.8
%
Total Segment Profit (Loss)
263,978
(23,434)
287,412
(1,226.5)
%
Interest Income
36,126
31,761
4,365
13.7
%
Other Income (Loss), net
(1,567)
7,544
(9,111)
(120.8)
%
Consolidated Income Before Taxes
$
298,537
$
15,871
$
282,666
1,781.0
%
(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 $75.3 million for the nine months ended September 30, 2024, compared to a segment loss of $142.3 million for the nine months ended September 30, 2023.
SkyWest Airlines and SWC block hour production increased to 941,722, or 10.8%, for the nine months ended September 30, 2024, from 849,689 for the nine months ended September 30, 2023, primarily due to an increase 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 nine months ended September 30, 2024 are set forth below.
SkyWest Airlines and SWC operating revenues increased $335.6 million, or 18.8%, from the nine months ended September 30, 2023, to the nine months ended September 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 nine months ended September 30, 2024, SkyWest Airlines recognized $23.6 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 $120.6 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the nine months ended September 30, 2023. Additionally, the increase in SkyWest Airlines and SWC operating revenues was attributed to an increase in block hour production during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
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SkyWest Airlines and SWC operating expenses and interest expense increased $118.0 million, or 6.1%, from the nine months ended September 30, 2023, to the nine months ended September 30, 2024, due to the following primary factors:
● SkyWest Airlines and SWC’s salaries, wages and benefits expense increased $92.8 million, or 9.4%, primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
● SkyWest Airlines and SWC’s aircraft maintenance, materials and repairs expense increased $20.1 million, or 4.3%, primarily due to higher flight volume, which increased the maintenance activity and related expenses, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
● SkyWest Airlines and SWC’s depreciation and amortization expense decreased by $3.3 million, or 2.9%, primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since September 30, 2023.
● SkyWest Airlines and SWC’s fuel expense increased $2.6 million, or 4.2%, 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 $3.71 for the nine months ended September 30, 2023, to $3.30 for the nine months ended September 30, 2024 .
● SkyWest Airlines and SWC’s remaining airline expense increased $5.8 million, or 2.0%, primarily related to an increase in other operating costs as a result of the higher number of flights we operated during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, such as crew per diem and crew hotel costs, offset by a decrease in aircraft rent expense due to the early lease buyouts of 35 CRJ aircraft in 2023.
SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $69.8 million, or 58.8%, during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 . For the nine months ended September 30, 2024, SkyWest Leasing recognized $1.5 million of previously deferred lease revenue, compared to deferring $59.3 million of lease revenue on the fixed monthly lease payments received for the nine months ended September 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 September 30, 2023, a decrease in interest expense as a result of a lower outstanding debt balance for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and a gain related to reclassifying assets held for sale as held and used during the nine months ended September 30, 2024.
Liquidity and Capital Resources
As of September 30, 2024, we had $836.0 million in cash and cash equivalents and marketable securities. As of September 30, 2024, we had $75.1 million available for borrowings under our line of credit. Given our available liquidity as of September 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 increased from $835.2 million as of December 31, 2023 to $836.0 million as of September 30, 2024, or by $0.8 million. At September 30, 2024, our total capital mix was 51.3% equity and 48.7% long-term debt, compared to 45.2% equity and 54.8% long-term debt at December 31, 2023. During the nine months ended September 30, 2024, we repurchased 0.5 million shares of our common stock for $38.4 million under share repurchase programs authorized by our Board of Directors.
As of September 30, 2024, and December 31, 2023, we had $47.1 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 September 30, 2024, and December 31, 2023.
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Sources and Uses of Cash
Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the nine months ended September 30, 2024 and 2023, and our total cash and marketable securities positions as of September 30, 2024, and December 31, 2023 (in thousands):
For the nine months ended September 30,
2024
2023
$ Change
% Change
Net cash provided by operating activities
$
506,565
$
511,907
$
(5,342)
(1.0)
%
Net cash provided by (used in) investing activities
(119,001)
61,003
(180,004)
(295.1)
%
Net cash used in financing activities
(358,232)
(550,564)
192,332
(34.9)
%
September 30,
December 31,
2024
2023
$ Change
% Change
Cash and cash equivalents
$
177,609
$
148,277
$
29,332
19.8
%
Marketable securities
658,433
686,946
(28,513)
(4.2)
%
Total
$
836,042
$
835,223
$
819
0.1
%
Cash Flows provided by Operating Activities
Our cash flows provided by operating activities was $506.6 million for the nine months ended September 30, 2024, compared to $511.9 million for the nine months ended September 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 nine months ended September 30, 2024, compared to the nine months ended September 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 nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, offset by the increase in net income, adjusted for non-cash items, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.
Cash Flows provided by (used in) Investing Activities
Our cash flows used in investing activities was $119.0 million for the nine months ended September 30, 2024, compared to cash flows provided by investing activities of $61.0 million for the nine months ended September 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 $192.7 million for the nine months ended September 30, 2023, to $147.6 million for the nine months ended September 30, 2024. The decrease in cash used in investing activities, excluding the transfer of dollars between our investments in marketable securities and our cash accounts, was primarily due to a decrease of $55.5 million in aircraft deposits and $12.0 million in the acquisition of property and equipment for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, due to the early lease buyouts we executed during the nine months ended September 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 nine months ended September 30, 2024.
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Cash Flows provided by (used in) Financing Activities
Our cash flows used in financing activities was $358.2 million for the nine months ended September 30, 2024, compared to cash used in financing activities of $550.6 million for the nine months ended September 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 $192.3 million decrease in cash used for financing activities for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to a decrease of $207.8 million in cash used to purchase treasury stock, offset by an increase of $7.0 million in principal payments on long-term debt and an increase of $6.3 million for employee income taxes paid on vested equity awards during the nine months ended September 30, 2024, compared to the nine months ended September 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.
Purchase Commitments and Options
As of September 30, 2024, we had a firm purchase commitment for 20 new E175 aircraft from Embraer with delivery dates anticipated into 2026. We also have a firm purchase commitment to purchase 11 used CRJ550 aircraft with anticipated delivery dates into 2025. One of such CR550 aircraft was acquired during the three months ended September, 30, 2024.
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 a combination of 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 20 E175 aircraft with approximately 75-85% debt and the remaining balance with cash. We intend to fund the purchase of the remaining 10 used CRJ550 aircraft through cash on hand.
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 September 30, 2024. Future minimum lease payments due under all long-term operating leases were approximately $127.6 million at September 30, 2024. Assuming a 6.3% 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 $85.3 million at September 30, 2024.
Long-term Debt Obligations
As of September 30, 2024, we had $2.7 billion of long-term debt, which consisted of $2.5 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 September 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.
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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 $25.6 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.
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.