SkyWest, Inc. Second Quarter 2026 Earnings Call

Thank you for standing by, and welcome to the SkyWest, Inc. second quarter 2026 results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Rob Simmons, Chief Financial Officer. Sir, please go ahead.

Thanks everyone for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer, Wade Steele, SkyWest Airlines President and Chief Operating Officer, and Eric Woodward, Chief Accounting Officer. I'd like to start today by asking Eric to read the safe harbor. Then, I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results. Then, Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our cell site analyst. Eric?

Today's discussion contains forward-looking statements that represent our current beliefs, expectations, and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. Actual results will likely vary and may vary materially from those anticipated, estimated, or projected for a number of reasons. Some of the factors that may cause such differences are included in our most recent Form 10-K and other reports and filings with the Securities and Exchange Commission. And now I'll turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone, and thank you for joining us on the call today. Today, SkyWest reported a net income of $101 million, or $2.54 per diluted share for the second quarter of 2026 the second quarter's results include increased block hours and were affected by higher fuel costs impact our pro-rate business we are pleased to continue to see very strong demand both in our contract and pro-rate flying despite the higher fuel cost similar to our major partners that strong demand enabled us to offset about 60 percent of the fuel impact in the fair portion of our pro-rate business. Overall, our discipline, strategic choices, and continued execution have strengthened our model, and we remain well-positioned to adapt quickly to respond to market demands better than anybody else. During the quarter, our people delivered 99.9% adjusted completion on nearly 228,000 flights. We're incredibly proud to be named one of America's greatest workplaces in 2026 by Newsweek, as well as one of Fortune World's most admired companies in 2026. These accomplishments are made possible by SkyWest more than 16,000 professionals and their commitment to excellence. And I want to thank them for their ongoing teamwork to deliver in our challenging industry. Today, we're pleased to announce an agreement with American. For SkyWest to purchase and operate 11 new E-175s with deliveries beginning this year, with 11 E-175s expected during the second half of this year and 23 more in the next couple of years, we expect a total of 34 additional E-175s by the end of 2028. Additionally, we continue converting CRJ 700s to the customer-favorite CRJ 550, and we're very excited about the CRJ 450 service beginning for United this fall. With these transitions, we look forward to ultimately operating an all-dual-class fleet. As I mentioned, pro-rate demand remains strong, and we believe these fleet initiatives will benefit pro-rate growth. Our opportunities remain strong. We expect our growth will continue to come from three key areas. One, solid demand from our major partners and our solid E-175 order book. Two, underserved communities with our pro-rate business. And three, execution of our fleet initiatives and conversions. The free cash flow that we continue to generate is still directed toward fleet growth opportunities, debt reduction, and share repurchase. We announced today that SkyWest Board of Directors has also approved a $250 million increase to our existing stock repurchase program. Our steadfast commitment to maintaining a strong balance sheet and liquidity benefits our employees, our partners, and our shareholders. Additionally, we've continued to reduce our debt, and we now have $1 billion less debt than we did at the end of 2022. We also expect to have over 100 unencumbered E-175s by the end of 2029. Overall, our debt ratios and leverage metrics are among the best in the industry. SkyWest continues to lead our industry in product and in the value of our diverse assets. We remain disciplined and steady as we execute on our growth opportunities by delivering on significant per-rate demand, investing in our fleet, and preparing to receive our deliveries in the coming years for a total of 300 E175s by the end of 2027. Our discipline, strategic choices, and continued execution have strengthened our model and we remain well positioned to adapt quickly and to respond to market demands better than anyone else in the industry.

Rob will now take us through the financial data. today we reported a second quarter gap net income of 101 million dollars or two dollars and 54 cents earnings per share q2 pre-tax income was 139 million 29 percent higher than q1 pre-tax income on solid demand for our various contract and pro-rate products and sequential seasonality Our weighted average share count for Q2 was $39.6 million, and our effective tax rate was 27.5%. Total Q2 revenue of $1.1 billion is up 9% from $1 billion in Q1, 2026, on strong block hour demand from our partners during a volatile quarter, and is up 7% from $1 billion in Q2, 2025. Q2 revenue includes contract revenue of $864 million, prorate and charter revenue of $201 million, and leasing and other revenue was $38 million. These Q2 gap results include the effect of recognizing $27 million of previously deferred revenue this quarter, up slightly from the $24 million and $23 million recognized in Q2 2025. As of the end of Q2, we have $214 million of cumulative deferred revenue that will be recognized in future periods. Our prorate fuel expense was $61 million in Q2 compared to $28 million in Q2 2025. The year-over-year increase of $33 million was due to both a higher price per gallon, a $21 million negative impact, and incremental prorate production, a $12 million impact. The passenger fare portion of our prorate revenue received similar pricing increases as our major partners, partially offsetting the impact of our higher price per gallon in the area of 60% for Q2. Our price per gallon on our prorate flying was $4.45 in Q2, up from $2.88 in Q2 2025 and up from $3.40 in Q1. Now, let's discuss the balance sheet. We ended the quarter with cash of $601 million, slightly down from $627 million last quarter. The ending cash balance for the quarter included the effects from, one, repaying $122 million in debt, two, issuing $24 million of new debt financing, new debt financing ongoing fleet deliveries, three, investing $139 million in CapEx, including the purchase of one E-175, and four, buying back 833,000 shares of SkyWest stock in Q2 for $75 million. As of June 30th, we had $63 million remaining under our current share repurchase authorization, and as announced today, the board has authorized an additional $250 million of share repurchase on top of the $63 million. Cash flow continues to be the key driver of our value creation strategy. We generated over $460 million of EBITDA during the first half of 2026, despite the headwind from prorate fuel costs. Since the end of 2025, we reduced our total debt balance by approximately $100 million, invested over $240 million in CapEx for fleet and related assets, and repurchased $150 million of our shares. We expect to continue to deploy in a balanced way our ongoing generation of free cash flow by investing in our fleet, including financing the addition of 34 new E-175s by the end of 2028 reducing our debt and executing opportunistically our share repurchase program by the end of 2029 we expect that we will have over 100 unencumbered e175s in our fleet portfolio as a result of our capital deployment strategy both our debt net of cash and leverage ratios continue at favorable levels, reflecting our ongoing initiative to delever and de-risk our balance sheet, positioning the balance sheet with the capacity for future accretive investment opportunities. We expect to take 11 new E-175s during the back half of 2026, 7 new E-175s for United, and 4 of the 11 E-175s for American announced today. We anticipate our total capex in 2026 will be approximately 700 million dollars. Consistent with our practice, let me update you on some color on 2026. For the full year 2026, we expect to see block hour production up approximately five percent from 2025. We anticipate our GAAP EPS for 2026 will be in the $11 area, subject to ongoing prorate fuel volatility. This assumes average jet fuel of $3.65 per gallon for the second half of 2026, on 28 million gallons of jet fuel needed in the second half for our prorate business. In terms of how to think of quarterly EPS modeling for the back half of 2026, on a gap basis, we anticipate directionally that Q3 we expect to be down seasonally, or we expect to be seasonally the strongest quarter of the year, and Q4 should be down modestly from Q3. For other modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at 2025 levels as we invest in bringing more aircraft back into service. We also anticipate our effective tax rate for Q3 and Q4 will be similar to Q2 at approximately 27% to 28% translating to approximately 23 to 24% for the full year 2026 we are optimistic about our ongoing growth possibilities in 26 and 27 including first strong ongoing demand for block hours from our partners second good demand in our prorate business as we continue to move back into underserved communities and third placing a total of 36 new e175s into service from 2026 to 2028 including eight for united 16 for delta 11 for american as announced today and one for alaska we are also very pleased with the ongoing success of our crj 550 and crj 450 initiatives and i will turn the call over to Wade, who will talk more about that next. We believe that we are positioned to convert strong cash flow generation over the next several years into long-term value creation, benefiting our employees, our partners, and our capital providers as we execute against a variety of accretive opportunities.

Wade? Thank you, Rob. Today, we announced an agreement with American for 11 new E-175s. The E-175s are expected to replace 11 CRJ-700s SkyWest is currently flying under contract with American. We anticipate placing these CRJ-700s with one of our major partners, either through our prorate agreements, capacity purchase agreements, or a traditional lease. SkyWest is scheduled to purchase the 11 E-175s from Embraer with delivery dates in 2020. 26 and 2027. During the quarter, we took delivery of one new E-175 for United. We currently have 67 future E-175s on firm order with Embraer, including 16 for Delta, 11 for American, and 7 for United. We expect delivery of 11 more new E-175s during the second half of this year. As an update on the firm order of 67 aircraft, 34 are allocated to our major partners. 33 are not yet assigned. This order locks in delivery slots starting in 27 through 2032. However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them. Our long-term fleet plan has positioned us well, and re-fleeting continues to be an important part of that strategy. With today's announced agreement with American, our E-175 fleet total is scheduled to be 300 by the end of 2027, continuing to enhance SkyWest position as the largest E-175 operator in the world. We are also looking forward to deploying the CRJ-450 later this year for United. We anticipate converting four to six aircraft per month starting this fall. We expect to have 40 CRJ-450s under contract with United, and we plan to retrofit our pro-rate CRJ-200s. We are optimistic the opportunity for the CRJ-450 will reach a total of 100 aircraft. Last quarter, we announced five E-170s and reached an agreement with United to operate these as we expedite the conversion of CRJ-700s to CRJ-550s. All five E-170s are currently operating for United. As previously announced, we have a multi-year agreement to 550 CRJ-550s with United. As of June 30, 36, CRJ-550s were in service, and we're expecting the remaining 14 to enter service this year. Last year, we reinitiated a prorate agreement with American, and we are currently operating eight aircraft under this agreement, with up to nine expected by year end. We look forward to expanding our relationship with American. Let me review our production. Our block hours increased 9% from Q1 to Q2 2026. We also expect a slight increase in our Q3 block hours as compared to Q2. For the full year 2026, we anticipate that our block hours will be up approximately 5% compared to 2025. This year, we expect to take delivery of 13 new E-175s, place 23 CRJ-550s into service, and capitalize on strong pro-rate demand. These gains are partially offset by the gradual return of approximately 19 lower-margin Delta-owned CRJ-900s to Delta over the next couple of years. our revenue seasonality has normalized with improved utilization during the strong summer months we still have approximately three dual class crj aircraft currently undergoing heavy maintenance after transitioning from long-term storage these aircraft are set to return to service in 2026 under existing flying agreements additionally we have over 30 parked crj 200s that will likely transition to the CRJ450 and further enhance our fleet flexibility. We continue to face challenges in our third-party MRO network, including labor and park shortages. We expect maintenance expense in 2026 to remain consistent with 2025, even with the increase in block hours. Demand for our prorate business remains extremely strong, supported by great community engagement. During the quarter, we added 10 aircraft to our prorate agreements to support the growing demand. We're continuing to see opportunities to restore SkyWest service to several communities, and we will continue working with airports to expand our reach. As discussed last quarter, growth in our prorate business contributes to a more seasonal model The non-subsidized portion of our pro-rate revenue covered approximately 60% of fuel cost increases during the second quarter. Demand is strong, and similar to our major partners, we anticipate continued fare strength in our pro-rate markets. We remain confident in our ongoing efforts to reduce risk and enhance fleet flexibility. we are committed to collaborating with our major partners to deliver innovative solutions that meet the continued demand for our products.

Okay, Operator, we're ready for our Q&A now.

At this time, if you would like to ask a question, press star, sending number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Savi Fipe with Raymond James. Please go ahead. Hey, good morning, everyone.

I guess maybe first, you know, this is not the first time this year we've seen suddenly a sharp rising fuel price in a very short period. I was curious, you know, last time it was kind of heading into the summer, so this time it's heading into the winter. Are you having any kind of different conversations with partners Or as you think about your pro-rate segment, are you making any kind of different decisions this time versus earlier this year?

Yes, Avi, this is Chip. You know, it was interesting you bring up, given what's happened last quarter and this quarter, because there was a lot of uncertainty. I think, honestly, we're in a little more stable position right now relative to the conversation. I think we've reflected that in our script. There's good, strong demand for block hours. There's good, strong demand relative to what's happening. We're not ignoring the volatility of oil under the circumstances, but I think that hopefully you can get a tone from what our message is today that we're pressing forward, you know, quite strong with our partners and good conversations about strategies to continue to enhance value to them.

Yeah, it came through, but just wanted to clarify. It seems like maybe less of a shock this time and more prepared and knowing how to react to it. Maybe just on the prorate side, I noticed kind of charter step down, but your CRJs on the CPA slash prorate side stepped up. Is that kind of – is there just more opportunity on the prorate side versus charter, or just how are you looking at kind of those two segments?

Yeah, that's a great question, Tavi. This is Wade. Yeah, so the demand, as you know, for charter is pretty light in the summertime. And so we do take the opportunity to move those airplanes around where we find the most demand. But we're seeing very strong demand in the pro-rate side. So we decided to move several of those over to the SkyWest Airlines pro-rate slash CPA flying. And we were able to utilize those and get very good flying with that. As far as SkyWest Charter, you know, we're still looking at a lot of new technologies and things like that for SkyWest Charter. We're excited about the opportunities there to expand our reach into new and different markets, you know, with that entity as well.

Helpful call. Thank you. Your next question comes from the line of Mike Linenberg with Deutsche Bank. Please go ahead.

Oh, yeah. Hey, good afternoon. Wade, congrats on your promotion. I have a couple here. Just right off the bat, the replacement of the 11-CRJ-700 Z-American with the E-175s, how should we think about the improvement in profitability? I would think that the bigger airplanes will be more profitable for you. Is that a safe assumption or reasonable assumption?

Hey, Mike, this is Wade. So, first of all, thank you. um yeah as far as the uh american side um yeah we're the the profitability of the 175s will be very consistent with our other fleets that we have uh the 700s you know we are going to find opportunities as we said you know we're in discussions with multiple partners about either pro-rate contract you know leasing uh these these airplanes the demand is still very strong so yes we think we definitely like the transaction. We're very happy that we're able to get that done with American.

And you mentioned per-rate contract leasing. What about conversions to 550s? Is that also?

Yes. So when we convert them, they could potentially go into 550s for multiple of our partners and we're looking at those opportunities right now.

Okay. And then how should we think, I guess this is more to Rob, taking on the additional 11 E-175s? You told us about the revised CapEx number for 2026. Now we're at $700 million. How should we think about your debt profile? Does that tick back up a little bit as you take delivery of those airplanes?

Yeah, I mean, we'll be financing 11 of the new 175s this year and, you know, adding new debt for that. But we do expect that, you know, debt will continue to trend down over the next several years. But, you know, if you think, if you look at the 700 in CapEx, Mike, you know, About half of that is the new E-175s, the 13 new E-175s, two that we've already done this year and 11 more that we'll do in the second half. So the bulk of that is our nicely accretive 175 order book coming through for us.

Okay, great. And just one last one here. Just, you know, watching, and this is back to Wade, you had five CRJ900s unleashed to a third party, but now they show back up in your fleet. Those, I couldn't follow those. Where do they go from and where are they now, the five from the CRJ900s?

Yeah, that's a great question. One of them is currently in heavy maintenance, transitioning to one of our partners, either through prorate or CPA. The other ones, we're still working with our major partners on placing those with them. You know, we're very optimistic that we'll be able to place those airplanes with one of our major partners in one of our three business segments, either contract, prorate, or leasing.

Wow. That's great. Thanks, everyone.

Your next question comes from the line of Dwayne Fennigworth with Evercore ISI. Please go ahead.

Good afternoon. Just to follow up on some of Mike's questions on the E-175s, it's a little surprising you could find slots within the year, within 2026. Is this all of your availability for this year? And would you be willing to tell us how many slots do you have in 2027? I know you mentioned, I think, 33 through 2032, but wondering how many could potentially drop into 2027.

Yeah, Duane, this is Wade. Yeah, so we were able to work with Embraer on that order, and they were very creative in finding us some slots at the end of this year. They'll be at the very end of the year. But, yeah, we were very excited to, you know, we've got great partners in Embraer and GE and American to get that deal done. So we're very happy about that. you know 2026 probably is pretty close to to tapped out with those guys in 2027 we do have 17 now um scheduled to come and and we anticipate all of those we are working um potentially to to loosen up another couple slots here and there um but right now it is uh the the 17 that we have um firm coming in 2027.

Okay, great. Thanks. And then maybe you can just give us some insight into your thought process about the pacing of the buyback going forward. Is it a function of where the stock is trading, where it's priced, or is it more about the pacing of CapEx?

Hey, Duane, it's Rob here. So it's sort of all of the above, I would say. When it comes to how we deploy capital, we try to maintain, you know, a balanced approach, but remain opportunistic, whether that means, you know, we have a new opportunity like the new E175s for American that we announced today. We love that accretive chance to deploy capital. But, you know, as we've talked about, we continue to generate strong free cash flow. So we're in the fortunate situation where we can, you know, take advantage opportunistically of a share price that we felt was mispriced, and we're pleased that we bought, you know, $75 million in each of the first two quarters of the year this year, in addition to being able to pay down, you know, continue to pay down debt and continue to invest in our fleet. So, you know, we're in the fortunate situation, Duane, that we can sort of do in all of the Yeah. Okay, thank you.

Your next question comes from the line of Tom Fitzgerald with TD Cohen. Please go ahead.

Hi, everyone. Thanks so much for the time. Congrats to Wade and congrats on the American deal. Thinking about or how should we think about the cadence of those deliveries, both in the back half of the year and then just throughout 2027? I don't know if it's more front half or back half weighted next year or if it's kind of more of an even cadence throughout the year.

Tom, thank you. First of all, on the delivery schedules for this year, the four American ones are at the very back end of Q4. And then next year, the seven American ones are heavily weighted towards the first six months of the year. We have seven American ones coming in the first half of 2027. And then we have 10 Delta ones that are kind of starting in the middle of the year and go through the end of the year.

Okay, great. That's really helpful, caller. And then just given the American announcement and just given some of the other moving pieces with the fleet and things coming out of conversion, how should investors think about a rough zip code for block hour growth in 2027? I know it's still early, but is mid-single digits, is another year like this kind of in the ballpark of where people should be thinking? Thanks again for the time.

So, Tom, yeah, that's a great question. We're still looking at 2027 right now. Now, as you can tell, we're still working on our fleet. We're finalizing our 2027 plans. So I would just say let's stay tuned for that. We'll give a lot more color on that next quarter as we firm up our plans for 2027.

Your next question comes from the line of John Godin with Citigroup. Please go ahead.

Hey, guys. This is Max on for John. Thanks for taking my question. Can you guys just give a little further insight into demand trends you've been seeing in the pro-rate business and on forward bookings there later into the summer and fall and how consumers have been reacting to fare increases that have been issued?

Thanks, Max. Just, I think, philosophically and practically speaking, I think we're still seeing very good demand relative to even what is a seasonal somewhat drop-off in the fall area. And again, I think I'd go back to some of the things that we tried to discuss in our script that, you know, I think we're consistent with what our partners are saying relative to fares and how much recovery we can get of the fuel price volatility that we have. But overall, I think that we would still come back to a very strong demand model for both prorate and contract with our partners. You know, it's also helpful that we're in the middle of transitioning to an all dual class fleet and some of that's going to hit prorate as well. Being an all dual class fleet changes, you know, what we've been trying to do even the last decade. But I think from our perspective, you know, things look good in the fall. But more importantly, I think long term, we're comfortable and pleased with what we see as an outlook that we can talk about more next quarter.

Great. And then I know you guys have discussed this on ProRate being roughly 10%, you know, of your block hour production. Do you expect this business to grow over the long term as a percentage of your total production? Obviously, you know, the trends here have been pretty robust. So just curious and kind of, you know, your outlook here over the long term.

Yeah, I think it depends on a lot of factors. I would say the trend today is obviously clear, and the data shows that it's, you know, growing faster than the contract side of our business. But I think from our perspective, our overall strategy is to, you know, to drive all of our product lines in equal fashion, both contract, leasing, charter, and prorate. So from that perspective, I think what we're seeing in all of those aspects of our business model is very strong on everything. but certainly the trend today is a little bit more on prorate that may continue in the future, but it's not like it's something that we only want to continue to grow. There's a lot of good business lines that we're still actively working with some great partners to continue to provide some good value to them and our shareholders. Makes sense. Thank you.

Your next question comes from the line of Catherine O'Brien with Goldman Sachs. Please go ahead.

Hey, good afternoon, team. Another congratulations from me to Wade and on the American deal. Maybe just sticking with the American deal, how much of an impact are those four incremental E-175s in American this year? It sounds like they're pretty year-end weighted. So just wondering if there are any other puts and takes on flying for the rest of your year besides those American planes, you know, maybe just my interpretation, but I think on the last call, it sounded like you thought maybe you'd be a little under mid-single, and I wasn't sure if, like, very back-end weighted American deliveries were enough to put you over back into mid-single. So just any incremental call there would be helpful. Thanks.

Yeah, so first of all, Catherine, thank you. As far as the American airplanes, they'll have very little impact on the block hours in 2026, But I do want to reiterate, we are confident that we are going to increase year over year 5% in our block hours, and we're very confident we do not need the American airplanes to hit that 5%. So we are very confident in our block hours and where we're going.

I got it. And then, you know, you've got the 11 CRJ 700s that are coming back for American, and then a couple of the CRJ 900s Mike was asking you about that are coming off lease. And it sounds like you're in discussions with your partners between placing them under prorate, contract, on lease. Could you just walk us through what the margin profile of each of those choices look like?

I realize prorate may be more variable given moving fuel and demand, but just looking for a higher level comments thanks yeah so on the margins you know as you said you know pro rate at this moment a little bit more variable but our contracts will be very consistent with where you know anything we sign up will be very consistent with what we have today and and leasing you know leasing does have a little bit higher margin attributes and but you know so we're looking at all of these these options right now stay tuned we'll get we'll get we'll get something figured out here really quick so okay great thanks that concludes our question-and-answer session I will now

turn the call back over to Chip Childs for closing remarks thank you Tiffany appreciate it and we really appreciate everybody's interest on the call today we're obviously in a position where we're trying to capitalize playbooks that we've had for the over the last decade we think that our opportunities uh are even better along those lines with strong capital the best professionals in the industry and some amazing partners we'll continue to update you as we continue on our journey to to continue to provide value to all these uh all of our stakeholders and we will look forward to talking again in three months from now thank you ladies and gentlemen this concludes today's call thank

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