Maintenance, start-up costs for its new operations and weather conspired to slam SkyWest’s (SKYW) results for the fourth quarter, costing it $5.2 million, although its year-end results showed operating revenues up 58.6 percent to $3.11 billion while net income was up substantially from $112.3 million to $145.8 million.
During the first quarter 2007 it expects to take 10 CRJ 700s for Delta (DALRQ) operations and six CRJ 900s. In the second quarter it will take the first six of its Midwest Connect aircraft as well as two additional CRJ700s for Delta and the remaining CRJ900s on firm order. Consequently, by the end of the second quarter it will have 15 aircraft for the Midwest Connect, 12 for Delta, and eight CRJ900s for an additional 35 aircraft, for a fleet total of 445 aircraft. It expects ASMs to grow 16 percent to 23.6 billion this year.
In response to investor questions, SkyWest acknowledged its United (UAUA) contract restricted it from serving another partner in Denver, but said that it could have done the Frontier (FRNT) deal under ASA’s certificate. However, CFO Brad Rich indicated that since the location of the flying as well as the size of the fleet would not be enough scale, they decided not to pursue that RFP. He also indicated that SkyWest also wants to be sensitive to its partners’ needs and any proposal they make must have the impact on current partners factored in. Besides, said CEO Ron Reber, it is SkyWest’s view that United owns that market.
As for the Continental (CAL) RFP that went to Pinnacle (PNCL), SkyWest gave that a pass as well, citing the distance from existing facilities and the fact it would strain its infrastructure possibly to the point it would be unable to deliver the product up to the standards it demands. Still, he said the airline is still very interested in pursuing larger turboprop flying.
At the end of the year, the airline had $651.9 million in cash and marketable securities compared to $324.5 million in the year-ago period. It plans to fund growth with the cash including diversification and additional RFPs that remain outstanding. “We feel there is enough opportunity in internal organic growth and diversification opportunities that our first priority is to pursue them before we pursue increasing dividends or a stock buyback,” said Rich.
Fourth quarter operating revenues reached $789.6 million for the quarter ended December 31, 2006, a 6.4 percent increase, compared to $742.4 million for the same period last year. SkyWest also reported net income of $31.2 million for the quarter compared to $38.7 million of net income for the same period last year, better than the guidance it issued in January.
The airline cited the back-to-back weather systems that conspired to close Denver, forcing it to cancel 2,850 flights for two days and subsequent travel days before the end of December, in addition to numerous downstream cancellations. This was compounded by pilots running out of legal flight time and being out of place for equipment as well as having difficulty getting to work.
It also took a five percent hit in aircraft utilization last year, largely owing to the scheduling by network carriers, a trend analysts expect to continue as the majors continue optimizing their networks. The airline pointed out that United has optimized its schedule at Denver causing further problems. “They’ve tightened our turn times and we went through a learning curve,” said Rich, adding United is pushing aircraft as far as they can go each day, depending on the aircraft type." The RJs are being overscheduled while the Brasilias are underscheduled. It also noted that its utilization problem was partly owing to Delta pulling down capacity on certain days of the week in an effort to gain efficiency and match capacity to demand.
In preparation to fly additional regional jet aircraft for Midwest Airlines (MEH) and Delta, SkyWest began accelerated pilot training, incurring training charges in advance of the actual scheduled flying for these aircraft. These charges will be reimbursed by Midwest and Delta when the aircraft begin flying, which is currently anticipated to be early 2007. Finally, it cited additional maintenance charges related to the timing of certain maintenance events for aircraft that were transitioned between Atlantic Southeast Airlines and SkyWest that is not reimbursable under its agreements. The impact of the non-reimburseable maintenance charges resulted in a decrease to pretax income of approximately $3.5 million.
SkyWest posted operating revenues of $789.6 million for the fourth quarter, a 6.4 percent increase, which the airline said resulted from a 9.3 percent increase in available seat miles (ASMs) as it increased its fleet size to 410 aircraft. SkyWest also reported net income of $31.2 million for the quarter compared to $38.7 million of net income for the same period last year. Operating revenues were impacted by a 2.5 percent decrease in revenue per available seat mile and by increased fuel cost reimbursements by SkyWest’s major partners.
Total operating expenses and interest per ASM for the fourth quarter of 2006, excluding fuel charges of $251.1 million or $0.049 per ASM, increased approximately 2.1 percent to $0.095 from $0.093 for the same quarter of 2005.