Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20222023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                             

Commission file number 0-14719

SKYWEST, INC.

Incorporated under the laws of Utah

87-0292166

(I.R.S. Employer ID No.)

444 South River Road

St. George, Utah 84790

(435) 634-3000

(Address of principal executive offices and telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on which Registered

Common Stock, No Par Value

SKYW

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class

Outstanding at July 29, 202228, 2023

Common stock, no par value

50,587,55142,062,796

Table of Contents

SKYWEST, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION:

Item 1.

Financial Statements

3

Consolidated Balance Sheets

3

Consolidated Statements of Comprehensive Income (Loss)

5

Consolidated Statements of Stockholders Equity

6

Condensed Consolidated Statements of Cash Flows

78

Notes to Condensed Consolidated Financial Statements

89

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2022

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3638

Item 4.

Controls and Procedures

3638

PART II

OTHER INFORMATION:

Item 1.

Legal Proceedings

3739

Item 1A.

Risk Factors

3739

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 6.

Exhibits

3740

Signature

3841

Exhibit 31.1

Certification of Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer

Exhibit 32.1

Certification of Chief Executive Officer

Exhibit 32.2

Certification of Chief Financial Officer

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

ASSETS

June 30,

    

December 31,

    

2022

    

2021

June 30,

    

December 31,

(unaudited)

    

2023

    

2022

CURRENT ASSETS:

Cash and cash equivalents

$

96,071

$

258,421

$

114,433

$

102,984

Marketable securities

 

878,608

 

601,989

 

747,916

 

944,231

Receivables, net

 

75,963

 

65,348

 

104,706

 

100,523

Inventories, net

 

115,142

 

104,093

 

123,572

 

123,209

Other current assets

 

51,100

 

38,742

 

92,506

 

100,334

Total current assets

 

1,216,884

 

1,068,593

 

1,183,133

 

1,371,281

PROPERTY AND EQUIPMENT:

Aircraft and rotable spares

 

8,052,327

 

7,848,100

 

8,233,312

 

8,143,614

Deposits on aircraft

 

91,813

 

124,964

 

23,931

 

23,931

Buildings and ground equipment

 

270,802

 

256,595

 

273,425

 

265,019

Total property and equipment, gross

 

8,414,942

 

8,229,659

 

8,530,668

 

8,432,564

Less-accumulated depreciation and amortization

 

(2,854,966)

 

(2,731,060)

 

(3,039,525)

 

(2,884,084)

Total property and equipment, net

 

5,559,976

 

5,498,599

 

5,491,143

 

5,548,480

OTHER ASSETS:

Operating lease right-of-use assets

207,845

238,516

92,803

151,928

Long-term receivables and other assets

 

351,942

 

320,239

 

348,695

 

342,864

Total other assets

 

559,787

 

558,755

 

441,498

 

494,792

Total assets

$

7,336,647

$

7,125,947

$

7,115,774

$

7,414,553

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

June 30,

    

December 31,

2022

    

2021

June 30,

    

December 31,

(unaudited)

2023

    

2022

CURRENT LIABILITIES:

Current maturities of long-term debt

$

424,998

$

391,798

$

442,155

$

438,502

Accounts payable

 

437,838

 

496,333

 

457,310

 

422,001

Accrued salaries, wages and benefits

 

186,062

 

150,583

 

189,265

 

186,285

Current maturities of operating lease liabilities

 

75,609

 

78,886

 

18,715

 

71,726

Taxes other than income taxes

 

28,611

 

28,869

 

22,631

 

20,480

Other current liabilities

 

45,295

 

48,152

 

35,918

 

33,549

Total current liabilities

 

1,198,413

 

1,194,621

 

1,165,994

 

1,172,543

LONG-TERM DEBT, net of current maturities

 

2,864,483

 

2,717,420

 

2,743,804

 

2,941,772

DEFERRED INCOME TAXES PAYABLE

 

679,794

 

663,236

 

682,694

 

687,060

NONCURRENT OPERATING LEASE LIABILITIES

 

134,597

 

158,274

 

73,894

 

88,622

OTHER LONG-TERM LIABILITIES

 

114,329

 

124,882

 

292,149

 

176,925

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS’ EQUITY:

Preferred stock, 5,000,000 shares authorized; NaN issued

 

 

Common stock, 0 par value, 120,000,000 shares authorized; 82,514,936 and 82,335,970 shares issued as of June 30, 2022, and December 31, 2021, respectively

 

731,210

 

722,310

Preferred stock, 5,000,000 shares authorized; none issued

 

 

Common stock, no par value, 120,000,000 shares authorized; 82,800,633 and 82,592,830 shares issued as of June 30, 2023, and December 31, 2022, respectively

 

744,276

 

734,426

Retained earnings

 

2,235,601

 

2,163,916

 

2,230,217

 

2,236,869

Treasury stock, at cost, 31,993,144 and 31,956,047 shares as of June 30, 2022, and December 31, 2021, respectively

 

(619,835)

 

(618,712)

Treasury stock, at cost, 40,427,758 and 31,994,416 shares as of June 30, 2023, and December 31, 2022, respectively

 

(816,446)

 

(619,862)

Accumulated other comprehensive loss

(1,945)

(808)

(3,802)

Total stockholders’ equity

 

2,345,031

 

2,267,514

 

2,157,239

 

2,347,631

Total liabilities and stockholders’ equity

$

7,336,647

$

7,125,947

$

7,115,774

$

7,414,553

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(Dollars and Shares in Thousands, Except per Share Amounts)

Three months ended

Six months ended

Three months ended

Six months ended

June 30,

June 30,

June 30,

June 30,

    

2022

    

2021

    

2022

    

2021

 

    

2023

    

2022

    

2023

    

2022

OPERATING REVENUES:

Flying agreements

$

773,774

$

632,967

$

1,481,837

$

1,144,158

$

700,394

$

773,774

$

1,364,232

$

1,481,837

Lease, airport services and other

 

25,311

 

24,023

 

52,400

 

47,387

 

25,249

 

25,311

 

53,242

 

52,400

Total operating revenues

 

799,085

 

656,990

 

1,534,237

 

1,191,545

 

725,643

 

799,085

 

1,417,474

 

1,534,237

OPERATING EXPENSES:

Salaries, wages and benefits

 

288,562

 

233,423

 

588,620

 

453,265

 

322,441

 

288,562

 

657,642

 

588,620

Aircraft maintenance, materials and repairs

 

174,883

 

190,879

 

323,296

 

394,706

 

162,491

 

174,883

 

304,717

 

323,296

Depreciation and amortization

 

97,249

 

109,895

 

199,994

 

219,492

 

97,169

 

97,249

 

191,318

 

199,994

Aircraft fuel

 

31,820

 

25,867

 

56,910

 

45,061

 

18,279

 

31,820

 

39,243

 

56,910

Airport-related expenses

 

17,490

 

22,038

 

36,695

 

46,486

 

16,955

 

17,490

 

35,250

 

36,695

Aircraft rentals

 

16,024

 

15,723

 

32,020

 

31,213

 

2,428

 

16,024

 

21,956

 

32,020

Payroll support grant

(114,144)

(307,317)

Other operating expenses

 

84,455

 

58,286

 

156,052

 

112,774

 

74,020

 

84,455

 

140,192

 

156,052

Total operating expenses

 

710,483

 

541,967

 

1,393,587

 

995,680

 

693,783

 

710,483

 

1,390,318

 

1,393,587

OPERATING INCOME

 

88,602

 

115,023

 

140,650

 

195,865

 

31,860

 

88,602

 

27,156

 

140,650

OTHER INCOME (EXPENSE):

Interest income

 

2,559

 

210

 

2,984

 

494

 

10,494

 

2,559

 

20,527

 

2,984

Interest expense

 

(30,433)

 

(33,940)

 

(59,025)

 

(65,294)

 

(33,718)

 

(30,433)

 

(67,338)

 

(59,025)

Other income, net

 

12,019

 

80

 

12,899

 

296

 

9,001

 

12,019

 

11,175

 

12,899

Total other expense, net

 

(15,855)

 

(33,650)

 

(43,142)

 

(64,504)

 

(14,223)

 

(15,855)

 

(35,636)

 

(43,142)

INCOME BEFORE INCOME TAXES

 

72,747

 

81,373

 

97,508

 

131,361

PROVISION FOR INCOME TAXES

 

18,796

 

19,379

 

25,823

 

33,467

NET INCOME

$

53,951

$

61,994

$

71,685

$

97,894

INCOME (LOSS) BEFORE INCOME TAXES

 

17,637

 

72,747

 

(8,480)

 

97,508

PROVISION (BENEFIT) FOR INCOME TAXES

 

2,218

 

18,796

 

(1,828)

 

25,823

NET INCOME (LOSS)

$

15,419

$

53,951

$

(6,652)

$

71,685

BASIC EARNINGS PER SHARE

$

1.07

$

1.23

$

1.42

$

1.95

DILUTED EARNINGS PER SHARE

$

1.07

$

1.22

$

1.42

$

1.93

BASIC EARNINGS (LOSS) PER SHARE

$

0.35

$

1.07

$

(0.14)

$

1.42

DILUTED EARNINGS (LOSS) PER SHARE

$

0.35

$

1.07

$

(0.14)

$

1.42

Weighted average common shares:

Basic

 

50,522

 

50,346

 

50,501

 

50,316

 

43,837

 

50,522

 

46,614

 

50,501

Diluted

 

50,566

 

50,725

 

50,637

 

50,727

 

44,219

 

50,566

 

46,614

 

50,637

COMPREHENSIVE INCOME:

Net income

$

53,951

$

61,994

$

71,685

$

97,894

Net unrealized depreciation on marketable securities, net of taxes

 

(1,945)

 

 

(1,945)

 

TOTAL COMPREHENSIVE INCOME

$

52,006

$

61,994

$

69,740

$

97,894

COMPREHENSIVE INCOME (LOSS):

Net income (loss)

$

15,419

$

53,951

$

(6,652)

$

71,685

Net unrealized appreciation (depreciation) on marketable securities, net of taxes

 

1,514

 

(1,945)

 

2,994

 

(1,945)

TOTAL COMPREHENSIVE INCOME (LOSS)

$

16,933

$

52,006

$

(3,658)

$

69,740

See accompanying notes to condensed consolidated financial statements

5

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(UNAUDITED)

(In Thousands)

Accumulated

Other

Common Stock

Retained

Treasury Stock

Comprehensive

Shares

Amount

Earnings

Shares

Amount

Loss

Total

Balance at December 31, 2021

 

82,336

$

722,310

$

2,163,916

 

(31,956)

$

(618,712)

$

$

2,267,514

Net income

 

 

 

17,734

 

 

 

 

17,734

Exercise of common stock options and vested employee stock awards

 

139

27

 

 

 

 

 

27

Employee income tax paid on vested equity awards

(37)

(1,123)

(1,123)

Sale of common stock under employee stock purchase plan

 

40

1,487

 

 

 

 

 

1,487

Stock based compensation expense

4,076

4,076

Balance at March 31, 2022

 

82,515

$

727,900

$

2,181,650

 

(31,993)

$

(619,835)

$

$

2,289,715

Net income

 

 

 

53,951

 

 

 

53,951

Stock based compensation expense

 

 

3,310

 

 

 

 

3,310

Net unrealized depreciation on marketable securities, net of tax of $628

(1,945)

(1,945)

Balance at June 30, 2022

 

82,515

$

731,210

$

2,235,601

 

(31,993)

$

(619,835)

$

(1,945)

$

2,345,031

Accumulated

Other

Common Stock

Retained

Treasury Stock

Comprehensive

Shares

Amount

Earnings

Shares

Amount

Loss

Total

Balance at December 31, 2022

 

82,593

$

734,426

$

2,236,869

 

(31,994)

$

(619,862)

$

(3,802)

$

2,347,631

Net income (loss)

 

 

 

(22,071)

 

 

 

(22,071)

Exercise of common stock options and vested employee stock awards

 

130

57

 

 

 

 

 

57

Employee income tax paid on vested equity awards

(32)

(585)

(585)

Sale of common stock under employee stock purchase plan

 

78

1,218

 

 

 

 

 

1,218

Stock based compensation expense

 

 

4,329

 

 

 

 

4,329

Treasury stock purchases

 

 

 

(5,067)

 

(100,001)

 

(100,001)

Net unrealized appreciation on marketable securities, net of tax of $476

1,480

1,480

Balance at March 31, 2023

82,801

$

740,030

$

2,214,798

(37,093)

$

(720,448)

$

(2,322)

$

2,232,058

Net income

 

 

 

15,419

 

 

 

15,419

Stock based compensation expense

 

4,246

 

 

 

 

4,246

Treasury stock purchases

 

 

 

(3,335)

 

(95,998)

 

(95,998)

Net unrealized appreciation on marketable securities, net of tax of $488

1,514

1,514

Balance at June 30, 2023

 

82,801

$

744,276

$

2,230,217

 

(40,428)

$

(816,446)

$

(808)

$

2,157,239

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(UNAUDITED)

(In Thousands)

Common Stock

Retained

Treasury Stock

Shares

Amount

Earnings

Shares

Amount

Total

Balance at December 31, 2020

 

82,095

$

704,675

$

2,052,006

 

(31,914)

$

(617,136)

$

2,139,545

Net income

 

 

 

35,900

 

 

 

35,900

Exercise of common stock options and vested employee stock awards

 

177

606

 

 

 

 

606

Employee income tax paid on vested equity awards

(42)

(1,573)

(1,573)

Sale of common stock under employee stock purchase plan

 

30

1,139

 

 

 

 

1,139

Stock based compensation expense

2,613

2,613

Warrants issued to U.S. Treasury

 

 

3,291

 

 

 

 

3,291

Balance at March 31, 2021

 

82,302

$

712,324

$

2,087,906

 

(31,956)

$

(618,709)

$

2,181,521

Net income

 

 

 

61,994

 

 

61,994

Stock based compensation expense

 

 

2,877

 

 

 

2,877

Warrants issued to U.S. Treasury

 

 

2,513

 

 

 

 

2,513

Balance at June 30, 2021

 

82,302

$

717,714

$

2,149,900

 

(31,956)

$

(618,709)

$

2,248,905

Accumulated

Other

Common Stock

Retained

Treasury Stock

Comprehensive

Shares

Amount

Earnings

Shares

Amount

Loss

Total

Balance at December 31, 2021

 

82,336

$

722,310

$

2,163,916

 

(31,956)

$

(618,712)

$

$

2,267,514

Net income

 

 

 

17,734

 

 

 

17,734

Exercise of common stock options and vested employee stock awards

 

139

27

 

 

 

 

27

Employee income tax paid on vested equity awards

(37)

(1,123)

(1,123)

Sale of common stock under employee stock purchase plan

 

40

1,487

 

 

 

 

1,487

Stock based compensation expense

4,076

4,076

Balance at March 31, 2022

82,515

$

727,900

$

2,181,650

(31,993)

$

(619,835)

$

$

2,289,715

Net income

 

 

 

53,951

 

 

 

53,951

Stock based compensation expense

3,310

3,310

Net unrealized depreciation on marketable securities, net of tax of $628

(1,945)

(1,945)

Balance at June 30, 2022

 

82,515

$

731,210

$

2,235,601

 

(31,993)

$

(619,835)

(1,945)

$

2,345,031

See accompanying notes to condensed consolidated financial statements.

67

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In Thousands)

Six months ended

June 30,

    

2022

    

2021

NET CASH PROVIDED BY OPERATING ACTIVITIES

$

215,279

$

498,688

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of marketable securities

 

(1,254,213)

 

(798,877)

Sales of marketable securities

 

975,649

 

799,241

Acquisition of property and equipment:

Aircraft and rotable spare parts

 

(301,004)

 

(63,450)

Buildings and ground equipment

 

(9,525)

 

(8,700)

Proceeds from the sale of property and equipment

 

6,275

 

2,282

Deposits on aircraft

(37,100)

(58,269)

Aircraft deposits applied towards acquired aircraft

70,501

Increase in other assets

 

(7,172)

 

(54,608)

NET CASH USED IN INVESTING ACTIVITIES

 

(556,589)

 

(182,381)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of long-term debt

 

376,753

 

95,430

Principal payments on long-term debt

 

(196,961)

 

(281,778)

Net proceeds from issuance of common stock

 

1,514

 

1,745

Employee income tax paid on vested equity awards

(1,123)

(1,573)

Payment of debt issuance cost

(1,223)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

178,960

 

(186,176)

Increase (decrease) in cash and cash equivalents

 

(162,350)

 

130,131

Cash and cash equivalents at beginning of period

 

258,421

 

215,723

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

96,071

$

345,854

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Non-cash investing and financing activities:

Acquisition of property and equipment

$

18,234

$

11,797

Warrants issued to U.S. Treasury

$

$

5,804

Cash paid during the period for:

Interest, net of capitalized amounts

$

60,197

$

66,767

Income taxes

$

217

$

457

Six months ended

June 30,

    

2023

    

2022

NET CASH PROVIDED BY OPERATING ACTIVITIES

$

333,023

$

215,279

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of marketable securities

 

(533,465)

 

(1,254,213)

Sales of marketable securities

 

732,774

 

975,649

Acquisition of property and equipment:

Aircraft and rotable spare parts

 

(122,529)

 

(301,004)

Buildings and ground equipment

 

(11,338)

 

(9,525)

Proceeds from the sale of property and equipment

 

3,815

 

6,275

Deposits on aircraft

(37,100)

Aircraft deposits applied towards acquired aircraft

70,501

Decrease (increase) in other assets

 

734

 

(7,172)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

69,991

 

(556,589)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of long-term debt

 

25,000

 

376,753

Principal payments on long-term debt

 

(221,148)

 

(196,961)

Payment of debt issuance cost

(108)

(1,223)

Net proceeds from issuance of common stock

 

1,275

 

1,514

Employee income tax paid on vested equity awards

(585)

(1,123)

Purchase of treasury stock

 

(195,999)

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

(391,565)

 

178,960

Increase (decrease) in cash and cash equivalents

 

11,449

(162,350)

Cash and cash equivalents at beginning of period

 

102,984

258,421

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

114,433

$

96,071

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Non-cash investing and financing activities:

Acquisition of property and equipment

$

73

$

18,234

Derecognition of right of use assets

$

(35,062)

$

Derecognition of operating lease liabilities

$

35,062

$

Cash paid during the period for:

Interest, net of capitalized amounts

$

66,131

$

60,197

Income taxes

$

2,902

$

217

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Condensed Consolidated Financial Statements

Basis of Presentation

The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and, its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”) and, its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) and its charter service subsidiary SkyWest Charter, LLC (“SWC”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company formed SWC in 2022, with the intent to offer on-demand charter service and public charter service to underserved communities in the United States. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022. Due in part to the uncertain rate of recovery from the global COVID-19 pandemic and workforce shortages, in addition to other factors, the results of operations for the three and six months ended June 30, 2022,2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions.

(2) Flying Agreements Revenue and Lease, Airport Services and Other Revenues

The Company recognizes revenue under its flying agreements revenue and lease, airport services and other revenuesservice agreements when the service is provided under the applicable agreement. The Company recognizes revenue under its lease agreements ratably over the applicable lease term. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”)purchase” agreements) with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For both the six months ended June 30, 20222023 and 2021,2022, capacity purchase agreements represented approximately 88.3% and 85.0% of the Company’s flying agreements revenue, respectively.revenue.

Under the Company’s prorate arrangements (also referred to as a “prorate” or “revenue-sharing” agreement)agreements), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company anticipatesdetermines that it will receive for each completed flight. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. For the six months ended June 30, 2022 and 2021, prorate flying agreements represented approximately 11.7% and 15.0% of the Company’s flying agreements revenue, respectively.

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completed flight over the agreement term. Certain routes under the Company’s prorate arrangements are subsidized by the U.S. Department of Transportation under the Essential Air Service (“EAS”) program, a program created to ensure small communities in the United States maintain a minimum level of scheduled air service. The EAS contracts are generally two years in duration and the Company recognizes EAS revenue on a per-completed-flight basis pursuant to the terms of each contract. For both the six months ended June 30, 2023 and 2022, prorate flying agreements represented approximately 11.7% of the Company’s flying agreements revenue.

The following table represents the Company’s flying agreements revenue by type for the three and six months ended June 30, 20222023 and 20212022 (in thousands):

For the three months ended June 30,

For the six months ended June 30,

For the three months ended June 30,

For the six months ended June 30,

    

2022

    

2021

2022

    

2021

    

2023

    

2022

2023

    

2022

Capacity purchase agreements revenue: flight operations

$

387,456

$

273,176

$

735,930

$

484,228

Capacity purchase agreements revenue: aircraft lease and fixed revenue

 

291,585

 

256,559

 

572,004

 

488,050

Capacity purchase agreements flight operations revenue (non-lease component)

$

499,142

$

549,539

$

968,058

$

1,054,347

Capacity purchase agreements fixed aircraft lease revenue

74,042

129,502

148,522

253,587

Capacity purchase agreements variable aircraft lease revenue

 

44,984

 

 

88,089

 

Prorate agreements revenue

 

94,733

 

103,232

 

173,903

 

171,880

 

82,226

 

94,733

 

159,563

 

173,903

Flying agreements revenue

$

773,774

$

632,967

$

1,481,837

$

1,144,158

$

700,394

$

773,774

$

1,364,232

$

1,481,837

The Company allocates the total consideration received under its capacity purchase agreements between lease and non-lease components based on stand-alone selling prices. A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs. The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract. The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is reflectedaccounted for as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income.income (loss). During the three months ended December 31, 2022, the Company amended certain of its capacity purchase agreements resulting in a portion of the Company’s aircraft lease revenue becoming variable beginning in the fourth quarter of 2022. Additionally, as a result of these capacity purchase agreement amendments executed in 2022, during the six months ended June 30, 2023, the Company deferred recognizing lease revenue on $40.0 million of the allocated fixed monthly lease payments received during the six months ended June 30, 2023, under the straight-line method. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income since(loss) because the use of the aircraft is not a separate activity of the total service provided.provided under the capacity purchase agreements.

UnderA portion of the Company’s compensation under its capacity purchase agreements relates to operating the Company is paid a fixed amount per month per aircraft, overidentified as the contract term. non-lease component of the capacity purchase agreement. The Company recognizes revenue attributed to the non-lease component received as fixed-fees for each departure, flight hour or block hour on an as-completed basis for each reporting period. The Company recognizes revenue attributed to the non-lease component 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 the Company anticipates completing over the remaining contract term. Due to the lower number of block hours completed during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft exceeded the revenue recognized based on block hours completed. Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements beginning in 2020. Based on the number of completed block hours duringDuring the six months ended June 30, 2022,2023, the Company recognizeddeferred $77.4 million of fixed monthly payments under certain agreements and decreased unbilled revenue by $6.0 million under certain other agreements, compared to recognizing $17.6 million of previously deferred revenue and $9.3 million of unbilled revenue compared to deferring revenue of $26.8 million during the six months ended June 30, 2021. 2022.

The Company’s total deferred revenue balance was $86.3 million as of June 30, 2022,2023 was $262.1 million, including $20.8$7.3 million in other current liabilities and $65.5 million in other long-term liabilities. The Company’s deferred revenue balance was $103.9 million as of December 31, 2021, including $24.5 million in other current liabilities and $79.4$254.8 million in other long-term liabilities. The Company’s unbilled revenue balance was $17.7$13.9 million as of June 30, 2022,2023, including $7.2 million in other current assets and $8.4$6.7 million as of December 31, 2021, and was included in other long-term assets. The Company’s deferred revenue balance was $144.7 million as of December 31, 2022, including $5.2 million in other current liabilities and $139.5 million in other long-term liabilities. The Company’s unbilled revenue balance will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining contract term.

The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.

As of June 30, 2022, the Company had 521 aircraft in scheduled service or under contract under code-share agreements. The following table summarizes the significant provisions of each code-share agreement SkyWest Airlines has with each major airline partner:

was

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$19.9 million as of December 31, 2022, including $9.9 million in other current assets and $10.0 million in other long-term assets.

The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.

As of June 30, 2023, the Company had 492 aircraft in scheduled service or under contract pursuant to code-share agreements. The following table summarizes the significant provisions of each code-share agreement the Company has with each major airline partner through SkyWest Airlines:

United Express Agreements

Agreement

    

Aircraft type

    

Number of
Aircraft

    

Term / Termination Dates

United Express Agreements

(Capacitycapacity purchase agreement)

E175

CRJ 700

CRJ 200

90

19

70

Individual aircraft have scheduled removal dates from 2024 to 2029

United Express Prorate Agreement

(Prorateprorate agreement)

CRJ 200

4119*

Terminable with 120-day120-days’ notice

Total under United Express Agreements

220198

Delta Connection Agreements

Agreement

    

Aircraft type

    

Number of
Aircraft

    

Term / Termination Dates

Delta Connection Agreement

(Capacitycapacity purchase agreement)

E175

CRJ 900

CRJ 700

CRJ 200

7383

4435

5

9

Individual aircraft have scheduled removal dates from 20222023 to 20322033

Delta Connection Prorate Agreement

(Prorateprorate agreement)

CRJ 900

CRJ 700

CRJ 200

206*

1*

17*

Terminable with 30-day30-days’ notice

Total under Delta Connection Agreements

151147

American Capacity Purchase Agreement

Agreement

    

Aircraft type

    

Number of
Aircraft

    

Term / Termination Dates

American Agreement

(Capacitycapacity purchase agreement)

E175

CRJ 700

1820

9085

Individual aircraft have scheduled removal dates from 20222024 to 2032

Total under American AgreementsAgreement

108105

Alaska Capacity Purchase Agreement

Agreement

    

Aircraft type

    

Number of
Aircraft

    

Term / Termination Dates

Alaska Agreement

(Capacitycapacity purchase agreement)

E175

42

Individual aircraft have scheduled removal dates from 2030 to 2034

*The Company’s prorate agreements are based on specific routes, not a specific aircraft count. The number of aircraft listed above for each prorate agreement approximates the number of aircraft the Company uses to serve the prorate routes.

In addition to the contractual arrangements described above, as of June 30, 2022, SkyWest Airlines has a capacity purchase agreement with American to place 2 Embraer E175 dual-class regional jet aircraft (“E175”) into service. The delivery dates for the 2 new E175 aircraft are currently scheduled for the third quarter of 2022. SkyWest Airlines also has an agreement with American to place 11 used Canadair CRJ700 regional jet aircraft (“CRJ700”) under a multi-year capacity purchase agreement in 2023.

SkyWest Airlines has a capacity purchase agreement with Alaska to place an additional E175 aircraft into service. The delivery date for the new E175 aircraft is currently scheduled for the first half of 2023.

2023, SkyWest Airlines has a capacity purchase agreement with Delta to place 14a total of three additional E175 regional jet aircraft (“E175”) from Embraer, S.A. (“Embraer”) into service, with delivery dates currently scheduled in 2023 and 2024. SkyWest Airlines also has a capacity purchase agreement with Alaska to place one additional E175 aircraft into service. Theservice with a delivery dates for the 14 new E175 aircraft aredate currently scheduled for the second half of 2022.

2025. Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors.

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When an aircraft is scheduled to be removed from a capacity purchase arrangement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the lessor if the aircraft is leased and the lease is expiring, place owned aircraft for sale or pursue other uses for the aircraft. Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or parting out thedisassembling aircraft to usecomponents such as the engines and parts to be used as spare inventory or to lease the engines to a third party.

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Lease, airport services and other revenues primarily consistsconsist of revenue generated from aircraft and spare engines leased to third parties and airport customer services, such as gate and ramp agent services at applicable airports where the Company has agreements with third parties. The following table represents the Company’s lease, airport services and other revenues for the three and six months ended June 30, 20222023 and 20212022 (in thousands):

For the three months ended June 30,

For the six months ended June 30,

    

2022

    

2021

2022

    

2021

Operating lease revenue

$

16,450

$

16,458

$

33,005

$

31,408

Airport customer service and other revenue

8,861

7,565

19,395

15,979

Lease, airport services and other

$

25,311

$

24,023

$

52,400

$

47,387

For the three months ended June 30,

For the six months ended June 30,

    

2023

    

2022

2023

    

2022

    

Operating lease revenue

$

16,791

$

16,450

$

33,351

$

33,005

Airport customer service and other revenue

8,458

8,861

19,891

19,395

Lease, airport services and other

$

25,249

$

25,311

$

53,242

$

52,400

 

The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of June 30, 20222023 (in thousands):

July 2022 through December 2022

    

$

23,754

2023

 

47,084

July 2023 through December 2023

    

$

22,880

2024

 

45,053

 

45,553

2025

 

40,083

 

40,583

2026

 

34,516

 

35,017

2027

 

34,995

Thereafter

 

120,636

 

86,297

$

311,126

Total future minimum rental income under operating leases

$

265,325

Of the Company’s $5.6$5.5 billion of net property and equipment net as of June 30, 2022, $240.12023, $211.8 million of regional jet aircraft and spare engines waswere leased to third parties under operating leases. The Company’s mitigation strategy for the residual asset risks of these assets includes leasing aircraft and engine types that can be operated by the Company in the event of a default. Additionally, the operating leases typically have specified lease return condition requirements paid by the lessee to the Company and the Company typically maintains inspection rights under the leases.

The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term.

The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and settlement of reimbursement disputes with the Company’s major airline partners.

Other ancillary revenues commonly associated with airlines, such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits, are retained by the Company’s major airline partners on flights that the Company operates under its code-share agreements.

Allowance for credit losses

The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of June 30, 2022,2023, the Company had gross receivables of $97.0$123.1 million in current assets and gross receivables of $234.4$201.7 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or notes receivable. During the six months ended June 30, 2022, there were no significant changes in2023, the outstanding accounts receivable or notes receivable or the credit ratings of the entities. The Company’s credit loss reserve was $40.4 million at June 30, 2022, compared to $42.0 million at December 31, 2021. The $1.6 million decrease in the credit loss reserve for the six months ended June 30, 2022, was reflected as a decrease to the credit loss expense.Company

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wrote-off a $3.6 million receivable that was fully reserved as of December 31, 2022. There were no other significant changes in the outstanding accounts receivable, notes receivable or credit ratings of the entities.

The following table summarizes the changes in allowance for credit losses:

    

Allowance for Credit Losses

Balance at December 31, 2022

$

37,385

Adjustments to credit loss reserves

 

2,086

Write-offs charged against allowance

 

(3,570)

Balance at June 30, 2023

$

35,901

(3) Stock-Based Compensation

During the six months ended June 30, 2022,2023, the Company granted 66,680125,780 restricted stock units and 221,942391,810 performance shares to certain employees of the Company under the SkyWest, Inc. 2019 Long-Term Incentive Plan. Both the restricted stock units and performance shares have a three-year vesting period, during which the recipient must remain employed with the Company. The number of performance shares awardable from the 20222023 grants can range from 0% to 250% of the original amount granted depending on the Company’s performance over 3three one-year measurement periods against the pre-established targets. Upon vesting, each restricted stock unit and performance share will be replaced with 1one share of common stock. The weighted average fair value of these restricted stock units and performance shares on their date of grant was $32.86$18.65 per share. During the six months ended June 30, 2022,2023, the Company did not grant any options to purchase shares of common stock to employees. Additionally, during the six months ended June 30, 2022,2023, the Company granted 24,42337,534 fully vested shares of common stock to the Company’s directors at a grant date fair value of $32.86.$18.65.

The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur. The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods. Stock-based compensation expense for the performance shares is based on the Company’s anticipated outcome of achieving the performance metrics. During the six months ended June 30, 20222023 and 2021,2022, the Company recorded pre-tax stock-based compensation expense of $8.6 million and $7.4 million, respectively.

(4) Stock Repurchase

The Company’s Board of Directors has adopted stock repurchase programs in both February 2019 and $5.5May 2023, which authorize the Company to repurchase shares of the Company’s common stock in the public market or in private transactions, from time to time, at prevailing prices. The Company’s February 2019 stock repurchase program authorized the repurchase of up to $250.0 million respectively.of the Company’s common stock. In May 2023, the Company’s Board of Directors authorized the repurchase of up to $250.0 million of the Company’s common stock, superseding the February 2019 authorization. At June 30, 2023, $185.9 million remains available under the May 2023 authorization.

During the six months ended June 30, 2023, the Company repurchased 8.4 million shares of common stock for $194.1 million at a weighted average price per share of $23.10. The Company also recorded $1.9 million of excise tax related to the stock repurchases as Treasury Stock in the Company’s Stockholders Equity for the six months ended June 30, 2023. The Company did not have any stock repurchases during the six months ended June 30, 2022.

(4)(5) Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share.

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Securities that could potentially dilute Basic EPS in the future, and which were excluded from the calculation of Diluted EPS because inclusion of such share would be anti-dilutive, are as follows (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

2022

2021

 

2022

2021

PSP1 and Treasury Loan Warrants (1)

582

291

PSP2 Warrants (2)

125

125

PSP3 Warrants (3)

78

78

78

39

Restricted Stock Units

65

32

Total antidilutive securities

 

850

 

78

 

526

 

39

Three Months Ended

Six Months Ended

June 30,

June 30,

2023

2022

 

2023

2022

PSP1 and Treasury Loan Warrants (1)

582

582

291

PSP2 Warrants (2)

125

125

125

125

PSP3 Warrants (3)

78

78

78

78

Employee Stock Awards

65

676

32

Total antidilutive securities

 

203

 

850

 

1,461

 

526

(1)Pursuant to the payroll support program established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“PSP1”) and Loan and Guarantee Agreement with the U.S. Department of the Treasury (“U.S. Treasury”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $28.38 per share.
(2)Pursuant to the payroll support program established under the Consolidated Appropriations Act, 2021 (the “2021 Appropriations Act”) (“PSP2”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $40.41 per share.
(3)Pursuant to the payroll support program established under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) (“PSP3”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $57.47 per share.

Additionally, during the six months ended June 30, 2023 and 2022, 538,000 and 350,000 performance shares (at target performance) were excluded from the computation of Diluted EPS sincebecause the Company had not achieved the minimum target thresholds as of June 30, 2022. Duringfor the three and six months ended June 30, 2021, 295,000 performance shares (at target performance)

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were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of June 30, 2021.2023 and 2022, respectively.

The calculation of the weighted average number of shares of common stock outstanding for Basic EPS and Diluted EPS are as follows for the periods indicated (in thousands, except per share data) is as follows::

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

June 30,

June 30,

June 30,

June 30,

2022

2021

 

2022

2021

2023

2022

 

2023

2022

Numerator:

    

    

    

    

    

    

    

    

    

    

    

    

    

    

Net income

$

53,951

$

61,994

$

71,685

$

97,894

Net income (loss)

$

15,419

$

53,951

$

(6,652)

$

71,685

Denominator:

Basic earnings per share weighted average shares

 

50,522

 

50,346

 

50,501

 

50,316

 

43,837

 

50,522

 

46,614

 

50,501

Dilutive effect of employee stock awards and warrants

 

44

 

379

 

136

 

411

 

382

 

44

 

 

136

Diluted earnings per share weighted average shares

 

50,566

 

50,725

 

50,637

 

50,727

 

44,219

 

50,566

 

46,614

 

50,637

Basic earnings per share

$

1.07

$

1.23

$

1.42

$

1.95

Diluted earnings per share

$

1.07

$

1.22

$

1.42

$

1.93

Basic earnings (loss) per share

$

0.35

$

1.07

$

(0.14)

$

1.42

Diluted earnings (loss) per share

$

0.35

$

1.07

$

(0.14)

$

1.42

(5)(6) Segment Reporting

The Company’s 2two reporting segments consist of the operations of (1) SkyWest Airlines and SWC (collectively, “SkyWest Airlines and SWC”) and (2) SkyWest Leasing activities.

The Company’s chief operating decision maker analyzes the profitability of operating new aircraft financed through the issuance of debt, including the Company’s E175 fleet, separately from the profitability of the Company’s capital deployed for ownership and financing of such aircraft. The SkyWest Airlines and SWC segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft. The SkyWest Leasing segment also includes the activity of leasing regional jet aircraft and spare engines to third parties. The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties.

The following represents the Company’s segment data for the three-month periods ended June 30, 2022 and 2021 (in thousands):

Three months ended June 30, 2022

SkyWest

SkyWest

    

Airlines

    

Leasing

    

Consolidated

Operating revenues (1)

$

664,203

$

134,882

$

799,085

Operating expense

 

636,245

 

74,238

 

710,483

Depreciation and amortization expense

 

44,982

 

52,267

 

97,249

Interest expense

 

2,650

 

27,783

 

30,433

Segment profit (2)

 

25,308

 

32,861

 

58,169

Total assets (as of June 30, 2022)

 

3,011,236

 

4,325,411

 

7,336,647

Capital expenditures (including non-cash)

 

20,010

 

181,168

 

201,178

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Three months ended June 30, 2021

SkyWest

SkyWest

    

Airlines

    

Leasing

    

Consolidated

Operating revenues (1)

$

527,595

$

129,395

$

656,990

Operating expense

 

477,188

 

64,779

 

541,967

Depreciation and amortization expense

 

53,151

 

56,744

 

109,895

Interest expense

 

6,219

 

27,721

 

33,940

Segment profit (2)

 

44,188

 

36,895

 

81,083

Total assets (as of June 30, 2021)

 

3,089,404

 

3,902,359

 

6,991,763

Capital expenditures (including non-cash)

 

21,822

 

4,617

 

26,439

earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs and revenue and operating expenses attributed to charter flight services. The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft. The SkyWest Leasing segment also includes the activity of leasing regional jet aircraft and spare engines to third parties and other activities. The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties. Additionally, aircraft removed from SkyWest Airlines’ operations and held for sale are included in the SkyWest Leasing segment.

The following represents the Company’s segment data for the three-month periods ended June 30, 2023 and 2022 (in thousands):

Three months ended June 30, 2023

SkyWest Airlines

SkyWest

    

and SWC

    

Leasing

    

Consolidated

Operating revenues (1)

$

586,476

$

139,167

$

725,643

Operating expense

 

624,490

 

69,293

 

693,783

Depreciation and amortization expense

 

37,966

 

59,203

 

97,169

Interest expense

 

4,695

 

29,023

 

33,718

Segment profit (loss) (2)

 

(42,709)

 

40,851

 

(1,858)

Total assets (as of June 30, 2023)

 

2,570,050

 

4,545,724

 

7,115,774

Capital expenditures (including non-cash)

 

25,609

 

410

 

26,019

Three months ended June 30, 2022

SkyWest Airlines

SkyWest

    

and SWC

    

Leasing

    

Consolidated

Operating revenues (1)

$

664,203

$

134,882

$

799,085

Operating expense

 

636,245

 

74,238

 

710,483

Depreciation and amortization expense

 

44,982

 

52,267

 

97,249

Interest expense

 

2,650

 

27,783

 

30,433

Segment profit (2)

 

25,308

 

32,861

 

58,169

Total assets (as of June 30, 2022)

 

3,011,236

 

4,325,411

 

7,336,647

Capital expenditures (including non-cash)

 

20,010

 

181,168

 

201,178

(1)Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines and SWC segment.
(2)Segment profit (loss) is equal to operating income less interest expense.

The following represents the Company’s segment data for the six-month periods ended June 30, 20222023 and 20212022 (in thousands):

Six months ended June 30, 2022

Six months ended June 30, 2023

SkyWest

SkyWest

SkyWest Airlines

SkyWest

    

Airlines

    

Leasing

    

Consolidated

    

and SWC

    

Leasing

    

Consolidated

Operating revenues (1)

$

1,267,252

$

266,985

$

1,534,237

$

1,154,649

$

262,825

$

1,417,474

Operating expense

 

1,257,273

 

136,314

 

1,393,587

 

1,257,882

 

132,436

 

1,390,318

Depreciation and amortization expense

 

92,676

 

107,318

 

199,994

 

76,224

 

115,094

 

191,318

Interest expense

 

4,439

 

54,586

 

59,025

 

8,757

 

58,581

 

67,338

Segment profit (2)

 

5,540

 

76,085

 

81,625

Total assets (as of June 30, 2022)

 

3,011,236

 

4,325,411

 

7,336,647

Segment profit (loss) (2)

 

(111,990)

 

71,808

 

(40,182)

Total assets (as of June 30, 2023)

 

2,570,050

 

4,545,724

 

7,115,774

Capital expenditures (including non-cash)

 

52,706

 

276,057

 

328,763

 

46,720

 

87,220

 

133,940

Six months ended June 30, 2021

SkyWest

SkyWest

    

Airlines

    

Leasing

    

Consolidated

Operating revenues (1)

$

934,045

$

257,500

$

1,191,545

Operating expense

 

865,058

 

130,622

 

995,680

Depreciation and amortization expense

 

103,477

 

116,015

 

219,492

Interest expense

 

9,348

 

55,946

 

65,294

Segment profit (2)

 

59,639

 

70,932

 

130,571

Total assets (as of June 30, 2021)

 

3,089,404

3,902,359

 

6,991,763

Capital expenditures (including non-cash)

 

57,028

26,919

 

83,947

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Six months ended June 30, 2022

SkyWest Airlines

SkyWest

    

and SWC

    

Leasing

    

Consolidated

Operating revenues (1)

$

1,267,252

$

266,985

$

1,534,237

Operating expense

 

1,257,273

 

136,314

 

1,393,587

Depreciation and amortization expense

 

92,676

 

107,318

 

199,994

Interest expense

 

4,439

 

54,586

 

59,025

Segment profit (2)

 

5,540

 

76,085

 

81,625

Total assets (as of June 30, 2022)

 

3,011,236

4,325,411

 

7,336,647

Capital expenditures (including non-cash)

 

52,706

276,057

 

328,763

(1)Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines and SWC segment.
(2)Segment profit (loss) is equal to operating income less interest expense.

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Table of Contents

(6) Assets Held for Sale

During the three months ended June 30, 2022, the Company committed to a formal plan to sell 4 CRJ-700 aircraft. The aircraft are expected to be disposed of via sale within the next 12 months. Accordingly, the Company determined the aircraft met the criteria to be classified as assets held for sale. The Company presented the $13.5 million of assets held for sale at the lower of their current carrying value or their fair market value less costs to sell and included the amount in “Other current assets” on the Company’s consolidated balance sheet. The fair values are based upon observable and unobservable inputs, including market trends and conditions. The assumptions used to determine the fair value of the assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes which the Company will continue to monitor in future periods as new information becomes available. Prior to the ultimate sale of the assets, subsequent changes in the estimate of the fair value of the assets held for sale will be recorded as a gain or loss with a corresponding adjustment to the assets’ carrying value. In connection with the classification of these assets as held for sale, the Company recorded an impairment loss of $15.2 million, which is included in “Other operating expenses” on the Company’s consolidated statements of comprehensive income and in the SkyWest Leasing segment.

(7) Leases, Commitments, Guarantees and Contingencies

The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Aircraft

During the six months ended June 30, 2023, the Company acquired 32 CRJ aircraft under an early lease buyout arrangement with the lessor for $125.5 million. As of June 30, 2022,2023, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company was the lessee on 43leased 11 aircraft under long-term lease agreements with remaining terms ranging from two yearsone year to eightseven years.

Airport facilities

The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the various airports. The remaining lease terms for facility space vary from one month to 3433 years. The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance.

Leases

As of June 30, 2022,2023, the Company’s right-of-use assets were $207.8$92.8 million, the Company’s current maturities of operating lease liabilities were $75.6$18.7 million, and the Company’s noncurrent lease liabilities were $134.6$73.9 million. During the six months ended June 30, 2022,2023, the Company paid $35.0$17.9 million inunder operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of June 30, 2022.2023:

As of June 30, 2022

Weighted-average remaining lease term for operating leases

6.39.7 years

Weighted-average discount rate for operating leases

6.0%6.1%

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The Company’s lease costs for the three and six months ended June 30, 20222023 and 20212022 included the following components (in thousands):

For the three months ended June 30,

For the six months ended June 30,

    

2022

    

2021

    

2022

    

2021

Operating lease cost

$

21,822

$

22,085

$

43,663

$

44,211

Variable and short-term lease cost

 

805

 

1,056

 

1,822

 

2,280

Sublease income

(1,845)

(1,493)

(3,648)

(2,829)

Total lease cost

$

20,782

$

21,648

 

$

41,837

$

43,662

For the three months ended June 30,

For the six months ended June 30,

    

2023

    

2022

    

2023

    

2022

Operating lease cost

$

7,857

$

21,822

$

32,805

$

43,663

Variable and short-term lease cost

 

534

 

805

 

1,337

 

1,822

Sublease income

(1,351)

(1,845)

(2,701)

(3,648)

Total lease cost

$

7,040

$

20,782

 

$

31,441

$

41,837

As of June 30, 2022,2023, the Company leased aircraft, airport facilities, office space and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. The Company expects that, in the normal course of business, such operating leases that expire may be renewed or replaced by other leases, or the property may be purchased rather than leased. The following table summarizes future minimum rental payments primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of June 30, 20222023 (in thousands):

July 2022 through December 2022

    

$

45,893

2023

 

76,189

2024

 

32,796

2025

 

17,570

2026

 

15,491

Thereafter

 

72,850

$

260,789

July 2023 through December 2023

    

$

9,846

2024

 

22,266

2025

 

17,188

2026

 

13,509

2027

 

12,316

Thereafter

 

54,344

Total future minimum operating lease payments

$

129,469

As of June 30, 2022,2023, the Company had a firm purchase commitment for 17four E175 aircraft from Embraer S.A. (“Embraer”) with anticipated delivery dates through the first half of 2023.2025.

The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands):

    

Total

    

Jul - Dec 2022

    

2023

    

2024

    

2025

    

2026

    

Thereafter

    

Total

    

Jul - Dec 2023

    

2024

    

2025

    

2026

    

2027

    

Thereafter

Operating lease payments for aircraft and facility obligations

$

260,789

$

45,893

$

76,189

$

32,796

$

17,570

$

15,491

$

72,850

$

129,469

$

9,846

$

22,266

$

17,188

$

13,509

$

12,316

$

54,344

Firm aircraft and spare engine commitments

 

471,924

425,905

46,019

 

127,337

72,670

26,896

27,771

Interest commitments (1)

 

496,915

62,331

111,522

93,886

75,297

57,720

96,159

 

515,372

64,590

115,322

95,225

75,663

54,039

110,533

Principal maturities on long-term debt

 

3,320,191

219,437

436,307

432,701

500,677

455,898

1,275,171

 

3,212,622

223,985

444,898

529,506

507,629

461,083

1,045,521

Total commitments and obligations

$

4,549,819

$

753,566

$

670,037

$

559,383

$

593,544

$

529,109

$

1,444,180

$

3,984,800

$

371,091

$

609,382

$

669,690

$

596,801

$

527,438

$

1,210,398

(1)At June 30, 2022,2023, the Company’s long-term debt had fixed interest rates.

Guarantees

During the three months ended June 30,In 2022, the Company agreed to guarantee $17.0$19.8 million of debt for a 14 CFR Part 135 air carrier. The debt is secured by the Part 135 air carrier’s aircraft and engines and has a five-year term. The purpose of the arrangement is to increase the potential number of commercial pilots in the Company’s hiring pipeline. In exchange for providing the guarantee, the Company received 6.5% of the guaranteed amount as consideration, payable in common stock of the Part 135 air carrier, which will be recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income over the term of the guarantee. The Company also recorded the estimated credit loss associated with the guarantee in “Other long-term liabilities” on the Company’s consolidated balance sheet based on publicly

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consolidated balance sheet based on publicly available historical default rates issued by a third party for companies with similar credit ratings, factoring the collateral and guarantee term.

(8) Fair Value Measurements

The Company holds certain assets that are required to be measured at fair value in accordance with GAAP. The Company determined the fair value of these assets based on the following three levels of inputs:

Level 1

Quoted prices in active markets for identical assets or liabilities.

Level 2

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions.

As of June 30, 2022,2023, and December 31, 2021,2022, the Company held certain assets that are required to be measured at fair value on a recurring basis. The Company’s assets measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements as of June 30, 2022

Fair Value Measurements as of June 30, 2023

    

Total

    

Level 1

    

Level 2

    

Level 3

    

Total

    

Level 1

    

Level 2

    

Level 3

Marketable Securities

Bonds and bond funds

$

484,794

$

$

484,794

$

$

525,707

$

$

525,707

$

Commercial paper

 

393,814

 

 

393,814

 

 

222,209

 

 

222,209

 

$

878,608

$

$

878,608

$

$

747,916

$

$

747,916

$

Investments in Other Companies

19,524

6,200

13,324

29,251

10,480

18,771

Cash and Cash Equivalents

96,071

96,071

114,433

114,433

Total Assets Measured at Fair Value

$

994,203

$

102,271

$

878,608

$

13,324

$

891,600

$

124,913

$

747,916

$

18,771

Fair Value Measurements as of December 31, 2021

Fair Value Measurements as of December 31, 2022

Total

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Marketable Securities

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

Bonds and bond funds

$

54,673

$

$

54,673

$

$

624,254

$

$

624,254

$

Commercial paper

 

547,316

 

 

547,316

 

 

319,977

 

 

319,977

 

$

601,989

$

$

601,989

$

$

944,231

$

$

944,231

$

Investments in Other Companies

21,380

7,200

 

 

14,180

Cash and Cash Equivalents

258,421

258,421

102,984

102,984

Total Assets Measured at Fair Value

$

860,410

$

258,421

$

601,989

$

$

1,068,595

$

110,184

$

944,231

$

14,180

The Company’s “marketable securities” classified as Level 2 securities primarily utilize broker quotes in a non-active market for valuation of these securities. See Note 10 “Investment“Investments in Other Companies” regarding the Company’s investment in other companies, duringfor the threesix months ended June 30, 2022.2023.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the six months ended June 30, 2022.2023. The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

As of June 30, 2022,2023, and December 31, 2021,2022, the Company classified $878.6$747.9 million and $602.0$944.2 million of marketable securities, respectively, as short-term sincebecause it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year. As of June 30, 2022,2023, and December 31, 2021,2022, the cost of the Company’s total cash and cash equivalents and marketable securities was $977.2$749.0 million and $860.4$949.3 million, respectively.

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As of June 30, 2023, the Company had $56.7 million in held-for-sale assets included in “Other current assets” on the Company’s consolidated balance sheet related to 14 CRJ700 aircraft. The fair values were based upon observable and unobservable inputs, including a third-party valuation, market trends and conditions of the airframes and engines, considered Level 3 within the fair value hierarchy. The assumptions used to determine the fair value of the assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes, which the Company will continue to monitor in future periods as new information becomes available. The Company did not record a gain or loss associated with its assets held for sale during the six months ended June 30, 2023.

(9) Long-term Debt

Long-term debt consisted of the following as of June 30, 2022,2023, and December 31, 20212022 (in thousands):

June 30, 2022

December 31, 2021

June 30, 2023

December 31, 2022

Current portion of long-term debt

$

428,798

$

395,371

$

445,946

$

442,360

Current portion of unamortized debt issue cost, net

(3,800)

(3,573)

(3,791)

(3,858)

Current portion of long-term debt, net of debt issue costs

$

424,998

$

391,798

$

442,155

$

438,502

Long-term debt, net of current maturities

$

2,891,393

$

2,745,567

$

2,766,676

$

2,966,951

Long-term portion of unamortized debt issue cost, net

(26,910)

(28,147)

(22,872)

(25,179)

Long-term debt, net of current maturities and debt issue costs

$

2,864,483

$

2,717,420

$

2,743,804

$

2,941,772

Total long-term debt (including current portion)

$

3,320,191

$

3,140,938

$

3,212,622

$

3,409,311

Total unamortized debt issue cost, net

(30,710)

(31,720)

(26,663)

(29,037)

Total long-term debt, net of debt issue costs

$

3,289,481

$

3,109,218

$

3,185,959

$

3,380,274

As of June 30, 2023, the Company had $3.2 billion of total long-term debt, which consisted of $3.0 billion of debt used to finance aircraft and spare engines and $200.6 million of unsecured debt payable to U.S. Treasury. The average effective interest rate on the Company’s debt was approximately 4.1% at June 30, 2023.

During the six months ended June 30, 2022,2023, the Company took delivery of 12 new E175 aircraft that the Company financed through $248.9 million of long-term debt. executed a promissory note for $25.0 million. The debt associated with the E175 aircraftpromissory note has an eight-year5-year to 12-year terms, term, is due in monthly or quarterly installments, has a fixed annual interest rate of 5.6% and is secured by the E175 aircraft.spare engines.

During the six months endedAs of June 30, 2023 and December 31, 2022, the Company executed promissory notes for $127.9 million. The promissory notes have three- to four-year terms, are due in monthly installments with fixed annual interest rates of 3.6% to 4.7%had $59.6 million and are secured by spare engines.

As of both June 30, 2022, and December 31, 2021, the Company had $61.4$59.2 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

As of June 30, 2022,2023, SkyWest Airlines had a $100$100.0 million line of credit with an expiration date of March 25, 2025.credit. The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets. As of June 30, 2022,2023, SkyWest Airlines had 0 amountno amounts outstanding under the facility. However, at June 30, 2022,2023, SkyWest Airlines had $31.4$29.9 million in letters of credit issued under the facility, which reduced the amount available under the facility to $68.6$70.1 million. The line of credit expires March 25, 2025 and has a variable interest rate of 3.5% plus the one month SOFR rate.

The Company’s debt agreements are not traded on an active market and are recorded at carrying value on the Company’s consolidated balance sheet. The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt. Debt is primarily classified as Level 2 within the fair value hierarchy. The carrying value and fair value of the Company’s long-term debt as of June 30, 20222023 and December 31, 2022, were as follows (in thousands):

June 30, 2022

December 31, 2021

Carrying value

$

3,320,191

$

3,140,938

Fair value

$

3,205,455

$

3,132,072

(10) Investment in Other Companies

June 30, 2023

December 31, 2022

Carrying value

$

3,212,622

$

3,409,311

Fair value

$

3,103,757

$

3,264,704

During 2019, the Company created a joint venture with Regional One, Inc. (“Regional One”) by investing $22.3 million for a 75% ownership interest in Aero Engines, LLC. (“Aero Engines”). The Company invested an additional $1.0 million into Aero Engines in 2020 and $3.3 million during the first quarter of 2022 and retained a 75% ownership interest. The primary purpose of Aero Engines is to lease engines to third parties. Aero Engines requires unanimous approval from the Company and Regional One for its engine purchases, dispositions, lease agreements with third parties and all other material transactions. The Company determined Aero Engines is a variable interest entity as the Company has a 75% ownership interest in Aero Engines and all material decisions require unanimous approval from the Company and Regional One, resulting in disproportionate ownership rights relative to voting rights. As unanimous approval is

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required(10) Investments in Other Companies

Equity Method Investment

During 2019, the Company created a joint venture with Regional One, Inc. and, as of June 30, 2023, has invested a total of $26.6 million for all Aero Engines’ material activities.an ownership interest in Aero Engines, has noLLC. (“Aero Engines”). The primary beneficiary.purpose of Aero Engines is to lease engines to third parties. The Company accounts for its investment in Aero Engines under the equity method. The Company’s exposure in its investment in Aero Engines primarily consists of the Company’s portion of income or loss from Aero Engines’ engine lease agreements with third parties and the Company’s ownership percentage in Aero Engines’ engines book value. Aero Engines had 0no debt outstanding as of June 30, 2022.2023. As of June 30, 2022,2023, the Company’s investment balance in Aero Engines was $24.3 million. The Company’s investment in Aero Engines$24.9 million and has been recorded in “Other Assets” on the Company’s consolidated balance sheet. The Company’s portion of earningsloss generated by Aero Engines for the six months ended June 30, 2022,2023, was $0.8$0.1 million, which is recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income.

Fair Value Method Investments

In 2021, the Company entered into a strategic partnership with Eve UAM, LLC (“Eve UAM”), to develop a network of deployment for Eve UAM’s electric vertical takeoff and landing (“eVTOL”) aircraft. The Company signed a non-binding letter of intent to purchase 100 eVTOL(eVTOL) aircraft.

During the quarter ended June 30,In 2022, the Company acquired 1,000,000 Class Ashares of common sharesstock of Eve Holding, Inc. (“Eve”) and a warrant giving the Company the right to acquire 1,500,000 Class Ashares of common sharesstock of Eve at an exercise price of $0.01 per share. The Company also received a put option from an Eve shareholder for the 1,000,000 Class A shares of common stock of Eve payable in aircraft parts credits. The intent of the put option reducesis to reduce the Company’s investment risk in Eve. The warrant expires in May 2032, and the put option expires in December 2031. The Company acquired the shares of common shares,stock, warrant and put option (collectively the “Eve Investments”) for $10.0 million. The Company evaluated the Eve Investments under ASCAccounting Standard Codification (“ASC”) Topic 321, – Investments“Investments – Equity SecuritiesSecurities” and ASC Topic 815, – Derivatives“Derivatives and Hedging, and recorded the Eve Investments based on their pro rata share of the consideration paid using the fair value of the Eve Investments on the acquisition date, with subsequent changes in the fair value reported in earnings. The shares of common sharesstock of Eve are classified as Level 1 within the fair value hierarchy as Eve stock is actively traded on the New York Stock Exchange, and the value is determined using quoted market prices for the equity security. The warrant and put option are classified as Level 3 within the fair value hierarchy, and the Company used the Black Scholes Option Pricing Model to determine the estimated fair market value of the warrant and put option, including an expected volatility of 49%50%, which is a significant unobservable input that was derived from historical volatility of comparable companies.

The table below shows the reconciliation of the Level 3 warrant and put option Eve Investments (in thousands):

Balance at March 31, 2022

    

$

Purchases

 

6,551

Unrealized gains

 

6,773

Balance at June 30, 2022

$

13,324

Level 3 Investments:

Balance at December 31, 2022

    

$

14,180

Purchases

 

Unrealized gains

 

4,591

Balance at June 30, 2023

$

18,771

The Company recognized an unrealized gaingains of $9.5$7.9 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the six months ended June 30, 2022,2023, related to the Eve Investments. As of June 30, 2022,2023, the fair value of the Eve Investments was $19.5$29.3 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

(11) Income Taxes

The Company’s effective tax rate for the threesix months ended June 30, 20222023 was 25.8%21.6%. The Company’s effective tax rate for the threesix months ended June 30, 20222023 varied from the federal statutory rate of 21.0% primarily due to the impact of non-deductible expenses and a discrete tax expense on employee equity transactions that occurred during the six months ended June 30, 2023, partially offset by the provision for state income taxes and the impacttaxes.

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Table of non-deductible expenses.Contents

The Company’s effective tax rate for the six months ended June 30, 2022 was 26.5%. The Company’s effective tax rate for the six months ended June 30, 2022 varied from the federal statutory rate of 21.0% primarily due to the provision for state income taxes, the impact of non-deductible expenses and a discrete tax expense on employee equity transactions that occurred during the six months ended June 30, 2022.

The Company’s effective tax rate for the three and six months ended June 30, 2021 was 23.8% and 25.5%, respectively. The Company’s effective tax rate for the three and six months ended June 30, 2021 varied from the federal statutory rate of 21.0% primarily due to the provision for state income taxes and the impact of non-deductible expenses.

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(12) Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities. As of June 30, 2022,2023, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations.

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ITEM 2:MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“SkyWest” “we” or “us”) during the three- and six-month periods ended June 30, 20222023 and 2021.2022. Also discussed is our financial condition as of June 30, 2022,2023, and December 31, 2021.2022. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and six months ended June 30, 2022,2023, including the notes thereto, appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” for discussion of uncertainties, risks and assumptions associated with these statements.

Cautionary Statement Concerning Forward-Looking Statements

Certain of the statements contained in this Report should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “hope,” “likely,” and “continue” and similar terms used in connection with statements regarding our outlook, anticipated operations, the revenue environment, our contractual relationships, and our anticipated financial performance. These statements include, but are not limited to, statements regardingabout the continued demand for our product, the impact of the COVID-19 pandemic, economic conditions and the captain shortage on ourSkyWest’s business, financial condition and results of operations, and financial conditionthe scheduled aircraft deliveries for SkyWest in upcoming periods and the impactrelated execution of any measures, including travel restrictions, takenSkyWest’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 mitigateoptimize the effectdelivery of aircraft under previously announced agreements, the pandemic, our future growthexpected terms, timing and developmentbenefits related to SkyWest’s leasing and joint venture transactions, SkyWest’s plans including ourto operate public charter service to underserved communities in the United States and the expected timing thereof, as well as SkyWest’s future financial and operating results, our plans, objectives, expectations, estimates, intentions and intentionsoutlook, and other statements that are not historical facts. Readers should keepAll forward-looking statements included in mind that all forward-looking statementsthis Report are made as of the date hereof and are based on our existing beliefs about presentinformation 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 future events outsidefinancial results of our controlSkyWest and on assumptions that may provecould cause actual results to be incorrect. If one or more risks identifiedvary materially from those expressed in forward-looking statements set forth in this Report materializes,Report. These factors include, but are not limited to, uncertainty regarding the COVID-19 pandemic and other potential future outbreaks of infectious diseases or any other underlying assumption proves incorrect,health concerns, and the consequences of such outbreaks to the travel industry and our actualmajor partners in general and the financial condition and operating results of SkyWest in particular, the prospects of entering into agreements with existing or other carriers to fly new aircraft, ongoing negotiations between SkyWest and its major partners regarding their contractual obligations, uncertainties regarding operation of new aircraft, the ability to attract and retain qualified pilots, including captains, and related staffing challenges, the impact of regulatory issues such as pilot rest rules and qualification requirements, and the ability to obtain aircraft financing.

Actual operational and financial results of SkyWest will likely also vary, and may vary materially, from those anticipated, estimated, projected or intendedexpected for a number of other reasons, including, but not limited to: the uncertainty of the duration, scope and impact of COVID-19; a further spread or worsening of COVID-19 or other potential future outbreaks of infectious diseases or other health concerns; the consequences of the COVID-19 pandemicin addition to global economic conditions, the travel industry and our major airline partners in general and our financial condition and results of operations in particular;those identified above: the challenges of competing successfully in a highly competitive and rapidly changing industry; developments associated with fluctuations in the economy and the demand for air travel, including as a result ofrelated to the COVID-19 pandemic, inflationary pressures, and due to inflationary pressures;related decreases in customer demand and spending; the financial stability of United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “majorSkyWest’s major airline partner”)partners and any potential impact of their financial condition on our operations;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; realizationestimated useful life of manufacturer residual value guarantees on applicable SkyWest aircraft;long-lived assets, residual aircraft values and related impairment charges; labor relations and costs and labor shortages; the impact of global instability, including the ongoing military conflict between Russia and the Ukraine; labor relations and costs; potential fluctuations ininstability; rapidly fluctuating fuel costs and potential fuel shortages; the impact of weather-related or other natural disasters on air travel and airline costs; new aircraft deliveries; uncertainty regarding ongoing hostility between Russia and the ability to attractUkraine and retain qualified pilots,the related impacts on macroeconomic conditions and on the international operations of any of our major airline partners as a result of such conflict; the existing global COVID-19 pandemic and the outbreak of any other disease or similar public health threat that affects travel demand or travel behavior; as well as

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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, 2021,2022, under the heading “Risk Factors” in Part II, Item 1A of this Report, elsewhere in this Report, in our other filings with the Securities and Exchange Commission (the “SEC”) and other unanticipated factors.

There may be other factors that may affect matters discussed in forward-looking statements set forth in this Report, which factors may also cause actual results to differ materially from those discussed. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that we have filed with the SEC may

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be further amplified by the global impact of the COVID-19 pandemic. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by applicable law.

Overview

We have the largest regional airline operation in the United States through our operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”). As of June 30, 2022,2023, we offered scheduled passenger and air freight service with approximately 2,2001,930 total daily departures to destinations in the United States, Canada and Mexico. Our fleet of Embraer E175 regional jet aircraft (“E175”), Canadair CRJ900 regional jet aircraft (“CRJ900”) and Canadair CRJ700 regional jet aircraft (“CRJ700”) have a multiple-class seat configuration, whereas our Canadair CRJ200 regional jet aircraft (“CRJ200”) aircraft have a single-class seat configuration. As of June 30, 2022,2023, we had 638616 total aircraft in our fleet, including 521492 aircraft in scheduled service or under contract under our code-share agreements, summarized as follows:

    

E175

    

CRJ900

    

CRJ700

    

CRJ200

    

Total

    

E175

    

CRJ900

    

CRJ700

    

CRJ200

    

Total

United

 

90

19

111

220

 

90

19

89

198

Delta

73

44

5

29

151

83

41

6

17

147

American

 

18

90

108

 

20

85

105

Alaska

 

42

42

 

42

42

Aircraft in scheduled service or under contract

223

44

114

140

521

235

41

110

106

492

SWC

9

9

Leased to third parties

 

5

35

40

 

5

35

40

Other*

 

18

59

77

 

3

22

50

75

Total Fleet

 

223

49

167

199

638

 

235

49

167

165

616

* As of June 30, 2022, other aircraft included: supplemental spare aircraft supporting our code-share agreements that may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, aircraft held-for-sale, or aircraft that are scheduled to be disassembled for use as spare parts.

*As of June 30, 2023, other aircraft included: supplemental spare aircraft supporting our code-share agreements that may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, aircraft held-for-sale or aircraft that are scheduled to be disassembled for use as spare parts.

Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements, typically in the form of capacity purchase agreements or prorate 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 dependentcentered on our ability to meet the needs of our major airline partners by providing a reliable and safe operation at attractive economics. From June 30, 2021,2022, to June 30, 2022,2023, we made several changes to our fleet count under our flying agreements, primarily consisting ofincluding the addition of 3013 new E175 aircraft and 10 used CRJ700 aircraft.

We anticipate our fleet will continue to evolve, as we are scheduled to add two new E175 aircraft with American in the third quartera total of 2022, 14three new E175 aircraft with Delta by the end of 2022,in 2023 and 2024 and one new E175 aircraft with Alaska by the first halfin 2025. Timing of 2023. We also anticipate adding 11 used CRJ700 aircraft with American by the end of 2023. Anticipated delivery and in-service datesthese anticipated deliveries may be subject to change as we are coordinating timing with our major airline partners.partners in response to labor availability or other factors. Our primary objective in the fleet changes is to improve our profitability by adding new E175 aircraft and used CRJ aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require higher maintenance costs.

As of June 30, 2022,2023, approximately 42.2%40.3% of our aircraft in scheduled service or under contract were operated for United, approximately 29.0%29.9% were operated for Delta, approximately 20.7%21.3% were operated for American and approximately 8.1%8.5% 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”)purchase” agreements) and revenue-sharing arrangements (referred to as “prorate” agreements). For the six months ended June 30, 2022,2023, capacity purchase revenue and prorate revenue represented approximately 88.3% and 11.7%, respectively, of our total flying agreements revenue. On contractcapacity 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

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number of aircraft under contract and other operating measures. On prorate routes, we have more control over scheduling, pricing and seat inventories, and we share passenger fares with our major airline partners according to prorate formulas. Our prorate revenue and profitability may fluctuate based on ticket prices and passenger loads, and we are responsible for the operating costs of the prorate flights, including fuel and airport costs.

Second Quarter Summary

We had total operating revenues of $725.6 million for the three months ended June 30, 2023, a 9.2% decrease compared to total operating revenues of $799.1 million for the three months ended June 30, 2022, a 21.6% increase compared to total operating revenues2022. We had net income of $657.0$15.4 million, or $0.35 per diluted share, for the three months ended June 30, 2021. We had2023, compared to net income of $54.0 million, or $1.07 per diluted share, for the three months ended June 30, 2022, compared to net income of $62.0 million, or $1.22 per diluted share, for the three months ended June 30, 2021.2022. The significant items affecting our revenue and operating expenses during the three months ended June 30, 2022,2023, are outlined below:

Revenue

The number of aircraft we have in scheduled service or under contract pursuant to our code-share agreements and the number of block hours we incur on our flights are primary drivers of our flying agreements revenue under our capacity purchase agreements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers of our revenue under our prorate flying agreements. As a result of higher passenger demand, theThe number of aircraft we operated increasedhave in scheduled service or under contract under code-share agreements decreased from 478 as of June 30, 2021 to 521 as of June 30, 2022;2022 to 492 as of June 30, 2023; and the number of block hours increaseddecreased from 324,045 for the three months ended June 30, 2021 to 334,753 for the three months ended June 30, 2022 or by 3.3%; and the number of passengers we carried increased from 9.3 millionto 282,617 for the three months ended June 30, 20212023, or by 15.6%, due to 11.1a reduction in scheduled daily utilization of our aircraft primarily caused by pilot availability constraints.

Our capacity purchase revenue decreased $60.9 million, foror 9.0%, from the three months ended June 30, 2022 or by 19.6%.

As a result of additional aircraft operating under our capacity purchase agreements forto the three months ended June 30, 2022,2023, primarily as compareda result of a reduction in completed block hours for the comparable periods and amendments to three months endedcertain capacity purchase agreements since June 30, 2021, our capacity purchase2022 that resulted in deferring the recognition of revenue increased $149.3 million, or 28.2%. Additionally,on fixed monthly payments we provided temporary rate reductions to our major airline partners under our capacity purchase agreementsreceived during the three months ended June 30, 2021, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. We did not provide our major airline partners temporary rate reductions during the three months ended June 30, 2022.2023. As a result of fewer aircraft operatingdepartures under our prorate agreements and fewer passengers carried on our prorate routes, our prorate revenue decreased $8.5$12.5 million, or 8.2%13.2%, for the three months ended June 30, 2022,2023, as compared to the three months ended June 30, 2021.2022.

Operating Expenses

Our total operating expenses increased $168.5decreased $16.7 million, or 31.1%2.4%, for the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021.2022. The increasedecrease in operating expenses was primarily due to $114.1 milliondecreases in payroll support program grants received from U.S. Treasury reflectedoperating costs as a result of lower production, offset by an offset to operating expensesincrease in salaries, wages and benefits for the three months ended June 30, 2021 and an increase in the number of flights we operated for the three months ended June 30, 2022, as2023, compared to the three months ended June 30, 2021.2022. Departures increaseddecreased from 185,498 for the three months ended June 30, 2021 to 199,678 for the three months ended June 30, 2022 to 173,837 for the three months ended June 30, 2023, or by 7.6%12.9%. 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

    

June 30, 2022

    

December 31, 2021

    

June 30, 2021

E175s

 

223

 

211

 

193

CRJ900s

 

44

 

44

 

40

CRJ700s

 

114

 

114

 

104

CRJ200s

 

140

 

140

 

141

Total

 

521

 

509

 

478

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Aircraft in Service or Under Contract

    

June 30, 2023

    

December 31, 2022

    

June 30, 2022

E175s

 

235

 

236

 

223

CRJ900s

 

41

 

41

 

44

CRJ700s

 

110

 

104

 

114

CRJ200s

 

106

 

136

 

140

Total

 

492

 

517

 

521

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, 20212022, 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, 2021.2022. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, long-lived assets, and income tax. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates. There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2022.2023.

Results of Operations

Three Months Ended June 30, 20222023 and 20212022

Operational Statistics

The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increasedecrease in block hours, departures and passengers carried during the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021,2022, was primarily due to additional E175 aircraft operating under our capacity purchase agreements andlabor constraints, including the continued demand recovery from reduced flight schedules in 2021 resulting fromnumber of available captains during the COVID-19 pandemic.three months ended June 30, 2023, compared to the three months ended June 30, 2022.

For the three months ended June 30,

For the three months ended June 30,

Block hours by aircraft type:

    

2022

    

2021

    

% Change

    

2023

    

2022

    

% Change

E175s

 

165,224

149,226

10.7

%

 

168,416

165,224

1.9

%

CRJ900s

27,479

29,713

(7.5)

%

19,698

27,479

(28.3)

%

CRJ700s

72,120

73,380

(1.7)

%

50,094

72,120

(30.5)

%

CRJ200s

 

69,930

71,726

(2.5)

%

 

44,409

69,930

(36.5)

%

Total block hours

334,753

324,045

3.3

%

282,617

334,753

(15.6)

%

 

 

 

 

Departures

 

199,678

185,498

7.6

%

 

173,837

199,678

(12.9)

%

Passengers carried

 

11,124,468

9,301,873

19.6

%

 

9,887,779

11,124,468

(11.1)

%

Passenger load factor

 

86.0

%  

76.4

%  

9.6

pts

 

85.5

%  

86.0

%  

(0.5)

pts

Average passenger trip length (miles)

 

491

533

(7.9)

%

 

451

491

(8.1)

%

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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 June 30,

For the three months ended June 30,

    

2022

    

2021

    

$ Change

    

% Change

    

2023

    

2022

    

$ Change

    

% Change

Flying agreements

$

773,774

$

632,967

$

140,807

22.2

%

$

700,394

$

773,774

$

(73,380)

(9.5)

%

Lease, airport services and other

 

25,311

 

24,023

 

1,288

5.4

%

 

25,249

 

25,311

 

(62)

(0.2)

%

Total operating revenues

$

799,085

$

656,990

$

142,095

 

21.6

%

$

725,643

$

799,085

$

(73,442)

 

(9.2)

%

Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties, separate from our capacity purchase agreements, and providing airport counter, gate and ramp services.

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We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):

For the three months ended June 30,

For the three months ended June 30,

    

2022

    

2021

    

$ Change

    

% Change

    

2023

    

2022

    

$ Change

    

% Change

Capacity purchase agreements revenue: flight operations

 

$

387,456

 

$

273,176

 

$

114,280

 

41.8

%

Capacity purchase agreements revenue: aircraft lease and fixed revenue

291,585

256,559

35,026

13.7

%

Capacity purchase agreements flight operations revenue

 

$

499,142

 

$

549,539

 

$

(50,397)

 

(9.2)

%

Capacity purchase agreements aircraft lease revenue

119,026

129,502

(10,476)

(8.1)

%

Prorate agreements revenue

 

94,733

 

103,232

 

(8,499)

 

(8.2)

%

 

82,226

 

94,733

 

(12,507)

 

(13.2)

%

Flying agreements revenue

 

$

773,774

 

$

632,967

 

$

140,807

 

22.2

%

 

$

700,394

 

$

773,774

 

$

(73,380)

 

(9.5)

%

The increasedecrease in “Capacity purchase agreements revenue: flight operations” of $114.3$50.4 million, or 9.2%, was primarily due to an increase in the number of aircraft we operateddeferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements with our major airline partners duringfor the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021. From June 30, 2021, to June 30, 2022, we added 53 aircraft under capacity purchase agreements. Our completed departures increased 7.6% and completed block hours increased 3.3% during the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Additionally, we provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the three months ended June 30, 2021, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021. We did not provide our major airline partners temporary rate reductions during the three months ended June 30, 2022.

The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $35.0 million was primarily due to recognizing previously deferred revenue and unbilled revenue during the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Based on the number of completed block hours during the three months ended June 30, 2022,2023, we recognized $10.1deferred recognizing $40.7 million of previously deferred revenue, and $5.6 millionnet of unbilled revenue, onrelated to fixed monthly payments we received associated with our capacity purchase agreements.flight operations revenues. For the three months ended June 30, 2021,2022, we deferred recognizing revenue on $5.6recognized $15.7 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly cash payments we received underassociated with our capacity purchase agreements. Our deferredflight operations revenues. The timing of our revenue and unbilled revenuerecognition related to the fixed payments associated with our flight operations will adjustbe adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement. Additionally, the decrease in “Capacity purchase agreements revenue: flight operations” was also attributed to a decrease in block hour production during the three months ended June 30, 2023, compared to the three months ended June 30, 2022, which was largely offset by block hour rate increases in certain capacity purchase agreements since June 30, 2022.

The decrease in “Capacity purchase agreements aircraft lease revenue” of $10.5 million, or 8.1%, was primarily due to an increase in deferred revenue for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, offset by lease revenue from the 13 additional E175 aircraft placed under contract since June 30, 2022. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, we deferred recognizing lease revenue on $19.5 million of the allocated fixed monthly lease payments received during the three months ended June 30, 2023, under the straight-line method.

The deferred revenue balance applicable to each contract will be recorded as revenue byover the endterm of each respective contract term.contract. Our total deferred revenue andbalance, net of unbilled revenue, balances were $86.3 million and $17.7was $248.2 million as of June 30, 2022, respectively. Additionally, our aircraft lease and fixed rate revenue increased as a result2023.

26

Table of the 30 E175 aircraft added to our fleet since June 30, 2021.Contents

The decrease in prorate agreements revenue of $8.5$12.5 million, or 13.2%, was primarily due to the decrease in prorate aircraftpassengers and passenger revenue we received on routes we operated under our prorate agreements during the three months ended June 30, 2022, compared to the three months ended June 30, 2021.agreements. Due to labor constraints, including the number of available captains, we operated fewer aircraft under our prorate agreements during the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021.2022.

The increasedecrease in lease, airport services and other revenues of $1.3$0.1 million, or 0.2%, was primarily due to an increasedecrease in airport service revenue due to the increasedriven by a decrease in the number of flights operated at locations where we were contracted to provide airport customer service during the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021.2022.

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Operating Expenses

Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):

For the three months ended June 30,

For the three months ended June 30,

2022

2021

$ Change

% Change

2023

2022

$ Change

% Change

Salaries, wages and benefits

$

288,562

$

233,423

$

55,139

23.6

%  

$

322,441

$

288,562

$

33,879

11.7

%  

Aircraft maintenance, materials and repairs

 

174,883

 

190,879

 

(15,996)

 

(8.4)

%  

 

162,491

 

174,883

 

(12,392)

 

(7.1)

%  

Depreciation and amortization

 

97,249

 

109,895

 

(12,646)

 

(11.5)

%  

 

97,169

 

97,249

 

(80)

 

(0.1)

%  

Aircraft fuel

 

31,820

 

25,867

 

5,953

 

23.0

%  

 

18,279

 

31,820

 

(13,541)

 

(42.6)

%  

Airport-related expenses

 

17,490

 

22,038

 

(4,548)

 

(20.6)

%  

 

16,955

 

17,490

 

(535)

 

(3.1)

%  

Aircraft rentals

 

16,024

 

15,723

 

301

 

1.9

%  

 

2,428

 

16,024

 

(13,596)

 

(84.8)

%  

Payroll support grant

(114,144)

114,144

(100.0)

%  

Other operating expenses

 

84,455

 

58,286

 

26,169

 

44.9

%  

 

74,020

 

84,455

 

(10,435)

 

(12.4)

%  

Total operating expenses

$

710,483

$

541,967

$

168,516

 

31.1

%  

$

693,783

$

710,483

$

(16,700)

 

(2.4)

%  

Interest expense

 

30,433

 

33,940

 

(3,507)

 

(10.3)

%  

Total airline expenses

$

740,916

$

575,907

$

165,009

 

28.7

%  

Salaries, wages and benefits. The $55.1$33.9 million, or 23.6%11.7%, increase in salaries, wages and benefits was due to increased costs to retain aviation professionals and increased direct labor costs resulting from thean increase in employee compensation, including higher number of flights we operated duringpilot pay scales, for the three months ended June 30, 2022,2023, compared to the three months ended June 30, 20212022.

Aircraft maintenance, materials and repairs. The $16.0$12.4 million, or 8.4%7.1%, decrease in aircraft maintenance expense was primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets, including engine maintenance expense, throughout the 2021 year, includinglower production for the three months ended June 30, 2021.2023, compared to the three months ended June 30, 2022.

Depreciation and amortization. The $12.6$0.1 million, or 11.5%0.1%, decrease in depreciation and amortization expense was primarily due to certain CRJ200CRJ aircraft and engines that became fullywere depreciated to their estimated residual value since June 30, 2021.2022. This reduction in depreciation on our CRJ200CRJ fleet was partially offset by an increase in depreciation expense due to the acquisition of 3013 new E175 aircraft and spare engines since June 30, 2021.2022.

Aircraft fuel. The $6.0$13.5 million, or 23.0%42.6%, increasedecrease in fuel cost was primarily due to an increase in our average fuel cost per gallon from $2.36 for the three months ended June 30, 2021, to $4.67 for the three months ended June 30, 2022, offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased.purchased, combined with a decrease in our average fuel cost per gallon from $4.67 for the three months ended June 30, 2022, to $3.30 for the three months ended June 30, 2023. We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated:

For the three months ended June 30,

(in thousands)

    

2022

    

2021

    

% Change

Fuel gallons purchased

6,816

10,982

(37.9)

%

Fuel expense

$

31,820

$

25,867

 

23.0

%

For the three months ended June 30,

(in thousands)

    

2023

    

2022

    

% Change

Fuel gallons purchased

5,538

6,816

(18.8)

%

Fuel expense

$

18,279

$

31,820

 

(42.6)

%

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 the customer service labor costs we outsource to third parties are included in airport-related expenses. The $4.5$0.5 million, or 20.6%3.1%, decrease in airport-related expenses for the three months ended June 30, 2022,

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2023, compared to the three months ended June 30, 2021,2022, was primarily due to a decrease in subcontracted airport services and deicing eventslanding fees as a result of a decrease in the number of flights we operated under our prorate arrangements.

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Aircraft rentals. The $0.3$13.6 million, or 1.9%84.8%, increasedecrease in aircraft rentals was primarily duerelated to an increasea decrease in engines weour leased aircraft since June 30, 2021.

Payroll support grant.In April 2021, we entered into an agreement with U.S. Treasury and received $250.0 million in emergency relief through the American Rescue Plan Act payroll support program, of which $205.0 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. We recognized $114.1 million in payroll support grant proceeds we received as a reduction to our operating expenses for the three months ended June 30, 2021. We did not have2022 as a comparable payroll support grant during the three months ended June 30, 2022.result of our March 2023 acquisition of 24 CRJ700 aircraft and eight CRJ200 aircraft under an early lease buyout.

Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs and credit loss reserves.costs. The $26.2$10.4 million, or 44.9%12.4%, increase in other operating expensesdecrease was primarily related to an impairment charge of $15.2 million to write down assets held for sale at June 30, 2022, as well as an increasea decrease in other operating costs that correspond toas a result of the higherlower number of flights we operated during the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021,2022, such as crew per diem and crew hotel costscosts.

Summary of interest expense, interest income, other income, net and simulator costs.provision for income taxes

Interest Expense. The $3.5$3.3 million, or 10.3%10.8%, decreaseincrease in interest expense was primarily related to an overall lower effectivehigher interest rate duringrates on debt issued since June 30, 2022.

Interest income. Interest income increased $7.9 million, from $2.6 million for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

Total airline expenses.Our total airline expenses, comprised of our total operating expenses and interest expense, increased $165.0$10.5 million or 28.7%, primarily due the payroll support program grant reflected as an offset to operating expenses for the three months ended June 30, 2021 and an increase in direct operating costs attributed to the higher number of completed flights during the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

As our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and as revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense, we believe our total airline expense is a meaningful expense measure for management discussion and analysis purposes.

Summary of interest income, other income (expense) and provision for income taxes:

Interest income. Interest income increased $2.3 million, or 1,118.6%, during the three months ended June 30, 2022, compared to the three months ended June 30, 2021.2023. The increase in interest income was primarily related to an increase in our average investment in marketable securities for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and an increase in average interest rates attributed to our marketable securities subsequent to June 30, 2021.for the same comparable periods.

Other income, (expense), net. Other income, increased $11.9net decreased $3.0 million during the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021. The increase2022. Other income, net primarily consists of the unrealized gains on our investments in other income was primarily a result of an increase in the fair market value of our equity investments andcompanies, income related to our investment in a joint venture with a third party.party and gains or losses on the sale of assets. The decrease in other income, net was primarily a result of a decrease in unrealized gains on our investments in other companies for the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Provision for income taxes. For the three months ended June 30, 20222023 and 2021,2022, our effective income tax rates were 25.8%12.6% and 23.8%25.8%, respectively, which includeincluded 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 decrease in the effective tax rate primarily related to lower pre-tax income for the three months ended June 30, 2023, compared to the three months ended June 30, 2022 and the impact of increases in non-deductible expenses and a benefit related to a change in estimate of the projected full year effective tax rate from the prior quarterfor the three months ended June 30, 2023, compared the three months ended June 30, 2022.

Net income. Primarily due to the factors described above, we generated net income of $15.4 million, or $0.35 per diluted share, for the three months ended June 30, 2023, compared to net income of $54.0 million, or $1.07 per diluted share, for the three months ended June 30, 2022, compared to net income of $62.0 million, or $1.22 per diluted share, for the three months ended June 30, 2021.2022.

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Six Months Ended June 30, 20222023 and 20212022

Operational Statistics

The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increasedecrease in block hours, departures and passengers carried during the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021,2022, was primarily due to additional aircraft operating under our capacity purchase agreements andlabor constraints, including a smaller number of available captains during the continued demand recovery from reduced flight schedules in 2021 resulting fromsix months ended June 30, 2023, compared to the COVID-19 pandemic.six months ended June 30, 2022.

For the six months ended June 30,

Block hours by aircraft type:

    

2022

    

2021

    

% Change

E175s

 

311,401

277,724

12.1

%

CRJ900s

53,334

53,719

(0.7)

%

CRJ700s

139,998

136,475

2.6

%

CRJ200s

 

141,013

132,309

6.6

%

Total block hours

645,746

600,227

7.6

%

 

 

Departures

 

375,889

340,392

10.4

%

Passengers carried

 

19,911,835

15,010,462

32.7

%

Passenger load factor

 

82.1

%  

67.6

%  

14.5

pts

Average passenger trip length (miles)

 

503

536

(6.2)

%

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For the six months ended June 30,

Block hours by aircraft type:

    

2023

    

2022

    

% Change

E175s

 

329,167

311,401

5.7

%

CRJ900s

40,411

53,334

(24.2)

%

CRJ700s

102,122

139,998

(27.1)

%

CRJ200s

 

87,159

141,013

(38.2)

%

Total block hours

558,859

645,746

(13.5)

%

 

 

Departures

 

334,460

375,889

(11.0)

%

Passengers carried

 

18,463,649

19,911,835

(7.3)

%

Passenger load factor

 

83.0

%  

82.1

%  

0.9

pts

Average passenger trip length (miles)

 

461

503

(8.3)

%

Operating Revenues

The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):

For the six months ended June 30,

For the six months ended June 30,

    

2022

    

2021

    

$ Change

    

% Change

    

2023

    

2022

    

$ Change

    

% Change

Flying agreements

$

1,481,837

$

1,144,158

$

337,679

29.5

%

$

1,364,232

$

1,481,837

$

(117,605)

(7.9)

%

Lease, airport services and other

 

52,400

 

47,387

 

5,013

10.6

%

 

53,242

 

52,400

 

842

1.6

%

Total operating revenues

$

1,534,237

$

1,191,545

$

342,692

 

28.8

%

$

1,417,474

$

1,534,237

$

(116,763)

 

(7.6)

%

Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp services.

We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):

For the six months ended June 30,

For the six months ended June 30,

2022

2021

$ Change

% Change

2023

2022

$ Change

% Change

Capacity purchase agreements revenue: flight operations

    

$

735,930

    

$

484,228

    

$

251,702

    

52.0

%

Capacity purchase agreements revenue: aircraft lease and fixed revenue

 

572,004

 

488,050

 

83,954

 

17.2

%

Capacity purchase agreements flight operations revenue

    

$

968,058

    

$

1,054,347

    

$

(86,289)

    

(8.2)

%

Capacity purchase agreements aircraft lease revenue

 

236,611

 

253,587

 

(16,976)

 

(6.7)

%

Prorate agreements revenue

 

173,903

171,880

2,023

 

1.2

%

 

159,563

173,903

(14,340)

 

(8.2)

%

Flying agreements revenue

$

1,481,837

$

1,144,158

$

337,679

 

29.5

%

$

1,364,232

$

1,481,837

$

(117,605)

 

(7.9)

%

The increasedecrease in “Capacity purchase agreements revenue: flight operations” of $251.7$86.3 million, or 8.2%, was primarily due to an increase in the number of aircraft we operateddeferred revenue related to fixed monthly payments for flight operations received under our contracts with our major airline partners duringcapacity purchase agreements for the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021. From June 30, 2021, to June 30, 2022, we added 53 aircraft under capacity purchase agreements. Our completed departures increased 10.4% and completed block hours increased 7.6% during the six months ended June 30, 2022, compared to the six months ended June 30, 2021. Additionally, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021, we provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the

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six months ended June 30, 2021. We did not provide our major airline partners temporary rate reductions during the six months ended June 30, 2022.

The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $84.0 million was primarily due to recognizing previously deferred revenue and unbilled revenue during the six months ended June 30, 2022, compared to the six months ended June 30, 2021. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Based on the number of completed block hours during the six months ended June 30, 2022,2023, we recognized $17.6deferred recognizing $83.4 million of previously deferred revenue, and $9.3 millionnet of unbilled revenue, onrelated to fixed monthly payments we received associated with our capacity purchase agreements.flight operations revenues. For the six months ended June 30, 2021,2022, we deferred recognizing revenue on $26.8recognized $26.9 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly cash payments we received underassociated with our capacity purchase agreements. Our deferredflight operations revenues. The timing of our revenue and unbilled revenuerecognition related to the fixed payments associated with our flight operations will adjustbe adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement. Additionally, the decrease in “Capacity purchase agreements revenue: flight operations” was also attributed to a decrease in block hour production during the six months ended June 30, 2023, compared to the six months ended June 30, 2022, which was largely offset by block hour rate increases in certain capacity purchase agreements since June 30, 2022.

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The decrease in “Capacity purchase agreements aircraft lease revenue” of $17.0 million, or 6.7%, was primarily due to an increase in deferred revenue for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, offset by lease revenue from the 13 additional E175 aircraft placed under contract since June 30, 2022. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, we deferred recognizing lease revenue on $40.0 million of the allocated fixed monthly lease payments received during the six months ended June 30, 2023, under the straight-line method.

The deferred revenue balance applicable to each contract will be recorded as revenue byover the endterm of each respective contract term.contract. Our total deferred revenue andbalance, net of unbilled revenue, balances were $86.3 million and $17.7was $248.2 million as of June 30, 2022, respectively. Additionally, our aircraft lease and fixed rate revenue increased as a result of the 30 E175 aircraft added to our fleet since June 30, 2021.2023.

The increasedecrease in prorate agreements revenue of $2.0$14.3 million, or 8.2%, was primarily due to the increasedecrease in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements, offset by a decrease inagreements. Due to labor constraints, including the number of aircraftavailable captains, we operated fewer aircraft under our prorate agreements during the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021. Due to the ongoing COVID-19 demand recovery, our prorate passenger load factors increased during the six months ended June 30, 2022, compared to the six months ended June 30, 2021, despite operating fewer prorate flights for the six months ended June 30, 2022.

The increase in lease, airport services and other revenues of $5.0$0.8 million, or 1.6%, was primarily due to an increase in airport service revenue due to thedriven by an increase in the number of flights operated at locations where we were contracted to provide airport customer service during the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021.2022.

Operating Expenses

Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):

For the six months ended June 30,

For the six months ended June 30,

2022

2021

$ Change

% Change

2023

2022

$ Change

% Change

Salaries, wages and benefits

$

588,620

$

453,265

$

135,355

29.9

%  

$

657,642

$

588,620

$

69,022

11.7

%  

Aircraft maintenance, materials and repairs

 

323,296

 

394,706

 

(71,410)

 

(18.1)

%  

 

304,717

 

323,296

 

(18,579)

 

(5.7)

%  

Depreciation and amortization

 

199,994

 

219,492

 

(19,498)

 

(8.9)

%  

 

191,318

 

199,994

 

(8,676)

 

(4.3)

%  

Aircraft fuel

 

56,910

 

45,061

 

11,849

 

26.3

%  

 

39,243

 

56,910

 

(17,667)

 

(31.0)

%  

Airport-related expenses

 

36,695

 

46,486

 

(9,791)

 

(21.1)

%  

 

35,250

 

36,695

 

(1,445)

 

(3.9)

%  

Aircraft rentals

 

32,020

 

31,213

 

807

 

2.6

%  

 

21,956

 

32,020

 

(10,064)

 

(31.4)

%  

Payroll support grant

(307,317)

307,317

(100.0)

%  

Other operating expenses

 

156,052

 

112,774

 

43,278

 

38.4

%  

 

140,192

 

156,052

 

(15,860)

 

(10.2)

%  

Total operating expenses

$

1,393,587

$

995,680

$

397,907

 

40.0

%  

$

1,390,318

$

1,393,587

$

(3,269)

 

(0.2)

%  

Interest expense

 

59,025

 

65,294

 

(6,269)

 

(9.6)

%  

Total airline expenses

$

1,452,612

$

1,060,974

$

391,638

 

36.9

%  

Salaries, wages and benefits. The $135.4$69.0 million, or 29.9%11.7%, increase in salaries, wages and benefits was due to increased costs to retain aviation professionals and increased direct labor costs resulting from thean increase in employee compensation, including higher number of flights we operated duringpilot pay scales, for the six months ended June 30, 2022,2023, compared to the six months ended June 30, 20212022.

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Aircraft maintenance, materials and repairs. The $71.4$18.6 million, or 18.1%5.7%, decrease in aircraft maintenance expense was primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets, such as engine maintenance expense, throughout the 2021 year, includinglower production for the six months ended June 30, 2021.2023, compared to the six months ended June 30, 2022.

Depreciation and amortization. The $19.5$8.7 million, or 8.9%4.3%, decrease in depreciation and amortization expense was primarily due to certain CRJ200CRJ aircraft and engines that became fullywere depreciated to their estimated residual value since June 30, 2021.2022. This reduction in depreciation on our CRJ200CRJ fleet was partially offset by an increase in depreciation expense due to the acquisition of 3013 new E175 aircraft and spare engines since June 30, 2021.2022.

Aircraft fuel. The $11.8$17.7 million, or 26.3%31.0%, increasedecrease in fuel cost was primarily due to an increase in our average fuel cost per gallon from $2.25 for the six months ended June 30, 2021, to $4.01 for the six months ended June 30, 2022, offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased.purchased, combined with a decrease in our average fuel cost per gallon from $4.01 for the six months ended June 30, 2022, to $3.65 for the six months ended June 30, 2023. We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our

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major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated:

For the six months ended June 30,

For the six months ended June 30,

(in thousands)

    

2022

    

2021

    

% Change

    

2023

    

2022

    

% Change

Fuel gallons purchased

14,196

19,992

(29.0)

%

10,766

14,196

(24.2)

%

Fuel expense

$

56,910

$

45,061

 

26.3

%

$

39,243

$

56,910

 

(31.0)

%

Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. The $9.8$1.4 million, or 21.1%3.9%, decrease in airport-related expenses for the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021,2022, was primarily due to a decrease in subcontracted airport services and deicing eventslanding fees as a result of a decrease in the number of flights we operated under our prorate arrangements.

Aircraft rentals. The $0.8$10.1 million, or 2.6%31.4%, increasedecrease in aircraft rentals was primarily duerelated to an increasea decrease in engines weour leased aircraft since June 30, 2021.

Payroll support grant.In January 2021, we entered into an agreement with U.S. Treasury and received $233.1 million in emergency relief through the 2021 Appropriations Act payroll support program, of which $193.2 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. In April 2021, we entered into an agreement with U.S. Treasury and received $250.0 million in emergency relief through the American Rescue Plan Act payroll support program, of which $205.0 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. We recognized $307.3 million in payroll support grant proceeds we received as a reduction to our operating expenses for the six months ended June 30, 2021. We did not have a comparable payroll support grant during the six months ended June 30, 2022. In March 2023, we acquired 24 CRJ700 aircraft and eight CRJ200 aircraft under an early lease buyout for $125.5 million, of which $86.9 million was capitalized as fixed assets and $38.6 million was applied towards previously recorded lease liabilities.

Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs and credit loss reserves.costs. The $43.3$15.9 million, or 38.4%10.2%, decrease was primarily related to an increasea decrease in other operating costs that correspond toas a result of the higherlower number of flights we operated during the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021,2022, such as crew per diem and crew hotel costscosts.

Summary of interest expense, interest income, other income, net and simulator costs, as well as an impairment charge of $15.2 million to write down assets heldprovision for sale at June 30, 2022.income taxes

Interest Expense. The $6.3$8.3 million, or 9.6%14.1%, decreaseincrease in interest expense was primarily related to an overall lower effectivehigher interest rate duringrates on debt issued since June 30, 2022.

Interest income. Interest income increased $17.5 million, from $3.0 million for the six months ended June 30, 2022, compared to $20.5 million for the six months ended June 30, 2021.

Total airline expenses.Our total airline expenses, comprised of our total operating expenses and interest expense, increased $391.6 million, or 36.9%, during the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily due the payroll support program grant reflected as an offset to operating expenses for the

29

Table of Contents

six months ended June 30, 2021 and an increase in direct operating costs attributed to the higher number of completed flights.

Summary of interest income, other income (expense) and provision for income taxes:

Interest income. Interest income increased $2.5 million, or 504.0%, during the six months ended June 30, 2022, compared to the six months ended June 30, 2021.2023. The increase in interest income was primarily related to an increase in our average investment in marketable securities for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, and an increase in average interest rates attributed to our marketable securities subsequent to June 30, 2021.for the same comparable periods.

Other income, (expense), net. Other income, increased $12.6net decreased $1.7 million during the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021. The increase2022. Other income, net primarily consists of the unrealized gains on our investments in other income was primarily a result of an increase in the fair market value of our equity investments andcompanies, income related to our investment in a joint venture with a third party.party and gains or losses on the sale of assets. The decrease in other income, net was primarily a result of a decrease in unrealized gains on our investments in other companies for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Provision (benefit) for income taxes. For the six months ended June 30, 20222023 and 2021,2022, our effective income tax rates were 26.5%21.6% and 25.5%26.5%, respectively, which includeincluded 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 thea discrete tax expense or benefit on employee equity transactions. The increasedecrease in the effective tax rate primarily relatesrelated to a discrete tax expensepre-tax loss for employee equity transactions that occurred duringthe six months ended June 30, 2023, compared to pre-tax income for the six months ended June 30, 2022 and the impact of increases in non-deductible expenses for the six months ended June 30, 2023, compared the six months ended June 30, 2021.2022.

Net income.income (loss). Primarily due to the factors described above, we generated a net loss of $6.7 million, or $0.14 loss per share, for the six months ended June 30, 2023, compared to net income of $71.7 million, or $1.42 per diluted share, for the six months ended June 30, 2022, compared to net income2022.

31

Table of $97.9 million, or $1.93 per diluted share, for the six months ended June 30, 2021.Contents

Our Business Segments

Three Months Ended June 30, 20222023 and 20212022

For the three months ended June 30, 2022,2023, we had two reportablereporting segments, which were the basis of our internal financial reporting: SkyWest Airlines and SWC (collectively, “SkyWest Airlines and SWC”) and SkyWest Leasing. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker.

For the three months ended June 30,

(dollar amounts in thousands)

    

2022

    

2021

    

$ Change

    

% Change

Operating Revenues:

SkyWest Airlines operating revenue

$

664,203

$

527,595

$

136,608

 

25.9

%

SkyWest Leasing operating revenues

 

134,882

 

129,395

 

5,487

 

4.2

%

Total Operating Revenues

$

799,085

$

656,990

$

142,095

 

21.6

%

Airline Expenses:

SkyWest Airlines airline expense

$

638,895

$

483,407

$

155,488

 

32.2

%

SkyWest Leasing airline expense

 

102,021

 

92,500

 

9,521

 

10.3

%

Total Airline Expenses (1)

$

740,916

$

575,907

$

165,009

 

28.7

%

Segment profit:

SkyWest Airlines segment profit

$

25,308

$

44,188

$

(18,880)

 

(42.7)

%

SkyWest Leasing profit

 

32,861

 

36,895

 

(4,034)

 

(10.9)

%

Total Segment Profit

$

58,169

$

81,083

$

(22,914)

 

(28.3)

%

Interest Income

 

2,559

 

210

 

2,349

 

1,118.6

%

Other Income, net

 

12,019

 

80

 

11,939

 

14,923.8

%

Consolidated Income Before Taxes

$

72,747

$

81,373

$

(8,626)

 

(10.6)

%

For the three months ended June 30,

(dollar amounts in thousands)

    

2023

    

2022

    

$ Change

    

% Change

Operating Revenues:

SkyWest Airlines and SWC

$

586,476

$

664,203

$

(77,727)

 

(11.7)

%

SkyWest Leasing

 

139,167

 

134,882

 

4,285

 

3.2

%

Total Operating Revenues

$

725,643

$

799,085

$

(73,442)

 

(9.2)

%

Operating Expenses and Interest Expense:

SkyWest Airlines and SWC

$

629,185

$

638,895

$

(9,710)

 

(1.5)

%

SkyWest Leasing

 

98,316

 

102,021

 

(3,705)

 

(3.6)

%

Total Operating Expenses and Interest Expense (1)

$

727,501

$

740,916

$

(13,415)

 

(1.8)

%

Segment profit (loss):

SkyWest Airlines and SWC

$

(42,709)

$

25,308

$

(68,017)

 

(268.8)

%

SkyWest Leasing

 

40,851

 

32,861

 

7,990

 

24.3

%

Total Segment Profit (Loss)

$

(1,858)

$

58,169

$

(60,027)

 

(103.2)

%

Interest Income

 

10,494

 

2,559

 

7,935

 

310.1

%

Other Income (Expense), net

 

9,001

 

12,019

 

(3,018)

 

(25.1)

%

Consolidated Income Before Taxes

$

17,637

$

72,747

$

(55,110)

 

(75.8)

%

(1)Total Airline Expenses includes operatingWe 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 decreased $18.9loss was $42.7 million for the three months ended June 30, 2023, compared to segment income of $25.3 million for the three months ended June 30, 2022.

SkyWest Airlines and SWC block hour production decreased to 282,617, or 15.6%, for the three months ended June 30, 2023, from 334,753 for the three months ended June 30, 2022, primarily due to labor constraints, including the number of available captains. Significant items contributing to the SkyWest Airlines and SWC segment loss for the three months ended June 30, 2023 are set forth below.

SkyWest Airlines and SWC operating revenues decreased $77.7 million, or 11.7%, from the three months ended June 30, 2022, to the three months ended June 30, 2023. SkyWest Airlines recognizes revenue attributed to flight operations received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. During the three months ended June 30, 2023, SkyWest Airlines deferred recognizing $40.7 million of revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues, compared to recognizing $15.7 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the three months ended June 30, 2022. Additionally, the decrease in SkyWest Airlines and SWC operating revenues was attributed to a decrease in block hour production during the three months ended June 30, 2023, compared to the three months ended June 30, 2021.2022, and a decrease in prorate revenue for the same comparable periods. The decrease in revenue was partially offset by block hour rate increases in certain capacity purchase agreements since June 30, 2022.

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SkyWest Airlines block hour production increased to 334,753, or 3.3%, for the three months ended June 30, 2022, from 324,045 for the three months ended June 30, 2021, primarily due to additional aircraftand SWC operating under our capacity purchase agreementsexpenses and demand recovery from reduced flight schedules in response to the COVID-19 pandemic. Significant items contributing to the SkyWest Airlines segment profit are set forth below.

SkyWest Airlines operating revenues increased $136.6interest expense decreased $9.7 million, or 25.9%1.5%, from the three months ended June 30, 2021,2022, to the three months ended June 30, 2022, due to additional aircraft operating under our capacity purchase agreements, increased flight schedules, and more flights we handled under our airport service agreements, collectively as a result of the demand recovery from the COVID-19 pandemic. SkyWest Airlines also provided COVID-19 related temporary rate reductions to our major airline partners under our capacity purchase agreements during the three months ended June 30, 2021. Additionally, during the three months ended June 30, 2022, SkyWest Airlines recognized $10.1 million of previously deferred revenue and $5.6 million of unbilled revenue on our capacity purchase agreements, compared to deferring revenue of $5.6 million during the three months ended June 30, 2021.

SkyWest Airlines airline expense increased $155.5 million, or 32.2%, from the three months ended June 30, 2021, to the three months ended June 30, 2022,2023, due to the following primary factors:

SkyWest Airlines’Airlines and SWC’s salaries, wages and benefits expense increased by $55.1$33.9 million, or 23.7%11.8%, primarily due to increased costs to retain aviation professionals and increased direct labor costs resulting from theemployee compensation, including higher number of flights we operatedpilot pay scales, during the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021.2022.
SkyWest Airlines’Airlines and SWC’s aircraft maintenance, materials and repairs expense decreased by $14.1$12.7 million, or 7.6%7.4%, primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets throughout the 2021 year, such as engine maintenance expense, includinglower block hour production for the three months ended June 30, 2021.2023, compared to the three months ended June 30, 2022.
SkyWest Airlines’Airlines and SWC’s depreciation and amortization expense decreased by $8.2$7.0 million, or 15.4%15.6%, primarily due to certain CRJ200CRJ aircraft and engines that became fullywere depreciated to their estimated residual value since June 30, 2021, partially offset by an increase in depreciation expense related to the acquisition of used CRJ700 aircraft since June 30, 2021.2022.
SkyWest Airlines’Airlines and SWC’s fuel expense increased $6.0decreased $13.5 million, or 23.0%42.6%, due to an increase in our average fuel cost per gallon from $2.36 for the three months ended June 30, 2021, to $4.67 for the three months ended June 30, 2022, offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased.
SkyWest Airlines recognized $114.1 millionpurchased, combined with a decrease in payroll support grant proceeds as a reduction to our operating expensesaverage fuel cost per gallon from $4.67 for the three months ended June 30, 2021. SkyWest Airlines did not have a comparable grant2022, to $3.30 for the three months ended June 30, 2022.2023.
SkyWest Airlines’Airlines and SWC’s remaining airline expenses increased $2.5expense decreased $10.4 million, or 2.5%10.0%, primarily related to an increasea decrease in other operating costs that correspond to the higherlower number of flights we operated forduring the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021,2022, such as crew per diem and crew hotel costs and simulator costs..

SkyWest Leasing Segment Profit. SkyWest Leasing profit decreased $4.0increased $8.0 million, or 10.9%24.3%, during the three months ended June 30, 2022,2023, compared to the three months ended June 30, 2021,2022. The increase in SkyWest Leasing profit was primarily due to additional lease revenue from the $15.2 million impairment charge related to the write down of assets held for sale,13 E175 aircraft placed under contract since June 30, 2022, offset by an increase in deferred revenue. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, the acquisitionSkyWest Leasing segment deferred recognizing lease revenue on $19.5 million of 30 new E175 aircraft added to our fleet subsequent tothe allocated fixed monthly lease payments received during the three months ended June 30, 2021.2023, under the straight-line method.

Six Months Ended June 30, 20222023 and 20212022

For the six months ended June 30, 2022,2023, we had two reportablereporting segments, which were the basis of our internal financial reporting: SkyWest Airlines and SWC and SkyWest Leasing. Our segment disclosure relates to components of our

31

Table of Contents

business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker.

For the six months ended June 30,

(dollar amounts in thousands)

    

2022

    

2021

    

$ Change

    

% Change

Operating Revenues:

SkyWest Airlines operating revenue

$

1,267,252

$

934,045

$

333,207

 

35.7

%

SkyWest Leasing operating revenues

 

266,985

 

257,500

 

9,485

 

3.7

%

Total Operating Revenues

$

1,534,237

$

1,191,545

$

342,692

 

28.8

%

Airline Expenses:

SkyWest Airlines airline expense

$

1,261,712

$

874,406

$

387,306

 

44.3

%

SkyWest Leasing airline expense

 

190,900

 

186,568

 

4,332

 

2.3

%

Total Airline Expenses (1)

$

1,452,612

$

1,060,974

$

391,638

 

36.9

%

Segment profit:

SkyWest Airlines segment profit

$

5,540

$

59,639

$

(54,099)

 

(90.7)

%

SkyWest Leasing profit

 

76,085

 

70,932

 

5,153

 

7.3

%

Total Segment Profit

$

81,625

$

130,571

$

(48,946)

 

(37.5)

%

Interest Income

 

2,984

 

494

 

2,490

 

504.0

%

Other Income, net

 

12,899

 

296

 

12,603

 

4,257.8

%

Consolidated Income Before Taxes

$

97,508

$

131,361

$

(33,853)

 

(25.8)

%

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Table of Contents

For the six months ended June 30,

(dollar amounts in thousands)

    

2023

    

2022

    

$ Change

    

% Change

Operating Revenues:

SkyWest Airlines and SWC

$

1,154,649

$

1,267,252

$

(112,603)

 

(8.9)

%

SkyWest Leasing

 

262,825

 

266,985

 

(4,160)

 

(1.6)

%

Total Operating Revenues

$

1,417,474

$

1,534,237

$

(116,763)

 

(7.6)

%

Operating Expenses and Interest Expense:

SkyWest Airlines and SWC

$

1,266,639

$

1,261,712

$

4,927

 

0.4

%

SkyWest Leasing

 

191,017

 

190,900

 

117

 

0.1

%

Total Operating Expenses and Interest Expense (1)

$

1,457,656

$

1,452,612

$

5,044

 

0.3

%

Segment profit (loss):

SkyWest Airlines and SWC

$

(111,990)

$

5,540

$

(117,530)

 

(2,121.5)

%

SkyWest Leasing

 

71,808

 

76,085

 

(4,277)

 

(5.6)

%

Total Segment Profit (Loss)

$

(40,182)

$

81,625

$

(121,807)

 

(149.2)

%

Interest Income

 

20,527

 

2,984

 

17,543

 

587.9

%

Other Income, net

 

11,175

 

12,899

 

(1,724)

 

(13.4)

%

Consolidated Income (Loss) Before Taxes

$

(8,480)

$

97,508

$

(105,988)

 

(108.7)

%

(1)Total Airline Expenses includes operatingWe 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 decreased $54.1loss was $112.0 million for the six months ended June 30, 2023, compared to segment profit of $5.5 million for the six months ended June 30, 2022.

SkyWest Airlines and SWC block hour production decreased to 558,859, or 13.5%, for the six months ended June 30, 2023, from 645,746 for the six months ended June 30, 2022, primarily due to labor constraints, including the number of available captains. Significant items contributing to the SkyWest Airlines and SWC segment loss for the six months ended June 30, 2023 are set forth below.

SkyWest Airlines and SWC operating revenues decreased $112.6 million, or 8.9%, from the six months ended June 30, 2022, to the six months ended June 30, 2023. SkyWest Airlines recognizes revenue attributed to flight operations received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. During the six months ended June 30, 2023, SkyWest Airlines deferred recognizing $83.4 million of revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues, compared to recognizing $26.9 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the six months ended June 30, 2022. Additionally, the decrease in SkyWest Airlines and SWC operating revenues was also attributed to a decrease in block hour production during the six months ended June 30, 2023, compared to the six months ended June 30, 2021.2022, and a decrease in prorate revenue for the same comparable periods. The decrease in revenue was partially offset by block hour rate increases in certain capacity purchase agreements since June 30, 2022.

SkyWest Airlines block hour productionand SWC operating expenses and interest expense increased to 645,746, or 7.6%, for the six months ended June 30, 2022, from 600,227 for the six months ended June 30, 2021, primarily due to additional aircraft operating under our capacity purchase agreements and demand recovery from reduced flight schedules in response to the COVID-19 pandemic. Significant items contributing to the SkyWest Airlines segment profit (loss) are set forth below.

SkyWest Airlines operating revenues increased $333.2$4.9 million, or 35.7%0.4%, from the six months ended June 30, 2021,2022, to the six months ended June 30, 2022, due to additional aircraft operating under our capacity purchase agreements, increased flight schedules, and more flights we handled under our airport service agreements, collectively as a result of the demand recovery from the COVID-19 pandemic. SkyWest Airlines also provided COVID-19 related temporary rate reductions to our major airline partners under our capacity purchase agreements during the six months ended June 30, 2021. Additionally, during the six months ended June 30, 2022, SkyWest Airlines recognized $17.6 million of previously deferred revenue and $9.3 million of unbilled revenue on our capacity purchase agreements, compared to deferring revenue of $26.8 million during the six months ended June 30, 2021.

SkyWest Airlines airline expense increased $387.3 million, or 44.3%, from the six months ended June 30, 2021, to the six months ended June 30, 2022,2023, due to the following primary factors:

SkyWest Airlines’Airlines and SWC’s salaries, wages and benefits expense increased by $135.4$69.0 million, or 30.0%11.8%, primarily due to increased costs to retain aviation professionals and increased direct labor costs resulting from theemployee compensation, including higher number of flights we operatedpilot pay scales, during the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021.2022.
SkyWest Airlines’Airlines and SWC’s aircraft maintenance, materials and repairs expense decreased by $69.4$19.0 million, or 18.1%6.0%, primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700lower block hour production for the three and CRJ200 fleets throughout the 2021 year, such as engine maintenance expense, includingsix months ended June 30, 2023, compared to the six months ended June 30, 2021.2022.

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SkyWest Airlines’Airlines and SWC’s depreciation and amortization expense decreased by $10.8$16.5 million, or 10.4%17.8%, primarily due to certain CRJ200CRJ aircraft and engines that became fullywere depreciated to their estimated residual value since June 30, 2021, partially offset by an increase in depreciation expense related to the acquisition of used CRJ700 aircraft since June 30, 2021.2022.
SkyWest Airlines’Airlines and SWC’s fuel expense increased $11.8decreased $17.7 million, or 26.3%31.0%, due to an increase in our average fuel cost per gallon from $2.25 for the six months ended June 30, 2021, to $4.01 for the six months ended June 30, 2022, offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased.
SkyWest Airlines recognized $307.3 millionpurchased, combined with a decrease in payroll support grant proceeds as a reduction to our operating expensesaverage fuel cost per gallon from $4.01 for the six months ended June 30, 2021. SkyWest Airlines did not have a comparable grant2022, to $3.65 for the six months ended June 30, 2022.2023.
SkyWest Airlines’Airlines and SWC’s remaining airline expenses increased $13.0expense decreased $10.9 million, or 6.6%5.2%, primarily related to an increasea decrease in other operating costs that correspond toas a result of the higherlower number of flights we operated forduring the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021,2022, such as crew per diem and crew hotel costs and simulator costs.

SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $5.2decreased $4.3 million, or 7.3%5.6%, during the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021, primarily due2022. Recent amendments to our capacity purchase agreements with certain major airline partners reduced certain future contractual fixed monthly payments and increased future contractual variable payments. As a result of these amendments, the acquisitionSkyWest Leasing segment deferred recognizing lease revenue on $40.0 million of the allocated fixed monthly lease payments received during the six months ended June 30, new 2023, under the straight-line method. The decrease in SkyWest Leasing profit attributed to deferred revenue was partially offset by additional lease revenue from the 13 E175 aircraft added to our fleet subsequent toplaced under contract since June 30, 2021, offset by the $15.2 million impairment charge related to the write down of assets held for sale.2022.

Liquidity and Capital Resources

As of June 30, 2022,2023, we had $974.7$862.3 million in cash and cash equivalents and marketable securities. As of June 30, 2022,2023, we had $68.6$70.1 million available for borrowings under our line of credit. Given our available liquidity as of June 30, 2022, and given the measures we have implemented to reduce the impact of the COVID-19 pandemic on our financial position and operations,2023, we believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments and debt service obligations for at least the next 12 months.

Our total cash and marketable securities increaseddecreased from $860.4 million$1.0 billion as of December 31, 2021,2022, to $974.7$862.3 million as of June 30, 2022,2023, or by $114.3$184.9 million. At June 30, 2022,2023, our total capital mix was 45.0%44.0% equity and 55.0%56.0% long-term debt, compared to 45.5%44.4% equity and 54.5%55.6% long-term debt at December 31, 2021.2022. During the six months ended June 30, 2023, we repurchased 8.4 million shares of our common stock for $194.1 million under share repurchase programs authorized by our Board of Directors.

As of June 30, 2022,2023, and December 31, 2021,2022, we had $61.4$59.6 million and $59.2 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of June 30, 2022,2023, and December 31, 2021.2022.

Sources and Uses of Cash

Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the six months ended June 30, 20222023 and 2021,2022, and our total cash and marketable securities positions as of June 30, 2022,2023, and December 31, 20212022 (in thousands):

For the six months ended June 30,

For the six months ended June 30,

    

2022

    

2021

    

$ Change

    

% Change

    

2023

    

2022

    

$ Change

    

% Change

Net cash provided by operating activities

$

215,279

$

498,688

$

(283,409)

(56.8)

%

$

333,023

$

215,279

$

117,744

54.7

%

Net cash used in investing activities

 

(556,589)

 

(182,381)

 

(374,208)

 

205.2

%

Net cash provided by (used in) investing activities

 

69,991

 

(556,589)

 

626,580

 

(112.6)

%

Net cash provided by (used in) financing activities

 

178,960

 

(186,176)

 

365,136

 

(196.1)

%

 

(391,565)

 

178,960

 

(570,525)

 

(318.8)

%

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Table of Contents

    

June 30,

    

December 31,

    

    

 

    

June 30,

    

December 31,

    

    

 

2022

2021

$ Change

% Change

2023

2022

$ Change

% Change

Cash and cash equivalents

$

96,071

$

258,421

$

(162,350)

 

(62.8)

%

$

114,433

$

102,984

$

11,449

 

11.1

%

Marketable securities

 

878,608

 

601,989

 

276,619

 

46.0

%

 

747,916

 

944,231

 

(196,315)

 

(20.8)

%

Total

$

974,679

$

860,410

$

114,269

 

13.3

%

$

862,349

$

1,047,215

$

(184,866)

 

(17.7)

%

Cash Flows provided by Operating Activities

Our cash flows provided by operating activities was $333.0 million for the six months ended June 30, 2023, compared to $215.3 million for the six months ended June 30, 2022, compared to $498.7 million for the six months ended June 30, 2021.2022. Our operating cash flows are typically impacted by various factors including our net income, adjusted for non-cash expenses and gains such as depreciation expense, stock-based compensation expense and gains or losses on the disposal of assets; and timing of cash payments and cash receipts attributed to our various current asset and liability accounts, such as accounts receivable, inventory, accounts payable, accrued liabilities, deferred revenue and deferred payroll support grant proceeds.unbilled revenue.

The decreaseincrease in our cash flow from operations for the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021,2022, was primarily due to the timing of cash payments on our current liability accounts and changescash received in our deferred and unbilledexcess of revenue accountsrecognized for the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021, combined with a decrease in net income from $97.9 million for the six months ended June 30, 2021, to $71.7 million for the six months ended June 30, 2022.

Cash Flows used inprovided by (used in) Investing Activities

Our cash flows provided by investing activities was $70.0 million for the six months ended June 30, 2023, compared to cash flows used in investing activities wasof $556.6 million for the six months ended June 30, 2022, compared to cash flows used in investing activities of $182.4 million for the six months ended June 30, 2021.2022. Our investing cash flows are typically impacted by various factors including our capital expenditures, such as the acquisition of aircraft and spare engines; deposit payments and refunds of previously made deposits on new aircraft; purchase and sales of marketable securities; proceeds from the sale of assets; and timing of cash payments and cash receipts attributed to our various long-term asset and long-term liability accounts.

For the six months ended June 30, 2023, cash provided by the sale of marketable securities, net of purchases of marketable securities, was $199.3 million, an increase of $477.9 million from cash used for the purchase of marketable securities, net of sales of marketable securities of $278.6 million, for the six months ended June 30, 2022. Cash used for aircraft deposits decreased $37.1 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, based on the timing of new aircraft orders and deliveries. Additionally, cash used for the acquisition of property and equipment, net of aircraft deposits applied towards acquired aircraft, increased by $167.0 million from $63.5decreased $106.2 million for the six months ended June 30, 2021,2023, compared to $230.5 million for the six months ended June 30, 2022, primarily due to the purchase of twelve new E175 aircraft during the six months ended June 30, 2022, compared to the purchase of six used CRJ700 aircraft during the six months ended June 30, 2021.

Cash used for purchases of marketable securities, net of sales of marketable securities, increased from $0.4 million for the six months ended June 30, 2021, to $278.6 million for the six months ended June 30, 2022.Additionally, the reduction in the cash used in other long-term assets for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, resulted from the timing of payments received from our major airline partners attributed to our long-term receivables.

Cash Flows provided by (used in) Financing Activities

Our cash flows used in financing activities was $391.6 million for the six months ended June 30, 2023, compared to cash provided by financing activities wasof $179.0 million for the six months ended June 30, 2022, compared to cash used in financing activities of $186.2 million for the six months ended June 30, 2021.2022. Our financing cash flows are typically impacted by various factors including proceeds from issuance of debt, principal payments on debt obligations, repurchases of our common stock and payment of cash dividends.

The $365.1$570.5 million increase in cash provided byused for financing activities for the six months ended June 30, 2022,2023, compared to the six months ended June 30, 2021,2022, was primarily due to an increasea decrease of $281.3$351.8 million in proceeds from the issuance of long-term debt, primarily related to the acquisitionan increase of twelve E175 aircraft and $127.9$24.2 million in principal payments on long-term debt secured by enginesand $196.0 million of cash used to purchase treasury stock during the six months ended June 30, 2022. Additionally, cash used for principal payments on long-term debt decreased $84.8 million from the six months ended June 30, 2021, to the six months ended June 30, 2022, primarily due to paying off a portion of our long-term debt during the six months ended June 30, 2021.2023.

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Significant Commitments and Obligations

General

See Note 7, "Leases, Commitments and Contingencies," to the condensed consolidated financial statements for our commitments and obligations for each of the next five years and thereafter.

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Purchase Commitments and Options

As of June 30, 2022,2023, we had a firm purchase commitment for 17four new E175 aircraft from Embraer with delivery dates anticipated into the first half of 2023.2025.

At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select one or more of these methods to fund the acquisition. In recent years, we have issued long-term debt to finance our new aircraft. At present, we intend to fund our aircraft purchase commitments through cash on hand and debt financing. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft. We intend to finance the firm purchase commitment for 17four E175 aircraft with approximately 80-85% debt and the remaining balance with cash.

Aircraft Lease and Facility Obligations

We also have significant long-term lease obligations, primarily relating to our aircraft fleet.maintenance and other facilities. Excluding aircraft financed by our major airline partners that we operate for them under contract, we had 4311 aircraft under lease with remaining terms ranging from two yearsone year to eightseven years as of June 30, 2022.2023. Future minimum lease payments due under all long-term operating leases were approximately $260.8$129.5 million at June 30, 2022.2023. Assuming a 6.0%6.1% 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 $210.2$92.6 million at June 30, 2022.2023.

Long-term Debt Obligations

As of June 30, 2022,2023, we had $3.0$3.2 billion of long-term debt, obligations relatedwhich consisted of $3.0 billion of debt used to finance aircraft and spare engines and $200.6 million of unsecured debt payable to U.S. Department of the acquisition of aircraft.Treasury. The average effective interest rate on those long-termour debt obligations was approximately 3.9%4.1% at June 30, 2022. We also had $200.6 million of long-term debt obligations under the Payroll Support Program Agreement, PSP Extension Agreement, and Payroll Support Program 3 Agreement with U.S. Treasury and $124.6 million of long-term debt secured by spare engines.2023.

Under our capacity purchase agreements, theour major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis. The aircraft compensation structure varies by agreement, but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract.

Guarantees

We have guaranteed the obligations of SkyWest Airlines under the United Express Agreement and the Delta Connection Agreement for the E175 aircraft. In addition, we have guaranteed certain other obligations under SkyWest Airlines’ aircraft financing and leasing agreements.

We have guaranteed $17.0$19.8 million in promissory notes of a third party in the event the third party defaults on its payments. The third party’s loans are secured by aircraft and engines.

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for an entire year, sincebecause 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

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unfavorably affected by decreased travel during the months of November through February and by inclement weather, which may occasionally or frequently, depending on the severity of the inclement weather in any given winter, result in cancelled flights during the winter months.

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ITEM 3:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Aircraft Fuel

In the past, we have not experienced sustained material difficulties with fuel availability, and we currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our contract flying arrangements, United, Delta, American and Alaska have agreed to bear the economic risk of fuel price fluctuations on our contracted flights. We bear the economic risk of fuel price fluctuations on our prorate operations. For the six months ended June 30, 2022,2023, approximately 11.7% of our total flying agreements revenue was derived from prorate agreements. For the six months ended June 30, 2022,2023, the average price per gallon of aircraft fuel was $4.01.$3.65. For illustrative purposes only, we have estimated the impact of the market risk of fuel price fluctuations on our prorate operations using a hypothetical increase of 25% in the price per gallon we purchase. Based on this hypothetical assumption, we would have incurred an additional $14.2$9.8 million in fuel expense for the six months ended June 30, 2022.2023.

Interest Rates

As of June 30, 2022,2023, our long-term debt had fixed interest rates. We currently intend to finance the acquisition of new aircraft through manufacturer financing or long-term borrowings. Changes in interest rates may impact theour actual cost to us to acquire future aircraft. To the extent we place new aircraft in service under our capacity purchase agreements with United, Delta, American, Alaska or other carriers, our capacity purchase agreements currently provide that reimbursement rates will be adjusted to reflect the interest rates effective at the closing of the respective aircraft financing. A hypothetical 50 basis point change in market interest rates would not have a material effect on our financial results.

Labor and Inflation Risk

IfThe global economy has experienced, and continues to experience high rates of inflation. We cannot predict how long these inflationary pressures will continue, or how they may change over time, but we expect to see continued impacts on the global economy and our Company.

As a result, our costs have become, and we expect they will continue to be, subject to significant inflationary pressures, and we may not be able to fully offset such higher costs through price increases under our capacity purchase agreements. Salaries, wages and benefits expense represented 42.2%47.3% of our total operating expense for the six months ended June 30, 2022.2023. For illustrative purposes, a hypothetical increase of 25% into our salaries, wages and benefits during the six months ended June 30, 2022,2023, would have increased our operating expenses by approximately $147.2$164.4 million. Our collective bargaining agreement with our pilots becomes amendable December 31, 2022. We intend to negotiate a new agreement with our pilots prior to December 31, 2022, which would likely result in an increase to our salaries, wages and benefits expense.

Our inability or failure to offset a material increase in costs due to inflation and/or labor costs could harm our business, financial condition and operating results. Additionally, in the event we are unable to hire and retain qualified pilots or other operational personnel, including flight attendants and maintenance technicians, we may be unable to operate requested flight schedules under our capacity purchase agreements, which could result in a reduction in revenue and operating inefficiencies, such as incremental new-hire training costs, and could harm our business, financial condition and operating results.

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures, which have been designed to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of June 30, 2022,2023, those controls and procedures were effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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Changes in Internal Control

During the six months ended June 30, 2022,2023, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to certain legal actions which we consider routine to our business activities. As of June 30, 2022,2023, our management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on our financial position, liquidity or results of operations.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, and in our other filings with the SEC, which factors could materially affect our business, financial condition and results of operations. The risks described in our reports filed with the SEC are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our Board of Directors has adopted stock repurchase programs which authorize us to repurchase shares of our common stock in the public market or in private transactions, from time to time, at prevailing prices. Our stock repurchase programs were authorized in February 2019 for the repurchase of up to $250.0 million of our common stock and in May 2023 for the repurchase of up to $250.0 million of our common stock. The following table summarizes the repurchases under our stock purchase programs during the three months ended June 30, 2023:

    

Total Number of Shares Purchased

Average Price Paid Per Share

    

Total Number of Shares Purchased as Part of a Publicly Announced Program (1)

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in Thousands)

April 1, 2023 - April 30, 2023

1,273,112

$

23.56

1,273,112

$

9,590

May 1, 2023 - May 31, 2023

1,248,510

$

28.03

1,248,510

$

215,000

June 1, 2023 - June 30, 2023

813,062

$

35.76

813,062

$

185,922

Total

3,334,684

$

28.21

3,334,684

$

185,922

(1)In February 2019, our Board of Directors authorized a stock purchase program to repurchase up to $250.0 million of our common stock. Purchases are made at management’s discretion based on market conditions and financial resources. As of April 30, 2023, we had repurchased 6,340,256 shares of our common stock for $240.4 million under the February 2019 authorization. In May 2023, our Board of Directors approved a new share repurchase program, which superseded our prior repurchase program and authorized us to repurchase up to $250.0 million of our common stock. As of June 30, 2023, we had repurchased 2,061,572 shares of our common stock for $64.1 million under the May 2023 authorization.

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Table of Contents

ITEM 6. EXHIBITS

31.1

Certification of Chief Executive Officer

31.2

Certification of Chief Financial Officer

32.1

Certification of Chief Executive Officer

32.2

Certification of Chief Financial Officer

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022,2023, to be signed on its behalf by the undersigned, thereunto duly authorized, on August 4, 2022.3, 2023.

SKYWEST, INC.

By

/s/ Robert J. Simmons

Robert J. Simmons

Chief Financial Officer

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