| Nature of Operations and Summary of Significant Accounting Policies | (1) Nature of Operations and Summary of Significant Accounting Policies SkyWest, Inc. (the “Company”), through its subsidiary, SkyWest Airlines, Inc. (“SkyWest Airlines”) operates the largest regional airline in the United States. As of December 31, 2023, SkyWest Airlines offered scheduled passenger service under code-share agreements with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) with approximately 1,850 total daily departures to destinations in the United States, Canada and Mexico. Additionally, the Company provides airport customer service and ground handling services for other airlines throughout its system. In 2022, the Company formed SkyWest Charter, LLC (“SWC”), which had its first revenue generating flight in May 2023. SWC offers an on-demand charter flight service. As of December 31, 2023, the Company had 603 total aircraft in its fleet, including 485 aircraft in scheduled service or under contract under its code-share agreements, summarized as follows: E175 CRJ900 CRJ700 CRJ200 Total United 90 — 19 89 198 Delta 85 41 9 — 135 American 20 — 90 — 110 Alaska 42 — — — 42 Aircraft in scheduled service or under contract 237 41 118 89 485 SWC — — — 16 16 Leased to third parties — 5 35 — 40 Other (1) — 3 14 45 62 Total Fleet 237 49 167 150 603 (1) As of December 31, 2023, other aircraft included: supplemental spare aircraft supporting the Company’s code-share agreements that may be placed under future code-share or leasing arrangements, aircraft transitioning between code-share agreements with the Company’s major airline partners, aircraft held-for-sale or aircraft that are scheduled to be disassembled for use as spare parts. For the year ended December 31, 2023, approximately 40.8% of the Company’s aircraft in scheduled service was operated for United, approximately 27.8% was operated for Delta, approximately 22.7% was operated for American and approximately 8.7% was operated for Alaska. SkyWest Airlines has been a code-share partner with Delta since 1987, United since 1997, Alaska since 2011 and American since 2012. As of December 31, 2023, SkyWest Airlines operated as a Delta Connection carrier primarily in Salt Lake City, Detroit and Minneapolis, a United Express carrier primarily in Los Angeles, San Francisco, Denver, Houston, Chicago and the Pacific Northwest, an American carrier primarily in Chicago, Dallas, Los Angeles and Phoenix and an Alaska carrier primarily in the Pacific Northwest. SkyWest Airlines operates the following aircraft manufactured by MHI RJ Aviation ULC, formerly known as Bombardier Aerospace (“Bombardier”): CRJ900s, CRJ700s and CRJ200s, and E175s manufactured by Embraer. The CRJ700, CRJ900 E175 have seat Basis of Presentation The Company’s consolidated financial statements include the accounts of the Company and the SkyWest Airlines and SWC and SkyWest Leasing segments, with all inter-company transactions and balances having been eliminated. In preparing the accompanying consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after December 31, 2023, through the filing date of the Company’s annual report with the U.S. Securities and Exchange Commission. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company had no restricted cash as of December 31, 2023 and 2022. Marketable Securities The Company’s investments in debt securities are classified as available-for-sale and are reported at fair market value with the net unrealized appreciation (depreciation) reported as a component of accumulated other comprehensive income in stockholders’ equity. At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income and expense. The Company’s position in marketable securities as of December 31, 2023 and 2022 was as follows (in thousands): Gross unrealized Gross unrealized At December 31, 2023 Amortized Cost holding gains holding losses Fair market value Marketable securities: Bond and bond funds $ 676,644 $ 430 $ — $ 677,074 Commercial Paper 9,872 — — 9,872 Total marketable securities $ 686,516 $ 430 $ — $ 686,946 Gross unrealized Gross unrealized At December 31, 2022 Amortized Cost holding gains holding losses Fair market value Marketable securities: Bond and bond funds $ 629,280 $ — $ (5,026) $ 624,254 Commercial Paper 319,977 — — 319,977 Total marketable securities $ 949,257 $ — $ (5,026) $ 944,231 Inventories Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an allowance for obsolescence based on historical part turnover, excess parts and management’s expectations of future operations. Expendable inventory parts are charged to expense as used. An obsolescence allowance for flight equipment expendable parts is accrued based on estimated lives of the corresponding fleet types, anticipated part usage and salvage values. The inventory allowance as of December 31, 2023 and 2022, was $26.1 million and $24.2 million, respectively. Property and Equipment Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows: Assets Depreciable Life Current Residual Value Aircraft, rotable spares, and spare engines up to 22 years up to 20 % Ground equipment up to 10 years 0 % Office equipment up to 5 years 0 % Leasehold improvements Shorter of 15 years or lease term 0 % Buildings 20 - 39.5 years 0 % Impairment of Long-Lived Assets As of December 31, 2023, the Company had approximately $5.5 billion of property and equipment, net. In accounting for these long-lived assets, the Company makes estimates about the expected useful lives of the assets, the expected residual values of such assets, and the potential for impairment based on projected future cash flows and estimated fair value of the assets. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. On a periodic basis, the Company evaluates whether impairment indicators are present. When considering whether or not impairment of long-lived assets exists, the Company groups similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group. Asset groupings are done at the aircraft type level. During 2022, the Company committed to a plan to sell 14 CRJ700 aircraft, resulting in an impairment on the assets held for sale of $51.4 million. During 2023, the Company wrote-down the assets held for sale for an additional $2.3 million. See Note 8, “Assets Held for Sale” for more information on the assets held for sale. Capitalized Interest Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is depreciated over the estimated useful life of the asset. During the years ended December 31, 2023, 2022 and 2021, the Company capitalized interest costs of approximately $1.5 million, $1.9 million and $1.9 million, respectively. Maintenance The Company operates under a U.S. Federal Aviation Administration approved continuous inspection and maintenance program. The Company uses the direct expense method of accounting for its regional jet engine overhauls. The Company has engine services agreements with third-party vendors to provide long-term engine services covering the scheduled and unscheduled repairs for most of its aircraft. Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown per month and the third-party vendors will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions. Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of each contract. The repair costs for engines not covered by these hourly service agreements are expensed when repair services are incurred. The costs of maintenance for airframe and avionics components, landing gear and other recurring maintenance are expensed as incurred. Flying Agreements and Airport Customer Service and Other Revenues The Company recognizes revenue under its flying agreements and under its lease, airport services and other service agreements when the service is provided under the applicable agreement. Under the Company’s capacity purchase agreements with United, Delta, American and 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 (a portion of which is accounted for as aircraft lease consideration), with additional incentives based on flight completion, on-time performance or other performance metrics. 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 the years ended December 31, 2023, 2022 and 2021, capacity purchase arrangements represented approximately 86.5%, 88.0% and 84.3% of the Company’s flying agreements revenue, respectively. Under the Company’s prorate arrangements (also referred to as a “prorate” 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 determines 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. 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. Under the Company’s charter operations, SWC, the Company negotiates a fare for the charter flight with the customer. The performance obligation is met and revenue is recognized upon completion of the flight. For the years ended December 31, 2023, 2022 and 2021, prorate flying agreements and SWC revenue represented approximately 13.5%, 12.0%, and 15.7% of the Company’s flying agreements revenue, respectively. The following table represents the Company’s flying agreements revenue by type for the years ended December 31, 2023, 2022 and 2021 (in thousands): For the year ended December 31, 2023 2022 2021 Capacity purchase agreements flight operations revenue (non-lease component) $ 1,976,743 $ 2,028,308 $ 1,678,219 Capacity purchase agreements fixed aircraft lease revenue 296,047 504,529 527,173 Capacity purchase agreements variable aircraft lease revenue 180,218 17,664 — Prorate agreements and SWC revenue 381,389 349,336 409,684 Flying agreements revenue $ 2,834,397 $ 2,899,837 $ 2,615,076 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 accounted 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. 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. As a result of these capacity purchase agreement amendments executed in 2022, during the year ended December 31, 2023, the Company deferred recognizing lease revenue on $78.5 million of the allocated fixed monthly lease payments received during the year ended December 31, 2023, under the straight-line method. The Company deferred recognizing lease revenue on $22.1 million of the allocated fixed monthly lease payments received during the year ended December 31, 2022, 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 because the use of the aircraft is not a separate activity of the total service provided under the capacity purchase agreements. A portion of the Company’s compensation under its capacity purchase agreements relates to operating the aircraft, identified as the 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. Accordingly, the Company’s revenue recognition will likely vary from the timing of cash receipts under the Company’s capacity purchase agreements. The Company refers to cash received under its capacity purchase agreements prior to recognizing revenue as “deferred revenue,” and the Company refers to revenue recognized prior to billing its major airline partners under its capacity purchase agreements as “unbilled revenue” for each reporting period. The Company’s total deferred revenue balance as of December 31, 2023, was $374.6 million, including $61.0 million in other current liabilities and $313.6 million in other long-term liabilities. The Company’s unbilled revenue balance as of December 31, 2023, was $7.3 million, including $1.2 million in other current assets and $6.1 million in other long-term assets. The Company’s total deferred revenue balance as of December 31, 2022, was $144.7 million, including $5.2 million in other current liabilities and $139.5 million in other long-term liabilities. T In several of the Company’s agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly, subject to the variable constraint guidance under Accounting Standard Codification (“ASC”) Topic 606. The following 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 (capacity purchase agreement) · E175 · CRJ 700 · CRJ 200 90 19 70 · Individual aircraft have scheduled removal dates under the agreement between 2024 and 2029 · The average remaining term of the aircraft under contract is 2.7 years United Express Prorate Agreement (prorate agreement) · CRJ 200 *19 · Terminable with 120 Total under United Express Agreements 198 Delta Connection Agreements Agreement Aircraft type Number of Aircraft Term / Termination Dates Delta Connection Agreement (capacity purchase agreement) · E175 · CRJ 900 · CRJ 700 85 35 5 · Individual aircraft have scheduled removal dates from 2024 to 2034 · The average remaining term of the aircraft under contract is 4.8 years Delta Connection Prorate Agreement (prorate agreement) · CRJ 900 · CRJ 700 6* 4* · Terminable with 30 Total under Delta Connection Agreements 135 American Capacity Purchase Agreement Agreement Aircraft type Number of Aircraft Term / Termination Dates American Agreement (capacity purchase agreement) · E175 · CRJ 700 20 90 · Individual aircraft have scheduled removal dates from 2024 to 2032 · The average remaining term of the aircraft under contract is 3.1 years Total under American Agreement 110 Alaska Capacity Purchase Agreement Agreement Aircraft type Number of Aircraft Term / Termination Dates Alaska Agreement (capacity purchase agreement) · E175 42 · Individual aircraft have scheduled removal dates from 2030 to 2034 · The average remaining term of the aircraft under contract is 7.5 years * 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 December 31, 2023, SkyWest Airlines reached agreements to place the following E175 aircraft under a capacity purchase agreement with the respective partners: 2024 2025 2026 Total Delta Air Lines 1 — — 1 United Airlines 4 7 8 19 Alaska Airlines — 1 — 1 Total 5 8 8 21 Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors. 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 major airline partner when the aircraft is leased from the major airline partner, 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 or engines to a third party or disassembling aircraft components such as the engines and parts to be used as spare inventory. Lease, airport services and other revenues primarily consists of revenue generated from aircraft and spare engines leased to third parties and from airport customer service agreements, such as gate and ramp agent services at various airports where the Company has been contracted by third parties to provide such services. The following table represents the Company’s lease, airport services and other revenues for the years ended December 31, 2023, 2022 and 2021 (in thousands): For the year ended December 31, 2023 2022 2021 Operating lease revenue $ 47,554 $ 48,714 $ 46,532 Operating lease revenue relating to variable lease payments 18,420 17,050 19,998 Airport customer service and other revenue 35,061 39,324 31,885 Lease, airport services and other $ 101,035 $ 105,088 $ 98,415 2024 $ 46,119 2025 41,172 2026 35,630 2027 35,586 2028 35,024 Thereafter 53,122 Total future minimum rental income under operating leases $ 246,653 Of the Company’s $5.5 billion of property and equipment, net as of December 31, 2023, $216.0 million of regional jet aircraft and spare engines were 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. As of December 31, 2023, the Company had $82.9 million in accounts receivable of which $73.6 million related to flying agreements. As of December 31, 2022, the Company had $100.5 million in accounts receivable of which $73.7 million related to flying 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 December 31, 2023, the Company had gross receivables of $86.1 million in current assets and gross receivables of $199.8 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 note receivable. During the year ended December 31, 2023, the Company recorded $0.2 million of adjustments to the credit loss reserve and wrote-off $18.5 million in receivables that were 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, 2020 $ 46,225 Adjustments to credit loss reserves (4,249) Write-offs charged against allowance — Balance at December 31, 2021 $ 41,976 Adjustments to credit loss reserves (4,591) Write-offs charged against allowance — Balance at December 31, 2022 $ 37,385 Adjustments to credit loss reserves (185) Write-offs charged against allowance (18,501) Balance at December 31, 2023 $ 18,699 Income Taxes The Company recognizes a net liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that are expected to result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Net Income Per Common Share Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income 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 per common share. 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): Year Ended December 31, 2023 2022 2021 Treasury Warrants (1) 286 640 78 Employee Stock Awards 15 219 — Total antidilutive securities 301 859 78 (1) U.S. Department of the Treasury (“Treasury”) warrants to purchase shares of SkyWest common stock issued pursuant to the three Payroll Support Program Agreements and a loan agreement . See Note 10, “Payroll Support Programs” and Note 11, “Capital Transactions” for further discussion on the warrants issued to Treasury. Additionally, for the years ended December 31, 2023, 2022 and 2021, 334,000, 146,000 and 140,000 performance share units (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds for these units as of December 31, 2023, 2022 and 2021, respectively. The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Numerator: Net income $ 34,342 $ 72,953 $ 111,910 Denominator: Basic earnings per share weighted average shares 43,940 50,548 50,348 Dilution due to employee equity awards and warrants 659 96 405 Diluted earnings per share weighted average shares 44,599 50,644 50,753 Basic earnings per share $ 0.78 $ 1.44 $ 2.22 Diluted earnings per share $ 0.77 $ 1.44 $ 2.20 Comprehensive Income Comprehensive income includes charges and credits to stockholders’ equity that are not the result of transactions with the Company’s shareholders, including changes in unrealized appreciation (or depreciation) on marketable debt securities. Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheets for receivables and accounts payable approximate fair values because of the immediate or short-term maturity of these financial instruments. Marketable securities are reported at fair value based on market quoted prices in the consolidated balance sheets. If quoted prices in active markets are no longer available, the Company has estimated the fair values of these securities utilizing a discounted cash flow analysis. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. Certain investments in other companies are reported at fair value based on market quoted prices or using the Black Scholes Option Pricing model in the consolidated balance sheets. The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt. Segment Reporting GAAP requires disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance. The Company’s two reportable segments consist of (1) the operations of SkyWest Airlines and SWC (collectively, “SkyWest Airlines and SWC”) and (2) SkyWest Leasing activities. I nformation pertaining to the Company’s reportable segments is presented in Note 2, Segment Reporting . The Company has two reportable segments: (1) SkyWest Airlines and SWC and (2) SkyWest Leasing. |
