How SkyWest Airlines Turned A Profit In The First Quarter

Filed Under: Misc.

Over the past few weeks some major US airlines have reported their first quarter results, including Alaska Airlines, American AirlinesDelta Air LinesSouthwest Airlines, and United Airlines.

One might assume that all US airlines lost money in the last quarter given the circumstances, but that’s not the case — SkyWest Airlines turned a profit.

SkyWest turns $30 million profit

For those of you not familiar with SkyWest, you may have flown them before without even realizing it. They’re a major US regional airline with a fleet of over 500 planes and 14,000 employees, and they operate regional flights on behalf of Alaska, American, Delta, and United. They’re arguably the best run major US regional airline.

SkyWest reported a first quarter net income of $30 million compared to a net income of $88 million over the same period last year. The adjusted net income was $69 million, excluding the gain on the sale of ExpressJet and other special items.

As you’d expect, a primary factor in SkyWest’s lower earnings compared to the previous year is the drop in demand in March due to the COVID-19 pandemic.

Here are a few other interesting facts about their quarter:

  • Revenue in Q1 2020 was $730 million, compared to revenue of $724 million in Q1 2019
  • Expenses in Q1 2020 were $664 million, compared to expenses of $627 million in Q1 2019
  • SkyWest had $578 million in cash and marketable securities as of March 31, 2020, up from $520 million as of December 31, 2019
  • During the first quarter the airline used $55 million to purchase spare engines and $22 million for other capital investments, and used $20 million to repurchase stocks

SkyWest operates on behalf of American Eagle

SkyWest still receives CARES act funding

Even though SkyWest turned a profit in the first quarter of 2020, the airline is still receiving government aid through the CARES Act:

  • SkyWest will receive approximately $438 million of payroll support under the CARES Act
  • $337 million of that will be a direct grant and approximately $101 million will be a 10 year low interest unsecured loan
  • SkyWest will receive the funds in four monthly disbursements from April to July 2020

You can’t blame SkyWest for taking aid since there was nothing in the regulations saying that you had to lose money in order to receive aid. But that still sure is interesting…

SkyWest operates on behalf of United Express

How did SkyWest still make money?

With other US airlines having lost anywhere from tens of millions to a couple of billion dollars in the first quarter, how is it that SkyWest actually turned a profit? It’s because of the nature of the regional airline business.

For the most part SkyWest is operating on a contractual basis with the major airlines, and they’re paid for operating flights regardless of how full they are. In other words, major airlines are marketing these flights, and those airlines the risk — they suffer during bad times and benefit during good times.

In an an environment like this, SkyWest’s business model is obviously ideal, because the airline is being paid per contracts.

However, don’t expect things to continue to be this good for SkyWest. With major airlines shrinking, you can also expect that many contracts won’t be renewed, as we’ll likely see airlines starting to utilize regional airlines less. At that point SkyWest will be in a tough spot, left with quite a few planes that will probably have to be parked.

SkyWest operates on behalf of Delta Connection

Bottom line

Regional airlines often have very different business models than the major carriers. At this very moment that has proved to be positive for SkyWest, as the airline turned a profit while all the major carriers they work with are losing money.

SkyWest was making money even while operating nearly empty flights on behalf of other airlines. Of course this business model has a downside as well — they could be left with long-term contract cuts eventually, and with a large fleet that has no flying to do.

  1. Hopefully, for employees, SkyWest puts the money they receive from government into savings for the time when contracts aren’t renewed or renewed with much less revenue. But what am I thinking. C level executives are going get huge bonuses from the govt money for having profit and they will also give money into stock dividend leaving $0 for later bad times.

  2. @Endre Hell ya! 2.33% dividend! The only people who hate capitalism are the people who are too dumb and lazy to take advantage of capitalism. Easy to blame “investors”, even easier to become an investor.

  3. Yes, while the majority of income for SkyWest comes from contracts with partner airlines, the company is saving millions of dollars each month because its employees have taken un-paid voluntary time off.

    With regard to “having a large fleet that has no flying to do,” SkyWest does not own very many of its aircraft; in fact, the number of E-175’s owned by the company is very nearly zero – these are owned by the major partner airlines (they’re managed by SkyWest as part of the contractual agreement).

  4. Just a minor grammatical note, “stock” is the plural for multiple shares in the same company. So if Skywest bought back their own shares the correct use would be “They spent X buying stock”.

    Great article, Ben!

  5. I’m not sure that they even will lose contracts, because, as demand decreases, the major airlines might scale back currently mainline-operated routes to small aircraft that fit under the scope clause

  6. Actually, SkyWest and the regional airlines, may benefit. As the airlines cut capacity, they may move flights operated by mainline airplanes to smaller regional airplanes. This has happened in past downturns.

  7. If @Bill Carson is correct (which I have no reason to doubt), their business model is quite „Corona proof“ … as they get CARES for the salaries of those not put on unpaid leave …

  8. Typically in the downturns, airlines have utilized regional aircraft more. After the 9/11 down cycle there were several days in typical week that Continental Express/ExpressJet flew more departures then Continental Airlines. However, who knows what’s going to happen with this current mess. Apples to Oranges, I guess.

  9. Well, if the big boys decide not to renew contracts with the regionals, then the regionals know what to do. Take their profits and their operations skills, and go out and buy some of them there parked up unwanted el cheapo jets and cherry pick the majors’ most profitable routes, plus the regional routes that would be hard to compete with them on.

  10. Biz guy tell me Capitalism is taking money from taxpayers and put in there pockets because the will.
    The pilots and FA the are pay not to much is the reason the make money

  11. Sure, they could be left with contract cuts, but on the other hand they are operating on behalf of the airline, so the airline does not incur the expense and risk to run the flights AND they usually operate smaller planes so if demand is less then it would make more sense to have their flights.

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