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spk06: Good day and welcome to the SkyWest Inc. second quarter 2022 earnings call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question for any reason, you can press star 1 again. I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. Please go ahead.
spk00: Thanks, everyone, for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer, Wade Steele, Chief Commercial Officer, and Eric Woodward, Chief Accounting Officer. I'd like to start today by asking Eric to read the safe harbor. Then I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our cell site analysts. Eric?
spk03: Today's discussion contains forward-looking statements that represent our current beliefs, expectations, and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward-looking statement. Actual results will likely vary and may vary materially from those anticipated, estimated, or projected for a number of reasons. Some of the factors that may cause such differences are included in our 2021 Form 10-K and other reports and filings with the Securities and Exchange Commission. And now I'll turn the call over to Chip.
spk08: Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. SkyWest celebrates 50 years in 2022. commemorating our first departure in June of 1972. For the past five decades, SkyWest has weathered many storms and continues to adapt and evolve to lead the regional industry. That's a testament to our more than 14,000 people who are truly unparalleled. We wouldn't be where we are today without the outstanding work of our people, and I'm humbled and grateful that I get to work alongside them. Demand for SkyWest product during the second quarter remained exceptionally high. with our main constraint being crew imbalance as we discussed last quarter. We made good headway during the quarter to realign our schedules and resources, producing results that were slightly better than we anticipated. We reported pre-tax income of 73 million and net income of 54 million. The improvement in our second quarter results from the first quarter was largely driven by outstanding operational performance, including a 99.9% adjusted flight completion rate during the quarter. as well as a block-hour production increase of 13% on our E175 fleet and an increase in prorate revenue. I want to thank our people for their teamwork and efforts to deliver strong operating performance as we launched a very busy summer travel season. We received eight E175s during the second quarter, and we'll receive 16 more this year with a total of 240 E175s planned in service by early next year. Our refleeting that has been in progress for the last several years continues to be a priority as we execute on our long-term strategy. During the second quarter, nearly 80% of our block hours were flown utilizing our dual-class fleet. While demand is solid, clearly our largest constraint is captain availability. SkyWest is fortunate to maintain a robust hiring pipeline and strategy for all work groups and to have new hire classes filled through year end. We expect that the ongoing high demand for pilots will continue to result in SkyWest pilots being the most sought after in the industry and are planning our models accordingly. We have long been investing in tuition reimbursements, incentives, and various other partnerships and methods to reduce barriers to entry and clear the path to help increase equality among the pilot profession. Notably, of those who have joined our pilot pathway program this year, over 40% are women or people of color. As we discussed last quarter, we've taken a number of steps to address our new crew imbalance, including managing schedules with our partners, working with our pilot group to implement upgrade and captain retention incentives, and offering sustainable career pathways, including guaranteed pilot interview programs for our captains. While these discipline strategies are producing results, the timing required for training and upgrades will likely constrain production into late 2023 and early 2024. We will continue to work with our people to ensure we remain best positioned to aggressively manage this challenge. We are currently in pay conversations with our pilots and expect to increase our pilot investment going forward to ensure we continue to provide more stability, opportunity, and options than any other regional care can provide. During the second quarter, we formed SkyWest Charter as an additional entity of SkyWest Inc. Our intent is to enter the strong charter business within existing regulations and we have applied for commuter authority with the Department of Transportation. We appreciate the strong support from many communities and airports as well as the efforts of the DOT and FAA to enable this service that would provide essential connections that many small airports rely on. We undoubtedly have the asset base, best fleet, high standards and expertise to execute this operation well and intend to hold SkyWest charter to the exceptional high standards of safety and service associated with the SkyWest name. While demand for our products has never been stronger, the current staffing imbalance and ongoing refleeting doesn't allow us to monetize that demand in the short term. We continue to expect 2022 production to be reduced by about 5% from 2021 production. We also continue to expect production the second half of the year to be lower than the first half due to the crew imbalance. However, there are three components in the environment today that gives us great confidence in SkyWest as an investment. First, there's undoubtedly significant unmet demand for regional flying. Second, our strong pipeline and our ability to attract, train, and retain captains is far greater than our competitors. And third, SkyWest asset value is unparalleled in the market. Our disciplined approach over the last decade in acquiring profitable assets at strong economics will enhance our ability to meet our objectives in this new economy. Although we continue to expect the recovery will remain choppy as we work through some headwinds over the next couple of years, we remain aggressive and deliberate in the steps we're taking now to ensure we are well positioned for 2024 and beyond. Rob will now take us through the financial data.
spk00: Today we reported second quarter gap net income of $54 million, or $1.07 diluted earnings per share. Q2 pre-tax income was $72.7 million. Our diluted share count for Q2 was 50.6 million shares, and our effective tax rate in Q2 was 26%. First, let's talk about revenue. Total Q2 revenue of $799 million is up 9% sequentially from Q1 2022 and up 22% from Q2 2021. Q2 revenue breaks down with contract revenue up 8% from Q1 2022 and up 28% from Q2 a year ago. Pro-rate revenue was $95 million in Q2, up 20% from Q1 2022 and down 8% from Q2 2021. Leasing and other revenue is down 7% sequentially and up 5% year over year. These gap results include the effect of a release of $16 million of deferred revenue this quarter compared to $11 million released in Q1 and $6 million that was deferred during Q2 2021. As of the end of Q2, we have $69 million of cumulative deferred revenue that will be recognized in future periods. This quarter's results also include two items I wanted to note. The first is a $15 million impairment charge we took this quarter on four of our older CRJ700s that were part of our ExpressJet fleet and are held for sale. This impairment is in the line item other operating expense. The second is a $10 million mark-to-market gain on our investment in Eve as it started trading publicly during the second quarter. This gain is recorded below the line in other income. Let me move to the balance sheet. We ended the quarter with cash of $979 million, up from $856 million last quarter. Our CapEx during the second quarter was $197 million for eight new E175 aircraft and other fixed assets. Total 2022 CapEx is expected to be approximately $775 million, including the purchase of 28 new E175 aircraft, compared to $556 million in 2021. We ended Q2 with debt of $3.3 billion up slightly from $3.1 billion as of year-end 2021. Just a reminder that the only government debt we have on our balance sheet is a total of $201 million in PSP 10-year unsecured, no amortization, low coupon loans. Let me say a couple things about liquidity. As of June 30th, 2022, our cash position of $975 million included the effect this quarter of having repaid an incremental $103 million of debt before adding $191 million of debt financing for eight new E175s and $25 million in engine financing. We also have over $1 billion of unpledged collateral that could be deployed for additional liquidity if ever needed. Additional flexibility comes from the fact that including partner-owned aircraft, 50% of our fleet in service has no financing obligation. Consistent with our policy and practice, we are not in a position to give any specific EPS guidance at this time, but let me give you a little directional color. Q2 results were slightly better than expected for a variety of reasons referenced earlier by CHIP. including optimizing our schedules by aircraft type, strong demand that we monetized opportunistically, and benefits from our evolving fleet mix. We expect Q3 results, however, to be slightly down from Q2 due to labor constraints and costs. The second half of 2022 will likely be worse than the first half of 2022 for similar reasons. with the second half of 22 modestly profitable. We don't expect to rebuild production from this pilot imbalance challenge until the end of 2023. Second, we won't see the full year impact of the 47 accretive new E175s going into service in 2022 and early 2023 until 2024. Our actions today are setting us up for success in 2024. Third, we will continue to focus on liquidity and expect to end 2022 with a strong cash position in spite of the investment we are making in 28 accretive new E175s this year. We believe that the actions we are taking now to invest in the growth of our ERJ fleet work through the pilot imbalance affecting the industry and preserve the optionality of monetizing strong demand opportunities over time. will position us well for 2024. Wade?
spk07: Thank you, Rob. I'll provide a fleet and production status update, as well as an update on our prorate and leasing businesses. We continue a strong delivery schedule this year, as we've discussed in recent quarters. We previously announced an agreement with Delta for 16 new E175s to replace 16 older SkyWest-owned CRJ900 aircraft. During the quarter, we took delivery of two of the 16 aircraft. We anticipate taking delivery of the remaining 14 E-175s during the second half of the year and will be placed into service beginning in the third quarter of this year through the first part of 2023. After we receive these aircraft, we will have 87 E-175s under long-term contracts with Delta. Under our American contract, we have 20 new E-175s scheduled for service throughout this year. We received 18 of those aircraft during the third and fourth quarters of 2021 and will receive two in the third quarter of this year. We have an agreement with Alaska to add 11 E-175s to our contract. During the second quarter, we took delivery of six and had already taken four during the first quarter of 2022. We expect to take delivery of the last E-175 during 2023 for a total of 43 aircraft under long-term contracts with Alaska. Demand for our E-175 product remains very strong. Following delivery of those currently on order, our E-175 fleet will be 240 aircraft. Let me review our current production in 2022. Based on the current schedules we have from our major partners for the third quarter, we anticipate that our block hours will be down by approximately 3% to 5% in the third quarter as compared to the second quarter. As we look to Q4, we anticipate our Q4 block hours will be down 13% to 17% as compared to the second quarter. Let me talk a little bit about our prorate business. As we've discussed, we are experiencing a crew imbalance that is impacting our ability to fully meet the strong demand for our product. As a result of this imbalance, during the first quarter, we filed a 90-day notice with the DOT to discontinue service to 29 essential air service communities. This was a very difficult decision and one we would have preferred not to make. We have been serving most of these communities for several years. It appears nine of these 29 communities will transition to another airline by year end. We continue working through this challenge and remain committed to help find good solutions for these and other underserved communities. Shifting gears to our leasing business. During the quarter, we entered into one long-term lease for a CRJ700. This brings our total CRJ700 and 900s under long-term leases with third parties This line of business has very good cash flow and strong margin characteristics. Demand for our engine leasing business is returning, and we have placed a few more engines under third-party leases during the second quarter and anticipate placing more engines under leases by the end of the year. We have a strong delivery schedule this year and will continue working efficiently and effectively allocating our resources as we optimize our fleet mix. We have spent the last several years reducing risk and enhancing fleet and financing flexibility to ensure we're well positioned. This flexibility will continue to be a differentiator for us, and we are committed to continuing our work with each of our major partners to provide creative solutions.
spk00: Okay, Lisa, we're ready for the Q&A now.
spk06: Thank you, sir. As a reminder, everyone, that is star one on your telephone keypad. We'll take our first question from Savisa with Raymond James.
spk05: Hey, good afternoon. I was just kind of curious, you know, American passed a pilot contract for their in-house subsidiaries, which, you know, the base pay is quite a big increase, but when you include the bonus that supposedly is temporary, a pretty significant jump up. I was curious as to, you know, what, If you've seen any impact in terms of kind of retention or ability to attract since they've passed that or, you know, what do you think the kind of the read-throughs to the industry are from that contract there?
spk08: Well, Asabi, this is Chip. Thanks for the question. It's a good question. And, you know, candidly, I think when we look at what America has done with some of their wholly owned industries, There's a couple of things that we can, some ideas about it that we can embrace and some that we don't, you know, embrace. I think one of the things that, for our perspective, is that we want to long-term, you know, find a solution for pilots over the long term and not just for the next year or two. You know, that package is very heavily, heavily weighted for the next 24 months. I said in my script that we're investing in our pilots and we're getting close to, you know, having some Good things to work out with with our pilots, but I think that there's a little different color from our perspective There's no doubt in the economy that we're living today that labor costs are a big issue for everybody It's not even just our industry by the way So, you know as we I think the most important thing for us to do is to come together as we work with our pilot group and have that evaluation for What's the most meaningful? process for our pilots and our group, and we're getting some very good traction and having some good conversations with them. As it relates to the industry, you know, obviously there's some things that some of our partners have done with wholly owned carriers that are very close to this, and we're having good conversations with them as well. You know, as far as long-term partnering ideas surrounding, you know, various labor shortages, especially with pilots. Look, I think we've got some very good momentum and some good direction and think we've got some good solutions to help, you know, get us back on track, like we said, closer to the 2024 timeframe.
spk05: That's helpful. How should I think about, you know, clearly the partners are well aware of these hiring constraints and needing to drive pay raises. How quickly do you think you'll be able to pass that through across your contract? Is it going to be a five-year process, a two-year process, or could it be faster? How should we think about, once you pass that pilot pay agreement, the hit and how long it would take to then get back to a normalized margin?
spk08: Well, I don't want to get into too many of the strategies we have, but I will give you some assurances. One, we have a very good fleet renewal timeline from starting in 2023 through the next five or six years. And obviously, when you come up with that type of contract expiration and people want to renew, that's the ultimate reset of some of these things. We also see some opportunity relative to the sooner that we can fix The turnaround relative to our captain issue, the faster we can go back at capacity. I said in my script that the demand for our product is extremely high. You can see not just us, but most other regionals are pulling down significant capacity, which means there's a tremendous amount of scope we think in the next year or two that's going to be left out there that we could get pretty aggressive with. You know, I would suggest that this is not going to happen overnight. We don't have any partner that's going to just wonderfully write out a check for all of these costs, but it is a gradual process, and the more that we can deliver, the easier those conversations go because of the strong demand for flying, particularly in small and mid-sized communities today. So that's kind of the way we're looking at it without getting into any of the nuts and bolts.
spk05: Last one, just following up on that before I get back on the queue. It seems like you're kind of into service timeline at American and Delta a little bit faster than you were thinking earlier this year. I'm guessing it's a function of your operations have been good. It seems like you're gaining more confidence. I'm kind of surprised to see that sequential drop from 3Q to 4Q on block hours. It seems like it's more than seasonal. Is there something that I'm missing in that forecast or is there a lot of conservatism in there?
spk07: Yes, Avi, this is Wade. So the first part of your question about our timelines with American and Delta, those have been very consistent for the last couple of quarters. We've been saying that there's really been no differences in the timeline of the 175s coming in. As far as the guidance coming forward, as we talk about in our script, there is a crew imbalance that we're working through right now where obviously we are you know, modeling it conservative as we're looking at it, you know, and we're trying to do the best we can to, you know, sure up and stabilize the fleet going forward. But there is that crew imbalance that we are working through over the next several quarters.
spk05: Got it. Thank you.
spk06: We'll take our next question from Mike Linenberg with Deutsche Bank.
spk02: Oh, hey. Good afternoon, guys. I want to go back just on Savi's question on the pilot since I know you don't have a union contract. But that said, you still have kind of an agreement. Is there a structure in place where rates are set for several years and then you sort of negotiate and then they're replaced by new rates? What's the timing? I'm just trying to get a sense of if, in fact, over the next year or two, we do see a meaningful bump up in pilot pay rates that, frankly, we're seeing across the entire industry. And I just want to know whether or not it's not going to show up until you guys renew some of your agreements. Like Chip, you said, I think, you know, 23, 24, 25, things renew, and that's usually a good time to kind of go back and discuss kind of where things are on the cost side, et cetera.
spk08: Yeah, Mike, this is Chip again. Just to be clear, we have a very clear collective bargaining agreement with our pilots that is structured like any other agreement. a contract with pilots. But our current agreement expires at the end of this year. We've been in conversation with our pilots over the last several months. It's a long process. There's a lot going on in the world. Lots of concerns about various aspects of the industry. The focus of our package is clearly on the captain side and retention and those types of things. But we intend, I mean, look, we're pretty close. We intend to have something probably coming out of agreement here within the next month or so. And even if we were not bound by an expiration of our pilot contract this year, we probably would, given the market circumstances, we've always opened things up if we feel like we've needed to, as we've done in the past, and would be here anyway. So the timing of the contract is what it is, but more importantly, we're in a situation where We've always utilized some market opportunities to take care of our people and do it in a way that's going to benefit them long-term. And I think that's the element that we want to emphasize of what our strategy is, is we want a long-term element of our pilot contract that's going to make sure that we can continue to achieve what we've achieved over the last several decades at SkyWest. And the conversations are going well, and we continue to go down that pathway.
spk02: Okay, that's helpful. And then Back to maybe it was Rob or Wade who talked about just on the pro-rate revenue, $95 million is pretty good. I know it was down, I think, 8% versus a year ago, but it was up 20% versus March quarter. I was kind of working under the assumption that that was really going to start to come down as you reduce block hours. And I guess presumably you may be benefiting from a strong pricing environment, strong revenue environment. So can you give us the block hours?
spk07: um maybe maybe that's going to tell me that you did drop your pro rate flying by a lot more than what the revenue suggests yeah mike this is wade so hey wade yeah we've been hey how are you so we are um on the pro rate side the block hours have definitely gone down quarter over quarter year over year um you know really the the strong revenue is we we're you know Our prorate is very similar to what the major partners are seeing right now. The yields are very strong. The demand is very good. And in a lot of these small communities, people are working with us to, you know, stay in there and do what we need to do. So the revenue environment on our prorate is very good. And so it's really a yield, you know, we've just seen the yields very strong in a lot of these communities over the last couple of quarters and As we look forward into Q3, it looks pretty good as well. Okay.
spk02: And then just lastly, I know you've been making all sorts of interesting investments. You highlighted the EVE gain. Maybe I dreamt this or not, but Southern Airways Express, do you own a piece of that company? I can't remember if you own another piece of another regional carrier.
spk07: Yeah, Mike, this is Wade again. So, yeah, we've made an investment in Southern and Mochilele, that whole combination, several years ago. And they're a good partner. They're growing. They're doing a lot of good things. And, you know, we're helping them with their strategic plans and how they're moving forward. So, yeah, we do own a small business.
spk02: And wait, they're a 135. Are they a 135 carrier?
spk07: They are. They primarily operate caravans. under a 135 certificate, that's right.
spk02: Okay, okay. Would it ever make sense to use them to be the backbone of this charter operation, or it makes maybe more sense on the mainland to do, you know, a de novo operation?
spk08: Yeah, Michael, this is Chip. I think it's primarily relative to the fleet that we want to utilize relative to this, which, you know, we have a significant amount of assets in the CRJ-200. Look, there's no doubt that as we strategically look and make sure that we take care of the communities that we're serving today, want to serve, and some that we have to back out of, it's all part of a bigger conversation with the communities. I mean, we're deeply invested in these communities. We've invested in them for years. Sometimes it may make sense that Southern backfills us sometimes. makes sense that we utilize a commuter authority to have a 30-seat CRJ200 to do it. So the best part about it is we've got a tremendous amount of assets, tremendous amount of expertise relative to the situation with, most importantly, a lot of flexibility with our other business relationships, including our partners, to try to work some of these things out given the current environment. Great. Thanks.
spk02: Thanks, Chip. Thanks, Wade. Thanks, everyone.
spk06: We'll take our next question from Helaine Becker with Cowan.
spk04: Thanks very much, operator. Hi, everybody. Thanks for the time. Can you say if there's been any update on the application with the FAA on the Part 135 carrier?
spk07: Yeah, Helaine, this is Wade. We filed for commuter authority in the middle of June. on the application, and we had many communities that put letters of support in there. Right now we're working through the application with the DOT. They're currently reviewing it. So hopefully in the next couple of months we'll get this all sorted out, the commuter authority, and we'll be able to start flying some flights.
spk04: Yeah, is there a way we should, you know, is this like a fourth quarter, first quarter event? Is that how we should think about it?
spk07: We're still working through the exact timing. I will tell you that we are going to operate this as a charter as well, as on-demand charters. And, you know, we believe we will start flying that, you know, on-demand charters definitely sometime during this year. As far as the commuter authority, we're still working through with the DOT on some things on that. So I don't know if I necessarily want to give an exact timeframe, but I don't think it will drag on too long, but we are working through it. But we will be flying on-demand charters here hopefully shortly.
spk04: Okay. That's very helpful. Thank you. Can I just shift gears and ask Rob a question on that? On the cash position, how are you thinking about the right number for cash and liquidity going forward? Because it seems cash exceeds revenue, and I'm not sure that that's the right level of cash to have, or maybe it is.
spk00: Yeah, Helene, look, I think as we think of our liquidity positions, You know, obviously, you know, I think the way that we have thought about it has evolved over the last couple years through COVID and whatnot. But I think that, you know, given, you know, what the next 18 months, you know, is likely going to look like for the industry, we're happy having, you know, a higher than usual level of liquidity. And we think that it's one of, frankly, it's one of our, you know, one of our real competitive advantages that we've got out there, the strength of our balance sheet, the fact that should other opportunities arise, that we've got the ability to, you know, finance additional airplanes, you know, given the strength of our balance sheet, you know, as you'll note, it's like our debt net of cash really hasn't budged through, you know, all of COVID. And I think it's, you know, I think it's frankly one of our competitive advantages that that really helps us.
spk04: Great. Thanks very much.
spk06: We have a follow-up question from Savi Seth with Raymond James. Please go ahead.
spk05: Hey, thanks for the follow-up here. I'm just kind of curious. I know United on their call mentioned the current situation probably accelerating, where they thought they would get to from a regional mix, which is a lot smaller. I think they've talked about it being maybe half the size. Clearly, still, I think, big fans of the large RJs, but you do have, I think, 70 CRJ-200s flying with United, and I wonder if you've had any conversations about kind of the interest on continuing with those CRJ200s, if you expect that to kind of wind down over the next kind of couple of years here.
spk08: Yeah, so I think that fleet mix and strategies are going to be very dynamic over the next couple of years. And I think I would also just take two seconds to at least reiterate what our strategy as a regional carrier is. I think there's a lot of news in the world that's talking about less regional flying. And I think it's not because of the demand for regional flying is going away, because we see it being the exact opposite. I think that the supply of regional flying is going to be a constraint, and that's why we're going to be aggressive in making sure we can fill that demand. So when it comes to CRJ, you know, 200s, there's a lot of conversations about 200s. Certainly the dual class 175s and the larger CRJs are the priority relative to the capacity that they can carry, particularly with our major partners. CRJ200 fits very well within the charter operation and what we want to do flying charters. And so look, it's sort of a dynamic conversation about fleet all the way around and is going to continue to stay that way. We have been more than surprised at the interest in our charter operation since we've had some more development of it and we've been more public about this last quarter. We're surprised about pilot interest in it. We're surprised about uh community interest in it and we're surprised also that uh you know there's a lot of a lot of parties that want this thing to work and we're excited about it now doesn't mean we're going to move all the 200s over but it certainly gives us an opportunity to be flexible and prioritize the dual class fleet at skywest that's a good segue to my next question so it kind of follow up on i think helene was asking but the part 135 and starting that like what would you
spk05: I mean, it seems like you have the systems in place to be able to start selling those fares and I'm guessing interlining perhaps with majors or how should we think about, you know, if that opportunity becomes feasible or when that opportunity becomes feasible, how much infrastructure you have in place today that you can just leverage off of versus maybe there needs to be some investment to get that operation off the ground.
spk08: Well, let me let me Give you some perspective of what we're trying to do. This is not. Let's remember, we're not pioneering this business model. This is not a business model that needs to be invented. There are other carriers today with the authority that we're seeking that are doing the exact same thing relative to scheduled charter service. There's a lot of charter operators out there that we don't need anything from the DOT to do this with. And when you talk about, you know, flying charters in a 135, our perspective of this is to operate it at the exact same level of safety as SkyWest Airlines and to leverage all of the expertise that SkyWest has developed over the past 50 years and apply it to an existing business model that other people have the authority to do this with. So from our perspective, when we talk about leveraging Usually the most difficult thing when you start an airline or transition is the intellectual property that you don't have or the pilot pipelines that you don't have or the connections or the relationships that you don't have to get it up off the ground. We will knock that out of the park. We have all of those things in place. We have very strong assets and very strong expertise. Many of our expertise has left SkyWest and is coming back and deeply interested in this stuff. And again, we're amazed at the outside interest in this business model. And so from our perspective, we're not going to let this model ever be the baseline model of what we do. But it certainly is a great opportunity for us to capitalize on some assets and some expertise that we have. So from a timeline perspective, I think Wade basically said it. We expect in Q4, we'll do some chartering on-demand charter operations. Like I said, employee interest in this is very, very high, and we'll continue to work with the DOT to get the other authorities that we're looking for to continue to develop this business model.
spk05: And just to follow up, it's probably a little bit of a dumb question in there. So if I think about what a great opportunity this is to kind of help bridge the gap for pilots coming out with that 250-hour and needing to build up, Like, how do you see kind of pilots moving through here and into SkyWest? Like, what would they be, what kind of hours will they get, and how will this help you address the captain supply side of things?
spk08: I would suggest, Savi, that 95% of this relative to pilots is captain supply. I'm going to go backwards and say, look, there are a lot of pilots available that we see in our pipeline that have 1,500 hours. The captain supply is what becomes most intriguing to us because of the applications and the interest that we've seen from existing experienced captains in the industry and that have been at SkyWest that want to participate in this operation. So to the extent that how the pilot supply thing works with this, I think it does help out on the captain side because you need captains to create captains. And I think that we have got a lot of work to do still to figure out exactly the flow of how pilots would work in and out of this, but I would assure you of something that's important about how we run this, you know, this charter operation. We intend to run it just like we run the commercial side of SkyWest as a 121 operator. We fundamentally will have SMS systems. We will have ASAP systems, voluntary systems. We will continue to, you know, have accountability to the board. It's important to note that over every single year, SkyWest Airlines, we actually fail several hundred pilots out of our initial training courses. And they have 1,500 hours. They're very well qualified by FAA standards, but they don't meet the SkyWest standard. And that standard for this charter operation will be the exact same standard. So from our perspective, this is a prime opportunity Particularly as communities are facing other forms of service that may replace this as SkyWest Airlines comes out, a great alternative to what I think these communities are looking for. That having been said, we're also extremely excited about some of the feedback we're getting as an on-demand charter operator.
spk05: Thank you.
spk06: Take a follow-up question from Mike Lindenberg with Deutsche Bank.
spk02: Oh, hey, Chip, just back on the charter operation. I mean, I know you mentioned that a lot of parties want it to work. It would seem that first and foremost, one of those parties would be the DOT, given the fact that, you know, you're out there looking to discontinue service to 29 small cities, and you got nine takers, but you still have 20 small cities. And then There's a lot of other major carriers with their regional partners also pulling down small city service as well. So we're looking at lots of airports that could be losing service. Do they see it the same way, number one? Number two, the charter operation as envisioned, are you looking to go back into some of those, you know, of those cities that you're pulling out of that you would backfill with this charter operation?
spk08: Yeah, Michael, I can't speak for the DOT. I can just tell you what's out there within the marketplace. And, you know, of the nine that we're coming out of, there are some that are this exact same model with a different carrier and the same authority going back in. So from our perspective, I don't know that you ever get an opinion, particularly from a government agency, but the data points were favorable, I would say. Okay. Second, yeah, you know, I mean, secondarily, We're not too concerned about what you could look at from an upside from the charter operation yet because we've got so much work to just, you know, get the first 10 to 20 aircraft up and going and seeing, you know, how that works. But there certainly can be some opportunities. But that having been said, I will be candid. You know, a CRJ200 with 50 seats is still a lot better than a CRJ200 with 30 seats. So the priority is still going to be. you know, making sure that SkyWest Airlines is maximizing their capacity and doing what we can in these communities that can, you know, withstand and economically support a 50-seat CRJ as we continue to work through the crew imbalance issue.
spk02: Yeah, no, it just, it seems like from a policy perspective that this is, that this is a good solution. And I, you just read your filing and you look at all the you know, exhibits that are from chambers of commerce and mayors and various cities that are going to lose all service and or that have lost service and that are out there pushing for this. And you start looking at, you know, the number of, you know, Americans who are potentially going to lose regional service. It's a lot of people. It's a lot of voters. It may be 50, 60. I saw a number that I think it was 70 million people are at risk of losing a good portion or all of their air service. So this seems like a no-brainer, but whatever. I'm just opining here.
spk08: Well, and Michael, the other thing from our perspective, and there is some resistance to this, ironically, the other thing from our perspective, either you may lose service, you may, in the very slim chance, get service from another operator that's seeking the same authority that we are, or you may end up with service and a nine-seat single-engine turboprop in a completely different set of rules than we would ever consider in that service. So from our perspective, I think that we're in a good position relative to what our application process is. Okay, great.
spk02: Well, thanks. Thanks for answering all the questions.
spk06: And that does conclude today's question and answer session. I would like to turn the call over to Chip Childs for closing remarks.
spk08: Thank you all again for joining us on the call today. We appreciate your interest in SkyWest. Look, I mean, in conclusion, we want to reiterate there's a tremendous need for regional product in small and mid-sized and underserved communities. Reliable quality air service is unquestionable positive economic impact for any community, and we are focused on ensuring we're strategically positioned to respond to all of that demand. With significant available scope and incredibly strong demand, we're bullish on the long-term future of SkyWest. Also, as we celebrate 50 years, I want to again congratulate and thank our people for their work and great continued support and flexibility. With that, we'll end the call and reconnect with you next quarter. Thank you.
spk06: That does conclude today's presentation. Thank you for your participation.
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