SkyWest's 2025 Q3 Earnings Call: Contradictions Emerge on Fleet Growth, E175 Orders, and CRJ-200 Outlook

Date of Call: None provided

Financials Results

• Revenue: $1.1B in Q3 2025, up from $1.0B in Q2 2025 and up 15% YOY from $913M in Q3 2024
• EPS: $2.81 per diluted share (GAAP Q3 2025), net income $116M

Guidance:

• Q4 2025 EPS expected in the ~$2.30 area.
• Full-year 2025 GAAP EPS expected in the mid-$10s per share range.
• 2025 block hours expected ~+15% vs 2024; 2026 block hours expected low single-digit growth.
• 2026 EPS expected mid-to-high single-digit growth to about $11.
• 2026 CapEx expected ~$575–$625M; Q4 2025 CapEx implied ~ $190M.
• Effective tax rate ~26–27% for Q4 2025 and ~24% for 2026.
• Expect to recognize ~$5–$15M of previously deferred revenue in Q4 2025; maintenance activity in 2026 expected roughly at current rates.

Business Commentary:

* Strong Financial Performance: - SkyWest Inc. reported net income of $116 million, or $2.81 per diluted share for the third quarter of 2025, driven by a seasonally strong quarter and ongoing strong demand for its products. - The company achieved more than 185 days of 100% controllable completion, with over 2,500 daily scheduled departures, reflecting the team's focus and efforts.

• Fleet Flexibility and Growth:
• SkyWest secured firm delivery positions with Embraer for 44 more E175s from 2028 to 2032, enhancing fleet flexibility for future growth.

• The company also extended its agreement with United to keep 40 CRJ-200s in service until the early 2030s, indicating the ongoing demand and utilization of its aircraft.

• Cost Management and Shareholder Value:

• SkyWest generated $144 million in free cash flow in Q3, contributing to a total of nearly $400 million in the first three quarters of 2025.

• The company opportunistically repurchased 244,000 shares of SkyWest stock in Q3 for $27 million, reflecting its commitment to returning capital to shareholders.

• ATC and Government Shutdown Challenges:

• SkyWest is navigating the challenges of an ongoing federal government shutdown, which has affected the Air Traffic Control (ATC) system.
• The company is committed to honoring service commitments, including those under the federal Essential Air Service program, highlighting the importance of these services to the communities they serve.

Sentiment Analysis:

Overall Tone: Positive

• Management reported Q3 net income $116M ($2.81/share), stated "demand for our product is very strong," secured fleet orders and delivery positions, and said "we remain optimistic about 2026" while emphasizing balance sheet strength and fleet flexibility.

Q&A:

• Question from Tom Fitzgerald (TD Cowan): Can you walk us through the puts and takes on the fleet and the mixed benefit as you bring on more E175s and then some of the CRJs come out?
  Response: Additional 20 CRJ-550s will be returned to service (mainly 2026) while 14 E175s (3 in Q4 2025, 11 in 2026) are added; net effect supports low-single-digit growth in block hours with redeployments offsetting some Delta-owned CRJ-900 returns.

• Question from Tom Fitzgerald (TD Cowan): As a percentage of pre-pandemic, where does pro-rate stand today and what opportunities do you see next year?
  Response: Pro-rate is ~70% of 2019 levels, with strong nationwide demand and opportunities to restore/expand small-community service with all major partners.

• Question from Mike Lindenberg (Deutsche Bank): Can you update us on Essential Air Service funding and the mechanism/recourse if subsidies aren’t paid during the shutdown?
  Response: Current expectation is funding through November 18; company intends to continue service but reimbursement beyond that is uncertain and will require discussions with communities and partners.

• Question from Mike Lindenberg (Deutsche Bank): The agreement to extend up to 40 CRJ-200s into the 2030s — are those all contract airplanes or a mix of contract and pro-rate?
  Response: The 40 extended CRJ-200s are all contract airplanes under United agreements.

• Question from Mike Lindenberg (Deutsche Bank): Are you shifting pro-rate toward dual-class CRJ-900s (e.g., with American) versus historical single-class CRJ-200s; can you confirm the American pro-rate equipment?
  Response: Yes — American pro-rate uses CRJ-900s; SkyWest also runs CRJ-550s for Delta; larger dual-class aircraft expand pro-rate opportunities in more markets.

• Question from Savi Sith (Raymond James): Beyond EAS, any other impacts from the government shutdown you’re watching, and any material effect from Brazil’s 10% tariff?
  Response: TSA/ATC teams are maintaining operations; untowered small-community flying less affected; the 10% Brazil tariff is manageable but still a headwind and could harm small-community service long-term.

• Question from Savi Sith (Raymond James): Given CRJ-200 age, where could that fleet size be in 2027–2028 or beyond?
  Response: With extensions and investments, SkyWest expects to operate roughly ~100 CRJ-200s into the early 2030s, supported by maintenance investments and parts/airframe purchases.

• Question from Dwayne Finnengworth (Evercore ISI): For 2026, what are net fleet additions for capacity purchase flying (deliveries, CRJ-550s added, roll-offs)?
  Response: Net contractual flying is roughly flat-to-slightly up next year: 11 E175 deliveries and ~20 CRJ-550s placed, offset in part by returns of Delta-owned CRJ-900s, yielding low-single-digit block hour growth.

• Question from Dwayne Finnengworth (Evercore ISI): Are the E175 deliveries you referenced firm orders or do they include options?
  Response: The E175 deliveries referenced are firm orders through 2032; 44 of the 74 slots are unallocated and the company retains flexibility to defer or cancel if not placed with partners.

• Question from Dwayne Finnengworth (Evercore ISI): Does the mid-to-high single-digit EPS growth outlook for 2026 assume incremental share buybacks?
  Response: No specific assumption; management will remain opportunistic on buybacks depending on market conditions and will deploy capital opportunistically.

Contradiction Point 1

Fleet Growth and Demand

It involves conflicting statements about fleet growth and demand, which are crucial for understanding the company's operational and financial outlook.

What is the net fleet addition for 2026? - Dwayne Finnengworth (Evercore ISI)

2025Q3: We expect low single-digit growth in block hours for 2026, driven by new E175s and CRJ-550s, offset by returning Delta-owned CRJs. - Wade Steel(CMO)

If tariff uncertainty is resolved, what is your expectation for 2026 block hour growth? - Duane Thomas Pfennigwerth (Evercore ISI)

2025Q2: We have opportunities for growth with 25 dual-class CRJ aircraft reactivation. We're optimistic and expect growth opportunities irrespective of tariff scenarios. - Wade J. Steel(CMO)

Contradiction Point 2

E175 Orders

It involves inconsistencies in the description of E175 orders, which is significant for understanding the company's strategic direction and fleet management.

Are the E175 orders firm or with options? - Dwayne Finnengworth (Evercore ISI)

2025Q3: The E175 orders are firm, with no options included. There is flexibility to defer or cancel if not allocated to a partner. - Wade Steel(CMO)

Will the E175 order shape capital allocation in the coming years? How do you view share repurchases? - Catherine Maureen O'Brien (Goldman Sachs)

2025Q2: We have not yet formally placed the new order with Embraer. When we get there, it could be for as few as 10 or as many as 50 aircraft, with options. - Robert J. Simmons(CFO)

Contradiction Point 3

CRJ-200 Fleet Outlook

It involves the future size and status of the CRJ-200 fleet, which is crucial for operational planning and cost management.

What is the outlook for the CRJ-200 fleet size? - Savi Sith (Raymond James)

2025Q3: We've extended 40 CRJ-200s to the early 2030s. We expect to fly around 100 CRJ-200s well into the early 2030s. - Wade Steel(CMO)

What's the current status of the over 140 CRJ200 aircraft not under contract from last quarter? - Catherine O'Brien (Goldman Sachs)

2025Q1: We do have a lot of those still under contract with a major partner. We do fly those in prorate at SkyWest as well. So there is a big chunk of those, somewhere in the range of 80-ish today that are flying at SkyWest Airlines. - Wade Steel(CMO)

Contradiction Point 4

Pro-Rate Demand and Growth

It concerns the current and projected demand for pro-rate flying, which is essential for revenue generation and strategic planning.

How does pro-rate compare today as a percentage of pre-pandemic levels, and what opportunities do you see next year? - Tom Fitzgerald (TD Cowan)

2025Q3: Pro-rate is at 70% of pre-pandemic levels. Demand is strong throughout the country, with opportunities for enhancing frequency and restoring service to communities. - Wade Steel(CMO)

Have your partners discussed their post-summer plans and what they might look like? - Savi Syth (Raymond James)

2025Q1: Our pro-rate partners, they're seeing strong demand, 75%, up from 40% a year ago. - Wade Steel(CMO)

Contradiction Point 5

Pro-Rate Demand Levels

It involves changes in pro-rate demand levels, which are crucial for understanding the company's operational and financial performance.

What is pro-rate's current position as a percentage of pre-pandemic levels, and what opportunities are expected next year? - Tom Fitzgerald (TD Cowan)

2025Q3: Pro-rate is at 70% of pre-pandemic levels. Demand is strong throughout the country, with opportunities for enhancing frequency and restoring service to communities. We are actively working with major partners to expand service. - Wade Steel(CFO)

How are the financial results and outlook for the company? - Robert Simmons

2024Q4: Today, we reported a fourth quarter GAAP net income of $97 million or $2.34 earnings per share. Q4 pretax income was $134 million. Our weighted average share count for Q4 was $41.7 million, and our effective tax rate was 27.1%. Before the 2024 year, we reported GAAP net income of $323 million or $7.77 earnings per share. - Robert Simmons(CFO)