SkyWest: A Regional Aviation Powerhouse with Undiscovered EPS Potential

SkyWest, Inc. (NASDAQ:SKYW) is emerging as a compelling investment opportunity in the regional airline sector, driven by robust earnings growth, a modernizing fleet, and a strategic focus on underserved markets. With a trailing P/E ratio of just 10.74—a discount to peers like Alaska Air Group (17.12)—the company is positioned to capitalize on strong demand for regional travel while delivering double-digit EPS growth. Here’s why investors should take notice.

The EPS Growth Story: From Recovery to Acceleration

SkyWest’s earnings per share (EPS) have surged in recent quarters, reflecting operational improvements and a post-pandemic recovery in travel demand. In Q1 2025, EPS reached $2.48, a 65% jump from the same period in 2024, fueled by a 18% increase in revenue to $948.5 million. Analysts now project EPS growth of 18-19% in 2025, pushing estimates from $7.16 to $8.35 per share by year-end. This trajectory is underpinned by rising block hour production (+22% in Q1 2025) and expanding fleet utilization.

Valuation: Undervalued Relative to Peers and Growth Prospects

Despite its strong earnings momentum, SkyWest trades at a 35.96% discount to its 12-month average P/E of 16.77, suggesting the market has yet to fully price in its growth potential. When compared to competitors:
- Alaska Air Group (ALK): P/E of 17.12 (higher valuation but slower revenue growth).
- Copa Holdings (CPA): P/E of 6.47 (lower valuation but smaller scale).
- Spirit Airlines (SAVE): Negative P/E due to losses.

SkyWest’s 10.74 trailing P/E is also below its 10-year average of 10.83, indicating a cyclical undervaluation. With a $751 million cash balance and $2.6 billion in debt (down $114 million in Q1 2025), the company has the financial flexibility to execute growth initiatives while maintaining a robust liquidity position.

Operational Strength: Modernizing Fleet and Strategic Partnerships

SkyWest’s operational efficiency and fleet modernization are key to its growth. The company is transitioning to larger, fuel-efficient Embraer E175 aircraft, with plans to operate 278 E175s by 2026—up from 262 in early 2025. This shift reduces maintenance costs and aligns with partnerships with major carriers like United, Delta, and Alaska Airlines, which account for 96.5% of its revenue.

The company’s operational execution is also strong:
- Block hour production rose 12-13% in 2025, driven by restored captain availability and optimized scheduling.
- Passenger volume increased 13.6% year-over-year to 10.39 million, with departures up 19.1% to 201,838 flights.
- Fleet flexibility: SkyWest’s CRJ550 and CRJ900 aircraft are redeployed to underserved communities, unlocking new revenue streams.

Market Position: Dominating Regional Connectivity

SkyWest serves over 240 destinations in North America, connecting smaller communities to major hubs—a niche where regional carriers like it excel. While the company does not disclose its exact market share, its 42 million annual passengers (2024) and ~500-aircraft fleet position it as the largest regional airline in the U.S., per the Regional Airline Association (RAA).

CEO Chip Childs emphasized the strategic advantage of SkyWest’s partnerships: “Our agreements with Delta and United provide stable revenue while enabling us to expand into high-demand routes.” The company’s multi-year contract with Delta for 16 additional aircraft underscores this stability.

Risks and Challenges

SkyWest faces headwinds, including:
- Pilot shortages: While staffing has improved, ongoing industry-wide shortages could disrupt schedules.
- Maintenance costs: Elevated at $200 million per quarter, due to reactivating parked aircraft and supply chain bottlenecks.
- Macroeconomic uncertainty: Softening demand could pressure pricing and load factors.

Conclusion: A Compelling Buy for Growth and Value

SkyWest is a rare combination of value and growth, with an undervalued valuation and clear catalysts for EPS expansion. Key data points reinforce this thesis:
- 2025 EPS growth: 18-19% to reach $8.35, supported by a 12-13% rise in block hours.
- Fleet modernization: E175s and CRJ550s will drive efficiency and profitability.
- Strong cash flow: $140 million free cash flow in Q1 2025, enabling debt reduction and share buybacks.

Analysts project a consensus price target of $124, implying 37% upside from current levels. With a P/E of 10.74 and a $127 high target, SkyWest offers a compelling risk-reward profile for investors looking to capitalize on regional aviation’s recovery. As CEO Childs noted, “We’re playing the long game”—and the data shows it’s paying off.

In a sector still recovering from pandemic disruptions, SkyWest’s operational discipline, strategic partnerships, and undervalued stock make it a standout pick for 2025 and beyond.