SkyWest, Inc. (SKYW) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the SkyWest Fourth Quarter 2012 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Bradford Rich, President of SkyWest, Inc. Mr. Rich please go ahead.

Thank you very much, first of all thanks to all of you for joining us this morning, we always appreciate your time and we appreciate your interest in SkyWest, Inc. and our operating companies. Before we begin this morning, let me just introduce who is here and participating in the call this morning. We have Chip Childs, President and Chief Operating Officer of SkyWest Airlines; we also have Brad Holt, here in our headquarters this morning who is the President and Chief Operating Officer of ExpressJet; we have Mike Kraupp, our Chief Financial Officer; and Eric Woodward, our Chief Accounting Officer as well as other members of our staff that are here with us this morning. I would like to turn sometime to Mike Kraupp, our CFO, to read our Safe Harbor and forward-looking statements.

Okay. Thank you Brad, we will be making statements during this conference call which are considered forward-looking, such statements are based on our current beliefs, expectations and assumptions regarding future events and are subject to risks and uncertainties. Words such as expect, intend, believe, anticipate, should, likely and similar expressions identify forward-looking statements. All forward-looking statements expressed in this call are made as of the day here of and are based on information available to us at this time. We assumed no obligation to update any forward looking statement, actual results will vary and may vary materially from those anticipated, estimated, projected, or expected for a number of reasons including those discussed in today's press release and expressed during this conference call or set forth in our Form 10-K, and other reports and filings with the Securities and Exchange Commission. Okay, with that been said we’d like to jump right into a review of our fourth quarter of 2012. We do recognize it seems like every time we have our conference calls and are discussing our performance, results, there is always a lot going on in this industry. And of course this morning is no exception to that. We will jump right into our discussion as always we want to be respectful of your time and we’ll try to do this as quickly and as efficiently as we can. At the same time we want to be as open and transparent as and as informative as we can be. With our press release this morning, which announced our results and earnings, we are very pleased with both the financial and operational performance for 2012, and for the fourth quarter of 2012 particularly. Both in the comparisons of year-over-year or quarter-over-quarter improvements, they are both significant. Our net income increased $31.9 million during the fourth quarter and it increased $78.5 million year-over-year. Now admittedly, those comparisons are in relation to very difficult periods of last year, but the important thing is the improvement that has incurred throughout the entire year and our financial and operational positioning going forward. I would just make a general comment that the improvements in our performance is due to continuing cost reduction initiatives, as well as unit revenue improvements due to better performance and collection of performance incentives. Now with those very comments, I am going to turn the time back to Mike Kraupp and he will give a detailed discussion of our financial performance.

Okay. Very good and thanks again, Brad. Also I want to start out by just thanking all of you that are participating on the call with us again today. We do appreciate your interest in our company and what we’re doing. I would also echo what Brad just said and that is we’re certainly very pleased with the results this quarter as well as the year. They demonstrate very good progress in conjunction with our improvement initiatives and again. So we feel very good about all of that particular progress. I am going to my live up comments this morning and just be very brief, point out a couple of things that we think are important with regards to the press release, but outside of that field the details [are] within the confines of the press release. This morning we did report net income of $13.9 million or $0.27 per fully diluted share for the quarter ended December 31, 2012 and that compares to a net loss of $18 million for the same period last year. I also want to point out something that’s important and impacting our revenues and that is you remember from the third quarter results call we actually outlined that there is a significant change in our operating revenues that’s resulted from how we’ve historically purchased fuel for our flights directly and subsequently included them as direct reimbursements from our major partners under our client contract. To the current situation wherein our major partners now purchase the majority of fuels directly for our flight. So what this does? It results in SkyWest reporting lower operating revenues as well as lower operating expenses due to the lower direct reimbursement. We likewise experienced a similar result in the fourth quarter ended December 31, 2012 where revenues were reduced…

All right, thank you very much. Just a couple of other items that I wanted to discuss briefly, it has been a very busy time for our companies both in the fourth quarter of 2012 as well as so far this in this first quarter of 2013. We did begin a very successful launch of our American Eagle plane. SkyWest Airlines began that operation with a very successful launch on November 14th, operating 12 aircraft out of Los Angeles, ExpressJet actually began with their first flight for American last night, and we will continue to launch of service from Dallas for we’re today with the 11 aircraft. We are very pleased with the relationship and look forward to providing very high quality, and efficient service for American. Our Delta transaction which we announced sometime ago, I just want to touch briefly on. That transition is going I would say very seamlessly and efficiently. This is the transaction where we agree to an early exit of 66 CRJ200 out of the Delta system and we would bring in an additional 34 dual-class CRJs. The execution of that is underway. We have taken as of today 24 of those 34 additional dual-class airplanes. The remaining 10 aircraft we’ll deliver by May of this year. I would also say that we have made and continue to make very good progress on I would say cost reduction initiatives in general and particularly on the integration efforts that are going on at ExpressJet. Mike has discussed as well as I mentioned earlier, the significant improvements both quarter-over-quarter and year-over-year in our financial performance. And I would say just in general, I think most of you know that we have been very focused on the continuing integration and cost reduction and overall profit improvement at ExpressJet.…

Thank you. (Operator Instructions) And the first question comes from Jim Parker with Raymond James. James Parker – Raymond James & Associates, Inc.: Brad and Mike, good morning; and good morning to the others with you. Just a couple of questions, recently we have seen two business, two pieces of new business from legacy carriers and of course that look like competitors were awarded those two business, two pieces of new business. It appears there is more new business to come. Can you talk about why SkyWest prospects are very good on the competitive basis about gaining mostly early some of that business?

Sure. Well, first of all, let me just say we have been working aggressively and diligently and positioning ourselves with both aircraft manufacturers and the engine providers on the respective aircraft types. We think we are very well positioned with the necessary manufacturers and delivery positions and all that sort of thing. You are correct that there have been some significant pieces of business that have gone to other regional carriers. We think there are some specific and unique situations and reasons why that has happened. We don’t believe that it impacts negatively, at least our ability to win a meaningful amount of these – of our RFPs or the opportunities for additional business in the future. And I’d add to that we don’t – I mean we have never planned on or expected to get a 100% of these new aircraft opportunities. I mean our focus has been on preparing for the opportunity, positioning ourselves both financially and with manufacturers, which I think we have done very well. When you look at the demand and the opportunity that still exists, and I don’t that it is appropriate to go through each carrier and discus the opportunity, but we do think there are still hundreds of aircraft worth of opportunity out there. But we are in active negotiations with carriers on and think that we are very well positioned to win. James Parker – Raymond James & Associates, Inc.: Okay. One more question. And sorry for the background noise. I am on my SkyWest flight about to take off. I apologize, but it appears that you don’t have a certificate for E-Jets, and there may be demand for E-Jets. How long would it take you to add that aircraft type to your certificate?

Very good question Tim. We know that that exists. We know that there seems to be not only demand, but obviously with what one major carrier has just done. There is definite interest in that type, we’re very well position in our discussions with manufactures and our people are very well prepared and preparing for that type. The timing involved could be between, I mean think to do it right, it’s somewhere between six and twelve months. And by the way that’s not discouraging to us, because we think that aligned very well not only with our delivery positions, but we have, when the next round of demand will be from the major carriers. James Parker – Raymond James & Associates, Inc.: Okay. Thank you.

Thank you. (Operator Instruction) And the next question comes from Michael Linenberg with Deutsche Bank. Catherine O’Brien – Deutsche Bank Securities, Inc.: Good morning everyone. This is actually Catherine O'Brien filling in for Mike. Just one quick one on the impact of the storm, just wondering if you could give us maybe just a feel for the revenue impact of those cancellations.

Are you talking about the most recent East Coast storm the Nemo or Sandy or Catherine O’Brien – Deutsche Bank Securities, Inc.: Nemo, yes.

Yeah Michel let you take this real quick with regards in Nemo, I know fall through still playing a little of bit data together, but I think in general we were just under about 700 cancels, they get primarily on the East Cost. And revenue impact is about, we think at this stage about 800,000 so that we’ve identified so far. Catherine O’Brien – Deutsche Bank Securities, Inc.: Okay, great. And then, just given today's announcement on American, I'm sure everyone is going to be paying attention to that now. Just kind of wondering how you think this will affect SkyWest? I know your recent agreement [about] American Eagle has a four-year contract term. Do you guys feel any risks there, given there some bankruptcy? Or do you see this merger as an opportunity for new business?

Very good question. I don’t know how to answer it in any degree of specificity, because of course those are decisions that The new American will need to make. We obviously – when we have had active and diluted shares, I would say somewhat advanced discussions with both carriers involved in The new American, but look at [sell new]. Those are decisions that they are going to have to make. I certainly would not say that we’re viewing this in any way as negative. We still think there will be a significant opportunity for The new American to acquire and bring into service additional large regional aircraft. So we still are very optimistic. We would have to think that the systems will see some efficiency and optimization related to the network. But even considering that we would, at least our expectation, we can’t speak for the new company, but certainly our expectation would be that there would still be material opportunity there. Catherine O’Brien – Deutsche Bank Securities, Inc.: Okay. Thanks. Thanks, guys.

You’re welcome.

Thank you. And this concludes the question-and-answer session. At this time, I would turn the call back to Mr. Rich for any closing remarks.

Okay. Well, again, as I said earlier, we are always very grateful for your interest and your time. We remain optimistic. We’re very pleased with our positioning and again thank you to our people for all what you’re doing. And with that, we will go ahead and conclude our call today. Thank you very much.

Thank you. Thank you for participating in today’s conference call. You may now disconnect your phone lines. Have a nice day.