Executive Summary / Key Takeaways

• SkyWest's first quarter 2025 results demonstrated a significant surge in profitability, with net income more than doubling year-over-year, primarily driven by a substantial increase in block hours and departures resulting from improved pilot staffing and fleet utilization.
• The company's strategic focus on restoring and growing regional service, particularly through the deployment of dual-class CRJ aircraft (including CRJ550 conversions) and the integration of new E175 deliveries, is translating directly into higher operating revenues and improved financial performance.
• SkyWest maintains a strong balance sheet and liquidity position, enabling strategic capital deployment towards fleet acquisitions (new E175s, used CRJ airframes), debt reduction, and opportunistic share repurchases, positioning it for continued growth and shareholder value creation.
• Management guidance for 2025 anticipates continued block hour growth of 12-13% and projects GAAP EPS in the low to mid-$9 range, reflecting confidence in sustained operational improvements and the accretive impact of strategic initiatives, despite expected elevated maintenance costs.
• While facing industry challenges like MRO network constraints and regulatory hurdles for its charter operations, SkyWest's deep partnerships with major airlines and its disciplined approach to fleet management and cost control provide a competitive advantage in the regional airline sector.

A Regional Powerhouse Takes Flight: Setting the Scene

SkyWest, Inc. stands as the largest regional airline operator in the United States, a critical partner to major carriers like United (UAL), Delta (DAL), American (AAL), and Alaska (ALK). Its business model is fundamentally built on providing scheduled passenger and air freight service under code-share agreements, primarily through fixed-fee capacity purchase agreements and, to a lesser extent, prorate agreements where revenue is shared. This structure insulates SkyWest from direct exposure to fluctuations in passenger fares and fuel costs on the majority of its flying, placing the economic risk with its major airline partners. The company's history, stretching back 50 years with roots in prorate service, has evolved to emphasize larger, dual-class regional jets like the Embraer (ERJ) E175 and various Bombardier (BDRBF) CRJ variants, which now constitute the vast majority of its production.

The regional airline landscape is highly competitive, populated by other carriers vying for partnerships with the majors. Rivals like Alaska Air Group, Mesa Air Group (MESA), Frontier Group Holdings (ULCC), and JetBlue Airways (JBLU) operate across various segments of the domestic and regional markets. SkyWest distinguishes itself not through proprietary aircraft technology, but through operational excellence, fleet management strategy, and the strength of its long-standing relationships. Its competitive edge lies in its ability to operate a diverse fleet reliably and efficiently, offering partners flexibility and access to underserved communities. While some competitors may focus on ultra-low costs (ULCC) or offer a hybrid model (JBLU), SkyWest's core strength is its dedicated regional service platform and its strategic approach to fleet acquisition and deployment, often leveraging its balance sheet to facilitate partner needs. The industry itself is influenced by broad trends including fluctuating demand, labor availability (particularly pilots and maintenance personnel), regulatory changes, and the ongoing need to rightsize capacity across the broader airline network.

The Operational Turnaround Fuels Financial Performance

The first quarter of 2025 marked a significant inflection point for SkyWest's financial performance, largely driven by the tangible results of its efforts to overcome pilot staffing challenges that had constrained production in prior periods. The company reported net income of $101 million, or $2.42 per diluted share, a substantial increase from $60 million, or $1.45 per diluted share, in the first quarter of 2024. This surge was directly linked to a 21.5% year-over-year increase in total block hours and a 19.1% increase in departures. Management highlighted that the improved stability in pilot staffing, particularly captain availability, was the primary driver enabling higher scheduled utilization of their aircraft.

Total operating revenues climbed 18.0% to $948.5 million in Q1 2025 from $803.6 million in the prior year period. Flying agreements revenue, the largest component, grew 17.7%, fueled by a 17.5% increase in capacity purchase flight operations revenue and a notable 29.4% jump in prorate agreements and SWC revenue. The increase in capacity purchase revenue directly reflects the higher block hour production, while the growth in prorate and SWC revenue was attributed to a higher number of passengers and increased flight volume in those operations. Lease, airport services, and other revenues also saw a healthy 28.2% increase, primarily from more leased assets and higher lease rates to third parties.

Operating expenses increased by a more modest 14.9% year-over-year, demonstrating operating leverage as revenue grew faster than costs. Salaries, wages, and benefits rose 7.5%, commensurate with the higher flight volume. However, aircraft maintenance, materials, and repairs saw a significant 43.8% increase. This elevated maintenance expense is a direct consequence of increasing flight volume and, importantly, the costs incurred to bring parked CRJ aircraft out of long-term storage to meet increasing production demands. Depreciation and amortization expense actually decreased by 6.7%, benefiting from the extension of estimated useful lives on the CRJ700/CRJ550 fleet in late 2024, which offset depreciation from new aircraft acquisitions. Aircraft fuel expense, relevant for prorate and SWC operations, increased 15.7% due to higher flight volume, despite a decrease in the average fuel cost per gallon.

Segment performance mirrored the overall trend. The SkyWest Airlines and SWC segment saw its operating revenues surge 23.9% and segment profit (income before income taxes) increase dramatically from $5.0 million in Q1 2024 to $54.3 million in Q1 2025. This segment's performance directly reflects the impact of increased block hours and flight operations. The SkyWest Leasing segment, while contributing significantly to overall profit ($66.4 million in Q1 2025), saw a 6.4% decrease in revenue and an 11.6% decrease in segment profit, primarily due to a contract reallocation of lease revenue to the flight operations segment and the absence of a non-recurring gain recognized in the prior year.

Strategic Fleet and Capital Deployment

SkyWest's strategic direction is clearly focused on optimizing its fleet and leveraging its financial strength for accretive growth. As of March 31, 2025, the company operated a fleet of 488 aircraft in scheduled service or under contract, predominantly E175s (262 aircraft) and CRJ variants (226 aircraft). The emphasis on dual-class aircraft is evident, driving 87% of block hour production.

Recent and planned fleet activities underscore this strategy:

• Adding 16 new E175 aircraft (15 for United, 1 for Alaska) with deliveries anticipated through 2026. Eight are scheduled for 2025 delivery, though potential Embraer delays may push the majority to the second half.
• Expanding the CRJ550 program with United to a total of 50 aircraft, involving the conversion of existing CRJ700s and the acquisition of used CRJ550s. 12 were in service at Q1 2025, with the remaining 38 expected by the end of 2026.
• Transitioning 15 CRJ550s to the Delta fleet by mid-2025.
• Securing a contract extension with American for 74 CRJ700s through most of the decade.
• Acquiring 29 used CRJ900 airframes, primarily for parts to mitigate MRO supply chain challenges, but with plans to operate six of these aircraft.
• Bringing approximately 25 parked dual-class CRJ aircraft back into service in 2025 and 2026, most already under flying agreements.

These fleet actions are designed to capitalize on the strong demand for regional flying, particularly in underserved communities, and to increase SkyWest's regional market share, which has already grown to 30% of the large dual-class aircraft market from 23% in 2019.

Financially, SkyWest is in a strong position to execute these plans. The company ended Q1 2025 with $750.9 million in cash and marketable securities and $75.0 million available on its line of credit. Its debt net of cash and leverage ratios are at their lowest point in over a decade.

This financial health allows the company to fund planned capital expenditures, which are anticipated to be $575 million to $600 million in 2025, primarily for new E175s and CRJ550-related acquisitions/modifications. The company intends to finance the E175 purchases with a mix of debt (75-85%) and cash, and use cash for the used CRJ900 airframes. Beyond growth investments, SkyWest continues to prioritize debt repayment (over $400 million expected in 2025) and opportunistic share repurchases, having bought back 140,658 shares for $13.7 million in Q1 2025. A $250 million increase to the share repurchase authorization was approved in May 2025, signaling continued commitment to returning value to shareholders when opportunities arise.

Competitive Landscape and Positioning

SkyWest operates in a regional airline market characterized by close ties with major network carriers and intense competition for flying contracts. Its primary competitive advantage stems from its operational reliability, scale, and diversified partnerships. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, SkyWest's stated increase to 30% of the large dual-class market highlights its growing dominance in this profitable segment.

Compared to peers like Mesa Air Group, which has faced significant fleet and financial challenges, SkyWest demonstrates superior operational efficiency and financial health. SkyWest's TTM net margin of 9.89% significantly outperforms MESA's -0.19%, reflecting better cost control and revenue generation per unit. SkyWest's strategic investment in its fleet, including newer E175s and the conversion of CRJs, contrasts with MESA's older fleet issues.

Against larger hybrid carriers like Alaska Air Group and JetBlue Airways, SkyWest competes indirectly on network reach but directly for regional feed contracts. While ALK and JBLU have broader brand recognition and mainline operations, SkyWest's specialized regional focus and cost structure, partly benefiting from its leasing activities, provide a competitive edge in securing and operating regional routes for its partners. SkyWest's TTM operating margin of 14.55% is notably higher than ALK's 5% and JBLU's -0.07%, indicating greater profitability from core operations.

Frontier Group Holdings represents competition from the ultra-low-cost segment, which can pressure pricing on certain routes. However, SkyWest's capacity purchase model largely insulates it from direct fare competition on contracted flying. Its prorate business, while exposed to market pricing, benefits from serving communities where demand for reliable service may outweigh the lowest possible fare.

SkyWest's competitive moat is built on its deep integration with its major airline partners, its proven operational execution (demonstrated by high completion rates), and its financial strength which allows it to invest in fleet modernization and flexibility. While it faces vulnerabilities from its dependence on partner scheduling decisions and industry-wide challenges like MRO constraints, its strategy of diversifying partnerships and actively managing its fleet provides resilience. The company's efforts to expand its prorate business and develop SkyWest Charter also represent strategic moves to capture demand in markets potentially underserved by traditional models, further differentiating its offering.

Risks and Challenges

Despite the positive operational and financial momentum, SkyWest faces several pertinent risks. The airline industry remains sensitive to economic conditions; while SkyWest's contract model mitigates some direct exposure, reduced overall travel demand could impact partner scheduling and future contract terms. Labor costs, particularly for pilots and maintenance personnel, represent a significant operating expense (46.6% of Q1 2025 operating expenses), and inflationary pressures could continue to impact these costs, potentially outpacing contractual adjustments. A hypothetical 25% increase in salaries, wages, and benefits could increase operating expenses by approximately $94.3 million per quarter.

Challenges in the third-party MRO network, including labor and parts availability, continue to impact the speed at which parked aircraft can be returned to service and contribute to higher maintenance expenses, potentially affecting profitability margins in the short term. Regulatory risks, such as the ongoing process to obtain final DOT approval for SkyWest Charter's scheduled service authorization, could impact the realization of strategic initiatives aimed at serving small communities. Furthermore, while improving, the ability to consistently attract and retain qualified pilots remains a factor influencing the company's capacity to operate requested schedules. Dependence on major airline partners, while a source of stability, also means SkyWest's operations and fleet planning are subject to the strategic decisions and financial health of its partners.

Outlook and Conclusion

SkyWest's first quarter 2025 results provide compelling evidence that its strategic focus on resolving pilot staffing issues and optimizing fleet utilization is yielding significant financial benefits. The surge in block hours and departures directly translated into robust revenue growth and improved profitability, demonstrating strong operating leverage.

Management's outlook for 2025 reinforces this positive trajectory. They anticipate continued block hour growth of 12% to 13% compared to 2024, driven by further improvements in utilization and the integration of additional aircraft. This operational growth is expected to translate into GAAP EPS in the low to mid-$9 per share range for the full year, a significant increase from 2024, reflecting confidence in the accretive nature of their strategic initiatives. While maintenance expenses are expected to remain elevated (around $200 million per quarter in 2025) as aircraft are brought back into service, this is viewed as a necessary investment to support higher production levels.

SkyWest's strategic fleet plan, centered on expanding the E175 fleet and converting/deploying CRJ550s under long-term contracts, positions the company to capitalize on the ongoing demand for regional air service and increase its market share in the dual-class segment. The company's strong balance sheet and healthy free cash flow generation provide the financial flexibility to fund these growth investments, manage debt obligations, and return capital to shareholders through share repurchases.

While risks such as MRO constraints, potential economic softening, and regulatory hurdles persist, SkyWest's established partnerships, disciplined operational execution, and strategic capital allocation provide a solid foundation. The investment thesis hinges on the company's ability to continue executing its plan to restore and grow production, leveraging its operational efficiency and financial strength to deliver improved profitability and shareholder value in the dynamic regional airline market.