Executive Summary / Key Takeaways

• SkyWest, Inc. (SKYW) is strategically leveraging its position as the largest regional airline in the United States, focusing on capacity purchase agreements and expanding prorate services to underserved communities, underpinned by a robust and flexible fleet strategy.
• The company delivered strong financial results in Q3 2025, with net income of $116 million and total operating revenues up 15% year-over-year, driven by increased block hours and improved operational efficiency.
• SkyWest's "long game" strategy emphasizes fleet modernization with new E175 deliveries, strategic CRJ fleet extensions (including 40 CRJ200s with United into the 2030s), and CRJ550 conversions, enhancing its competitive moat and operational flexibility.
• A strong balance sheet, characterized by deleveraging and significant free cash flow generation, provides substantial capital allocation optionality for growth investments and opportunistic share repurchases.
• Despite macroeconomic headwinds like potential Brazilian tariffs and MRO challenges, SkyWest's stabilized pilot staffing and strategic partnerships position it for continued low-single-digit block hour growth and mid-to-high single-digit EPS growth in 2026.

The Foundation of Regional Air Travel

SkyWest, Inc., established in 1972, has grown to become the largest regional airline operator in the United States, a testament to its enduring business model centered on strategic partnerships with major carriers. The company's core strategy revolves around code-share agreements, primarily capacity purchase agreements (CPAs) and prorate agreements, which have historically provided stability and reduced reliance on any single major airline. This approach allows SkyWest to offer essential air service to numerous communities across the U.S., Canada, and Mexico, often serving as a critical feeder into the larger networks of its partners: United Airlines , Delta Air Lines , American Airlines , and Alaska Airlines (ALK).

SkyWest's operational prowess is a key differentiator, highlighted by achieving over 185 days of 100% controllable completion year-to-date through Q3 2025 across more than 2,500 daily scheduled departures. This consistent performance is crucial in a competitive industry where reliability directly impacts partner satisfaction and revenue. The company's commitment to operational excellence has also earned it recognition, being named one of Fortune's World's Most Admired Companies for 2025 and one of America's Greatest Workplaces by Newsweek for the second consecutive year.

Technological Edge and Fleet Evolution

SkyWest's fleet strategy and technological differentiation are central to its competitive advantage. The company operates a diverse fleet comprising Embraer (ERJ) E175, Canadair CRJ900, CRJ700 (including the 50-seat CRJ550 configuration), and CRJ200 regional jets. The E175 aircraft, known for their multi-class seat configuration, are a cornerstone of SkyWest's modernization efforts. The company anticipates having nearly 300 E175s in its fleet by the end of 2028, solidifying its position as the largest Embraer operator globally. This scale provides significant operational efficiencies and bargaining power with manufacturers and partners.

A key innovation is the conversion of CRJ700s into CRJ550s, a 50-seat, dual-class configuration that offers a premium experience in smaller markets. This technological adaptation allows SkyWest to redeploy existing assets effectively, extending the estimated useful lives of its CRJ700/CRJ550 fleet by an average of three years, which helps offset new depreciation expenses. The CRJ550s are particularly strategic for partners like United, enabling premium service in smaller communities. Furthermore, SkyWest has demonstrated remarkable flexibility with its older CRJ200 fleet, extending agreements for up to 40 of these aircraft with United into the 2030s. This longevity is supported by ongoing investments in maintenance and engine events, ensuring these assets remain accretive well into the next decade.

Beyond its core fleet, SkyWest is also exploring future aviation technologies. Its strategic partnership with Eve Holding, Inc. (EVEX), to develop a network for electric vertical takeoff and landing (eVTOL) aircraft, and an equity investment in Maeve Aerospace, underscore its commitment to sustainable advancements in regional aviation. While these initiatives are long-term, they position SkyWest at the forefront of emerging technologies, potentially offering future competitive moats in an evolving industry. For investors, this technological foresight and fleet flexibility translate into a resilient business model capable of adapting to market shifts, optimizing asset utilization, and maintaining cost leadership in its niche.

Business Model and Strategic Initiatives

SkyWest's business model is predominantly driven by capacity purchase agreements, which accounted for approximately 84.8% of its flying agreements revenue for the nine months ended September 30, 2025. Under these agreements, major airline partners pay SkyWest fixed fees for departures, flight hours, or block hours, along with monthly aircraft-in-service fees and performance incentives. These partners also typically cover or reimburse direct expenses such as fuel and airport landing fees, significantly de-risking SkyWest's exposure to volatile operating costs.

Prorate agreements, representing about 15.2% of flying agreements revenue, offer a different dynamic where SkyWest receives a percentage of ticket revenues and manages scheduling, pricing, and operating costs. This segment, along with SkyWest Charter (SWC), is crucial for serving underserved communities. The Department of Transportation's finalization of SWC's commuter authorization in Q3 2025 opens new avenues for on-demand charter services using CRJ200 aircraft, further enhancing SkyWest's ability to cater to diverse market needs. The demand for prorate services remains "extremely strong," with the company actively working to restore and expand service to small communities.

Strategic fleet management is a continuous process. SkyWest is adding 13 new E175s for United (3 in Q4 2025, 10 in 2026), one new E175 for Alaska (2026), and 16 new E175s for Delta (10 in 2027, 6 in 2028), which are expected to replace existing CRJ900s and CRJ700s. The company is also converting CRJ700s to CRJ550s for United, with 29 aircraft anticipated to enter service between Q4 2025 and the end of 2026. To mitigate supply chain challenges, SkyWest is acquiring used CRJ900 airframes, planning to operate six and utilize the remaining 24 for parts. This multi-faceted approach ensures fleet modernization while maximizing the utility and lifespan of existing assets.

Financial Performance and Robust Liquidity

SkyWest demonstrated robust financial performance in the third quarter of 2025, with net income reaching $116 million, or $2.81 per diluted share, compared to $89.7 million, or $2.16 per diluted share, in Q3 2024. Total operating revenues for Q3 2025 increased by 15% year-over-year to $1.05 billion. For the nine months ended September 30, 2025, net income was $337.2 million, or $8.14 per diluted share, a significant increase from $225.6 million, or $5.44 per diluted share, in the prior-year period.

The SkyWest Airlines and SWC segment was a primary driver of this growth, with operating revenues increasing 17.7% to $892.6 million in Q3 2025 and segment profit surging 71.6% to $76.5 million. This was largely due to a 14.9% increase in block hour production, fueled by additional aircraft under CPAs and improved captain availability. The SkyWest Leasing segment also contributed, with operating revenues up 2% to $157.4 million and segment profit increasing 12.6% to $80.7 million in Q3 2025. This segment benefited from increased maintenance services provided to third parties, reduced depreciation due to extended CRJ fleet useful lives, and lower interest expense from debt reduction.

Operating expenses increased by 12.1% in Q3 2025, primarily due to higher direct operating expenses associated with increased flight volume. Notably, aircraft maintenance, materials, and repairs expense rose significantly by 36.5% due to incremental maintenance on the CRJ fleet and increased flight activity. Despite these cost increases, the company's ability to scale operations efficiently, coupled with stabilized pilot staffing, translated into strong profitability.

SkyWest maintains a strong liquidity position, with $753.4 million in cash, cash equivalents, and marketable securities as of September 30, 2025. The company's capital mix has shifted favorably, with equity representing 52.9% and total long-term debt 47.1% as of Q3 2025, compared to 47.4% equity and 52.6% debt at the end of 2024. This deleveraging is a strategic priority, with total debt $1 billion lower than at the end of 2022, despite significant fleet investments.

SkyWest generated nearly $400 million in free cash flow in the first three quarters of 2025, including $144 million in Q3, providing substantial capital allocation flexibility. The company also actively repurchased 580,257 shares for $57.6 million in the nine months ended September 30, 2025, with $240 million remaining under its authorization.

Outlook and Growth Trajectory

SkyWest's management maintains an optimistic outlook, projecting continued growth and profitability. For 2025, the company anticipates block hours to be up approximately 15% over 2024, approaching 2019 levels. GAAP EPS for 2025 is expected to be in the mid-$10 per share area, implying a Q4 EPS of approximately $2.30. Total capital expenditures for 2025 are projected at $550 million, including investments in new E175s, CRJ900 airframes, and CRJ550 aircraft/engines.

Looking ahead to 2026, SkyWest forecasts low-single-digit percentage growth in block hours and mid-to-high single-digit EPS growth, reaching approximately $11 per share. Capital expenditures for 2026 are estimated between $575 million and $625 million. This growth will be driven by the delivery of 11 new E175s, the placement of 20 CRJ550s into service, and strong prorate demand. These additions will be partially offset by the planned return of approximately 24 Delta-owned CRJ900s over the next two years. Management's confidence stems from stabilized pilot staffing, which no longer constrains scheduled aircraft utilization, and the company's ability to redeploy and fully utilize its existing fleet.

Competitive Landscape and Strategic Positioning

SkyWest operates in a highly competitive regional airline sector, where its primary direct competitors include other regional carriers and the regional operations of major airlines like Delta Air Lines (DAL), American Airlines (AAL), United Airlines (UAL), and Southwest Airlines (LUV). SkyWest's competitive advantage lies in its deep regional expertise, cost leadership, and unparalleled fleet flexibility. The company's capacity purchase agreements de-risk its operations from fuel price volatility and revenue fluctuations, a significant advantage compared to competitors with greater exposure to these factors.

While larger carriers like Delta and United benefit from extensive global networks and stronger brand loyalty, SkyWest's focus on regional connectivity and cost-effective operations allows it to thrive in niche markets. Its ability to convert CRJ700s to CRJ550s and extend the lifespan of its CRJ200 fleet demonstrates a strategic agility that some larger, more rigid operations may lack. SkyWest's partnerships with all four major U.S. airlines also diversify its revenue streams and reduce reliance on any single partner, a critical strength in a consolidating industry. The company's strong balance sheet and unpledged collateral of over $1.5 billion provide financial resilience and flexibility to pursue growth opportunities that may be less accessible to more leveraged competitors.

Indirect competitors include alternative transportation modes and emerging technologies. While high-speed rail or advanced conferencing tools could impact short-haul demand, SkyWest's strategic investments in Eve Holding and Maeve Aerospace show a forward-looking approach to future aviation trends. The company's disciplined approach to growth, focusing on organic expansion and asset acquisition rather than large-scale mergers, reflects lessons learned from past industry consolidation attempts. This strategy allows SkyWest to maintain its unique culture and operational effectiveness, which management views as difficult to replicate through acquisitions.

Risks and Challenges

Despite a strong outlook, SkyWest faces several pertinent risks. The ongoing federal government shutdown and a strained Air Traffic Control (ATC) system pose operational challenges, particularly concerning Essential Air Service (EAS) funding. While SkyWest intends to honor its service commitments, the uncertainty of reimbursement beyond mid-November 2025 could impact financial viability for certain routes.

Potential Brazilian tariffs on aircraft, currently at 10% but with a threat of 50%, could significantly impact the cost of new E175 deliveries. SkyWest has stated it is "not willing to pay a 50% tariff" and is coordinating with partners and Embraer to delay deliveries if such a tariff is implemented. Challenges in the third-party MRO network, including labor and parts shortages, particularly for the CRJ fleet, could affect aircraft availability and maintenance costs. SkyWest is mitigating this by acquiring used CRJ900 airframes for parts. Inflationary pressures and labor costs remain a concern, as the company may not be able to fully offset higher costs through contract price increases. Finally, the inherent seasonality of the airline industry, with softer Q1 and Q4 periods, will continue to influence quarterly results.

Conclusion

SkyWest, Inc. stands as a compelling investment opportunity, firmly rooted in its strategic dominance of the regional airline sector. The company's "long game" approach, characterized by disciplined capital allocation, a highly flexible fleet strategy, and a relentless focus on operational excellence, underpins its robust financial performance. By leveraging its extensive network of capacity purchase and prorate agreements, SkyWest effectively de-risks its operations while capitalizing on strong demand for regional air travel, particularly in underserved communities. The ongoing modernization of its fleet with E175s, coupled with the innovative deployment and extension of its CRJ aircraft, demonstrates a proactive strategy to maintain its competitive edge and drive accretive growth.

With a strong balance sheet, significant free cash flow, and a clear growth trajectory for both block hours and EPS into 2026, SkyWest is well-positioned to navigate industry headwinds. Its technological adaptability, from CRJ550 conversions to strategic investments in future aviation, further solidifies its long-term competitive moat. While external factors like government shutdowns and tariffs present challenges, SkyWest's proven ability to execute, coupled with its deep partnerships and commitment to operational reliability, suggests a resilient business capable of delivering sustained shareholder value. Investors should recognize SkyWest's unique blend of stability, strategic growth, and financial prudence in a dynamic industry.