Good morning, and welcome to the SkyWest Fourth Quarter 2011 Earnings 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 like to turn the conference over to Mr. Michael Kraupp, Chief Financial Officer and Treasurer. Please go ahead, sir.

Thank you, operator. Thank you to all of you -- those of you that are joining with us today on the call and via the Internet. We do appreciate your time and your interest in our company. I have with me here today Jerry C. Atkin, our Chairman, Chief Executive Officer and various other staff members that will be assisting. What I’d like to do is go ahead and read the forward-looking statements for the call today, I’ll then go over our fourth quarter results, and then I’ll turn some time over to Jerry to go over some thoughts and comments, relative to the quarter in the future, and then we’ll open that up for some Q&A. With regards to the forward-looking statement, in addition to the historical information, this release and conference call may contain forward-looking statements. SkyWest may from time-to-time make written or oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements encompass SkyWest’s beliefs, expectations, hopes or intentions regarding future events. Words such as expects, intends, believes, anticipates, should, likely and similar expressions identify forward-looking statements. All forward-looking statements included in this release and conference call are made as of the date hereof and are based on the information available to SkyWest as of such date. SkyWest assumes no obligation to update any forward-looking statement. Our actual results will vary and may vary materially from those anticipated, estimated, projected, or expected for a number of reasons. Well again, one of the first things I would like to do is obviously thank our workforce as well. We’ve got over 18,000 employees within our combined operating airlines. And I do want to say that we appreciate their continue diligence in providing very good experiences for our customers. Let me just open…

Good morning and thank you for your interest in SkyWest as an investment. I appreciate the opportunity with you this morning. I’m going to comment a little bit more on the year as we take it as whole, and a little bit what we expect going forward. This year was an initial year of transitioning the Express Jet acquisition under the ownership and management of ASA, and it started literally at the beginning of the year. Our expectations for a near perfect execution were quite unrealistic from a financial perspective. It took us longer to gain good control of the planning and financial management of Express Jet than we had planned, which resulted in missed financial plans pretty much every quarter this year. The challenge of getting control of Express Jet also delayed cost reduction efforts at ASA. We experienced substantial contract rate reductions at ASA at the end of 2010 that affected all of 2011. We had a substantial number of aircraft out of service during the year at both companies and paint shops, for delivery changes for the new Delta and the new United, all year long. SkyWest added a number of aircraft last year. The SkyWest Airlines added a number of aircraft last year with the related training and fix up cost as well as transitioning out of a AirTran relationship, and preparing aircraft to enter in to a new U.S. air flying contract, which we’re part way through right now. We experienced losses at both foreign investments that were higher than expected. What we did do right and well last year, ASA or the new Express Jet did achieve some outstanding operational performance in 2011. We achieved single operating certificate in record time of one year. The merger was complete technically and legally at the end…

[Operator Instructions]. We will now begin the question answer session [Operator Instructions]. And our first question will come from Helane Becker of Dahlman Rose.

Just a couple of things, one, are you scheduled to have any aircraft deliveries this year, or can you just talk about what the retirements may look like to get to your 30, almost $37 billion ASM forecast?

Yes, Helane. First of all, we don’t have any firm aircraft on delivery at this point in time, we only had 4 this last year, as we said earlier and in comments, have taken those. The overall fleet changes next year are pretty in consequential, you know, you got the numbers that we’ve ended at this year. I think this next year we go down to about 710, or so, over the course of the year, so again, not material changes. I suspect we’ll have some of our long-term use here at CRJ-200, that we’ll let expire as well as probably some of our older Brasilia. So, not material changes relative to the fleet, and you can see that the overall ASM estimates are pretty flat on year-over-year basis.

Yes, got you, okay. And then maybe, Jerry, could you maybe speak to the regional airlines industry in general. You know, you’ve seen, like me, we’ve seen a lot of change in the industry, we’ve seen, you know, the industry grow from a pro rate to CPA model, and you know, the major airlines don’t seem to really -- either they don’t understand, or they don’t care about the need for you to earn a decent return, and yet, you still, you know, need to address your shareholders, provide your employees with good careers. So when you talk to your counterparts at the major airlines, what are they saying to you? Is there -- are they giving you any, you know, ideas for how things can improve going forward for you?

Well, first of all, we are talking to our major carriers about the exact problem that you described, which I think would be increasingly squeezed margins, part of which are of the industries’ own doing, part of it is our major carrier partners using us competitively against each other in some ways that our industry didn’t respond very well to. So we make no secret of that fact. I think a couple of observations that go along with this, Helane, and that is as this is happening for different reasons, that the major carriers are consolidating, you’re seeing a fair amount of consolidation on the regional side and you have more sophisticated regionals that have been beat up in this process that know what has to happen going forward, and there is not quite as many people to go to. So I think we’re gaining some discipline in our own industry for some of the same reasons that the major carriers are. And we’re talking with our major carrier partners and as such an important part of them, I think they have certainly some attitude of solving that, but it’s just a very different mindset than where they’ve been at in the last few years and the competitive arrangement has just changed a little bit. So I’m hopeful of making some progress there, but it’s not an easy -- it’s a change that is a pretty substantial change.

Our next question will come from Duane Pfennigwerth of Evercore Partners.

Just wondered if you assume no improvement in reimbursement levels, or in rates from your partners? What is the earnings power potential of SkyWest, and how do you get there?

Let’s -- that might take Mike and I both on that one, let me take a shot at it first. In 2012, in general, we think we are able to move without cost, or without rate changes, which we believe need to occur, but we don’t have rate changes in our plan for the year, but we certainly have it in our -- it isn’t in our financial plan assumption, it is certainly on our agenda to deal with and improve it and expect to before year end, but we have not built it into our plan. Exclusive of those, all the plan right now has $100 million pre-tax swing in it that is not based on rate changes and is based on -- and I can -- there’s really 4 simplistic ways, and that is the engine overhaul program that you may remember that we’ve been in for the last 2 ½ years completes about mid-year this year, and we have a $20 million improvement, this in 2012 simply because we don’t have to overhaul as many engines. And we’ll have a $30 million improvement the year following that. We do have some additional synergy savings, or combination savings, from Express Jet and ASA that are -- that will still be achieved this year in addition to what were achieved last year. ASA has some competitive cost challenges that we can knock off another part of that this year. And then the other part that we’ll have, and we’ve got kind of a dumb name for it, but we call it the Turbines are Distraction cost, last year, getting our handle on the planning part of Express Jet and ASA, and combinations, so that we can plan pilots properly for what we are flying, and that cost, I believe, is under control and won’t show up again this year. And those 4 components are relatively close to the same number to make up $100 million. And we’re hopeful of more on the rates side but we have not put it in our financial plan at this point.

And just -- I know it’s difficult to probably speak to it at this point, but can you just give a sense for the ways that you might be able to help American as they restructure, and what that economic opportunity could be for the partners ultimately end up helping them?

I understand your question, and I can’t answer it.

Duane, this is Mike. Let me just put a little more color on it. And that is we’re early into the American bankruptcy at this point in time, and I think it is very safe to say that America is still trying to figure out what they would like to do opportunity wise, and that includes both opportunity that big American, as well as with American Eagle. So at this point in time, I think it’s just uncertain for us to guesstimate, or say, you know, what we may or may not do. We will have to sort of stay tuned and probably determine most likely down the road whether or not there is any opportunity for that. But again, it’s an opportunity that we just haven’t defined at this point in time.

What we could say is that our preparation and ability to help them in different ways that they would likely want to do are extremely good.

Okay, I appreciate that, and if I could just sneak one more in. As you look back on Express Jet, you know, not sure if you would attempt something like that again, or if that is even on the table strategically, but I guess just from a contracting perspective, you know, what would you have done differently to maybe avoid some of the losses that you incurred with Express Jet.

I think there’s probably 2 things in doing it over again, and I think we’re glad that we did it, and it accomplished some things, and we’ll accomplish some things long term that are of value. I think the 2 things, and I -- one of them, I’m not sure you could do it again it was basically, sort of a hostile type takeover. So our ability to do as complete of due diligence as you would like to do, we had some risk in what we had to see, and the ability to put the entire management team in, which you would normally do to go through every bit of what their responsible for so that they knew and got a handle on the planning ahead of time -- not unlike what a Delta, Northwest, or United Continental combination would do. We didn’t have the benefit of that. So, whether we not do it again, or not, I think we would just realize that the risk that we were taking and the variability that comes out of not being able to have the entire team scrub through it for several months and get a handle on the planning ahead of time is a very different risk quotient, and we would add a cost to that risk quotient to it and we’d bid it in the cost, or we wouldn’t do it if we couldn’t get that recovered. So I’m still reasonably hopeful that because the costs are so competitive, that we agreed to, that there are some adjustments that could be made by our major partner to accommodate part of that to get it a little more squared up on the economics and the additional $20 million, $30 million in losses is a cost of doing it that was probably in our range, but we didn’t have it in our plan that way. So those are kind of 2 things that we missed a little bit, and I don’t know how we would do it again would change in terms of our perspective, and how we’d price it would probably be just a little bit different.

Duane, let me also piggyback on that, and say that from our perspective too, Express Jet, we think still makes long-term strategic sense and with regards to getting access to their fleet, and the expiration that will occur within their fleet over the upcoming years, it gives an opportunity to re-fleet that entity hopefully with larger gauge equipment, that is obviously subject to scope clause changes, if possible. But, just to be added to Jerry’s comments, we really feel that the Express Jet acquisition in the long term will turn out to be the right thing. We can see that in the future, you know, how this thing can be profitable if we can get to further cost reductions and better integration in just obtaining additional synergies. We don’t think we fully explored all of those things, this is sort of phase one for us, meaning we’re into that first year, we executed on the PMI side by reorganizing the organization itself. Express Jet and ASA have now achieved single operating carrier status, that’s probably the fastest that’s probably ever been done in our airline industry, and they did that within the course of a year. The entities are also combined from a corporate standpoint now, with the remaining name being Express Jet Airline. So, we have achieved a lot of good things during the course of the year, we think long term it does continue to make strategic sense.

I would just add, in the meantime of the Express Jet acquisition, it is the flying that it does, and it’s the nature of where it’s being flown for United/ Continental is that’s good long stage lengths, it’s high utilization, and thereby it’s a pretty efficient operation that allows us to have a pretty good base to work on in terms of these cost things.

Our next question will come from Jim Parker of Raymond James.

Mike, you mentioned earlier about -- or maybe Jerry did as well on the cost increases that you’ve seen for maintenance that are anticipated in additional parts that are required and prices have gone up. We have seen that with several other regional airlines as well and are you optimistic and if you are, why that you’re legacy partners will cover that unexpected cost or cover part of it?

Jim, let me take the first stab at that. First of all, we are experiencing additional costs, and I think what we’ve got to do now is it’s incumbent upon us to go to our major partners to help them understand that. As Jerry had said earlier in his comments, those discussions have already started and so it’s a matter of really just educating our partners. We’re hopeful that they’ll see that and the fact that the industry as a whole is experiencing just additional maintenance costs on these aircraft from what was previously anticipated as all of us acquire them. So we’re hopeful in that process. We certainly can’t sit here today and make any guarantees as to what we’ll achieve but again, we’re confident and hopeful that our partners will see that, and as a result, we hope to get to some level of reimbursement for those additional costs.

What we do know, Jim, is that the entire regional industry, as well as the major carrier industry does have increasing maintenance costs as their planes get older. So it isn’t that somebody’s got to figure it out and somebody doesn’t have it figured out, the entire industry has that and the -- as part of the feeding operation of the major carriers, that piece of it, which I think is important, will have to be dealt with in a way to make it work or it’s not sustainable.

Okay, and a second question would be you all have mentioned just generally about a new paradigm for regional airlines and working with your legacy partners and also working with manufacturers and financiers of aircraft. Where are you with that potential new business model?

I’m going to be a little cagey about the answer, Jim, because the -- some of it -- the entirety of it is not something I want to share with our competitors. Having said that, it does involve our size and our financing strength that allows us to buy aircrafts at lower prices, finance them at lower prices and have other aspects of that that are an improvement. There’s a lot of other things that go with it that I really can’t describe more than to say that we are well along in that process. Some of the things we expect to have been better than we thought, some of them were worse than we thought. But in total, I think our preparation and our ability for the next round of financing is we have some competitive benefits that we haven’t actually nailed down. There’s some things that aren’t nailed down, but there’s enough nailed down that I’m pretty confident that we have some competitive advantages if that would happen tomorrow, which that won’t happen tomorrow, but I think we’ve got quite a bit in the bag if it did.

Our next question will come from Glenn Engel of Bank of America/Merrill Lynch.

A few questions. The first one is, can you go over pro forma how the profits were in the fourth quarter, profits and revenues for the fourth quarter and full year 2011?

Yes.

I'm sorry, not pro forma, pro rata business, the at-risk business.

Oh, pro rata. First of all, with regards to the fourth quarter, we did have some improvement on a year-over-year basis. In fact, it was just under $10 million. We were basically break even slight profit a year ago operating with 61 aircraft in that fleet. And this year, we -- again, these are pre-tax operating income numbers, we were about $10 million-plus. So we had some in that pro rate business on a year-over-year basis.

And for the revenues?

We typically don’t break out the revenues on that, Glenn, it’s just included as part of our passenger revenues.

How many airplanes was it?

61. We had in both periods.

Okay. Second, you touched a little bit on the Express Jet mechanics, can you talk about turnover an attrition in general with your labor groups?

In general, the attrition is, you know, outside of that issue that we talked about on the Express Jet side, which was ASA in Atlanta, outside of that there’s virtually little to no turnover within our maintenance rates. Our pilots run about probably 10 a month for each of the airlines, so 20 in total and that’s on a base of about 7,000 pilots. The flight attendants are more than that. I don’t have exact numbers on that, but you know, probably as much as double what’s happening on the pilot side and then traditional turnover within the customer service ranks and no real changes there.

And finally, there’s new pilot fatigue rules that are coming out next year. Can you talk at all about how they may impact…

You know what, Glenn, we haven’t fully quantified the impact of that yet. We’re certainly aware of the issue, the regulations. Each of our respective operating airlines are analyzing that right now. The other thing that we’re doing is comparing where we currently are in relation to those regulations and I’m sure that you’re going to find throughout the industry that we’re all a little bit different in how we operate. So we’ve gone to work in engaging our operational groups in that process. We don’t have any numbers so I’m not even going to throw anything out at this point in time, but it’s probably something that we can do on a future quarterly call.

Let me just add my perspective to it, Glenn. And that is, there’s 3 components to it. One is that at face value, it would appear that it would add some expenses from the pilot standpoint because it requires more rest and more things that you have to work around. B, what Mike just said, it’s we might -- we’re probably partway there into what we’re already doing, our practices are partway to where they’re already doing. The other part of it is the regulation allows individual carriers to demonstrate that they can provide adequate fatigue management in alternative methods from what the regulations says. So we may be able to accomplish what it says in ways that will be more efficient than it looks like at face value. So it’s probably not going to be a zero hit, but how much of a hit or increase it will be is not perfectly clear. It’s within certainly under -- it’s a 5% or less number at least from what I know about it. But that’s not -- that’s a pretty guessy number, just to say it’s not 20% or you know, it’s not ridiculous, but it’s not zero either.

What is driving the big pro rate gains?

It’s really pricing. We took -- when we started this about a year ago, in the fourth quarter, and our folks did a lot better job of learning some yield management if you will and have gained some expertise through the course [indiscernible] and that translates into some pricing.

Well, I would add to it, what the major carriers are able to -- have been able to do this last year, increase their yields better than they’ve been for quite a while and we’re enjoying riding along with that in the pro rate side.

[Operator Instructions]. Our next question will come from Mike Lindenberg of Deutsche Bank.

A couple questions here. Just the loss at Tripman, Air Mekong $ 6.8 million, what is that compared to last year? What was that number?

That number last year was a positive of about $2 million.

Okay, so plus $2 million. Okay. And then …

The swing is $8 million.

Oh, I see.

The loss was only for this year, so the swing is -- or the change is 6.8.

Okay, good. And then the -- another question, Jerry, did you -- so Express Jet, did you say that -- you made a comment about achieving cost competitiveness at Ex-Jet and did you say over the next 2 years? I just want to get a clarification.

What I was suggesting is we admittedly have a gap in terms of our cost competitiveness at the Express Jet operation. We got -- we will get some of it this year. It will take at least a second year and maybe a small part of the third year to get it to fully competitive costs.

Okay. Why not faster? Why can’t that be on a faster time table?

We are trying to make it faster but we’ve -- we were so unrealistic in so many things last year, we’re trying to be a little bit more realistic this year.

Okay. Fair enough. And then just my last question, with respect to, I think, Mike, you said that the fleet, it sounds like it’s going to drop by about 10 or 12 shells over the next year. I think you’re going to get back to, I think you said like something like 710. Just based on aircraft that are coming off lease or aircraft that are approaching sort of the end of their term or maybe that are fully paid for with respect to mortgages, how much more could you flex down? How much, you know, how many more airplanes could you get out of your fleet with minimal costs? Where do things stand in that regard?

Well, first of all , as you sort of play this out in the next couple of years, and really what’s been happening to us, Mike, is we’ve actually had a larger complement of our like CRJ200s if you will that were set to expire and have done so from original leases but we’re finding that our major partners are wanting to extent those. So rather than just having normal lease terms where aircraft are going to be done and over with and go back, our major partners have wanted us to continue to fly them. Now, that answer is a little different relative to the United side of our business versus the Delta side. I think you’ve heard public statements from Delta that have indicated that they would like to have CRJ200s go away and I suspect as we move forward in the next couple of years that as we have CRJ200s, and again, those numbers are fairly small until we get out into the 2014 and ’15 timeframes and beyond, but outside of that, our estimates would be for Delta to probably let those aircrafts maybe go back based on what we’re currently seeing. And then we would expect or anticipate that United, if past practice over the course of these last couple of years is any indicator, you know, it may be likely that they would extend them. So from that perspective, you know, certainly during the rest of the 2012 timeframe and maybe even the 2013, we don’t necessarily see material changes there. We do have a portion of our ERJ fleet that’s with Continental United that will expire in 2013, but again, it’s unknown because that’s out into the future, it’s unknown as to what United will want for us to do with all those aircraft at that time. So I think in answer to your question, relatively little changes over the next couple of years.

But one aspect that may be an answer to your question and maybe it isn’t, Mike, and Mike Kraupp is going to have to help me with the answer, but we have a number of short-term or extensions that we could be out of in less than 6 months. And how many …

There’s 20 of those.

There’s 20 of those, but they’re doing useful things, they’re either on a contract or in a pro rate business right now, but that’s a flexibility. The rest of them, there’s the contract with major carrier partners and the ownership contract, whatever that is, and they pretty much match and there’s not a whole lot of reduction activity over the last couple of years, in the next couple of years.

[Operator Instructions] Our next question will come from Ray Neidl of Maxim Group.

Yes, just to summarize some of the things you were talking about with your maintenance costs and your fleet, I think you had said earlier over the next 5 years, there will have to be some major refleeting going on and that gives you a little bit more flexibility with how the industry’s changing and what the needs might be for the regionals. In what direction, longer term do you see other fleet moving? Is it away from turbo props and [inaudible], fewer 50 seaters, more larger aircraft in the 70 or 90-seat area? Do you think that’s the future of the industry and do you think that’s the future of SkyWest?

Let me take a crack at that. Directionally, there will -- with certainty that there’ll be less -- fewer 50-seaters by 2020, for instance. There’ll be more of the over-50 seaters, in my opinion. The turbo props are still a bit of a question. The small turbo props are kind of unique answers to very small communities. The 30-seaters, we’ve still got some, most of the Saabs are gone, so the 30-seat sizes literally have not quite disappeared from the landscape, but what hasn’t will over the next few years I would expect. You’ve got quite a few of the 19-seaters doing some interesting things and then you get into the large turbo props and there’s kind of been a question whether the Q400 and the ATRs are sort of an alternative and a lot of different things. That one’s still unknown to me. I wouldn’t bet anything on whether those are going to be around or they’ll be none of them by 2020. I’m not sure where in my mind they play a big role going forward. I could be wrong about that. And then it’s really a question of what size. The number of seats may not change that much going forward, but I think they’ll shift from fewer 50 seaters. And it’s just really a matter of the fuel efficiency as hubs get combined, United, Continental, Delta, they’re concentrating on a few fewer hubs, it looks to me, or maybe that’s my opinion. Maybe that’s a fact, it’s a little bit of both probably. But as that happens it will justify the little bit larger ones, which if you can and they are a little bit more efficient, you know, obviously you know there’s the labor portion in there. So the fewer 50 seaters has got to be a fact because nobody’s making any new ones and they’re getting older, and some of them won’t last forever. So regardless of what anybody thinks strategically, there’s no question but what the 50 seaters are going to be reduced and to what degree the over-50 seaters is able to be increased is going to be based on the scope, cause and labor operation in doing it. But the fact that there’s the smallest airplane, if you put it on our economy, I think is the 320 or 73 7800 that any major carriers have ordered in the next little while, so there’s still an awfully big gap between that and zero to be filled. So exactly how labor and the economics in the customer demand is going to kind of -- but directionally, I think it’s the direction that I just pointed out, but we’re prepared to do that in different sized categories and that’s part of the question that we got asked a little earlier about the size of our airplanes, is the agreements that we’re reaching with suppliers, it expands the whole size that we can switch one to another.

Basically, it seems to me with higher fuel costs, that the legacy carriers are going to lose all appetite for feed from smaller cities that use less than 50 seater aircraft which means everything below that they’re not going to want to rent from the regional carriers anymore. Do you think that’s a fair assessment?

I don’t -- I don’t know if that’s a prediction or a statement of what’s already happened. I’d say it’s closer to what’s already happened.

That’s what I’m seeing as well. The last thing is, you’re independent flying component, is that something that you would want to keep or is that something that you think that is not worth having and will eventually phase out?

Here’s why we did it and why we think it has value. We did it because we didn’t know clearly what the future is going to be and we still don’t. We thought it had value to get in that and know what the strengths and what the challenges were and to develop some expertise in that which we had kind of lost from 20 years ago when we did that. So we’ve reconstructed the expertise and the ability . Frankly, I’ve been a little better than I thought it would be. To say it’s just the perfect answer for a lot of things right now, it’s not but we’re in a position if things should change, we know what’s it’s strengths and challenges are and what we need to do to go forward with that in a meaningful way and it could be part of a solution with one or more of our major partners.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Michael Kraupp for any closing remarks.

Okay, again, thank you all for participating, your time is appreciated, your interest in our company is appreciated, and we’ll look forward to upcoming calls. Thanks again.

Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.