Good day and welcome to the SkyWest, Inc. First 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 this event is being recorded. I would now like to turn the conference over to Bradford Rich, President of SkyWest Inc, please go ahead.

Thank you, operator. Thank you, to all of you for participating with us this morning. As always I very much appreciate your continuing interest in SkyWest, particularly in spite of some of the challenges that we’re experiencing at SkyWest as well as some of the challenges and the distractions just in our industry specifically. So having said all of that we know there are some distractions, there are a lot of things still competing for your time and we do very much appreciate your continuing support and interest of the company. Before we get into a discussion of the results, I’d like to just introduce those who’ll be participating here with me on the call today. We have here at our headquarters Chip Childs, the President and Chief Operating Officer of SkyWest Airlines; Brad Holt, is also here with us the President and Chief Operating Officer of Express Jet; and Mike Kraupp, our Chief Financial Officer and Treasurer. We also have other members and officers of the company here in the room with us and we’ll participate as necessary. I’d now like to turn the time to Mike to read our Safe Harbor on forward-looking statements.

Okay. Thank you, Brad. In addition to 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, anticipate, 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 information available to SkyWest as of such date. SkyWest assumes 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.

All right, having said that let’s just jump right into a discussion of the results, I assume that you all have seen our announcement this morning and probably you have access to the press release as always we will stick pretty close to the press release as kind of the outline for our discussion today. We intend - let’s see, as far as just the outline of our discussion this morning, I will start by making just some brief comments, I’ll then turn the time to Mike to review in more detail the financial results of the quarter and then we will open it up for discussions and we’ll have the whole team here available to answer your questions. First of all, as I already indicated, we are acutely aware of the challenges that we’ve had not only specifically to SkyWest and our companies, but the challenges and difficulties of our industry. There are a lot of things that are creating some distraction, there are a lot of our peers and others in the industry that are experiencing some difficulties and we’re well aware of that and having said that I just want to begin by expressing our sincere gratitude to the - all of the people of SkyWest and the companies of SkyWest. We have approximately 20,000 employees who are working very hard, they are working with passion and energy and commitment to create the best quality product in this industry and they are doing it completing approximately 4,000 flights daily. It’s a significant operation and we’re just very grateful and appreciative for all of our people and their efforts. As far as our results of the quarter, our first quarter performance was a significant improvement compared to our first quarter performance of 2011 where we had just about…

Okay. Thank you, Brad and first of all let me thank all of you for joining us on the call today as we discuss our first quarter 2012 results. We do appreciate your time today and your interest in the company. I’d also like to join Brad in thanking our employees for all that they are doing to help make us successful and to ensure that our passengers are having positive experiences as they fly with us. You can also tell we’re also happy to report on much improved results on a year-over-year basis, we recognize the fact that we still have much more to do, but we are committed to achieving profitability this year and the improved results that we just achieved from this quarter are in the right direction to help us achieve that objective. I’m just going to highlight a few things here, I’ll keep my comments fairly brief here this morning. Starting with our production our block hours, we achieved a net increase of 3.1 or about 16,500 hours on a year-over-year basis. That was actually after reducing our planned reduction in our prorate flying block hours of about 4,900. So as you can see our contract flying actually increased 21,400 hours on a year-over-year basis or about 4.3%. Our total fleet at the end of March 31, 2012 was 727 aircraft compared to 713 aircraft for the same period last year. That’s a net change of 14 aircraft consisted of primarily adding some used 200s and 700s. You can also see from the press release this morning that we did experience a $17.3 million reduction in our pre-tax loss, so we reported a pre-tax loss this quarter of $1.2 million compared to the pre-tax loss of $18.5 million for the same period last year. That…

Okay. Thank you. We’ll now just open it up to you for -- if you have some questions.

[Operator Instructions] Our first question will come from Michael Linenberg of Deutsche Bank.

Brad, Mike a couple of questions here. With the engine overhaul costs for the CRJ200, I guess what we’re up to $21.5 million. When do we start seeing that as we look at over the next few quarters. How does that trend?

Yes, Michael?

Okay. Mike with regards to your question, we’ll have probably a similar or close to that spend in the second quarter, that will then go down in the third and the fourth quarters primarily to where the revenue or the rates we’re recovering from United will sort of match the overhaul costs. And then in 2013 and beyond, that will flip to where it will be positive again with revenues in excess of the costs.

I see. So then, so the third and fourth quarter, it will go down, but it will still be some charge, right?

Right. Yes.

Okay, okay. And then move into positive territory in...

2013.

How fast does it come down in the third and the fourth quarter now? I mean, is it going from $21.5 million to like $15.10 million?

Yes. We’ll have expenditures of $21.5 million and then close to that or slightly less in the second quarter. And then in the third and the fourth quarters, we go down real close, about half of that.

Okay, good. I want to go back to just the international business that you have, the Air Mekong and the TRIP. So the way it’s here, it says that it’s an additional $4.1 million loss attributable to them. So I just want to make sure I’m reading, or you’re saying that the loss expanded by $4.1 million versus what you…

Yes.

So what was the baseline last year?

It was close to breakeven, actually. About $0.5 million loss.

I see. So then, my follow-up is what, I mean these businesses have been generating losses and I know you account for them under the equity method and it looks like that, they may continue to generate losses. What sort of recourse do you have to get out of those investments and what can you take out of them? I mean, what’s your sort of staying power and your patience with these investments?

Okay. So Mike, I think we need to answer that both from a book accounting standpoint and then relative to overall value created in those investments because from just a book income perspective, yes, they have generated losses. On the Air Mekong side, maybe it’s a word you’re just pointing out the accounting for that investment. Our investment account where we expect by the end of the second quarter our investment account in Air Mekong will be at 0.

Okay. So that’s good.

Which means we will not be looking through our income statement, our share of those losses. Okay so, financial impact from that moving forward should be 0.

Okay. And Brad, what would you say Air Mekong was this quarter? Was it most of it, was it half of it, was it…?

It was a third of it.

Okay, okay. That’s helpful. But then TRIP is, you have about 26% of TRIP that’s ongoing?

That’s ongoing. So we need to look at that and I think from 2 perspectives; first of all trip is growing very fast and the rapid growth is generating some financial - their financial productivity is less than we had expected it to be, but some strong majority of the booked loss is simply due to currency.

Okay.

Okay. So, operationally they’re doing better than would be reflected in the losses that are being booked, where a good share of it’s coming just from the currency translation.

Okay.

Okay. Next of all is we just look at the value that’s being created on the investment. So our share of the loss is one thing, our value in the invested capital relative to what we think the market value of the investment is that totally different thing. We think we have a fairly strong embedded gain in that investment, but just doesn’t being, does not being reflected in the financials. We do have by contract some rights to liquidate that investment and look we’ve had ongoing discussions with trip about that we’re in those discussions, but we’re willing to absorb a little bit of negative financial impact when the overall value of the investment we believe is accreting.

The next question comes from Helane Becker of Dahlman Rose.

Can you just give me the number of aircrafts you have at the end of the next 3 quarters?

Helane, don’t think we’d actually got that data with us here in the room. Can I handle that with you off-line after.

Oh, sure. No problem. That’s not a problem at all, we’ll just e-mail or whatever. The other questions, I had really with respect to some of the changes, I mean you guys really did very well in getting to an operating income this quarter from the losses that you’d been seeing. So, you must feel good about that, but the question is so, is it sustainable now? So have you made enough changes, not so much on your cost side because there is only so much that you can do, but with the revenue side, which we’re united and as your largest partner, I mean Delta, I guess too. Just feel comfortable that the changes we’re making will last.

Okay. So obviously you know that question gets some sensitive territory because we’re not in the business of forecasting our earnings in this context. But let me just speak to it directionally and…

Also Brad maybe speak to it with respect to the 50-seaters because that seems to be the problem right, nobody really likes the 50-seaters anymore, so maybe just talk about it big picture why, that would be helpful?

Okay, so, yes. We feel a little differently than I think a lot of people do in the market about the 50-seat market. It’s no secret that particularly one of our partners has been fairly vocal about the fact that they believe they have too many 50-seaters. Okay, so we know that and so what we are doing first and foremost is our overall objective is to meet the needs of our partners. Okay, so we have a very strong interest and objective to do all that we can to run our business in a way that meets the need of those partners. So what that means and particularly what it means to us in respect to the 50-seat environment is that we are doing whatever we can, however we can to find creative ways to use that fleet. We put airplanes into prorate where we have seen an opportunity to help partners and to help us in developing certain very selective markets that we think can work in that environment. We’re trying to figure out just generally be very receptive and creative in trying to solve that issue. When we look at the factors that are involved in this whole issue certainly the market knows that when fuel prices go up, the economics of the 50 seater change. Okay, and that just is -- those are the facts. However, when we take it beyond just fuel and look at all of the other factors involved, we’re just in a state admittedly of a little uncertainty in this area, but what we do believe firmly is that even though the market and particularly for 50-seaters is evolving, there is going to be a market because no one is making 50-seaters, scope clauses are not becoming unlimited by any stretch. So depending on the evolution of the scopes, depending on what happens with technology, all those impact this question, but at the end of the day, number one, we have our contracts lined up better with our financial exposures on the 50 seat fleet better than any regional carrier period. So we don’t have a lot of tail exposure, I mean very little. So airplanes will be going away naturally, but then we feel strongly that through refurbishments or whatever there’s still going to be a need and a place for 50 seat aircraft in the market. Our challenge is to continue working very aggressively on our cost structure to make sure that we can economically operate those airplanes where they will create value to our partners and that’s where our focus is.

The next question comes from Ray Neidl of Maxim Group.

Yes. Just a couple of quick general things, I know you’re turning cash flow positive for rest of the year, but your cash levels do continue to go down generally I think and for opportunities going forward or just for safety, do you think that you may have to do a cash raise in some form to continue the strong liquidity that you’ve had over the past couple of years. Especially in the light, where I think you’ve said before that you have to do a major re-fleeting over the next 5 years?

Ray, this is a very good question. I’m glad you’ve asked that. First of all, I just want to be very clear we’ve got a couple of things happening, they’re affecting cash flow, not only is the first quarter, a very heavy cash outflow quarter both in payments of debt and prepayments of leases. But when we look at the profile of our leases and if you look at them, so within a 12 month period, the first quarter is the heaviest. When you look at them over the full term of the leases, we also have a bit of a bell curve that’s created simply that was created by the large ramp up and expansion of aircraft into the fleet several years ago. That’s created a bell curve in about a 3-year period that we’re in right now where - so we have first quarter that’s heavy and then in the full term of the lease we have a 3-year period that’s heavy. So we have a bell curve within a bell curve and we’re in that right now and it will be tailing off both within the year and within the 3-year period. So our cash generation, we believe we’ll get back quite strongly positive and there will not be a need for an external kind of a transaction or cash rates.

Okay. Great. And I ask you this question almost every quarter and get the same answer about the independent flying, you want to keep doing that to make sure you still have that skill level in case the industry further changes. But what’s your plans now, what do you stay in now, is that sector going to be growing or shrinking or staying the same size?

I will ask Chip to think about, let me just take a very quick and then I’ll have to Chip. First of all, yes, we believe strongly, we have the skill and the talent level to manage a very effective prorate operation and it’s improving and we expect it to be profitable this year. The other issue as I just ask you to keep in mind as we have said just about every quarter is that the strong majority at least of the CRJs that we got in prorate are short-term commitments. So we’re developing it, we think it’s going to be profitable and if it isn’t, we have short-term flexibility with those airplanes. Well, Chip, I’ll let you speak to it if you have some.

Yes, I mean, I think Brad summarized this very well. As we look at what particularly 50-seaters doing from a contractual perspective with our partners. We have a fair amount of Brazilians that are under the prorate model, but as we continue to hone this in we’ve had very good improvement with this model over the last 2 to 3 years, but it’s been very disciplined on the markets that we serve, the cost associated with it and the decisions of how that goes. I think, in the future we’re going to continue to explore this concept maybe even a little bit beyond the prorate concept to where we have models that work well for our partners. That’s the majority of what we want to assess going forward. What works well with our partners is there a model in there that’s prorate or a hybrid of the prorate NOI and hybrid prorate contract those types of things are things that we continue to always evaluate, but there is a good trend with this right now, we keep a very close eye on fuel. So from that perspective we’re cautiously optimistic and continue to be creative about how we can get some of this to continue to work going forward.

The next question comes from Jim Parker of Raymond James.

Okay. It appears that SkyWest airlines is considerably more profitable than ExJet, which is a former ASA and former ExJet. What do you need to do from this point going forward to have those, the Express Jet operations, meet your original game plan before you acquired ExpressJet and to bring that up SkyWest Airlines level?

Okay. So a very good question. And let me just make what the current structure of the ExpressJet, I’ll say it in a way of both contracts and capital structure and aircraft exposure. Look, I don’t believe the ExpressJet operation will ever be at the same level of profitability as the SkyWest system and quite honestly it wasn’t intended to be, nor did we invest capital at the same levels that would warrant that. And the reason being is that it’s a fundamentally different structure, the biggest difference being that we have absolutely no tail risk on the legacy ExpressJet fleet. And as such the rates of return were not as expected to be as significant, nor was the invested equity as significant. Now having said that do we expect that we can get ExpressJet at sustained levels of profitability and the answer to that is, yes. We have to do it in cooperation with contracts that recognize different varying levels of stage lengths and utilization that’s something that we have to work with, with our partners. As we change out and replace the fleet, we believe the economics of those of that specific ExpressJet model will also change, we believe that with what we see happening at least at the mainline level is as more of a move away from the major airlines, financing and owning the regional fleets and as we take that risk and use the strength of our credit and our access to capital, the economics of that model will change. So that’s one factor. The continuing focus on the post-merger integration and then really nothing to do with integration just our focus on cost reduction initiatives, when you combine all of those things, we believe we can get ExpressJet at acceptable rates of return and consistently profitable.

Okay. And the status of the collective bargaining agreement that you’re working on with ExJet pilots, what is that?

Okay, I’ll have Brad Holt speak to that.

Well maybe the best is just a quick overview I think progress with all of our groups is moving along just about the way we had expected pilot specifically I think we’re making good progress, everyone is working well together and I’m optimistic that we’re going to be able to come to an agreement.

The next question comes from Duane Pfennigwerth of Evercore Partners.

This is actually Stephen Lee stepping in for Duane. Just 2 quick questions, do you see any opportunity arising for SkyWest as a result of Pinnacle’s restructuring and is it safe to say that we’re pretty much through with all your staffing related issues?

Two very good questions. First of all, I do believe we’ve got a very good handle now on our staffing during the integration and all of that and some things that happened last summer and increases in our schedules and us taking on some additional flying in the summer. We did have some struggles last year and I do believe that part is under control now. As to the first part of the question, what was the first part of the question?

Pinnacle.

Pinnacle. Look, we’re just optimistic enough to think, I mean we always have opportunity. There is nothing specific and I want that emphasized, there is nothing specific today that’s being discussed at all. We just as a matter, as a general statement we just consider ourselves very well positioned and maybe I’ll just we kind of see ourselves as the go to team here. If our Majors need us to step in and help in some way, we just generally think we’re best positioned of all the regionals to do that. So we always think we have opportunity, there’s nothing specifically being discussed though and I need to emphasize that.

The next question comes from Glenn Engel of Bank of America.

A couple of questions please. One is on the maintenance side, you talked about the engine side and that’s peaking in the first half, there’s also issues on the airframe side that’s been rising as well. How are we in curbing those costs?

So we have - you’re right we’ve had - we’ve had some peaks here in both airframe and engines both of those will be trailing down, and but I might add in addition to - we have 2 issues here, we have quantity of airframe and we have price of airframe jets. Okay, so not only will quantity be tailing down because we’ve had these peaks, but we’ve also made very good progress specifically on the ExpressJet side of bringing the cost of the airframe checks down. We’ve worked very closely in concert with our service providers, specifically Bombardier, we’re looking at the scopes and all of those things and the ExpressJet leadership team has done a fantastic job of just bringing the overall cost of the seat checks down.

The second is, weather last year was an issue, this year it was relatively good. How much do you think weather contributed to year-over-year improvement?

Very good observation, you’re exactly right, it did contribute. If anyone in the room has a number that they can help quantify it, certainly your fleet - I don’t have it quantified.

Okay.

It doesn’t look like anybody in the room does, but you’re absolutely right, it was a positive impact on the quarter.

Finally on the aircraft side, I think in the past quarters you’ve hinted that you’re talking for more aircraft orders and made it seem like it was sooner I guess, but where are we in terms of where do you think that timing as of more aircraft orders?

This is an interesting thing too, we have - we do have situations where aircraft just in our contracts will naturally begin to expire and in some cases under certain conditions we have replacement rights for those airplanes as airplanes expire. So we have been working very aggressively on a fleet replacement program, really trying to revamp, restructure, how aircraft are purchased and managed through their life cycle. And there are 2 intended purposes to employee that new concept; one is in the replacement of our own fleet and the other is bidding for other work as it becomes available or as other regional carriers aircraft begin to expire. The interesting thing to us is that we are -- first of all we’re making very good progress on this whole concept. We expect within the next few months, we will have very clear direction as to exactly how this will work and what the cost will be and even the way I just described it actually like we don’t really know today. We have a couple of critical pieces we’re working on, but we do have a lot of clarity on at today. But the interesting thing to us is that, that we seem to be in this - in a feeling within the industry, that we just don’t have any regional opportunity. And yet we’re being asked all the time as to what we can do, what our pricing is we’re being asked to respond to enquiries as to our pricing and how quickly we could get additional aircraft. So, I wish we had the program up and ready to use today because we’re being asked by various carriers to respond to these enquiries as to new list so…

And these aircraft are for - they replacement aircraft at least are for - starting 2014, 2015, 2016, when do the actual aircraft?

Begins very - in small numbers and ‘13 and then it starts to just gradually ramp up in ‘14 and then ‘15, ‘16, ‘17 it gets pretty heavy.

The next question comes from Steve O’Hara of Sidoti.

I was wondering, if you could talk about maybe your hurdle rate for new contracts today or maybe in the near future versus maybe what it was back 7 or 8 years ago, how that’s changed and do you think the industry maybe have got - is getting better on pricing these contracts. Because, I think some of the assumptions made at the beginning of the contracts having - really haven’t panned out, I would guess?

This is an excellent question. Let me just, first of all I’m not going to answer specifically the first part of the question, because I’m not going to tell you exactly what our targeted rates are. I think, that would probably, would be an appropriate, I will just tell you that we have them. Okay, we have very clearly identified targets and I will also tell you that we will be disciplined. And look this is an interesting situation because we have the largest fleets of Bombardier product and the largest fleet of ERJ product and we have access to a lot of data and we’ve been very specifically and comprehensively studying this data to identify very specifically by type the cost of these airplanes by age. So we have very specifically developed aging cost curves of these aircraft and basically all of the types and we know what our costs are. As that relates then to responding to RFPs and the bidding process you combine the knowledge that we have about the aging costs of airplanes and by way I’m not just speaking about the aging costs, I mean year one, year 2, year 3 through their life, we think we know this with more precision than any other - I mean quite honestly, we just, we have more data and so we know our costs, and we’re going to bid our costs plus our targeted returns. And if in the process the rest of the industry doesn’t do that and they underprice contracts for whatever reason, we aren’t going to do that. We will be disciplined, we’re going to take these advantage of opportunities when they make sense for both us and our majors and look if we have to pass on some opportunities or we just fundamentally get outbid because of this then not might be the case, but we will be disciplined and we’re not going to just chase other carriers’ bids when they’re underpricing the contracts. Now having said that our responsibility is to just fundamentally do everything we can to make sure that we’re a competitive bidder. And the new, the concept that I discussed previously -- just as one example you combine all of the things we’ve talked about our focus on integration, on cost reductions, combined with a new way to buy and manage the assets to begin with and we think all of that leads to a very compelling product. And so we do expect that we will be competitive, but in the process along the way if we’re being outbid, that’s just the way this goes sometimes, but I can just tell you we will be disciplined and we’ll do flying, when it makes sense to us.

Okay. And then it’s a follow-up, I mean, it sounds like in terms of ExpressJet versus SkyWest, you expect there to be a continual or permanent difference in terms of the margins there. Does it make sense to have exposure both to a union and a non-union pilot group and I guess do both airlines make sense in the long-term, are there enough synergies between the 2 of them?

Yes, let me make sure I’m clear on this. I think that the differences that I’m talking about are -- the 2 airlines are different airlines, okay, and right down to operating statistics, stage lengths that they operate, I mean they are just very different but my reasons for stating that I just think there will be differences, it is primarily to do just with the capital structure and the risk. I mean if we have absolutely no risk in an airplane, we just think that risk profile is different and that translates into expected return. It isn’t to do because one force is organized and the other is not. Okay. And we’re trying to just do everything we can to create as much efficiency of both airlines take advantage of purchasing power because of our size of both airlines and translate that into pricing power and then value. But the difference is again our capital structure and risk related, not labor force related.

[Operator Instructions] The question comes from David Fried of Fried Asset Management.

I’ve followed your company for a very long time and I have discussed online and off-line with you about some of these forays into these other operations, which I think at this time it clearly have sapped some of the momentum and focus from the group. But what strikes me in these conversations about bids and pricing and passing business which is in general a good thing. Aren’t there a lot of these markets at this point where you have some pricing power and there really aren’t other available carriers for the main airlines to go to, I mean it would seem that way at this point given number of flights and the number of locations isn’t really anybody who has your network and I’m wondering why that doesn’t I know in the airline business pricing power is an oxymoron, but I’m wondering why that isn’t appearing at some place as pricing power?

Okay. So look. I generally agree with what you’re saying and the fact of the matter is that the Regional airline pool or market is shrinking. And there are fewer operators and fewer peers I guess that are vying for this business. So yes, what you’re saying I mean just logically as the pool shrinks fewer bidders that should translate into as you describe it some purchasing power, we don’t really choose to, I mean we don’t look at it that way necessarily. The way we choose to look at it is as the pool shrinks and as we’ve grown, we just look at it as our responsibility to translate our size into value and just make the product more valuable to our Majors. And whether the pool is big or small we just have to fundamentally meet the needs of our partners, which will have been logically want our product. And so look, and I’m just saying as far as our company focus and what our leadership team is focused on is positioning ourselves to create value. Okay and you’re right, there’s a smaller portfolio of Regional carriers and that should translate into what you’ve just described and look I agree with that. That’s really not the way we look at it though. We just need to be efficient, we have to have high utilization of our fleets, we need to do everything we can possibly do that’s within our control to create efficiency and value and when we can do that and position ourselves to where it make sense to our Majors, then we’re here and we can do it and we can do it safely and reliably. And if someone else thinks they can do it cheaper, look, then that might be the case. But we’re just going to do everything we can to be efficient and create value.

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

Okay. Thank you all. Again we always appreciate your time, we know it’s competing with other things. So thank you again very much. Again thank you to all of the people of SkyWest who are putting their hearts and souls into this operation. We’re very grateful. And we look forward to speaking with you again in a quarter. Thank you.

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