Good morning, and welcome to the SkyWest, Inc. Third Quarter Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Bradford R. Rich, President of SkyWest, Inc. Please go ahead.

Thank you very much and thank you to all of you for joining us this morning. Before we begin, let me introduce those who will be participating in the call this morning. First of all, we have Mike Kraupp who is the Chief Financial Officer of SkyWest, Inc. We also have Chip Childs, the President and Chief Operating Officer of SkyWest Airlines; Brad Holt, our President and Chief Operating Officer of ExpressJet; Eric Woodward, our Chief Accounting Officer, is with us as well as other members of our staff this morning. Before we begin, let me turn the time back to Mike Kraupp. He will read our safe harbor on forward-looking statement, okay?

We will be making statements during this conference call which are considered forward-looking. Such statements are based on our current beliefs, expectations, assumptions regarding future events and are subject to risks and uncertainties. Words such as expects, intends, believes, anticipates, should, likely and other similar expressions identify forward-looking statements. All forward-looking statements expressed in this call are made as of the date hereof and are based on information available to us at this time. We assume no obligation to update any forward-looking statement. Actual results will vary and may vary materially from those anticipated, estimated, projected or expected for a number of reasons including those discussed in today’s press release expressed during this call or as set forth in our 2011 Form 10-K and other reports and filings with the Securities and Exchange Commission.

Okay. Thank you, Mike. To begin this morning, let me just take the opportunity first of all to express our thanks and gratitude to all of the employees of SkyWest, Inc. We are so grateful and very appreciative for all of the efforts. We have had some significant improvement both in our operational performance of the entities as well as our financial performance. It’s important that we recognize the efforts of all of our employees and those who are so committed and making this happen, and we’re very appreciative. Although our total financial performance and returns are not at our return objectives, we are very pleased this morning to report increases in both our operating and pre-tax income, both from the third quarter of last year as well as increases from the second quarter of 2012. We do remain very focused both on unit revenue improvement as well as cost reduction initiatives that are part of an overall profit improvement strategy. The results that we’re reporting this morning, I believe, are another indication that the plan is gaining momentum and will be successful. As usual, there is a tremendous amount of activity in the regional industry and the third quarter of 2012 was significant in many respects. I will take just a few minutes and review some of the things that I believe were some of the more significant highlights of the quarter. First of all, I mentioned previously the operational reliability of the entities, and again thanks and credit goes to our employees. We have continued improvement and overall strength in the operational performance of the entities, and that has translated into increased unit revenue by way of increased operational incentives at each of the airlines. Previously we had announced what I believe is a very significant transaction with…

Okay, thank you Brad. Let me also start off by adding my thanks to all of our employees system-wide for their efforts in working to make us a better company with regards to both quality as well as financially. We do appreciate their continued efforts to ensure that we are offering the best experiences possible to our flying customers, as well as working to ensure that we are offering a cost effective service that will allow us to remain as an industry leader and continue to be competitive in this fiercely competitive business. Also we are fortunate and happy to be able to report continued progress on our efforts of returning to profitability by reducing our costs and yet at the same time improving the quality of our operations. This morning, we reported net income of $20.9 million or $0.40 in fully diluted earnings per share for the quarter ended September 30, 2012. That compares to net income of $0.1 million for the same period last year. This was a better result than the consensus estimate and is the third consecutive quarter where we have performed better than the estimates. Also in the press release this morning, we outlined a significant change in our operating revenues and expenses that’s resulting from how we have historically purchased fuel for our flights directly and have subsequently included them as direct reimbursements from our major partners, to the current situation today and going forward where our major partners now purchase the majority of the fuel directly. We do continue to purchase a small amount of fuel for our contract flying with our major partners, but anticipate that that will change in early 2013 with the majority or most of our contract fuel being purchased by those major partners. Having said that, you can…

Okay. And we’ll now just open it to you for questions.

[Operator Instructions] Our first question comes from Savi Syth at Raymond James.

Just wanted to -- regarding the American and Delta agreements, what’s the timing of the aircraft moving out of your system and moving into your system?

Okay. So let me first of all just give some specifics as to the timing of the 34 aircraft coming in. So we have the airplanes coming in kind of in 2 groups. There is 1 group of 18 that consists of 13 900s and 5 700s. 10 of those aircraft are already in the system beginning in September, the other 8 in October. And those are in service dates. Okay? So all 18 are in service by October, so already in the system. The other 16, 2 of the aircraft are coming in, in the fourth quarter, 6 are coming in the first quarter of '13 and 8 in the second quarter of '13. Okay? So those are the -- of the 34 aircraft coming in. And then the beginning of the American flying, the first of those aircraft are 12 airplanes at SkyWest Airlines that are coming in, in November -- right next week.

They start November 14.

Starting November 14. So we’re right at the beginning of that service. The remaining 11 aircraft will come in early in the first quarter and will be operated at ExpressJet.

All right. Great. And as we think of ASMs and block hours, how should we think about it, the impact of those changes?

Okay. So I think mike has said given what we have going on right now with the changes in our production relative to the airplanes coming in as well as the impact of the storms, I think Mike wants to get a little better handle on our total production and then we will give updates as those number become a little clear to us.

Our next question comes from Michael Linenberg with Deutsche Bank.

Just -- well actually a couple of questions. The American airplanes, 12 at SkyWest, 11 at ExpressJet. Are those all CRJ200s?

Yes.

Will those 11 at ExpressJet, will those be the only CRJ200s at ExpressJet?

No, we still have…

The ASA -- you have all the ASA stuff.

All of the legacy ASA agreement.

That’s right, that’s right. Thanks. Mike, you gave us the year-end of just over $700 million and you kind of look at where your cash is right now. Is there any -- are you anticipating any share repo, is that in that number or do we have a couple of payments to -- some debt payments that come due?

Well we’ve outlined, obviously within those numbers, debt payments that come to us and that are quite heavy in the December timeframe. And I think back, with regards to Brad’s comments, I’ll just site a previous release that we put out when we announced our share repurchase program. It’s anticipated that we'll be in the market at some point here during the fourth quarter, not exactly sure when. So we will sort of leave that one at that.

Okay. Perfect. Then I want to just -- I think Brad, you alluded to -- I think you said a lot of RFPs in the market or there are a few RFPs in the market. Can you just -- can you go over some of those? I mean, I -- we know that there is a potential RFP at American, maybe the Eagle business, you've already picked up some. What else is out there? What should we be looking for?

Mike, very good question. And so, I kept my comments there very general and we have to respect confidentiality. And in some cases, the confidentiality is even prohibitive from specifically indicating the existence of the RFP. So my comments are just to be general, to say that we see a lot of activity going on right now with carriers either looking to refleet or to add capacity or there are just various opportunities in the market, and we really can’t be more specific than that.

Great, fair enough. Just one quick one on the $4.7 million non-op loss at TRIP and Air Mekong. How does that split down between the 2 carriers?

$4 million for TRIP -- and then for Air Mekong.

Okay. $4 million for TRIP and then $700,000 for Air Mekong?

Yes.

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

A couple of questions. One, can you talk about the prorate how revenues compare to last year and what profits did compared to last year?

Sure. We will have Chip Childs referring to that question.

Hey Glenn, just real quick on the prorate side. Our revenues were off just slightly but we also have lower capacity. Our revenues for the quarter was $81.3 million this quarter compared to $85.7 million of the same quarter the previous year. And profitability was right about the same, slightly better margin this year than what we had last year. We optimized out of some of the lower performing cites and optimized into some other stuff. And so we feel good about the optimization and where our system is going forward and it’s performing pretty solid right now.

Second question, on the maintenance side. Is this the new level or do you expect to get it down even further from here?

Are you talking with regard to -- go ahead...

[indiscernible]

I was just going to say with regards to the -- just the expenditures spend or are you talking about overhauls?

Both of them.

Okay. All right. Well first of all, we would anticipate -- the guys have made very good results and efforts with regards to just the expense, items that will simply run through expense. We would anticipate that, that trend would continue. I will say though, it’s going to become less and less. If you recall a year ago, we’ve incurred the majority of our maintenance cost, sort of early in those early quarters and then our folks started managing that a little bit better. So I would think that we would -- for the fourth quarter, we’d still see some level of reduction although I would see that lessening. And then with regards to the engine overhauls, we actually anticipate that coming down in the fourth quarter. We just spent 13.1 in this quarter; we’re estimating 8.5 for the fourth quarter and then estimating revenue that we would take in of about 8.9. So that should be our first quarter where we actually turn slightly positive, where revenues are again in excess of costs.

And you are looking to be relatively neutral next year?

That’s correct. Revenue neutral to slightly positive, yes.

Relative to slightly positive.

How long are those American leases for?

The remaining debt -- they are actually all debt-financed aircrafts and it’s 4 years. So they are very coterminous with the term of that American agreement.

And I know you don’t have anything for the fourth quarter, but can you -- ignoring the weather effect, a broad range of what you would expect capacity growth to be in 2013?

Well, okay so in 2013, I mean it’s still in the low-single digit in total block-hour capacity growth. I mean it is around 4%.

That’s right.

Our next question comes from Duane Pfennigwerth of Evercore.

Just wondering -- apologize if you have to repeat this, but I know you are not talking about through ASM production 4Q, but did you call out kind of an earnings impact from storms?

We gave a general number that we are trying to refine, but right now both from Sandy and the projections and what we see on the upcoming storm, we think it’s around $3 million pretax.

Okay. Sorry to make you repeat that. And then as we think about the aircraft that you are adding and maybe some aircraft that go away, maybe you could remind us if there is anything coming off contract next year? What is unit growth for 2013? How should we be thinking about sort of nominal block hour?

Nominal block hour growth? Okay, so we have kind of already articulated the aircraft coming in. I guess the piece we haven’t been real clear about are the just -- I think you are asking about like, natural terminations of contract flying and the net -- kind of the net impact of our fleet changes. Is that kind of...

Yes, that’s fair.

[indiscernible] your question, Duane? So the only thing of any significance really on terminations are the exit of aircraft coming out of the 66 airplanes in the Delta transaction. Okay? So 23 of those go into the American operation, that leaves the 41 of Delta’s airplanes which are scheduled to come out of operations, and of course we have the 34 replacements for those. What is happening in 2013 are we take the 34 additional and most of the terminations of those 41 do not happen until later in 2013. Okay? So most of the aircraft coming in are through kind of incremental growth airplanes until the fourth quarter of '13.

So are you able to give us kind of what ASM growth or block hour growth would be, year-to-year, next year?

So I think -- outside of the general 4% number I gave earlier?

Sorry, I missed it, yes?

Yes, we’ll just have to update those as we continue to get better information. And look, we’re not trying to be cagey about this. What we have seen is quite a bit of volatility in our major airline schedules. And so we would just want to make sure that we’re being careful and thoughtful in how we compile and generate these numbers. We just -- the last thing we want to do is get ahead of ourselves. So we’ll give those as we get a little more clarity.

The next question comes from Ray Neidl at Maxim Group.

Just one general thought here. You are in a strong cash position, you’ve got bond capabilities, you want to enhance the value of your stock, hence the dividend and the stock buyback program. But also you said that over the next few years, you're going to have a major challenge in refleeting your operations. That's quite a number of aircraft once the scope clause restrictions are changed at your partners. I am just wondering, should you be conserving cash right now to meet those needs over the next couple of years, which would be substantial I believe?

I think you’re spot on Ray. I mean, we are in cash preservation mode. We have stated previously that, relative to our stock buyback program -- I mean, obviously we always say that we’re going to make those conditions -- or those decisions based on market conditions and our liquidity balances and that remains true. We’ve also stated that we also, as a general rule, want to repurchase at least enough to offset our equity compensation programs. And that does remain intact and an objective. But we also are doing exactly what you said in conserving cash because of the capital that will be required to either expand or refleet. The financing market is changing. It’s become more difficult over the last few years and we are preserving cash for that situation. Look, we talked a little bit more about cash. Mike went through some of the issues here. The other thing that I think we feel confident about is that we’ve just come through a period that has had 2 fairly significant cash requirement issues. One has been the timing of the overhauls, which has obviously gotten a lot of attention and has been both a cash issue as well as a P&L issue. We are on the -- way on the back slope of that bell curve. And my point being that has been a significant drain of cash previously that we won’t have going forward. At the same time, we’ve just gone through another bell curve or beginning the down slope of a significant increase in just the timing of some prepaid rents. And both of those issues are mitigating and coming down, which should help our cash flow even further as we go into the future. So I’m feeling better about our ability to generate cash, but yes, we are in a cash preservation mode, preserving it for these fleet replacement opportunities.

[Operator Instructions] And at this time, I would like to turn the conference back over to Mr. Rich for any closing remarks.

Okay. It doesn’t look like we have any other questions. As always, we are very appreciative of your participation, the quality of the questions, we enjoy having these discussions. In closing, let me just reemphasize, we really do feel good about our positioning at SkyWest, Inc. Our operating entities are doing an excellent job. They are proving very specifically that they are very capable, that they are prepared, they are safe, that they are reliable and they are executing very well. In addition to that, our financial performance -- our financial positioning with our capital structure, our liquidity, add to that the strength of our people and our -- the strength and breadth of our platform nationwide, we still -- we remain very optimistic and feel very good about our positioning in this sector of the industry. And with that, we will go ahead and again thank you for your participation and conclude our call. Thank you very much.

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