SkyWest, Inc. (SKYW) Q1 2016 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the SkyWest Incorporated First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Rob Simmons, Chief Financial Officer. Please go ahead.

Thanks everyone for joining us on the call today. As the operator indicated, this is Rob Simmons. On the call with me today are Chip Childs, President and Chief Executive Officer; Wade Steel, Chief Commercial Officer; Eric Woodward, Chief Accounting Officer; Mike Thompson, Chief Operating Officer of SkyWest Airlines; and Terry Vais, Chief Operating Officer of ExpressJet Airlines. I would like to start today by asking Eric to read the Safe Harbor, then I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results then Wade will discuss our fleet and our flying partners. Following Wade, we will have the customary Q&A session with our sell side analysts. Eric?

Thanks, Rob. Today’s discussion contains forward-looking that represent our current beliefs, expectations and assumptions and are subject to risks and uncertainties. We assume no obligation to update any forward-looking statements. Actual results will likely vary and may vary materially from those anticipated, estimated or projected for a number of reasons. Some of the factors that may cause such differences are included in our 2015 Form 10-K and other reports and filings with the Securities and Exchange Commission. Chip?

Thanks, Rob, and Eric, and thank you on the call for joining us today. As outlined in the press release, SkyWest produced a strong first quarter and continued traction on our overall business plan. As we discussed in previous quarters, we began our current strategy and approach nearly two years ago. Several key components of our long-term strategic plan have driven the improvement you see today. These include: one, delivering outstanding operations; two, executing on our multiyear fleet transition plan; three, cost improvements; four, securing labor agreements; and five, maintaining strong partner relationships. First relative to our operation performance and reliability. The first quarter is generally a very challenging quarter in terms of weather and seasonality. However, both SkyWest and ExpressJet made strong operational improvements this quarter compared to the same quarter in 2015, contributing to the improved financial results. But we did see seasonal challenges in our mountain hubs, particularly in Denver during the late-season snowstorm. Both entities improved their ability to plan and recover from adverse weather in effecting our key hubs. I want to thank our 20,000 employees for their excellent work. Reliability is a crucial focus of our business, and our people are doing a fantastic job, delivering outstanding performance. At the end of the first quarter, ExpressJet maintained their leading status as the most reliable United Express carrier for 20 consecutive months and delivered 99.85% adjusted completion for the quarter. SkyWest Airlines also improved its adjusted completion from 99.4% to 99.8% year-over-year, and both entities are top tier for reliability in each partners’ portfolio. Together our two entities operated more than 300,000 flights in the quarter, and did so with unparalleled reliability and performance. Again, my thanks to our teams for a job very, very well done. As part of our fleet transition plan, our optimization strategy has been to reduce our risk and increase profitability and flexibility across the entity. We continue to optimizing our fleet in the first quarter, reducing unprofitable aircraft and placing larger aircraft into service and we anticipate this to continue throughout 2016. This includes a number of CRJ700s scheduled to transition from United to various partners; execution of our E175 deliveries for United, Delta and Alaska Airlines; and removal of unprofitable aircraft from the fleet. At the end of the quarter, 38% of our fleet was dual-class compared to 33% at the same quarter last year. We expect in the next couple of years to be more than 50% of our fleet will be dual-class, but Wade will discuss that fleet movement more in detail in a minute. Relative to cost improvements, our solid operating performance not only provides additional revenues through higher flight completion rates and performance incentives, it also improves our operating efficiencies. We revitalized our maintenance infrastructures and programs of both entities, and that increased efficiency continues to reduce costs and improve reliability of both airlines. Additionally during the quarter, we realized maintenance cost improvements to various vendor rate reductions. In relation to securing labor agreements. During the first quarter, both pilot groups at ExpressJet approved a two-year contract extension. We believe this is an important investment as we continue to work toward our objective to stabilize and evolve that model. SkyWest Airlines’ pilots agreed to a three-year contract back in August of 2015. As we've outlined in previous quarters, we are not immune to the pilot risk in this industry and remain focused on attracting and retaining exceptional professional pilots. Relative to our partnerships, our primary priority as we execute these plans is to best deliver what each of our four main line partners need. Our ability to deliver a quality reliable product to our partners hinges on a flexible and disciplined approach to meeting the strong demands of our product. We believe maintaining strong operating credibility with each partner is a cornerstone of our success. Although Q1 produced solid reasons, we still have a lot of work to do. But at the end of the first quarter of 2015, we had approximately 52% of the aircraft in our fleet that were not profitable. As of the end of Q1 of 2016, that number has been cut in half through strong operating performance, fleet transition, cost control and delivering on our partnerships. We are on a solid trajectory in terms of the economics of our product, our operational performance, our cash flow and margins, and we are still in the early stages of executing the strategy. I want to thank the 20,000 professionals who work daily to take care of our passengers and each other. They are remarkable groups of people and they continue doing exceptional work. Rob?

Thanks Chip. Today we reported net income of $27 million or $0.52 per diluted share for the first quarter of 2016, up from net income of $10 million or $0.18 in Q1 2015. Pre-tax income for the first quarter was $45 million compared to $16 million last year. This strong improvement in year-over-year results continues to validate the fleet transition plan that we have been executing on over the last two years. Our growth in profitability and our widening margins continued to be driven by four main levers. Number one, the addition of accretive new flying with 29 new planes placed under contracts since last year at this time including 19 new E175s. Number two, the removal of 66 unprofitable aircraft over that same period. Number three, economic improvements from fleet transition and existing contracts. And number four, additional incentives and cost savings generated through improved operating performance. We also enjoyed the fuel benefit this quarter of approximately $3 million over Q1 2015. Obviously fuel rates are currently at a higher level so far in Q2 than the average price of $1.53 during Q1, but better than the $2.16 of last year. Operating income this quarter was $62 million or an 8.1% operating margin, up from $34 million or a 4.5% op margin a year ago. Our expected growth in earnings will continue to be partially driven by placing new E175s in service over the next several quarters. As of the end of the quarter, we had taken delivery of total of 48 E175s, with three placed into service in Q1. We expect to put eight more into service in Q2. And we can now confirm that we have an additional five E175s that we will be flying for Alaska, taking our total with them to 20 by the middle of next year. Our total E175 fleet is now expected to be 104 by the third quarter of 2017. Also as we've been signaling for several quarters, we continue to expect to take a largely non-cash charge related to an early lease termination and pre-paid lease write-off of some of our CRJ700s sometime during 2016. That charge will likely be in the neighborhood of $30 million but helps position us for better profitability, better margins and better capital returns going forward. Let me say a couple of things about our balance sheet. We ended the quarter with cash of $442 million, down $56 million from last quarter. Our first quarter cash is traditionally been hit with some timing differences and this quarter was no different. We pre-paid $35 million in lease expenses under our agreements during the quarter, spent $12 million towards the purchase of three new E175s, and purchased another $18 million in spare engines and another CapEx. Working capital items also hurt cash with a small growth in accounts receivable and a small decrease in accounts payable because of timing differences. This is the last quarter that we expect pre-paid lease expenses to be a net drain on our liquidity as it was in Q1. From this quarter on, we expect the approximately $460 million of pre-paid leases hung up on our balance sheet to unwind in a cash flow accretive way. Going forward, cash out for these leases will be less than book expense until the $460 million goes to zero in six to seven years. While we will continue to recognize book expense related to these pre-paid leases, this $460 million asset will contribute to improving the cash flow quality of our earnings, until it eventually goes to zero in six to seven years. Through the middle of 2017, when our fleet of E175s will stand at around 104, we will be deploying much of our free cash flow against these new growth opportunities. Until then, we are unlikely will be looking very seriously at share repurchases because we have such nice positive NPV projects in front of us. But once we complete this delivery cycle next year, we expect to be generating very meaningful free cash flow that can be deployed in any of several value generating ways. Through mid-2017, we are comfortable that our free cash flow will sell-fund the investment in our fleet transition. We ended the quarter with total debt of $1.9 billion, up $11 million from last quarter, after issuing $68 million in new long-term debt in against the three new E175s with normal scheduled repayments of $57 million. As you can see from our Q1 results, SkyWest is operating at an improved trajectory and a higher run rate. While 2016 continues to be a year of transition for us, we will continue our practice of not providing specific EPS guidance. We reiterate however our commentary that excluding special items based on our delivery schedules, our operating performance, fleet transition and contract economics, we continued to be comfortable expecting low double-digit growth in profitability over last year's comparable quarter for each of the next three remaining quarters of 2016. Wade?

Thanks Rob. During Q1 2016, we continued to execute on our strategy to remove unprofitable flying and transition our fleet to larger new aircraft. Our execution of this transition continues today. To highlight that progress, at March 31, 2015, we had 693 aircrafts scheduled for service. During the last 12 months, we have removed 43 ERJ145s from our United contract; 10 CRJ200 from various contracts; 12 EMB120 from multiple partners, and one CRJ700 from our Delta contract. This totals 66 aircraft removals over 12 months or 10% of our March 31, 2015 operating fleet. All removed aircraft were operating under unprofitable or less profitable agreements. During the same period, we added the following aircraft to our fleet. 12 new E175s under our United agreement; seven new E175s under our Alaska agreement; and 10 ERJ145s under our American agreement. These additions totaled 29 or 4% of our March 31, 2016 operating fleet of 656 aircraft. During 2016, we expect to continue our fleet transition plan and are currently determining the specific aircraft transition removal dates. Our current estimated 2016 fleet forecast by quarter is included at the end of today's earnings release, and we do anticipate the forecast will be modified as the year progresses and the plans are finalized. While 25 ERJ145s are scheduled to expire under our United contract, we do have the opportunity to extend these aircraft based on crew availability. Additionally, we anticipate expirations of nine CRJ200s under various contract, and E175 flying will replace 20 CRJ700s from our Delta and Alaska agreements. As Rob indicated, the removal of these 20 CRJ700s may result in a one-time special charge later this year. We continue exercising our fleet flexibility and mitigating exposure through our fleet transition, as we address the tail risk we previously discussed on the CRJ700 fleet, we have secured agreements to transition at least 20 CRJ700s from our United contract to various other partners. The first CRJ700 transition from United to Delta during Q1. We anticipate the remaining 19 transitions and their associated costs will occur throughout 2016. These transitions address all aircraft tail risk for 2016. We also anticipate taking delivery of 34 E175s during the last nine months of 2016, eight of which we will receive in Q2 2016. Of those eight, we anticipate operating six under our United contract to under our Alaska contract. We are scheduled to take delivery of 26 E175s during the second half of 2016 and 22 E175 the first part of 2017. With the completion of those deliveries, we anticipate a fleet of 104 E175s by mid-2017. Execution of our fleet strategy continues to produce tangible results to our model and overall profitability. As discussed, we expect fleet transitions to continue through 2016 and 2017, as we reduce unprofitable flying and place larger new aircraft into service to deliver on our commercial agreements.

Okay, operator, we’re ready for questions now.

Great. We will now begin the question-and-answer session. [Operator Instructions] At this time we will pause momentarily to assemble our roster. Our first question comes from Michael Linenberg of Deutsche Bank. Please go ahead.

Hey, good afternoon everybody. I just - I have a couple of questions here. In the report, you did call out a function of the revenue strength - or the revenue strength was a function of some rate increases under your contracts. And I'm curious - I believe at the beginning of 2016, there was a rate resetting - that process with several contracts. Have you completed all those rate resetting talks and therefore we are seeing the fruits of that in this contract, or there is still some that are ongoing. What’s left to do on that front? If you could just give us an update, that’d be great.

You bet, Mike. It’s Chip. How are you?

Hi Chip.

Just real quick, I would certainly represent that the quarter - I would represent that all material rate conversation for 2016 resolved are reflected in the Q1 results. So it is resolution of not one but several. But as we go forward, we do have resolution to those and as we go forward we're going to continue to - as we transition fleet and have some flexibility, continue to have ongoing conversations. So it's something that not necessarily is one event but a process at the same time so.

Okay. That is helpful. And then just another question. You provide both the adjusted completion factor as well as the raw completion factor. As I recall a few years back, some of the contracts, the way they were written, the focus was on the raw rather than the adjusted. Are all of your contracts now set in such a way or written in such a way that the focus is on the adjusted completion factors, so you're not being penalized for acts of nature?

I would probably say that we are moving in that direction, Michael, but I wouldn't say it's an absolute. I think as we continue to evolve and - I think in general philosophically that contract management side of our business with our partners is evolving a little bit in a good way for I think both us and our partners so that we can focus on adding value. Nonetheless we still have very strong binding legal more documents that are on these specific metrics that you've outlined. But there we do still have some rather material ones that are based on raw. But given the operational performance that we just delivered in the Q1, granted we did have some good guys relative to a softer winter, if you will, but we are pretty confident relative to what our contracts have outlined what we should be focused on that we've got the operation lined up with that objective now.

Okay, great. And just if I can squeeze in one more, and I think, Wade, may have touched on this. But as I recall, one of your United contracts - I don't know if it's the end of ‘16, maybe it's the end of ‘17 where you have a cliff termination with respect to 100 airplanes I believe. Is that - one, is that - is that still the case that there is a cliff termination and if you could just tell me that date and where are you on maybe working through that as a potential opportunity with United, or is it a state of complete [ph] that we are going to see more airplanes at that termination date?

Yes, so regarding that termination date - and I think we've previously disclosed that the termination date is December 31, 2017. We are working very closely with United right now on potential extension or potential other opportunities within that fleet. So there are still a lot of interest and a lot of demand for that fleet at this point. Nothing has been completed, but we do have ongoing and correct dialog with them.

Great. Thank you. Appreciate it.

Our next question comes from Savi Syth of Raymond James. Please go ahead.

Hey, good afternoon. Just on the - on maybe raw, but I think in the past calls, the first half outlook was maybe a little bit more similar to last year with more of the upside in the second half, so it seems like you're still expecting low double-digit increases maybe a little bit more than previously. Just wondering was the surprise versus those expectations, was it mostly related to the contracts that were renegotiated, or how should we think about what drove that upside in 1Q? And I think this is an upside that we saw in the quarter.

So Savi, let me answer the first part of your question first. And I would say that as you look at the last three - the next three quarters of 2016, I think a lot of the growth that you will see or that we expect to see is based on the delivery schedule. So for instance, as we have mentioned, we put three new E175s into service in Q1, and those will start to read through kind of a full quarter’s economics starting in Q2. Well, during Q2, we are going to take delivery of eight, so you can see kind of the additive affect that that will have as those eight come on line and read through fully starting in Q3. And so we've got several quarters ahead of us with sort of a heavier delivery schedule, so that's why we would sort of point you to kind of strength towards the second half of this year just related to the schedule of E175 deliveries. With respect to Q1, and again, like we said in the script, I think that you need to - there are a number of factors that contributed to it, including just outstanding operational performance with both airlines flying 99.8% adjusted completion. And that read through not only an incentive but it also reads through in efficiency and cost on top of a lot of other factors. As we look at the nice year-over-year improvement of $29 million quarter-over-quarter - year-over-year, that you have to - you really can't point to any single factor but there were a number of really nice things working in our favor that let us to the Q1 results that you see.

And if you look at the - just to follow-up on that, the quarter’s question. If you look at it, historically 3Q is then from an absolute EPS standpoint is the best quarter. Is that still likely to be the case? And more - not necessarily from a year-over-year but on an absolute basis, or is there something with the growth that maybe changes that dynamic?

Well, one dynamic I guess I would sort of highlight is that I think some of the extreme seasonality maybe that you’ve seen in the past is going to start softening for a variety of reasons. I think that the E175s tend to not be quite as seasonal with some of our other contracts. The nature of some of these contracts will have the effect of smoothing the seasonality a little bit. But I think as in the past, Q2 and Q3 will be best quarters of the year with Q4 and Q1 trailing.

That's helpful. And just on the weather side, how much was - just kind of get my head around. How much of it was kind of better weather versus maybe operational changes or better handling of the operations, so how much of that is worst for the next year should still help improve things?

Savi, this is Chip. I will say, I kind of wish I knew. To a certain extent when you deliver this level of performance, we know we were tested in several circumstances with the. We weather. We were tested as hard as we made in the previous year but I can tell you that our teams - two years ago, I remember first quarter two years ago in ‘14, it was just a weather disaster and we did not have the operation to recover. Last year, we had similar weather and we did a much better job recovering, and both enterprises this last winter were very prepared going into it. And really when you look at the statistics where we were with 99.8% plus in both of these - it’s some of the best performance we've seen in any quarters first quarter so I'm going to guess and say, by far the majority of it was related to exceptional preparedness for a tough winter and the rest of it - there was just a smoother winter.

Got it.

So that may not answer it the way I want you to, but that's…

No, it does. It is a great execution. And one last question that I have is just, as you mentioned pilot - you’re not immune to the pilot issue. I was just wondering if you could provide a little bit color on the SkyWest and ExpressJet side, just how attrition has been and just kind of how the trends have been, if there has been any kind of degradation or improvement on either entity?

Yes, I would suggest, Savi, on the pilot side, there is a lot you could get into on this, but I will be relative I think clean about it. But I think that overall on both entities, we’ve seen some uptick in some hiring. It's a little bit sporadic, but we've also seen good strong recruiting of both entities. As of today, we are still very comfortable with our contractual obligations and then we will fulfill those here certainly within the next throughout 2016. That having been said, our job is to worry about the long-term. We have a lot of things that we're working on long-term to make sure that we still go through the process of evaluating the pipeline process and are making the right investments and doing the right strategic things within the pipeline. And I think probably the last thing I think from a shareholder perspective to point out is that we still have - and as time goes on, we have a tremendous amount of fleet flexibility and that's going to continue to grow to help us to, not only deal with what could potentially be a worsening pilot problem, but also capitalize on it in the fact that we can continue to keep things stable as they are today and have some opportunities in the future under the circumstances as well. So that's kind of a broad-based picture what I would say relative to the pilots today.

I appreciate that. All right thanks.

Our next question comes from Helane Becker of Cowen. Please go ahead.

Thank very much, operator. Hi guys. I just have a balance sheet question to start, and then maybe [indiscernible]. On the current portion of long-term debt, how are you addressing that this year?

So again, like we mentioned in the first quarter, Helane, we're going to be putting new debt on the balance sheet and at the same time we've got a lot of scheduled repayments. So over the next 12 months or so, we've got a couple of hundred million scheduled repayments that we’ll be servicing out of our free cash flow.

Okay. And then with respect to ExpressJet, is that entity profitable now?

So what I'll say is we'll give you more detail on ExpressJet specifically when we file the Q. But what I can tell you is that they have improved year-over-year and that they are still not profitable this quarter. But we'll give you more details in the Q when it's filed in a week or so.

Okay. And then just one last question, on the 50-seaters, somehow I guess when I was looking through my notes from the last time we were chatting, it seems to me like they are being removed at a slower rate than we were expecting. Just kind of wondering, is it that a bunch of those 406 aircraft have been renegotiated and are profitable now, or just maybe you can fill me in on that a little bit.

Yes, I'll take a shot at that. We've been working with our major partners on several fronts around some of the 50-seaters and just the timing of some of the removals. Some of them have had some short-term extensions associated with them and we're flying them a little bit longer. But we still do anticipate a reduction in our 50-seaters over the long run, but the short-term demands still are very, very strong.

Okay. Is that because you're backfilling some RJET [ph] capacity or...

Yes, Helane, this is Chip. So let me add just a little bit more color on 50-seaters. I think our plan and contractual obligation of - are actually pretty solid in ‘16, and so it's certainly is not the run rate of removing 50-seaters of what we saw in ‘15. ‘16 is certainly slower from a contract perspective. Our objective just like what Rob said earlier is that today ExpressJet is not making money. We’re growing in optimism and their progress of what’s happening there. Our optimism continues to grow. And coming up in ‘17 and ‘18 and such, there is some opportunities to either remove those 50-seaters or have a good value-added productive conversation with United of extending that fleet. Our intention candidly is to extend the fleet as long as we have the pilots and the crew members and the people to do it. That's our main objective. So as time goes on and we continue to transition our fleet, we evaluate 50-seaters that are going away making - make sure that we've got the crew members and the pilots to fly, and if we do, then our objective moving forward is to renegotiate them at more profitable rates and move forward down on a more longer term sustainable basis with ExpressJet.

Okay. And then just one last question. On the maintenance, 12% percent decline in maintenance for the first quarter year-on-year. Is that a timing issue, or is that the run rate we should be expecting going forward?

So there is a combination of a couple of things. There is - as you know some of our engine maintenance is a pass-through, and so there was a reduction in some of our engine maintenance pass-through. But there were also some very strong vendor initiatives that we've had. There is also process improvements. And I think Chip said in his script, that we revitalized some of the maintenance programs down there, and so it's definitely been that. And then we've also had production decreases as well, so it's kind of a combination of some of the pass-through costs have decreased, and then some vendor improvements production and then just to revitalize maintenance program.

Great. Thank you.

Our next question comes from Duane Pfennigwerth of Evercore ISI. Please go ahead.

Hey thanks. Just to follow-up on Helane’s question. Did you do a bunch of ad hoc flying to support the carrier that's going through restructuring right now? In other words, is there a portion of your earnings in the first quarter that maybe a bit of a spike that's not necessarily sustainable?

I would say the answer to that is no. There is nothing in our earnings that's been a product of that. No.

So maybe I missed it but it looks like your production was a fair bit higher than guidance that you gave on the last quarter. So what drove that variance?

To be honest with you, it may have been just a fair bit higher but if you go back to your question, Duane, I don't really think that it has - at least I can't tie to it. I mean I think if we have availability of crews and the operational wherewithal to operate more with our partners on a short-term basis, but like you say ad hoc, yet there is no question. But I can tell you the circumstances of that type of flying hasn't changed today since it was even 18 months ago. But the actual result though if you were seeing the statistics of us delivering more block hours and more flying, that's likely due to just flat out raw, better production within our operation more than anything else. But there could have been some ad hoc stuff. But to be candid, I couldn't tie it to any particular event over what's been out there for the last 18 months.

Okay, thanks. Can you just review what your deliveries are - the total aircraft that you are purchasing in 2016 and 2017, and I assume it's a 100% debt finance?

Yes, it will be a 100% debt finance is our intention. I’ll let Wade go through that real quick here again.

Yes, so we are taking delivery of 34 E175s during the last month - last nine months of 2016. And then of those - well, so we've got 34 during the last nine months of 2016 and then 22 during the first part of 2017. So it's the 56 that we have.

And do you have any deliveries scheduled for 2018 at this point?

We do not.

Okay. Thank you for that. And then, can you just review for us, what triggered the removal or the transition of CRJ700s from United to other partners?

Yes, so there was - United had certain scope provisions. As United is bringing in more and more E175s, they have some scope issues with their 70-seat aircraft. And so as part of the scope, we are pulling planes out of our United partnership to redeploying them with other folks. So it's mainly just a function of scope.

Well, and I would clear - Duane, just real quick I’d clarify just one thing about that. Scope is what’s driving that, but we did have a contractual expiration on that fleet that started about 15 months ago and it's being tailing off. And so as we remove those, we've certainly have found places for them to fly in other areas.

I don’t know if you care to comment on this, but can you talk about the economics of the new agreements relative to what you are taking away from United? In other words, are your rates higher on the new placements?

We're working with each one of our partners on the rates and we are getting what we feel that are market rates. We are not going to comment whether they are higher or lower at this point.

Understand. Thank you.

Our next question comes from Steve O’Hara of Sidoti & Company. Please go ahead. Steve O’Hara: Hi good afternoon.

Hey Steve. Steve O’Hara: Hi. I was just curious, I think you may have mentioned it and maybe I missed it. In terms of the - maybe the number of aircraft that are still may be less profitable than you maybe want them to be and can do something about, how many are left in that bucket, and then maybe what's the transition time to get those maybe where you want them to be?

Okay. Yes, Steve, it’s Chip. Thanks for your interest. To be candid, I think that the remaining bucket that we have is it’s still with ExpressJet and I don't think we've been shy about it I think publicly in that, it’s the 145 at ExpressJet that are largely the ones that are no longer - that last piece are not profitable. I mean, we have a bunch of small one pieces threw out. It's important to know that this fleet that's now - the last part of its not profitable. We don't own any of these airplanes, but it does give us an opportunity over the next couple of years as we continue to work with United in a value added way for both of us to continue to operate this fleet to hopefully turn them to where they are profitable and cash flow positive so that we can continue this exercise that we've done over the last two years to make sure that ExpressJet is a strong, stable, high-end airline, and they've done so many good things over the past couple of years. And I think from our perspective, we're going to continue to make progress with it. But from the revenues side and the profitability side, we need to be patient just a little bit longer on that. Steve O’Hara: Okay. And then - so just looking at the - you guys had, I think, guided to low double-digit earnings increases for the full-year. Obviously first quarter was significantly better than that, but I guess looking at 1Q, I guess, maybe you talked about weather and it seem like things really hummed along pretty well. And so going forward, you maybe have some heavy training events and so forth with all of the aircraft coming in, and that obviously taxes a system a bit. But I guess - so first quarter typically your weakest quarter, but I guess operationally weather-related, it was much better. I mean, is there - it doesn't sound like there is a way to kind of figure out how much is maybe weather-related or operational-related, and I guess I'm just wondering - maybe it seems like a pretty spectacular increase and maybe reasons they not get to overly optimistic for the rest of the year?

Look, Steve, let me say a couple of things. First of all, thanks for that. We are really pleased with Q1 obviously. And you're right, typically Q4 and Q1 are the weakest quarters of the year and Q1 is typically weaker than Q4. So if you look at our numbers sequentially, we did about $41 million of pre-tax income in Q4, and that went up to about $45 million in Q1. So we sort of beat the trend that Q1 has been worse than Q4 by a little bit. We did $0.49 in EPS in Q4 and we did $0.52 of EPS in Q1. So I think we are on a better trajectory due to a lot of factors that we've talked about, including the operational performance, including the new flying that we are doing that again we'll start to see some nice growth start to read through as the heavier delivery cycle really starts to commence starting in Q2 with the airplanes will take there. Those will start to read through in a big way over the next four to six quarters. So I think we've got some nice growth levers built in. And on top of that, obviously we are really pleased with operationally how everything came together in Q1 and how that reached through in several ways in contract incentives, economics, as well less in expense economics. It makes our whole operation more efficient and cheaper to run. Steve O’Hara: Okay all right. And just could you remind me how many of the EJets you had in the fleet in 1Q of ‘15 and versus this year?

Yes, just one second. Yes, so we’ve actually had - we’ve added 19 additional E175s year-over-year. So the end of this quarter, at the end of 2016, we had 48. So we bought on 19 additional during that 12-month trailing period. Steve O’Hara: Okay. All right. Thank you very much.

Yes.

Our next question is a follow-up from Michael Linenberg of Deutsche Bank. Please go ahead. Catherine O’Brien: Hi gentlemen, this is actually Catherine O'Brien. Just two follow-ups here. One, just one more on the Republic issue. But had the difficulties at Republic create opportunities for you going forward? Should we anticipate upside the plan if we go through 2016, like have you received additional RFPs that you can link to maybe some difficulties there?

Well, thanks Catherine. This is Chip. I would say that we don't know yet because in our airlines [ph], we don't technically follow the Republic bankruptcy that much. But the main thing I think overall that's going to drive more opportunities for us is our current operating performance. I mean what that's created for us is good. I will tell you that demand for our product is great today. I can tell you that it was great before Republic's bankruptcy, and I think that it has been developed very organically over the last two years and we continue to do that. So I will tell you there is - not to be too literal to say that there is no short of demand. There is enough good stuff out there. We don't see a whole lot of dial being moved from that event candidly. Catherine O’Brien: Understood. And then just one quick one. On the incentives, could you tell us what the incentives are, or if you're uncomfortable with that, maybe just the year-over-year growth for incentives this year versus incentives net of maybe some disincentives last year?

Yes. So the incentives, we definitely saw an uptick in the incentives numbers. It was somewhere around $5 million improvement year-over-year. Catherine O’Brien: I agree. Thanks so much for your help.

Yes.

Our next question comes as a follow-up from Savi Syth of Raymond James. Please go ahead.

Hey, thanks for taking my next question. On the pilot training side, I know JetBlue has rolled out a program recently that you still meet the 1,500 hour requirement, but I think it’s a lower cost to pilots and may be a faster training cycle. Is there - I mean, given your size, is there opportunity to rollout a program like that, or is there any benefit to it, or kind of curious if you address the pilot issue?

Yes. Savi, I would certainly say that we spend a significant amount of our time today evaluating how we can move the dial with this constraint pipeline, if you will. It is in my view there is not just one silver bullet that's going to do this, it's not four variables that's going to do this. It is going to be several. So as we continue to progress long-term - I think we said short to mid-term we feel very comfortable where we are, but as we continue to progress down in this industry long-term, we need to continue to be very aggressive as an industry to address some of these things and there is some great opportunities out there. And I don't want to disclose certainly what all of those are, but I will say that we are going to become increasingly aggressive about programs and strategies that help remove what is a very, very constrained pipeline today. And at the end of today though, I think that the thing that we have to keep in mind most important is to be smart with our commitments with our partners and be fluid in those relationships so that we can do this and evaluate this and move this out together. So I think these are great ideas and we are candidly without disclosing what they are, we are evaluating several.

Got it. And then just one quick housekeeping question. I know if you look at Alaska’s fleet plan, they have I believe 23 aircrafts with SkyWest. But is the 20 just through first half of ‘17 or is there three more coming, or is it just the 20 that has been agreed too so far?

We work with Alaska very closely on their needs right now. Right now we've got 20 under contract with those guys. I don't know where they would come up with their 23.

All right. Great. Thanks.

And this concludes our question-and-answer session. I would now like to turn the conference back over to Chip Childs for any closing remarks.

Okay. Thank you everyone for your interest in SkyWest. And as we discussed today, we are very pleased with the progress we're making and recognize we still have much work to do. We are focused on obviously delivering strong operating performance, continuing our fleet transition strategy, excellent cost control and prioritize our outstanding partnerships that we have. I want to thank the 20,000 professionals at our companies for all their contribution. And with that, we’ll end the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.