Good day and welcome to the SkyWest Incorporated Second Quarter 2017 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. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to 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, SkyWest’s Chief Financial Officer. 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, SkyWest Airlines Chief Operating Officer; and Terry Vais, ExpressJet Airlines Chief Operating Officer. 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 the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our sell side analysts. Eric?

Today’s discussion contains forward-looking statements that represent our current beliefs, expectations and assumptions regarding future events 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 2016 Form 10-K and other reports and filings with the Securities and Exchange Commission. Chip?

Thank you, Rob and Eric. For the second quarter, we continue with good progress on our overall business and fleet plans as demonstrated by the resulted outlined in the press release. The quarter also brought about plant increases and total production as we prepared for peak summer months and both airlines delivered strong reliability overall. I want to thank our more than 18000 employees for their great work during the quarter. There’s a lot of noise about airlines this year and our employees have done a great job focusing on strong service and reliability. I appreciate the dedicated efforts of our people to deliver a very good – competitive -- in a very competitive environment. The number of flights our two entities operate across North America is very significant and together we operate more than 280,000 flights during the quarter. Operational reliability for our airlines was as follows; SkyWest continues its exceptional operating liability with 99.94% adjusted completion in the second quarter even with increased total departures in June. ExpressJet also delivered strong 99.85% adjusted completion for the quarter. Both of our airlines have great reliability and have been top performers in United’s portfolio for over two years. During the second quarter, SkyWest Airlines secured a four year extension to its existing pilot contract with a new agreement through mid 2022. We believe it’s important to continue to invest in our people and while we don’t disclose the details of these agreements it delivers competitive compensation within the industry and positions us well to continue to attract and retain exceptional professionals. Importantly securing these agreements provides a solid foundation which to pursue opportunities within the market place. Pilot staffing is a central issue across the airline industry and it’s a challenge we continually monitor at each of our entities. During…

Today we've reported net income of $50 million or $0.95 per share for the second quarter of 2017 up from net income of $40 million or $0.77 from Q2, 2016. Our pretax income increased 22% year-over-year to $81 million. Revenue was $810 million in Q2, 2017 up $9 million from Q2, 2016. With fewer aircraft in service, but with an improving mix, the moderate increase in revenue included the net impact of 47 additional E175 aircraft less the removal of 51 ERJ145, 18 CRJ200 and 7 CRJ700s from service compared to a year ago. We expect to put one more E175 into service during Q4 of 2017 to bring our total fleet of E175s to 104 by year end. We also completed the transition of 49 CRJ700s from other partners to American under a previously announced multiyear agreement further mitigating our financing tail risk on those aircraft. Wade will provide some color on the fleet in a minute. The tax provision rate for the quarter was just a little under 38% and benefitted slightly from the new equity accounting rules that went into effect starting with Q1. Our future provision rate may vary based on the timing and amount of stock option exercises, restricted share vesting, stock priced performance and other factors. Generally we anticipate a future effective tax rate between 38% to 39% in Q3 and Q4 and between 37% to 38% for all of 2017. Our total fuel cost per gallon averaged $1.89 during the second quarter up from $1.69 per gallon in Q2, 2016. The increased fuel cost per gallon cost us about $2 million or $0.03 reduction in EPS from a year ago under our pro rate business model. You can see in our release that the expense line item for aircraft maintenance is up about…

Thanks, Rob. We continue to execute on our strategy of removing aircraft from unprofitable agreements and transitioning our fleet to larger new aircraft as well as redeploying aircraft with extended flying terms to mitigate financing risk. From March 31, 2017 to June 30, 2017 we moved from a total of 632 aircraft to 626 aircraft in our fleet. During the second quarter, we added ten new E175s to our fleet including five E175s under our United agreement for a total of 65 under contract with United, and five E175s under our delta agreement for a total of 18 under contract with Delta. This brought our E175 aircraft count to 103 at quarter end. We expect to put one more E175 into service during December of 2017 to bring our total fleet of E175 to 104. We recently signed an agreement with Alaska for five additional E175 that we expect we will be delivering during 2018. During 2016, we signed agreements to redeploy 50 SkyWest airlines CRJ700s from the United to other major partners, 38 to American and 12 to Delta. As of July, 37 of the 38 aircraft were in service under our American contract, we expect the remaining one will be redeployed during Q1, 2018. All 12 Delta CRJ700 aircraft were operating within our delta system. As we discussed, these redeployments essentially mitigate any financing risk on our CRJ700s through 2019. As yearend 2016 we announced our plan to remove 46 CRJ200s from the ExpressJet fleet. In accordance with their natural contract explorations and as part of our plan to move ExpressJet CRJ operation to dual class. As of June 30, 20 of the 46 have been removed from contract. We anticipate that the remaining 26 aircraft will be removed during the third and fourth quarter. We anticipate the…

We will now begin the question and answer session. [Operator Instructions] The first question comes from Michael Linenberg of Deutsche Bank. Please go ahead.

In the press release you call out some financing type to 10 E175, I guess there’s some cash up front, there’s some debt financing. That’s for the same 10 airplanes, right?

That’s right. We take delivery of 10 airplanes during the quarter, Mike and that was -- we’ve raised $227 million of new debt against those deliveries.

Okay, great. That’s helpful. And then, I believe you're taking your last E175 this year, and I just I am curious when we saw what I thought was an updated fleet plan from Alaska. Look like that they were another five E175s coming from you in the 2018/2019 timeframe. And I wasn't sure if that was incremental to your current fleet or if you had E175s coming out of one partner agreement and moving over to Alaska, a year and half, two years from now? What’s the status of those?

Yes. Mike, this is Wade. So, we recently signed a new agreement with Alaska to add new, five new E175s to the agreement and they will be delivered during 2018.

Okay. Okay, great. So is that something that’s coming in the earlier part of the year or later part of the year?

Later part of the year.

Okay. Okay, good. And then just last question, with all the talk on the reauthorization and maybe corporatizing or privatizing air traffic control. I mean it really comes down to just FAA reauthorization of what they want to put this plan. I know that there's an effort to try to put in some language to help the pilot situation. And it just seems like that I'm not sure is that it not going to go anywhere or its going to have to get striped out because this whole privatization of ATC isn’t going to happen. Is there anything that your people in DC or the RAA is telling you that we could see that we should expect release maybe some measures that will help really mitigate the situation because it is – its starting to show up at a lot of different fronts.

Michael, this is Chip. I’m impressed how much detail you know about this. I mean, from the perspective of how it impacts, but I don’t think you an extremely smart guy but I think that to see the last month or so I’ve been living there, its a little bit in DC and talk a lot of people about FAA reauthorization bill, and in our view, look we love the concept of it, but from our perspective it falls short in two distinct areas. One, it does not address the pilot issue, and fundamentally from our perspective -- I hate to speculate. I will tell you that if we look at the data it is absolutely positively clear if we’re really going to move the dial on what is in very emotional safety issue. If we really want to look at concrete data to enhance safety relative to the situation we have to address it through additional training program and modify the pathway. I’m actually for 1500 hours, but I'm also for alternate programs that clearly need to be evolutionary towards safety. And I don’t think anybody who has looked at the data or is going to look at the data could argue that there is not some significant opportunity there. Second of all, we’re a big concern about some of the funding model as it goes into reauthorization for a privatization of ATC and we’re optimistic and we’re very supportive of the overall process, but in its current form today I can tell you is falling short of what we think that several local communities both with the pilot issue and the funding issue, many local communities throughout America are going to have a bit impact if this is not addressed in this bill.

Yes. I agree. All right. Well, thanks for that update. Thanks Chip.

The next question comes from Helane Becker from Cowen & Company. Please go ahead.

Hi. Thanks operator. Hi, guys. Thanks for the time. I just have a few questions. The first question is just a modeling question. I’m not exactly sure why salaries went down in the June quarter. And I didn’t hear you talk about that specifically on the earnings call?

Helane, salaries are correlated with production and as you can see were down about 5% year-over-year and block hour production.

Okay. Thanks. That’s helpful. And then my other question. I’m sorry, go ahead.

I’ll add one more thing. This is Chip. On per unit basis I think it’s up slightly. But when you take that much production out on the gross basis that shows down, but it -- I think that -- I think on a unit basis we were up a bit which is in a balance where we want to be, we want to make sure we’re taking care of right way.

Got you. Okay. And obviously I haven’t done all that work yet. So the other question is with the return in the CRJ200s to the West source, is there going to be maintenance cost provisions that we should be aware of?

Helane, this is Wade. Most of those costs are covered under either our capacity purchase agreement that we have with our major partners or they have substantially been accrued for.

Okay. Perfect. And then my last question is on the five new aircraft from Alaska that were going in next year. Is there room to add additional aircraft beyond these five?

Helane, this is Wade again. We continue to work with all of our major partners on their demands, Alaska is a great partner. We continue to have discussions with them around their needs and what they want to do in the future. So, yes, so stay tune.

Okay. Fair enough. Thank you.

Thanks, Helane.

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

Hey, good afternoon. Just a couple of quick follow-up, just on the United CRJ, the new aircraft that you prepared, is that fixed or prorate?

Those are under capacity purchase agreement. So that’s a top contract.

Okay. Got it. And then just, its great to see deal with SkyWest Airlines pilot and having that visibility. Any update on the extra ship pilot side?

Yes. Helane, this is Chip. We continue with all work on ExpressJet to have active dialogue about new contracts. We have both pilot groups come due at the end of this year. Our fundamental strategy as we talked about in script I think its necessary for us to be transparent and provide some good long term vision about a longer term fleet strategy with ExpressJet and then entering to those dialogue more substantially. So I can tell you right now that the dialogue that we have with the past that ExpressJet is fantastic. There is good engagement and good collaboration on long term success of that entity.

Okay. And then just a little bit of strategic question, I mean, I think the team in general has done a great job of managing pretty complex fleet transition here. And I think maybe majority they have listing as coming towards, little bit of the end at least in the sense of kind of moving thing around you still have the 50 seat fleet, I’m trying to figure that one out. As you kind of get though the big E175 deliveries and getting into the second half and looking to 2018, where is the focus like, what’s kind of strategically does anything change and are they kind of new direction that you look to focus on?

So, Sav, it’s Rob here. So I would say that it’s sort of more of what we’ve been talking about that we feel like there are still a number of opportunities from the legacy side of our fleet to make improvements in terms of turning pink squares to green in our presentation model. I mean, I think there’s still lot of opportunities to do that. And so I think growth can still come from a number of different areas, but we feel like we’re far from the end at this point.

Thanks.

The next question comes from Steve O'Hara of Sidoti and Company. Please go ahead.

Yes. Thank you.

Hi, Steve.

How you’re doing? Thanks for taking the question. I guess, so just looking at the quarter was sequentially going into 3Q. I see you -- it looks like I think you put down the guidance for ASMs and I didn’t check the block hours relative to your prior forecast. Can you just talk about what that was that just aircraft coming out sooner than expected?

So, the question is just on the block hours came down slightly from our prior guidance on block hours. There’s just been some as we’re taking down some of the 46 CRJ200, some of those are coming out probably a little quicker than we had originally anticipated which is fine and stays within our model.

Okay. And I guess just on the and maybe you mentioned this, I apologize, but on the maintenance line, I mean it looks like a pretty decent jump year-over-year and I’m just wondering was that aircraft coming out that had to be maintained or just what happen there?

Steven, so it sort of hit that in my script, but I think again a lot of it has to do with when you’re looking year-over-year. We have 47 new E175s that are in there and they all have power by the hour maintenance agreement on their engines and so like a bigger percentage of our fleet year-over-year are under those powered by the hour agreements where you accrue it as you go. And so that explains the bulk of it.

Okay. So that number should be kind of something a good number for block hour, something like that going forward I guess that?

Yes. Like we say, like right now, like virtually all of our engines are under either long term powered by the hour tight maintenance agreement or our past through expense to our customers.

Okay. Okay. All right. Thank you.

Thanks Steve.

This concludes our question and answer session. I would like to turn the conference back over to Chip Childs, President and Chief Executive Officer for any closing remarks.

Thank you. And again, we want to thank everybody for your continued interesting SkyWest. We continue our long term evolution and progress and we’ll talk to you next quarter. Thank you.

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