SKYW
#Caty, it's <UNK>.
Thanks for your question.
It's a very good question.
We monitor a lot of things in the industry, and most of it has to do with some of the things that <UNK> pointed out in his script, of working with our partners to see how we can best add value in their various portfolios.
I can't speak for everybody in the major partners that may be interested in your question, but from our perspective, we have not seen any information that goes along the lines of what you are speculating there.
And our focus is certainly, one, it's unique, and we want to differentiate ourselves from our various competitors.
But we believe, for the reasons that we've discussed on the call today, with making sure that we have outstanding performance at competitive costs and doing the right things with our fleet, that we will always remain in a very strong competitive position and work well with our partners to find ways to evolve and add value to them.
Yes, Caty, this is <UNK>.
I still think even as of today we still see strong demand.
But we have to take into account various other variables that we have going on within our fleet that have an impact on the duration and type of contracts we do at those 50-seaters.
I will say with regard to 50-seaters, that 2017 will be a relatively pivotal year for 50-seat aircraft.
But again, I will go back ---+ as you seen with <UNK>'s script and the things we've outlined with the fleet changes, we are trying to evaluate with our partners what happens in 2017 with 50-seaters.
And we would certainly anticipate that there would be a lot of mixed philosophies and strategies surrounding pilot availability, what our partners need, and these various potential contract extensions.
We just don't have a significant amount of visibility of that right now.
We probably will have more visibility on it in the next quarter.
Thanks, <UNK>.
Thanks for the question.
As you look at it from the perspective from Q1 to Q2, I think you have to look a little bit about what <UNK> has disclosed about the significant fleet transition.
We will say that the rates that we were getting on 700s when we pulled them out and put them back to a market rate compared to where they've been, comes into it with improvement.
But I think that we've proven that model over the last couple of years how that works.
The other thing is, I am not going to let go how well our performance was even from ---+ Q2 from Q1.
Q1 was an exceptional quarter.
Q2, you have significant block hour increases with the seasonality of flying.
And when you deliver as strong as our entities did on that scheduled block hour assumption, really good things happen within the business model.
Yes, I don't know.
It's certainly within the last 3 to 6 months.
I would say even before Republic went into bankruptcy, we had good, strong dialogue about the entire fleets and opportunity to grow the fleet.
If it were up to me, would I say that the bankruptcy had any type of effect on that.
To be honest with you, I really couldn't say so today.
But I will say that we continue to have a good, strong dialogue with all of our partners relative to their fleet needs.
And we don't necessarily get into as to the why.
We are mostly concerned with the what and how to best execute on those opportunities.
Let me start with the first part and that is just a high-level feel for our pilot situation.
And we do update that for you guys quite often.
I will say that where we are sitting today ---+ and understand, I think that we're being very clear ---+ we are not immune to this pilot situation.
I would say that the other thing is, is that things can change very quickly, specifically when you are sitting here at the end of July and you have a fall drop off in the schedules and there tends to be a lot of hiring.
But all that considered, as of today, we are very comfortable with our short to extended range scenario of pilots at both entities.
Recruiting remains I would say strong at both of them, and we watch the attrition models very, very carefully.
And we are comfortable where we are today with pilots.
Transitioning that into incremental growth for 175s, I would say that, taking our pilot situation and also looking at, as we've said in the past, fleet flexibility and some transition opportunities, would we have the capacity to take more 175 in the future.
I would say yes we would.
We have enough flexibility with these variables that we could take more 175s in the future.
Well, what we said about EPS growth for the second half of the year is that we expect it to be in the low double-digit range, when you look at the second half of 2016 compared to the second half of 2015.
And that would be excluding any of those unusual items.
So, we do expect somewhere in the neighborhood of $10 million a quarter in the second half, roughly, of these special charges related to the early lease returns of the 700s that <UNK> spoke about the moment ago.
But other than that, obviously we've got ---+ our growth is going to come from the delivery schedule.
We've got eight E175s that we put into service during Q2.
They will have a full quarter of service for the first time in the third quarter.
In addition, there will be 30 new E175s come into service during the second half.
So, the growth engines remain the same I think as we go into the second half, and that was the root of <UNK>'s comments.
Yes, that's right.
Both of those items are included in the $0.77 we reported.
I think that this call would probably not be long enough, <UNK> ---+ I'm sorry, this is <UNK> ---+ to go through all the hundreds of things that we had to do to make sure that we developed the model the right way to get here at both entities.
Admittedly, as you go back in history, ExpressJet has been an entity that has been really engineered for very top level performance.
SkyWest has also done a very good job.
If there's one big thing that I would say at both entities, it has certainly started within the maintenance programs, and that's the first thing.
The second thing, to be candid, is working very closely with our partners and giving them some credit for this as well, because of how they helped us within the scheduling time frames and the things of how we've operated this.
It has been a very good journey for us to work that closely with our partners to understand the value that they see in this, and the value that we see in this.
So when it comes to an investment of capital in this, it did take some investment in capital, but the returns ---+ when you have a quarter like this, and you have an engagement in an employee group ---+ with the employee groups that we have, and strong performance, it just has a huge, huge return on it.
It's also ---+ when you have 99.9% controllable ops, it does provide a very strong, efficient system whereby you can be cheaper.
But there is certainly a price to pay in the beginning, and we feel like we are continuing to evolve.
I'm not going to say that we are done in our process of improvement, but we certainly have seen some good benefits of it, and we are going to continue to evolve with our groups and with our partners to make sure that this is something that is just the expectation.
<UNK>, this is <UNK>.
So we've got at this point, with another 30 planes in the second half of this year and then another 18 on top of that, that's about another $1.1 billion, roughly, of debt that we will be putting on our balance sheet.
We are extremely comfortable with that, again, given the nature of these ---+ the long-term nature of these contracts matched against long-term debt at very attractive rates.
So I think from a leverage standpoint, based on our view right now of 140 175s in the pipeline, that our debt needs should peak by sometime in the middle of 2017.
Yes, <UNK>, thanks for the question.
We obviously have been working with our partners on transferring some of our United aircraft into the American and also Delta portfolios.
We are not going to get into the specific numbers on each one of those, but we've been working with our partners, making sure we are helping them out with their fleet needs.
And then also making sure the economics work for both them and for us.
So it has been a very good partnership with our major partners, and we will continue to work with them on their fleet needs and making sure the economics match their needs and then also our needs as well.
The number of aircraft that we have dedicated to it, we are somewhere in the range of around 50 aircraft that we operate today in that model.
You don't get into specifics on what the margin is in that model, either.
<UNK> did outline a couple of things on the fuel.
Fuel, there was ---+ we were at $2.35 last year; we are at $1.69 this year.
Year-over-year and then quarter-over-quarter it actually was a little bit of a headwind Q1 to Q2.
We were at $1.49 in Q1, and then it has ticked up a little bit to the $1.69 range.
So, there has been some headwinds on the fuel in the Q2 area.
Well, I think if you look at it from a seasonal perspective in Q2, we are optimistic that we will do probably the same thing in Q3.
And look, to be honest with you, we are very, very impressed and we are very excited about the progress and the movement that the entity is making.
As we continue to go forward, we love that momentum.
As we go into 2017 I would say we have to have a strong look at our 50-seat strategies with our partners.
As you know, there is a fair amount of opportunities in even 2017 to continue to do some fleet transitions with 50-seaters.
And as we evaluate that and evaluate it with these other variables of pilot availability, extension opportunities, and what the partners want in 2017, we will probably be able to provide more color next quarter, if this is a trend.
But I think that we are not certainly sitting here thinking that breakeven is where this thing needs to be.
We want it to be a long-term, stable, solid entity and we still have quite a bit of work to do on that.
Honestly our folks in Atlanta, the leadership and the employees have done a great job of doing some tough work to get us to this point, and I think they are excited about continuing to do what we need to do to provide value for our partners and keep some momentum here.
That's a great question, <UNK>, because we have a lot of these coming off.
Most of them are ---+ or almost all of them are coming off out of contract flying.
So, certainly when the extensions come due and the partner does not want the 50-seaters anymore, we certainly evaluate if that is a possibility.
But again, it has to be balanced with the pilot availability.
It has to be balanced with a lot of these other variables if that model is going to work.
So it's not necessarily our intention to really jump out and start growing prorate.
Our focus is to continue to execute on a larger fleet transition plan, and it's not necessarily prorate, or increasing prorate or dramatically changing prorate.
It's not one of the variables that we are looking at executing over the next little while.
Sure.
It's actually pretty similar in the second quarter.
I think the numbers were about 45% of our fleet were unprofitable a year ago, and that number still is about 25%.
And that 21% is just largely one contract at ExpressJet that's still out there.
So again, it's not a lot of change from Q1.
Really, the bulk of that is one contract at ExpressJet.
Correct.
Okay.
Thank you, Keith.
This is <UNK> and I want to thank everyone for their continued interest in SkyWest.
As you can see, we are still pleased with our progress and we recognize there is still a lot of work ahead of us as we continue to differentiate SkyWest from the rest of the industry, and we look forward to updating you again next quarter.
Thank you.
