SkyWest, Inc Stock

Hello, everyone. Thank you for joining us, and welcome to the SkyWest, Inc. Third Quarter 2026 Results Call. [Operator Instructions] I will now hand 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 Steele, SkyWest Airlines' President and Chief Operating Officer; and Eric Woodward, Chief Accounting Officer.

I'd 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 statement, whether as a result of new information, future events or otherwise. 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 most recent Form 10-K and other reports and filings with the Securities and Exchange Commission.

And now I'll turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone, and thank you again for joining us on the call today. Today, SkyWest reported net income of $120 million or $3.08 per diluted share for the third quarter of 2026. The third quarter's results include increased block hours and were affected by higher fuel costs impacting our prorate business.

During the quarter, our people delivered 99.9% adjusted completion on over 230,000 flights. We were consistently a top three on-time carrier on the DOT's consumer reports, and this is only possible with the teamwork of our more than 16,000 professionals. I again want to thank them for their great work through the quarter.

We are consistently disciplined as we execute on our long-term business plans. In recent years, we have strategically positioned our company to withstand unexpected headwinds like the fuel volatility we are experiencing. Specifically, we have, one, delevered our balance sheet. We continued to reduce our debt, and we now have $1 billion less debt than we did at the end of 2022. Overall, our debt ratios and leverage metrics are among the best in the industry.

Second, we've invested in the fleet and continue to do so. During the third quarter, we took delivery of four new E175 aircraft for United. From Q4 through the end of 2028, we will take delivery of at least 30 new E175s, putting us over 300 in our fleet. Our model allows us to continue investing strategically in both the new E175 fleet and conversions of our CRJ fleet, including the new CRJ450, which will be placed into service later this year. With these transitions, we look forward to ultimately operating an all dual-class fleet.

And third, we returned capital to our shareholders through our stock repurchase program. The resilience of our model is based on improving the cash flow quality of our earnings and strategically deploying our capital, not just against production metrics, but against value creation. We believe we are in an important window to continue to invest in our fleet, including the new E175 in our order book under contract as well as the 33 delivery slots beginning in 2027 for future opportunities.

We're also positioned to continue to invest in CRJ550 and 450 conversions, CRJ heavy maintenance and pilot training. We believe the investments we're making today will deliver economic benefits in 2028. Our approach to capital deployment, as always, will reflect our view of the best long game strategy for our shareholders, our employees and our partners.

As the industry evaluates capacity in 2027 and beyond, we're in the best position to respond to market demands and our partners' needs in a dynamic environment. Overall, our disciplined strategic choices and continued execution have strengthened our model. We remain engaged with our partners on navigating the headwinds of our industry better than anyone else.

Rob will now take us through the financial data.

Today, we reported a third quarter GAAP net income of $120 million or $3.08 earnings per share. Q3 pretax income was $159 million, up 15% sequentially from Q2. Our weighted average share count for Q3 was 38.8 million, and our effective tax rate was 25%. Total Q3 revenue of $1.1 billion is up 6% from $1 billion in Q3 2025 on block hour demand from our partners and is up 1% sequentially from Q2 2026.

Q3 revenue includes contract revenue of $866 million, prorate and charter revenue of $218 million and leasing and other revenue was $33 million. These Q3 GAAP results include the effect of recognizing $23 million of previously deferred revenue this quarter, up from the $17 million recognized in Q3 2025 and down from $27 million recognized in Q2 2026. As of the end of Q3, we have $190 million of cumulative deferred revenue that will be recognized in future periods.

Our prorate fuel expense in Q3 was $66 million, up from $34 million in Q3 2025 and $61 million in Q2 2026. The year-over-year increase of $32 million was due to both a higher price per gallon, a $22 million negative impact and incremental prorate production, a $10 million impact. The fuel price per gallon on our prorate flying was $4.56 in Q3, up from $3.04 in Q3 2025 and $4.45 in Q2 2026.

In Q3, we revised the estimated useful life on our E175 fleet to 30 years based on demand for this aircraft and current industry practices. With this change, our Q3 depreciation expense was down $16 million, both from Q3 2025 and from Q2 2026. Notwithstanding the puts and takes on our revenue and operating expenses this quarter, our Q3 pretax income was up $21 million sequentially from Q2 2026.

Now let's discuss the balance sheet. We ended the quarter with cash of $569 million, down from $601 million last quarter. The ending cash balance for the quarter included the effects from repaying $119 million in debt, issuing $187 million of new debt financing ongoing fleet deliveries, investing $163 million in CapEx, including the purchase of four E175s and buying back shares of SkyWest stock in Q3, consistent with prior periods. As of September 30, we had $238 million remaining under our current share repurchase authorization.

Cash flow continues to be the key driver of our value creation strategy. We generated over $700 million of EBITDA during the first three quarters of 2026 despite the headwind from prorate fuel cost. Since the end of 2025, we've invested over $400 million in CapEx for fleet and related assets. Consistent with our practice, let me first update you on some color on 2026.

For the full year 2026, we expect to see block hour production up approximately 5% from 2025, consistent with last quarter's outlook. We anticipate our GAAP EPS for 2026 will be in the $10.60 area, including the effect of ongoing fuel price volatility and crew training costs, up from our 2025 GAAP EPS of $10.35. Last quarter, we shared that our 2026 EPS estimates in the area of $11 assumed average jet fuel of $3.65 a gallon for the second half of 2026 on 28 million gallons of jet fuel needed in the second half for our prorate business. Our Q3 actuals included fuel cost of $4.56 a gallon on 14.5 million gallons, a negative headwind of approximately $13 million or $0.26 of EPS on our third quarter results. Our updated 2026 area of $10.60 EPS color assumes fuel cost of $4.90 a gallon on 14 million gallons in Q4.

For other modeling purposes, we anticipate our depreciation expense in Q4 to be $80 million, up from $76 million in Q3. We also anticipate our effective tax rate for Q4 will be approximately 27%, translating to approximately 22% for the full year 2026. And we anticipate our total CapEx in 2026 will be approximately $725 million. For 2027, we expect block hour production to be up modestly in the 1% to 2% area from 2026 with EPS similar to 2026.

Let me provide some additional color on our outlook for 2027. We anticipate recognizing approximately $70 million of previously deferred revenue in 2027, down from roughly $100 million anticipated for 2026. For comparability purposes, this estimated $30 million reduction represents a headwind of approximately $0.60 EPS in 2027 compared to 2026.

I'd like to underscore this is a noncash variance and deferred revenue estimates are subject to change based on various factors such as contract amendments and aircraft utilization. Recognizing less previously deferred revenue year-over-year is likely to be a modest noncash revenue and noncash EPS headwind over the next several years.

Although our 2027 GAAP EPS outlook may be similar to 2026, the estimated noncash GAAP headwinds of deferred revenue and higher depreciation in 2027 imply that they are being offset by other cash earnings such as the new E175s and other fleet initiatives, improving the cash flow quality of our 2027 earnings. We are assuming an average price per gallon of $4.30 on 60 million gallons in 2027 for our prorate business, essentially a flat price per gallon on average in 2027 over 2026.

A hypothetical dollar of average fuel price reduction in 2027 from the $4.30 per gallon we are using in our 2027 color translates to $1.20 of incremental EPS. Our depreciation expense for 2027 is anticipated to be $350 million, up from roughly $338 million expected for 2026, reflecting the 18 new E175 deliveries in 2027 and the timing of other CapEx. We are estimating our effective tax rate for 2027 to range from 25% to 27%, up from 22% anticipated for 2026.

With respect to CapEx, we estimate our total 2027 CapEx to be in the area of $825 million, up from approximately $725 million in 2026. Our anticipated 2027 CapEx includes approximately $525 million for 18 new E175 aircraft, which we anticipate financing through debt, approximately $200 million for recurring maintenance-related items and the remaining $100 million for CRJ fleet initiatives such as reconfigurations and spare engine opportunities. The year-over-year increase in CapEx is driven primarily by the delivery of 13 E175s in 2026 compared to 18 E175s expected in 2027. Wade?

Thank you, Rob. During the quarter, we took delivery of four new E175 aircraft for United. We currently have 63 future E175s on firm order with Embraer, including 16 for Delta, 11 for American and 2 for United. We expect delivery of seven more new E175s during the fourth quarter and 18 aircraft during 2027.

As an update on the firm order of 63 aircraft, 30 are allocated to major partners and 33 aircraft are not yet assigned. This order locked in delivery slots starting in 2027 through 2032. However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them.

Our long-term fleet plan has positioned us well and refleeting continues to be an important part of that strategy. With last quarter's announced agreement with American, our E175 fleet total is scheduled to reach 300 by the end of 2027, continuing to enhance SkyWest's position as the largest E175 operator in the world. We are also looking forward to deploying the CRJ450 later this year for United. We anticipate operating the first aircraft before year-end. We expect to have 40 CRJ450s under contract with United, and we plan to retrofit our prorate CRJ200s.

We are optimistic the opportunity for the CRJ450 may reach a total of 100 aircraft. As previously announced, we have a multiyear agreement to fly 50 CRJ550s with United. As of September 30, 42 CRJ550s were in service, and we expect the remaining eight to enter service by the middle of 2027.

Let me review our production. Our block hours increased 1% from Q2 to Q3 2026. We also expect a slight decrease in our Q4 block hours as compared to Q3 due to normal seasonality. For 2027, we anticipate that our block hours will be up 1% to 2% compared to 2026. Next year, we expect to take delivery of 18 new E175s, place 8 CRJ550s into service and capitalize on prorate demand. These gains are partially offset by the gradual return of the remainder of the Delta-owned CRJ900s. We expect all Delta-owned CRJ900s to be returned by the middle of 2027. We will also have several CRJ200s out of service during 2027 as they convert to CRJ450s.

Once we get through the return of Delta CRJ900s by mid-2027, the production characteristics and cash earnings from executing on our E175 delivery book and prorate will start reading through better in our results. The full impact of our 18 new E175s coming next year won't show up in our results until 2028. As we convert aircraft and replace some aircraft with new deliveries, we have extensive optionality for value creation, including prorate flying, leasing aircraft or engines or utilizing aircraft for parts as we navigate supply chain constraints.

As we've discussed, we continue to face challenges in our third-party MRO network, including labor and part shortages. We expect maintenance expense in 2027 to slightly increase from 2026 due to the modest increase in block hours. Demand for our prorate business remains strong, supported by great community engagement. During the first nine months of 2026, we added 16 aircraft to our prorate agreements to support the growing demand.

We still see opportunities to restore SkyWest service to several small communities and we'll continue working with airports to expand our reach. As discussed last quarter, growth in our prorate business contributes to a more seasonal model. We remain confident in our ongoing efforts to reduce risk and enhance fleet flexibility, and we are committed to collaborating with our major partners to deliver innovative solutions that meet the continued demand for our products.

Okay. Operator, we're ready for the Q&A now.

[Operator Instructions] Your first question comes from the line of Thomas Fitzgerald with TD Cowen.

Maybe just to unpack the block hour growth in 2027. Are those E175s back weighted just given the magnitude of those and then the kind of drop-off in growth versus this year? Any color on that would be really helpful.

Tom, yes, this is Wade. So yes -- the 175s, we have deliveries throughout the year, but the majority of the Delta ones are towards the end of the year for sure. And so yes, we won't see all of the benefit of that block hours until -- really until 2028 as we get into this. So yes, there's still good opportunities out there for us, but a lot of this is going to support 2028, what we've got going on.

Okay. And then just as a quick follow-up, is most of the improvement in cash earnings next year, is that pretty much just a mix from the new 175s? Is there any from the CRJ450 conversions and anything else? I just want to make sure kind of following all the moving pieces on next year.

Yes. Thanks, Tom. Yes, as we talked about, the cash -- we'll be receiving nice cash earnings next year that will be offsetting some of the noncash headwinds that we've got with deferred revenue and depreciation. So the fact that our color is for flat EPS year-over-year sort of doesn't include the improvement in the cash flow quality of earnings, given how we're making up for the noncash headwinds.

Your next question comes from the line of Duane Pfennigwerth with Evercore ISI.

I appreciate the early thoughts on 2027. I wonder if you can give some perspective on the magnitude of the headwind from prorate year-over-year maybe versus the second quarter. Fuel obviously is a bit higher, but do you feel like you're catching up on the revenue side of the house? Is that headwind actually diminishing as you look forward?

Duane, this is Wade. Yes. So as we talked about in our script, we've had a very nice year in growth in prorate. We've added 16 airplanes to the fleet for prorate. We are seeing -- just like our major partners, we're seeing very nice yield increases. We're seeing still very good demand from the ticket sales and all of that. So we are seeing that. We will not offset 100% of the fuel increase, but we are making consistent progress that our major partners are...

I mean you probably won't bite on this, but your margins are so consistent historically. And if I just look at year-over-year pretax margins, they're getting closer year-on-year here in the third quarter. Now some of that might be the depreciation change, but it feels like it's a pretty obvious margin tailwind in 2027, and it feels like you've kind of given a -- who knows, but it feels like you've given a pretty conservative fuel outlook for next year.

Well, I would just say -- this is Rob, that as we mentioned, with similar year-over-year EPS results, that also assumes similar fuel cost and that $1 difference on that fuel cost next year translates to $1.20 of EPS potentially at some point. We're not sure when we get to harvest that. But presumably, that's out there at some point. So that will have an impact on that as well.

I guess just to stay on that point, maybe the EBIT headwind or the pretax headwind from prorate in 2026, are you assuming that's flat, that does not change in 2027? So are you assuming any revenue or unit revenue progress on prorate or basically flat unit revenues, but flat fuel and a similar contribution?

Yes, Duane, this is Chip. I think where you're going in the direction that you're asking the question is pretty spot on. I think we're going to stay at this point, consistent with what our partners have said, consistent with that strategy, we're going to be, I think, conservative in our approach during 2027 relative to what we think yields are going to do as well as what fuel costs are going to do. I think that that's a prudent thing to do from a disclosure perspective and a predictive perspective, but most importantly, also a strategic perspective as well.

So I think we probably came in Q1 and Q2. I think the world thought that some of these energy costs might be temporary and go away. We saw a little bit of that during the year. But I think from our perspective now, it's important for us to not make any predictions about what oil is going to do, but make sure we give you a clear model and what you're saying about consistency with 2026 is pretty spot on.

Your next question comes from the line of Mike Linenberg with Deutsche Bank.

Yes. So given just the fuel price, presumably the prorate business is not nearly as profitable, maybe even some of those routes are loss-making. I know you talked about adding 16 aircraft to prorate this year and so driving good growth. But is that -- for next year, are we seeing -- is the plan to add more airplanes to prorate? So if you could just answer that and kind of give me a sense of maybe not providing margins, but how much more profitable your fixed fee business is relative to your prorate given the fuel price?

Yes. So as we said in the script, we added 16 airplanes. Next year, we're going -- we're looking at markets. We're working with communities. The demand continues to be there and strong from our communities. We're going to be extremely patient and disciplined in what we add to the -- into our models going forward. We need to make sure these markets are accretive and add value to the company. So we'll be very patient with that.

If we need to wait a while, we'll wait, right? We're fine waiting. That's why we -- we talk about this fleet flexibility. This is exactly what it is. We can just wait and be patient for that. And so we're only going to add stuff that's accretive to the company.

Mike, this is Chip. I'd also add to Wade's comments that the demand -- look, the model is still doing well. We're not at all to clarify, we're not concerned about the prorate model. I think from our perspective, I think that certainly, when you anticipate that we're in a situation where energy costs are going to be extended instead of temporary, it's the times when I think this is where we really take care of our partners, our people and shareholders and approach it from a patient view, although the demand is still very, very strong. I mean one thing that we're seeing in small communities that demand is not going away. How we execute on that demand is it looks a little different than it did six months ago or eight months ago, and we're still in a fantastic position with our fleet, and we're going to be disciplined and patient as we execute.

Okay. And then just, Rob, you highlighted the trigger to change depreciation. Can you tell us what was it before? And what did you go to?

Yes. So for the E175 fleet, Mike, we were at 22 years, and we extended that to 30 years, consistent with other practices in the industry. It also, I mean, had to do with some successful contract extensions that we recently got done, as you probably remember, the fact that there's no alternative to the 175 regional aircraft at this point, our experience with the CRJ fleet and how long we've been able to operate those and expect to continue to do that and just the fact that demand for this airplane remains very strong.

Was -- just so I know, the 22 years, was that down to a certain residual value? What was that? And the 30%, what residual -- are you going to 15% or 0%? I'm just -- I'm trying to see how much the rate of depreciation has actually come down.

Yes. So the residual -- assumed came down as well.

Okay. Okay. All right. All right. I guess just one quick last one since I have you. On the smaller shells or the aircraft with less seats, typically in a high fuel price environment, airlines typically want to fly less of that. I guess since a lot of your smaller shells are on prorate, and so I guess you're bearing the cost, you're probably not getting pushback from your partners. I mean, is that the way to think about it?

No, Mike, this is Chip. I think that, that is not an assumption that you should make that the partners are pushing back. I think particularly one is extremely excited about the smaller aircraft. And if you see the LOPA and some of the things we're doing to the 450, it's going to be a great product. As you can imagine in the economy that we're living in now, relative to what our other -- our partners have said relative to premium -- revenue, putting first-class seats on a CRJ200 and a very good LOPA with an outstanding interior is a very valuable aircraft. And from a fuel perspective, it's also a lot lighter than it is with 50 passengers in it.

So to a certain extent, the way that these assets are extremely valuable and debt-free, and we have some flexibility, maintenance is obviously a little bit higher than on the ERJ product. But the economics of this, particularly the smallest aircraft seem to be able to work out well even with these fuel costs. So from that perspective, again, this is why we outlined that we're going to an all-dual class fleet because we're matching what you're hearing throughout the economy right now.

Is it these airplanes, these investments? These are like 10- or 15-year investments, right? I mean I realize the CRJ200s are fairly old, but it seems like if you maintain them well enough, this is something that you could be flying from the 10 to 15 years. Is that -- maybe that's the best way to think about it. It's rather than focusing on where the fuel price is today, but that this is a long-term investment.

Yes. I think you've summarized it very well, Mike. I think that this is a long-term investment in a high energy cost environment that causes some patience. But again, SkyWest has had an exceptional record. Our people have done a phenomenal job maintaining these airplanes from the get-go. And how they've done that has enabled us to do some things today that maybe a lot of other situational carriers are not able to do.

Our people are great. They've got a great strategy with this. The partners are outstanding in working through this. And I think we're very excited about the long-term product that we're going to have with these airplanes.

Your next question comes from the line of Savi Syth with Raymond James.

Just maybe a quick follow-up on Mike's question. Just with the kind of revaluation of the useful life of the E175, did the valuation on that change at all in the sense that is the kind of unpledged assets around $1.5 billion still? Or where is that today?

Yes, Savi, Rob here. So your question on unpledged assets continues to be very strong. It's over $1.5 billion, as we've said other places. And we would anticipate that we continue to have strong capital availability if we need it related to these unpledged assets that we have and continue to grow.

That's helpful. And then just on the -- I think Wade mentioned on the kind of the -- CRJ200 transition next year, many will be out. Just curious what the experience so far has been on how long it's taken to do those 450 conversions, if it's kind of any different than the 550s? And curious just generally how much fewer aircraft you have flying because of the transition next year that maybe kind of goes away kind of after next year or maybe in a couple of years once you've done that full transition?

Savi, this is Wade. That's a great question. So on the CRJ450, we are still in the process of converting the first two airplanes. We have them down right now. We're working with our OEM partners on the service bulletins to get those done. So obviously, the first airplanes just take longer naturally just because you're working through the first-time issues, right? We'll work through those. We've seen those before as we've done the 550.

So we anticipate that the CRJ450 and the 550 conversions will be very, very similar. It takes two to three weeks to do these conversions. We're also putting Wi-Fi on all of these airplanes. We're very excited about that. And so we'll have a very nice product at the end of it. We do anticipate pulling down three or four lines to do these conversions, right? And so there will be three or four lines down of less flying that we could have been doing if we didn't have these going.

And so it will -- it's an investment year that we're going to be doing in the fleet. 2027, we'll be converting a lot of airplanes. And so it will take some time, but it's a great investment, as we've talked about in the future for this fleet.

Great. And if I might just squeeze one more Wade. I noticed that one of the Delta aircraft to shift from '27 to '28. Was that just Embraer delivery timing? Or was there something more to that?

The Delta delivery, it's just timing. It's just timing and just cleaning up some of the delivery schedules with our -- with Embraer. So there was nothing significant there at all.

Your next question comes from the line of John Godyn with Citi.

This is Max on for John. We saw a decline in load factor this quarter year-over-year. Does this reflect any softening in the strong demand previously cited for the prorate business? Or did you observe lower load factor than like the mainline partner routes? Or is this in line with some of the similar trends we've seen this EPS season trading loads for higher yields across the network?

John, this is Chip. I don't -- I'm honestly not reading too much into that. Obviously, from the perspective of how we price and some of our partners may price relative to fuel and may be pushing some of those loads down and around just slightly and a little bit. I would more be concerned about total revenue and that type of stuff. I think when you have high fuel costs, revenue strategies are different for our partners relative that may have an impact on our load factor, but we're not -- I mean, we're seeing, I will tell you, extremely full flight still a lot of activity, lots of volume, all of the things that we've seen from an operational perspective, we're not seeing anything backing off from any of that type of stuff.

So certainly, I would point to some of the things that the partners are pricing and how they're managing our lift on their side. And from our perspective, it's still extraordinarily high load factors and very, very busy.

Great. Good color. And then just kind of switching gears a little bit. You mentioned earlier, you're well positioned to invest in various avenues given your liquidity position, including further aircraft conversions, heavy maintenance, share repurchases, et cetera. I just want to double-click on this and dialogue on your high-level capital deployment strategy over the next few years and any areas of focus we can expect?

Yes. So it's a great question. From a capital deployment strategy, I think we've been fairly consistent in that, and we'll continue to do much of the same. I mean our favorite investment is always investing in our fleet and the flexibility of our fleet. And we've got a heavy delivery year coming up in 2027, taking 18 new E175s. So obviously, from a capital standpoint, the chance for us to continue to invest in these accretive and cash flow generative E175s, it's our favorite thing to do.

But there's other investments that we'll be making in CapEx next year, where I think you'll start to see CapEx probably come down starting in 2028 a little bit. And we'll continue to deploy capital much the same way we have, including all the fleet opportunities that are in front of us right now.

Your next question comes from the line of Catie O'Brien with Goldman Sachs.

Maybe just coming back to the potential on CRJ550 and 450 conversions. How many of your CRJ200 and CRJ700 are currently off contract or will come off contract in the next 12 months? And then on the demand part of this equation, do current conversations with your partners point to the possibility of all that potential capacity maybe winding up in CPA or prorate flying in those new configs? I know you've given that number on maybe up to 100 CRJ450s, but just would love to get the holistic picture across both supply and demand.

That's a great question. So we'll start with the CRJ200 and CRJ450s. As I said in my script, we have an agreement with United to fly 40 CRJ450s for a multiyear contract. So those are all under contract now. We're bringing those into service right now. We'll bring those into service during '27 and '28. And so this will build in those years. We are operating about 50 to 60 CRJ200s in prorate, and that number will be fairly consistent. So as we said in our script, we have about 100 -- we'll have about 100 of these CRJ450s under a long-term agreement with United. We still have about 20 to 25 parked beyond the 100 that are potentially out there that we can bring back as well.

As far as the CRJ700s, once we take delivery of some of the 175s and some of the other fleet transitions that we're doing, we'll have 20 of them that are not under contract. And so we have not put those block hours in our model at the moment. We do not have those allocated. We have very good opportunities to place those 700s in the future, whether it be in our leasing business or our prorate business or CPA, we'll work with our major partners on that. We'll be very patient as we work through this in the next couple of years as these airplanes kind of come out as we take new deliveries. And so just like we've always done, we'll be patient, we'll be disciplined with those airplanes, and we'll find a very good home for those.

Okay. Great. And then, Rob, I hope it look for me just for one more question on the depreciation change. But -- was the $16 million year-over-year change you referenced, was that the savings from the accounting change? Are there some other moving pieces there? And then what's the outlook for the impact of 4Q? And was the change contemplated in your update to guidance last quarter or not guidance, but color that 2026 EPS would be in the $11 range? Just trying to get a sense of some of the moving pieces.

Yes, Catie, the $16 million is the savings in Q3. As we said, we do expect depreciation to be up in both Q4 and up in 2027 for modeling purposes, but there was a $16 million savings in -- during the quarter.

And that carries forward, right? Like will that run rate? Or is it one time or forgive me for the...

Yes. This change was effective for our 175 fleet. And so that remains intact for the foreseeable future.

Okay. Got it. And then maybe just one more, if you'll allow it. But on the 33 delivery slots with Embraer that are yet to be placed, how far in advance do you need to let Embraer know that you'll be taking those aircraft? And then on the 30 that already are spoken for, are those using up the slots on the earlier side of that '27 to 2032 window such that the 33 other slots not yet claimed or kind of further out? Any color there would be helpful.

Yes, that's a great question. This is Wade. So on the 33 that are unallocated at the point, those are in the very, very back half of 2028. And so in order to firm those up, it's a little more than a year that we need to work with our -- with Embraer on that. And so as you know, we constantly work with our major partners on very good opportunities for those.

And so we have those -- the 30 that are coming, as we said in my script -- we have seven that are coming at the end of -- in the fourth quarter of this year. We have 18 next year. And so those are all coming, but the unallocated ones are out there at the end of 2028 at this point. They start at the end of '28 and go '29 and '30, so.

There are no further questions at this time. I will now turn the call back to Chip Childs for closing remarks.

Thank you, Al. Again, we want to thank everybody in their interest in SkyWest and dialing in and listening to our third quarter results. We appreciate the things that we're trying to do. Again, I can't go on without thanking the 16 -- over 16,000 professionals that do a phenomenal job, the best in the industry every single day. We're grateful for the shareholders. We're grateful for the relationship we have with our partners as well. And we look forward to giving an update on our Q4 in three months from now. Thanks again.

This concludes today's call. You may now disconnect.

Thank you for standing by and welcome to the SkyWest, Inc. Second Quarter 2026 Results Call. [Operator Instructions] I would now like to turn the call over to Rob Simmons, Chief Financial Officer. Sir, 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, SkyWest Airlines President and Chief Operating Officer; and Eric Woodward, Chief Accounting Officer. I'd 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 statement, whether as a result of new information, future events or otherwise. 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 most recent Form 10-K and other reports and filings with the Securities and Exchange Commission.

And now I'll turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone and thank you for joining us on the call today. Today, SkyWest reported net income of $101 million or $2.54 per diluted share for the second quarter of 2026. The second quarter's results include increased block hours and were affected by higher fuel costs impact our prorate business. We are pleased to continue to see very strong demand, both in our contract and prorate flying despite a higher fuel cost. Similar to our major partners, that strong demand enabled us to offset about 60% of the fuel impact in the fare portion of our prorate business.

Overall, our disciplined strategic choices and continued execution have strengthened our model and we remain well positioned to adapt quickly to respond to market demands better than anybody else. During the quarter, our people delivered 99.9% adjusted completion on nearly 228,000 flights. We're incredibly proud to be named one of America's Greatest Workplaces in 2026 by Newsweek as well as one of Fortune World's Most Admired Companies in 2026. These accomplishments are made possible by SkyWest's more than 16,000 professionals and their commitment to excellence. And I want to thank them for their ongoing teamwork to deliver in our challenging industry. Today, we're pleased to announce an agreement with American for SkyWest to purchase and operate 11 new E175s with deliveries beginning this year. With 11 E175s expected during the second half of this year and 23 more in the next couple of years, we expect a total of 34 additional E175s by the end of 2028.

Additionally, we continue converting CRJ700s to the customer favorite CRJ550 and we're very excited about the CRJ450 service beginning for United this fall. With these transitions, we look forward to ultimately operating an all dual-class fleet. As I mentioned, prorate demand remains strong and we believe these fleet initiatives will benefit prorate growth. Our opportunities remain strong. We expect our growth will continue to come from 3 key areas: one, solid demand from our major partners and our solid E175 order book; two, underserved communities with our prorate business; and three, execution of our fleet initiatives and conversions. The free cash flow that we continue to generate is still directed toward fleet growth opportunities, debt reduction and share repurchase.

We announced today that SkyWest Board of Directors has also approved a $250 million increase to our existing stock repurchase program. Our steadfast commitment to maintaining a strong balance sheet and liquidity benefits our employees, our partners and our shareholders. Additionally, we continue to reduce our debt and we now have $1 billion less debt than we did at the end of 2022. We also expect to have over 100 unencumbered E175s by the end of 2029. Overall, our debt ratios and leverage metrics are among the best in the industry. SkyWest continues to lead our industry in product and in the value of our diverse assets. We remain disciplined and steady as we execute on our growth opportunities by delivering on significant prorate demand, investing in our fleet and preparing to receive our deliveries in the coming years for a total of 300 E175s by the end of 2027. Our discipline, strategic choices and continued execution have strengthened our model and we remain well positioned to adapt quickly and to respond to market demands better than anyone else in the industry.

Rob will now take us through the financial data.

Today, we reported a second quarter GAAP net income of $101 million or $2.54 earnings per share. Q2 pretax income was $139 million, 29% higher than Q1 pretax income on solid demand for our various contract and prorate products and sequential seasonality. Our weighted average share count for Q2 was 39.6 million and our effective tax rate was 27.5%. Total Q2 revenue of $1.1 billion is up 9% from $1 billion in Q1 2026 on strong block hour demand from our partners during a volatile quarter and is up 7% from $1 billion in Q2 2025. Q2 revenue includes contract revenue of $864 million, prorate and charter revenue of $201 million and leasing and other revenue was $38 million.

These Q2 GAAP results include the effect of recognizing $27 million of previously deferred revenue this quarter, up slightly from the $24 million recognized in Q1 2026 and $23 million recognized in Q2 2025. As of the end of Q2, we have $214 million of cumulative deferred revenue that will be recognized in future periods. Our prorate fuel expense was $61 million in Q2 compared to $28 million in Q2 2025. The year-over-year increase of $33 million was due to both a higher price per gallon, a $21 million negative impact and incremental prorate production, a $12 million impact. The passenger fare portion of our prorate revenue received similar pricing increases as our major partners, partially offsetting the impact of our higher price per gallon in the area of 60% for Q2. Our price per gallon on our prorate flying was $4.45 in Q2, up from $2.88 in Q2 2025 and up from $3.40 in Q1.

Now let's discuss the balance sheet. We ended the quarter with cash of $601 million, slightly down from $627 million last quarter. The ending cash balance for the quarter included the effects from: one, repaying $122 million in debt; two, issuing $24 million of new debt financing -- new debt financing ongoing fleet deliveries; three, investing $139 million in CapEx, including the purchase of 1 E175; and four, buying back 833,000 shares of SkyWest stock in Q2 for $75 million. As of June 30, we had $63 million remaining under our current share repurchase authorization. And as announced today, the Board has authorized an additional $250 million of share repurchase on top of the $63 million. Cash flow continues to be the key driver of our value creation strategy. We generated over $460 million of EBITDA during the first half of 2026 despite the headwind from prorate fuel costs.

Since the end of 2025, we reduced our total debt balance by approximately $100 million, invested over $240 million in CapEx for fleet and related assets and repurchased $150 million of our shares. We expect to continue to deploy in a balanced way our ongoing generation of free cash flow by investing in our fleet, including financing the addition of 34 new E175s by the end of 2028, reducing our debt and executing opportunistically our share repurchase program. By the end of 2029, we expect that we will have over 100 unencumbered E175s in our fleet portfolio. As a result of our capital deployment strategy, both our debt net of cash and leverage ratios continue at favorable levels, reflecting our ongoing initiative to delever and derisk our balance sheet, positioning the balance sheet with the capacity for future accretive investment opportunities. We expect to take 11 new E175s during the back half of 2026, 7 new E175s for United and 4 of the 11 E175s for American announced today. We anticipate our total CapEx in 2026 will be approximately $700 million.

Consistent with our practice, let me update you on some color on 2026. For the full year 2026, we expect to see block hour production up approximately 5% from 2025. We anticipate our GAAP EPS for 2026 will be in the $11 area, subject to ongoing prorate fuel volatility. This assumes average jet fuel of $3.65 per gallon for the second half of 2026 on 28 million gallons of jet fuel needed in the second half for our prorate business. In terms of how to think of quarterly EPS modeling for the back half of 2026, on a GAAP basis, we anticipate directionally that Q3, we expect to be down seasonally -- or we expect to be seasonally the strongest quarter of the year and Q4 should be down modestly from Q3. For other modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at 2025 levels as we invest in bringing more aircraft back into service.

We also anticipate our effective tax rate for Q3 and Q4 will be similar to Q2 at approximately 27% to 28%, translating to approximately 23% to 24% for the full year 2026. We are optimistic about our ongoing growth possibilities in '26 and '27, including: first, strong ongoing demand for block hours from our partners; second, good demand in our prorate business as we continue to move back into underserved communities; and third, placing a total of 36 new E175s into service from 2026 to 2028, including 8 for United, 16 for Delta, 11 for American, as announced today and 1 for Alaska. We are also very pleased with the ongoing success of our CRJ550 and CRJ450 initiatives and I will turn the call over to Wade, who will talk more about that next. We believe that we are positioned to convert strong cash flow generation over the next several years into long-term value creation, benefiting our employees, our partners and our capital providers as we execute against a variety of accretive opportunities.

Wade?

Thank you, Rob. Today, we announced an agreement with American for 11 new E175s. The E175s are expected to replace 11 CRJ700s SkyWest is currently flying under contract with American. We anticipate placing these CRJ700s with one of our major partners, either through our prorate agreements, capacity purchase agreements or a traditional lease. SkyWest is scheduled to purchase the 11 E175s from Embraer with delivery dates in 2026 and 2027. During the quarter, we took delivery of 1 new E175 for United. We currently have 67 future E175s on firm order with Embraer, including 16 for Delta, 11 for American and 7 for United. We expect delivery of 11 more new E175s during the second half of this year.

As an update on the firm order of 67 aircraft, 34 are allocated to our major partners. 33 are not yet assigned. This order locks in delivery slots starting in '27 through 2032. However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them. Our long-term fleet plan has positioned us well and refleeting continues to be an important part of that strategy. With today's announced agreement with American, our E175 fleet total is scheduled to be 300 by the end of 2027, continuing to enhance SkyWest's position as the largest E175 operator in the world. We are also looking forward to deploying the CRJ450 later this year for United. We anticipate converting 4 to 6 aircraft per month starting this fall. We expect to have 40 CRJ450s under contract with United and we plan to retrofit our prorate CRJ200s. We are optimistic the opportunity for the CRJ450 will reach a total of 100 aircraft.

Last quarter, we announced 5 E170s and reached an agreement with United to operate these as we expedite the conversion of CRJ700s to CRJ550s. All 5 E170s are currently operating for United. As previously announced, we have a multiyear agreement to fly 50 CRJ550s with United. As of June 30, 36 CRJ550s were in service and we're expecting the remaining 14 to enter service this year. Last year, we reinitiated a prorate agreement with American. We -- and we are currently operating 8 aircraft under this agreement with up to 9 expected by year-end. We look forward to expanding our relationship with American.

Let me review our production. Our block hours increased 9% from Q1 to Q2 2026. We also expect a slight increase in our Q3 block hours as compared to Q2. For the full year 2026, we anticipate that our block hours will be up approximately 5% compared to 2025. This year, we expect to take delivery of 13 new E175s, place 23 CRJ550s into service and capitalize on strong prorate demand. These gains are partially offset by the gradual return of approximately 19 lower-margin Delta-owned CRJ900s to Delta over the next couple of years. Our revenue seasonality has normalized. With improved utilization during the strong summer months, we still have approximately 3 dual-class CRJ aircraft currently undergoing heavy maintenance after transitioning from long-term storage. These aircraft are set to return to service in 2026 under existing flying agreements. Additionally, we have over 30 parked CRJ200s that will likely transition to the CRJ450 and further enhance our fleet flexibility.

We continue to face challenges in our third-party MRO network, including labor and part shortages. We expect maintenance expense in 2026 to remain consistent with 2025, even with the increase in block hours. Demand for our prorate business remains extremely strong, supported by great community engagement. During the quarter, we added 10 aircraft to our prorate agreements to support the growing demand. We're continuing to see opportunities to restore SkyWest service to several communities and we will continue working with airports to expand our reach. As discussed last quarter, growth in our prorate business contributes to a more seasonal model. The nonsubsidized portion of our prorate revenue covered approximately 60% of fuel cost increases during the second quarter. Demand is strong. And similar to our major partners, we anticipate continued fare strength in our prorate markets. We remain confident in our ongoing efforts to reduce risk and enhance fleet flexibility. We are committed to collaborating with our major partners to deliver innovative solutions that meet the continued demand for our products.

Okay. Operator, we're ready for our Q&A now.

[Operator Instructions] Your first question comes from the line of Savi Syth with Raymond James.

I guess maybe first, this is not the first time this year we've seen suddenly a sharp rising fuel price in a very short period. I was curious, last time, it was kind of heading into the summer, more so this time it's heading into the winter. Are you having any kind of different conversations with partners? Or as you think about your prorate segment, are you making any kind of different decisions this time versus earlier this year?

Yes, Savi, this is Chip. It was interesting you bring up given what's happened last quarter and this quarter because there was a lot of uncertainty. I think, honestly, we're in a little more stable position right now relative to the conversation. And I think we've reflected that in our script. There's good strong demand for block hours, good strong demand relative to what's happening. We're not ignoring the volatility of oil under the circumstances but I think that hopefully, you can get a tone from what our message is today that we're pressing forward quite strong with our partners and good conversations about strategies to continue to enhance value to them.

Yes. That -- it came through but just wanted to clarify, it seems like maybe less of a shock this time and more prepared and knowing how to react to it. Maybe just on the prorate side, I noticed kind of charter fleet stepped down but your CRJs on the CPA/prorate side stepped up. Is that kind of -- is there just more opportunity on the prorate side versus charter? Or just how are you looking at kind of those 2 segments?

Yes, that's a great question, Savi. This is Wade. Yes, so the demand, as you know, for charter is pretty light in the summertime. And so we do take the opportunity to move those airplanes around where we find the most demand. But we're seeing very strong demand in the prorate side. So we decided to move several of those over to the SkyWest Airlines prorate/CPA flying and we were able to utilize those and get very good flying with that. As far as SkyWest Charter, we're still looking at a lot of new technologies and things like that for SkyWest Charter. We're excited about the opportunities there to expand our reach into new and different markets with that entity as well. So...

Your next question comes from the line of Mike Linenberg with Deutsche Bank.

Wade, congrats on your promotion. I have a couple here. Just right off the bat, the replacement of the 11 CRJ700s at American with the E175s, how should we think about the improvement in profitability? I would think that the bigger airplanes will be more profitable for you? Is that a safe assumption or a reasonable assumption?

Mike, this is Wade. So first of all, thank you. Yes, as far as the American side, yes, we're -- the profitability of the E175s will be very consistent with our other fleets that we have. The 700s, we are going to find opportunities, as we said, we're in discussions with multiple partners about either prorate, contract, leasing these airplanes. The demand is still very strong. So yes, we think we definitely like the transaction. We're very happy that we're able to get that done with American.

And you mentioned prorate, contract, leasing. What about conversions to 550s? Is that also...

Yes, yes. So when -- yes, when we convert them, they could potentially go into 550s for multiple of our partners and we're looking at those opportunities right now.

Okay. And then how the -- how should we think -- I guess, this is more to Rob, taking on the additional 11 E175s? You told us about the revised CapEx number for 2026. Now we're at $700 million. How should we think about your debt profile? Does that tick back up a little bit as you take delivery of those airplanes?

Yes. I mean we'll be financing 11 of the new E175s this year and adding new debt for that. But we do expect that debt will continue to trend down over the next several years. But if you think -- if you look at the $700 million in CapEx, Mike, about half of that is the new E175s, the 13 new E175s, 2 that we've already done this year and 11 more that we'll do in the second half. So the bulk of that is our nicely accretive E175 order book coming through for us.

Okay. Great. And just one last one here. Just watching -- and this is back to Wade. You had 5 CRJ900s on lease to a third party but now they show back up in your fleet. Those -- I couldn't follow those. Where do they go from? And where are they now, the 5 from -- the CRJ900s?

Yes, that's a great question. One of them is currently in heavy maintenance, transitioning to one of our partners either through prorate or CPA. The other ones we're still working with our major partners on placing those with them. We're very optimistic that we'll be able to place those airplanes with one of our major partners in 1 of our 3 business segments, either contract, prorate or leasing.

Your next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Just to follow up on some of Mike's questions on the E175s. It's a little surprising you could find slots within the year, within 2026. Is this all of your availability for this year? And would you be willing to tell us how many slots do you have in 2027? I know you mentioned, I think, 33 through 2032 but wondering how many could potentially drop into 2027.

Yes, Duane, this is Wade. Yes. So we were able to work with Embraer on that order and they were very creative in finding us some slots at the end of this year. They'll be at the very end of the year. But yes, we are very excited to -- yes, we've got great partners in Embraer and GE and American to get that deal done. So we're very happy about that. 2026 probably is pretty close to tapped out with those guys. In 2027, we do have 17 now scheduled to come and we anticipate all of those. We are working potentially to loosen up another couple of slots here and there. But right now, it is the 17 that we have firm coming in 2027.

Okay. Great. And then maybe you could just give us some insight into your thought process about the pacing of the buyback going forward. Is it a function of where the stock is trading, where it's priced? Or is it more about the pacing of CapEx?

Duane, it's Rob here. So it's sort of all of the above, I would say. When it comes to how we deploy capital, we try to maintain a balanced approach but remain opportunistic, whether that means we have a new opportunity like the new E175s for American that we announced today. We love that accretive chance to deploy capital. But as we've talked about, we continue to generate strong free cash flow. So we're in the fortunate situation where we can take advantage opportunistically of a share price that we felt was mispriced. And we're pleased that we bought $75 million in each of the first 2 quarters of the year this year, in addition to being able to pay down -- continue to pay down debt and continue to invest in our fleet. So we're in the fortunate situation, Duane, that we can sort of do an all of the above.

Your next question comes from the line of Tom Fitzgerald with TD Cowen.

Congrats to Wade and congrats on the American deal. Just thinking about -- or how should we think about the cadence of those deliveries, both in the back half of the year and then just throughout 2027? Is it -- I don't know if it's more front half or back half weighted next year or it's kind of more of an even cadence throughout the year?

Tom, thank you, first of all. On the delivery schedules for this year, the 4 American ones are at the very back end of Q4. And then next year, the 7 American ones are heavily weighted towards the first 6 months of the year. We have 7 American ones coming in the first half of 2027. And then we have 10 Delta ones that are kind of starting in the middle of the year and go through the end of the year.

Okay. Great. That's really helpful color. And then just given the American announcement and just given some of the other moving pieces with the fleet and things coming out of conversion, what -- like how should investors think about like a rough ZIP code for block hour growth in 2027? I know it's still early but like is mid-single digits -- is another year like this kind of in the ballpark of where people should be thinking?

Yes. So Tom, yes, that's a great question. We're still looking at 2027 right now. As you can tell, we're still working on our fleet. We're finalizing our 2027 plans. So I would just say let's stay tuned for that. We'll give a lot more color on that next quarter as we firm up our plans for 2027.

Your next question comes from the line of John Godyn with Citigroup.

This is [ Max ] on for John. Can you guys just give a little further insight into demand trends you've been seeing in the prorate business and on forward bookings there later into the summer and fall, how consumers have been reacting to fare increases that have been issued?

Thanks, [ Max ]. This is Chip. Just I think philosophically and practically speaking, I think we're still seeing very good demand relative to even what is a seasonal drop-off in the fall area. And again, I think I'd go back to some of the things that we've tried to discuss in our script that I think we're consistent with what our partners are saying relative to fares and how much recovery we can get of the fuel price volatility that we have. But overall, I think that we would still come back to a very strong demand model for both prorate and contract with our partners. It's also helpful that we're in the middle of transitioning to an all dual-class fleet and some of that's going to hit prorate as well. Being an all dual-class fleet changes what we've been trying to do even the last decade. But I think from our perspective, things look good in the fall. But more importantly, I think long term, we're very comfortable and pleased with what we see as an outlook that we can talk about more next quarter.

Great. And then I know you guys kind of discussed this on prorate being roughly 10% of your block hour production. Do you expect this business to grow over the long term as a percentage of your total production? Obviously, the trends here have been pretty robust. So just curious on kind of your outlook here over the long term.

Yes. I think it depends on a lot of factors. I would say the trend today is obviously clear and the data shows that it's growing faster than the contract side of our business. But I think from our perspective, our overall strategy is to drive all of the -- of our product lines in equal fashion, both contract, leasing, charter and prorate. So from that perspective, I think what we're seeing in all of those aspects of our business model is very strong on everything. But certainly, the trend today is a little bit more on prorate that may continue in the future but it's not like it's something that we only want to continue to grow. There's a lot of good business lines and we're still actively working with some great partners to continue to provide some good value to them and our shareholders.

Your next question comes from the line of Catherine O'Brien with Goldman Sachs.

Another congratulations from me to Wade and on the American deal. Maybe just sticking with the American deal, how much of an impact are those 4 incremental E175s to American this year? It sounds like they're pretty like year-end weighted. So just wondering if there are any other puts and takes on flying for the rest of the year besides those American planes. Maybe just my interpretation but I think on the last call, it sounded like you thought maybe you'd be a little under mid-single and I wasn't sure if like very back-end weighted American deliveries were enough to put you over back into mid-single. So just any incremental color there would be helpful.

Yes. So first of all, Catherine, thank you. As far as the American airplanes, they'll have very little impact on the block hours in 2026. But I do want to reiterate, we are confident that we are going to increase year-over-year 5% in our block hours and we're very confident we do not need the American airplanes to hit that 5%. So we are very confident in our block hours and where we're going.

Got it. And then you've got the 11 CRJ700s that are coming back from American and then a couple of the CRJ900s Mike was asking about that are coming off lease. And it sounds like you're in discussions with your partners between placing them under prorate, contract, on lease. Could you just walk us through what the margin profile of each of those choices look like? I realize prorate may be more variable given moving fuel and demand but just looking for higher-level comments.

Yes. So on the margins, as you said, prorate at this moment is a little bit more variable but our contracts will be very consistent with where anything we sign up will be very consistent with what we have today and leasing -- leasing does have a little bit higher margin attributes and -- but -- so we're looking at all of these options right now. Stay tuned. We'll get something figured out here really quick. So...

That concludes our question-and-answer session. I will now turn the call back over to Chip Childs for closing remarks.

Thank you, Tiffany. Appreciate it and we really appreciate everybody's interest on the call today. We're obviously in a position where we're trying to capitalize on the playbook that we've had for the -- over the last decade. We think that our opportunities are even better along those lines with strong capital, the best professionals in the industry and some amazing partners. We'll continue to update you as we continue on our journey to continue to provide value to all these -- all of our stakeholders and we will look forward to talking again in 3 months from now. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the SkyWest Inc. First Quarter 2026 Results Call. [Operator Instructions]

And I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. You may begin.

Thanks, Abby, and thanks, everyone, for joining us on the call today. As Abby 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; and Eric Woodward, Chief Accounting Officer.

I'd 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 statement, whether as a result of new information, future events or otherwise. 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 most recent Form 10-K and other reports and filings with the Securities and Exchange Commission.

And now I'll turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. Today, SkyWest reported net income of $102 million or $2.50 per diluted share for the first quarter of 2026. This is slightly better than the same quarter last year and reflects increased production and fleet utilization. During the quarter, we received delivery of 1 E175 with 8 more expected this year. We are also excited to share a prototype of the new CRJ450 product, a reimagined premium 41-seat CRJ200. This aircraft will include first-class overhead bins large enough for all rollaboard luggage, and Starlink WiFi. SkyWatch is very excited to launch this new product for United this fall, and we look forward to ultimately operating in all dual-class fleet.

The first quarter is always difficult with winter weather. Our people rose to the challenge despite 2 back-to-back storms in March affecting several of our hubs. During the first quarter, the Department of Transportation shared their full year 2025 on-time performance statistics with SkyWest Airlines placing third in on-time performance. That's outstanding, and I want to thank our people for working together to deliver such an exceptional product.

The industry is extremely dynamic and our model is built for durability. With uncertainty impacting fuel costs and production, we still anticipate 2026 will be more profitable than 2025. SkyWest strategic business decisions have kept us strong and agile to the industry's volatility and the steps we've taken in the past several years have only enhanced the strength and stability of our model. Our ongoing investments and in the diversity of our fleet ensure we're well positioned to adapt to market demands.

We continue executing our fleet initiatives and advancing our unparalleled fleet flexibility. That flexibility has never been more important. And while our E17 flying agreements are further solidified, we continue to leverage our extensive CRJ assets. The contract extensions we announced with United and Delta last quarter deliver ongoing revenue stability. And with our dual-class fleet, both CRJ and ERJ now under contract, we have no major E175 contract expirations until late 2028. We continue accepting delivery of new E175s, converting CRJ700s to CRJ550s for United and are proud to be launching the CRJ450 with United this fall. Additionally, we continue to reduce our debt, and we now have $1 billion less debt than we did at the end of 2022.

The free cash flow that we continue to generate is still being directed towards fleet growth initiatives, debt reduction and share repurchase. Our steadfast commitment to maintaining a strong balance sheet and liquidity benefits our employees, our partners and our shareholders. All of this work sets us up well for 2027 and places us in a solid position of long-term strength.

SkyWest continues to lead our industry in service and in the value of our diverse assets. We remain disciplined and steady as we execute on our growth opportunities by delivering on significant prorate demand, investing in and fully utilizing our existing fleet, and preparing to receive our deliveries in the coming years for a total of nearly 300 E175s by the end of 2028. SkyWest is built to perform through the industry cycles. Disciplined strategic choices and continued execution in recent years have strengthened our model, and we remain well positioned to adapt quickly and to respond to market demands better than anyone else in the industry.

Rob will now take us through the financial information.

Today, we reported a first quarter GAAP net income of $102 million or $2.50 earnings per share. Q1 pretax income was $108 million. Our weighted average share count for Q1 was 40.7 million, and our effective tax rate was 6%. This GAAP EPS included a $0.29 impact from this unusually low effective tax rate from a discrete benefit in the quarter compared to the Q1 rate last year.

Let's start today with revenue. Total Q1 revenue of $1.01 billion is down slightly from $1.02 billion in Q4 2025 and up 7% from $948 million in Q1 2025. Q1 revenue includes contract revenue of $810 million, up from $803 million in Q4 2025 and up from $785 million in Q1 2025. Prorate and charter revenue was $168 million in Q1, up $1 million from Q4 2025 and up $37 million from Q1 2025.

Leasing and other revenue was $35 million in Q1, down from $54 million in Q4 and up from $32 million in Q1 2025. The sequential decrease in leasing and other revenue from Q4 related to discrete maintenance services provided to third parties in Q4 that was not expected to repeat in Q1.

Additionally, these Q1 GAAP results include the effect of recognizing $24 million of previously deferred revenue this quarter, up from the $5 million recognized in Q4 2025 and $13 million recognized in Q1 2025. As of the end of Q1, we have $241 million of cumulative deferred revenue that will be recognized in future periods.

Now let's discuss the balance sheet. We ended the quarter with cash of $627 million, down from $707 million last quarter and down from $751 million at Q1 2025. The ending cash balance for the quarter included the effects from repaying $116 million in debt, issuing $118 million of new debt, investing $102 million in CapEx, including the purchase of 1 E175 and buying back 783,000 shares of SkyWest stock in Q1 for $75 million. As of March 31, we had $138 million remaining under our current share repurchase authorization.

Cash flow is obviously an important driver of our capital deployment strategy. Over the last 2 years, we generated nearly $1 billion in free cash flow and deployed it primarily to delever and derisk the balance sheet to the benefit of our partners, our employees and our shareholders. We expect to continue to deploy our ongoing generation of free cash flow by investing in our fleet, including financing the addition of 28 new E175s by the end of 2028, reducing our debt and executing opportunistically on our share repurchase program as you saw us do in Q1.

As we remain focused on improving our return on invested capital, we'd like to highlight the following: both our debt net of cash and leverage ratios continue at favorable levels and are at their lowest point in over a decade. Our total debt level is $1 billion lower today than it was at the end of 2022 in spite of acquiring and debt financing 15 E175s during that time. The total 2025 capital expenditures funding our growth initiatives was approximately $580 million, including the purchase of 7 new E175s, CRJ900 airframes and aircraft and engines supporting our CRJ550 opportunity. We expect to take 9 new E175s during 2026 and anticipate our total CapEx in 2026 will be about flat with 2025, including 2 incremental 175 deliveries.

Consistent with our practice, let me update you on some commentary on 2026 that we gave last quarter. For 2026, we now expect to see block hour production slightly lower this summer than we modeled last quarter. We continue to work with our partners on production schedules over the rest of 2026. Wade will talk more about this in a minute.

We also anticipate our GAAP EPS for 2026 will be in the $11 area, slightly down from the color we gave last quarter, reflecting our expectation of ongoing elevated fuel costs. Although the future cost of fuel is obviously uncertain, we are exposed to fuel costs only on roughly 10% of our flying or 40 million gallons needed in our prorate business over the remainder of the year. We also believe, however, that higher fuel costs will come with some favorable prorate pricing offsets in that business, along with ongoing strength in our core model.

In terms of how to think of quarterly EPS modeling for the rest of 2026, there are several potential puts and takes over the remaining quarters, including seasonality, fuel cost production and so on that have various levels of uncertainty. But to keep it simple, on a GAAP EPS basis, we anticipate directionally that Q2 could be up slightly from Q1 GAAP results of $2.50. Q3, seasonally the strongest quarter of the year, could be up over Q2, and Q4 could be down modestly from Q3. For other modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at 2025 levels as we invest in bringing more aircraft back into service.

We also anticipate our effective tax rate will be approximately 23% to 24% for the full year 2026, flat to slightly down from 2025, including the unusually low rate of 6% in Q1. This is expected to translate to an effective tax rate of approximately 27% to 28% for the remaining quarters of 2026.

We are optimistic about our ongoing growth possibilities in '26 and '27, including the following 3 focus areas: first, growth in our ability to increase service to underserved communities, driven partially by the redeployment of approximately 20 dual-class CRJ aircraft expected for scheduled service later this year and strong utilization of the existing fleet. Second, good demand for our prorate product. And third, placing 9 new E175s into service for United and Alaska by the end of 2026, and 16 new E175s for Delta in 2027 and 2028.

We are also very pleased with the success of our CRJ550 and CRJ450 initiatives, and I will hand the mic to Wade, who will talk more about that next. We believe that we are positioned to drive long-term shareholder returns by deploying our strong balance sheet and free cash flow generation against a variety of accretive opportunities.

Wade?

Thank you, Rob. During the quarter, United announced the launch of the CRJ450, a reimagined CRJ200 featuring 41 seats. This aircraft will offer 7 first-class seats and 34 economy seats, including Economy Plus. With a large luggage closet and no overhead bins in the first-class cabin, passengers will enjoy a premium experience. We're also excited to introduce Starlink connectivity onboard the CRJ450. Operations with United will begin this fall.

Last year, we announced an extension covering 40 CRJ200s with United, and we are committed to retrofitting these aircraft into CRJ450s. We also plan to retrofit our prorate fleet and anticipate that our total CRJ450 fleet will reach approximately 100 aircraft.

Turning to our E175 fleet. Last quarter, we secured multiyear extensions for 40 E175s with United and 13 with Delta, further solidifying our partnerships through the end of the decade. We now have no contract expirations on the E175s until the second half of 2028. During the quarter, we took delivery of a new E175 for Alaska and currently have 68 E175s on firm order with Embraer, including 16 for Delta and 8 for United. We expect to receive 8 additional E175s this year. Of the 68 aircraft on order, 24 are allocated to major partners with 44 remain unassigned, allowing flexibility in our long-term fleet strategy.

Delivery slots are secured from 2027 to 2032, and the structure of the order allows us to defer or terminate if we don't secure partners. Following the completion of the Delta deliveries expected in 2028, our E175 fleet will total nearly 300 aircraft, reinforcing SkyWest as the world's largest E175 operator.

We recently acquired 5 E170s and reached an agreement with United to operate these as we expedite the conversion of our CRJ700s to CRJ550s. As previously announced, we have a multiyear agreement to fly 50 CRJ550s with United. As of March 31, 29 CRJ550s were in service, and we expect the remaining 21 to enter service this year.

We have also initiated a prorate agreement with American, currently operating 6 aircraft under this arrangement with up to 9 expected by year-end 2026. We look forward to expanding our relationship with American.

Reviewing our production, Q1 2026 block hours increased 3% compared to Q1 2025. For 2026, we anticipate production slightly lower this summer than we modeled last quarter. This year, we expect to take delivery of 9 new E175s, place 23 CRJ550s into service, capitalize on strong prorate demand and increase fleet utilization. These gains are partially offset by the gradual return of approximately 19 Delta-owned CRJ900s to Delta over the next couple of years at a slower pace than previously anticipated.

Our revenue seasonality has normalized. With improved utilization during the strong summer months, we still have approximately 10 dual-class CRJ aircraft currently undergoing heavy maintenance after transitioning from long-term storage. These aircraft are set to return to service in 2026 under existing flying agreements. Additionally, over 30 parked CRJ200s that could potentially transition to the CRJ450 and further enhance our fleet flexibility.

We've continued to face challenges in our third-party MRO network, including labor and part shortages. We expect maintenance expense in 2026 to remain consistent with 2025 as we bring aircraft out of long-term storage and support growing production. As expected, maintenance expenses are incurred before aircraft return to service. Demand for our prorate business remains extremely strong, supported by great community engagement. We are seeing opportunities to restore SkyWest service to several communities and will continue to work with airports to expand our reach.

As discussed last quarter, growth in our prorate business contributes to a more seasonal model. We remain confident in our ongoing efforts to reduce risk and enhance fleet flexibility, and we are committed to collaborating with our major partners to deliver innovative solutions that meet the continued demand for our products.

Okay. Operator, we're ready for the Q&A now.

[Operator Instructions] And our first question comes from the line of Catherine O'Brien with Goldman Sachs.

So we've had a couple of capacity cut announcements from your partners this earnings season and you just shared that your summer schedule is lower than you originally expected. Do you think those mainline carrier cuts are now fully reflected in your schedule? How far in advance are you typically warned about any potential schedule changes?

Yes, Catherine, this is Wade. As I said on our call, we do expect our block hours to be slightly less than what we talked about last quarter. Our schedules, we've got good schedules through the summertime, for sure. And so we think that those schedules will hold, and we anticipate a strong fall as well. So we do expect a little bit less than what we talked about last quarter, but we have pretty good visibility to what's going to happen over the next quarter, for sure.

And I apologize if I missed it. Did you give us -- usually you'll give us some type of like sequential compare on the block hour for the 1 quarter out versus the current quarter or year-over-year. Did you share that guidance?

We did not, but it will be seasonally high. If you compare it to Q1 2026, Q2 will be seasonally higher than what we just did in Q1.

Okay. And maybe just -- this might be the one for you, Wade. But last quarter, you spoke about having 60 CRJ200s going through maintenance to return to service. I think there was 20 of those are already under contract. We now know you're going to be converting a number of those into CRJ450s to be put into service with United starting as early as this fall. Can you just help us understand what portion of those 60 CRJs you already had maintenance were slated to become CRJ450s? And if there are any incremental shells left from that pool still looking for homes that could potentially be incremental to 2026 block hours?

Yes, that's a great question. So we -- I talked a little bit in my script, there are still about 30 CRJ200s that are parked and that we're working with our major partners to bring those back. As we look at it, if we do bring them back now, it would be late in 2026 and rolling into 2027. So we are still working on those. We're optimistic that we will be able to find a home for those. So we are working through that right now.

And our next question comes from the line of Savi Syth with Raymond James.

Just kind of building on Katy's questions on the CRJ450. Curious what the conversion time around that is and just how the cost and the CapEx is handled in terms of kind of what you spend versus what your partner might cover.

Yes. Savi, this is Wade. So that's a great question. So like I said, we anticipate starting to transition these in the fall. The transition time will be a couple of weeks to transition them from a CRJ200 to a CRJ450. We anticipate doing a couple of lines at a time. And so all of the economics are included in the rates with our major partner. And so they will be included in the economics that we receive from the partner.

Got it. And Wade, just to clarify, I think you mentioned this, but I'm not sure. I know the E175 by year-end' '28 wording went from nearly 300 to more than 300. Is that kind of a reflection that the rest before kind of your -- or most of the ones before year-end '28 have been extended? Or kind of what was the reason for that wording change?

No, we still anticipate around 300 airplanes. So we still continue to take delivery of those. We have 8 more for United, 16 more for Delta. And so it's right around that 300 number. And so it's pretty consistent with last quarter. We did take a delivery for Alaska in Q1, but we are continuing to work to place the remainder of those airplanes, and we are having very interesting conversations.

Got it. And just lastly, I'm not sure if I missed it, but did you say what the prorate revenue was this quarter?

We did not, but it is $168 million is our prorate and SkyWest charter -- and our charter business.

And our next question comes from the line of Mike Linenberg with Deutsche Bank.

Chip, I know you talked about these airplanes, the CRJ450s being great airplanes for these underserved communities. What's the status on -- I know out of Chicago, you're going to launch a whole bunch of service to a lot of underserved cities. What's the status on that? And are you going to have to -- because of the FAA order, are you going to have to withdraw that service?

Yes, Mike, it's Chip. That's a great question. I think from our perspective, I think nothing has necessarily changed in our intent. These -- the cities, like Wade mentioned in his script, all take a long time to get to the time frame where they're open to go back to the cities. I can tell you that sometimes it's up to even a year process. So the timing of most of what you're talking about doesn't necessarily perfectly correlate to some of the things happening in Chicago for -- the remainder of 2026. And some of the cities, if it doesn't work in Chicago, the bids could go to one of our other hubs.

So it doesn't change the interest of us going back to these communities. If there's a network problem between some of our partners in some of these locations, and we've got some flexibility that DoT is willing to work with to go to a different hub to make sure that we ensure that service. So from that perspective, our intent is still to do what we do best, and that is to serve and develop these small communities like we've done for 53 years. And there's still a very good market for that, and we'll be flexible as we've mentioned in our script before on how we do that with these communities and with our partners.

Okay. Great. And just to Wade. Wade, I apologize if you said this number. I did get on late. Just the new block hour rate for the year because I think you said you were planning to fly a little bit less this summer. And so what should we be modeling for block hours for the full year?

Yes. So last quarter, we talked about low or mid-single digits. It's slightly less than that from what we anticipate. We're still finalizing all of our block hours through the back end, but we still do expect to be up year-over-year. But we're just kind of working through that at the moment.

Okay. And then just in that regard, though, you're still up. And the reason for the reduction, is it because of the higher fuel prices and a cut to prorate? Or is it Chicago? Is it both? How do we parse that out?

Yes. It really has nothing to do with our prorate. We're still very optimistic with our prorate. The demand, just like our major partners talk about, the pricing is still there. The demand is still really strong. So we have not cut any of our prorate flying. There is a little bit in Chicago, like you talked about and then some of our other CPAs just have some kind of cleanups with utilization. So those are kind of the main drivers.

Okay. And then just my last point though, but if fuel prices stay high, in the past, there was always this arbitrage between mainline and regional in the sense that if the majors had to cut, but wanted to maintain frequency and maintain the integrity of their hubs with the number of banks that parking an inefficient 25-year-old A319 or A320 or maybe utilizing it less and backfilling it with one of your airplanes was far more profitable for the full ecosystem. Does that still hold? And does that potentially create opportunities if, I don't know, the Strait of Hormuz remains closed for longer than what we thought?

Yes, Michael, that's a fantastic question. We evaluate that data. You can go back several decades and look at some of these events from 9/11 to the financial crisis to oil at $150 and COVID and all that stuff. And the data is actually pretty clear. Each partner might look at it a little differently depending upon where their fleet is. To the extent that we own the less seats and can be cost competitive, there's a very strong trend of network preservation and even predatorial initiatives that can happen with a smaller fleet in somewhat difficult times, particularly if you try to estimate how long this may last and what the net effect of this is, which we're not going to speculate on. I think a lot of others in the industry have been pretty clear about that. But to the extent that we have a good model and can take care of the right dynamics of the industry, we're pretty comfortable where we are and are going to be very fluid with the needs of what our partners want.

Okay. Have you had any conversations along those lines? I mean in order to facilitate fare increases, it's a less is more situation, right? You want less seats in the marketplace, and I feel like you guys are best positioned to do that. I'm not sure if you're having those conversations.

Yes, we -- our conversations with our partners like that -- I mean, that's an interesting way to put it, but our conversation with our partners are a little bit more, I wouldn't say dynamic, maybe simplistic about that. We continue to have conversations about the network supply that we provide, the economics at which we do it and what long-term initiatives are. I think the good news that you've seen throughout the script is all of our conversations are sort of wait and see. I think that depending upon how this plays out, we're extremely well prepared for what -- however turn that this takes. But I think the net effect of it is outside of the global issue of what you talk about, our relationships with our partners are extremely good, and our fleet flexibility gives us an enormous amount of opportunities to help meet their demand.

So we talk more about fleet flexibility with them. We talk a lot about performance and all that kind of stuff that really helps drive more of that conversation in these specific speculative amounts of what happens. Now if this goes on for a very long time and things get worse, there's no doubt that we'll have different conversations with them, for sure.

And our next question comes from the line of Tom Fitzgerald with TD Cowen.

I'm just kind of curious on unit costs and just how you're thinking about -- I don't see -- to the extent that you are making cuts in the rest of the year, like how much you can variabilize and just how we should think about maybe like unit labor costs moving around from here?

Yes. There's -- a lot of our cost, as you're talking about, we do have some flexibility with some of our costs, especially as you look about at some of the direct labor costs. We have some levers on training, on hiring some of those things that we can definitely make more variable. We also, on the maintenance side, a lot of our maintenance costs are variable based on the number of cycles or hours that we do fly. And so there is a nice chunk of maintenance costs that are also very -- are variable and our models reflect that. Our revenue models reflect that and so do our cost models.

Okay. Okay. That's really helpful. And then kind of just an accounting question on the discrete tax benefit. Is that -- should we see that stacking on top of the benefit from 1Q' '25, so the $0.29 plus the $0.24? Or is that -- was that just a one -- so it goes from $2.50 GAAP to $2.21? Just wanted to make sure I was following that correctly.

Yes. Tom, you've got it. There's typically a Q1 thing. But I would just again point out that for the year, the full year '26 tax rate is basically flat to maybe slightly down from where we were last year. It's just that the quarters are spread out a little bit.

Okay. Okay. And then just had a question and this is more of just like what risk, but we just kind of -- to the extent if one of your partners were to be able to get to operate their own regional subsidiary, how do you think about like managing through the pricing risk? Because I get like I could see the narrative forming, but just kind of -- obviously, you have a very unique fleet. You have a lot of like really attractive assets. You guys have been proving to be really good stewards of them and adapting quickly to change. Just kind of curious how you're thinking about the competitive landscape and maybe longer-term pricing power.

Yes, that's a great question. Obviously, our major partners, a lot of our current major partners have wholly owned subsidiaries. We've been able to work with them very closely. And we like -- and we're fine competing with them as well. I think it's one of those things that SkyWest has a very competitive structure. We're able to be very nimble. A lot of things with how we do business is very unique. We've got great relationships with our labor groups and such that make it such that we bring a very unique proposition to each one of our partners.

And so we'll continue to work with them. Obviously, we're aware of what could possibly happen in the industry. And we've been through these things and we're happy to work with our major partners.

And our next question comes from the line of Duane Pfennigwerth with Evercore ISI.

With this slight change in utilization, I wonder are your pilot hiring plans changing at all? Are you dialing that down? And if so, is there an opportunity to maybe better match the new production with your staffing in the second half? Or is it just too early to make that call?

No, Duane, that's a great question. And to be candid, we're very sophisticated and very attentive in how we manage that. I think part of our labor cost increase this year compared to last year has been more attrition and more hiring and training costs that we've had in '26 and '25. From the perspective of what we have seen, it's going to be very dependent upon what our partners are doing with their hiring. And that's the #1 driver. We have seen some slowdown in some hiring, particularly, since the first quarter and even April, people are -- major carriers are getting ready for the summer schedule and hiring, but that's tapering off.

So some of the most sophisticated analysis we do is managing flight attendants and pilots and mechanics given the production time line. And we're seeing very good things throughout the rest of the year, stuff that is very easily managed. Now like we said, as of today, the overall model, we're proceeding full steam ahead with the deliveries we have and with the demand that's out there for our product. We also can pivot relatively quickly and do that evaluation relative to what may happen, and we'll be prepared to do that. But we're seeing a very stable process and environment for pilot hiring today. The pipeline is extremely full. There's a lot of employees that want to work at SkyWest at all levels, and we continue to monitor that especially during times like this that you could have some variables go one way or the other within the next couple of months. So it's a good question. Hopefully, that answers your question.

Yes, maybe just to try and put a finer point on it. The investment that you were planning to make this year to support the growth, it sounds like that investment has not changed. Is that fair?

That's absolutely correct. Yes.

Yes. And then just for my follow-up on the buyback, the pacing of the buyback had stepped up in the first quarter. How do you think about that pacing going forward, accelerating it or dialing it back? What are the circumstances where you might maintain this?

Yes. Thanks, Duane. This is Rob. Yes, the buyback for the quarter of $75 million was, again, something that falls well within what we've sort of always said that we like to be opportunistic about the way that we did that, and we were very comfortable buying a little more stock this quarter at the prices we were able to get, given the volatility. So going forward, we'll continue to do the same thing. I mean, we'll continue to be opportunistic, and we'll continue to have a balanced approach to how we deploy our capital across our fleet, strengthening our balance sheet and share repurchase.

And our next question comes from the line of John Godyn with Citigroup.

First, I'd love to just get your perspective on essential air service. The budget, the proposed budget came out not long ago and there were some jitters in there about essential air service. I know that, that can happen regularly, and it doesn't normally get cut. But I'd love to just kind of get your perspective on things, your historical perspective and how you think about just planning for what the budget is requesting?

Yes, John, that's a great question. We appreciate it. And I think that from our perspective, we see this come up quite a bit. In 53 years of SkyWest history, this has been something that's been discussed a lot. I think that from the perspective of small community service, we're the very best at it. I also think that from the perspective of essential air service, we're the best steward of the program. We've seen, certainly with the captain shortage, a lot of abuse from other carriers within this program that has caused people to ask some about the validity and strength of what the program actually does.

I can assure you that this is a program that is very well managed from the Department of Transportation. We take it very seriously. And our initiative is to make sure that it is efficient and works well, not just for the communities, but also for the federal government as well. We take that very serious and think that we're a very strong steward of this program.

That having been said, we have a tremendous amount of studies and economics that these dollars massively support a very strong tax basis and development of a tax basis within these small communities. And we can certainly have our folks share some of those studies with you. So look, we're very comfortable about how we handle the program. We take it very serious about making sure we do it the right way and serve the communities in the right way and think that it has a good future moving forward, and we're happy to help work in ways that need -- that can evolve it if need be. But the program is fantastic and does deliver a very strong economic tax basis wherever we do it.

Got it. And can you just remind us exposure to the program? I guess help us think through SkyWest's exposure?

Yes, that's a great question, John. We serve currently about 40 different communities. And so we've worked with these communities over the long term. And as Chip said, we take the responsibility very serious. And so we'll continue to serve those markets.

Got it. And if I could just ask a completely different topic. Consolidation has been a theme in the industry in the news the last few months and obviously, very recently. I'm just kind of curious, maybe we can just use this opportunity for you guys to remind us what opportunities and risks could consolidation present. On the opportunity side, I could see a situation where if capacity is cut under certain scenarios, that might be opportunity for you guys or opportunity for some of the airlines or your major customers.

On the other hand, I could see a situation where certain pairings would -- might impact your business negatively. Maybe you can just kind of remind us historically, how consolidation has affected you, how you guys think about it? And if there are any protections and contracts that are worth thinking through?

Yes. That's a great question, John. Let me start first by saying we have no interest in acquiring anybody. So you can take us off the table from that. We fundamentally believe for our purposes that organic growth is the best for our shareholders as well as our employees, especially, which is why we never really consider those things. I can tell you we, do have several offers for us to be involved in this stuff. We're not interested in it, for sure, at this time to the extent that our partners participate in it. We're probably in a position where we should not have any comment on that, to be candid with you. But I will give you some feedback relative to what's happened because we've got a history of the Continental and United combination and those types of things.

To the extent that there are opportunities for us to support any of our partners that go through that or want to go through that, we tend to become a very dynamic participant and stakeholder in those things, at which we -- it has in the past, worked out pretty well for us, but that doesn't mean it would work out well for us in the future. But nonetheless, it does make an interesting conversation that we have talked about with our partners, which we are -- again, we continue to beat the drum of financial stability and fleet flexibility. And I would just say if anything ever continue -- or starts to get any type of legs, then I would remember just what our capacities are in those situations. And obviously, our top priority is taking care of our partners in that situation.

And our next question comes from the line of Catherine O'Brien with Goldman Sachs.

Just two quick ones, if I may. When you introduced the mid-$11 EPS guidance last quarter, were you incorporating the $0.29 tax benefit in 1Q or not? Just trying to get a sense of the quantum of the change in your outlook driven by block hours, is that middle back in January, plus $0.29 and then less the block hour hit to get to $11 range? Just trying to understand like what the block hour swing is in there.

Yes, Katy, this is Rob. So no, I would tell you that the change in our color, our EPS color had nothing to do with the tax rate. Again, year-over-year, we would expect that the full year '26 is going to be very similar to '25, maybe flat to slightly down. The unusual benefit in the first quarter was just deduction timing differences that are generated from various comp models that we have. But overall, the tax rate for the year is flat and had nothing to do with our color guide.

The guide in our color was almost entirely related to prorate fuel. And that's why we tried to be helpful by giving -- we've got 40 million gallons that are exposed to fuel price over the next 3 quarters. We wanted to be as helpful as we could for your models.

No, that's very clear. And then just a final question. If your partners were to cut your schedule this summer, could you pivot aircraft into charter operations? I know you said there's like more demand than you can fill. Or are there just like some logistical challenges to moving planes and people back and forth? And if it is possible, how do the margins on charter flying compared to scheduled service?

Yes. Thanks. This is Chip. Just real quick on that dynamic. Look, I think that we treat both of those certificates completely separately. So it's not like you could, in a very fluid basis, go back and forth. But I would also reiterate, we're clearly not seeing anything today that would warrant that. It would take a pretty big lift of an issue for us before we started to do something dramatic like that, plus it's a timing. I mean our charter operation does very well in the winter months with college sports and it's very slow in the summer months. So some of that timing doesn't necessarily work out.

I mean, overall, the margin on a charter flight is certainly better than what a normal commercial flight is, but you've got the seasonality and all the other stuff that's weighted when the airplane is not flying that certainly weighs against that significantly. So from our perspective, I would just say that we're very comfortable with what the summer schedules are today. I think there's some expectation out there that this could last longer than anticipated, which is also driven by those schedules, and we'll continue to monitor the situation very carefully.

And with no further questions, that will conclude our question-and-answer session. I will now turn the call back over to Chip Childs for closing remarks.

Thank you, Abby. And again, thanks, everybody, for joining us on the call today. I think the quarter was very good for us, particularly under the circumstances. We appreciate how amazing our 15,000 professionals have been this last quarter. I think together, we've built a model that is very interesting times with stability and flexibility to respond in the coming months. And we will look forward to our second quarter call in about 3 months from now. Thank you.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Hello, and welcome, everyone, to the SkyWest Inc. Fourth Quarter and Full Year 2025 Results Call. Today's conference is being recorded. [Operator Instructions] at this time I would like to turn the conference over to Rob Simmons, Chief Financial Officer. Please go ahead.

Thanks, Audra, and 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; and Eric Woodward, Chief Accounting Officer. I'd 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'll 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 statement, whether as a result of new information, future events or otherwise. 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 most recent Form 10-K and other reports and filings with the Securities and Exchange Commission. And now I'll turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone, and thank you for joining us on the call today. Today, SkyWest reported net income of $91 million or $2.21 per diluted share for the fourth quarter of 2025 and full year net income of $428 million or $10.35 per diluted share. These results reflect the challenges of the fourth quarter as well as the overall improved production in 2025 and compared to the previous year.

For the 2025 year, our model converted a growth of 15% in production to a 31% increase in pretax income, reflecting the strong operating leverage within our model. We're also pleased to announce extensions on key flying agreements 40 E175s with United and 13 E175 with Delta. These agreements continue to strengthen our partnerships and demonstrate the ongoing long-term demand for our product. Our fleet flexibility has never been more important. And while our E175 flying agreements are further solidified, we continue to leverage our extensive CRG assets. Our ongoing investments in and the diversity of our fleet ensure we're well positioned to adapt to future market demands.

I'm humbled and honored that SkyWest was named a Fortune world's most admired companies for 2026, a distinction our people helped us earn for the third time now. SkyWest was named in the top 10 and the only regional airline on the list. This is an outstanding accomplishment, and I'm so proud of our exceptional team. Throughout 2025, SkyWest Airlines achieved more than 250 days of 100% controllable completion a solid team accomplishment during the year we regularly reached over 2,500 daily scheduled departures.

The fourth quarter was unusually challenging starting out with the government shutdown and mandatory flight reductions and leading right into the peak holiday season travel. I want to thank our team of over 15,000 aviation professionals for their continued teamwork and dedication to excellence. As expected, we were disproportionately affected with more canceled flights than our major partners during the mandatory flight reductions, and we experienced a modest impact from the shutdown. Rob will talk more about that in a minute.

We continue executing to derisk our model. The contract extensions we announced today with United and Delta deliver ongoing revenue stability. With all of our dual class suite, both CRJ and ERJ now under contract, we have no major E175 contract expirations until late 2028. Additionally, over the past 3 years, we've reduced our debt by $1 billion. All this work continues to place us in a solid position of long-term strength. The investments we're making today set us up well for 2027 and beyond. SkyWest continues to lead our segment of the industry in service and in value of our diverse assets.

We remain disciplined and steady as we execute on our growth opportunities by delivering on significant prorate demand, investing and fully utilize our existing fleet and preparing to receive our deliveries in the coming years for a total of nearly 300 E175s by the end of 2028. We spent years strengthening our balance sheet and fleet flexibility as well as reinvesting in our future growth. We continue to play the long game and invest in our fleet and our future to ensure we're in the best possible position to respond to market demand in a way that no 1 else can. Rob will now take us through the financial data.

Today, we reported a fourth quarter GAAP net income of $91 million or $2.21 earnings per share. Q4 pretax income was $125 million. Our weighted average share count for Q4 was [ 41.3 million, ] and our effective tax rate was 27%. Let's start today with revenue. Total Q4 revenue of $1 billion is down seasonally from $1.1 billion in Q3 2025 and up 8% from $944 million in Q4 2024. Q4 revenue includes contract revenue of $803 million down from $844 million in Q3 2025 and up from $786 million in Q4 2024.

Prorate and Charter revenue was $167 million in Q4, flat with Q3 2025 and up from $126 million in Q4 2024. Leasing and other revenue was $54 million in Q4, up from $39 million in Q3 and up from $32 million in Q4 2024 driven by discrete maintenance services provided to third parties. For comparability purposes, the mandated flight cancellations from the government shutdown in November negatively impacted our Q4 2025 results by $7 million or $0.13 in earnings per share. Additionally, these Q4 GAAP results include the effect of recognizing $5 million of previously deferred revenue this quarter down from the $17 million recognized in Q3 2025 and $20 million recognized in Q4 2024. As of the end of Q4, we have $265 million of cumulative deferred revenue that will be recognized in future periods. As we close out 2025, here are a few financial highlights to recap our 2025 year.

Our pretax income in 2025 of $566 million was up 31% from 2024 on a 15% increase in block hours, reflecting the strong operating leverage in our model. Our EBITDA for 2025 was $982 million, up over $100 million from 2024. Our free cash flow for 2025 was over $400 million providing the liquidity to invest in our long-term CRJ fleet initiatives and other accretive capital deployment opportunities. We repaid $492 million of debt in 2025 part of a 10% reduction to our debt balance since the end of 2024, including the effect from 7 new E175s we financed in 2025.

We ended Q4 with debt of $2.4 billion, down from $2.7 billion as of 12/31, 2024. We used $85 million in 2025 per share repurchases, doubling our investment from 2024. We bought nearly 850,000 shares in 2025 and up 50% from the shares bought in 2024. Now let's discuss the balance sheet. We ended the quarter with cash of $707 million down from $753 million last quarter and down from $802 million at Q4 2024. The ending cash balance for the quarter included the effects from repaying $155 million in debt, investing $214 million in CapEx, including the purchase of 5 E175s and buying back 268,000 shares of SkyWest stock in Q4 for $27 million.

As of December 31, we had $213 million remaining under our current share repurchase authorization. Cash flow is obviously an important driver of our capital deployment strategy. Over the last 2 years, we generated nearly $1 billion in free cash flow and deployed it primarily to delever and derisk the balance sheet to the benefit of our partners, our employees and our shareholders. Our balance sheet and liquidity are powerful tools as we pursue a variety of growth and capital opportunities for 2026 and beyond including acquiring and financing 29 additional E175s by the end of 2028 and continuing to pay down our debt. As we remain focused on improving our return on invested capital, we'd like to highlight the following: both our debt net of cash and leverage ratios continue at favorable levels and are at their lowest point in over a decade. Our total debt level is $1 billion lower today than it was at the end of 2022 in spite of acquiring and debt financing 14 E175s during that time.

The total 2025 capital expenditures funding our growth initiatives was approximately $580 million, including the purchase of 7 new E175s see CRJ 900 airframes and aircraft and engines supporting our CRJ550 opportunity. We expect to take 9 new E175s during 2026, and we anticipate approximately $600 million to $625 million in total CapEx in 2026, approximately flat with 2025 except for 2 incremental 175 deliveries. Consistent with our practice, we're not giving any specific EPS guidance today.

But let me update you on some commentary on 2026 we gave last quarter. For 2026, we now expect to see mid-single-digit percentage growth in block hours over 2025, moderately up from the color we provided last quarter. We also now anticipate our earnings per share for 2026 will be in the mid-$11 area, up modestly from our expectation last quarter. In addition to this full year EPS color, we would expect sharper quarterly seasonality, a bit more like pre-COVID patterns with our Q1 2026 EPS being flat to down from Q4 2025 GAAP EPS and with Q2 and Q3 being the strongest quarters of the year. For modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at current rates as we invest in bringing more aircraft back into service. We also anticipate our effective tax rate will be approximately 24% for 2026, similar to 2025, including a lower expected rate in Q1 and than the remaining quarters.

We are optimistic about our growth possibilities going into 2026, including the following 3 focus areas. First, growth in our ability to increase service to underserved communities, driven partially by the redeployment of approximately 20 parked dual-class CRJ aircraft and strong utilization of the existing fleet. Second, good demand for our prorate product; and third, placing 9 new E175s into service for United and Alaska by the end of 2026 and 16 new E175s for Delta in 2027 and 2028. We believe that we are positioned to drive long-term total shareholder returns by deploying our strong balance sheet and free cash flow generation against a variety of accretive opportunities. Wade?

Thank you, Rob. Today, we announced a multiyear extension of 40 E175s with United and 13 with Delta. These extensions continue to solidify our flying agreements with United and Delta through the end of this decade. We now have no contract expirations on E175 until the back half of 2028. During the quarter, we took delivery of 5 new E175s for United. We currently have 69 E175s on firm order with Embraer, including 16 for Delta, 8 for United, 1 for Alaska. We expect delivery of 9 new E175s this year.

Let me talk a little more about our firm order of 69 aircraft. Of the 69, 25 aircraft are allocated to our major partners and 44 are not yet assigned. Our long-term fleet plan has positioned us well and refleeting continues to be an important part of that strategy. This order locks in delivery slots starting in 2027 through 2032. However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them , after we finished the delta deliveries expected in 2028, our E175 fleet will be nearly 300 and continuing to enhance SkyWest position as the biggest E175 operator in the world.

Last quarter, we announced an agreement with United to extend up to 40 CRJ200s into the 2030s. These aircraft were set to expire at the end of 2025, and we're pleased with the continued strength of our United agreement. As we previously announced, we have a multiyear flying agreement for a total of 50 CRJ550s with United. As of December 31, we had 27 CRJ550s in service and expect the last 23 entering service later this year. We have begun a prorate agreement with American. We are currently operating 4 aircraft under this agreement with up to 9 aircraft expected by the middle of 2026. We are excited to expand our relationship with American.

Let me review our production. For the full year 2025, we increased block hours by 15% compared to 2024. We anticipate that our 2026 block hours will be up mid single-digit percentage compared to 2025. For 2026, we anticipate delivery of 9 new E175s placing 23 CRJ550s into service capitalizing on strong prorate demand and anticipating an increase in fleet utilization. These increases are offset by the return of approximately 19 Delta-owned CRJ900 over the next couple of years to Delta.

We anticipate the return of these aircraft will be slow -- will be at a slower cadence than we originally anticipated. Our revenue seasonality has returned to the model as utilization improves during the strong summer months. We still have approximately 20 part dual-class CRJ aircraft that will be returned to service. Many of these aircraft are currently under flying agreements and will begin operating in 2026. We also have over 40 Park CRJ200s, further enhancing our overall fleet flexibility. Also during the quarter, we canceled approximately 2,000 flights and 3,000 block hours due to the government shutdown. These cancellations decreased our results by approximately $7 million.

This is net of any reimbursements from our major partners. As we shared during the year, we continue experiencing challenges in our third-party MRO network including labor and parts challenges. We expect our 2026 maintenance expense to be consistent with our 2025 levels as we continue to bring aircraft out of long-term storage and service the current fleet as production continues to increase. As you would expect, the maintenance expense will happen before the aircraft goes back into surface. As far as our prorate business, demand remains extremely strong with great community support, we are seeing opportunities to return SkyWest service to several communities and we will continue to work with airports we serve on the best way to expand our service.

As we discussed last quarter, the increase in our prorate business results in an increasingly seasonal model consistent with the typical industry seasonality, we expect Q1 production will be flat to down from Q4. We feel good about our ongoing efforts to reduce risk and enhance fleet flexibility and remain committed to continuing our work with each of our major partners to provide strong innovative solutions to the continued demand for our products.

Okay. Operator, we're ready for our Q&A now. .

[Operator Instructions] We'll take our first question from Savi Syth at Raymond James.

Just on the FAA cuts in the last quarter. I was kind of curious on how that was handled, and I know usually when there are weather events that there's a lot more coverage of the costs we incurred. So I was wondering if you can expand a little bit more on why that was that level of impact?

Yes, Savi, this is Chip. I think you're thinking about weather is kind of consistent with the government shutdown. Obviously, as we said in our script, we got a fairly strong cancellation relative to what happened in the industry. And honestly, we're okay with that. We have various provisions in our contract to help mitigate that. But in the partnership spirit that we have with these partners. We're going to do things together to get through some of these challenges and extensive as the last 1 was. Certainly, and had an impact on us. But again, this is something that you work with your partners with and make sure that you do what you need to, to take care of customers and partners and everything, and so it worked out well. and we don't want to do it again, obviously. But from that perspective, the way you're thinking about it being like a weather an [ IROP ] event was extensively longer, but consistent within the contract. .

Understood. I wonder if I can on the extensions that are happening this year. I'm guessing a lot of those are aircraft that are coming fully paid in the next year or 2. Wondering if you could provide kind of an update on encumbered assets and kind of where they are today and where you see them kind of going by maybe the end of this year and next year?

Yes, Savi, this is Rob. In terms of unencumbered assets, we have a very strong portfolio of those that can be converted into debt, obviously, very easily. But we have somewhere in the neighborhood of $1.5 billion of unencumbered equipment at this point.

And does that step up quite a bit this year next year? Or is it just a kind of maybe a steady increase? How should we think about as those E175 start coming off contract?

Yes. I think, Savi, that -- you're exactly right. It certainly increases as more than become paid off. We're in a great position today with our unencumbered assets. And as we discuss, and as Rob discussed about debt repayments and stuff that those -- obviously, our number of assets unencumbered continues to increase relatively aggressively over the next several years as 175 has become paid for. .

We'll move next to Duane Pfennigwerth at Evercore ISI. .

With respect to your order book, and I think you have capacity out to 2028, maybe some availability in 2027. Can you speak to how discussions are evolving around placement of the next kind of slug of new aircraft you can take delivery of?

Yes, Duane, this is Wade. So yes, we have an order of 69 aircraft currently on order with Embraer, 24 of those are under contract with our major partners, 16 for Delta 8 for United and 1 for Alaska. So we're always talking to them about the order book. So our orders the deliveries that are coming in '27 are all spoken for the majority of them in '28 are spoken for after that, it's really '29, '30, '31 and beyond that we're still working with our major partners. But those conversations are ongoing, and we're very optimistic about continuing to work with them and place them.

And then I'm sure there was noise around shutdown and maybe some weather. But can you speak to the underlying trend in utilization and kind of what your target is and where you're at relative to that target in terms of utilization recovery?

Yes, Duane, that's a great question. So yes, we've seen positive trends in aircraft utilization for sure. And as we are looking at our schedules going into the spring and summer of '26, those trends are continuing to be extremely positive for us, honestly. And so we will get better utilization out of our assets. We are seeing that. It's slightly higher than what we had anticipated last quarter. That's why the guidance on block hours did go up. That's 1 of the reasons. And so yes, we're optimistic about the increased utilization on our fleet and where it's going. .

We'll move next to Catherine O'Brien at Goldman Sachs. .

Maybe just 1 more on the E175 renewals. It's really helpful to know your next renewal is it until the second half of 2028. Could you provide any color on how the terms of these renewals compared to the prior -- CPAs that they are on? Was there any impact in the rate discussions to the fact that you guys don't -- there's not any debt associated or that didn't factor in and the terms are pretty similar.

Yes, Catie, this is Chip. I would basically say that the contracts, as you continue to go through the maturity of the life of the aircraft certainly evolved. Certainly, certain things of contracts because this is such a dynamic industry change, various things that we thought were important 5 years ago have changed to other things are important today. So I won't -- I will certainly underline that there's a lot of evolution that takes place mostly due to market conditions. In large, I think you're mostly asking about economics and that type of stuff with the renewals. I would only say that everything is roughly economically very similar to what we've experienced in the past, although there are some things embedded within the contracts that evolve for just changing market conditions that help both of us as partners. .

The dynamics of the conversation is good because of the outstanding demand that's in the marketplace right now. So in all honesty, we try to be very transparent, very present with our partners all the time and the conversations are very, very good. Particularly, as you know, this is a tough industry to be in, and you have to be in that mode with your partners all the time to be dynamic and being able to evolve. And I don't know of anybody in the industry that can evolve as well as we can. So that's kind of how the contract conversations go, and we're going to continue to prepare ourselves for future ones to make it even easier so.

That's great. Maybe just 1 quick follow-up to feel just to make sure I don't want to put words in your mouth, but on the economics under the terms of the agreement, that looks pretty similar to, okay, this is now 13-year-old aircraft versus a brand-new aircraft, like the -- if there -- and I actually don't know if there's a step down usually when you move from the first contract to a second contract under a CPA agreement. But like whatever that normal step between contract 1 and contract 2, that's what it looks like here for these? Is that right?

Yes. The rate economics are very consistent with where they were before. So we will see a very consistent level of revenue continuing on with these airplanes in the future. .

That's great. And then just for my second question, maintenance elevated here around the industry, we're seeing that not surprised, rates flat are tight. Can you walk us through how much of the maintenance is on aircraft under contract? And what is for aircraft that are currently parked not on contract? And on that second group of aircraft, like how -- like you're putting in the work now. You talked about being flexible. That's a competitive advantage. Are you pretty advanced in conversations around some of these aircraft you're working on now that you might have an MRO slot for? Or this is really just like if a partner calls you could answer. Just trying to understand how much you're investing and what you think the prospects are for return on that investment?

No, that's a great question. So as I talked about a little bit in my script, we have 20 aircraft that are currently parked or have been parked that are in heavy maintenance that are going to be done very shortly that are going into contracts that are -- the contracts are signed, they're ready to go. They're just waiting for the airplane to be done with its maintenance cycles. And so obviously, the maintenance come comes in advance of the airplane being returned to service. And so there are 20 airplanes that will be going through that return of maintenance right now. That's the 20 dual-class airplanes. We also have some CRJ200s that I said we have 40 of those parked, and we are returning some of those to service. And we do believe -- we know very good opportunities in the marketplace for those and we're very optimistic that we will find a very good revenue model for those. .

We'll go next to Mike Linenberg at Deutsche. .

Yes, talking about a very good revenue model. I mean I -- we're sort of watching the build-out of Chicago, and it does seem like a lot of the growth at least at that hub over the next several months is going to be driven by regional flying. Are you able to capitalize on both of your relationships with those carriers to grow into that market? Or is it 1 sided?

Yes, Mike, that's a great question. So we work with each of our major partners. As you know, under these capacity purchase agreements, they dictate the schedule, they dictate where these aircraft fly. They tell us where to go. And so we are working with each of our major partners on the deployment of where they would like these airplanes. And we will operate these at the extreme highest levels of reliability that are out there. And so we will work with each of our major partners where they wish to deploy those. And we will -- and that's how the CPAs work.

Okay. And then just my second question, Rob, on the revenue piece -- the revenue recognized in excess of fixed cash payments. Obviously, that came down quarter-over-quarter. How is that trending? Are we back to sort of $5 million a quarter as we march through 2026 or is there -- like how should we think about that with respect to modeling?

Yes, sure, Mike. No, I think was a little down as we extended some of the contracts and pushed out some of the recognition of deferred revenue. But in 2026 for modeling purposes, I would suggest you're probably in the $20 million to $25 million a quarter area for recognizing the deferred revenue that remains. And again, there's $265 million of deferred revenue that remains to be recognized.

So Rob, to clarify, the extension was -- and what was announced today, right, I guess, maybe that drove part of it, right, to extend the E175 flying with both Delta and United.

That's righy. Yes. Those contract extensions also push out the timing of the recognition of the deferred revenue.

Okay. That's what I thought. And then just lastly, 1 other piece. When -- and it may have been Chip or you who talked about this seasonality where earnings will be down March Q over Q4, obviously, because now we're getting back to more normal seasonality with respect to your prorate business. When we think about down, are we thinking down on the reported Q4 number? Or should we think down from a Q4 number that would not be impacted by government shutdown? I'm just -- again, this is modeling.

Yes. Just to make it easy, I mean, it's just the GAAP number that we reported. We do expect that it will be flat to down in Q1, again, because of the sharper seasonality in the model. .

We'll move next to John Gordon at Citi. .

I wanted to sensitize and brainstorm bit about the 1150 -- you guys mentioned operating leverage a few times in the prepared remarks. We're seeing that in the numbers. If in a couple of quarters, 1150 is becoming 12 what happened? Just help us kind of sensitize that a bit, and I'd love to just kind of hear your thoughts. .

Yes, John, and again, welcome the guidance for next year, the mid-11 guidance, I think, is something that we always look at there being a possibility of coming in either ahead of that or behind it. But as Wade mentioned in his script, we see strong demand in various areas of our model right now, including prorate and contract. And so as things play out, we'll continue to update the Street on how we're seeing the year evolving, but right now, we were comfortable bringing up both our expectation around production and our expectation around earnings for the year compared to what we were seeing a quarter ago. .

Do you think that prorate would be the biggest swing factor? .

So there's 3 or 4 things that will affect our block hours. Prorate being 1 of them, I would say the more meaningful 1 is probably the increase in utilization that we are anticipating and seeing from each of our major partners. And then also just the return to service of some of our airplanes that have been parked over the for a while. So those are really the 3 drivers that will help us increase the production, which in turn increases the profitability. .

Got it. And if I could ask about the balance sheet. Certainly moving in the right direction for some time. I think you guys mentioned no contract extensions for a bit. It seems like we may be in a window here where we can potentially deploy the balance sheet more offensively, more strategically. I'm curious if that's how you think about it. Could there be a change to the attitude toward buybacks or maybe there's other calls for cash that you think are even more exciting? .

Yes, John, I think when it comes to the sort of the topic of capital allocation or the balance sheet, I think we're comfortable enough and confident in our free cash flow generation going forward that we feel like we're in sort of an all of the above position where we can continue to invest in the fleet like we have been, which we love doing. We can continue to delever and derisk the model and the balance sheet is, as we talked about, we've been paying down our debt with a good cadence over time. And finally, obviously, as we've proven, we're strong believers in the value creation possibilities of share repurchase. And so I think we're in a position with the balance sheet that's got the liquidity and the strength and the leverage that will allow us to do all of the above.

We'll go next to Tom Fitzgerald at TD Cowen.

There was a pretty big jump in lease airport services and other revenue this quarter. And I was just kind of curious what drove that. Was that maybe third-party engine overhaul work or something else? .

That's right. I mean, there's a piece of it on the revenue side and another piece in maintenance. So Yes, it was an engine deal with the third party. .

Okay. Great. That's really helpful. And then just any updates on the Charter business if you look out 2026 I don't know if that could be a driver of incremental positivity for the year, maybe around the World Cup or this summer or maybe not just given that everything else is going to be utilized in the core business. .

Yes, Tom, this is Chip. Just real quick. It's a great question about SkyWest Charter. We've got a lot of leeway and permission to do a lot of very cool things with that. Certainly, we're seeing as of right now, significant demand with sports teams and everything. In fact, it's demand that we can't meet honestly, because of aircraft availability. We're seeing certainly a very strong demand for SkyWest Airlines aircraft at this time that we're trying to fulfill with our major partners. As you know, that's the core of what our business is to try to take care of these 4 customers of ours.

So it does put some of our initial objectives with SkyWest Charter on the back burner. We're not saying that it's never going to happen. We mentioned on the call several times, we have a lot of CRJ200 aircraft available. And there's a lot of -- and we've also talked about MRO availability and getting these aircraft available to us. So I would not say that 2026 is going to be a historically huge year for Charter because of the backlog of supply chain issues we have with certain MROs and the fleet that we have, but we still have the same long-term objectives that we've always had with that enterprise because the demand and the things that we can do with that enterprise are still extraordinarily promising. But I think you can get a tone on the call. There's just a lot of demand and we're trying to get as much aircraft resources in place to meet that demand for 2026. So hopefully, we can do some other things in '27 or '28 with that enterprise.

Next, we'll take a follow-up from Savi Syth with Raymond James. .

Just wondering on operationally, you've been kind of executing really well. And as your partners need extra lift, I think you've been able to step in from time to time. I was curious, and I think the industry as a whole, the operational execution has kind of taken a leg up maybe versus kind of 10, 15 years ago. Curious how you stack up compared to some of these kind of internal partners at your mainline partners, like the internal regional airlines. How do you stack up in terms of performance and execution?

Savi, this is Wade. That's a great question. SkyWest -- you can look at some of the DOT data. SkyWest is always a very high performer on our A14 or completion percentages. So that is 1 thing that we emphasize around highly. It's just our execution to our mainline partners and then also ultimately their customers. And so we put a lot of emphasis around that, and we are typically 1 of the top-tier performers. So yes.

I would add just 1 thing also, Savi. I think you have to have the utmost respect to our people and certainly our management team because we're 1 of the only airlines in the world that has 4 customers that strategically at times, operate for completely different ways, yet we have to consolidate that operation into exceptional overall performance in our own way. So we're used to this challenge. We've been doing it for decades. And to that end, our people are fantastic at making sure that they meet our objectives and what we want to do and also meet the needs of our partners. But I can tell you the level of effort and talent that it takes to go as many days as we indicated, with 100% controllable completion over 250 days this last year is exceptional. .

And to that end, we're doing it in a way which we're trying to make 4 partners happy along the way, which we do a pretty good job of, which is why they keep giving us contract extensions and more flying. So from that perspective, on a micro level and a macro level, we're pretty proud of the efforts that our people put forth in those endeavors. .

That's helpful. And if I might just follow up on John's question about use of the -- how you're thinking about the use of cash. Any -- are there any kind of liquidity targets or leverage targets that you want to stay within?

So Savi, as we've said in the past, we don't really have a bright line number. But again, we want to be careful that we have the liquidity and the balance sheet capacity to make sure we can monetize all the opportunities that are in front of us. And again, those opportunities are numerous right now in terms of investing in the fleet and other ways that we can deploy the balance sheet. So I think as you see the progress that we've made over the past few years, we're in a great place from a balance sheet leverage standpoint. We haven't been in a lower leverage position in a decade. We're in a great position in terms of liquidity. We've got plenty of unpledged collateral if we were to need it.

And so again, I think that, that provides the opportunity for us to look at all of our accretive opportunities and monetize them.

And we'll take a follow-up from Catherine O'Brien at Goldman Sachs.

I just -- I was thinking about your answer to that question on the CRJ opportunities. And so a follow-up there. On those 40 CRJs you're investing in, you noted that you know of good opportunities for those. Are any of those slated to come out of the shop this year? And if they did, and you executed on 1 of the opportunities you noted, would that be incremental to your current mid-single-digit block hour growth rate? .

It's a great question. A lot of that is baked into our operating plans already. Obviously, if we do have upside especially for the summertime, a lot of that. We know what's in front of us. We know the opportunities right there. And so if we do get the airplanes out quicker, then there could be sooner opportunities for us. We are looking at opportunities in the fall, and we are looking at those opportunities right now. And so potentially, 8, 9 months from now, for sure, there could be some additional opportunities that we're looking at.

But things that are -- for the summer, 6 months in advance of us, that's all pretty much in our operating plans right now.

And that concludes our Q&A session. I will now turn the conference back over to Chip Childs for closing remarks. .

Thank you, Audra. Again, thank you all so much for your interest in SkyWest. We're very proud of what's happened in 2025, but mostly we're very focused and grateful for the opportunities which we have and we put ourselves in a good position with our people in '26 and beyond, and we look forward to giving the first quarter update in 3 months from now. So thanks for your interest. .

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the SkyWest, Inc. Third Quarter 2025 Results Call. [Operator Instructions]

I will now turn the call over to Rob Simmons, Chief Financial Officer.

Thanks, Colby, and 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 Steele, Chief Commercial Officer; and Eric Woodward, Chief Accounting Officer.

I'd 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 statement, whether as a result of new information, future events or otherwise.

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 most recent Form 10-K and other reports and filings with the Securities and Exchange Commission.

And now I'll turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone. Thank you for joining us on the call today. Today, SkyWest reported net income of $116 million or $2.81 per diluted share for the third quarter of 2025. These results reflect a seasonally strong third quarter and ongoing strong demand for our products.

Year-to-date through the third quarter, SkyWest has achieved more than 185 days of 100% controllable completion, a significant accomplishment with over 2,500 daily scheduled departures. Our people continue working with focus and teamwork to plan, execute and deliver an exceptional and consistent product. I want to thank our team of nearly 15,000 aviation professionals for their continued teamwork and dedication to excellence.

Our teams have delivered well despite the ongoing federal government shutdown in navigating the challenges of a strained ATC system with professionalism and vigilance. We're working with each community we serve and evaluating our capabilities in the event of a longer-term government shutdown. It is our intent to honor our service commitments, including those under the Federal EAS program who rely on SkyWest reliable air service as an essential economic lifeline.

Also during the third quarter, the Department of Transportation finalized SkyWest Charter or SWC's commuter authorization. This approval comes after a lengthy review process that took over 3 years, and we look forward to the future opportunities this authorization will provide. SWC is in the midst of busy sports charter season and we are evaluating additional opportunities this commuter authority will provide.

You'll recall last quarter, we announced an agreement to purchase and operate 16 new E175s under a multiyear contract with Delta, with deliveries expected to begin in 2027. We also secured firm delivery positions with Embraer for 44 more E175s from 2028 to 2032. As we shared previously, it is our intent to deliver those aircraft.

These agreements continue to deliver unparalleled fleet flexibility for the future, and that flexibility has never been more important. With today's announcement to extend CRJ200s with United and our continued deployment of additional CRJ550s for our partners, we expect our existing CRJ fleet to produce accretively well into the next decade.

In the near term, we anticipate our remaining Embraer deliveries scheduled for this year will be delivered in fourth quarter or early 2026. Demand for our product is very strong, and SkyWest continues to lead our segment in the industry in service and in the value of our diverse assets.

We remain disciplined and steady as we execute on our growth opportunities to: one, restore or bring new service to underserved communities; two, redeploy and fully use our existing fleet; and three, prepare to receive our deliveries in the coming years for a total of nearly 300 E175s by the end of 2028.

We have spent several years strengthening our balance sheet and fleet flexibility as well as reinvesting in our future growth. Overall, with our well-positioned fleet operation and our strong partnerships and demand, we remain optimistic about 2026. We continue to play the long game and to invest in our fleet and future to ensure we are in the best possible situation to respond to market demands.

Rob will now take us through the financial data.

Today, we reported a third quarter GAAP net income of $116 million or $2.81 earnings per share. Q3 pretax income was $157 million. Our weighted average share count for Q3 was 41.4 million, and our effective tax rate was 26%.

Let's start today with revenue. Total Q3 revenue of $1.1 billion is up from $1 billion in Q2 2025 and up 15% from $913 million in Q3 2024. Q3 revenue includes the contract revenue of $844 million, up from $842 million in Q2 2025 and up from $761 million in Q3 2024. Prorate and charter revenue was $167 million in Q3, up from $145 million in Q2 and up from $123 million in Q3 2024.

Leasing and other revenue was $39 million in Q3, down from $48 million in Q2 and up from $29 million in Q3 2024. These Q3 GAAP results include the effect of recognizing $17 million of previously deferred revenue this quarter, down from the $23 million recognized in Q2 2025.

As of the end of Q3, we have $269 million of cumulative deferred revenue that will be recognized in future periods. We anticipate recognizing approximately $5 million to $15 million of previously deferred revenue in Q4, subject to production levels and other factors.

Now let's discuss the balance sheet. We ended the quarter with cash of $753 million, up from $727 million last quarter and down from $836 million at Q3 2024. The ending cash balance for the quarter included the effects from: one, repaying $112 million in debt; two, buying back 244,000 shares of SkyWest stock in Q3 for $27 million. With the volatility in the equity markets in Q3, we opportunistically repurchased 25% more shares than we bought in Q2. As of September 30, we had $240 million remaining under our current share repurchase authorization. And three, investing $122 million in CapEx, including the purchase of used CRJ aircraft spare engines and other fixed assets. We ended Q3 with debt of $2.4 billion, down from $2.7 billion as of 12/31/2024.

Cash flow is obviously an important component of our capital deployment strategy. We generated approximately $500 million in free cash flow in 2024 and deployed it primarily to delever and derisk the balance sheet to the benefit of our partners, our employees and our shareholders. We generated nearly $400 million in free cash flow in the first 3 quarters of 2025, including $144 million in Q3.

Our balance sheet and strong liquidity are powerful tools as we pursue a variety of growth and capital deployment opportunities, including acquiring and financing 30 additional E175s to be placed under our flying agreements by the end of 2028 and repaying approximately $500 million in debt in 2025.

As we remain focused on improving our return on invested capital, we'd like to highlight the following: both our debt net of cash and leverage ratios continue at favorable levels at their lowest point in over a decade. Our total debt level is $1 billion lower today than it was at the end of 2022 in spite of acquiring and debt financing 9 E175s during that time.

We anticipate that total 2025 capital expenditures funding our growth initiatives will be approximately $550 million, including the purchase of 5 new E175s, CRJ900 airframes and aircraft and engines supporting our CRJ550 opportunity. This implies approximately $190 million in CapEx in Q4. We are scheduled to take delivery of 3 E175s in Q4 2025 and 11 E175s during 2026. We expect approximately $575 million to $625 million in CapEx in 2026.

Consistent with our policy and practice, we're not giving any specific EPS guidance today, but let me give you some updated color on Q4 and some commentary on 2026. We now anticipate our 2025 block hours to be up approximately 15% over 2024. We now expect our 2025 GAAP EPS could be in the mid-$10 per share area for the year. This implies Q4 EPS in the $2.30 area. For 2026, we expect to see low-single-digit percentage growth in block hours translate into mid-to-high single-digit percentage growth in EPS in the area of $11.

For modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at current rates as we invest in bringing more aircraft back into service. We also anticipate our effective tax rate will be approximately 26% to 27% for Q4 and in the area of 24% for 2026.

We are optimistic about our growth possibilities going into 2026, including the following 3 focus areas: First, growth in our ability to increase service to underserved communities, driven partially by the redeployment of approximately 20 parked dual-class CRJ aircraft; second, good demand for our prorate product; and third, placing 14 new E175s into service for United and Alaska by the end of 2026 and 16 new E175s for Delta in 2027 and 2028.

We believe that our strong balance sheet, operating leverage, free cash flow and liquidity and the actions we will be taking to deploy our capital against a variety of accretive opportunities will position us well to drive total shareholder returns. Wade?

Thank you, Rob. Last quarter, we announced a new flying agreement with Delta for 16 new E175s under a multiyear flying contract. The 16 new E175s are expected to replace 11 SkyWest-owned CRJ900s and 5 CRJ700s that we are currently operating.

We expect the 16 new E175s will be delivered in 2027 and 2028. We expect to redeploy the 16 SkyWest-owned CRJ aircraft with our major partners. We also currently operate 24 Delta-owned CRJ900s. We anticipate most of these aircraft will be returned to Delta over the next couple of years and are preparing to return 4 of them during the fourth quarter of this year.

Today, we announced an agreement with United to extend up to 40 CRJ200s into the 2030s. These aircraft were set to expire at the end of this year, and we are pleased that the continued -- we are pleased with the continued strength of our United agreement. As we previously announced, we have a multiyear flying agreement for a total of 50 CRJ550s with United.

As of September 30, we had 21 CRJ550s under contract and expect to operate 30 by the end of this year, with the last 20 entering into service during 2026. We also have 20 E175s coming up for contract extension in 2026 with United. We are currently in discussions to extend these aircraft and look forward to enhancing our partnership with United.

We also began a prorate agreement with American during the second quarter. We are currently operating 4 aircraft under this agreement with up to 9 anticipated by the middle of next year. We are very excited to expand our relationship with American. We currently have 74 E175 on firm order with Embraer, including 16 for Delta, 13 for United and 1 for Alaska.

We expect delivery of 3 aircraft during the fourth quarter and 11 next year. We did not receive any E175s during the third quarter. And as we continue experiencing delivery delays with Embraer, we expect that some of the aircraft previously planned for this year will push into 2026.

Let me talk a little bit more about our firm order of 74. Of the 74, 30 are allocated to major partners and 44 have not been assigned yet. Our long-term fleet plan has positioned us well and re-fleeting continues to be an important part of that strategy. This order locks in delivery slots starting in 2027 through 2032.

However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them. After we finish the Delta deliveries expected in 2028, our E175 fleet total will be nearly 300, continuing to enhance SkyWest's position as the largest Embraer operator in the world.

Let me review our production. Q3 block hours were up 2% compared to Q2 2025. Based on our current Q4 schedules from our major partners, we anticipate a 4% decrease in Q4 as compared to Q3. This decrease is due to the normal seasonality we see in our business.

For the full year, we anticipate an increase of approximately 15% in 2025 compared to 2024, similar to our 2019 levels. We anticipate that our 2026 block hours will be up low-single-digits compared to 2025. For 2026, we anticipate taking delivery of 11 new E175, placing 20 CRJ550s into service and capitalizing on strong prorate demand. These increases are offset by the return of approximately 24 Delta-owned CRJ900s over the next couple of years.

Our revenue seasonality has returned to the model as utilization improves during the strong summer months. We still have approximately 20 parked dual-class CRJ aircraft that will be returned to service. Many of these aircraft are currently under flying agreements and will begin operating in late 2025 and 2026. We also have over 40 parked CRJ200s, further enhancing our overall fleet flexibility.

Under a previously announced agreement with another regional carrier, we expect to purchase 30 used CRJ900 airframes for $29 million. We expect to utilize many of these airframes for parts to mitigate any supply chain challenges we may face over the next few years. We do anticipate operating 6 of these aircraft in the future.

As of September 30, we had closed on 18 of these aircraft. As far as our prorate business, demand remains extremely strong with great community support. We are seeing opportunities to return SkyWest service to several communities and we will continue to work with the airports we serve in the best way to expand our service.

As we discussed last quarter, the increase in our prorate business will reintroduce more seasonality into our model. Consistent with the airline industry, we expect Q2 and Q3 to be strong revenue quarters and Q1 and Q4 are softer. We feel good about our ongoing efforts to reduce risk and enhance fleet flexibility and remain committed to continuing our work with each of our major partners to provide strong solutions to the continued demand for our products.

Okay. Operator, we're now ready for our Q&A session.

[Operator Instructions] Your first question comes from Tom Fitzgerald from TD Cowen.

It seems like a really constructive outlook for 2026. I was just wondering if you'd mind walking us through some of the puts and takes on the fleet and the mix benefit you guys get as you bring on more E175s and then some of the CRJs come out.

Yes. Tom, this is Wade. I can give you a little bit more color on that. As we talked about, we still have CRJ550s that are parked or being transitioned. So we still have -- by the end of the year, we think there'll be additional 20 that we'll put into service during 2026. We have 14 more E175s that need to go in. 3 of them, we believe, will go in, in the third -- or in the fourth quarter of 2025 and then 11 more in 2026.

And then we also have strong prorate demand. As we said, we believe there'll be some increase in our prorate flying during 2026. Some of those will be offset -- some of those increases will be offset by some of the Delta-owned CRJ900s that we have that will be going back to Delta, and we've already started returning a few of those, and we think 4 of those will go back by the end of this year.

So I hope that helps, Tom.

Yes, yes. That's very helpful. And then I guess maybe just on prorate, where -- as a percentage of like where you were pre-pandemic, I just wonder if you'd mind updating us on where prorate stands today? And then I guess maybe unpacking a little bit more like the opportunities you see next year.

Yes. So we're about at 70% of where we were at in 2019 pre-pandemic. We're seeing strong demand throughout the whole country on prorate. There's still a lot of opportunities with small community service, both enhancing frequency and then also restoring dots on the map.

And so we are working with each of our major partners on prorate agreements. As I said, we do a lot of that for United. We also have started an agreement with American. We also do that with Delta as well. So all of our major partners, we're working with them on additional dots on the map. And so we're excited about the opportunities that are in front of us and we'll continue to execute on those.

Your next question comes from the line of Mike Linenberg from Deutsche Bank.

Chip, can you just update us on the EAS funding? I think the last I heard was that they had found money that would get you into November. Where -- what's the latest on that? They seem to be finding pockets of money from various activities, whether it's the military or whatever. Where do we hit the wall on that? And then what's the mechanism if you continue to fly and serve but not receive a subsidy? What's the recourse for like SkyWest to get -- to ultimately get repaid or maybe not?

Yes, Mike, those are outstanding questions and something that's very pertinent to today. The latest that we've heard is that we believe that there's funding for the program through the 18th of November. So that gives us a lot of good leeway for the government to continue to deal with this shutdown.

We've said early on since when it started, like we really value the communities that we serve. We know that through the captain shortages and that type of stuff, it's a difficult process to make sure we're executing on our commitments, but we are committed to the communities as much as we possibly can, not knowing how long this is going to go on.

And after the 18, I think the message has been pretty clear. It's unsure if we will get reimbursed or not, but it is clearly our intention to continue to fly and execute on some of the commitments that we've made with these communities. And if it continues to go on without funding after November 18, we'll see what we can do to best serve those communities. But it's going to take a conversation likely, because clearly, the essential air service communities do need the subsidies to make it viable. We're trying to develop them to where they can continue to be stronger and stronger, but we still definitely need those subsidies, and we'll work with the communities depending on how long this shutdown goes.

So from that perspective, I hope it's clarifying. We're all over working with our partners and the communities and the associated government agencies that we can do under the circumstances. But as of now, we feel pretty good about at least the current short-term time line.

Okay. Just my second question to Wade. The multiyear agreement with United on the CRJ200s into -- I heard -- I think I heard the 2030s. So obviously, a much longer time frame than I think anybody has anticipated about these airplanes. You currently have 80 with United, 50 under contract, 30 under prorate. Presumably, the 40 that are extended, are those all contract or is that a mix of contract and prorate?

Yes, Mike, that's a great question. So the 40 that were extended are all contract airplanes. So we'll continue to fly the prorate, expand the prorate. But the 40 contract, as you said, they're extended into the 2030s and we're excited about continuing to enhance our partnership with United on all of that.

Okay. I just to follow-up on that, though, you said expand the prorate. So it sounds like you're going to go from maybe a mix of 50-30 potentially to 40-40. Is that a reasonable potential?

Yes. Directionally, I think we'll continue to -- as we said, we have 40 parked CRJ200s still available to us. There's still great opportunities. Small communities need air service. So we will continue to find opportunities. But yes, I like your breakdown. I think it's directionally correct.

Okay. And then just my last one. I hate to ask all these questions, but the nuances, there are just so many from this call. The prorates going into American, it looks like they're all CRJ900s, at least, and I want to confirm that. But when I think about your prorate business historically, it was single class with CRJ200s. It now seems like we're moving into a prorate world of dual-class CRJ900s. And as we think about just the upgauging across the industry among all the carriers, it seems like it may be opening up a whole bunch of opportunities in small and medium-sized markets to go in with dual-class on a prorate business. That seems like that's kind of a new angle for you. Can you just clarify or confirm what...

No, Mike, you're -- once again, you're spot on. You're very good at this. So the American agreement, yes, we are flying CRJ900s and prorate for American. As you know, their scope is a little bit unique. They also have the large RJ scope that could fly in 65 seats. And so if they hit their scope caps in their large RJ, we could obviously transition those still into a 65-seat dual-class fleet.

We are also flying CRJ550s, as you said, for Delta under prorate. And so there's great opportunities there as well. So we do like it. We like the model. We like the opportunities and it does expand the opportunity into some different markets with the larger gauge airplanes for sure. So we're excited about what's going on.

Mike, this is Chip. I'll add on to that just real quick. I think you've heard some conversation from our partners about their premium service. Clearly, there's a strong element of what their models are evaluating and within their network of having good premium service throughout their networks. And I think it's being reflected in some of the deals that we're trying to do even in small communities. So your assessment -- is the momentum there is good.

Your next question comes from the line of Savi Syth from Raymond James.

Actually, just following up a little bit on Mike's question. You addressed the EAS side of the government shutdown. I was curious if there's any other impacts that you're seeing or you're watching because you do fly into smaller communities. And just a little bit tied to that, too, just with the -- I think Brazil is still at a 10% tariff and just if there's any kind of meaningful impact on that or that's just something you're observing?

Yes, Savi, good question. Thank you so much. To start with, when it comes to TSA and ATC, we really hats off to the work being done with those groups to continue to show up and work and do the things we need to, to keep the NAS system operational.

From our perspective on the small community [ stepping ], I mean, like I think we've said before, we fly to a lot of untowered airports. So from our perspective, a lot of our small community flying is actually not affected. But when you go back into the hub, it's every bit as affected as everything else.

So look, we monitor all of the things that we do with our major partners along the same lines. We're in constant conversation with the authorities as well as with our partners to manage these operational challenges with the shutdown. And hats off to our people as well. They're doing a fantastic job. The team is doing a great job. And so far, things are really, really well.

Relative to the 10% tariff, Brazil, I think the last time we were talking on the call, it was at 50%, and that was a no-go absolutely for us. We do not like 10%. But nonetheless, we have an environment where we've got to continue to execute on some of the commitments that we have, but also be strategic in how we're continuing to deploy our capital.

And so far, we're going to continue to give our opinion about what the tariff is doing to small community service as well as us as a company. But at some point, you still have to continue to move forward and do the best that you can. And so it's not that we've accepted the 10% tariff, but in our strategy as of today, we are dealing with it. And I think that's what we would say is that we're dealing with it.

But from our perspective, we do believe that this does have an impact on small community service in the long run. But our job is to be the best in the industry evolving, and we'll continue to evolve with some of these issues.

That's helpful. And just actually another follow-up on Mike's question as well. Just on the CRJ200 front, they are getting long in the tooth, but you're also having these opportunities, whether it's SkyWest Charter or continuing to operate them on the kind of the 50-seat side. Could you talk about like just if you look out to like '27, '28 or particular year -- a couple of years down the road, just where could we see that fleet size be considering that some probably have to get retired or maybe they don't. But just curious across the network, like how big do you see the CRJ fleet being or a range for it?

Savi, that's a great question. This is Wade. We just announced today, we extended 40 of those through the early 2030s. The prorate demand is still very strong that we have today in SkyWest Charter, the demand is very strong in all of that. So between all of that, we do anticipate flying somewhere around 100 CRJ200s well into early 2030s.

We're investing in maintenance. We've invested in these engines. A few quarters ago, we were talking about 5 million cycles that we have on those engines that we still have. We've obviously reduced that number as we continue to fly, but we have definitely made a lot of investments in that airframe to continue to make that work and continue to have it go. We're also investing in the customer experience and other things on that. So we're -- we think that airplane, the CRJ200, is going to go for well into the 2030s.

Your next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Just focus on the contractual capacity purchase business. I wonder if you could speak more comprehensively about net fleet additions for 2026. You noted the 11 E175 deliveries in the table. You talked about 20 additional 550s. I understand there can be movement between now and next year. But based on what you know today, what else will be added? And what will likely be rolling off? How do we think about that net fleet change?

Yes. No, that's a great question. We talked about it a little bit in my prepared remarks. Like you said, we have 20 CRJ550s that are on the books that are coming in next year. We have the 11 E175s. And then we have the 24 Delta-owned airplanes that are coming off over the next couple of years. So net-net, it's flattish to small increases in our capacity purchase flying next year just when you net it all up. So small -- like we said in my prepared remarks, it's low-single-digit growth next year in the block hours.

Got it. Got it. And then in the table, I wonder for the deliveries, do those numbers -- like are there options embedded in that 40 or are there options over above the numbers in that table?

You're talking about the CRJ200s, the 40?

Sorry, the E175s. Are those firm orders or are there options embedded in the future? This 40 and the 10 for 2028 and the 40 thereafter, do those include options?

Those do not include options. Those are firm orders. Those will be very helpful in fleet replacements and continuing to enhance the fleet. So those are all firm orders. We do have flexibility. They are not allocated to our partners yet. There -- I said in my prepared remarks that there are 44 of those that have not been allocated at this point. And so we'll continue to work with our partners to allocate those, but we do have flexibility if we do not get them allocated to a partner to defer or cancel those. But they are firm orders going through 2032.

Great. And then just one last one. Does the mid-to-high single-digit EPS growth guidance for '26, what does that assume around about incremental buyback, if anything?

Yes, Duane, this is Rob here. So in terms of the EPS denominator, we'll continue to be opportunistic as we have been in the past. As you've seen, this quarter, we bought -- in a fairly volatile market, we bought another 25% more shares than we did the quarter before. So it will depend on the markets, but we'll continue to be opportunistic in how we look at deploying capital against share repurchase.

And with no further questions in queue, I would like to turn the conference back over to Chip Childs, CEO, for closing comments.

Thank you, Colby. I appreciate really everybody's interest in the call today in the quarter. We obviously had a very good quarter. We've got some good challenges ahead of us. I want to reiterate that we continue to play the long game and make sure that some of the current effects that are happening to the industry do not affect our long-term strategy.

We know that we can evolve with the best aviation professionals in the world, continue to do the things in which we need to, to provide good shareholder value as well to that as our partners. And with that, we will end the call and see you next quarter. Thank you.

This concludes today's conference call. You may now disconnect.