SKYWEST INC

Previous wording

The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“SkyWest” “we” or “us”) during the three- and six-month periods ended June 30, 2024 and 2023. Also discussed is our financial condition as of June 30, 2024, and December 31, 2023. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and six months ended June 30, 2024, including the notes thereto, appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” for discussion of uncertainties, risks and assumptions associated with these statements.

Current wording

The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“SkyWest” “we” or “us”) during the three- and nine-month periods ended September 30, 2024 and 2023. Also discussed is our financial condition as of September 30, 2024, and December 31, 2023. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and nine months ended September 30, 2024, including the notes thereto, appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” for discussion of uncertainties, risks and assumptions associated with these statements.

Previous wording

We have the largest regional airline operation in the United States through our operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”). As of June 30, 2024, we offered scheduled passenger and air freight service with approximately 2,130 total daily departures to destinations in the United States, Canada and Mexico. Our fleet of Embraer E175 regional jet aircraft (“E175”), Canadair CRJ900 regional jet aircraft (“CRJ900”) and Canadair CRJ700 regional jet aircraft (“CRJ700”) have a multiple-class seat configuration, whereas our Canadair CRJ200 regional jet aircraft (“CRJ200”) have a single-class seat configuration. During 2022, we formed SkyWest Charter, LLC (“SWC”), which offers on-demand charter services. As of June 30, 2024, we had 608 total aircraft in our fleet, including 475 aircraft in scheduled service or under contract pursuant to our code-share agreements, summarized as follows:

Current wording

We have the largest regional airline operation in the United States through our operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”). As of September 30, 2024, we offered scheduled passenger and air freight service with approximately 2,240 total daily departures to destinations in the United States, Canada and Mexico. Our fleet of Embraer E175 regional jet aircraft (“E175”), Canadair CRJ900 regional jet aircraft (“CRJ900”) and Canadair CRJ700 regional jet aircraft (“CRJ700”) have a multiple-class seat configuration, whereas our Canadair CRJ200 regional jet aircraft (“CRJ200”) have a single-class seat configuration. During 2022, we formed SkyWest Charter, LLC (“SWC”), which offers on-demand charter services using CRJ200 aircraft in a 30-seat configuration. As of September 30, 2024, we had 615 total aircraft in our fleet, including 484 aircraft in scheduled service or under contract pursuant to our code-share agreements, summarized as follows:

Previous wording

Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements between airlines that, among other things, allow one airline to use another airline’s flight designator codes on its flights) with our major airline partners. Our success is principally centered on our ability to meet the needs of our major airline partners by providing a reliable and safe operation at attractive economics. From June 30, 2023, to June 30, 2024, we made changes to our fleet, including the addition of two new E175 aircraft and 11 partner-financed E175 aircraft.

Current wording

Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements between airlines that, among other things, allow one airline to use another airline’s flight designator codes on its flights) with our major airline partners. Our success is principally centered on our ability to meet the needs of our major airline partners by providing a reliable and safe operation at attractive economics. From September 30, 2023, to September 30, 2024, we made changes to our fleet, including the addition of three new E175 aircraft and 20 partner-financed E175 aircraft.

Previous wording

We anticipate our fleet will continue to evolve, as we are scheduled to add one new E175 aircraft with Delta in the second half of 2024, 28 new E175 aircraft with United (13 in the second half of 2024, seven in 2025 and eight in 2026, of which 19 aircraft are financed by us and nine aircraft are financed by United) and one new E175 aircraft with Alaska in 2025. Timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to labor availability or other factors. Our primary objective in the fleet changes is to improve our profitability by adding new E175 aircraft and used CRJ aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require higher maintenance costs.

Current wording

We anticipate our fleet will continue to evolve, as we are scheduled to add 19 new E175 aircraft with United (four in the fourth quarter of 2024, seven in 2025 and eight in 2026) and one new E175 aircraft with Alaska in 2025. We also entered into multiple agreements with United in September and October 2024 to place a total of 40 used CRJ550 aircraft into service between the fourth quarter of 2024 and the end of 2026. Timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to labor availability or other factors. Our primary objective in the fleet changes is to improve our profitability by adding new E175 aircraft and used CRJ aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require higher maintenance costs.

Previous wording

As of June 30, 2024, approximately 43.6% of our aircraft in scheduled service or under contract were operated for United, approximately 28.4% were operated for Delta, approximately 19.2% were operated for American and approximately 8.8% were operated for Alaska.

Current wording

As of September 30, 2024, approximately 43.4% of our aircraft in scheduled service or under contract were operated for United, approximately 29.1% were operated for Delta, approximately 18.8% were operated for American and approximately 8.7% were operated for Alaska.

Previous wording

Historically, multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee arrangements (referred to as “capacity purchase” agreements) and “prorate” agreements. For the six months ended June 30, 2024, our capacity purchase revenue represented approximately 87.1% of our total flying agreement revenue and our prorate and SWC revenue, combined, represented approximately 12.9% of our total flying agreements revenue. On capacity purchase

Current wording

Historically, multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee arrangements (referred

Previous wording

routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours (measured from takeoff to landing, including taxi time), flight departures, the number of aircraft under contract and other operating measures. We control scheduling, pricing and seat inventories on certain prorate routes, and we share passenger fares with our major airline partners according to prorate formulas. We are also responsible for the operating costs of the prorate flights, including fuel and airport costs.

Current wording

to as “capacity purchase” agreements) and “prorate” agreements. For the nine months ended September 30, 2024, our capacity purchase revenue represented approximately 86.8% of our total flying agreement revenue and our prorate and SWC revenue, combined, represented approximately 13.2% of our total flying agreements revenue. On capacity purchase routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours (measured from takeoff to landing, including taxi time), flight departures, the number of aircraft under contract and other operating measures. We control scheduling, pricing and seat inventories on certain prorate routes, and we share passenger fares with our major airline partners according to prorate formulas. We are also responsible for the operating costs of the prorate flights, including fuel and airport costs.

Previous wording

We had total operating revenues of $867.1 million for the three months ended June 30, 2024, a 19.5% increase compared to total operating revenues of $725.6 million for the three months ended June 30, 2023. We had net income of $75.6 million, or $1.82 per diluted share, for the three months ended June 30, 2024, compared to net income of $15.4 million, or $0.35 per diluted share, for the three months ended June 30, 2023. The significant items affecting our revenue and operating expenses during the three months ended June 30, 2024, are outlined below:

Current wording

We had total operating revenues of $912.8 million for the three months ended September 30, 2024, a 19.1% increase compared to total operating revenues of $766.2 million for the three months ended September 30, 2023. We had net income of $89.7 million, or $2.16 per diluted share, for the three months ended September 30, 2024, compared to net income of $23.5 million, or $0.55 per diluted share, for the three months ended September 30, 2023. The significant items affecting our revenue and operating expenses during the three months ended September 30, 2024, are outlined below:

Previous wording

The number of aircraft we have in scheduled service or under contract pursuant to our code-share agreements and the number of block hours we incur on our flights are primary drivers of our flying agreements revenue under our capacity purchase agreements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers of our revenue under our prorate flying agreements. The number of aircraft we have in scheduled service or under contract pursuant to our code-share agreements decreased from 492 as of June 30, 2023 to 475 as of June 30, 2024; and the number of block hours increased from 282,617 for the three months ended June 30, 2023 to 317,462 for the three months ended June 30, 2024, or by 12.3%, due to an increase in scheduled daily utilization of our aircraft.

Current wording

The number of aircraft we have in scheduled service or under contract pursuant to our code-share agreements and the number of block hours we incur on our flights are primary drivers of our flying agreements revenue under our capacity purchase agreements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers of our revenue under our prorate flying agreements. The number of aircraft we have in scheduled service or under contract pursuant to our code-share agreements decreased from 493 as of September 30, 2023 to 484 as of September 30, 2024; and the number of block hours increased from 290,830 for the three months ended September 30, 2023 to 334,459 for the three months ended September 30, 2024, or by 15.0%, due to an increase in scheduled daily utilization of our aircraft driven by an increase in the number of available captains.

Previous wording

Our capacity purchase revenue increased $112.9 million, or 18.3%, from the three months ended June 30, 2023 to the three months ended June 30, 2024, primarily as a result of an increase in completed block hours for the comparable periods and recognizing previously deferred revenue for the three months ended June 30, 2024, compared to deferring revenue for the three months ended June 30, 2023. As a result of a higher number of passengers carried on our prorate routes and an increase in the number of prorate and charter flights operated year-over-year, our prorate and SWC revenue increased $24.8 million, or 30.2%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

Current wording

Our capacity purchase revenue increased $128.5 million, or 20.3%, from the three months ended September 30, 2023 to the three months ended September 30, 2024, primarily as a result of an increase in completed block hours for the comparable periods and recognizing previously deferred revenue for the three months ended September 30, 2024, compared to deferring revenue for the three months ended September 30, 2023. As a result of a higher number of passengers carried on our prorate routes and an increase in the number of prorate and charter flights operated year-over-year, our prorate and SWC revenue increased $13.1 million, or 11.9%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.

Previous wording

Our total operating expenses increased $53.7 million, or 7.7%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in operating expenses was primarily due to an increase in our direct operating expenses associated with the increase in the number of flights we operated. Departures increased from 173,837 for the three months ended June 30, 2023 to 189,325 for the three months ended June 30, 2024, or by 8.9%. Additional details regarding the increase in our operating expenses are described in the section of this Report entitled “Results of Operations.”

Current wording

Our total operating expenses increased $64.5 million, or 9.0%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase in operating expenses was primarily due to an increase in our direct operating expenses associated with the increase in the number of flights we operated. Departures increased from 180,069 for the three months ended September 30, 2023 to 201,397 for the three months ended September 30, 2024, or by 11.8%. Additional details regarding the increase in our operating expenses are described in the section of this Report entitled “Results of Operations.”

Previous wording

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2023, and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are presented in our Annual Report on Form 10-K for the year ended December 31, 2023. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, long-lived assets, and income tax. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates. There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2024.

Current wording

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2023, and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are presented in our Annual Report on Form 10-K for the year ended December 31, 2023. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, long-lived assets, and income tax. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates. There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2024.

Previous wording

The increase in “Capacity purchase agreements flight operations revenue” of $96.0 million, or 19.2%, was primarily due to a 12.3% increase in block hour production and a decrease in deferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft related to operating the aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Beginning January 1, 2024, certain scheduled fixed monthly payments under our capacity purchase agreements transitioned to variable payments, which are calculated at a rate per block hour. Based on the number of completed block hours during the three months ended June 30, 2024, we recognized $5.0 million of previously deferred revenue, net of unbilled revenue, related to the non-lease fixed monthly payments we received associated with our flight operations revenues. For the three months ended June 30, 2023, we deferred recognizing $40.7 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues. The timing of our revenue recognition related to the fixed payments associated with our flight operations will be adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement.

Current wording

The increase in “Capacity purchase agreements flight operations revenue” of $112.4 million, or 22.0%, was primarily due to a 15.0% increase in block hour production and a decrease in deferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft related to operating the aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Beginning January 1, 2024, certain scheduled fixed monthly payments under our capacity purchase agreements transitioned to variable payments, which are calculated at a rate per block hour. Based on the number of completed block hours during the three months ended September 30, 2024, we recognized $18.2 million of previously deferred revenue, net of unbilled revenue, related to the non-lease fixed monthly payments we received associated with our flight operations revenues. For the three months ended September 30, 2023, we deferred recognizing $37.2 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues. The timing of our revenue recognition related to the fixed payments associated with our flight operations will be adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement.

Previous wording

The increase in“Capacity purchase agreements aircraft lease revenue” of $16.9 million, or 14.2%, was primarily due to an increase in variable lease revenue as a result of certain scheduled fixed monthly lease payments that transitioned beginning January 1, 2024 to variable payments under our capacity purchase agreements. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue, including fixed monthly payments and variable payments. We recognize the fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments are recognized in the period when the block hours are completed. We recognized $0.5 million of previously deferred lease revenue during the three months ended June 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $19.5 million during the three months ended June 30, 2023.

Current wording

The increase in“Capacity purchase agreements aircraft lease revenue” of $16.1 million, or 13.4%, was primarily due to an increase in variable lease revenue as a result of certain scheduled fixed monthly lease payments that transitioned beginning January 1, 2024 to variable payments under our capacity purchase agreements. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue, including fixed monthly payments and variable payments. We recognize the fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments are recognized in the period when the block hours are completed. We recognized $0.5 million of previously deferred lease revenue during the three months ended September 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $19.3 million during the three months ended September 30, 2023.

Previous wording

The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. For clarity, in total we recognized $6.4 million of previously deferred revenue, net of unbilled revenue, during the six months ended June 30, 2024, compared to deferring revenue, net of unbilled revenue, of $123.4 million during the six months ended June 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $360.9 million as of June 30, 2024, compared to total deferred revenue, net of unbilled revenue, of $367.3 million as of December 31, 2023.

Current wording

revenue, during the three months ended September 30, 2024, compared to deferring revenue, net of unbilled revenue, of $56.5 million during the three months ended September 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $342.2 million as of September 30, 2024, compared to total deferred revenue, net of unbilled revenue, of $367.3 million as of December 31, 2023.

Previous wording

The increase in prorate agreements and SWC revenue of $24.8 million, or 30.2%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements duringthe three months ended June 30, 2024, compared to the three months ended June 30, 2023. Additionally, a portion of the increase is attributed to SWC revenue during the three months ended June 30, 2024, as SWC began operations in May 2023.

Current wording

The increase in prorate agreements and SWC revenue of $13.1 million, or 11.9%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements duringthe three months ended September 30, 2024, compared to the three months ended September 30, 2023. Additionally, a portion of the increase was attributed to an increase in SWC revenue during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

The increase in lease, airport services and other revenues of $3.7 million, or 14.7%, was primarily due to an increase in lease rates for leases to third parties during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

The increase in lease, airport services and other revenues of $5.0 million, or 20.7%, was primarily due to an increase in leased assets and lease rates for leases to third parties during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Salaries, wages and benefits. The $32.6 million, or 10.1%, increase in salaries, wages and benefits was primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

Salaries, wages and benefits. The $44.4 million, or 13.3%, increase in salaries, wages and benefits was primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Aircraft maintenance, materials and repairs. The $24.0 million, or 7.9%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased maintenance activity, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Current wording

Aircraft maintenance, materials and repairs. The $3.2 million, or 1.8%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased our maintenance activity and related expenses, offset by a decrease in our engine maintenance events and related expenses for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Depreciation and amortization. The $0.4 million, or 0.4%, decrease in depreciation and amortization expense was primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since June 30, 2023, offset by an increase in depreciation expense due to the acquisition of two new E175 aircraft and spare engines since June 30, 2023.

Current wording

Depreciation and amortization. The $0.1 million, or 0.1%, increase in depreciation and amortization expense was primarily due to an increase in depreciation expense related to the acquisition of three new E175 aircraft and spare engines since September 30, 2023, offset by certain CRJ aircraft and engines that were depreciated to their estimated residual value since September 30, 2023.

Previous wording

*Aircraft fuel.*The $3.0 million, or 16.7%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased combined with an increase in our average fuel cost per gallon from $3.30 for the three months ended June 30, 2023, to $3.32 for the three months ended June 30, 2024. We purchase and incur expense for all fuel on flights operated under our prorate agreements and SWC. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements and SWC, for the periods indicated:

Current wording

*Aircraft fuel.*The $0.6 million, or 2.6%, decrease in fuel cost was primarily due to a decrease in our average fuel cost per gallon from $3.83 for the three months ended September 30, 2023, to $3.10 for the three months ended September 30, 2024, offset by an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased. We purchase and incur expense for all fuel on flights operated under our prorate agreements and SWC. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements and SWC, for the periods indicated:

Previous wording

Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and benefits and customer service labor costs we outsource to third parties are included in airport-related expenses. The $0.6 million, or 3.4%, increase in airport-related expenses for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily due to an increase in subcontracted airport services and landing fees as a result of an increase in the number of flights we operated under our prorate agreements.

Current wording

Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and benefits and customer service labor costs we outsource to third parties are included in airport-related expenses. The $4.2 million, or 23.1%, increase in airport-related expenses for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was primarily due to an increase in subcontracted airport services and landing fees as a result of an increase in the number of flights we operated under our prorate agreements.

Previous wording

Aircraft rentals. The $1.1 million, or 46.0%, decrease in aircraft rentals wasprimarily related to a decrease in our leased aircraft since the three months ended June 30, 2023. During 2023, we acquired 26 CRJ700 aircraft, eight CRJ200 aircraft and one CRJ900 aircraft under early lease buyouts.

Current wording

Aircraft rentals. The $0.8 million, or 36.2%, decrease in aircraft rentals wasprimarily related to a decrease in our leased aircraft since the three months ended September 30, 2023. During 2023, we acquired 26 CRJ700 aircraft, eight CRJ200 aircraft and one CRJ900 aircraft under early lease buyouts.

Previous wording

Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs. The $1.8 million, or 2.4%, decrease was primarily related to the timing of training events and other non-direct operating expenses for the three months ended June 30, 2023, compared to the three months ended June 30, 2024, offset by an increase in other operating costs as a result of the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, such as crew per diem and crew hotel costs.

Current wording

Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs. The $13.9 million, or 21.4%, increase was primarily a result of the higher number of flights we operated during the three months ended September 30, 2024, compared to the three months ended September 30, 2023, such as increased crew per diem and crew hotel costs.

Previous wording

Interest Expense. The $4.8 million, or 14.1%, decrease in interest expense was primarily related to a decrease in outstanding debt. At June 30, 2024 we had $2.8 billion of outstanding debt, compared to $3.2 billion at June 30, 2023.

Current wording

Interest Expense. The $4.7 million, or 14.5%, decrease in interest expense was primarily related to a decrease in outstanding debt. At September 30, 2024 we had $2.7 billion of outstanding debt, compared to $3.1 billion at September 30, 2023.

Previous wording

Interest income. Interest income increased $1.5 million, from $10.5 million for the three months ended June 30, 2023, to $12.0 million for the three months ended June 30, 2024. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

Interest income. Interest income increased $1.3 million, from $11.2 million for the three months ended September 30, 2023, to $12.5 million for the three months ended September 30, 2024. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Other income (loss), net. Other income (loss), net decreased $9.5 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Other income (loss), net primarily consists of the unrealized and realized gains and losses on our investments in other companies, income or loss related to our equity method investments and gains or losses on the sale of assets. The decrease in other income (loss), net was primarily a result of a decrease in the fair value of our investments in other companies for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

Other income (loss), net. Other income (loss), net increased $3.7 million during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Other income (loss), net primarily consists of the unrealized and realized gains and losses on our investments in other companies, income or loss related to our equity method investments and gains or losses on the sale of assets. The increase in other income (loss), net was primarily a result of a decrease in the loss on the fair value of our investments in other companies for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Previous wording

Provision (benefit) for income taxes.For the three months ended June 30, 2024 and 2023, our effective income tax rates were 26.0% and 12.6%, respectively, which included the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses. The increase in the effective tax rate primarily related to the impact of non-deductible expenses relative to the pre-tax earnings for thethree months ended June 30, 2024, compared to pre-tax loss for the three months ended June 30, 2023.

Current wording

*Provision (benefit) for income taxes.*For the three months ended September 30, 2024 and 2023, our effective income tax rates were 22.8% and 3.6%, respectively, which included the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses. The increase in the effective tax rate was primarily related to lower pre-tax income for the three months ended September 30, 2023, compared to the three months ended September 30, 2024, and a release of $7.6 million of a previously recorded uncertain tax position liability for the three months ended September 30, 2023.

Previous wording

Net income. Primarily due to the factors described above, we generated net income of $75.6 million, or $1.82 per diluted share, for the three months ended June 30, 2024, compared to net income of $15.4 million, or $0.35 per diluted share, for the three months ended June 30, 2023.

Current wording

Net income. Primarily due to the factors described above, we generated net income of $89.7 million, or $2.16 per diluted share, for the three months ended September 30, 2024, compared to net income of $23.5 million, or $0.55 per diluted share, for the three months ended September 30, 2023.

Previous wording

The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increase in block hours, departures and passengers carried during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to an increase in the number of available captains during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Current wording

The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increase in block hours, departures and passengers carried during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to an increase in the number of available captains during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Previous wording

airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp services.

Current wording

Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners and on-demand charter flights. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp services.

Previous wording

The increase in “Capacity purchase agreements flight operations revenue” of $171.2 million, or 17.7%, was primarily due to a 8.7% increase in block hour production and a decrease in deferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft related to operating the aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Beginning January 1, 2024, certain scheduled fixed monthly payments under our capacity purchase agreements transitioned to variable payments, which are calculated at a rate per block hour. Based on the number of completed block hours during the six months ended June 30, 2024, we recognized $5.4 million of previously deferred revenue, net of unbilled revenue, related to the non-lease fixed monthly payments we received associated with our flight operations revenues. For the six months ended June 30, 2023, we deferred recognizing $83.4 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues. The timing of our revenue recognition related to the fixed payments associated with our flight operations will be adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement.

Current wording

under our capacity purchase agreements transitioned to variable payments, which are calculated at a rate per block hour. Based on the number of completed block hours during the nine months ended September 30, 2024, we recognized $23.6 million of previously deferred revenue, net of unbilled revenue, related to the non-lease fixed monthly payments we received associated with our flight operations revenues. For the nine months ended September 30, 2023, we deferred recognizing $120.6 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues. The timing of our revenue recognition related to the fixed payments associated with our flight operations will be adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement.

Previous wording

The increase in“Capacity purchase agreements aircraft lease revenue” of $32.4 million, or 13.7%, was primarily due to an increase in variable lease revenue as a result of certain scheduled fixed monthly lease payments that transitioned beginning January 1, 2024 to variable payments under our capacity purchase agreements. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue, including fixed monthly payments and variable payments. We recognize the fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments are recognized in the period when the block hours are completed. We recognized $1.0 million of previously deferred lease revenue during the three and six months ended June 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $40.0 million during the six months ended June 30, 2023.

Current wording

The increase in“Capacity purchase agreements aircraft lease revenue” of $48.5 million, or 13.6%, was primarily due to an increase in variable lease revenue as a result of certain scheduled fixed monthly lease payments that transitioned beginning January 1, 2024 to variable payments under our capacity purchase agreements. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue, including fixed monthly payments and variable payments. We recognize the fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments are recognized in the period when the block hours are completed. We recognized $1.5 million of previously deferred lease revenue during the three and nine months ended September 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $59.3 million during the nine months ended September 30, 2023.

Previous wording

The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. For clarity, in total we recognized $5.5 million of previously deferred revenue, net of unbilled revenue, during the three months ended June 30, 2024, compared to deferring revenue, net of unbilled revenue, of $60.2 million during the three months ended June 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $360.9 million as of June 30, 2024, compared to total deferred revenue, net of unbilled revenue, of $367.3 million as of December 31, 2023.

Current wording

The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. For clarity, in total we recognized $25.1 million of previously deferred revenue, net of unbilled revenue, during the nine months ended September 30, 2024, compared to deferring revenue, net of unbilled revenue, of $179.9 million during the nine months ended September 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $342.2 million as of September 30, 2024, compared to total deferred revenue, net of unbilled revenue, of $367.3 million as of December 31, 2023.

Previous wording

The increase in prorate agreements and SWC revenue of $48.6 million, or 30.5%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements duringthe six months ended June 30, 2024, compared to the six months ended June 30, 2023. Additionally, a portion of the increase is attributed to SWC revenue during the three months ended June 30, 2024, as SWC began operations in May 2023.

Current wording

The increase in prorate agreements and SWC revenue of $61.7 million, or 22.9%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements duringthe nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Additionally, a portion of the increase was attributed to an increase in SWC revenue during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, as SWC began operations in May 2023.

Previous wording

The increase in lease, airport services and other revenues of $1.0 million, or 1.9%, was primarily due to an increase in lease rates for leases to third parties during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Current wording

The increase in lease, airport services and other revenues of $6.1 million, or 7.8%, was primarily due to an increase in leased assets and lease rates for leases to third parties during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Previous wording

Salaries, wages and benefits. The $48.4 million, or 7.4%, increase in salaries, wages and benefits was primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Current wording

Salaries, wages and benefits. The $92.8 million, or 9.4%, increase in salaries, wages and benefits was primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Previous wording

Aircraft maintenance, materials and repairs. The $20.8 million, or 12.8%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased maintenance activity, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Current wording

Aircraft maintenance, materials and repairs. The $27.2 million, or 5.6%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased maintenance activity and related expenses, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Previous wording

Depreciation and amortization. The $1.4 million, or 0.7%, increase in depreciation and amortization expense was primarily due to an increase in depreciation expense due to the acquisition of two new E175 aircraft and spare engines since June 30, 2023.

Current wording

Depreciation and amortization. The $1.5 million, or 0.5%, increase in depreciation and amortization expense was primarily due to an increase in depreciation expense related to the acquisition of three new E175 aircraft and spare engines since September 30, 2023.

Previous wording

*Aircraft fuel.*The $3.2 million, or 8.3%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased, offset by a decrease in our average fuel cost per gallon from $3.65 for the six months ended June 30, 2023, to $3.42 for the six months ended June 30, 2024. We purchase and incur expense for all fuel on flights operated under our prorate agreements and SWC. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements and SWC, for the periods indicated:

Current wording

*Aircraft fuel.*The $2.6 million, or 4.2%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased, offset by a decrease in our average fuel cost per gallon from $3.71 for the nine months ended September 30, 2023, to $3.30 for the nine months ended September 30, 2024. We purchase and incur expense for all fuel on flights operated under our prorate agreements and SWC. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements and SWC, for the periods indicated: