The Madrid-based International Airlines Group (IAG), a holding corporation controlling five airlines (British Airways, Iberia, Aer Lingus, Vueling, and LEVEL),…
In Midst of Multi-Billion-Dollar Losses, SkyWest Posts First Quarter Profit
SkyWest Airlines — the St. George, Utah-based regional airline that operates flights on behalf of numerous large American carriers — announced its first-quarter earnings on Thursday, reporting a $30 million profit even as the country’s largest airlines saw losses in the billions of dollars.
The company, which did still see its stock price fall in after-hours trading, saw a $88 million net income in the same period in 2019, meaning the airline lost nearly two-thirds of its operating profit. But again, a 65% drop is much less significant than other major carriers that went from sitting hundreds of millions of dollars in the black to hundreds of millions in the red.
“COVID-19 has caused unprecedented disruption across the airline industry,” SkyWest Chief Executive Officer Chip Childs sais in a press release. “Our priority is the safety and well-being of our people and passengers, and we have taken numerous steps to that end. We are taking aggressive action to maintain strong liquidity and work collaboratively with our partners on flexible fleet solutions during this period of uncertainty. I want to thank our 14,000 employees for their resilience, commitment and flexibility during this pandemic.”
But perhaps the starkest contrast between SkyWest’s numbers and those of its larger clients was in revenue. SkyWest’s revenue increased from $724 million in the first three months of 2019 to $730 million in the quarter ending on March 31. But some of the airlines for which SkyWest operates flights — the company operates on behalf of United Airlines, American Airlines, Delta Air Lines and Alaska Airlines — saw revenue fall at or above 20% for the same period.
Here’s a passenger airline that actually made money in Q1: Regional airline SkyWest reported net income of $30 million https://t.co/IZJL2Rzh1b
Regionals have a considerably different business model than mainline airlines, so the finances are a lagging indicator. $SKYW
— Ethan Klapper (@ethanklapper) May 7, 2020
Despite posting a profit, the company did say it expects to receive $438 million in payroll support as a result of the provision in the CARES Act governing airlines. According to the airline’s earnings announcement, $337 million will come as grants, and the final $101 million “in the form of a ten year, low interest, unsecured loan.”
Largely, it seems as though the company’s relative success in the first quarter comes as a result of its’ unique position in the market. While the company is still shouldering approximately $2.9 billion in debt, the company still has in place a number of contracts that continue to be almost entirely, if not entirely operational.
A recent study from the University of Toronto notes how many new contracts between mainline carriers and regional airlines have taken the form of “fixed-fee” or “capacity-purchase” contracts.
“Under these types of contracts, the regional receives a fixed payment (usually based on block hours flown) for each departure that it operates on behalf of the major,” the study reads. “This fixed payment is calculated to cover the regional’s operating costs and to guarantee a reasonable rate of profit.”
This relationship helps to understand why SkyWest has been able to stave off some of the disastrous financial numbers seen in the larger airlines. For many of its contracts, it’s likely that the company can continue to operate the flights and earn the fee they would otherwise receive, even if the number of passengers onboard is relatively few. Couple that with the fact that airlines are more likely to fill up smaller planes — and thus keep them flying — and airlines like SkyWest are in a much better position than it might seem at first glance.
Of course, the major U.S. carriers were quick to note that April was worse than any stretch of the first quarter in terms of air travel. So while SkyWest may have exited March with less wear and tear, the second quarter’s numbers may not be as promising.
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