SKYW - NASDAQ

Thank you for standing by. My name is JL [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the SkyWest, Inc. Second Quarter 2024 Results Call. [Operator Instructions] I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. You may begin.

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 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 will 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. Last week, most of our industry experienced significant worldwide disruption with a massive IT outage. SkyWest was fortunate not to utilize the software that triggered the event and all teams across our operation worked extensively to minimize operational crew and customer impact. Despite the FAA-mandated ground stops at several of our hubs, we canceled just 55 total flights on Friday and we're operating our full schedule by Saturday. This phenomenal performance is a result of smart decisions, proactive planning and exceptional collaboration and dedication to quality and reliability by every team across our operations. The SkyWest team continues to stand apart and lead the industry through any challenge. Today, SkyWest reported net income of $76 million or $1.82 per diluted share for the second quarter of 2024. We also received 8 of the 20 United Finance E175s during the quarter. As announced last month, these aircraft are in addition to the 19 new aircraft we will begin receiving at the end of this year. In the second quarter, 86% of our block hour production was from our dual-class aircraft and we were pleased to launch our first CRJ550 and our Delta prorate operation just this month. We're pleased to continue enhancing our partnerships and ensure we remain positioned to increase our regional market share. Overall, with our well-positioned fleet, ongoing improvements in cap and staffing and our strong relationships and demand, we remain optimistic about the remainder of 2024 and as we plan for 2025. During the second quarter, our team produced 99.99% adjusted completion on nearly 15,000 more flights than the same period last year. I want to thank our 14,000 people for their dedication and for working together each day to deliver a consistent, reliable and exceptional product. Captain attrition continues to improve and we are maintaining very strong first officer availability through our pathway programs. We expect to be at over 5,000 pilots by year-end, up about 1,000 pilots from the end of 2023. With continued progress in our captain balance this year, we expect block hour production for the second half of the year to be up 9% to 11%. We anticipate that we'll be at or near full partner requested contract utilization by year-end for the one E175 [ph] fleet and by mid-2025, for our CRJ fleet. This is still lower than our production in 2019 and we still see strong opportunities in small and underserved markets where service still hasn't been restored since COVID. We see significant demand for regional lift nationwide, particularly as the industry works to rightsize capacity. With the very strong demand for our product and the strong opportunity in small and underserved markets, we do expect maintenance expense to increase in the coming year as we increase utilization and return aircraft to service. Wade will speak more about that in a minute. In summary, we continue to play the long game and are focused on the core elements of our business, our people, our fleet and our partners to ensure we remain extremely well positioned in the industry. We spent the last several years investing heavily in our fleet and in our people 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 second quarter GAAP net income of $76 million or $1.82 earnings per share. Q2 pre-tax income was $102 million. Our weighted average share count for Q2 was 41.4 million shares and our effective tax rate was 26%. First, let's talk about revenue. Total Q2 revenue of $867 million is up 8% sequentially from $804 million in Q1 2024 and up 19% from $726 million in Q2 2023. Q2 revenue breaks down with contract revenue up 8% from Q1 2024 and up 18% from Q2 2023. Pro rate and charter revenue was $107 million in Q2, up 6% from Q1 2024 and up 30% from Q2 2023 due to higher flight volume and passenger loads. Leasing and other revenue was up by $4 million sequentially and year-over-year, reflecting additional leasing opportunities. These GAAP results include the effect of recognizing $6 million of previously deferred revenue this quarter compared to recognizing $1 million in Q1 2024 and deferring the recognition of $60 million of revenue in Q2 2023. As of the end of Q2, we have $361 million of cumulative deferred revenue that will be recognized in future periods. We expect to recognize previously deferred revenue of roughly $35 million to $45 million in the second half of 2024. Let me move to the balance sheet. We ended the quarter with cash of $834 million, up $13 million from $821 million last quarter and flat with year-end. The $13 million increase in cash during the quarter included the accretive actions of repaying over $115 million in debt and buying back 177,000 shares of SkyWest stock in Q2 for $13 million at an average price of $75.23 per share. Since the beginning of 2023, we have repurchased 10.9 million shares or approximately 21.5% of the outstanding shares of the company for $311 million at an average price of $28.54 per share. Our CapEx during the second quarter was $19 million. We ended Q2 with debt of $2.8 billion, down from $3 billion as of year-end 2023. These cash-related numbers continue to tell an important story about the quarter that we continue to generate positive free cash flow from operations despite production constraints. Our strong free cash flow also benefits from lower investment in CapEx than in prior years. Our balance sheet and solid liquidity continue to be powerful tools to create shareholder value, tools that we expect will help us repay over $400 million in debt in 2024 and allow us to take advantage of future growth opportunities and continue to execute on our share repurchase program. As we continue to focus on improving our return on invested capital, we would like to highlight the following: As a result of repurchasing 10.9 million shares since the beginning of 2023, we had 40 million shares outstanding as of June 30, 2024. And compared to $50.6 million as of the start of 2023. As of June 30, we had $69 million remaining under our furnished share repurchase authorization. We anticipate continuing to be opportunistic in repurchasing shares going forward, although at a significantly slower cadence than in 2023. We are on track in 2024 to repay over $400 million in debt, a similar number to our debt repayment in 2023. Our debt net of cash and leverage ratios continue to be lower than our pre-pandemic levels of 2019. By the end of 2024, we are optimistic that both of these important balance sheet metrics could be at their lowest point in over a decade. We continue to anticipate our total 2024 CapEx will be approximately $300 million to $350 million, including the purchase of five new E175s in the second half of 2024. Consistent with our policy and practice, we are not giving any specific EPS guidance at this time but let me give you a little color on 2024. As Wade will discuss in a minute, we now anticipate our 2024 block hours to be up 9% to 11% over 2023, up from the expectation of up 7% to 9% a quarter ago. Our modestly improved outlook in our 2024 block hours is driven by improving pilot availability, increasing fleet utilization and ongoing strong demand for our production from our partners. We anticipate our 2024 income tax rate will range between 25% to 27%. We expect our 2024 GAAP EPS to be in the high $6 area. Similar but slightly better than last quarter's expectation for the year and above where we were pre-COVID, reflecting our updated production outlook. It's too early to provide commentary on 2025 at this point. However, we would like to give some near-term color on our fleet utilization that will likely carry into 2025. We're optimistic our ERJ fleet in place today, plus the 14 remaining 2024 E175 deliveries can be scheduled at or near full utilization by the end of the year. Similarly, we are hopeful our CRJ fleet currently under contract can be scheduled at full utilization by mid-2025. Wade will give more color around this in a minute. As we look forward to reaching full utilization on our fleet and service driven by solid organic net captain growth our maintenance expense will likely run at somewhat elevated levels in 2025 compared to 2024. As our fleet returns to its normal maintenance schedule, including timing of airframe inspections. This higher maintenance in 2025 correlated with higher utilization and production is also partially driven by the opportunity to start bringing more aircraft out of storage. These currently idle planes are expected to be placed into service in some combination of contract flying, prorate, charter or place for sale over the next several quarters. Over the next several years, we've included the expected benefits of higher utilization as well as the anticipated elevated maintenance expense in our earnings color for 2024. We are optimistic about our opportunity to recapture the economics in underserved communities over the next couple of years with our CRJ fleet, including many of the roughly 70 CRJ aircraft currently not in service. We believe that our strong balance sheet and the actions we will be taking to invest in incremental utilization of our fleet to work through the rapidly improving captain shortage and to preserve the opportunity to monetize and optimize strong demand opportunities over time will position us well to drive total shareholder returns. Wade?

Thank you, Rob. During the last quarter, we announced a new flying agreement for 20 United-owned E175 to replace 20 CRJ200s under our United contract. These aircraft are coming from another United Express carrier, we anticipate that all 20 E175s will be transitioned to SkyWest this year. As of June 30, we had transitioned to 11 of these aircraft. These 20 are in addition to the 21 currently on order, 19 for United, one for Delta and one for Alaska. We expect delivery of five more this year, eight in 2025 and eight in 2026. At the end of 2026, our E175 fleet total will be 278 continuing to solidify SkyWest as the largest Embraer operator in the world. With the addition of the large dual-class aircraft to our fleet, our regional market share has increased to 30% and of the large dual-class aircraft from 23% in 2019. We are excited about our market share improvement. Let's shift focus to our CRJ700 fleet which is a valuable asset and an ideal replacement for single-class CRJ200s. The 19 CRJ700s expiring from our American fleet during 2024 will transition to become CRJ550s in our fleet. The first CRJ550 began flying for Delta during July. We anticipate transitioning most of these aircraft to the Delta fleet by the end of 2024. We have approximately 25 additional CRJ700s that have contract expirations in 2025. We are working with our major partners to place these aircraft under prorate and contract flying agreements. With each of the new 19 E175s we received and financed for United, a CRJ700 contract expire simultaneously. By the time these contracts conclude, the debt on the 19 CRJ700s will be fully paid. We're actively looking to place these aircraft under flying agreements, recognizing their value to our partners as they focus on dual-class aircraft. The CRJ700s represent some of the newest next-gen models worldwide. Let me review our production. The second quarter completed block hours were up more than 9% compared to the first quarter of 2024. Based on the current schedules we have from our major partners for Q3, we anticipate that our third quarter block hours will increase by approximately 5% compared to the second quarter. As our captain attrition continues to improve, we anticipate that our 2024 block hours will increase by 9% to 11% compared to last year. By the end of the year, we anticipate being at full utilization for the E175s that we currently have on property. As discussed previously, we will still be taking delivery of 30 E175s between now and the end of 2026 as we take delivery of these aircraft, we expect each of them to be at full utilization. During 2019, our utilization on the E175s was approximately 11 block hours per day. During the fourth quarter of 2024, we anticipate full utilizing and will be slightly over 10 block [ph] hours per day. We anticipate that our partners will continue to increase utilization as they rebuild their regional networks. I would also remind you that we can add approximately 30% more block hours to our CRJ contract fleet before adding any aircraft. We expect to be near full utilization on our contract fleet by the middle of 2025. We still have approximately 30 dual-class CRJ aircraft and over 40 single-class CRJ200s that are parked and could be returned to service either through an additional contractor prorate flying. As we return CRJs to service, we do anticipate challenges in our MRO network. We are seeing labor and parts challenges as the flying is coming back very quickly. As far as our maintenance expense, we anticipate a $40 million increase in the second half of 2024 as compared to the first half of 2024. We anticipate our maintenance expense to average $200 million a quarter during 2025 as we bring aircraft out of long-term storage to meet our production demands and to service the current fleet as production continues to increase. As you would expect, the maintenance expense will happen before the aircraft goes back into service. Our partners remain very engaged in supporting our efforts to restore production. I also want to review our plans to monetize our CRJ200 assets. We still own over 140 CRJ200 aircraft. These aircraft have very little book value and no debt and we have approximately 4.5 million cycles remaining to monetize. Our priority to monetize these assets to fly them at SkyWest Airlines under contract with our partners or in our prorate business. Our next priority is to operate these aircraft at SkyWest Charter or SWC. We currently have 16 aircraft operating at SWC flying on-demand charters. You'll also recall that our minority ownership stake in Contour includes an asset provisioning agreement, under which SkyWest will provide CRJ airframes and engines to Contour. As far as our prorate business, the demand remains extremely strong and we have great community support. We are seeing opportunities to restore SkyWest service to several communities as we restore our CRJ production. We will continue to work with the communities we serve on the best way to continue our service. We feel good about our ongoing efforts to reduce risk and enhance fleet and financing flexibility and remain committed to continuing our work with each of our major partners to provide creative solutions to the continued demand for our products.

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

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

Just on the main sentence call [ph] that you gave which was helpful to understand that that comes first as you restore this capacity. I'm curious as you kind of go through into next year, if that means margins contract or stay steady or it should still see an improvement because your utilization is improving on the -- kind of the full year impact of the E175 fleet and kind of the partial year of the CRJ fleet?

It’s Rob here. So, as we said on the call, that we do expect there to be $40 million and more maintenance expense in the second half of 2024 compared to the first half of 2024. And then we expect to have roughly $200 million a quarter of expense in 2025. So the calculus to your question is there will be puts and takes. Obviously, as production goes up, we'll have some offset in revenue to offset the higher maintenance expense as we bring as we both fly at higher utilization which will drive more maintenance expense. And as we bring other airplanes out of storage which will have some onetime effect to our maintenance expense there as well. So I mean, maybe not a perfect answer to what you're asking but there will be some puts and takes on both sides.

And if I might, on the E175, it looks like there are three more kind of E175s from United this quarter with the update than last quarter, 39 versus 36. But your year-end '26, even 75 assumption is unchanged at 278. Is that because some of these kind of go back or get retired before year-end '26? Or why was that not up as well?

So just to make sure I follow your question, Savi. So at the end of 2026, we pretty much consistently been saying for the last several quarters and year that since we've announced the United deal that we'll have 278 E175s at the end of 2026. We did take more E175s during this quarter than we probably anticipated and it was just the acceleration of bringing airplanes into our fleet quicker because of some of the operational needs that United had. And so the overall fleet is still the same, 278 is still our target by the end of 2026 but we did get some earlier than we had anticipated because of some operational needs that United wanted those in our hands quicker.

I guess just looking at your fleet table from last quarter, you were expecting like 38 incremental E175s from year-end '23 and now you're expecting 41. That was the reason for the question.

Okay.

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

Actually, this is kind of a follow-up on Savi's question. When you look at the United fleet. It now looks like that they have moderated their retirement of their 50 seaters, ERJ145 CRJ200, CRJ550s. Now we don't know who operates them but we know that you operate some of them. And so while you've given us a plan of new airplanes coming in, are you getting requests from your major partners to possibly maybe slow down the retirement of maybe what I would refer to as the much vilified CRJ200 or maybe there's more CRJ550 opportunities that you have there? Is that in those numbers?

Yes, Mike. Those are great questions. I think overall, just if you take a step back, we worked very closely with United on their fleet demands and what they want in the 50-seat category. At this point, we have -- by the end of the year, we'll have 50 CRJ200s under contract with them and those are in contract and United still wants them. We're working with them on multiple levels of fleet related to the 50 seaters, both under contract and prorate. So there's a lot of ongoing discussion with those guys. And so both in contract and prorate. And so United has been very supportive of us and what we're trying to accomplish in that. And so we'll just continue to work with them and hopefully, in the next couple of quarters, we'll have a couple of things we can kind of clarify for you on that.

And just kind of as a follow-up, again, back to the much vilified 50 seater. We're seeing older CRJ700s get converted into 550s, that is definitely a step up since that is a dual-class product. I get that. But then even though Delta put out a press release that they were getting out of all their 50 seaters, they're single class. Now all of a sudden, spotters are saying that 50 seaters are back. And I think that when you look at the number of airports that lost service during COVID, I don't know if it was 50, 60, 70. Is it fair assume that as pilot availability starts to improve at the regional level that your partners will come back to you and they may actually request more CRJ200 or more 50-seat usage but maybe it's under a prorate basis? So they can still say that as of now, we don't have any 50 seaters under contract but then you then go in and fly to some of these small cities, whether it's Del Rio or Tyler or Escanaba [ph], a lot of cities that lost service during COVID. Am I going down the right track here? Or am I completely just off base?

No Mike, it's Chip. You're going down the right track. And I would say it for a couple of a couple of reasons, mostly because we're probably the carrier in the United States that's closest to all these underserved communities. And rather or not you bring a CRJ200 back in 50 seats, in 42 seats or in 30 seats. There's a lot of things to still do with our CRJ200 fleet with both SkyWest Airlines as well as SWC. And by the way, we are as optimistic. We haven't talked a lot about it on the call or a script today but we're as optimistic about SWC in demand on-demand charter as well as eventually commute authority. So from the perspective of what we think the shell for a CRJ200, we have a lot of them. We've operated them for a long time. It's actually still a fantastic aircraft. To think that we may put 50 seats back in them and go back to some markets is a very strong possibility but there's a lot of other possibilities with this aircraft as well that makes us very excited. But again, back to what the general tone is, we've got to get to full utilization on our dual-class fleet with pilots under contract with our partners before we can tap into this. But I will say we're more optimistic about that gap in the market that you keep bringing up in small communities than we even were back in 2019. So a lot of good things to happen but I think the story of the day is it's going to take us a lot now that we have some good pilot availability to get the aircraft up and ready for full utilization.

Can I just squeeze in one last one. If you bring on an airplane that is either fully depreciated and has no debt, what is the margin contribution on that versus maybe something new? Is it similar? Is it better? Is it not as good? I mean can you opine on that? I'm just curious.

The airplanes that we're bringing on, obviously, they have very little debt on them. They do have some book value. The margins are very consistent with the rest of our fleet that we have right now. Offsetting the depreciation, there is higher maintenance costs associated with those airplanes. And so they're very consistent with what we do with the rest of our fleet.

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

Can you talk about the environment for incremental agreements on the new aircraft side and when we should expect you to put your balance sheet to work on incremental new aircraft?

Yes, Duane, this is Chip. I can tell you just at a very, very high level. You can imagine in the current climate that we have today that a lot of the major carriers are re-evaluating capacity. And we're a big part, I think, of those conversations with most of our partners. When you talk about capacity, you can look at it in several different ways. We're still extremely optimistic about the regional capacity. You're right, we have a strong balance sheet that we want to put to work. We have a lot of developments with most of our partners today as we usually do, I think that we're making some very good progress. But I think given the time and season where they're at right now, we need to be a little bit more patient to let them strategize on more of their network needs but we still fundamentally believe that we've got some great products and a great balance sheet to help them from a capital perspective. I mean, I think if you look at the position where they are and where we are and what we can do to help, we're a front runner in being able to help them with some of the capital and some of the regional lift needs that still has a very strong opportunity out there. So honestly, Duane, nothing, obviously, to announce today but we continue to work hard and we'll be patient and help become part of the strategy with our partners as those plans continue to develop, as they've said as well.

It's probably too early at this point but maybe you could give us a range of outcomes on 2025 CapEx?

Duane, well, first of all, we've got 8 E175s that are scheduled to be delivered in 2025. So you can start that. That's up from a little bit like that we had in 2023, for instance. So I would think at this point that, obviously, we'll keep you updated as we get closer to the end of the year. But just on the 175 front alone, we'll be up a little bit in '25. And then similar planes to be delivered in '26.

And then maybe just lastly, remind me, is there a kind of a target long-term margin that you speak to. Obviously, you've made a lot of great success here. Is this the level we should be thinking about? Or do you think there's opportunities to expand maybe pre-tax margins from here?

Yes. Thanks, Duane. Well, I mean, as you know, if you go back to the pre-COVID level. We're not back to those margin levels yet but that continues to be something that we think is a strong possibility and keep working towards that.

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

Is there -- just thinking about the concept of shareholder returns in the future and buybacks slowing down, is there a leverage target that you and the Board are looking for to start contemplating resuming the dividend? Or how should we think about that opportunity long term?

Yes, Tom, this is Chip. By the way, welcome. We appreciate your continuing to cover us from Helane. We're excited to continue to have a relationship with you and engage in our business. Relative to all of the capital allocation strategies that we have relative to stock buyback, dividend, invest in new aircraft, all of those types of things. As of right now, certainly, as Rob noted in his script, we backed off share repurchase quite a bit right now. We have a Board meeting that's coming up here in the next little bit. This will be top of mind in what we're talking about relative to what our shareholder return strategy will be. The majority of it still has to contemplate what the opportunities with the fleet are. Obviously, our priority with our capital is to reinvest in the fleet, make sure that we've got good, strong market share opportunities to continue to expand. And as we go down the pathway and that's our top priority. After that, we'll continue to evaluate the other models that we think that the market would want or would be good for our shareholders relative to dividends and share repurchase. So certainly, we feel like we're more mature than we were when we started our repurchase program a couple of years ago. So that comes into a factor. But I think as we let the fleet strategy continue to evolve, we'll get to that point and you'll be the first to know as we continue to find ways to continue to add shareholder value.

Tom, I would just add one thing to that, that as I sort of indicated in my script, that by the end of this year, we expect to be at a point, both from a leverage standpoint as a debt as a percentage of equity as well as an overall absolute debt number that net of cash, that we think debt net of cash and our leverage will be at extremely favorable levels, likely the best level it's been in a decade which creates a lot of optionality for us and opportunities as we look at all of the potential deployments of capital that Chip made reference to.

And then I'm just wondering, you kind of touched on it a little bit and it hasn't come up yet but what's just -- I'd love to just get the latest run through on SkyWest Charter and Contour and your view on some of the government regulatory issues on the ban [ph] charter market.

Just briefly -- I mean, I'll give you our take on it. I'm going to take it, as Wade mentioned that we have 16 aircraft flying today. There's a lot of opportunities that we need to be prepared for this fall and winter with Charter. There's things continuing to develop. We had some good things this last summer that went well. But I think that the overall thing is that we are still going down the road from a government perspective about getting commute authority, we're still confused about why we don't meet the three big requirements of financial strength, management strength and safety record, we think that we are probably among the best in the world relative to the qualifications to get compute authority. But the other interesting part is of all the attention on 135 and commute authority, we still see a significant expansion in on-demand charter through sports teams and various corporate opportunities that is even bigger than commute authority as we continue to get prepared for that this fall, winter and next year. So there's not a lot of new stuff but we continue to be very optimistic about Charter. We're very committed to seeing through the commute authority. We've obviously -- maybe you've seen -- we've taken it to court, we're going to go down that route. We're also going to continue to work with the government because there's obviously some things they want to change with 135 operations. We think we not only meet but massively exceed everything that they're talking about from a safety perspective. So look, we're optimistic but the opportunities we're going to be patient with commute authority. But there's honestly a tremendously bigger opportunity with on-demand charters that we think we're going to have a good fall and winter season with SkyWest Charter again.

And if I could just squeeze one more in. Just as we kind of think about the increases in utilization next year, is it reasonable for investors to think about another year of well above GDP, kind of high single-digit block hour growth? And I think even that would just put you kind of back at 90% of 2019 block hours [indiscernible] recovery left to recapture but I just wanted to level set on that and make sure we're all thinking about the right way.

Yes. Tom, this is Wade. Yes, we do anticipate our block hours to be higher than GDP growth next year. And there's still recovery, right? There's still recovery going on. And yes, we'll keep you up to date on that but there will be higher than GDP growth there.

And we have a follow-up question from Savi Syth of Raymond James.

Just kind of on Duane's question there, just on the SkyWest charter side. Can you talk about what you're seeing trends in the summer just because it is a new product. And I know in the winter time, it was a pretty strong product, I think. And just generally prorate and charter just what you're thinking for the third quarter here?

Yes, Savi. This is Wade. So as far as the charter business, as you said, Q1, it's almost a little bit reverse seasonal from our prorate business, right? So Q1 is extremely strong in charter. And we saw that the spring was also very good April and May. June, July and August, because of the college seasons are not as busy. There is definitely a lull in June, July and August. So we have found some opportunities to fly during those periods of time. But as we're going into the fall right now is school will start back up in September and we go through. We've already signed multiple deals multiple annual deals for that season. And so we're seeing the demand there being extremely strong on the charter side. And as far as prorate, we -- and I talked about this a little bit in my script, the pro rate is strong as well right now. there's definitely opportunities for us to go back into communities and restore service that we had left and the yields are still good and the opportunities there, we're still very optimistic about.

And just a follow-up on that. I think I know the answer based on what you just answered but your partners are pulling back capacity given kind of the thing oversupply in some markets. But I suspect it's not the type of markets that you're flying for your partners and there's no kind of indication from them that they want you to pull back on block hours or any flying?

Yes. No, Savi. Yes, no, we are still very excited about some of these markets. These markets have been underserved or not been served and so it's a little bit different than the capacity that our major partners talk about, right? They're talking about gauge and frequency and all that. What we're talking about is markets that just haven't had service or they've had service that they haven't enjoyed maybe, right? So now they're going back to SkyWest Airlines that has multiple codeshares with multiple partners and they're seeing that and the demand in those kind of markets has been extremely good and the communities are extremely welcoming us back as we're seeing the pilot and the aircraft availability improve. And so we are excited to get back into those markets.

With no further questions, this concludes our Q&A session. I'll now turn the conference back over to Chip Childs for closing remarks.

Thank you. Thanks, everybody, for following us each quarter. We appreciate your attention and your interest in SkyWest. We think that we've said consistently in our script that our strategy is to play the long game and be patient and opportunistic and be disciplined about our opportunities. We feel like we're continuing to be at that point where there's a lot of good opportunities in '25 and 2025 and beyond. And we really appreciate the amazing efforts of our 14,000 professionals. I think they are the absolute top in the entire industry, we couldn't have this success without them and we appreciate all the efforts that they give us as well as the partnerships we have with our amazing partners. And with that, we will return and talk more about the next quarter in three months. Thank you.