SKYWEST, INC. The following discussion and analysis presents factors that had a material effect on the results of operations ofSkyWest, Inc. ("SkyWest" "we" or "us") during the three- and six-month periods endedJune 30, 2021 and 2020. Also discussed is our financial condition as ofJune 30, 2021 andDecember 31, 2020 . You should read this discussion in conjunction with our condensed consolidated financial statements for the three and six months endedJune 30, 2021 , 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.
Cautionary Statement Concerning Forward-Looking Statements
Certain of the statements contained in this Report should be considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "project," "could," "should," "hope," "likely," and "continue" and similar terms used in connection with statements regarding our outlook, anticipated operations, the revenue environment, our contractual relationships, and our anticipated financial performance. These statements include, but are not limited to, statements regarding the impact of the COVID-19 pandemic on our business, results of operations and financial condition and the impact of any measures, including travel restrictions, taken to mitigate the effect of the pandemic, our future growth and development plans, including our future financial and operating results, our plans, objectives, expectations and intentions and other statements that are not historical facts. Readers should keep in mind that all forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this Report materializes, or any other underlying assumption proves incorrect, our actual results will vary, and may vary materially, from those anticipated, estimated, projected, or intended for a number of reasons, including but not limited to: the uncertainty of the duration, scope and impact of COVID-19; a further spread or worsening of COVID-19; the consequences of the COVID-19 pandemic to global economic conditions, the travel industry and our major airline partners in general and our financial condition and results of operations in particular; the challenges of competing successfully in a highly competitive and rapidly changing industry; developments associated with fluctuations in the economy and the demand for air travel, including as a result of the COVID-19 pandemic; the financial stability ofUnited Airlines, Inc. ("United"), Delta Air Lines, Inc. ("Delta"),American Airlines, Inc. ("American") andAlaska Airlines, Inc. ("Alaska") (each, a "major airline partner") and any potential impact of their financial condition on our operations; fluctuations in flight schedules, which are determined by the major airline partners for whom SkyWest conducts flight operations; variations in market and economic conditions; significant aircraft lease and debt commitments; realization of manufacturer residual value guarantees on applicable SkyWest aircraft; residual aircraft values and related impairment charges; the impact of global instability; labor relations and costs; potential fluctuations in fuel costs, and potential fuel shortages; the impact of weather-related or other natural disasters on air travel and airline costs; new aircraft deliveries; and the ability to attract and retain qualified pilots, as well as other factors identified under the heading "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , under the heading "Risk Factors" in Part II, Item 1A of this Report, elsewhere in this Report, in our other filings with theSecurities and Exchange Commission (the "SEC") and other unanticipated factors. There may be other factors that may affect matters discussed in forward-looking statements set forth in this Report, which factors may also cause actual results to differ materially from those discussed. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that we have filed with theSEC may be further amplified by the global impact of the COVID-19 pandemic. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by applicable law.
Impact of the COVID-19 Pandemic
COVID-19, which was declared a global health pandemic by theWorld Health Organization inMarch 2020 , has had a significant, negative impact on our business and financial results beginning inMarch 2020 and has materially and adversely affected our revenues, particularly under our prorate agreements. We operated 80,755 flights during the 22
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second quarter of 2020, which increased to 185,498 flights, or 129.7%, during second quarter of 2021. However, we operated 215,052 flights during the second quarter of 2019 and we have not returned to pre-COVID flight levels as ofJune 30, 2021 . The rate of recovery from the impact of COVID-19 and whether such recovery will be sustained are uncertain as factors outside of our control, including the distribution and efficacy of vaccines, new variants of the virus, and continued or new government travel restrictions, cannot be estimated. Liquidity. AtJune 30, 2021 , we had$996.7 million in total available liquidity, consisting of$955.7 million in cash and marketable securities and$41.0 million available underSkyWest Airlines' line of credit.
Overview
We have the largest regional airline operation inthe United States through our operating subsidiarySkyWest Airlines, Inc. ("SkyWest Airlines "). As ofJune 30, 2021 , we offered scheduled passenger service with approximately 2,260 total daily departures to destinations inthe United States ,Canada ,Mexico and theCaribbean . 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 CRJ200 aircraft have a single-class seat configuration. As ofJune 30, 2021 , we had 608 total aircraft in our fleet, including 478 aircraft in scheduled service under our code-share agreements, summarized as follows: E175 CRJ900 CRJ700 CRJ200 Total United 90 - 19 112 221 Delta 71 40 5 29 145 American - - 80 - 80 Alaska 32 - - - 32 Aircraft in scheduled service 193 40 104 141 478 Leased to third parties - 5 34 - 39 Other* - 4 23 64 91 Total Fleet 193 49 161 205 608 *As ofJune 30, 2021 , other aircraft include: supplemental spare aircraft supporting our code-share agreements and may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, or aircraft that are in the process of being parted out. Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements, typically in the form of capacity purchase agreements or prorate 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 dependent on our ability to meet the needs of our major airline partners through providing a reliable and safe operation at attractive economics. FromJune 30, 2020 toJune 30, 2021 , we made several changes to our fleet count under our flying agreements, including the addition of four new E175 aircraft, 18 used CRJ700 aircraft, one new CRJ900 aircraft, and the removal of four CRJ900 aircraft and twelve CRJ200 aircraft. Additionally, fromJune 30, 2020 toJune 30, 2021 , we increased the number of CRJ700 aircraft we leased to third parties from 13 aircraft to 34 aircraft and leases on four CRJ200 aircraft with third parties terminated. We anticipate our fleet will continue to evolve, as we are scheduled to add 20 new E175 aircraft with American by the end of 2022, nine new E175 aircraft withAlaska by the first half of 2023, and 21 used CRJ700 aircraft with American by 2023. Timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to the COVID-19 demand recovery. 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.
As of
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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 revenue-sharing arrangements
(referred to as "prorate" agreements). For the six months ended June 30, 2021 ,
capacity purchase revenue and prorate revenue represented approximately 85.0%
and 15.0%, respectively, of our total flying agreements revenue. On contract
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. On prorate routes, we have more control
over scheduling, pricing and seat inventories, and we share passenger fares with
our major airline partners according to prorate formulas. Our prorate revenue
and profitability may fluctuate based on ticket prices and passenger loads, and
we are responsible for the operating costs of the prorate flights, including
fuel and airport costs.
Second Quarter Summary
We had total operating revenues of $657.0 million for the three months ended
June 30, 2021 , an 87.7% increase compared to total operating revenues of
$350.0 million for the three months ended June 30, 2020 . We had net income of
$62.0 million , or $1.22 per diluted share, for the three months ended June 30,
2021 , compared to net loss of $25.7 million , or $0.51 per diluted share, for the
three months ended June 30, 2020 . The significant items affecting our revenue
and operating expenses during the three months ended June 30, 2021 are outlined
below:
Revenue
The number of aircraft we have in scheduled service and the number of block hours we incur on our flights are primary drivers to 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 to our revenue under our prorate flying agreements. As a result of higher passenger demand compared to the onset of the COVID-19 pandemic, the number of aircraft we operated increased from 471 as ofJune 30, 2020 to 478 as ofJune 30, 2021 ; the number of block hours increased from 126,026 for the three months endedJune 30, 2020 to 324,045 for the three months endedJune 30, 2021 or by 157.1%; and the number of passengers we carried increased from 1.8 million for the three months endedJune 30, 2020 to 9.3 million or by 416.1%. As a result of increased flight schedules and additional aircraft operating under our capacity purchase agreements for the three months endedJune 30, 2021 , as compared to three months endedJune 30, 2020 , our capacity purchase revenue increased$229.6 million , or 76.5%. Additionally, we deferred recognizing revenue of$5.6 million of fixed monthly payments received under our capacity purchase agreements for the three months endedJune 30, 2021 , compared to$69.1 million for the three months endedJune 30, 2020 , based on completing fewer flights and incurring lower block hours during such periods relative to historical levels and anticipated future levels as further described in the section of this report entitled "Results of Operations". As a result of increased flight schedules and passengers carried on our prorate routes, our prorate revenue increased$67.0 million , or 185.1% for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 .
Operating Expenses
Our total operating expenses increased$187.5 million , or 52.9% for the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . This increase was primarily due to an increase in the number of flights we operated. Departures increased from 80,755 for the three months endedJune 30, 2020 to 185,498 for the three months endedJune 30, 2021 , or by 129.7%. Additionally, during the three months endedJune 30, 2021 we recorded$114.1 million in payroll support grants received from theU.S. Department of the Treasury ("U.S. Treasury ") under the 2021 Appropriations Act and American Rescue Plan Act as an offset to our operating expenses. During the three months endedJune 30, 2020 , we recorded$151.9 million in payroll support grants received fromU.S. Treasury as an offset to our operating expenses. Additional details regarding the decrease in our operating expenses are described in the section of this Report entitled "Results of Operations." 24 Table of Contents Fleet Activity
The following table summarizes our fleet scheduled for service as of:
Aircraft in Service June 30, 2021 December 31, 2020 June 30, 2020 E175s 193 193 189 CRJ900s 40 39 43 CRJ700s 104 90 86 CRJ200s 141 130 153 Total 478 452 471 Critical Accounting Policies Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year endedDecember 31, 2020 , which are presented in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 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, aircraft leases, long-lived assets, self-insurance 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.
Results of Operations
Three Months Ended
Operational Statistics
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 three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , was due to the increase in demand related to the ongoing recovery from the COVID-19 pandemic. However, we completed 215,052 flights and incurred 370,782 block hours during the three months endedJune 30, 2019 , indicating our flight schedules have not returned to pre-COVID-19 levels. For the three months ended June
30,
Block hours by aircraft type: 2021 2020 % Change
E175s 149,226 61,455 142.8 %
CRJ900s 29,713 3,433 765.5 %
CRJ700s 73,380 30,666 139.3 %
CRJ200s 71,726 30,472 135.4 %
Total block hours 324,045 126,026 157.1 %
Departures 185,498 80,755 129.7 %
Passengers carried 9,301,873 1,802,327 416.1 %
Passenger load factor 76.4 % 34.4 % 42.0 pts
Average passenger trip length (miles) 533 487 9.4 %
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Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the three months ended June 30,
2021 2020 $ Change % Change
Flying agreements $ 632,967 $ 336,370 $ 296,597 88.2 %Lease, airport services and other 24,023 13,669 10,354
75.7 % Total operating revenues$ 656,990 $ 350,039 $ 306,951 87.7 % 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. 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.
We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):
For the three months ended June 30,
2021 2020 $ Change % Change
Capacity purchase agreements revenue: flight
operations $ 273,176 $ 132,061 $ 141,115 106.9 %
Capacity purchase agreements revenue: aircraft
lease and fixed revenue 256,559 168,103 88,456 52.6 %
Prorate agreements revenue 103,232 36,206 67,026 185.1 %
Flying agreements revenue $ 632,967 $ 336,370 $ 296,597 88.2 %
The increase in "Capacity purchase agreements revenue: flight operations" of
$141.1 million was primarily due to an increase in scheduled flights we operated
under our contracts with our major airline partners as a result of the ongoing
COVID-19 demand recovery. Our completed departures increased 129.7% and
completed block hours increased 157.1% during the three months ended June 30,
2021 compared to the three months ended June 30, 2020 . The increase was
partially offset by an increase in temporary rate reductions we provided to our
major airline partners under our capacity purchase agreements during the three
months ended June 30, 2021 in response to the COVID-19 demand disruption impact
to our partners.
The increase in "Capacity purchase agreements revenue: aircraft lease and fixed
revenue" of $88.5 million was primarily due to deferring less revenue for the
three months ended June 30, 2021 attributed to the fixed cash payments per
aircraft we received under our capacity purchase agreements compared to the
three months ended June 30, 2020 , combined with aircraft lease and fixed rate
revenue generated from four E175 aircraft added to our fleet since June 30,
2020 . 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 as revenue proportionately to the number of flights we complete, our
performance obligation, for each reporting period. We operated a lower number of
flights during the three months ended June 30, 2021 and 2020 compared to
historical levels due to a reduction in flight schedules resulting from the
COVID-19 pandemic. We anticipate the future number of flights we will complete
over the remaining capacity purchase agreements will significantly increase from
the three months ended June 30, 2021 and 2020 levels. Due to the materially
reduced flight activity during the three months ended June 30, 2021 and 2020,
and based on an anticipated increase in future monthly flight volumes over the
remaining contract terms, we determined the fixed amount per month per aircraft
received during the three months ended June 30, 2021 and 2020 was
disproportionately high relative to the volume of flights operated during the
three months ended June 30, 2021 and 2020. Accordingly, we deferred recognizing
revenue of $5.6 million and $69.1 million of fixed monthly cash payments we
received under our capacity purchase agreements for the three months ended June
30, 2021 and June 30, 2020 , respectively. Our deferred revenue related to the
fixed payments will adjust over the remaining contract term for each capacity
purchase agreement based on the number of flights we complete each reporting
period relative to the number of flights we anticipate completing over the
remaining contract term of each capacity purchase agreement. The deferred
revenue balance applicable to each contract will be recorded as revenue by the
end of each respective contract term. Our total deferred revenue balance was
$137.5 million as of June 30, 2021 .
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The increase in prorate agreements revenue of$67.0 million was primarily due to the increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 due to the ongoing COVID-19 demand recovery. The increase in lease, airport services and other revenues of$10.4 million was primarily due an increase in the number of aircraft leased to third parties from 22 aircraft atJune 30, 2020 to 39 aircraft atJune 30, 2021 and an increase in airport service revenue due to the increase in the number of flights operated at locations where we were contracted to provide airport customer service during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . Operating Expenses
Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):
For the three months ended June 30,
2021 2020 $ Change % Change
Salaries, wages and benefits $ 233,423 $ 170,218 $ 63,205 37.1 %Aircraft maintenance, materials and repairs 190,879 121,289 69,590 57.4 % Depreciation and amortization 109,895 131,638
(21,743) (16.5) % Airport-related expenses 22,038 21,550 488 2.3 % Aircraft fuel 25,867 6,821 19,046 279.2 % Aircraft rentals 15,723 16,697 (974) (5.8) % Payroll support grant (114,144) (151,938) 37,794 (24.9) % Other operating expenses 58,286 38,167 20,119 52.7 % Total operating expenses$ 541,967 $ 354,442 $ 187,525 52.9 % Interest expense 33,940 30,926 3,014 9.7 % Total airline expenses$ 575,907 $ 385,368 $ 190,539 49.4 % Salaries, wages and benefits. The$63.2 million , or 37.1%, increase in salaries, wages and benefits was due to the increase in direct labor costs that resulted from a significantly higher number of flights we operated during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . Aircraft maintenance, materials and repairs. The$69.6 million , or 57.4%, increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs incurred on a portion ofSkyWest Airlines' fleet intended to extend the operational performance and reliability of its older aircraft, including increased engine maintenance expense during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 .
Depreciation and amortization. The
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$0.5 million , or 2.3%, increase in airport-related expenses was primarily due to an increase in our prorate passengers, offset by exiting prorate locations related to the American prorate agreement that was terminated in 2020. Aircraft fuel. The$19.0 million , or 279.2%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements, corresponding increase in gallons of fuel we purchased and an increase in our average fuel cost per gallon from$1.45 for the three months endedJune 30, 2020 to$2.36 for the three 27
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months endedJune 30, 2021 . We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase contracts 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, for the periods indicated:
For the three months ended June 30,
(in thousands) 2021 2020 % Change
Fuel gallons purchased 10,982 4,691 134.1 %
Fuel expense $ 25,867 $ 6,821 279.2 %
Aircraft rentals. The $1.0 million , or 5.8%, decrease in aircraft rentals was
primarily related to a reduction of our fleet size that was financed through
leases from third parties as a result of scheduled lease expirations subsequent
to June 30, 2020 .
Payroll support grant. In April 2021 , we entered into an agreement with U.S.
Treasury and received $250.0 million in emergency relief through the American
Rescue Plan Act payroll support program, of which $205.0 million was in the form
of payroll support grants that are being recognized as a reduction in labor
expense over the periods the grants intended to compensate. Additionally, in
April 2021 , the Company received an additional $35.0 million in proceeds under
the Payroll Support Program Extension Agreement (the "PSP Extension Agreement")
with U.S. Treasury , of which $24.5 million was in the form of payroll support
grants that were recognized as a reduction of labor expense during the period
the grant was intended to compensate. We recognized $114.1 million in payroll
support grant proceeds we received as a reduction to our operating expenses for
the three months ended June 30, 2021 and anticipate recognizing the remaining
$115.4 million of payroll support grants as a reduction to operating expenses
during the three months ended September 30, 2021 . We recognized $151.9 million
in payroll support grant proceeds we received under similar agreements with U.S.
Treasury as a reduction to our operating expenses for the three months ended
June 30, 2020 .
Other operating expenses. Other operating expenses primarily consist of property
taxes, hull and liability insurance, simulator costs, crew per diem, crew hotel
costs and credit loss reserves. The $20.1 million , or 52.7%, increase in other
operating expenses was primarily related to an increase in other operating costs
that correspond to the higher number of flights we operated during the three
months ended June 30, 2021 compared to the three months ended June 30, 2020 ,
such as crew per diem, crew hotel costs and simulator costs.
Interest Expense. The $3.0 million , or 9.7%, increase in interest expense was
primarily related to $3.6 million of deferred loan costs expense attributed to
the payoff and termination of the secured loan agreement with U.S. Treasury
during the three months ended June 30, 2021 .
Total airline expenses. Our total airline expenses, comprised of our total
operating expenses and interest expense, increased $190.5 million , or 49.4%, due
to an increase in direct operating costs attributed to the higher number of
completed flights during the three months ended June 30, 2021 compared to the
three months ended June 30, 2020 and due to the reduction of payroll grant
benefit we recorded during the three months ended June 30, 2021 compared to June
30, 2020 . As our interest expense is primarily attributed to debt associated
with financing aircraft under our capacity purchase agreements and as revenue
earned under our capacity purchase agreements is intended to compensate us for
our aircraft ownership costs, including interest expense, we believe our total
airline expense is meaningful expense measure for management discussion and
analysis purposes.
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Summary of interest income, other income (expense) and provision for income taxes:
Interest income. Interest income decreased$1.5 million , or 87.5%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . The decrease in interest income was primarily related to a decrease in average interest rates attributed to our marketable securities subsequent toJune 30, 2020 .
Other income (expense), net. Other income primarily consisted of income related to our investment in a joint venture with a third party.
Provision (benefit) for income taxes. For the three months endedJune 30, 2021 and 2020, our effective income tax rates were 23.8% and 22.6%, respectively, which include 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 relates to the impact of non-deductible expenses for the three months endedJune 30, 2021 , which had pre-tax income, compared to the non-deductible benefit for the three months endedJune 30, 2020 , which had a pre-tax loss.
Net income. Primarily due to the factors described above, we generated net
income of
Six Months Ended
Operational Statistics
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 endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , was due to the increase in demand related to the ongoing recovery from the COVID-19 pandemic which began to negatively impact our operational statistics in the month ofMarch 2020 . We completed 408,527 flights and incurred 720,171 block hours during the six months endedJune 30, 2019 , indicating our flight schedules have not returned to pre-COVID-19 levels. For the six months ended June
30,
Block hours by aircraft type: 2021 2020 % Change E175s 277,724 194,134 43.1 % CRJ900s 53,719 32,353 66.0 % CRJ700s 136,475 98,740 38.2 % CRJ200s 132,309 158,022 (16.3) % Total block hours 600,227 483,249 24.2 % Departures 340,392 290,038 17.4 % Passengers carried 15,010,462 10,666,833 40.7 % Passenger load factor 67.6 % 58.0 % 9.6 pts
Average passenger trip length (miles) 536 492 8.9
% Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the six months ended June 30,
2021 2020 $ Change % Change
Flying agreements $ 1,144,158 $ 1,045,864 $ 98,294 9.4 %
Lease, airport services and other 47,387 34,111 13,276 38.9 %
Total operating revenues $ 1,191,545 $ 1,079,975 $ 111,570 10.3 %
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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. 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.
We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):
For the six months ended June 30,
2021 2020 $ Change % Change
Capacity purchase agreements revenue:
flight operations $ 484,228 $ 498,469 $ (14,241) (2.9) %
Capacity purchase agreements revenue:
aircraft lease and fixed revenue 488,050 410,838
77,212 18.8 %
Prorate agreements revenue 171,880 136,557 35,323 25.9 %
Flying agreements revenue $ 1,144,158 $ 1,045,864 $ 98,294 9.4 %
The decrease in "Capacity purchase agreements revenue: flight operations" of
$14.2 million was primarily due to an increase in temporary rate reductions we
provided to our major airline partners under our capacity purchase agreements
during the six months ended June 30, 2021 in response to the COVID-19 demand
disruption impact to our partners, offset by an increase in scheduled flights we
operated under our contracts with our major airline partners in 2021 as a result
of the ongoing COVID-19 demand recovery. Our completed departures increased
17.4% and completed block hours increased 24.2% during the six months ended June
30, 2021 compared to the six months ended June 30, 2020 .
The increase in "Capacity purchase agreements revenue: aircraft lease and fixed
revenue" of $77.2 million was primarily due to deferring less revenue for the
six months ended June 30, 2021 attributed to the fixed cash payments per
aircraft we received under our capacity purchase agreements compared to the six
months ended June 30, 2020 , combined with aircraft lease and fixed rate revenue
generated from four E175 aircraft added to our fleet since June 30, 2020 . 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 as
revenue proportionately to the number of flights we complete, our performance
obligation, for each reporting period. We operated a materially lower number of
flights during the six months ended June 30, 2021 and 2020 compared to
historical levels due to a reduction in flight schedules resulting from the
COVID-19 pandemic. We anticipate the future number of flights we will complete
over the remaining capacity purchase agreements will significantly increase from
the six months ended June 30, 2021 and 2020 levels. Due to the materially
reduced flight activity during the six months ended June 30, 2021 and 2020, and
based on an anticipated increase in future monthly flight volumes over the
remaining contract terms, we determined the fixed amount per month per aircraft
received during the six months ended June 30, 2021 and 2020 was
disproportionately high relative to the volume of flights operated during the
six months ended June 30, 2021 and 2020. Accordingly, we deferred recognizing
revenue of $26.8 million and $69.1 million of fixed monthly cash payments we
received under our capacity purchase agreements for the six months ended June
30, 2021 and June 30, 2020 , respectively. Our deferred revenue related to the
fixed payments will adjust over the remaining contract term for each capacity
purchase agreement based on the number of flights we complete each reporting
period relative to the number of flights we anticipate completing over the
remaining contract term of each capacity purchase agreement. The deferred
revenue balance applicable to each contract will be recorded as revenue by the
end of each respective contract term. Our total deferred revenue balance was
$137.5 million as of June 30, 2021 .
The increase in prorate agreements revenue of $35.3 million was primarily due to
the increase in prorate passengers and passenger revenue we received on routes
we operated under our prorate agreements during the six months ended June 30,
2021 compared to the six months ended June 30, 2020 due to the COVID-19 demand
recovery.
The increase in lease, airport services and other revenues of $13.3 million was
primarily due an increase in the number of aircraft leased to third parties from
22 aircraft at June 30, 2020 to 39 aircraft at June 30, 2021 and an increase in
airport service revenue due to the increase in the number of flights operated at
locations where we were contracted to provide airport customer service during
the six months ended June 30, 2021 compared to the six months ended June 30,
2020 .
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Operating Expenses
Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):
For the six months ended June 30,
2021 2020 $ Change % Change
Salaries, wages and benefits $ 453,265 $ 419,379 $ 33,886 8.1 %Aircraft maintenance, materials and repairs 394,706 281,505 113,201 40.2 % Depreciation and amortization 219,492 243,346
(23,854) (9.8) % Airport-related expenses 46,486 52,190 (5,704) (10.9) % Aircraft fuel 45,061 32,234 12,827 39.8 % Aircraft rentals 31,213 33,752 (2,539) (7.5) % Payroll support grant (307,317) (151,938) (155,379) 102.3 % Other operating expenses 112,774 107,589 5,185 4.8 % Total operating expenses$ 995,680 $ 1,018,057 $ (22,377) (2.2) % Interest expense 65,294 61,130 4,164 6.8 % Total airline expenses$ 1,060,974 $ 1,079,187 $ (18,213) (1.7) % Salaries, wages and benefits. The$33.9 million , or 8.1%, increase in salaries, wages and benefits was due to the increase in direct labor costs that resulted from a higher number of flights we operated during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Aircraft maintenance, materials and repairs. The$113.2 million , or 40.2%, increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs incurred on a portion ofSkyWest Airlines' CRJ700 fleet intended to extend the operational performance and reliability of these older aircraft, including increased engine maintenance expense during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 .
Depreciation and amortization. The
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$5.7 million , or 10.9%, decrease in airport-related expenses was primarily due to exiting prorate locations related to the American prorate agreement that was terminated in 2020. Aircraft fuel. The$12.8 million , or 39.8%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and corresponding increase in gallons of fuel we purchased, and an increase in our average fuel cost per gallon from$2.00 for the six months endedJune 30, 2020 to$2.25 for the six months endedJune 30, 2021 . We purchase and incur expense for all fuel on flights operated under our prorate agreements. All fuel costs incurred under our capacity purchase contracts are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements, for the periods indicated: For the six months ended June 30, (in thousands) 2021 2020 % Change Fuel gallons purchased 19,992 16,107 24.1 % Fuel expense$ 45,061 $ 32,234 39.8 % Aircraft rentals. The$2.5 million , or 7.5%, decrease in aircraft rentals was primarily related to a reduction of our fleet size that was financed through leases from third parties as a result of scheduled lease expirations subsequent toJune 30, 2020 . 31 Table of Contents Payroll support grant. InJanuary 2021 , we entered into an agreement withU.S. Treasury and received$233.1 million in emergency relief through the 2021 Appropriations Act payroll support program, of which$193.2 million was in the form of payroll support grants that were recognized as a reduction in labor expense over the periods the grants intended to compensate. Additionally, inApril 2021 , the Company received an additional$35.0 million in proceeds under the PSP Extension Agreement, of which$24.5 million was in the form of payroll support grants that were recognized as a reduction of labor expense during the period the grant was intended to compensate. InApril 2021 , we also entered into an agreement withU.S. Treasury and received$250.0 million in emergency relief through the American Rescue Plan Act payroll support program, of which$205.0 million was in the form of payroll support grants that are being recognized as a reduction in labor expense over the periods the grants intended to compensate. We recognized$307.3 million in payroll support grant proceeds we received as a reduction to our operating expenses for the six months endedJune 30, 2021 , compared to$151.9 million in payroll support grant proceeds we received under similar agreements withU.S. Treasury as a reduction to our operating expenses for the six months endedJune 30, 2020 . Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, crew hotel costs and credit loss reserves. The$5.2 million , or 4.8%, increase in other operating expenses was primarily related to an increase in other operating costs that correspond to the higher number of flights we operated during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , such as crew per diem, crew hotel costs and simulator costs. Interest Expense. The$4.2 million , or 6.8%, increase in interest expense was primarily related to$3.6 million of deferred loan costs expense attributed to the payoff and termination of the secured loan agreement withU.S. Treasury during the six months endedJune 30, 2021 and the additional interest expense associated with four new E175 aircraft added to our fleet subsequent toJune 30, 2020 , which were debt financed. Total airline expenses. Our total airline expenses, comprised of our total operating expenses and interest expense, decreased$18.2 million , or 1.7%, due to the payroll support grant benefit we recorded during the six months endedJune 30, 2021 compared to the benefit recorded for the six months endedJune 30, 2020 , offset by an increase in direct operating costs attributed to the increased number of completed flights during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . As our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and as revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense, we believe our total airline expense is meaningful expense measure for management discussion and analysis purposes.
Summary of interest income, other income (expense) and provision for income taxes:
Interest income. Interest income decreased$3.8 million , or 88.4%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . The decrease in interest income was primarily related to a decrease in average interest rates attributed to our marketable securities subsequent toJune 30, 2020 .
Other income (expense), net. Other income primarily consisted of income related to our investment in a joint venture with a third party.
Provision for income taxes. For the six months endedJune 30, 2021 and 2020, our income tax provision rates were 25.5% and 26.8%, respectively, which include 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 decrease in the effective tax rate primarily relates to a$1.4 million discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the six months endedJune 30, 2020 and a lesser impact related to non-deductible expenses for the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 as a result of higher pretax earnings for the six months endedJune 30, 2021 compared to the same period of 2020.
Net income. Primarily due to the factors described above, we generated net
income of
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Our Business Segments
Three Months Ended
For the three months endedJune 30, 2021 , we had two reportable segments, which were the basis of our internal financial reporting:SkyWest Airlines andSkyWest Leasing . Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker. For the three months ended June 30, (dollar amounts in thousands) 2021 2020 $ Change % Change Operating Revenues:
SkyWest Airlines operating revenue$ 527,595 $ 227,808 $ 299,787 131.6 % SkyWest Leasing operating revenues 129,395 122,231 7,164 5.9 % Total Operating Revenues$ 656,990 $ 350,039 $ 306,951 87.7 % Airline Expenses: SkyWest Airlines airline expense$ 483,407 $ 279,307 $ 204,100 73.1 % SkyWest Leasing airline expense 92,500 106,061 (13,561) (12.8) % Total Airline Expenses (1)$ 575,907 $ 385,368 $ 190,539 49.4 % Segment profit: SkyWest Airlines segment profit$ 44,188 $ (51,499) $ 95,687
NM
SkyWest Leasing profit 36,895 16,170 20,725 128.2 %
Total Segment Profit $ 81,083 $ (35,329) $ 116,412 NM
Interest Income 210 1,685 (1,475) (87.5) %
Other Income, net 80 402 (322) (80.1) %Consolidated Income Before Taxes$ 81,373 $ (33,242) $ 114,615
NM
NM = Not Meaningful
(1) Total Airline Expenses includes operating expense and interest expense
SkyWest Airlines Segment Profit.
SkyWest Airlines block hour production increased to 324,045, or 157.1%, for the three months endedJune 30, 2021 from 126,026 for the three months endedJune 30, 2020 , primarily due to demand recovery from reduced flight schedules in response to the COVID-19 pandemic. Significant items contributing to theSkyWest Airlines segment profit are set forth below.SkyWest Airlines operating revenues increased$299.8 million , or 131.6%, from the three months endedJune 30, 2020 to the three months endedJune 30, 2021 due to increased flight schedules offset by temporary rate reductions under our capacity purchase agreements, increased passenger demand under our prorate agreements, and more flights we handled under our airport service agreements, collectively as a result of the demand recovery from the COVID-19 pandemic.SkyWest Airlines deferred revenue of$5.6 million of payments received under our capacity purchase agreements during the three months endedJune 30, 2021 compared to deferred revenue of$69.1 million recorded during the three months endedJune 30, 2020 .SkyWest Airlines also provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the three months endedJune 30, 2021 and 2020.SkyWest Airlines airline expense increased$204.1 million , or 73.1%, from the three months endedJune 30, 2020 to the three months endedJune 30, 2021 due to the following primary factors:
million, or 37.4%, primarily due to an increase in direct labor costs that
? resulted from a significantly higher number of flights we operated during the
three months endedJune 30, 2021 as a result of the ongoing COVID-19 demand recovery. 33 Table of Contents
by
? costs incurred on a portion of
operational performance and reliability of its older aircraft, including
increased engine maintenance expense for the three months ended
compared to the three months ended
? million, or 10.6%, primarily due to certain CRJ200 aircraft that became fully
depreciated during 2020, partially offset by an increase in depreciation
expense related to the acquisition of used CRJ700 aircraft since
increase in the number of flights we operated under our prorate agreements and
? a corresponding increase in gallons of fuel we purchased and an increase in our
average fuel cost per gallon from
2020 to
? as a reduction to our operating expenses for the three months ended
2021, compared to
2020.
primarily related to an increase in other operating costs that correspond to
? the significantly higher of flights we operated for the three months ended June
30, 2021 compared to the three months ended
diem, crew hotel costs and simulator costs.
SkyWest Leasing Segment Profit.SkyWest Leasing profit increased$20.7 million , or 128.2%, during the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , primarily due to the increase in aircraft leased to third parties and the acquisition of four new E175 aircraft added to our fleet subsequent toJune 30, 2020 .
Six Months Ended
For the six months endedJune 30, 2021 , we had two reportable segments, which were the basis of our internal financial reporting:SkyWest Airlines andSkyWest Leasing . Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker. 34 Table of Contents For the six months ended June 30, (dollar amounts in thousands) 2021 2020 $ Change % Change Operating Revenues: SkyWest Airlines operating revenue$ 934,045 $ 834,650 $ 99,395 11.9 % SkyWest Leasing operating revenues 257,500 245,325 12,175 5.0 % Total Operating Revenues$ 1,191,545 $ 1,079,975 $ 111,570 10.3 % Airline Expenses: SkyWest Airlines airline expense$ 874,406 $ 875,989 $ (1,583) (0.2) % SkyWest Leasing airline expense 186,568 203,198 (16,630) (8.2) % Total Airline Expenses (1)$ 1,060,974 $ 1,079,187 $ (18,213) (1.7) % Segment profit: SkyWest Airlines segment profit$ 59,639 $ (41,339) $ 100,978 NM SkyWest Leasing profit 70,932 42,127 28,805 68.4 % Total Segment Profit$ 130,571 $ 788 $ 129,783 NM Interest Income 494 4,249 (3,755) (88.4) % Other Income, net 296 800
(504) (63.0) %
Consolidated Income Before Taxes
NM = Not Meaningful
(1) Total Airline Expenses includes operating expense and interest expense
SkyWest Airlines Segment Profit.
SkyWest Airlines block hour production increased to 600,227, or 24.2%, for the six months endedJune 30, 2021 from 483,249 for the six months endedJune 30, 2020 , primarily due to demand recovery from reduced flight schedules in response to the COVID-19 pandemic. Significant items contributing to theSkyWest Airlines segment profit are set forth below.SkyWest Airlines operating revenues increased$99.4 million , or 11.9%, from the six months endedJune 30, 2020 to the six months endedJune 30, 2021 due to increased flight schedules offset by temporary rate reductions under our capacity purchase agreements, increased passenger demand under our prorate agreements, and more flights we handled under our airport service agreements, collectively as a result of the demand recovery from the COVID-19 pandemic.SkyWest Airlines deferred revenue of$26.8 million of payments received under our capacity purchase agreements during the six months endedJune 30, 2021 compared to deferred revenue of$69.1 million recorded during the six months endedJune 30, 2020 .SkyWest Airlines also provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the six months endedJune 30, 2021 and three months endedJune 30, 2020 .
million, or 8.2%, primarily due to an increase in direct labor costs that
? resulted from a significantly higher number of flights we operated during the
six months ended
recovery.
by
? costs incurred on a portion of
extend the operational performance and reliability of these older aircraft,
including increased engine maintenance expense for the six months ended June
30, 2021 compared to the six months endedJune 30, 2020 . 35 Table of Contents
? million, or 6.9%, primarily due to certain CRJ200 aircraft that became fully
depreciated during 2020, partially offset by an increase in depreciation
expense related to the acquisition of used CRJ700 aircraft since
increase in the number of flights we operated under our prorate agreements and
? a corresponding increase in gallons of fuel we purchased and an increase in our
average fuel cost per gallon from
to
? as a reduction to our operating expenses for the six months ended
2021, compared to
2020.
primarily related to an increase in other operating costs that correspond to
? the higher number of flights we operated for the six months ended
compared to the six months ended
hotel costs and simulator costs.
SkyWest Leasing Segment Profit.SkyWest Leasing profit increased$28.8 million , or 68.4%, during the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 , primarily due to the increase in aircraft leased to third parties and the acquisition of four new E175 aircraft added to our fleet subsequent toJune 30, 2020 .
Liquidity and Capital Resources
As ofJune 30, 2021 , we had$955.7 million in cash and cash equivalents and marketable securities. As ofJune 30, 2021 , we had$41.0 million available for borrowings under our line of credit. Given our available liquidity as ofJune 30, 2021 and given the measures we have implemented to reduce the impact of the COVID-19 pandemic on our financial position and operations, we believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments, debt service obligations for at least the next 12 months. Our total of cash and marketable securities increased from$825.9 million asDecember 31, 2020 to$955.7 million as ofJune 30, 2021 , or by$129.8 million . Our total long-term debt, including current maturities decreased from$3,203.7 million as ofDecember 31, 2020 to$3,013.2 million as ofJune 30, 2021 , or by$190.5 million . Thus, our total long-term debt, net of cash and marketable securities, decreased from$2,377.8 million as ofDecember 31, 2020 to$2,057.5 million as ofJune 30, 2021 , or$320.3 million . AtJune 30, 2021 , our total capital mix was 45.9% equity and 54.1% long-term debt, compared to 43.3% equity and 56.7% long-term debt atDecember 31, 2020 . As ofJune 30, 2021 andDecember 31, 2020 , we had$59.5 million and$61.1 million , respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as ofJune 30, 2021 andDecember 31, 2020 .
Sources and Uses of Cash
Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the six months endedJune 30, 2021 and 2020, and our total cash and marketable securities positions as ofJune 30, 2021 andDecember 31, 2020 (in thousands): For
the six months ended
2021 2020 $ Change % Change
Net cash provided by operating
activities $ 498,688 $ 492,283 $ 6,405 1.3 %
Net cash used in investing
activities (182,381) (70,623) (111,758) 158.2 %
Net cash used in financing
activities (186,176) (56,619) (129,557) 228.8 %
36
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June 30, December 31,
2021 2020 $ Change % Change
Cash and cash equivalents $ 345,854 $ 215,723 $ 130,131 60.3 %
Marketable securities 609,821 610,185 (364) (0.1) %
Total $ 955,675 $ 825,908 $ 129,767 15.7 %
Cash Flows provided by Operating Activities
Our cash flows provided by operating activities was$498.7 million for the six months endedJune 30, 2021 , compared to$492.3 million for the six months endedJune 30, 2020 . Our operating cash flows are typically impacted by various factors including our net income, adjusted for non-cash expenses and gains such as depreciation expense, stock-based compensation expense, and gains or losses on the disposal of assets; and timing of cash payments and cash receipts attributed to our various current asset and liability accounts, such as accounts receivable, inventory, accounts payable, accrued liabilities, deferred revenue and deferred payroll support grant proceeds. The increase in our cash flow from operations for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 was primarily due an increase in net income from$4.3 million for the six months endedJune 30, 2020 to$97.9 million for the six months endedJune 30, 2021 offset by changes in depreciation expense, deferred revenue, and current asset and liability accounts, primarily due to the timing of cash payments and cash receipts related to our current assets and liabilities for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Operating cash flows for the six months endedJune 30, 2021 and 2020 also included the benefit from the payroll support grant of$307.3 million and$151.9 million , respectively, partially offset by temporary rate reductions provided to our major airline partners during the six months endedJune 30, 2021 andJune 30, 2020 .
Cash Flows used in Investing Activities
Our cash flows used in investing activities was$182.4 million for the six months endedJune 30, 2021 , compared to cash flows used in investing activities of$70.6 million for the six months endedJune 30, 2020 . Our investing cash flows are typically impacted by various factors including our capital expenditures, including the acquisition aircraft and spare engines; deposit payments and receipts on new aircraft; purchase and sales of marketable securities; proceeds from the sale of assets; and timing of cash payments and cash receipts attributed to our various long-term asset and long-term liability accounts. The increase in our cash flow used in investing activities for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 was primarily due to a decrease in cash provided by sales of marketable securities, net of purchases of marketable securities, of$0.4 million for the six months endedJune 30, 2021 from$123.5 million for the six months endedJune 30, 2020 , an increase in deposits on aircraft from$0.6 million for the six months endedJune 30 2020 to$58.3 million for the six months endedJune 30, 2021 , and an increase in our long-term assets resulting from timing of payments received from our major airline partners attributed to our long-term receivables. In 2020, we amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximately six-month period during 2020. Concurrently, we suspended required aircraft ownership payments due to us from our major airline partners under our capacity purchase agreements during the same period. We anticipate collecting these payments from our major airline partners over the remaining contract terms.
Cash Flows used in Financing Activities
Our cash flows used in financing activities was$186.2 million for the six months endedJune 30, 2021 , compared to cash used in financing activities of$56.6 million for the six months endedJune 30, 2020 . Our financing cash flows are typically impacted by various factors including proceeds from issuance of debt, principal payments on debt obligations, repurchases of our common stock and payment of cash dividends. The$129.6 million increase in cash used in financing activities for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 was primarily due to an increase of$166.6 million in principal payments on long-term debt primarily due the additional E175 aircraft acquired subsequent toJune 30, 2021 and repayment of the$60 million U.S. Treasury secured loan. The increase was offset by a reduction in cash used to 37
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purchase treasury stock and payment of dividends by
Significant Commitments and Obligations
General
See Note 7, "Leases, Commitments and Contingencies," to the condensed consolidated financial statements for our commitments and obligations for each of the next five years and thereafter.
Purchase Commitments and Options
As ofJune 30, 2021 , we had a firm purchase commitment for 29 new E175 aircraft from Embraer with delivery dates anticipated into the first half of 2023. We also have a firm purchase commitment to purchase eight used CRJ700 aircraft with anticipated delivery dates through 2021. At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select one or more of these methods to fund the acquisition. In recent years, we have issued long-term debt to finance our new aircraft. At present, we intend to fund our aircraft purchase commitments through cash on hand and debt financing. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft. We intend to finance the firm purchase commitment for 29 E175 aircraft with approximately 80-85% debt and the remaining balance with cash. We intend to fund the purchase of the eight used CRJ700 aircraft through cash on hand.
Long-term Debt Obligations
As ofJune 30, 2021 , we had$2.8 billion of long-term debt obligations related to the acquisition of aircraft and certain spare engines. The average effective interest rate on those long-term debt obligations was approximately 4.0% atJune 30, 2021 . We also had$200.6 million of long-term debt obligations under the Payroll Support Program Agreement, PSP Extension Agreement, and Payroll Support Program 3 Agreement withU.S. Treasury . Under our capacity purchase agreements, the major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis. The aircraft compensation structure varies by agreement, but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft
is under contract. Guarantees We have guaranteed the obligations ofSkyWest Airlines under the United Express Agreement and the Delta Connection Agreement for the E175 aircraft. In addition, we have guaranteed certain other obligations underSkyWest Airlines' aircraft financing and leasing agreements.
Seasonality
Our results of operations for any interim period are not necessarily indicative
of those for an entire year, since the airline industry is subject to seasonal
fluctuations and general economic conditions. Our operations are somewhat
favorably affected by increased travel on our prorate routes, historically
occurring during the summer months, and unfavorably affected by decreased travel
during the months November through February and by inclement weather, which may
occasionally or frequently, depending on the severity of the inclement weather
in any given winter, result in cancelled flights during the winter months. The
COVID-19 pandemic is anticipated to continue to negatively impact our summer
schedule compared to 2019 schedules (pre-COVID period). The magnitude of the
impact will depend on various factors including passenger demand and the related
flight schedules we are requested to operate by our major airline partners under
our capacity purchase agreements.
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