SkyWest sees improvements from cost saving measures in Q2

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St. George, Utah-based SkyWest Inc. president Bradford Rich says the company's programmes to enhance revenue and reduce costs are proving effective.

The holding company for SkyWest Airlines and ExpressJet expects to generate positive cash flow for the remainder of 2012, Rich says.

"I think probably of most significance in these results is that we really believe that it's indicative that the aggressive return to profitability program and initiatives that we have been executing at the company are in fact working," he says, adding that the company still remains focused on creating additional savings in coming quarters.

The carrier set out to implement the cost reduction plan after incurring higher than expected integration costs from acquiring ExpressJet, which were largely attributed to pilot shortages. In 2011, the carrier posted a $27.3 million loss for the year-- its first annual loss in 23 years. However, the company posted a net income of $17 million net income in the second quarter.

A large contributor to SkyWest Inc.'s cost savings program is that the company has decreased engine and airframe maintenance costs for its regional carriers SkyWest Airlines and ExpressJet by approximately $3.7 million in the second quarter of 2012 compared the second quarter of 2011, driven in part by a reduction in engine maintenance for the Bombardier CRJ200 it operates for United Express.

SkyWest says it saw fewer engine overhauls for the General Electric CF34-3B engines powering the United Express Bombardier CRJ200 aircraft in the second quarter, which decreased its engine maintenance expenses for this particular fleet by $1.6 million between the second quarter of 2012 and the second quarter of 2011.

SkyWest spent $13.8 million for these engine overhauls in the second quarter, compared to $15.5 million in the same period in 2011.

Mike Kraupp, chief financial officer and treasurer of SkyWest Inc., says that by the end of 2012 the company will have finished a three-year overhaul cycle on this engine fleet. He says the airline should be finished with the cycle by the end of the year and does not plan for further engine overhauls on the United Express Bombardier CRJ200s before the aircraft leases expire. The company operates about 75 aircraft in the United Express fleet with these engines.

Kraupp says that in the first quarter of 2012, SkyWest saw 11 engine overhauls for the United Express aircraft, followed by nine overhauls in the second quarter. He expects that the aircraft will see a need for about 17 engine overhauls in the back half of the year for the United Express fleet, depending on utilisation.

SkyWest Inc. was reimbursed approximately $10.2 million for engine overhaul expenses under its United Express agreements in the second quarter of 2012 compared to $9.6 million in Q2 2011.

SkyWest Inc. saw an approximate $9.3 million reduction in total engine overhaul costs when comparing the second quarter of 2012 to the same period in 2011, which includes the United Express cost savings as well as engine overhaul maintenance costs for other partners, such as Delta. Its total maintenance expenses declined from $176 million in the second quarter of 2011 to $167 million in the same period of 2012.

In addition to reducing engine and airframe maintenance costs, SkyWest, Inc. has seen an estimated $2.5 million improvement in its pro-rate flying operations in the second quarter compared to the same period in 2011. About 6% of SkyWest Inc's total block hours fall under the pro-rated category, said Rich. SkyWest also reduced crew costs by about $10 million and gained approximately $7 million in revenues from on-time performance and higher completion factors between the second quarter of 2012 and the second quarter of 2011.