SkyWest: Airline Expects Further Growth as Travel This Year Could Exceed pre-Pandemic Levels

SkyWest (NASDAQ: SKYW) provides commercial airline services in the United States, Canada, Mexico and the Caribbean. The company also leases aircraft. In general, SkyWest offers regional flights and tends to use smaller, less expensive aircraft. SkyWest also partners with airlines to fly aircraft for a fee. SkyWest can use the airlines' brand and ground support to coordinate marketing and transport passengers.

Passenger numbers approach pre-corona levels
SkyWest Airlines operates a fleet of approximately 500 aircraft flying to more than 240 destinations in North America. The company has partnerships with other airlines such as American Airlines, Delta, Alaska Air Group and United Airlines. SkyWest is poised to capitalize on the expected growth in the airline industry. Airlines are expected to achieve record revenue in 2024. Total industry revenue is expected to increase by 7.6% to $964 billion in 2024. The number of air travelers is expected to reach 4.7 billion people in 2024, which would be above the pre-pandemic level of 4.5 billion in 2019. The industry's passenger revenue is expected to increase by 12% to $717 billion in 2024. SkyWest is well positioned for this with its flight services and leasing offers.

The company aims to further expand its business through strategic investments
SkyWest recently purchased 25% of Contour Airlines to support SkyWest's expansion and meet current and future demand. According to sources, the motive for the acquisition is not the investment value of the stake or the intention to pursue a merger, but rather the intention to do certain business with Contour: For example, to acquire pilots. The investment is thus a strategic move that opens up a new pipeline for SkyWest's pilot offering and allows the company to further market its Bombardier CRJ200 aircraft and engines in underserved communities. SkyWest is experiencing strong demand for the sale and lease of these assets. The company sold $15 million worth of CRJ aircraft in 2023.

The outlook for 2024 is good
SkyWest is experiencing strong demand for its services and is expected to continue to grow. The strong demand is reflected in the fact that SkyWest increased the number of flight contracts by 11% in Q4 2023 compared to Q4 2022. Flight contracts account for approximately 97% of SkyWest's total operating revenue. The company's investment in Contour will help meet the demand of smaller communities and enable the deployment of SkyWest's previously unutilized CRJ200 assets. The company is expected to recognize $50 million to $70 million in deferred revenue in 2024. This is 15-21% of SkyWest's expected total revenue of $3.33 billion for 2024.

Conclusion: In summary, the improving macro elements in terms of overall passenger numbers, SkyWest's strong execution on demand (sourcing pilots and partnerships) and its deal with Contour seem to make for an interesting strategy. However, in a highly competitive industry, SkyWest has been able to sustain its position and set the stage for further growth. However, with a P/E ratio of 76, the share is not cheap.

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