SKYW · Read the filing

ITEM 1A. RISK FACTORS

In addition to factors discussed elsewhere in this Report, the following are important risks which could adversely affect our future results. Additional risks and uncertainties not presently known to us or that we currently do not deem material may also impair our business operations. If any of the risks we describe below occur, or if any unforeseen risk develops, our operating results may suffer, our financial condition may deteriorate, the trading price of our common stock may decline and investors could lose all or part of their investment in us.

Risks That May Disrupt Our Operations

The outbreak and global spread of COVID-19 has resulted in a severe decline in demand for air travel which has adversely impacted our and our major airline partners’ business, operating results, financial condition and liquidity. The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on our and our major airline partners’ business, operating results, financial condition and liquidity.

In March 2020, the World Health Organization declared COVID-19 a global health pandemic. COVID-19 is present in nearly all regions around the world and has resulted in travel restrictions and business slowdowns or shutdowns in affected areas. As a result, the United States government implemented various domestic and international travel advisories and has also implemented enhanced screenings, mandatory quarantine requirements and other travel restrictions in connection with the COVID-19 pandemic. Many foreign and U.S. state governments have instituted similar measures and declared states of emergency.

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The COVID-19 outbreak, along with the measures governments and private organizations worldwide have implemented in an attempt to contain the spread of this pandemic, has resulted in a severe decline in demand for air travel, which has adversely affected our and our major airline partners’ business, operations and financial condition to an unprecedented extent. Measures ranging from travel restrictions, “shelter in place” and quarantine orders, limitations on public gatherings to cancellation of public events have resulted in a precipitous decline in demand for both domestic and international business and leisure travel. In response to this material decrease in demand, our major airline partners, upon whom we depend to contract with us and to set our flight schedules, have drastically reduced their capacity in 2020 compared to 2019. We in turn have significantly reduced our capacity. We also anticipate schedule reductions below our 2019 flight levels will likely continue in 2021 and may continue thereafter. We will continue to work with our major airline partners regarding future schedules and make further demand-driven adjustments to our capacity as needed. The duration and severity of the COVID-19 pandemic remain uncertain, and there can be no assurance that these actions will suffice to sustain our business and operations through this pandemic.

During 2020, the COVID-19 pandemic had a negative impact on our revenues. Our total revenue decreased from $2,972.0 million for the year ended December 31, 2019 to $2,127.1 million for the year ended December 31, 2020, or 28.4%. Our total block hours on flights we operated decreased from 1.46 million for the year ended December 31, 2019 to 0.97 million for the year ended December 31, 2020, or 33.5%. Our prorate revenue, which is derived from passenger fares on flights we operate under our prorate agreements, decreased from $521.0 million for the year ended December 31, 2019 to $268.9 million for the year ended December 31, 2020, or 48.4%. The number of aircraft operating under our prorate agreements decreased from 67 aircraft as of December 31, 2019 to 60 aircraft as of December 31, 2020, or 10.4%. The negative impact to our revenues due to the COVID-19 pandemic and its associated effects on the travel industry is anticipated to continue into 2021 and potentially thereafter. Due to the materially reduced flight activity during 2020 from historical levels and based on anticipated increases in future monthly flight volumes over the remaining capacity purchase agreements term, we determined the fixed monthly cash payments per aircraft we received during 2020 was disproportionately high relative to the number of flights we operated during 2020. Accordingly, we deferred recognizing revenue of $110.7 million of fixed monthly cash payments we received under our capacity purchase agreements during 2020. 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. Additionally, the majority of our capacity purchase agreements set forth an expectation of minimum levels of flight operations which our major airline partners are expected to schedule for our operations and we are expected to provide. These minimum flight operating levels are intended to provide a baseline expectation for aircraft utilization, which allows us to plan for labor requirements, maintenance facilities and related flight operations support. Historically, our major airline partners have scheduled our aircraft utilization which meet or exceed the minimum levels set forth in our code-share agreements; however, the COVID-19 pandemic has caused multiple of our major airline partners to reduce our utilization below the minimum expected levels for portions of 2020. In the event our fleet utilization does not return to pre-COVID levels, we may not be able to maintain operating efficiencies previously obtained, which would negatively impact our operating results and financial condition.

On April 23, 2020, SkyWest Airlines entered into a Payroll Support Program Agreement with Treasury that provides certain payroll support relief payments under the CARES Act, under which we received $450.7 million through December 31, 2020. Additionally, on January 15, 2021 SkyWest Airlines entered into a Payroll Support Program Extension Agreement with Treasury under the Consolidated Appropriations Act, 2021 (the “2021 Appropriations Act”) that provides similar payroll support relief payments, under which SkyWest Airlines expects to receive approximately $233.1 million, of which SkyWest Airlines received $116.5 in January 2021 and expects to receive the remaining balance in February 2021. Of the combined $683.8 million expected to be received under the Payroll Support Program Agreement and Payroll Support Program Extension Agreement, approximately $145.1 million was in the form of a ten-year unsecured term loan. The payroll support programs include certain restrictions, including requirements to maintain certain levels of scheduled service, restrictions on the payment of dividends and the repurchase of our common stock through October 1, 2022, and certain limitations on executive compensation. There is no assurance that we will receive additional payroll support from Treasury.

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Additionally, during 2020 SkyWest Airlines entered into a secured loan and guarantee agreement with Treasury (the “Treasury Loan Agreement”), which permits us to borrow up to $725 million under a five-year term. We have through May 28, 2021 to increase our borrowings under the Treasury Loan Agreement up to the permissible amount. As of December 31, 2020, we borrowed $60 million under the Treasury Loan Agreement. The Treasury Loan Agreement, includes certain restrictions, including on the payment of dividends, repurchase of our common stock and executive compensation for a twelve-month period following repayment of the loan in full. The Treasury Loan Agreement is secured by certain aircraft and spare aircraft parts and is subject to periodical appraisals and loan-to-value ratios. The substance and duration of these restrictions may have materially negative affect our operations and financial results. We lose our ability to draw additional amounts under the Treasury Loan Agreement after May 28, 2021. In the event we repay the full amount outstanding under the Treasury Loan Agreement, the Treasury Loan Agreement will terminate.

We may also take additional actions to improve our financial position, including measures to improve liquidity, such as drawing down on SkyWest Airlines’ line of credit, the issuance of secured debt securities, and/or the entry into other debt facilities. There can be no assurance as to the timing of any such drawdown or issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all. Any such actions could be conducted in the near term, may be material in nature and could result in significant additional borrowing. Measures to improve liquidity or other strategic actions that we may take in the future in response to COVID-19 may not be effective in offsetting decreased demand, and we will not be permitted to take certain strategic actions as a result of the CARES Act and the Payroll Support Program Extension Agreement, which could result in a material adverse effect on our business, operating results and financial condition.

The full extent of the ongoing impact of COVID-19 on our longer-term operational and financial performance will depend on future developments, many of which are outside of our control, including the effectiveness of the mitigation strategies discussed above, the duration and spread of COVID-19 and related travel advisories and restrictions, the impact of COVID-19 on overall long-term demand for air travel, the impact of COVID-19 on our financial health and operations and that of our major airline partners, and future governmental actions, all of which are highly uncertain and cannot be predicted. The COVID-19 pandemic has had a material impact, and the continuation of reduced demand could have a material adverse effect, on our business, operating results, financial condition and liquidity.

In addition, a further outbreak of COVID-19, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior or travel restrictions could have a material adverse impact on our business, financial condition and operating results and those of our major airline partners. Outbreaks of other diseases could also result in increased government restrictions and regulation, such as those actions described above or otherwise, which could adversely affect our operations.

Various negative economic or industry conditions may result in reductions to our flight schedules, which could materially and adversely affect our operations and financial condition.

Our operations and financial condition are affected by many changing economic and other conditions beyond our control, including, among others:

● disruptions in the credit markets, which may impact availability of financing;

● actual or potential disruptions to U.S. air traffic control systems;

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● outbreaks of diseases and other illnesses that affect travel behavior; and

● weather and natural disasters.

The effect of any, or some combination, of the foregoing economic and industry conditions on our operations or financial condition is virtually impossible to forecast; however, the occurrence of any or all of such conditions in a significant manner could materially and adversely affect our operations and financial condition and could cause our major airline partners to reduce the utilization levels of our aircraft under our code-share agreements.

Interruptions or disruptions in service at one of our hub airports, due to weather, system malfunctions or for any other reason, could have a material adverse impact on our operations.

We currently operate primarily through hubs supporting our major airline partners’ route network across the United States. Nearly all of our flights either originate from or fly into one of these hubs. Our revenues depend primarily on our completion of flights and secondarily on service factors such as timeliness of departure and arrival. Any interruptions or disruptions could, therefore, severely and adversely affect us. Extreme weather such as hurricanes or tornados can cause flight disruptions, and, during periods of storms or adverse weather, our flights may be canceled or significantly delayed. We operate a significant number of flights to and from airports with particular weather difficulties, including Chicago, Denver, Salt Lake City and San Francisco. A significant interruption or disruption in service at one of our hubs, due to adverse weather, system malfunctions, airport construction, security closures or otherwise, could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a severe adverse impact on our operations and financial performance.

The occurrence of an aviation accident involving our aircraft would negatively impact our operations and financial condition.

An accident or incident involving one of our aircraft could result in significant potential claims of injured passengers and others, as well as repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. In the event of an accident, our liability insurance may not be adequate to offset our exposure to potential claims and we may be forced to bear substantial losses from the accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our operational and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that our operations are less safe or reliable than other airlines and could affect our relationships with our major airline partners.

We may experience disruption in service with key third-party service providers.

We rely on third party vendors for a variety of services and functions critical to our business, including airframe and engine maintenance, ground handling, fueling, computer reservation system hosting, telecommunication systems and information technology infrastructure and services.

Even though we strive to formalize agreements with these vendors that define expected service levels, our use of outside vendors increases our exposure to several risks. In the event that one or more vendors goes into bankruptcy, ceases operation or fails to perform as promised, replacement services may not be readily available at competitive rates, or at all. If one of our vendors fails to perform adequately, we may experience increased costs, delays, maintenance issues, safety issues or negative public perception of our airline. Vendor bankruptcies, unionization, regulatory compliance issues or significant changes in the competitive marketplace among suppliers could adversely affect vendor services or force us to renegotiate existing agreements on less favorable terms. These events could result in disruptions in our operations or increases in our cost structure.

We are subject to significant governmental regulation and potential regulatory changes.

All interstate air carriers, including SkyWest, are subject to regulation by the DOT, the FAA and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight,

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maintenance or operation activities; recordkeeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations. We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. A decision by the FAA to ground, or require time-consuming inspections of or maintenance on, all or any of our aircraft for any reason may have a material adverse effect on our operations. In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, such as our aircraft, at such airports. The imposition of any limits on the use of our aircraft at any airport at which we operate could have a material adverse effect on our operations.

We cannot predict the impact, of potential regulatory changes that may affect our business or the airline industry as whole including the potential impact of tariffs on aircraft deliveries. However, it is possible that these changes could adversely affect our business. Our business may be subject to additional costs or loss of government subsidies as a result of potential regulatory changes, which could have an adverse effect on our operations and financial results.

Terrorist activities or warnings have dramatically impacted the airline industry, and will likely continue to do so.

The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the airline industry in general, including our operations. The primary effects experienced by the airline industry include a substantial loss of passenger traffic and revenue. If additional terrorist attacks are launched against the airline industry, there will be lasting consequences of the attacks, which may include loss of life, property damage, increased security and insurance costs, increased concerns about future terrorist attacks, increased government regulation and airport delays due to heightened security. Additional terrorist attacks and the fear of such attacks could negatively impact the airline industry, and result in further decreased passenger traffic and yields, increased flight delays or cancellations associated with new government mandates, as well as increased security, fuel and other costs. We cannot provide any assurance that these events will not harm the airline industry generally or our operations or financial condition in particular.

Risks Related to Our Code-Share Agreements With Our Major Airline Partners

Our business model is dependent on code-share agreements with four major airline partners.

Our business model depends on major airlines electing to contract with us instead of operating their own regional jets. Some regional airlines are owned by a major airline. We have no guarantee that in the future our major airline partners will choose to enter into contracts with us instead of operating their own regional jets or acquiring a regional airline. Our major airline partners are not prohibited from doing so under our code-share agreements. A decision by any of our major airline partners to phase out code-share relationships and instead acquire and operate their own regional jets or regional airline could have a material adverse effect on our financial results. Additionally, our major airline partners may be limited in the number of regional aircraft they can operate in their network due to aircraft scope limitations they have with their labor groups. Scope limitations could limit our ability to increase the number of aircraft operating under our code-share agreements.

As of December 31, 2020, 355 out of our total 452 aircraft in scheduled service were operating under a capacity purchase arrangement or a prorate agreement with either Delta or United. If our code-share relationship with Delta or United were terminated, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss. A termination of either of these relationships would likely have a material adverse effect on our financial condition, operating revenues and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of the affected aircraft by other code-share partners, or, alternatively, obtain the airport facilities and gates and make the other arrangements necessary to fly as an independent airline. We may not be able to enter into substitute code-share arrangements, and any such arrangements we might secure may not be as favorable to us as our current agreements. Operating an airline independent from major airline partners would be a significant departure from our business plan and would likely require significant time and resources, and may not be a viable alternative.

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Additionally, each of our agreements with our major airline partners is subject to certain early termination provisions, including uncured material performance breaches. We also currently use the systems, facilities and services of our major airline partners to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing and ground handling services. If our major airline partners ceased to maintain any of these systems, close any of these facilities or no longer provide these services to us, due to termination of one of our code-share agreements, a strike or other labor interruption by personnel working for our major airline partners or for any other reason, we may not be able to obtain alternative systems, facilities or services on terms and conditions as favorable as those we currently receive, or at all. Since our revenues and operating profits are dependent on our level of flight operations, we could then be forced to significantly reduce our operations. Furthermore, upon certain terminations of our code-share agreements, our major airline partners could require us to sell or assign to them certain airport related facilities, we use in connection with the code-share services we provide. As a result, in order to offer airline service after termination of any of our code-share agreements, we may have to replace these facilities. We may be unable to arrange such replacements on satisfactory terms, or at all.

Our growth may be limited with our major airline partners' flight systems.

Additional growth opportunities within our major airline partners’ flight systems are limited by various factors, including a limited number of regional aircraft each such major airline partner can operate in its regional network due to its own labor agreements. Except as contemplated by our existing code-share agreements, we cannot be sure that our major airline partners will contract with us to fly any additional aircraft. We may not receive additional growth opportunities, or we may agree to modifications to our code-share agreements that reduce certain benefits to us in order to obtain additional aircraft, or for other reasons. Given the competitive nature of the airline industry, we believe limited growth opportunities may result in competitors accepting reduced margins and less favorable contract terms in order to secure new or additional code-share operations. Even if we are offered growth opportunities by our major airline partners, those opportunities may involve economic terms or financing commitments that are unacceptable to us. Additionally, our major airline partners may reduce the number of regional jets in their system by not renewing or extending existing flying arrangements with regional operators. Any one or more of these factors may reduce or eliminate our ability to expand our flight operations with our existing major airline partners.

There are long-term risks related to supply and demand of regional aircraft associated with our regional airline services strategy.

Various factors could change our major airline partners’ long-term strategy in using regional aircraft to support their network objectives. Such changes could result in a reduction in the number of regional aircraft our major airline partners operate in the future. If our major airline partners’ future strategies include a material reduction in regional aircraft generally or for specific aircraft types, such as 50-seat regional aircraft, the resulting decrease in demand in the aircraft we operate could have a material negative impact on our business and financial condition.

Due, in part, to the dynamic nature of the airline industry, major airlines may also make other strategic changes such as changing or consolidating hub locations. If our major airline partners were to make changes such as these in their strategy and operations, our operations and financial results could be adversely impacted.

Our prorate arrangements with our major airline partners are terminable upon notice of 120 days or less.

Our prorate flying agreements with our major airline partners permit the major airline partner to terminate the agreement in its discretion by giving us notice of 120 days or less. If one of our major airline partners elects to terminate a flying agreement with notice of 120 days or less, our ability to use the aircraft under an alternative agreement with similar economics may be limited, which could negatively impact our financial results. Additionally, even if we can subsequently place the aircraft into service with a different major airline partner, of which there can be no assurance, we likely would incur inefficiencies and incremental costs, such as changing the aircraft livery, during the transition period, which would negatively impact our financial results.

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Disagreements regarding the interpretation of our code-share agreements with our major airline partners could have an adverse effect on our operating results and financial condition.

Long-term contractual agreements, such as our code-share agreements, are subject to interpretation and disputes may arise under such agreements if the parties to an agreement apply different interpretations to that agreement. Those disputes may divert management time and resources from the core operation of the business, and may result in litigation, arbitration or other forms of dispute resolution.

In recent years we have experienced disagreements with our major airline partners regarding the interpretation of various provisions of our code-share agreements. Some of those disagreements have resulted in litigation, and we may be subject to additional disputes and litigation in the future. To the extent that we experience disagreements regarding the interpretation of our code-share or other agreements, we will likely expend valuable management time and financial resources in our efforts to resolve those disagreements. Those disagreements may result in litigation, arbitration, settlement negotiations or other proceedings. Furthermore, there can be no assurance that any or all of those proceedings, if commenced, would be resolved in our favor. An unfavorable result in any such proceeding could have adverse financial consequences or require us to modify our operations. Such disagreements and their consequences could have an adverse effect on our operating results and financial condition.

The airline industry is highly competitive and has undergone a period of consolidation and transition leaving fewer potential code-share partners.

The airline industry is highly competitive. We compete with other regional airlines on various factors including, but not limited to, labor resources, including pilots and mechanics; low operating costs; financial resources, including the ability to finance aircraft at competitive terms; geographical infrastructure; and overall customer service levels relating to on-time arrival and flight completion percentages. Our major airline partners rely on us to fly passengers from various locations into their hubs under our code-share agreements at competitive terms. We not only compete with other regional airlines, some of which are owned by or operated as code-share partners of major airlines, but we also indirectly face competition from low-cost carriers, such as Southwest, Allegiant, Spirit and JetBlue among others, who compete with our major airline partners on many routes we operate. Certain of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The inability to remain competitive on the various factors valued by our major airline partners could adversely affect our operating results and financial condition.

The airline industry has undergone substantial consolidation in recent years, including the mergers between Alaska and Virgin America Inc. in 2016, American and US Airways Group Inc. in 2013, Southwest Airlines Co. and AirTran Holdings, Inc. in 2011, United and Continental Airlines, Inc. in 2010 and Delta and Northwest Airlines, Inc. in 2008. Any additional consolidation or significant alliance activity within the airline industry could limit the number of potential partners with whom we could enter into code-share relationships and could have a material adverse effect on our relationships with our major airline partners.

Risks Related to Our Operating Costs and Personnel

Increases in labor costs, including pilot costs, maintenance costs and overhead costs may result in lower operating margins under our capacity purchase contracts.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel. Labor costs constitute a significant percentage of our total operating costs. Increases in our labor costs could result in a material reduction in our earnings. For example, during the year ended December 31, 2019 and 2020, our salary, wage and benefit costs constituted approximately 40.7% and 40.9% of our total operating costs, respectively. Currently, we believe our labor costs are competitive relative to other regional airlines. However, we cannot provide assurance that our labor costs going forward will remain competitive because of changes in supply and demand for labor in the regional industry. We compete against other airlines and businesses for labor in many highly skilled positions. If we are unable to hire, train and retain qualified employees at a reasonable cost, sustain employee engagement in our strategic vision, or if we are unsuccessful at implementing succession plans for our key staff, we may be unable to grow

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or sustain our business. Attrition beyond normal levels could negatively impact our operating results, increase our training and labor costs and our business prospects could be harmed.

Additionally, under our capacity purchase contracts with Delta, United, American and Alaska, a portion of our compensation is based upon pre-determined rates typically applied to production statistics (such as departures, block hours, flight hours and number of aircraft in service each month). The primary operating costs intended to be compensated by the pre-determined rates include labor costs, including crew training costs, certain aircraft maintenance expenses, and overhead costs. During the year ended December 31, 2020, approximately 89.0% of our code-share operating costs were reimbursable at pre-determined rates and 11.0% of our code-share operating costs were directly reimbursed costs, or often referred to as pass-through costs. Additionally, our aircraft maintenance costs may increase annually as our fleet ages at a higher rate than our pre-determined rates allow. Also, on an individual aircraft basis, various in-depth maintenance procedures are typically scheduled to occur at multi-year intervals, which can result in maintenance expense fluctuations year-to-year. If our operating costs for labor, aircraft maintenance and overhead costs exceed the compensation earned from our pre-determined rates under our capacity purchase arrangements, our financial position and operating results will be negatively affected.

We may experience difficulty recruiting and retaining qualified pilots and maintenance technicians.

Our operations rely on qualified personnel, including pilots, flight attendants and maintenance technicians. Our pilots, flight attendants and maintenance technicians may seek employment at mainline airlines, which generally offer higher salaries and more extensive benefit programs than regional airlines are financially able to offer. Should the turnover of employees, particularly pilots and maintenance technicians, sharply increase, we may not be able to hire sufficient pilots and maintenance technicians to replace those leaving. Additionally, FAA regulations regarding personnel certification and qualifications, and potential future changes in FAA regulations, could limit the number of qualified new entrants that we could hire. In the event we are unable to hire and retain qualified personnel, including pilots and mechanics, our business and financial condition could be adversely affected.

Increased labor costs, labor disputes and unionization of our workforces may adversely affect our ability to conduct our business and reduce our profitability.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel. Any new collective bargaining agreements entered into by other regional carriers with their work forces may also result in higher industry wages and increased pressure on us to increase the wages and benefits of our employees. Future agreements with represented employees may be on terms that are not as attractive as our current agreements or comparable to agreements entered into by our competitors.

SkyWest’s employees are represented by in-house associations; however, organizing efforts to join national unions among those employees occur from time to time. Such efforts will likely continue in the future and may ultimately result in some or all of our employees being represented by one or more national unions. If our employees were to unionize or be deemed to be represented by one or more national unions, negotiations with these unions could divert management attention and disrupt operations, which may result in increased operating expenses and may negatively impact our financial results. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements. Agreements reached in union-involved collective bargaining may increase our operating expenses and negatively impact our financial results.

We may experience an increase in fuel prices in our prorate operations.

Dependence on foreign imports of crude oil, limited refining capacity and the possibility of changes in government policy on jet fuel production, transportation and marketing make it difficult to predict the future availability of jet fuel. If there are additional outbreaks of hostilities or other conflicts in oil-producing areas or elsewhere, or a reduction in refining capacity (due to weather events, for example), or governmental limits on the production or sale of jet fuel, there could be a reduction in the supply of jet fuel and significant increases in the cost of jet fuel. Additionally, our operations may experience disruptions from temporary fuel shortages by our fuel vendors resulting from fuel quality

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issues, refueling disruption, or other challenges. Major reductions in the availability of jet fuel or significant increases in its cost, or a continuation of high fuel prices for a significant period of time, would have a material adverse impact on us.

Pursuant to our capacity purchase arrangements, our major airline partners have agreed to bear the economic risk of fuel price fluctuations on our contracted flights. However, we bear the economic risk of fuel price fluctuations on our prorate operations. As of December 31, 2020, we operated 34 CRJ200s under a prorate agreement with United and 26 CRJ200s under a prorate agreement with Delta. Our operating and financial results with respect to these prorate arrangements can be negatively affected by the price of jet fuel in the event we are unable to increase our passenger fares. Additionally, in the event of prolonged low fuel prices, our competitors may lower their passenger ticket prices on routes that compete with our prorate markets, which could negatively impact our passenger load factors.

Risks Related to Operating and Leasing Regional Jet Aircraft and Engines

We are reliant on two aircraft manufacturers and one engine manufacturer.

We operate aircraft manufactured by Bombardier and Embraer. The issuance of FAA or manufacturer directives restricting or prohibiting the use of any Bombardier or Embraer aircraft types we operate could negatively impact our business and financial results. We are also dependent upon General Electric as the sole manufacturer of engines used on the aircraft we operate. Our operations could be materially and adversely affected by the failure or inability of Bombardier, Embraer or General Electric to provide sufficient parts or related maintenance and support services to us on a timely manner. Additionally, timing and availability of new aircraft deliveries could be delayed beyond our control.

We have a significant amount of contractual long-term debt obligations.

As of December 31, 2020, we had a total of approximately $3.2 billion in total long-term debt obligations. Our long-term debt obligations include $3.07 billion related to the acquisition of aircraft, $105.2 million related to borrowings under the Payroll Support Program Agreement with Treasury under the CARES Act and $60.0 million related to borrowings under the Treasury Loan Agreement. Excluding aircraft financed by our major partners that we operate for them under contract, we had 41 aircraft under long-term lease agreements as of December 31, 2020, with remaining terms up to ten years. Future minimum lease payments due under all long-term operating leases were approximately $359.7 million at December 31, 2020. At a 6.1% discount factor, which is the average rate used to approximate the implicit rates within the applicable leases, the present value of these lease obligations was equal to approximately $288.6 million at December 31, 2020. Our high level of fixed obligations could impact our ability to obtain additional financing to support additional expansion plans or divert cash flows from operations and expansion plans to service the fixed obligations.

Under our capacity purchase agreements, our 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. In the event any of our major airline partners defaults under a capacity purchase agreement or we are unable to extend the flying contract terms on aircraft with ongoing financial obligations, our financial position and financial results could be materially adversely affected.

In addition, in response to the travel restrictions, decreased demand and other effects the COVID-19 pandemic has had and is expected to have on our business, we may seek material amounts of additional financial liquidity in the short-term, which may include drawing down on SkyWest Airlines’ line of credit, the issuance of secured debt securities and/or the entry into other debt facilities, among other items. There can be no assurance as to the timing of any such drawdown or issuance, which may be in the near term, or that any such additional financing will be completed on favorable terms, or at all. In addition, we have received financial assistance that is available to the airline industry under the CARES Act and the 2021 Appropriations Act, which financial assistance subjects us and our business to certain restrictions, including, but not limited to, restrictions on the payment of dividends and the repurchase of our common stock, and certain limitations on executive compensation for a twelve-month period following the full repayment of borrowings under the Treasury Loan Agreement.

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If our liquidity is materially diminished, we might not be able to timely pay our leases and debts or comply with certain covenants under SkyWest Airlines’ line of credit, Treasury Loan Agreement or with other material provisions of our contractual obligations.

Our anticipated fleet replacement would require a significant increase in our leverage and the related cash requirements.

We currently have 206 CRJ200s, of which 130 were in-service as of December 31, 2020, with an average life of 18.5 years. Over the next several years, we may continue to replace the CRJ200s with larger regional jets. If we continue to add new aircraft to our fleet, we anticipate using significant amounts of capital to acquire these larger regional jets.

There can be no assurance that our operations will generate sufficient cash flow or liquidity to enable us to obtain the necessary aircraft acquisition financing to replace our current fleet, or to make required debt service payments related to our existing or anticipated future obligations. Even if we meet all required debt, lease and purchase obligations, the size of these long-term obligations could negatively affect our financial condition and results of operations in many ways, including:

If we need additional capital and cannot obtain such capital on acceptable terms, or at all, we may be unable to realize our fleet replacement plans or take advantage of unanticipated opportunities.

The residual value of our owned aircraft may be less than estimated in our depreciation policies.

As of December 31, 2020, we had approximately $5.4 billion of property and equipment and related assets, net of accumulated depreciation. In accounting for these long-lived assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. In the event the estimated residual value of any of our aircraft types is determined to be lower than the residual value assumptions used in our depreciation policies, the applicable aircraft type in our fleet may be impaired and may result in a material reduction in the book value of applicable aircraft types we operate or we may need to prospectively modify our depreciation policies. An impairment on any of our aircraft types we operate or an increased level of depreciation expense resulting from a change to our depreciation policy and assumptions could result in a material negative impact to our financial results.

We have aircraft lease and debt commitments that extend beyond our existing capacity purchase contractual term on certain aircraft.

Under our capacity purchase agreement with one of our major airline partners, we have a total of 18 CRJ700s with flying contract expirations scheduled between 2022 and 2023. Our underlying debt financing obligations associated with each of these aircraft are scheduled to terminate in 2024 and 2025 on an aircraft-by-aircraft basis. We may not be successful in extending the flying contract term on these aircraft with our major airline partner at acceptable economic terms. In the event we are unsuccessful in extending the flying contract terms on these aircraft, we intend to pursue alternative uses for the aircraft over the remaining aircraft financing term including, but not limited to, operating the aircraft with another major carrier under a negotiated code-share agreement or subleasing the aircraft to another operator. Additionally, we may negotiate an early lease return agreement with the aircraft lessor. In the event we are unable to extend the flying contract terms for these aircraft at each respective contract’s expiration, we may incur cash and non-

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cash early lease termination costs that would negatively impact our operations and financial condition. Additionally, in the event we are unable to extend a flying contract with an existing major airline partner, but reach an agreement to place the aircraft into service with a different major airline partner, we likely will incur inefficiencies and incremental costs, such as changing the aircraft livery, which would negatively impact our financial results.

We lease aircraft and engines to third parties and the lessee may default under the lease terms, which could negatively affect our financial condition, cash flow and results of operations.

We lease CRJ aircraft and engines used on CRJ aircraft to third parties. In the event a lessee defaults under the terms of the lease agreement, we may incur additional costs, including legal and other expenses necessary to repossess the aircraft or engines, particularly if the lessee is contesting the proceedings or is in bankruptcy. We could also incur substantial maintenance, refurbishment or repair costs if a defaulting lessee fails to pay such costs and where such maintenance, refurbishment or repairs are necessary to put the aircraft or engines in suitable condition for remarketing or sale. We may also incur storage costs associated with any aircraft or engine that we repossess and are unable to place immediately with another lessee. Even if we are able to immediately place a repossessed aircraft or engine into service ourselves, or place the aircraft and engines under another lessee, we may not be able to do so at a similar or favorable lease rate. A lessee default under one of our lease agreements could negatively affect our financial condition, cash flow and results of operations.

We have entered into a strategic engine leasing joint venture that operates under joint control with a third party that involves significant risk.

We have entered into a strategic engine joint venture with a third party to lease engines to other parties. This strategic venture involves significant risks, including:

● we may not realize a satisfactory return on our investment;

● the joint venture may divert management’s attention from our core business;

Although we currently participate in the management of our engine joint venture, our joint venture agreement requires unanimous approval over all significant actions. In addition, if we were unable to resolve a dispute with our joint venture partner that retains material managerial veto rights, we might reach an impasse that could require us to dissolve the joint venture at a time and in a manner that could negatively affect our financial results.

We are subject to various environmental requirements, including laws and regulations related to climate change and emissions. Compliance with new or existing environmental requirements could materially and adversely affect the Company's business plans, strategies, and results of operations.

We are subject to federal, state, and local laws and regulations relating to the protection of the environment, including those relating to aircraft and ground-based emissions, discharges into water systems, safe drinking water, and the management of hazardous substances and waste materials. Certain legislative bodies and regulatory authorities are increasingly focused on climate change and have taken actions to implement additional laws, regulations, and programs intended to protect the environment. For example, the federal government, as well as several state and local governments, have implemented legislative and regulatory proposals and voluntary measures intended to reduce greenhouse gas emissions. Compliance with laws, regulations, and other programs intended to reduce emissions or otherwise protect the environment may require us to reduce our emissions, secure carbon offset credits or otherwise pay for emissions, or make capital investments to modify certain aspects of our operations to reduce emissions. Future policy, legal, and regulatory developments relating to the protection of the environment could increase our costs and have a material adverse effect on our operations.

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Risks Related to Dividends, Share Repurchases and Our Common Stock

We are currently restricted from paying dividends or repurchasing our stock under the CARES Act Treasury Loan Agreement we executed in 2020 and the Payroll Support Program Extension Agreement we executed in January 2021.

Historically, we have paid dividends and repurchased shares of our common stock in varying amounts. During 2020, we entered into two agreements with Treasury under the CARES Act, the Payroll Support Program Agreement and the Treasury Loan Agreement. Additionally, in January 2021 we entered into the Payroll Support Program Extension Agreement with Treasury under the 2021 Appropriations Act. Each of these agreements restrict us from the payment of dividends and the repurchase of our common stock. The dividend and share repurchase restriction term is longer under the Treasury Loan Agreement, which is a twelve-month period following repayment of the loan in full. Although the Treasury Loan Agreement has a five-year term, we may repay the loan in full prior to the termination date without penalty. There is no assurance we will repay the loan in full prior to the loan termination date.

Following the dividend and share repurchase restriction lapse under the Treasury Loan Agreement, there can be no assurance that we will resume our past practice of paying dividends on our common stock or that we will have the financial resources to pay such dividends. Similarly, there also can be no assurance that we will continue our practice of repurchasing shares of common stock or that we will have the financial resources to repurchase shares of common stock in the future. The future payment of dividends and the number of shares of common stock we may repurchase will depend upon our financial condition and results of operations and other factors deemed relevant by our board of directors.

If we resume paying cash dividends or resume a share repurchase program in the future, such dividends and repurchases could affect our stock price and increase its volatility. The existence of a share repurchase program and any future dividends could cause our stock price to be higher than it would otherwise be and could potentially reduce the market liquidity for our stock. Additionally, resuming our share repurchase program and any future dividends may reduce our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions.

We issued warrants to purchase shares of our common stock to Treasury for relief we received under the CARES Act and the 2021 Appropriations Act, and we are obligated to issue additional warrants to Treasury if we borrow additional amounts under our Treasury Loan Agreement.

During 2020, we issued warrants to purchase 370,220 shares of our common stock with an exercise price of $28.38 per share to Treasury as consideration for payroll support payments we received under the CARES Act payroll support program. Also, during 2020 we issued warrants to purchase 211,416 shares of our common stock with an exercise price of $28.38 per share to Treasury as consideration for borrowing $60.0 million under the Treasury Loan Agreement. We are eligible to borrow up to $725.0 million under the Treasury Loan Agreement through May 28, 2021, subject to the terms of the Treasury Loan Agreement. On the date of any subsequent borrowing under the Treasury Loan Agreement, we obligated to issue to Treasury an additional warrant for a number of shares of our common stock equal to 10% of such borrowing amount, divided by the exercise price of $28.38 per share. Additionally, in January 2021, we agreed to issue warrants to purchase up to 98,815 shares of our common stock with an exercise price of $40.41 per share to Treasury as consideration for payroll support payments we received under the 2021 Appropriations Act. As of February 22, 2021, we had issued 12,288 of such warrants.

If we increase our borrowings under the Treasury Loan Agreement, our obligation to issue additional warrants to Treasury may be dilutive to existing shareholders. Additionally, if Treasury exercises its option to purchase shares of our common stock under warrants previously issued to Treasury, such exercise will be dilutive to our shareholders.

Provisions of our charter documents and code-share agreements may limit the ability or desire of others to gain control of our company.

Our ability to issue shares of preferred and common stock without shareholder approval may have the effect of delaying or preventing a change in control and may adversely affect the voting and other rights of the holders of our

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common stock, even in circumstances where such a change in control would be viewed as desirable by most investors. The provisions of the Utah Control Shares Acquisitions Act may also discourage the acquisition of a significant interest in or control of our company. Additionally, our code-share agreements contain termination and extension trigger provisions related to change in control type transactions that may have the effect of deterring a change in control of our company.

General Risk Factors

Our business could be harmed if we lose the services of our key personnel.

Our business depends upon the efforts of our chief executive officer, Russell A. Childs, and our other key management and operating personnel. We may have difficulty replacing management or other key personnel who cease to be employed by us and, therefore, the loss of the services of any of these individuals could harm our business. We do not maintain key-person insurance on any of our executive officers.

We may be a party to litigation in the normal course of business or otherwise, which could affect our financial condition and results of operations.

We may become party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, arising in the ordinary course of our business or otherwise, including those related to tort, environmental, employment and commercial legal issues. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control. Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. Although we will vigorously defend ourselves in such legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain. If a legal proceeding is resolved against us, it could result in significant compensatory damages or injunctive relief that could materially adversely affect our financial condition, results of operations and cash flows.

The adoption of new tax legislation or changes to existing tax laws and regulations could adversely affect our financial condition or results of operations.

The airline industry is one of the most heavily taxed industries in the United States. We are subject to tax laws and regulations of the U.S. federal, state and local governments as well as various non-U.S. jurisdictions. Potential changes in existing tax laws, including future regulatory guidance, may impact our effective tax rate and tax payments. There can be no assurance that changes in tax laws or regulations, both within the United States and the other jurisdictions in which we operate, will not materially and adversely affect our effective tax rate, tax payments, financial condition and results of operations. Similarly, changes in tax laws and regulations that impact our major airline partners, customers or the economy generally may also impact our financial condition and results of operations.

In addition, tax laws and regulations are complex and subject to varying interpretations, and any significant failure to comply with applicable tax laws and regulations in all relevant jurisdictions could give rise to substantial penalties and liabilities. Any changes in enacted tax laws, rules or regulatory or judicial interpretations; any adverse outcome in connection with tax audits in any jurisdiction; or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our effective tax rate, tax payments, financial condition and results of operations.

Information technology security breaches, hardware or software failures, or other information technology disruptions may negatively impact our operations or reputation.

The performance and reliability of our technology are critical to our ability to compete effectively. Any internal technological error or failure or large-scale external interruption in the technological infrastructure we depend on, such as U.S. air traffic control systems, power, telecommunications or the internet, may disrupt our internal network. Any individual failure or repeated failure of technology could impact our ability to conduct our business and result in increased costs. Our technological systems and related data may be vulnerable to a variety of sources of interruption due

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to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues.

In addition, cybersecurity threats pose a potential risk to the security of our information technology systems, networks and services, as well as the confidentiality and integrity of our data. Cybersecurity risks may include security breaches, computer viruses, malicious or destructive code, ransomware and other attacks. Unauthorized parties may attempt to gain access to our systems or information through fraud or other means of deception. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving, and may be difficult to anticipate or to detect for long periods of time. We may not be able to prevent all data security breaches or misuse of data. The compromise of our technology systems resulting in the loss, disclosure, misappropriation of, or access to, customers’, employees’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business and financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

Flight Equipment

As of December 31, 2020, our fleet operating under our code-share agreements consisted of the following types of owned and leased aircraft:

Number of Number of Scheduled Average

Owned Leased Passenger Flight Cruising Average

Several factors may impact our fleet size throughout 2021 and thereafter, including, but not limited to, contract expirations that are not renewed, reductions in our prorate fleet, lease expirations that are not extended and growth opportunities. Below is our 2021 outlook on our fleet by aircraft type. Our actual future fleet size and/or mix of aircraft types will likely vary, and may vary materially, from our current fleet size due to demand uncertainty resulting from COVID-19 and other factors.

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Ground Facilities

We lease many of the buildings and associated land that we occupy. Most of these leases are for facilities at airports with various government agencies that control the use of the airport. We lease maintenance, training and office facilities in Salt Lake City, Utah, and we lease additional maintenance facilities in Boise, Idaho; Fresno, California; Tucson, Arizona; Chicago, Illinois; Detroit, Michigan; Nashville, Tennessee; South Bend, Indiana; Fort Wayne, Indiana; and San Luis Obispo, California. We also lease ticket counters, passenger hold rooms, operating areas and other terminal space in many of the airports that we serve.

We own our corporate headquarters facilities located in St. George, Utah and a maintenance accessory shop facility in Salt Lake City, Utah. We also own maintenance facilities on land leases with airport authorities in Milwaukee, Wisconsin; Oklahoma City, Oklahoma; Colorado Springs, Colorado; and Palm Springs, California.

ITEM 3. LEGAL PROCEEDINGS

We are subject to certain legal actions which we consider routine to our business activities. As of December 31, 2020, our management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on our financial position, liquidity or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

The disclosure required by this item is not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on The Nasdaq Global Select Market under the symbol “SKYW.” As of February 16, 2021, there were approximately 4,010 stockholders of record of our common stock. Securities held of record do not include shares held in securities position listings. The transfer agent for our common stock is Zions First National Bank, Salt Lake City, Utah.

Dividends

In February 2020, our Board of Directors declared a regular dividend of $0.14 per share. No subsequent dividends were declared during the 2020 calendar year. During 2019, our Board of Directors declared regular quarterly dividends of $0.12 per share. Pursuant to the terms of our Treasury Loan Agreement, we are restricted from paying dividends for a twelve-month period following repayment of the loan in full. We had borrowings outstanding under the Treasury Loan Agreement as of December 31, 2020.

Issuer Purchases of Equity Securities

Our Board of Directors has adopted a stock repurchase program which authorizes us to repurchase shares of our common stock in the public market or in private transactions, from time to time, at prevailing prices. Our stock repurchase program currently authorizes the repurchase of up to $250.0 million of our common stock. No shares of common stock were repurchased under our repurchase program during the three months ended December 31, 2020. Pursuant to the terms of our Treasury Loan Agreement, we are restricted from repurchasing shares of our common stock for a twelve-month period following repayment of the loan in full. We had borrowings outstanding under the Treasury Loan Agreement as of December 31, 2020.

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Stock Performance Graph

The following Performance Graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent we specifically incorporate it by reference into such filing.

The following graph compares the cumulative total shareholder return on our common stock over the five-year period ended December 31, 2020, with the cumulative total return during such period of the Nasdaq Stock Market (U.S. Companies) and the Nasdaq Stock Market Transportation Index. The following graph assumes an initial investment of $100.00 with dividends reinvested. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.

INDEXED RETURNS

Base

Period Years Ending

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial and operating data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes included elsewhere in this Report.

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Selected Consolidated Financial Data (amounts in thousands, except per share data):

Year ended December 31,

Net income (loss) per common share:

Weighted average shares:

Selected Operating Data

Year ended December 31,

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis presents factors that had a material effect on our results of operations during the years ended December 31, 2020, 2019 and 2018. Also discussed is our financial position as of December 31, 2020 and 2019. You should read this discussion in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this Report or incorporated herein by reference. This discussion and analysis contains forward-looking statements. Please refer to the sections of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” and “Item 1A. Risk Factors” for discussion of some of the uncertainties, risks and assumptions associated with these statements.

This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Annual Report on Form 10-K can be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Overview

We have the largest regional airline operation in the United States. As of December 31, 2020, we offered scheduled passenger and air freight service with approximately 1,770 total daily departures to destinations in the United States, Canada, Mexico and the Caribbean. The number of flights we operated during 2020 was negatively impacted by the COVID-19 pandemic. See Competition and Economic Conditions section for additional information regarding the COVID-19 impact on our operations on page 5. As of December 31, 2020, we had 601 total aircraft in our fleet, including 452 aircraft in scheduled service under our code-share agreements, summarized as follows:

American — 65 — — 65

Alaska — — — 32 32

Leased to third parties 2 34 5 — 41

*As of December 31, 2020, these aircraft have been removed from service and are in the process of being placed under a leasing arrangement with a third party, are aircraft transitioning between code-share agreements with our major airline partners and being used as supplemental spare aircraft, are available for future code-share agreements or 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 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 centered on our ability to meet the needs of our major airline partners through providing a reliable and safe operation at attractive economics. The COVID-19 pandemic had a significant impact to our operations including a reduction in the number of flights we were scheduled to operate during 2020 and changes we made to enhance the safety of our passengers and employees, including aircraft cleaning procedures and use of personal protective equipment.

During the 2020 calendar year, we made several changes to our fleet count under our flying agreements, including the addition of 37 new E175 aircraft, and the removal of four CRJ900 aircraft, four CRJ700 aircraft and 60 CRJ200 aircraft. Additionally, during the 2020 calendar year, we increased the number of CRJ700 aircraft we leased to third parties from 10 aircraft to 34 aircraft. Leases on two CRJ200 aircraft with third parties terminated during 2020.

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We anticipate our fleet will continue to evolve, as we are scheduled to add 20 new E175 aircraft with American, 25 used CRJ700 aircraft with American and one new CRJ900 aircraft with Delta by the end of 2022. 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 pandemic’s impact on demand. Our primary objective in the fleet changes is to improve our profitability by adding new E175 aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require more maintenance cost.

For the year ended December 31, 2020, approximately 47.1% of our aircraft in scheduled service were operated for United, approximately 31.4% were operated for Delta, approximately 14.4% were operated for American and approximately 7.1% were operated for Alaska.

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 capacity purchase arrangements and our prorate flying arrangements. For the year ended December 31, 2020, contract flying revenue and prorate revenue represented approximately 87.0% and 13.0%, 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, we share passenger fares with our major airline partners according to prorate formulas and we are responsible for the operating costs of the prorate flights, including fuel and airport costs.

Our financial and operating results for the years ended December 31, 2018 and 2019 contained in this Report, include the financial results and position of ExpressJet through January 22, 2019 for those respective periods.

Financial Highlights

We had total operating revenues of $2.1 billion for the year ended December 31, 2020, a 28.4% decrease compared to total operating revenues of $3.0 billion for the year ended December 31, 2019. We had a net loss of $8.5 million, or $0.17 loss per share, for the year ended December 31, 2020, compared to net income of $340.1 million, or $6.62 per diluted share, for the year ended December 31, 2019. The significant items affecting our revenue and operating expenses during the year ended December 31, 2020 are outlined below:

Revenue

The number of aircraft we have in scheduled service and the number of block hours we generate on our flights are primary drivers to our flying agreements revenue under our capacity purchase arrangements. 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 lower passenger demand from the COVID-19 pandemic, the number of aircraft we operated decreased from 483 as of December 31, 2019 to 452 as of December 31, 2020; the number of block hours decreased from 1.5 million in 2019 to 1.0 in 2020, or by 33.5%; and the number of passengers we carried decreased from 43.7 million in 2019 to 21.3 in 2020, or by 51.3%.

As a result of reduced flight schedules and fewer aircraft operating under our capacity purchase agreements in 2020 compared to 2019, our capacity purchase revenue decreased $576.4 million, or 24.3% in 2020. Additionally, we deferred recognizing revenue on $110.7 million of fixed monthly payments received under our capacity purchase agreements during 2020 as a result of significant reductions to our flight schedules as further described in the section of this Report entitled “Results of Operations.” Also, as a result of a reduction in the number of aircraft operating under our prorate agreements and fewer passengers carried on our prorate routes, our prorate revenue decreased by $252.1 million, or 48.4% in 2020. The negative impact to our revenues due to the COVID-19 pandemic and its associated effects on the travel industry is anticipated to continue in 2021 and may continue into subsequent periods.

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Operating Expenses

Our total operating expenses decreased $441.4 million, or 17.9% for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was primarily due to a significant reduction in the number of flights we operated as a result of the COVID-19 pandemic. Departures decreased from 842,098 in 2019 to 585,257 in 2020, or by 30.5%. Additionally, during 2020 we recorded $345.5 million in payroll support grants received from Treasury under the CARES Act 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.”

Fleet Activity

The following table summarizes our fleet activity for 2020:

During 2020, we took delivery of 37 new E175 aircraft and placed the aircraft into service under capacity purchase agreements. We removed four CRJ900 aircraft from service, four (net) CRJ700 aircraft from service and 60 (net) CRJ200 aircraft from service. We are evaluating alternative uses for the four CRJ900 aircraft removed from service and we anticipate placing the four (net) CRJ700 aircraft into service with American in 2021. We returned 19 CRJ200s to the lessor and we anticipate storing the remaining 41 CRJ200s removed from service. We own the 41 CRJ200 aircraft removed from service and the aircraft are fully depreciated with no outstanding financial obligations.

Results of Operations

2020 Compared to 2019

Operational Statistics. The following table sets forth our major operational statistics and the associated percentages of change for the periods identified below. The decrease in block hours, departures and passengers carried during the year ended December 31, 2020, compared to the year ended December 31, 2019, was due to the decrease in demand related to the COVID-19 pandemic.

For the year ended December 31,

Block hours by aircraft type: 2020 2019 % Change

Passenger load factor 56.4 % 82.3 % (25.9) pts

Average passenger trip length (miles) 500 500 NC

NC = No Change

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Operating Revenues

The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):

For the year ended December 31,

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 year ended December 31,

The decrease in “Capacity purchase agreements revenue: flight operations” of $593.1 million was due to a reduction in flights we were scheduled to operate by our major airline partners in 2020 as a result of decreased passenger demand in response to the COVID-19 pandemic. Our completed departures decreased 30.5% and completed block hours decreased 33.5% during 2020 compared to 2019.

The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” of $16.7 million was due to the incremental lease revenue generated from six new E175 aircraft that we acquired through debt added to capacity purchase agreements and increases to the fixed monthly rates made to certain existing capacity purchase agreements that were extended since December 31, 2019. For clarity, we added a total of 37 new E175 to our capacity purchase agreements during 2020, however our major airline partners acquired 31 of these E175s and we have no aircraft ownership lease revenue associated with these 31 E175s.

The increase in “Capacity purchase agreements revenue: aircraft lease and fixed revenue” in 2020 compared to 2019 was partially offset by deferred revenue we recorded in 2020 attributed to the fixed cash payments per aircraft we received under our capacity purchase agreements compared to 2019. 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 2020 from previous levels due to a reduction in flight schedules resulting from the COVID-19 pandemic. We also anticipate the future number of flights we will complete over the remaining capacity purchase agreements will significantly increase from 2020 levels. Due to the materially reduced flight activity during 2020 from historical levels and based on anticipated increases in future monthly flight volumes over the remaining contract terms, we determined the fixed monthly cash payments per aircraft we received during 2020 was disproportionately high relative to the number of flights we operated during 2020. Accordingly, we deferred recognizing revenue of $110.7 million of fixed monthly cash payments we received under our capacity purchase agreements during 2020. 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.

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The decrease in prorate agreements revenue of $252.1 million was due to the impact of COVID-19 and the corresponding decrease in passengers and passenger revenue we received on routes we operated under our prorate agreements during 2020 compared to 2019.

The decrease in lease, airport services and other revenues of $16.4 million was primarily due to the decrease in the number of flights operated at locations where we were contracted to provide airport customer service during 2020 compared to 2019.

Operating Expenses

Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands).

For the year ended December 31,

Amount Amount Amount Percent

CARES Act payroll support grant (345,491) — (345,491) NM

NM = Not Measurable

Salaries, wages and benefits. The $175.6 million, or 17.5%, decrease in salaries, wages and benefits was due to a reduction in direct labor costs that resulted from a significantly lower number of flights we operated during 2020 in response to the COVID-19 pandemic and reductions in overhead and other labor costs. In response to the COVID-19 pandemic, we initiated various cost saving measures, including a reduction in various administrative and support positions, temporarily placed a freeze on hiring new employees, temporarily suspended all non-scale pay increases and offered voluntary unpaid leave to our employees.

Aircraft maintenance, materials and repairs. The $104.7 million, or 20.4%, increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs incurred on a portion of SkyWest Airlines’ CRJ200 and CRJ700 fleet intended to extend the operational performance and reliability of these older aircraft, including increased engine maintenance expense during 2020 compared to 2019.

Depreciation and amortization.The $106.9 million, or 29.0%, increase in depreciation and amortization expense was primarily due to a shortened estimated useful life of our owned CRJ200 fleet that resulted in approximately $74.5 million of incremental depreciation expense during 2020. During 2020, we removed 55 CRJ200 aircraft from a capacity purchase agreement with Delta, of which we returned 19 leased aircraft to the lessor and we own 36 aircraft. We also removed seven CRJ200 aircraft that we own from a prorate agreement with American. Prior to the COVID-19 pandemic, we were anticipating the agreement terms for these aircraft would have been extended beyond 2020. As we were unable to extend the flying contracts on these CRJ200s with our major airline partners and given the age of these aircraft, we shortened the estimated useful life on these aircraft to coincide with the agreement termination dates. Our depreciation also increased due to the acquisition of six new E175 aircraft and spare engines since December 31, 2019.

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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 $25.0 million, or 21.0%, decrease in airport-related expenses was primarily due to a decrease in airport service activities as a result of COVID-19 related flight schedule reductions.

Aircraft rentals.The $6.7 million, or 9.3%, 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 December 31, 2019.

Aircraft fuel.The $57.4 million, or 48.2%, decrease in fuel cost was primarily due to a decrease in the number of flights we operated under our prorate agreements and corresponding decrease in gallons of fuel we purchased and a decrease in our average fuel cost per gallon from $2.51 in 2019 to $1.89 in 2020. 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 year ended December 31,

CARES Act payroll support grant.In April 2020, we entered into an agreement with Treasury and received $450.7 million in emergency relief through the CARES Act payroll support program through 2020, of which $345.5 million was in the form of payroll support grants that are being recognized as a reduction in labor expense over the periods the grants are intended to compensate. We recognized $345.5 million in payroll support grant proceeds we received as a reduction to our operating expenses in 2020. We did not have a comparable payroll support grant in 2019.

Special Items. The $21.9 million special items expense for 2019 related to a non-cash write-off of $18.5 million in aircraft manufacturer part credits that we forfeited to settle future lease return obligations with the aircraft manufacturer. The $18.5 million of expense was included in the SkyWest Airlines segment. The special items expense also included $3.4 million of expense associated with a cash payout of certain ExpressJet employees’ stock equity grants as part of the sale of ExpressJet, which was reflected in the ExpressJet segment. We did not incur comparable special items expense in 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 $20.9 million, or 8.6%, decrease in other operating expenses was primarily related to a reduction in other operating costs that correspond to the significantly lower number of flights we operated during 2020 compared to 2019, such as crew per diem, crew hotel costs and simulator costs. These reductions were partially offset by an increase to our credit loss reserves of $30.8 million we recorded in 2020 following our adoption of the Financial Accounting Standards Board (“FASB”) “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”) on January 1, 2020. The increase to our credit loss reserves in 2020 was primarily due to a reserve we recorded on a note receivable that originated from our sale of ExpressJet in 2019 that became uncertain during 2020 due to ExpressJet ceasing operations in 2020. Our credit loss reserves also increased due to reductions in credit ratings during 2020 on certain entities for which we have outstanding accounts receivable or notes receivable.

Interest Expense.The $4.6 million, or 3.6%, decrease in interest expense related to an overall lower effective interest rate on our outstanding debt from 2019 to 2020. Our average debt balance, for the 2019 calendar year and the 2020 calendar year was $3.1 billion for both periods (using the average of the beginning and ending balances of each year).

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Total airline expenses. Our total airline expenses, comprising of our total operating expenses and interest expense, decreased $446.0 million, or 17.2%, due to reduction in direct operating costs attributed to the reduced number of completed flights in 2020 compared to 2019 and due to the CARES Act payroll grant benefit we recorded in 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 $8.3 million, or 58.4%, during 2020, compared to 2019. The decrease in interest income was primarily related to a decrease in average interest rates attributed to our marketable securities from 2019 to 2020.

Other income (expense), net. During 2020, we had other income, net of $1.2 million primarily related to income earned from our investment in a joint venture with a third party. During 2019, we had other income, net of $47.7 million primarily related to the gain on sale of ExpressJet.

Summary of provision for income taxes:

Provision for income taxes. For the years ended December 31, 2020 and December 31, 2019, our income tax provision rates were 16.2% and 23.8%, 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. For the year ended December 31, 2020, the lower effective tax rate was primarily due to pre-tax loss of $7.3 million and non-deductible expenses which resulted in a $1.2 million provision for income taxes. Our income tax provision rate may fluctuate each reporting period based on various factors including but not limited to, the amount of our non-deductible operating expenses, such as a portion of or crew per diem expenses, relative to our income before income taxes.

Net Income. Primarily due to the factors described above, we generated net loss of $8.5 million, or $0.17 loss per share, for the year ended December 31, 2020, compared to a net income of $340.1 million, or $6.62 per diluted share, for the year ended December 31, 2019.

Our Business Segments 2020 compared to 2019:

Prior to our sale of ExpressJet on January 22, 2019, our reporting segments consisted of the operations of SkyWest Airlines and ExpressJet, and the activities of SkyWest Leasing. We concluded the sale of ExpressJet did not meet the criteria for a discontinued operation. Following the sale of ExpressJet, our reporting segments include SkyWest Airlines and SkyWest Leasing.

Our chief operating decision maker analyzes the profitability of operating aircraft under our code-share agreements separately from the profitability of our financing new aircraft acquired through debt and cash placed under our capacity purchase agreements, currently consisting of our E175 fleet, and our return on such aircraft financing. More specifically, the SkyWest Leasing segment includes an allocation of revenue from our capacity purchase agreements attributed to our financing of new aircraft through debt and cash covered under such agreements (aircraft lease revenue), and the respective depreciation and interest expense of such financed aircraft. The SkyWest Leasing segment also includes the activity of acquiring and leasing used regional jet aircraft and regional aircraft engines to other entities. The SkyWest Leasing segment’s total assets and capital expenditures include new E175 aircraft acquired through the issuance of debt and our aircraft and engines leased to other entities.

The SkyWest Airlines segment includes all other revenue and operating expenses attributed to operating aircraft under our capacity purchase agreements and all revenue and operating expenses attributed to our prorate agreements and airport service agreements.

Corporate overhead expenses, primarily consisting of administrative labor costs, were allocated to the operating expenses of SkyWest Airlines, ExpressJet (prior to our sale of ExpressJet) and SkyWest Leasing. Overhead expenses allocated to SkyWest Leasing reflect our estimated labor expense incurred to support SkyWest Leasing activities.

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The following table sets forth our segment data for the years ended December 31, 2020 and 2019 (in thousands):

For the year ended December 31,

(dollar amounts in thousands)

Amount Amount Amount Percent

Operating Revenues:

Airline Expenses:

Segment profit (loss):

(1) Total Airline Expense includes operating expense and interest expense

SkyWest Airlines Segment Profit. SkyWest Airlines segment profit decreased $343.0 million, or 136.9%, during 2020, compared to 2019.

SkyWest Airlines block hour production decreased to 973,338, or 33.5%, for 2020 from 1,464,405 for 2019, primarily due to reduced flight schedules in response to the COVID-19 pandemic. Significant items contributing to the SkyWest Airlines segment profit are set forth below.

SkyWest Airlines operating revenues decreased $841.9 million, or 34.0%, from 2019 to 2020 due to reduced flight schedules under our capacity purchase agreements, lower passenger demand and under our prorate agreements, and fewer flights we handled under our airport service agreements, collectively as a result of the COVID-19 pandemic. SkyWest Airlines capacity purchase agreement revenue decreased $570.1 million from 2019 to 2020 due to the reduction in flight scheduled and block hours, which included deferred revenue of $110.7 million of payments received under our capacity purchase agreements during 2020. SkyWest Airlines prorate and other revenue decreased $271.8 million from 2019 to 2020 due to decreased passenger demand and reduced flight schedules.

SkyWest Airlines airline expense decreased $499.0 million, or 22.4%, from 2019 to 2020 due to the following primary factors:

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SkyWest Leasing Segment Profit. SkyWest Leasing profit decreased $60.6 million, or 43.7%, during 2020, compared to 2019, primarily related to credit loss reserves we recorded on a note receivable that originated from our sale of ExpressJet in 2019 that became uncertain during 2020 due to ExpressJet ceasing operations in 2020. Our credit loss reserves also increased due to reductions in credit ratings during 2020 on certain entities for which we have an outstanding accounts receivable or notes receivable. The reduction in the SkyWest Leasing segment was also due to additional depreciation expense resulting from a shortened estimated useful life of certain CRJ200 spare engines. These reductions were partially offset by an additional six new E175 aircraft added to our fleet subsequent to December 31, 2019.

Liquidity and Capital Resources

As of December 31, 2020, we had $825.9 million in cash and cash equivalents and marketable securities. As of December 31, 2020, we had $665.0 million available for borrowings under the Treasury Loan Agreement and $39.5 million available for borrowings under our line of credit. We have until May 28, 2021 to draw additional borrowings under the Treasury Loan Agreement. If we do not increase our borrowings under the Treasury Loan Agreement before May 28, 2021, our pledged collateral under the $725 million facility will be significantly reduced and any excess pledged collateral will be released and available to use for new debt, if needed. Given our available liquidity as of December 31, 2020 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 (including funds from government assistance provided or may be provided pursuant to the CARES Act and the 2021 Appropriations Act) 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 $520.2 million as December 31, 2019 to $825.9 million as of December 31, 2020, or by $305.7 million. Our total long-term debt, including current maturities increased from $2,993.1 million as of December 31, 2019 to $3,203.7 million as of December 31, 2020, or by $210.6 million. Thus, our total long-term debt, net of cash and marketable securities, decreased from $2,472.9 million as of December 31, 2019 to $2,377.8 million as of December 31, 2020, or $95.2 million. At December 31, 2020, our total capital mix was 43.3% equity and 56.7% long-term debt, compared to 45.3% equity and 54.7% long-term debt at December 31, 2019.

As of December 31, 2020 and 2019, we had $61.1 million and $61.7 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of December 31, 2020 and 2019.

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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 years ended December 31, 2020 and 2019, and our total cash and marketable securities position as of December 31, 2020 and December 31, 2019 (in thousands). See “Liquidity and Capital Resources” in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of our sources and used of cash in 2019 compared to 2018.

For the year ended December 31,

December 31, December 31,

Cash Flows provided by Operating Activities

Our cash flows provided by operating activities was $633.6 million in 2020, compared to $721.0 million in 2019. 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 and accrued liabilities.

The decrease in our cash flow from operations in 2020 compared to 2019 was primarily due to a reduction in our net income of $348.6 million, the difference between net income of $340.1 million in 2019 and a net loss of $8.5 million in 2020, partially offset by an increase in non-cash depreciation expense of $106.9 million in 2020 from 2019, a decrease in deferred income taxes of $103.6 million in 2020 from 2019, and due to timing cash payments and cash receipts related to our current assets and liabilities in 2020 compared to 2019.

Cash Flows used in Investing Activities

Our cash flows used in investing activities was $683.5 million in 2020, compared to $657.0 million in 2019. 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 in 2020 compared to 2019 was primarily due to an increase cash used for purchases of marketable securities, net of sales of marketable securities, of $105.2 million in 2020 from $72.0 million in 2019 and an increase in our long-term assets resulting from an increase in long-term receivables from our major airline partners under our capacity purchase agreements. We amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximate a 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, which was the primary factor in the increase in our long-term other assets of $94.3 million from December 31, 2019 to December 31, 2020.

The increase in our cash flows used in investing activities was significantly offset by reduction in capital expenditures of $223.6 million in 2020 from $661.9 million in 2019. During 2020, we acquired six new E175 aircraft

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and 22 used CRJ aircraft compared to ten new E175 aircraft and 85 used CRJ aircraft in 2019, including 56 used CRJ aircraft purchased under an early lease buyout in 2019.

Cash Flows provided by (used in) Financing Activities

Our cash flows provided by financing activities was $178.4 million in 2020, compared to cash used for financing activities of $305.2 million in 2019. Our investing cash flows are typically impacted by various factors including proceeds from issuance of debt, principal payments on debt obligations, repurchases our common stock and payment of cash dividends.

The $483.6 million increase in cash provided by financing activities included the additional proceeds from the issuance of long-term debt to Treasury of $105.2 million under the Payroll Support Program Agreement and $60.0 under the Treasury Loan Agreement during 2020. Additionally, we amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximate a six-month period during 2020, which was the primary factor to our reduction in principal payments on long-term debt of $195.0 million from 2019 to 2020. See Significant Commitments and Obligations for our summary of principal maturities on our long-term debt for the next five years. We also reduced our cash used to repurchase shares of our common stock, treasury stock and payment of dividends by $16.1 million, $52.3 million, and $10.4 million, respectively, due to restrictions under the Payroll Support Program Agreement and the Treasury Loan Agreement that began in April 2020.

Significant Commitments and Obligations

General

The following table summarizes our commitments and obligations as noted for each of the next five years and thereafter (in thousands):

Purchase Commitments and Options

We are coordinating with our major airline partners and aircraft manufacturers on the timing of upcoming fleet deliveries under previously announced deals in response to COVID-19 schedule reductions. The anticipated future aircraft delivery dates are subject to change. As of December 31, 2020, we had a firm purchase commitment for 20 E175 aircraft from Embraer with scheduled delivery dates anticipated through 2022.

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 20 E175 aircraft with approximately 80-85% debt and the remaining balance with cash.

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Aircraft Lease and Facility Obligations

We also have significant long-term lease obligations, primarily relating to our aircraft fleet. Excluding aircraft financed by our major partners that we operate for them under contract, we had 41 aircraft under lease with remaining terms ranging from less than one to ten years as of December 31, 2020. Future minimum lease payments due under all long-term operating leases were approximately $359.7 million at December 31, 2020. Assuming a 6.1% discount rate, which is the average incremental borrowing rate we anticipate we would have incurred on debt obtained over a similar term to acquire these assets, the present value of these lease obligations would have been equal to approximately $288.6 million at December 31, 2020.

Long-term Debt Obligations

As of December 31, 2020, we had $3.07 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% at December 31, 2020. We also had $165.2 million of long-term debt obligations under the Payroll Support Program Agreement and the Treasury Loan Agreement.

Under our capacity purchase arrangements, 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 of SkyWest Airlines under the Delta Connection Agreement and the United Express Agreement for the E175 aircraft. In addition, we have guaranteed certain other obligations under aircraft financing and leasing agreements.

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to our Consolidated Financial Statements included in Item 8 of this Report. 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 as discussed below. 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 could differ materially, from such estimates.

Revenue Recognition

Flying agreements and airport customer service and other revenues are recognized when service is provided. Under our capacity purchase and prorate flying agreements with our major airline partners, our performance obligation is determined on a per completed flight basis. Under our capacity purchase agreements, the performance obligation of each completed flight is measured using block hours incurred for each completed flight, which factors the duration of each flight. Under our airport customer service agreements, our performance obligation is measured on per departure basis for each flight we provide customer service.

A portion of our compensation under our capacity purchase agreements is designed to reimburse us for the use of the aircraft we provide under such agreements. This compensation is deemed to be lease revenue, inasmuch as the agreements identify the “right of use” or a specific type and number of aircraft over the agreement term. The amount of compensation deemed to be lease revenue is determined from the agreed upon rates for the use of the aircraft included in each capacity purchase agreement, which we believe approximates fair value for the aircraft leases.

Additionally, under our capacity purchase agreements, we typically receive a fixed monthly payment for each aircraft under contract over the agreement term (“Fixed Monthly Payments”). We recognize revenue attributed to the Fixed Monthly Payments proportionate to the number of block hours complete during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. Due to the material decrease in completed block hours in 2020 from historical levels and from anticipated future levels over the remaining contract terms, we determined the amount of Fixed Monthly Payments we received in 2020 was disproportionately high

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relative to the number of block hours we completed during 2020. As of December 31, 2020, we deferred recognizing revenue of $110.7 million in Fixed Monthly Payments we received during the 2020 calendar year. We deferred recognizing revenue of $69.1 million during the second quarter of 2020 when we generated 126,026 block hours, $29.6 million during the third quarter of 2020 when we generated 222,561 block hours and $12.0 million during the fourth quarter of 2020 when we generated 267,528 block hours. The amount of deferred revenue from Fixed Monthly Payments we recognize will increase or decrease in future reporting periods depending on the number of block hours we complete during such reporting period and our then-current forecast of block hours we anticipate completing over the remaining contract term based on information available to us as that time. We anticipate we will continue to defer recognizing revenue into 2021 and may begin recognizing previously deferred amounts as revenue by late 2021 or in 2022, depending upon future block hour production and flight schedules.

Our revenues could be impacted by a number of factors, such as our flight schedules, passenger fares we receive under our prorate agreements, terminations, extensions or other amendments to our code-share agreements, our estimates used to determine the amount of revenue we defer under our capacity purchase agreements, and our ability to earn incentive payments contemplated under applicable agreements. In the event contracted rates are not finalized at a quarterly or annual financial statement date, we record that period’s revenues based on the lower of the prior period’s approved rates or our estimate of rates that will be implemented upon completion of negotiations. Also, in the event we have a reimbursement dispute with a major airline partner at a quarterly or annual financial statement date, we evaluate the dispute under established revenue recognition criteria and, provided the revenue recognition criteria have been met, we recognize revenue for that period based on our estimate of the resolution of the dispute. Our rates were finalized under our code-share agreements as of December 31, 2020.

Aircraft Leases

As of December 31, 2020, our fleet of aircraft in scheduled service included 41 aircraft under lease, excluding 58 aircraft financed by our major partners that we operate for them under contract. In order to determine the proper classification of our leased aircraft, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine the lease classification. All of our aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. Under the majority of our operating leases, we are required to meet certain lease return conditions with the aircraft, which presumes a certain percent of the eligible flight time for certain components since the last overhaul remains when the aircraft is returned to the lessor. A liability for probable lease return costs is recorded after the aircraft has completed its last maintenance cycle prior to being returned. Several factors can impact the estimated liability for lease return costs including, but not limited to, timing of scheduled maintenance events and anticipated condition of the aircraft at the end of the lease term. We believe it is unlikely that materially different estimates for lease return obligations would be made or reported based on other reasonable assumptions or conditions suggested by actual historical experience and other data available at the time estimates were made.

Long-Lived Assets

As of December 31, 2020, we had approximately $5.4 billion of property and equipment and related assets net of accumulated depreciation. In accounting for these long-lived, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. When considering whether or not impairment of long-lived assets exists, we group similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group. Asset groupings are done at the fleet type or contract level. Factors that may impact our estimates used for depreciation include anticipated useful lives of each aircraft type and estimated residual values of each aircraft. As we operate all of our aircraft under code-share agreements with our major airline partners, changes in anticipated demand by our major airline partners for regional aircraft may impact our estimated useful lives and residual values for our aircraft, spare engines and other long-lived

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assets. At December 31, 2020, we had 108 aircraft that were not in scheduled service with our partners, including 74 CRJ200s, 30 CRJ700s, and 4 CRJ900s. The CRJ200 aircraft that were removed from the Delta and American agreements were fully depreciated as of December 31, 2020. The remaining aircraft are in the process of being placed under a leasing arrangement with a third party, are aircraft transitioning between code-share agreements with our major airline partners and being used as supplemental spare aircraft or are available for future code-share agreements.

Self-Insurance

We use a combination of insurance and self-insurance mechanisms to provide for the potential liability of certain risks, including workers’ compensation, healthcare benefits, general liability, product liability, property insurance and directors’ and officers’ liability insurance. Liabilities associated with risks retained by us are not discounted and are estimated by considering historical claims experience, demographics, exposure and severity factors and other actuarial assumptions.

Our workers’ compensation liability includes estimated outstanding losses of unpaid claims and allocated loss adjustment expenses (“ALAE”), which includes case reserves, the development of known claims and incurred but not reported claims. ALAE are the direct expenses for settling specific claims. The amounts reflect per occurrence and annual aggregate limits maintained by us. The estimated liability analysis does not include estimating a provision for unallocated loss adjustment expenses. We believe that the liability recorded at December 31, 2020 is adequate to cover all workers' compensation claims incurred through December 31, 2020. If the actual costs of such claims and related expenses exceed the amount estimated, additional reserves may be required which could have a material negative effect on our operating results. Holding other factors constant, a 10 percent increase in our estimated workers compensation liability as of December 31, 2020, would have resulted in additional expense of approximately $2.1 million for the year ended December 31, 2020.

The liability related to our self-insured group medical insurance plans includes an estimate for claims incurred but not paid. This estimate is created using general actuarial principles and our historical claims experience. The cost of general liability, product liability and commercial auto liability is accrued based on estimates of the aggregate liability claims incurred using certain actuarial assumptions and historical claims experience.

Income Tax

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Estimating our tax liabilities involves judgments related to uncertainties in the application of complex tax regulations. We make certain estimates and judgments to determine tax expense for financial statement purposes as we evaluate the effect of tax credits, tax benefits and deductions, some of which result from differences in the timing of recognition of revenue or expense for tax and financial statement purposes. Changes to these estimates may result in significant changes to our tax provision in future periods. Each fiscal quarter we re-evaluate our tax provision and reconsider our estimates and assumptions related to specific tax assets and liabilities, making adjustments as circumstances change.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements included in Item 8 of this Report for a description of recent accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Aircraft Fuel

In the past, we have not experienced difficulties with fuel availability and we currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our contract flying arrangements, Delta, United, American and Alaska have agreed to bear the economic risk of fuel price fluctuations on our contracted flights. We bear the economic risk of fuel price fluctuations on our prorate operations. For each of the

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years ended December 31, 2020, 2019 and 2018, approximately 13%, 18% and 16% of our total flying agreements revenue was derived from prorate arrangements. For the years ended December 31, 2020, 2019 and 2018, the average price per gallon of aircraft fuel was $1.89, $2.51 and $2.60, respectively. For illustrative purposes only, we have estimated the impact of the market risk of fuel on our prorate operations using a hypothetical increase of 25% in the price per gallon we purchase. Based on this hypothetical assumption, we would have incurred an additional $15.4 million, $29.8 million and $29.4 million in fuel expense for the years ended December 31, 2020, 2019 and 2018, respectively.

Interest Rates

As of December 31, 2020, 97.7% of our total long-term debt had fixed interest rates. We currently intend to finance the acquisition of aircraft through manufacturer financing or long-term borrowings. Changes in interest rates may impact the actual cost to us to acquire future aircraft. To the extent we place new aircraft in service under our capacity purchase agreements with Delta, United, American, Alaska or other carriers, our capacity purchase agreements currently provide that reimbursement rates will be adjusted to reflect the interest rates effective at the closing of the respective aircraft financing.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information set forth below should be read together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere herein.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of SkyWest, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SkyWest, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made

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by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of fixed overhead deferred revenue

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2003.

Salt Lake City, Utah

February 22, 2021

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

ASSETS

December 31, December 31,

CURRENT ASSETS:

PROPERTY AND EQUIPMENT:

Less-accumulated depreciation and amortization (2,455,995) (1,998,376)

OTHER ASSETS

Operating lease right-of-use assets 282,362 336,009

See accompanying notes to consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

December 31, December 31,

CURRENT LIABILITIES:

Current maturities of operating lease liabilities 82,641 94,806

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS’ EQUITY:

Preferred stock, 5,000,000 shares authorized; none issued — —

See accompanying notes to consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

Year Ended December 31,

OPERATING REVENUES:

OPERATING EXPENSES:

CARES Act payroll support grant (345,491) — —

Special items — 21,869 —

OTHER INCOME (EXPENSE):

BASIC EARNINGS (LOSS) PER SHARE $ (0.17) $ 6.68 $ 5.40

DILUTED EARNINGS (LOSS) PER SHARE $ (0.17) $ 6.62 $ 5.30

Weighted average common shares:

COMPREHENSIVE INCOME (LOSS):

See accompanying notes to consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

Accumulated

Other

Common Stock Retained Treasury Stock Comprehensive

Shares Amount Earnings Shares Amount Income (Loss) Total

Stock based compensation expense — 13,105 — — — — 13,105

Treasury stock purchases — — — (968) (54,448) — (54,448)

Cash dividends declared ($0.40 per share) — — (20,744) — — — (20,744)

Stock based compensation expense — 5,770 — — — — 5,770

Common stock purchased and cancelled (268) (16,145) — — — (16,145)

Cash dividends declared ($0.48 per share) — — (24,364) — — — (24,364)

Net income (loss) — — (8,515) — — — (8,515)

Stock based compensation expense — 6,802 — — — — 6,802

Treasury stock purchases — — — (386) (20,000) — (20,000)

Cash dividends declared ($0.14 per share) — — (7,019) — — — (7,019)

See accompanying notes to consolidated financial statements.

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Write-off of maintenance assets 3,255 — —

Increase in credit loss reserves 17,087 — —

Loss on disposal of fixed assets 445 — —

Gain on sale of ExpressJet subsidiary — (46,525) —

Special items — 21,869 —

Changes in operating assets and liabilities:

Decrease (increase) in income tax receivable 7,225 14,795 (20,620)

Decrease in operating lease right-of-use assets 53,647 — —

Increase in operating lease liabilities (65,557) (895) —

Increase in deferred revenue 110,728 — —

Decrease in deferred aircraft credits — — (14,243)

SKYW US Equity

SKYW · 10-K · period ended 2020-12-31

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. MINE SAFETY DISCLOSURES

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SKYW US Equity☆

SKYW · 10-K · period ended 2020-12-31

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. MINE SAFETY DISCLOSURES

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SKYW US Equity