Impact of the COVID-19 Pandemic

3 Months Ended

Mar. 31, 2020

Impact of the COVID-19 Pandemic

Impact of the COVID-19 Pandemic

Note 2 — Impact of the COVID-19 Pandemic

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, has surfaced in nearly all regions of the world and driven the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, closing of borders, “shelter in place” orders and business closures. Consequently, the Company and its major airline partners (as defined in Note 3 below), have

experienced an unprecedented decline in the demand for air travel, which has materially and adversely affected the Company’s revenues, particularly under its prorate agreements (as defined in Note 3 below). The spread of the virus and the resulting global pandemic has affected the majority of the domestic and international networks of the Company’s major airline partners for whom it conducts flight operations and relies on to set its flight schedules. While the length and severity of the reduction in demand due to COVID-19 are uncertain, the Company presently expects a more significant negative impact on its results of operations in the second quarter of 2020 and for the remainder of 2020.
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In response to these developments, the Company has implemented measures to focus on the personal safety of its passengers and employees, while at the same time seeking to mitigate the impact on the Company’s financial position and operations. These measures include, but are not limited to, the following:

Focus on the Personal Safety of Passengers and Employees. The safety and well-being of the Company’s passengers and employees are the Company’s priorities in every decision it makes. As the COVID-19 pandemic has developed, the Company has taken numerous steps to help passengers and employees take appropriate safety measures on the ground and in the air in keeping with current Centers for Disease Control and Prevention recommendations, including:

● Working with the Company’s major airline partners to enhance its aircraft cleaning procedures.

● Working with the Company’s major airline partners to provide masks for crewmembers and ensuring that all fleet service personnel have the necessary personal protective equipment for disinfecting the aircraft.

● Providing a number of options to employees who are diagnosed with COVID-19, including pay protection and extended leave options.

● Implementing workforce social distancing and protection measures, enhanced cleaning of the Company’s facilities, including training facilities, using methods and products similar to what the Company is using on its aircraft.

Capacity Reductions. Beginning in March 2020, the Company and its major airline partners experienced an unprecedented decrease in demand for air travel and expect this decline to continue. The Company depends on its major airline partners to contract with the Company to schedule flights. Therefore, in response to this decreased demand, the Company has significantly reduced its capacity. Prior to the COVID-19 pandemic, the Company anticipated operating approximately 2,500 daily departures in the month of April 2020. However, in April it operated approximately 800 to 900 daily departures as a result of COVID-19-related schedule reductions. The Company also anticipates similar schedule reductions will likely continue into the second quarter of 2020 and may continue throughout the remainder of 2020 and into 2021. The Company will continue to work with its major airline partners regarding future schedules and make further demand-driven adjustments to its capacity as needed. The Company anticipates certain aircraft with scheduled contract expirations in 2020 will not be extended as a result of decreased demand including 55 Canadair CRJ200 regional aircraft (“CRJ200”) operating under the SkyWest Airlines Delta Connection Agreement. The Company also expects that its American Prorate Agreement on seven CRJ200 aircraft will terminate in 2020 and the Company may have further reductions in the number of CRJ200 aircraft operating under its other prorate agreements. The Company may receive requests by its major airline partners to defer deliveries of new or used aircraft that were previously scheduled for 2020 and 2021.

Cost Reductions. With the reduction in revenue, the Company has, and will continue to implement, cost saving initiatives, including:

● Reducing employee-related costs including by:

o Offering voluntary unpaid leave to employees.

o Suspending all non-scale pay increases.

o Instituting a company-wide hiring freeze.

● Delaying non-essential maintenance projects and reducing or suspending other discretionary spending.

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Liquidity. At March 31, 2020, the Company had $644.1 million in total available liquidity, consisting of $577.9 million in cash and marketable securities and $66.2 million available under SkyWest Airlines’ line of credit. On April 23, 2020, SkyWest Airlines entered into a Payroll Support Program Agreement (the “PSP Agreement”) with the U.S. Department of Treasury (“Treasury”) with respect to the grant program (the “Payroll Support Program”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), pursuant to which it expects to receive

approximately $438.0 million in the aggregate, 50% of which was received in April 2020. See Note 15 for more information on the Payroll Support Program. The CARES Act also provides for up to $25 billion in secured loans to the airline industry, and the Company has applied for and expects to be eligible for approximately $497.0 million under the loan program and is currently evaluating its level of participation.