Nature of Operations and Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions.

Marketable Securities

The Company’s investments in debt securities are classified as available-for-sale and are reported at fair market value with the net unrealized appreciation (depreciation) reported as a component of accumulated other comprehensive income in stockholders’ equity. At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income and expense. The Company’s position in marketable securities as of December 31, 2023 and 2022 was as follows (in thousands):


			Gross unrealized		Gross unrealized
At December 31, 2023	Amortized Cost		holding gains		holding losses		Fair market value
Marketable securities:
Bond and bond funds	$	676,644	$	430	$	—	$	677,074
Commercial Paper		9,872		—		—		9,872
Total marketable securities	$	686,516	$	430	$	—	$	686,946


			Gross unrealized			Gross unrealized
At December 31, 2022	Amortized Cost		holding gains		holding losses		Fair market value
Marketable securities:
Bond and bond funds	$	629,280	$	—	$	(5,026)	$	624,254
Commercial Paper		319,977		—		—		319,977
Total marketable securities	$	949,257	$	—	$	(5,026)	$	944,231

As of December 31, 2023 and 2022, the Company had classified $686.9 million and $944.2 million of marketable securities, respectively, as short-term because it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year.

Property and Equipment

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:


Assets	Depreciable Life	Current Residual Value
Aircraft, rotable spares, and spare engines	up to 22 years	up to 20	%
Ground equipment	up to 10 years	0	%
Office equipment	up to 5 years	0	%
Leasehold improvements	Shorter of 15 years or lease term	0	%
Buildings	20 - 39.5 years	0	%

Capitalized Interest

Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is depreciated over the estimated useful life of the asset. During the years ended December 31, 2023, 2022 and 2021, the Company capitalized interest costs of approximately $1.5 million, $1.9 million and $1.9 million, respectively.

Flying Agreements and Airport Customer Service and Other Revenues

The Company recognizes revenue under its flying agreements and under its lease, airport services and other service agreements when the service is provided under the applicable agreement. Under the Company’s capacity purchase agreements with United, Delta, American and Alaska (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month (a portion of which is accounted for as aircraft lease consideration), with additional incentives based on flight completion, on-time performance or other performance metrics. The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel,

airport landing fees and airport rents. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the years ended December 31, 2023, 2022 and 2021, capacity purchase arrangements represented approximately 86.5%, 88.0% and 84.3% of the Company’s flying agreements revenue, respectively.

Under the Company’s prorate arrangements (also referred to as a “prorate” agreements), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company determines that it will receive for each completed flight. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. Certain routes under the Company’s prorate arrangements are subsidized by the U.S. Department of Transportation under the Essential Air Service (“EAS”) program, a program created to ensure small communities in the United States maintain a minimum level of scheduled air service. The EAS contracts are generally two years in duration and the Company recognizes EAS revenue on a per-completed-flight basis pursuant to the terms of each contract. Under the Company’s charter operations, SWC, the Company negotiates a fare for the charter flight with the customer. The performance obligation is met and revenue is recognized upon completion of the flight. For the years ended December 31, 2023, 2022 and 2021, prorate flying agreements and SWC revenue represented approximately 13.5%, 12.0%, and 15.7% of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the years ended December 31, 2023, 2022 and 2021 (in thousands):


	For the year ended December 31,
	2023		2022		2021
Capacity purchase agreements flight operations revenue (non-lease component)	$	1,976,743	$	2,028,308	$	1,678,219
Capacity purchase agreements fixed aircraft lease revenue		296,047		504,529		527,173
Capacity purchase agreements variable aircraft lease revenue		180,218		17,664		—
Prorate agreements and SWC revenue		381,389		349,336		409,684
Flying agreements revenue	$	2,834,397	$	2,899,837	$	2,615,076

The Company allocates the total consideration received under its capacity purchase agreements between lease and non-lease components based on stand-alone selling prices. A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs. The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract. The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is accounted for as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income. During the three months ended December 31, 2022, the Company amended certain of its capacity purchase agreements resulting in a portion of the Company’s aircraft lease revenue becoming variable beginning in the fourth quarter of 2022. As a result of these capacity purchase agreement amendments executed in 2022, during the year ended December 31, 2023, the Company deferred recognizing lease revenue on $78.5 million of the allocated fixed monthly lease payments received during the year ended December 31, 2023, under the straight-line method. The Company deferred recognizing lease revenue on $22.1 million of the allocated fixed monthly lease payments received during the year ended December 31, 2022, under the straight-line method. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of

comprehensive income because the use of the aircraft is not a separate activity of the total service provided under the capacity purchase agreements.

A portion of the Company’s compensation under its capacity purchase agreements relates to operating the aircraft, identified as the non-lease component of the capacity purchase agreement. The Company recognizes revenue attributed to the non-lease component received as fixed-fees for each departure, flight hour or block hour on an as-completed basis for each reporting period. The Company recognizes revenue attributed to the non-lease component received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours the Company anticipates completing over the remaining contract term. Accordingly, the Company’s revenue recognition will likely vary from the timing of cash receipts under the Company’s capacity purchase agreements. The Company refers to cash received under its capacity purchase agreements prior to recognizing revenue as “deferred revenue,” and the Company refers to revenue recognized prior to billing its major airline partners under its capacity purchase agreements as “unbilled revenue” for each reporting period. In 2023, the Company deferred recognizing revenue on $151.4 million of fixed monthly payments under certain agreements and unbilled revenue decreased by $12.6 million under certain other agreements, compared to deferring revenue of $18.7 million and recognizing $11.5 million of unbilled revenue in 2022.

The Company’s total deferred revenue balance as of December 31, 2023, was $374.6 million, including $61.0 million in other current liabilities and $313.6 million in other long-term liabilities. The Company’s unbilled revenue balance as of December 31, 2023, was $7.3 million, including $1.2 million in other current assets and $6.1 million in other long-term assets. The Company’s total deferred revenue balance as of December 31, 2022, was $144.7 million, including $5.2 million in other current liabilities and $139.5 million in other long-term liabilities. The Company’s unbilled revenue balance as of December 31, 2022, was $19.9 million, including $9.9 million in other current assets and $10.0 million in other long-term assets.

The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.

In several of the Company’s agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly, subject to the variable constraint guidance under Accounting Standard Codification (“ASC”) Topic 606.

The following summarizes the significant provisions of each code-share agreement the Company has with each major airline partner through SkyWest Airlines:

United Express Agreements



Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
United Express Agreements (capacity purchase agreement)	· E175 · CRJ 700 · CRJ 200	90 19 70	· Individual aircraft have scheduled removal dates under the agreement between 2024 and 2029 · The average remaining term of the aircraft under contract is 2.7 years
United Express Prorate Agreement (prorate agreement)	· CRJ 200	*19	· Terminable with 120-day notice
Total under United Express Agreements		198

Delta Connection Agreements

Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
Delta Connection Agreement (capacity purchase agreement)	· E175 · CRJ 900 · CRJ 700	85 35 5	· Individual aircraft have scheduled removal dates from 2024 to 2034 · The average remaining term of the aircraft under contract is 4.8 years
Delta Connection Prorate Agreement (prorate agreement)	· CRJ 900 · CRJ 700	6* 4*	· Terminable with 30-day notice
Total under Delta Connection Agreements		135

American Capacity Purchase Agreement


Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
American Agreement (capacity purchase agreement)	· E175 · CRJ 700	20 90	· Individual aircraft have scheduled removal dates from 2024 to 2032 · The average remaining term of the aircraft under contract is 3.1 years
Total under American Agreement		110

Alaska Capacity Purchase Agreement

* The Company’s prorate agreements are based on specific routes, not a specific aircraft count. The number of aircraft listed above for each prorate agreement approximates the number of aircraft the Company uses to serve the prorate routes.

In addition to the contractual arrangements described above, as of December 31, 2023, SkyWest Airlines reached agreements to place the following E175 aircraft under a capacity purchase agreement with the respective partners:


	2024	2025	2026	Total
Delta Air Lines	1	—	—	1
United Airlines	4	7	8	19
Alaska Airlines	—	1	—	1
Total	5	8	8	21

Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors.

When an aircraft is scheduled to be removed from a capacity purchase arrangement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the major airline partner when the aircraft is leased from the major airline partner, place owned aircraft for sale or pursue other uses for the aircraft. Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft or engines to a third party or disassembling aircraft components such as the engines and parts to be used as spare inventory.

Lease, airport services and other revenues primarily consists of revenue generated from aircraft and spare engines leased to third parties and from airport customer service agreements, such as gate and ramp agent services at various airports where the Company has been contracted by third parties to provide such services. The following table

represents the Company’s lease, airport services and other revenues for the years ended December 31, 2023, 2022 and 2021 (in thousands):


	For the year ended December 31,
	2023		2022		2021
Operating lease revenue	$	47,554	$	48,714	$	46,532
Operating lease revenue relating to variable lease payments		18,420		17,050		19,998
Airport customer service and other revenue		35,061		39,324		31,885
Lease, airport services and other	$	101,035	$	105,088	$	98,415

The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of December 31, 2023 (in thousands):


2024	$	46,119
2025		41,172
2026		35,630
2027		35,586
2028		35,024
Thereafter		53,122
Total future minimum rental income under operating leases	$	246,653

Of the Company’s $5.5 billion of property and equipment, net as of December 31, 2023, $216.0 million of regional jet aircraft and spare engines were leased to third parties under operating leases. The Company’s mitigation strategy for the residual asset risks of these assets includes leasing aircraft and engine types that can be operated by the Company in the event of a default. Additionally, the operating leases typically have specified lease return condition requirements paid by the lessee to the Company and the Company typically maintains inspection rights under the leases.

The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term.

The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and settlement of reimbursement disputes with the Company’s major airline partners.

Other ancillary revenues commonly associated with airlines, such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits, are retained by the Company’s major airline partners on flights that the Company operates under its code-share agreements.

As of December 31, 2023, the Company had $82.9 million in accounts receivable of which $73.6 million related to flying agreements. As of December 31, 2022, the Company had $100.5 million in accounts receivable of which $73.7 million related to flying agreements.

Income Taxes


	Allowance for Credit Losses
Balance at December 31, 2020	$	46,225
Adjustments to credit loss reserves		(4,249)
Write-offs charged against allowance		—
Balance at December 31, 2021	$	41,976
Adjustments to credit loss reserves		(4,591)
Write-offs charged against allowance		—
Balance at December 31, 2022	$	37,385
Adjustments to credit loss reserves		(185)
Write-offs charged against allowance		(18,501)
Balance at December 31, 2023	$	18,699

Comprehensive Income


	Year Ended December 31,
	2023		2022		2021
Numerator:
Net income	$	34,342	$	72,953	$	111,910
Denominator:
Basic earnings per share weighted average shares		43,940		50,548		50,348
Dilution due to employee equity awards and warrants		659		96		405
Diluted earnings per share weighted average shares		44,599		50,644		50,753

Basic earnings per share	$	0.78	$	1.44	$	2.22
Diluted earnings per share	$	0.77	$	1.44	$	2.20

Segment Reporting

GAAP requires disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance. The Company’s two reportable segments consist of (1) the operations of SkyWest Airlines and SWC (collectively, “SkyWest Airlines and SWC”) and (2) SkyWest Leasing activities. Information pertaining to the Company’s reportable segments is presented in Note 2, Segment Reporting.

The Company has two reportable segments: (1) SkyWest Airlines and SWC and (2) SkyWest Leasing.

Agreement

Aircraft type

Number of
Aircraft

Term / Termination Dates

Alaska Agreement
(capacity purchase agreement)

·
Individual aircraft have scheduled removal dates from 2030 to 2034
·
The average remaining term of the aircraft under contract is 7.5 years