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Flying Agreements Revenue and Lease, Airport Services and Other Revenues | 6 Months Ended
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Jun. 30, 2023
Flying Agreements Revenue and Lease, Airport Services and Other Revenues |
Flying Agreements Revenue and Lease, Airport Services and Other Revenues | (2) Flying Agreements Revenue and Lease, Airport Services and Other Revenues The Company recognizes revenue under its flying agreements and airport services and other service agreements when the service is provided under the applicable agreement. The Company recognizes revenue under its lease agreements ratably over the applicable lease term. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase” agreements) with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“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 with additional incentives based on flight completion and on-time performance. 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 both the six months ended June 30, 2023 and 2022, capacity purchase agreements represented approximately 88.3% of the Company’s flying agreements revenue. Under the Company’s prorate arrangements (also referred to as “prorate” or “revenue-sharing” 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. For both the six months ended June 30, 2023 and 2022, prorate flying agreements represented approximately 11.7% of the Company’s flying agreements revenue. The following table represents the Company’s flying agreements revenue by type for the three and six months ended June 30, 2023 and 2022 (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the three months ended June 30, | ​ | For the six months ended June 30,
​ |  | 2023 |  | 2022 | ​ | 2023 |  | 2022
Capacity purchase agreements flight operations revenue (non-lease component) | ​ | $ | 499,142 | ​ | $ | 549,539 | ​ | $ | 968,058 | ​ | $ | 1,054,347
Capacity purchase agreements fixed aircraft lease revenue | ​ | ​ | 74,042 | ​ | ​ | 129,502 | ​ | ​ | 148,522 | ​ | ​ | 253,587
Capacity purchase agreements variable aircraft lease revenue | ​ |  | 44,984 | ​ |  | — | ​ |  | 88,089 | ​ |  | —
Prorate agreements revenue | ​ |  | 82,226 | ​ |  | 94,733 | ​ |  | 159,563 | ​ |  | 173,903
Flying agreements revenue | ​ | $ | 700,394 | ​ | $ | 773,774 | ​ | $ | 1,364,232 | ​ | $ | 1,481,837
​ 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 (loss). 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. Additionally, as a result of these capacity purchase agreement amendments executed in 2022, during the six months ended June 30, 2023, the Company deferred recognizing lease revenue on $40.0 million of the allocated fixed monthly lease payments received during the six months ended June 30, 2023, 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 (loss) 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. During the six months ended June 30, 2023, the Company deferred $77.4 million of fixed monthly payments under certain agreements and decreased unbilled revenue by $6.0 million under certain other agreements, compared to recognizing $17.6 million of previously deferred revenue and $9.3 million of unbilled revenue during the six months ended June 30, 2022. The Company’s total deferred revenue balance as of June 30, 2023 was $262.1 million, including $7.3 million in other current liabilities and $254.8 million in other long-term liabilities. The Company’s unbilled revenue balance was $13.9 million as of June 30, 2023, including $7.2 million in other current assets and $6.7 million in other long-term assets. The Company’s deferred revenue balance was $144.7 million as of December 31, 2022, including $5.2 million in other current liabilities and $139.5 million in other long-term liabilities. The Company’s unbilled revenue balance was $19.9 million as of December 31, 2022, 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. As of June 30, 2023, the Company had 492 aircraft in scheduled service or under contract pursuant to code-share agreements. The following table 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 from 2024 to 2029
United Express Prorate Agreement (prorate agreement) | ​ | • CRJ 200 | ​ | 19* | ​ | • Terminable with 120-days’ 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 ​ | ​ | 83 35 5 | ​ | • Individual aircraft have scheduled removal dates from 2023 to 2033
​ | ​ | ​ | ​ | ​ | ​ | ​
Delta Connection Prorate Agreement (prorate agreement) | ​ | • CRJ 900 • CRJ 700 • CRJ 200 | ​ | 6* 1* 17* | ​ | •Terminable with 30-days’ notice
Total under Delta Connection Agreements | ​ | ​ | ​ | 147 | ​ | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​
American Capacity Purchase Agreement
Agreement |  | Aircraft type |  | Number of Aircraft |  | Term / Termination Dates
American Agreement (capacity purchase agreement) | ​ | • E175 • CRJ 700 | ​ | 20 85 | ​ | • Individual aircraft have scheduled removal dates from 2024 to 2032
Total under American Agreement | ​ | ​ | ​ | 105 | ​ | ​
​ ​
Alaska Capacity Purchase Agreement
Agreement |  | Aircraft type |  | Number of Aircraft |  | Term / Termination Dates
Alaska Agreement (capacity purchase agreement) | ​ | • E175 | ​ | 42 | ​ | • Individual aircraft have scheduled removal dates from 2030 to 2034
* | 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 June 30, 2023, SkyWest Airlines has a capacity purchase agreement with Delta to place a total of three additional E175 regional jet aircraft (“E175”) from Embraer, S.A. (“Embraer”) into service, with delivery dates currently scheduled in 2023 and 2024. SkyWest Airlines also has a capacity purchase agreement with Alaska to place one additional E175 aircraft into service with a delivery date currently scheduled for 2025. 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 lessor if the aircraft is leased and the lease is expiring, 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 to a third party or disassembling aircraft components such as the engines and parts to be used as spare inventory or to lease the engines to a third party. Lease, airport services and other revenues primarily consist of revenue generated from aircraft and spare engines leased to third parties and airport customer services, such as gate and ramp agent services at applicable airports where the Company has agreements with third parties. The following table represents the Company’s lease, airport services and other revenues for the three and six months ended June 30, 2023 and 2022 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the three months ended June 30, | ​ | For the six months ended June 30, | ​
​ |  | 2023 |  | 2022 | ​ | 2023 |  | 2022 |
Operating lease revenue | ​ | $ | 16,791 | ​ | $ | 16,450 | ​ | $ | 33,351 | ​ | $ | 33,005 | ​
Airport customer service and other revenue | ​ | ​ | 8,458 | ​ | ​ | 8,861 | ​ | ​ | 19,891 | ​ | ​ | 19,395 | ​
Lease, airport services and other | ​ | $ | 25,249 | ​ | $ | 25,311 | ​ | $ | 53,242 | ​ | $ | 52,400 |
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 June 30, 2023 (in thousands):
​ | ​ | ​ | ​
July 2023 through December 2023 |  | $ | 22,880
2024 | ​ |  | 45,553
2025 | ​ |  | 40,583
2026 | ​ |  | 35,017
2027 | ​ |  | 34,995
Thereafter | ​ |  | 86,297
Total future minimum rental income under operating leases | ​ | $ | 265,325
​ Of the Company’s $5.5 billion of net property and equipment as of June 30, 2023, $211.8 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. Allowance for credit losses The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of June 30, 2023, the Company had gross receivables of $123.1 million in current assets and gross receivables of $201.7 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or notes receivable. During the six months ended June 30, 2023, the Company wrote-off a $3.6 million receivable that was fully reserved as of December 31, 2022. There were no other significant changes in the outstanding accounts receivable, notes receivable or credit ratings of the entities. The following table summarizes the changes in allowance for credit losses:
​ | ​ | ​ | ​
​ |  | Allowance for Credit Losses
Balance at December 31, 2022 | ​ | $ | 37,385
Adjustments to credit loss reserves | ​ |  | 2,086
Write-offs charged against allowance | ​ |  | (3,570)
Balance at June 30, 2023 | ​ | $ | 35,901
​

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