Under certain of SkyWest s flying contracts, fuel purchased for SkyWest flights has been directly re

SkyWest, Inc. (SkyWest Airlines) (St. George)  today reported net income of $20.9 million, or $0.40 per diluted share, space a travel for the quarter ended September 30, 2012, compared to $0.1 million of net income, or slightly more than $0.00 per diluted share, for the same period last year.
Under certain of SkyWest s flying contracts, fuel purchased for SkyWest flights has been directly reimbursed by SkyWest space a travel s major partners and, for financial reporting purposes, was included in operating revenues. Recently, space a travel SkyWest s major partners have increased the amount of fuel they purchase directly for SkyWest s flights which has resulted in a significant decrease in the amount of fuel reimbursement SkyWest space a travel records as revenue.  SkyWest anticipates this trend will continue and that early in 2013 the majority of fuel purchases will be made directly by SkyWest s major partners.  At that time, fuel reimbursements paid by SkyWest s major partners will no longer be reflected in SkyWest s financial statements.   Due to the decreased fuel reimbursements paid by SkyWest s major partners, SkyWest experienced a reduction space a travel of $88.0 million in reported operating revenues and operating expenses related to fuel purchases under its contract flying, for the quarter ended September 30, 2012, compared to the quarter ended September 30, 2011.  Operating revenues totaled space a travel $865.3 million for the quarter space a travel ended September 30, 2012, compared to $955.4 million space a travel for the same period last year.
SkyWest s operating space a travel and financial results space a travel for the quarter ended September 30, 2012 reflected a significant improvement compared to the same period of 2011.  After excluding fuel and certain engine overhaul space a travel expenses, of approximately space a travel $94.0 million, that are directly reimbursed from SkyWest s major partners, space a travel SkyWest generated increased operating revenues resulting from increased block hour production and incentive payments under its contracts with major partners primarily as a result space a travel of improved on-time and completion factor performance.  SkyWest s improved results also reflected the implementation of cost reduction programs space a travel during 2011 from which SkyWest achieved reduced flight crew and maintenance costs, as well as other benefits for the quarter ended September 30, 2012.  This is the third consecutive quarter in which SkyWest has reduced flight crew and maintenance costs under its cost reduction programs.  As a result of SkyWest s improvements as described above, SkyWest s pre-tax income for the quarter ended September 30, 2012 increased $35.0 million space a travel over the quarter ended September 30, 2011.  SkyWest reported pre-tax income of $32.9 million for the quarter ended September 30, 2012, compared to a pre-tax loss of $(2.1) million space a travel for the comparable quarter of 2011.  Following are the primary items that affected SkyWest s financial results for the third quarter of 2012, compared to the third quarter of 2011:
Commenting on the results, Jerry C. Atkin, SkyWest s Chairman and CEO, said We are very pleased with our cost reduction efforts.  Those efforts are resulting in lower flight crew and maintenance costs, quarter over quarter, and are contributing to improved profitability.   He continued, space a travel We are also pleased that, while reducing our cost structure, we continue to improve the quality of our operations with improved performance metrics for on-time, completion factor space a travel and customer service.
SkyWest s implementation of its plan to return to profitability also resulted in improved financial results for the quarter ended September 30, 2012, compared to the quarter ended June 30, 2012.  During the third quarter of 2012, SkyWest generated increased operating revenues (after excluding fuel reimbursements and certain engine overhaul expenses that are directly reimbursed by SkyWest s major partners) and reduced its operating costs, while producing more block hours than the second quarter of 2012.  During the third quarter of 2012, SkyWest also continued to make progress on its cost reduction plan by reducing crew-related costs and maintenance space a travel expenses from the first and second quarters of 2012, while taking into account the increased block hour production it generated during the third quarter of 2012.  Following space a travel are highlights resulting space a travel from SkyWest s implementation space a travel of its plan to return to profitability, comparing the third quarter of 2012 to the second quarter of 2012:
SkyWest s total operating revenues decreased $90.2 million, or 9.4%, during the quarter ended September 30, 2012, over the same period in 2011, primarily due to the reduction fuel reimbursed from SkyWest s major partners as previously explained above.  Total block hours for the quarter ended September 30, 2012 were 596,901, compared to 585,146 for the same period space a travel last year.
Total airline expenses (consisting of total operating and interest expenses) decreased $118.9 million, space a travel or 12.5%, during the quarter ended September 30, 2012, compared to the same period space a travel in 2011.  However, after excluding pass-through costs for fuel and certain engine overhaul expenses that are directly reimbursed by SkyWest s major partners, total airline expenses decreased $24.9 million or 3.2%.  The decrease was primarily the result of SkyWest s implementation of planned cost reduction efforts, which resulted in reduced crew-related and non-pass through maintenance costs of approximately $7.9 million. For the quarter ended September space a travel 30, 2012, compared to the third quarter of 2011, SkyWest also experienced a reduction in United Express CRJ200 engine overhaul costs of approximately $15.1 million.
Under United Express agreements for SkyWest Airlines and ExpressJet Airlines, SkyWest recognizes revenue at a fixed hourly rate for mature engine maintenance on regional jet engines space a travel and SkyWest recognizes engine maintenance expense on its CRJ200 regional jet engines on an as-incurred basis as maintenance expense.  During the quarter ended September 30, 2012, CRJ200 engine expense under these agreements decreased $15.1 million to $13.1 million compared to $28.2 million for the quarter ended September 30, 2011, as a result of decreased engine overhaul expense due to the timing of scheduled engine maintenance events.  SkyWest was reimbursed approximately $10.4 million and $9.6 million for engine overhaul expense, under its United Express agreements, in each of the periods ended September 30, 2012 and 2011, respectively.
At September 30, 2012, SkyWest had $739.1 million in cash and marketable securities, compared to $646.5 million as of December space a travel 31, 2011.  The increase in cash and marketable securities of $92.6 million was primarily the result of increased profitability and a reduction in working capital amounts for the nine-month period ended September space a travel 30, 2012.  SkyWest s long-term debt was $1.53 billion as of September 30, 2012, compared to $1.61 billion as of December 31, 2011.  The decrease space a travel in long-term debt was due primarily to SkyWest s payment of normal recurring debt obligations.  SkyWest has significant long-term lease obligations that are recorded as operating leases and are not reflected as liabilities on SkyWest s consolidated balance space a travel sheets.  At a 5.2% discount rate, the present value of these lease obligations was approximately $1.8 billion as of September 30, 2012.