Shares of SkyWest SKYW have rallied 25.5% so far this year, handily outperforming the industry’s 4% rise.
Let’s delve deep to unearth the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:
The St. George, UT-based regional airline operator is benefiting from its efforts to modernize the fleet and streamline operations. Evidently, the carrier reported a 7% increase in block hours (a measure of aircraft utilization) mainly due to the addition of more efficient planes in its fleet in the first half of 2019.
Additionally, in July, SkyWest reported a 5.8% year-over-year increase in block hours to 128,953. The carrier stated that the upside was owing to the addition of E175, CRJ700 and CRJ900 aircraft to its fleet since last July.
At the end of 2018, SkyWest’s fleet consisted of 146 E175 aircraft. The company's fleet at the end of second-quarter 2019 includes 151 E175 jets. Notably, SkyWest’s fleet will have 155 E175 jets by Dec 31, 2020.
As part of SkyWest’s efforts to improve efficiency, the company strengthened its partnership with airline behemoth Delta Air Lines DAL in August. Per the deal, SkyWest will operate six used E175 jets under a multi-year agreement that is scheduled to commence early next year.
Additionally, the regional carrier will purchase and operate seven new E175 jets for Delta instead of SkyWest operating seven new CRJ900 planes that were to be financed by Delta and scheduled for delivery next year. Per the revised deal, the seven new E175 jets will be delivered between late 2019 and mid-2020. SkyWest also has deals with other airline heavyweights like American Airlines AAL and United Airlines UAL.
We believe that efforts to modernize its fleet and improve efficiencies will favor SkyWest going forward.
Fleet transition efforts apart, SkyWest’s efforts to reward its shareholders through dividends and buybacks are commendable. In February 2019, SkyWest increased its quarterly dividend payment by 20% to 12 cents per share (48 cents annualized). The carrier is also active on the buyback front. In the same month, SkyWest announced that its board of directors has approved a new share repurchase program worth $250 million.
We are also positive on SkyWest's sale of its subsidiary, ExpressJet Airlines, to a joint venture in January this year. Following the divestiture, SkyWest is able to focus more on its profit-making areas.
Upward estimate revisions reflect optimism on a stock’s prospect. SkyWest scores impressively on this front too. Over the past 30 days, this Zacks Rank #2 (Buy) company has witnessed the Zacks Consensus Estimate for current-year earnings being revised 1.5% upward. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Moreover, the company’s Momentum Score of A highlights its short-term attractiveness.
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