SkyWest's Fleet Transition Could Be A Game Changer

• Shares of SkyWest, Inc. SKYW has increased over 25 percent year-to-date.
• Cowen’s Helane Becker has upgraded the rating on SkyWest from Market Perform to Outperform, while raising the price target from $16 to $19.
• The company has initiated a fleet reduction program to reduce its dependence of 50-seat aircraft, which is expected to free up pilots, offset attrition and drive growth.

According to the Cowen report, “SkyWest has corrected several structural issues with their fleet reduction plan.” By 2018, the company intends to reduce its fleet to 354 aircraft, from the 676 at the end of 2Q15.

This plan will free up pilots, which would offset the attrition seen since changes were made to the pilot work rules in 2013-2014. Becker expects SkyWest to be able to generate free cash flow of $250 million 2016 and to use this cash for debt repayment, share buybacks and a potential increase in the dividend.

In addition, Becker believes that the “additional pilot availability also enables the company to continue to pursue additional business.”

“SkyWest has 253 aircraft and 300 options so they could be covered if a new CPA contract comes along. SkyWest has six additional E175s being delivered in 2H15 and three in 2016. After the remaining E175s are delivered the company has no committed aircraft CAPEX,” the report added.