SkyWest’s EPS +10% on buybacks and a depreciation change

SkyWest earned $120m in 3Q26, with prorated fuel up 50% per gallon and a depreciation change that helped. Management cut the 2026 EPS guidance. 3Q25 comes from SkyWest's 8-K. 3Q26 comes from a call summary, so the change column is ours. Pre-tax income was up 15% from 2Q26. GuruFocus's headline calls the quarter an EPS beat and a revenue miss. We haven't seen the consensus, so treat both as indicative. SkyWest flew more than 230,000 flights at a 99.9% adjusted completion rate. Look at the EPS line in the table. Net income grew 3%. EPS grew 10%. The gap is about 6% fewer shares; our math is from $120m and $3.08. Buybacks did most of the work. The fuel line is small, as expected with majors picking up the tab. A $32m increase is nothing next to Delta's $1.6bn. SkyWest buys fuel only on its prorate flying. Fuel on contract flying stays with the mainline partner. A regional sits out the squeeze while its partners take it. At $4.56, the $66m is about 14.5m gallons, per our math. SkyWest extended the E175's useful life from 22 to 30 years. That cut 3Q depreciation by $16m. This tidbit hints at the future of US regional flying. Despite a flurry of activity with hybrid-electric aircraft, it looks like the most influential regional airline anywhere has rolled the dice. No OEM in this space will succeed without SkyWest's endorsement. Regional fleets are a huge issue, and this airline calls the shots. We're looking for e-taxi solutions like GreenTaxi to address many of the high fuel-burn challenges. On about 39m diluted shares, the change is worth roughly $0.41 a share before tax, per our math. It equals about 10% of the $159m pre-tax number. Strip it out and pre-tax income is about $143m. A year ago it was $157m. That is down about 9%, per our math. Management says higher fuel pressured results. The accounting change pushed the other way and hid most of it. We haven't seen SkyWest's after-tax figure. We also haven't seen whether $16m is a one-time catch-up or a quarterly run rate. That decides how much of the beat is operations. SkyWest now expects 2026 EPS of about $10.60, down from roughly $11. It puts the fuel headwind from 3Q at $0.26 a share. That explains about two-thirds of a $0.40 cut, per our math. The call summary we read doesn't explain the rest. For reference, 2025 EPS was $10.35. For 2027, SkyWest expects EPS similar to 2026. Block hours grow 1% to 2%, after about 5% in 2026. Fuel is assumed at $4.30 a gallon on 60m prorate gallons. Each $1 per gallon is worth about $1.20/share. Separately, deferred revenue recognition falls from about $100m to about $70m. That is a non-cash headwind of about $0.60 a share. United guides 4Q26 fuel at $4.80 and American at $4.70. SkyWest uses $4.30 for all of 2027. That bets on easing. If fuel lands at $4.80, the gap is $0.50 a gallon, or about $0.60 a share on SkyWest's own sensitivity. That equals the deferred revenue headwind. Also, our math. The block-hour slowdown fits what Ed Bastian said on Delta's call. Delta will be "cautious" next year until there is "the all-clear sign, particularly on fuel." SkyWest doesn't connect the two. We do. image: Embraer SkyWest took four E175s for United in 3Q and expects seven more in 4Q. It targets 300 E175s by the end of 2027, with 18 deliveries that year. United's first CRJ450 arrives before year-end. SkyWest expects 40 CRJ450s under contract and sees room for up to 100. The CRJ450 brings the CRJ200 back online and productive. Absent the move to premium seating, this would not be happening. If travel behavior changes again, these are parked forthwith. The E175 order book is the odd part. Of the firm orders, 16 are for Delta, 11 for American, and 2 for United. Another 33 have no assigned partner and deliver from late 2028 into 2030. Over half the book has no customer. Capex for 2027 is about $825m. As we noted above, fleet in this segment is a critical issue and demands close attention. Cash was $569m at quarter-end, against $753m a year earlier. SkyWest has $238m left on its buyback authorization. Chip Childs said the company sees "extremely full flights" on prorate. Wade Steel said SkyWest will be "extremely patient and disciplined" in adding markets. We worked from a call summary on MarketBeat and the release listing. We don't have a clean consensus. The summary's order split also adds to 62 against the 63 firm E175s it cites. SkyWest barely buys fuel, yet it still cut its guidance. Its partners buy the rest. The challenge is to produce the lowest seat cost, and since fuel is mostly off the table, the story is crew and aircraft costs.

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