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Skywest Set To Soar Higher
David Fried, Buyback Letter 06.12.07, 5:01 PM ET
There's an old joke about airlines that goes about like this: "How do you make a small fortune in airlines? Start with a large fortune!"
When you finish chuckling over the fact that bankruptcy is an all-too-frequent relief for the nation's embattled airlines, let me remind you of one stock that has been my favorite since I originally bought it for the Buyback Letter Stock-Picker’s Portfolio back in 1996: SkyWest.
We bought it in April 1996 and sold in January 1998 for a 186% profit. We bought it again in October 2002 and sold in November 2005 for a 96% profit.
We’re buying Skywest again for our Stock-Picker’s Portfolio because the basic philosophy that made it a great company a decade ago remains unchanged.
Based in St. George, Utah, SkyWest is the nation's largest independently owned regional airline and is a contract carrier for United Airlines, Delta Air Lines and, most recently, Midwest Airlines.
SkyWest Airlines and Atlantic Southeast Airlines (the two airlines owned by SkyWest, Inc.) primarily serve as feeder airlines to and from smaller airports and regional hubs.
The short story on SkyWest is that it is nimbler than the big legacy carriers and not burdened by their bloated labor costs. It has a steady earnings stream, good cash flow and an attractive price-to-earnings ratio of 11. It enjoys a reputation for being an efficient, low-cost operator and the best-managed regional airline in the business.
Really, a little history is in order to paint the big picture of how far SkyWest has come. In 1972, SkyWest started with little equipment and a big idea. Ralph Atkin, a St. George, Utah, lawyer motivated by his own frustration with limited air service, bought Dixie Airlines to shuttle businessmen to Salt Lake City. The first SkyWest flights were penny-a-pound airplane rides along with parachutists and stunts. It was a rocky beginning, with a whopping 256 people flying SkyWest's services that year in a six-seat Piper Seneca.
"We could say that we never cancelled a flight. We may have gotten there four hours late, but we got people to their destination," said a good-humored Atkin at the time. But business was so bad that efforts to sell or even give away the struggling airline failed. Finally, a reorganization cut overhead costs, personnel and aircraft, and Jerry Atkin, 26, took over, becoming the youngest president of a scheduled airline in the nation. The company turned around, and soon SkyWest began expanding across the Western U.S., becoming the eleventh largest regional carrier in 1984 with the acquisition of Sun Aire of Palm Springs, Calif.
SkyWest had its initial public offering in 1986, and raised enough money to pay off a sizable chunk of the long-term debt accrued from the purchase of Sun Aire and a new maintenance facility in Utah.
In 1985 SkyWest began a cooperative services agreement as Western Express, a feeder service for Western Airlines at their Salt Lake City hub, later acquired by Delta. In 1995, SkyWest began operating flights for Continental out of LAX. The relationship was discontinued two years later when SkyWest began flying for United Airlines.
Thus began the most exciting period of growth for SkyWest as it managed two of the world’s largest most powerful partners; both wanted and expected seamless service. SkyWest needed an unprecedented number of planes, employees and training in a very short amount of time to pull it off.
SkyWest's United Express flights out of LAX, SFO and DEN became its largest operation by the late 1990s. A partnership with Continental Airlines was reinvigorated in 2003 out of IAH, and was discontinued June 2005.
In August 2005, Delta announced that it was selling Atlantic Southeast Airlines SkyWest, Inc. for $425 million in cash, removing ASA from a weaker legacy carrier and placing it in much stronger hands. One month later, SkyWest, Inc. announced that the acquisition had been completed, making SkyWest a player on the national stage. Now, through SkyWest Airlines and ASA, the company operates the largest regional airline in the United States.
A decade ago, SkyWest was in the midst of making its fleet bigger and more efficient. It had operated three types of aircraft--the 19-passenger Fairchild Metroliner, 35-passenger EMB-120 Brazilias and 50-passenger Canadair Regional Jets. The company has gradually phased out the smallest planes and increased the number of available seats. It now flies a fleet consisting of 30-passenger turboprop Brasilia EMB 120 aircraft, and Bombardier-manufactured 50- and 70-passenger Canadair Regional Jets.
For a company that hired its first flight attendants in 1986, boasted 5,079 workers in 2002 and close to 15,000 today, SkyWest has done a lot of things right with its personnel. SkyWest has always put a priority on employee relations, over the years using peer-elected councils to seek solutions to problems, contribute to job satisfaction and improve cost control.
Employee involvement has helped send profits to the bottom line via many cost-cutting and efficiency-producing ideas that originated from the staff. Employees may purchase SkyWest stock at a discount through a stock purchase plan, giving them an additional incentive to help the company perform.
Importantly, SkyWest’s pilots are not unionized and never have been, which helps to keep labor costs under control and historically accounts for the airline’s excellent on-time performance record (SkyWest was named the No. 1 on-time airline in the U.S. by the Department of Transportation for 2003, 2004 and 2005).
In May, SkyWest announced first quarter 2007 earnings. Operating revenues were $789 million for the quarter ended March 31, 2007, a 6.2% increase, compared with $742.9 million for the same period last year. Net income was $34.8 million for the quarter, an increase of 0.6% ($0.53 per diluted share) compared with $34.6 million of net income ($0.57 per diluted share) for the same period last year.
Since the mid-1970s, company officials have made strategic moves to expand the company's reach while staying true to its regional niche. SkyWest has grown from a company with annual revenue of under $1 million to a publicly held company with annual revenues of more than $1 billion and almost 15,000 employees. SkyWest is set for continued long-term growth.
SkyWest has been a favorite of mine for the past decade. With a solid history of repurchasing its shares (which, as we know, boosts earnings per share and signals management’s belief that the stock is undervalued), SkyWest’s board in March authorized a buyback of 5 million shares, or 7.8% of all shares outstanding.
http://www.forbes.com/finance/2007/06/12...l?partner=topix
Skywest Set To Soar Higher
David Fried, Buyback Letter 06.12.07, 5:01 PM ET
There's an old joke about airlines that goes about like this: "How do you make a small fortune in airlines? Start with a large fortune!"
When you finish chuckling over the fact that bankruptcy is an all-too-frequent relief for the nation's embattled airlines, let me remind you of one stock that has been my favorite since I originally bought it for the Buyback Letter Stock-Picker’s Portfolio back in 1996: SkyWest.
We bought it in April 1996 and sold in January 1998 for a 186% profit. We bought it again in October 2002 and sold in November 2005 for a 96% profit.
We’re buying Skywest again for our Stock-Picker’s Portfolio because the basic philosophy that made it a great company a decade ago remains unchanged.
Based in St. George, Utah, SkyWest is the nation's largest independently owned regional airline and is a contract carrier for United Airlines, Delta Air Lines and, most recently, Midwest Airlines.
SkyWest Airlines and Atlantic Southeast Airlines (the two airlines owned by SkyWest, Inc.) primarily serve as feeder airlines to and from smaller airports and regional hubs.
The short story on SkyWest is that it is nimbler than the big legacy carriers and not burdened by their bloated labor costs. It has a steady earnings stream, good cash flow and an attractive price-to-earnings ratio of 11. It enjoys a reputation for being an efficient, low-cost operator and the best-managed regional airline in the business.
Really, a little history is in order to paint the big picture of how far SkyWest has come. In 1972, SkyWest started with little equipment and a big idea. Ralph Atkin, a St. George, Utah, lawyer motivated by his own frustration with limited air service, bought Dixie Airlines to shuttle businessmen to Salt Lake City. The first SkyWest flights were penny-a-pound airplane rides along with parachutists and stunts. It was a rocky beginning, with a whopping 256 people flying SkyWest's services that year in a six-seat Piper Seneca.
"We could say that we never cancelled a flight. We may have gotten there four hours late, but we got people to their destination," said a good-humored Atkin at the time. But business was so bad that efforts to sell or even give away the struggling airline failed. Finally, a reorganization cut overhead costs, personnel and aircraft, and Jerry Atkin, 26, took over, becoming the youngest president of a scheduled airline in the nation. The company turned around, and soon SkyWest began expanding across the Western U.S., becoming the eleventh largest regional carrier in 1984 with the acquisition of Sun Aire of Palm Springs, Calif.
SkyWest had its initial public offering in 1986, and raised enough money to pay off a sizable chunk of the long-term debt accrued from the purchase of Sun Aire and a new maintenance facility in Utah.
In 1985 SkyWest began a cooperative services agreement as Western Express, a feeder service for Western Airlines at their Salt Lake City hub, later acquired by Delta. In 1995, SkyWest began operating flights for Continental out of LAX. The relationship was discontinued two years later when SkyWest began flying for United Airlines.
Thus began the most exciting period of growth for SkyWest as it managed two of the world’s largest most powerful partners; both wanted and expected seamless service. SkyWest needed an unprecedented number of planes, employees and training in a very short amount of time to pull it off.
SkyWest's United Express flights out of LAX, SFO and DEN became its largest operation by the late 1990s. A partnership with Continental Airlines was reinvigorated in 2003 out of IAH, and was discontinued June 2005.
In August 2005, Delta announced that it was selling Atlantic Southeast Airlines SkyWest, Inc. for $425 million in cash, removing ASA from a weaker legacy carrier and placing it in much stronger hands. One month later, SkyWest, Inc. announced that the acquisition had been completed, making SkyWest a player on the national stage. Now, through SkyWest Airlines and ASA, the company operates the largest regional airline in the United States.
A decade ago, SkyWest was in the midst of making its fleet bigger and more efficient. It had operated three types of aircraft--the 19-passenger Fairchild Metroliner, 35-passenger EMB-120 Brazilias and 50-passenger Canadair Regional Jets. The company has gradually phased out the smallest planes and increased the number of available seats. It now flies a fleet consisting of 30-passenger turboprop Brasilia EMB 120 aircraft, and Bombardier-manufactured 50- and 70-passenger Canadair Regional Jets.
For a company that hired its first flight attendants in 1986, boasted 5,079 workers in 2002 and close to 15,000 today, SkyWest has done a lot of things right with its personnel. SkyWest has always put a priority on employee relations, over the years using peer-elected councils to seek solutions to problems, contribute to job satisfaction and improve cost control.
Employee involvement has helped send profits to the bottom line via many cost-cutting and efficiency-producing ideas that originated from the staff. Employees may purchase SkyWest stock at a discount through a stock purchase plan, giving them an additional incentive to help the company perform.
Importantly, SkyWest’s pilots are not unionized and never have been, which helps to keep labor costs under control and historically accounts for the airline’s excellent on-time performance record (SkyWest was named the No. 1 on-time airline in the U.S. by the Department of Transportation for 2003, 2004 and 2005).
In May, SkyWest announced first quarter 2007 earnings. Operating revenues were $789 million for the quarter ended March 31, 2007, a 6.2% increase, compared with $742.9 million for the same period last year. Net income was $34.8 million for the quarter, an increase of 0.6% ($0.53 per diluted share) compared with $34.6 million of net income ($0.57 per diluted share) for the same period last year.
Since the mid-1970s, company officials have made strategic moves to expand the company's reach while staying true to its regional niche. SkyWest has grown from a company with annual revenue of under $1 million to a publicly held company with annual revenues of more than $1 billion and almost 15,000 employees. SkyWest is set for continued long-term growth.
SkyWest has been a favorite of mine for the past decade. With a solid history of repurchasing its shares (which, as we know, boosts earnings per share and signals management’s belief that the stock is undervalued), SkyWest’s board in March authorized a buyback of 5 million shares, or 7.8% of all shares outstanding.
http://www.forbes.com/finance/2007/06/12...l?partner=topix
