Dwayne Pfennigwerth: Okay. So effectively removing minimums towards the back end of the contract, but the expectation that you’re going to well exceed those minimums at some point down the road.
Wade Steel: Yes. Yes, you got it.
Dwayne Pfennigwerth: Okay. And then on the down 19% on block hours next year, can you just speak a little bit, is that kind of base case or is that conservatism? Is this your upper limit? Is that what your staff to support? Or are there kind of staffing events that could unfold over the course of the year that could take — that could give you a higher level than that down 2019?
Chip Childs: Yes. So I would say that 19% is a very good predictor of where we think attrition is going to be combined with development of cabins in 2023. If the attrition levels, like I said earlier, go to last year’s attrition levels, then it would be less than 19%. If we gain some — like I said, we’re going to have to see how this plays out closer to summer, but we’re optimistic of what the ratios are today. And if those continue to hold, which I don’t know that they’re going to hold perfectly, then there could be some upside of that 19% by the end of the year. But I think the factor is when we’re sitting here in January and February, these are not great predictive, these were lower than last year — these were lower than last year’s January and February by a fair amount, but we want to see what’s happening in the springtime going in through summer and see what that is.
But again, look, the mood of pilots, the horizon of what we can kind of see out there. It feels a lot different this year than last year, but we’re not ready to do a wholesale model and that’s kind of how we got to the 19% but there’s — it’s probably a number that we’re not going to hit one way or the other. We just don’t know which way perfectly how that’s going to go until we get closer to summer.
Dwayne Pfennigwerth: All very fair. Thanks for the thoughts.
Operator: Our next question comes from Helane Becker with Cowen.
Helane Becker: Thanks very much, operator. Hi, everybody. Thanks for the time. So just two questions. One, can you actually be more specific on attrition? What was attrition last year and what does it look like currently?
Chip Childs: Yes, Helane, this is Chip. I’m sorry, I can’t, those are kind of some things that we’ve decided to make sure that we keep kind of with us and our partners and we have some confidence, we have relative to a lot of our contract. But I will say that, like I indicated to Dwayne earlier, so far, December, January and February are less than they were last year. And when we have the pay package that we have this year, we see tremendous demand for folks to come to SkyWest. And there’s a lot of things we hear anecdotally about pilots that have left and want to come back, a lot of pilots that have had commitments to leave and turn them down and stay. So look, the only thing that we can say is that attrition is not quite as bad as it was last year and we’re growing in some optimism. But again, we have to see more on the meaty side of what happens this spring or before summer before we can really make a wholesale model assessment.
Helane Becker: Great. That’s really fair. Thanks. And then just for my follow-up question. So when you negotiated these contracts with your pilots, did you get input from your partners or I mean, obviously, they had to sign off that they were okay with you raising pay as much as you did and willing to reimburse some portion of it. So when you are having those conversation, was there a lot of pushback, where they thinking maybe they would reduce their reliance on your aircraft and move to other operators, how did that go?
Chip Childs: Now, this is Chip again, you’re going to take us through a dark period of our lives, honestly.
Helane Becker: Oh my God, I’m sorry.
Chip Childs: I think that, to go back to what we do at SkyWest, and that is to be able to evolve, take care of our people and take care of our partners is I think what SkyWest has done better than anybody else in the regional industry for the last 50 years. So admittingly, I will say that it is a very stressful time, I think that as you go through — and it’s not just pilots, we’ve had conversation with all of our work groups. This was one of the first ones where we certainly have to coordinate with some of our partners, some of our partners quite candidly, started this process. I mean we were down the road with some things and we had one of the wholly owned carriers do some things that caused us to completely rethink it. So to the extent that it’s a fluid market relative to what happened — what happened in 2022 with regional pay was an understatement.
Did we have to commit to the pay before we got the complete commitment from our partners? Yeah, we did because that’s the way labor negotiations work and I think it’s hats off to the team of us — we had to bridge some of the gaps to connect with what’s best for our people and what’s best for our partners and I’ll go back and say, what I said in my script before. Candidly, our operational credibility and the quality of team that we have here at SkyWest from all of our 14,000 professionals, I can tell you it comes down to the credibility that we have with our partners, it comes down with a very efficient ability to work with our work groups and it comes down to how stable and solid an operation that we’ve had throughout our history and when you combine all those long-term investments and long-term approaches, it makes a difficult situation a lot easier and we’re happy — we’re really happy about the outcome.
And it has. I would say the desired effect for all the parties involved
Helane Becker: That’s very helpful, thank you very much.
Operator: Our next question comes from Catherine O’Brien, with Goldman Sachs.
Catherine O’Brien: Hey gentlemen, good afternoon. Great to see you guys again this quarter. Maybe, my first one’s for Rob. Can you just help us think about some of the puts and takes on costs. Underlying the commentary on roughly breakeven ex deferred revenue for this year, should we think about the fourth quarter being a good run rate for salaries and benefits given has the full quarter of the new pilot agreement. And then I know maintenance has been a bit lumpy last couple of years, how do you think about that trending forward just to touch on a couple of the large line items. Thanks.
Robert Simmons: Yeah, I mean obviously if you look at each of the line items, we were up a little bit and labor in Q4, where the pilots deal was struck in Q3 and some of these reimbursements covered part of the quarter. So I mean Q4 was a little bit of a noisy quarter, obviously, with impairment the lease acceleration and the deferred revenue. But all in all, the net — the net sort of operating results of the company, we were pleased with.
Catherine O’Brien: Okay, got it. Understood. And then great news on getting these contract amendment done and being able to pass through a portion of the higher pilot wage rates, can you just help us think like really high level about how much of the pilot costs we passed through? And then on the portion that’s not being passed through today, how far are we out from negotiations on those contracts. I know we’re approaching like the 10 or 12-year mark the first E175 delivery. So maybe some of it is coming up. Thanks again.
Wade Steel: Yeah, this is wade. So a great question. So as far as the pilot reimbursement as we said, we worked with each of our major partners, our four major partners, most of them have reimbursed us there. We’re still working with one of the partners on the additional reimbursement. So we are well above 60%, 70% right now covered where we’re at. So we feel pretty good about where we’re at. We’re working with the other partners going forward — on the other partner going forward to get the additional cost reimbursements.
Catherine O’Brien: That’s great. I need to sneak one more in on the charter business, there’s been an update. Can you just remind us on about how many planes are you thinking that this business ultimately comprises of or maybe you haven’t shared that before. Just wondering like to think about pricing it? And then how is hiring going there on the pilot front, couple of months out, I think you can tap into some additional pilot pool versus like your traditional in the main business. So any additional color will be great. Thank you again for the time.
Chip Childs: Chip this is. Cathy, welcome back. It’s great to have you back, hope everything is well with your family. Just going back to that charter side, I think that if you look at the scope that we could make this, I would suggest you look at a couple of numbers in the fleet. I think we have about 120 CRJ200s available that we could put into Charter maximum for now. I think that if you look at what our historical prorate model was like back in 2019, we had about 50 CRJ200s within a 50-seat model that would work within our prorate operation. And then I think if you pay for it from there, I think that demand since 2019 has become significantly stronger. So I think that hopefully, gives you a couple of benchmark to think about, I can’t tell you exactly where we’re going to be, certainly, as we discussed about Charter, we will be flying on-demand charter flights starting in March, we anticipate that the demand for non-scheduled service chart on-demand charter business model is extremely strong right now as well.
So there’s a lot of options here. And then you get back to what we’ve what we’ve talked about, the pilot situation is extremely good for an operation like this mostly because of — it’s a new seniority list. I don’t know that we’re going to operate this significantly differently with a different circumstance pilots and what we do with SkyWest but there certainly is some different availability and some compelling reasons to do some things within a separate certificate and a separate seniority list just because it seems like these days specific with pilots, people want to get on a new seniority list and be an early participant in that. I think that’s why we lost a lot of pilots this last year because the seniority list throughout the country opened up and that’s what we’re doing here.
And so, in a nutshell, the pilot demand to come to the charter operation is extremely good, not just for new first officer entrants, but also for direct entry captain is extremely good. So look, we’re going to be patient. We’re going to make sure we do it right as we usually do and we’re going to continue to work forward and give probably another good update after we start to operating some revenue flights in the May timeframe when we call you again, and hopefully have some more visibility on it. So hopefully that gives you a little bit of — a little bit of an idea high level of what some of the opportunities and capacity may be.
Catherine O’Brien: That’s great. Thanks so much for the time everyone.
