SkyWest Airlines 2002 Annual Report Download - page 3

To our Shareholders
We are proud to report record earnings for 2002, in spite of the many challenges facing
our industry. We recognize that our success is occurring in a very challenging time in
our industry and we are sensitive to the needs of our major partners. Our challenge now
is to maintain the integrity of our business model and at the same time create more value
to our major partners through a combination of aggressive cost reductions and some rate
concessions. Our total operating revenues increased 28.7 percent to $774.4 million for
the year ended December 31, 2002 compared to $601.9 million for the same period last
year. Our net income increased to $86.9 million or $1.51 per diluted share for the year
ended December 31, 2002 compared to $50.5 million or $.88 per diluted share for the
same period last year. Increases in shareholders’ equity, book value and cash per share
resulted from the addition of 26 new regional 50-seat jet aircraft wherein we ended the
year with 73 regional jets and 76 30-seat turboprop aircraft. We worked closely with our
major airline partners Delta and United, to connect small and medium-sized communities
to their large hub operations as well as introducing our regional jets in markets that were
previously served by larger jets that are no longer being operated profitably by our major
partners. Our objective is to be the highest quality and maintain a competitive cost
structure in the aircraft that we choose to operate.
We have not been without challenges during this year and challenging times will be with
us for awhile. Although our passenger loads have remained strong and our contracts with
our major partners have provided us with margins above our costs, the ticket prices
accepted in today’s market are 20 percent lower from the period just prior to September
11, 2001. In order to ensure economic viability of the flying we are doing under contract
for Delta and United, we have implemented aggressive cost reduction initiatives that will
create value for our partners by reducing the cost of our service. Another obvious
challenge is United’s bankruptcy filing on December 9, 2002 and its impact on our
industry. Initially, United did not remit a normal weekly wire to us just before the
bankruptcy was filed in a net amount of $9.7 million. They have however, made all
weekly wire payments while operating in bankruptcy. Our cost reduction initiatives are
directed at assisting United by reducing the cost of our service to them during this time.
We also remain at risk that United may not be successful and come out of bankruptcy.
As a result, we are developing other relationships and aggressively pursuing alternatives
and other opportunities as our backup plan in the event United’s restructuring efforts are
not successful. We also believe that pursuing other relationships will help to further
diversify our business risk. Needless to say, with all the bad news of the industry in
general, as well as the troubled financial condition of United, our stock performance has
been poor. Although the need for our services has continued to grow, financing aircraft
in this environment has become more difficult and could be a constraint on our future
growth.