SkyWest Airlines 2002 Annual Report Download - page 7

PART I
ITEM 1. BUSINESS
General
SkyWest, Inc. (the ‘‘Company’’), through its wholly owned subsidiary, SkyWest Airlines, Inc.
(‘‘SkyWest’’), operates the largest independent regional airline in the United States. SkyWest offers
scheduled passenger and air freight service with approximately 1,000 daily departures to 91 cities in 27
states and Canada. SkyWest has been a code-sharing partner with Delta Air Lines, Inc. (‘‘Delta’’) in
Salt Lake City and United Air Lines, Inc. (‘‘United’’) in Los Angeles since 1987 and 1997, respectively.
In April 1998, SkyWest expanded its United Express Agreement to provide service as United Express
in United’s Portland and Seattle/Tacoma markets and in additional Los Angeles markets, which began
in April 1998. In January 1998, SkyWest expanded its operations to serve as the United Express carrier
in San Francisco, which began in June 1998. In November 2001, SkyWest expanded its operations to
serve as the Delta Connection carrier in Dallas Ft. Worth. Today, SkyWest operates as the Delta
Connection in Salt Lake City and Dallas Fort Worth and as United Express in Los Angeles, San
Francisco, Denver and in the Pacific Northwest. SkyWest believes that its success in attracting multiple
code-sharing relationships is attributable to its delivery of high quality customer service with an all
cabin-class fleet. As of February 28, 2003, 57% of SkyWest’s capacity operated under the Delta code
and 43% operated under the United code. With principal hubs located at Los Angeles, Salt Lake City,
San Francisco, Portland, Dallas/Fort Worth and Seattle/Tacoma, SkyWest offers a convenient and
frequent flight schedule designed to maximize connecting and origin-destination traffic for its major
code-sharing partners. As of December 31, 2002, SkyWest operated a fleet of 76 Embraer EMB-120
Brasilia turboprops (‘‘Brasilias’’) and 73 Canadair Regional Jets (‘‘CRJs’’).
Historically, multiple code-sharing relationships have enabled SkyWest to reduce reliance on any
single major airline code and to enhance and stabilize operating results through a mix of SkyWest-
controlled flying and contract flying. On SkyWest-controlled flights, SkyWest controls scheduling,
ticketing, pricing and seat inventories and receives a prorated portion of passenger fares. On contract
routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories with
SkyWest receiving from its major airline partners negotiated payments per flight departure and
incentives related to passenger volumes and levels of customer service. The Company transitioned all of
its Delta Connection CRJ flights to contract flying October 1, 2001 and transitioned all of its Delta
Connection Brasilia flights to contract flying effective January 1, 2002. This transition resulted in
essentially all SkyWest flights operating as contract flying as of January 1, 2002. As of December 31,
2002, the Company had agreements to acquire an additional 70 CRJs with options for an additional
119 aircraft. These aircraft will be allocated between SkyWest’s Delta Connection and United Express
operations.
Since being founded in 1972 as a Utah corporation, the Company has experienced significant
growth. During the past five years, consolidated operating revenues have increased at a compounded
annual growth rate of 21.8%, from $352.5 million in 1998 to $774.4 million in 2002. Total passengers
carried by SkyWest has increased from approximately 4,422,000 to approximately 8,389,000 over the
same period, and the Company’s total assets increased from $388.3 million at December 31, 1998 to
$999.4 million at December 31, 2002. The improvement since fiscal 1998 reflects, among other factors,
the expansion of the Company’s code sharing arrangements with Delta and United and additional
aircraft acquisitions. In 2002, the Company experienced growth in available seat miles, revenue
passenger miles, passengers carried and load factors. The Company generated net income of
$86.9 million on total operating revenues of $774.4 million in 2002, net income of $50.5 million on total
operating revenues of $601.9 million in 2001 and net income of $60.9 million on total operating
revenues of $523 million in 2000. During the last three fiscal years, the Company’s total assets also
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