SkyWest Airlines 2005 Annual Report Download - page 12

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between the fixed-fees for a flight and the expected per-flight costs tends to be smaller than the margins associated with
revenue-sharing arrangements.
• Revenue-Sharing Arrangements. Under a revenue-sharing arrangement, the major airline and regional airline negotiate
a proration formula, pursuant to which the regional airline receives a percentage of the ticket revenues for those passengers traveling
for one portion of their trip on the regional airline and the other portion of their trip on the major airline. Substantially all costs
associated with the regional airline flight are borne by the regional airline. In such a revenue-sharing arrangement, the regional airline
realizes increased profits as ticket prices and passenger loads increase or fuel prices decrease and, correspondingly, realizes decreased
profits as ticket prices and passenger loads decrease or fuel prices increase.
Code-Share Agreements
SkyWest Airlines operates under a United Express Agreement with United, and SkyWest Airlines and ASA operate under
Delta Connection Agreements with Delta. These code-share agreements authorize Delta and United to identify our flights and
fares under their two-letter flight designator codes (“DL” and “UA”) in the central reservation systems, and authorize us to paint
our aircraft with their colors and logos and to market our status as The Delta Connection or United Express. Under each of our
code-share agreements, our passengers participate in the major partner’s frequent flyer program, and the major partner provides
additional services such as reservations, ticket issuance, ground support services and gate access. We also coordinate our
marketing, advertising and other promotional efforts with Delta and United. As of December 31, 2005, approximately 93.8% of
SkyWest Airlines’ and ASA’s total daily flights were structured as contract flights, where Delta or United controls scheduling,
ticketing, pricing and seat inventories. The remainder of our flights are pro-rate flights, where SkyWest Airlines and ASA control
scheduling, ticketing, pricing and seat inventories, and share revenues with Delta or United according to pro-rate formulas. The
following summaries of our code-share agreements do not purport to be complete and are qualified in their entirety by reference
to the applicable agreement. Under our code-share agreements, we have commitments from our major partners to place 38
additional regional jets into service over approximately the next two years.
SkyWest Airlines Delta Connection Agreement
SkyWest Airlines and Delta are parties to an Amended and Restated Delta Connection Agreement, dated as of September 8,
2005 (the “SkyWest Airlines Delta Connection Agreement”). As of December 31, 2005, SkyWest Airlines operated 57 CRJ200s
and 14 Brasilia turboprops under the SkyWest Airlines Delta Connection Agreement. SkyWest Airlines operates these aircraft to
provide Delta Connection service between Delta hubs and destinations designated by Delta. As of December 31, 2005, SkyWest
Airlines was operating approximately 400 Delta Connection flights per day between Salt Lake City and designated outlying
destinations. Delta is entitled to all passenger, cargo and other revenues associated with each flight.
In exchange for providing the designated number of flights and performing SkyWest Airlines’ other obligations under the
SkyWest Airlines Delta Connection Agreement, SkyWest Airlines receives from Delta on a weekly basis (i) reimbursement for
100% of its direct costs related to the Delta Connection flights plus (ii) a fixed dollar payment per completed flight block hour,
subject to annual escalation at an agreed rate. Costs directly reimbursed by Delta under the SkyWest Airlines Delta Connection
Agreement include costs related to fuel, ground handling, and aircraft maintenance and ownership.
The SkyWest Airlines Delta Connection Agreement terminates on September 8, 2020, unless Delta elects to exercise its option
to extend the term for up to four additional five-year terms. The SkyWest Airlines Delta Connection Agreement is subject to early
termination in various circumstances including:
• if SkyWest Airlines or Delta commits a material breach of the SkyWest Airlines Delta Connection Agreement,
subject to 30 days notice and cure rights;
• if SkyWest Airlines fails to conduct all flight operations and maintain all aircraft under the SkyWest Airlines
Delta Connection Agreement in compliance in all material respects with applicable government regulations;
• if SkyWest Airlines fails to satisfy certain performance and safety requirements;
• if, under certain circumstances, Delta has a right to terminate the ASA Delta Connection Agreement;