SkyWest Airlines 2006 Annual Report Download - page 3

To our Shareholders
I’mhappy to report thatfor calendar 2006 we continued to execute on ourstrategy of additional
regional jet growth, expandedprofitability and continuedcost improvement. Thisisyet another year, in a
string of many, where we have beenable to add additional regional jet capacity to our business model and
do it profitably.Wehave also continued to integratethe acquisition of ASA thatwe completed late in
2005, and successfully deal with the challenges associated on the acquisition.
During the year ended December 31, 2006, we acquired 24 new regional jetaircraftconsisting of 15
CRJ700’s and 9 CRJ900’s that we added to ourSkyWest Airlines operations. Additionally, we added6
previously owned CRJ200 aircraft to our Atlantic Southeast Airlines (ASA) operations. As aresult of
adding a totalof 30 regional jetaircraft to our combined fleet, we were able to generate $3.1 billion dollars
in total operating revenues, $145.8 million of net income or $2.30 perdiluted share. Our earnings per
dilutedshare increased 21%comparedtoour2005 performance. By year end, ourcombined companies
generated approximately 2,400 daily departures to 229destinations in the UnitedStates, Canada, Mexico
and theCaribbean. We also hada combined totalfleet of 410 aircraft, whichwe believe is the5 th largest
operating fleetin the world for scheduledairline operators.
During 2006, fuel costs increased, year over year, at a rate of 7.4% with average cost per gallon of fuel
moving from $2.06 per gallon to $2.20 per gallon. In spite of this increase in the largest absolute dollar cost
component of our operating costs, ourtotal cost peravailable seat mile increasedslightly to $.143 for 2006
from $.141 for 2005. In fact after excludingfuel costs, which arepassed through 100% to ourmajor
partners, our cost peravailable seat mile reduced 2.1% to $.093 for 2006 from $.095 for 2005. The slight
reduction is the result of continuingto addregional jet capacity to our fleet that typically fly longer stage
lengths at loweroverall unit costs.
As mentioned previously, our combined fleet consisted of 410 aircraft as of December 31, 2006 that
breaks down as follows: 1) 336regional jets (118 United and 218 Delta), 2) 62 EMB-120aircraft (48
United and 14 Delta) and 3) 12 ATR72 aircraft (all Delta). Based on recent developments late in 2006, we
expect to acquire 31 additional regional jet aircraft during 2007 to supply contracted capacity needs for our
partners.
Late in the calendar 2006 yearwehad two very positive developments thathelped to buildour
business for 2007 and beyond. First, Deltaawarded us 12 CRJ700 regionaljet aircraft that were previously
operated by their wholly owned subsidiary Comair. We began taking delivery of these aircraft in
January 2007 with all12 aircraft scheduled to be delivered to us by April 2007. Second, we announced a
newairline services agreement with Midwest Airlines for up to 25 CRJ200 aircraft. Initially we will operate
these aircraft, primarily in Midwest’shubsof Milwaukee and KansasCity, with deliveries beginning in
March 2007 and ramping up to 15 aircraft by October 2007. We are currently sourcing aircraft in the
market to be able to meet our contract needs.
At December 31, 2006, we reported $651.9 million of cash and marketable securities. I’m pleasedwith
this result since we started the year with $324.5 million after spending $476.6 millionon the ASA
acquisition during the 2005 time frame. As aresult of primarily operating activities and completinga
successful equity offering during 2006, we were able to increase our liquidity position andadd $327.4
million of cash and marketablesecurities to our balance sheet. Our long-termdebt at December 31, 2006
was$1.67 billion compared to $1.42 billionatthe end of 2005, consistent with our refinancing of ASA short
term obligations, new aircraft deliveries financed with long-term debt andnormal recurringlong-term debt
reductions. We currently anticipate that ourliquidity position will build during 2007 as part of our normal
operations.
Amidst the positive resultsgenerated, our continued growth and adding new partners we continue to
have challenges to address. During 2007,we will be committed to improving thequality of both our
operating platforms by improving ourcompletion and on-time performance factors.We were not able to
make as much progress on these items with regards to ourASA operating company andSkyWest Airlines
did not perform in accordance with its usually high operating standards. We arealsocommitted to bringing