SkyWest Airlines 2006 Annual Report Download - page 38

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Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations
The following discussion and analysis presents factors that had a material effecton our results of
operations during the years ended December 31, 2006, 2005 and 2004. Also discussed is our financialposition
as of the end of December31, 2006 and 2005. You should read this discussion in conjunction with our
consolidatedfinancial statements, including thenotes thereto, appearingelsewhere in this Report or
incorporatedhereinby reference.Thisdiscussion and analysis contains forward-looking statements.Please refer
to the sections of this Report entitled ‘‘Cautionary Statement Concerning Forward-Looking Statements’’ and
“Item 1A. Risk Factors” for discussion of the uncertainties, risks and assumptions associated with these
statements.
Overview
Through SkyWest Airlines and ASA, we operatethe largest regional airline in the United States.As
of December 31, 2006,SkyWestAirlines and ASA offered scheduled passenger and air freight service with
more than 2,400 totaldaily departures to 229 destinations in the United States, Canada, Mexico and the
Caribbean.Additionally,we provide ground handling servicesforapproximately nine other airlines
throughout oursystem. As of December 31, 2006, ourconsolidated fleet consisted of 235 CRJ200s (66
assigned to United and 169assigned to Delta, including ten CRJ100s which have been upgraded to
conform to the manufacturer’s specifications for CRJ200s) 92 CRJ700s(52assigned to United and40
assigned to Delta), nine CRJ900s (all assigned to Delta), 62 Brasilia turboprops (48 assigned to United and
14 assigned to Delta), and 12 ATR-72turboprops (all assigned to Delta). We believe our success in
attracting multiple contractual relationships with majorairline partners is attributable to ourdelivery of
high-quality customerservicewith an all cabin-class fleet at a competitive cost structure. For the month
ended December 31, 2006, approximately 58.1% of ouraggregate capacity wasoperated under the Delta
code andapproximately 41.9% wasoperatedunder the United code.
SkyWest Airlines has been a partner with Delta in SaltLake City and United in Los Angeles since
1987 and 1997, respectively. In 1998, SkyWest Airlines expanded its relationship with United to provide
service in Portland, Seattle/Tacoma, San Franciscoand additionalLos Angeles markets. In 2004, SkyWest
Airlines expanded its United Express operations to provide service in Chicago. As of December 31, 2006,
SkyWest Airlines operated as aDeltaConnection carrier in Salt Lake City, and a United Express carrier in
LosAngeles, San Francisco, Denver, Chicago and thePacific Northwest, operatingmore than 1,600 total
daily flights.
On September 7, 2005, we completed theacquisition of ASA from Delta for $421.3 million in cash.
Additionally, as part of the purchase,we paid $5.3 million of transaction fees and assumed approximately
$1.25 billion in long-term debt. In addition, we returned to Delta$50 million in deposits that Delta had
previously paid on future ASA aircraft deliveries. We believe the combination of SkyWest Airlines and
ASA presents us with new opportunities forgrowth through our two geographically-focused regional
airlineplatforms–SkyWest Airlines in theWesternUnited States and ASA in the Eastern United States.
We now provide the vast majority of regional airline service for Delta in Atlanta,its most important
eastern hub, and Salt LakeCity, its most important western hub. In connection with the ASA acquisition,
we established new, separate, but substantially similar, long-termfixed-fee Delta Connection Agreements
with Delta for both SkyWestAirlines and ASA. We also obtained control of 29 gates in theHartsfield-
Jackson International AirportlocatedinAtlanta, from which we currently provide service to Delta.Delta
hascommitted to provide to us opportunities to utilize 20 additional regional jets in our fleet by the end of
2007. Delta has also agreed that, starting in 2008, ASA is guaranteedto maintain its percentage of total
Delta Connection flights that it has in 2007, so longas its bid for additional regional flying is competitive
with other regional carriers.