SkyWest Airlines 2007 Annual Report Download - page 7

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Competition and Economic Conditions
The airline industry is highly competitive. SkyWest Airlines and ASA compete principally with other code-sharing
regional airlines, but also with regional airlines operating without code-share agreements, as well as low-cost carriers and
major airlines. The combined operations of SkyWest Airlines and ASA extend throughout most major geographic markets in
the United States. Our competition includes, therefore, nearly every other domestic regional airline, and to a certain extent,
most major and low-cost domestic carriers. The primary competitors of SkyWest Airlines and ASA among regional airlines
with code-share arrangements include Air Wisconsin Airlines Corporation, American Eagle Airlines, Inc. (“American
Eagle”) (owned by American), Comair, Inc. (“Comair”) (owned by Delta), ExpressJet Holdings, Inc. (“ExpressJet”), Horizon
Air Industries, Inc. (“Horizon”) (owned by Alaska Air Group, Inc.), Mesa Air Group, Inc. (“Mesa”), Pinnacle Airlines Corp.
(“Pinnacle”), Republic Airways Holdings Inc. (“Republic”) and Trans State Airlines, Inc. Major airlines award contract
flying to these regional airlines based upon, but not limited to, the following criteria: low cost, financial resources, overall
customer service levels relating to on-time arrival and departure statistics, cancellation of flights, baggage handling
performance and the overall image of the regional airline as a whole. The principal competitive factors we experience with
respect to our pro-rate flying include fare pricing, customer service, routes served, flight schedules, aircraft types and
relationships with major partners.
The principal competitive factors for code-share partner regional airlines are code-share agreement terms, customer
service, aircraft types, fare pricing, flight schedules and markets and routes served. The combined operations of SkyWest
Airlines and ASA, represent the largest regional airline operations in the United States. However, some of the major and low-
cost carriers are larger, and may have greater financial and other resources than SkyWest Airlines and ASA. Additionally,
regional carriers owned by major airlines, such as American Eagle and Comair, may have access to greater resources at the
parent level than SkyWest Airlines and ASA, and may have enhanced competitive advantages since they are subsidiaries of
major airlines. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly
discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only
nominal costs to provide service to passengers occupying otherwise unsold seats.
Generally, the airline industry is highly sensitive to general economic conditions, in large part due to the
discretionary nature of a substantial percentage of both business and leisure travel. Many airlines have historically reported
lower earnings or substantial losses during periods of economic recession, heavy fare discounting, high fuel costs and other
disadvantageous environments. Economic downturns combined with competitive pressures have contributed to a number of
reorganizations, bankruptcies, liquidations and business combinations among major and regional carriers. The effect of
economic downturns is somewhat mitigated by the predominantly contract-based flying arrangements of SkyWest Airlines
and ASA. Nevertheless, the per passenger component in such fee structure would be affected by an economic downturn. In
addition, if Delta or United, or one or more other code-share partners we may secure in the future, experience a prolonged
decline in passenger load or are harmed by low ticket prices or high fuel prices, they will likely seek to renegotiate their code-
share agreements with SkyWest Airlines and ASA or cancel flights in order to reduce their costs.
Industry Overview
Majors, Low Cost Carriers and Regional Airlines
The airline industry in the United States has traditionally been dominated by several major airlines, including
American, Continental Airlines, Inc. (“Continental”), Northwest, Delta, US Airways and United. The major airlines offer
scheduled flights to most major U.S. cities, numerous smaller U.S. cities, and cities throughout the world through a hub and
spoke network.
Low cost carriers, such as Southwest Airlines Co. (“Southwest”), JetBlue Airways Corporation (“JetBlue”), Frontier
Airlines, Inc. (“Frontier”) and AirTran Airways, Inc. (“AirTran”), generally offer fewer conveniences to travelers and have
lower cost structures than major airlines, which permits them to offer flights to and from many of the same markets as the
major airlines, but at lower prices. Low cost carriers typically fly direct flights with limited service to smaller cities,
concentrating on higher demand flights to and from major population bases.
Regional airlines, such as ASA, ExpressJet, Mesa, Pinnacle, Republic and SkyWest Airlines, typically operate
smaller aircraft on lower-volume routes than major and low cost carriers. Several regional airlines, including American
Eagle, Comair and Horizon, are wholly-owned subsidiaries of major airlines.
In contrast to low cost carriers, regional airlines generally do not try to establish an independent route system to
compete with the major airlines. Rather, regional airlines typically enter into relationships with one or more major airlines,