SkyWest Airlines 2007 Annual Report Download - page 9

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• 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 a Midwest Services Agreement with
Midwest, and SkyWest Airlines and ASA operate under Delta Connection Agreements with Delta. These code-share
agreements authorize Delta, United and Midwest to identify our flights and fares under their two-letter flight designator codes
(“DL,” “UA” or “YX”) in the central reservation systems, and generally require us to paint our aircraft with their colors and
logos and to market our status as Delta Connection, United Express or Midwest Connect. 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, United and Midwest. As of December 31, 2007,
approximately 95% of our passenger revenues related to contract flights, where Delta, United or Midwest controls
scheduling, ticketing, pricing and seat inventories. The remainder of or our passenger revenues related to pro-rate flights,
where we 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.
SkyWest Airlines Delta Connection Agreement
SkyWest Airlines and Delta are parties to the SkyWest Airlines Delta Connection Agreement, dated as of
September 8, 2005. As of December 31, 2007, SkyWest Airlines operated 17 CRJ900s, 13 CRJ700s and 56 CRJ200s under
the SkyWest Airlines Delta Connection Agreement. Additionally, SkyWest Airlines operates 11 Brasilia turboprops in the
Delta code under a revenue-sharing arrangement. SkyWest Airlines operates these aircraft to provide Delta Connection
service between Delta hubs and destinations designated by Delta. As of December 31, 2007, SkyWest Airlines was operating
approximately 525 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 primarily related to fuel, aircraft maintenance and ownership.
The SkyWest Airlines Delta Connection Agreement is scheduled to terminate 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;
• if the other party files for bankruptcy, reorganization or similar action (subject to limitations imposed by the U.
S. Bankruptcy Code) or if either party makes an assignment for the benefit of creditors; or