SkyWest Airlines 2008 Annual Report Download - page 13

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 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, 2008, 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, 2008, SkyWest Airlines operated 20 CRJ900s, 13
CRJ700s and 52 CRJ200s under the SkyWest Airlines Delta Connection Agreement. Additionally, as of
December 31, 2008, SkyWest Airlines operated 12 Brasilia turboprops under 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, 2008, SkyWest
Airlines was operating approximately 430 Delta Connection flights per day. 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 is scheduled to
receive 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
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