SkyWest Airlines 2008 Annual Report Download - page 56

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as of December 31, 2008, and we do not believe the guidance had a material impact on our
consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aircraft Fuel
In the past, we have not experienced difficulties with fuel availability and we currently expect to be
able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our
contract flying arrangements, United has agreed to bear the economic risk of fuel price fluctuations on
our contracted United Express flights. On our Delta Connection regional jet flights, Delta has agreed
to bear the economic risk of fuel price fluctuations. We bear the economic risk of fuel price
fluctuations on our pro-rate operations. As of December 31, 2008, essentially all of our Brasilia
turboprops flown for Delta were flown under pro-rate arrangements while, approximately 42% of our
Brasilia turboprops flown in the United system were flown under pro-rate arrangements. The average
price per gallon of aircraft fuel increased 38.2% to $3.33 for the year ended December 31, 2008, from
$2.41 for the year ended December 31, 2007. For illustrative purposes only, we have estimated the
impact of the market risk of fuel on our pro-rate operations using a hypothetical increase of 25% in
the price per gallon we purchase. Based on this hypothetical assumption, we would have incurred an
additional $9.0 million in fuel expense for the year ended December 31, 2008.
Interest Rates
Our earnings are affected by changes in interest rates due to the amounts of variable rate
long-term debt and the amount of cash and securities held. The interest rates applicable to variable
rate notes may rise and increase the amount of interest expense. We would also receive higher amounts
of interest income on cash and securities held at the time; however, the market value of our
available-for-sale securities would likely decline. At December 31, 2008, we had variable rate notes
representing 46.6% of our total long-term debt compared to 49.6% of our long-term debt at
December 31, 2007. For illustrative purposes only, we have estimated the impact of market risk using a
hypothetical increase in interest rates of one percentage point for both variable rate long-term debt and
cash and securities. Based on this hypothetical assumption, we would have incurred an additional
$8.8 million in interest expense and received $6.7 million in additional interest income for the year
ended December 31, 2008 and we would have incurred an additional $9.6 million in interest expense
and received $6.9 million in additional interest income for the year ended December 31, 2007.
However, under our contractual arrangement with our major partners, the majority of the increase in
interest expense would be passed through and recorded as passenger revenue in the consolidated
statement of income.
We currently intend to finance the acquisition of aircraft through manufacturer financing, third-
party leases or long-term borrowings. Changes in interest rates may impact our actual costs of acquiring
these aircraft.
Auction Rate Securities
We have investments in auction rate securities, which are classified as available for sale securities
and reflected at fair value. Due primarily to instability in credit markets, we sold a portion of these
investments. As of December 31, 2008, we had investments valued at a total of $4.7 million, of which
$2.5 million were classified as Marketable Securities and $2.2 million were classified as Other Assets in
our consolidated balance sheet. For a more detailed discussion on auction rate securities, including our
methodology for estimating their fair value, see Note 5 to our consolidated financial statements
appearing elsewhere in this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth below should be read together with the ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations,’’ appearing elsewhere herein.
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