SkyWest Airlines 2009 Annual Report Download - page 10

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 operation in
the United States. However, some of the major and low-cost carriers are larger, and have greater
financial and other resources than SkyWest Airlines and ASA. Additionally, regional carriers owned by
major airlines, such as American Eagle, Comair, Compass and Mesaba, 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 may be 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’’), 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, 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, Compass, Mesaba and Horizon, are wholly-owned
subsidiaries of major airlines.
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