SkyWest Airlines 2009 Annual Report Download - page 12

These code-share agreements authorize Delta, United, Midwest and AirTran to identify our flights
and fares under their two-letter flight designator codes (‘‘DL,’’ ‘‘UA’’ ‘‘YX’’, or ‘‘FL’’) 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. Midwest Connect or AirTran. 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, Midwest and AirTran. As of December 31, 2009, approximately 94% of our
passenger revenues related to contract flights, where Delta, United or Midwest controlled scheduling,
ticketing, pricing and seat inventories. The remainder of or our passenger revenues as of December 31,
2009 related to pro-rate flights, where we controlled scheduling, ticketing, pricing and seat inventories,
and shared revenues with Delta, United or AirTran 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, 2009, SkyWest Airlines operated 21 CRJ900s, 13
CRJ700s and 52 CRJ200s under the SkyWest Airlines Delta Connection Agreement. Additionally, as of
December 31, 2009, 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, 2009, SkyWest
Airlines was operating approximately 410 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.
Among other provisions, the SkyWest Airlines Delta Connection Agreement provides that,
beginning with the third anniversary of the execution of the agreement (September 8, 2008), Delta has
the right to require that certain contractual rates under that agreement shall not exceed the average
rate of all carriers within the Delta Connection Program. On October 23, 2009, Delta sent a letter to
SkyWest Airlines requiring it to either adjust the rates payable under the SkyWest Airlines Delta
Connection Agreement or accept termination of that agreement, Delta’s letter also notified SkyWest
Airlines of Delta’s estimate of the average rates to be applied under the SkyWest Airlines Delta
Connection Agreement. On October 28, 2009, SkyWest Airlines notified Delta of its election to adjust
the rates payable under the SkyWest Airlines Delta Connection Agreement; however, SkyWest Airlines
also notified Delta of its disagreement with Delta’s estimated rates and its belief that the methodology
Delta used to calculate its estimated rates is inconsistent with the terms of the SkyWest Airlines Delta
Connection Agreement. SkyWest Airlines and Delta have exchanged subsequent correspondence, and
SkyWest Airlines continues to negotiate with Delta in an effort to determine an appropriate
methodology for calculating the average rates of the carriers within the Delta Connection Program.
The SkyWest Airlines Delta Connection Agreement provides that, beginning with the fifth
anniversary of the execution of the agreement (September 8, 2010), Delta has the right to require that
certain contractual rates under that agreement shall not exceed the second lowest of all carriers within
the Delta Connection Program.
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