SkyWest Airlines 2009 Annual Report Download - page 48

result, ASA experienced a negative impact on passenger revenues of approximately $7.6 million.
Second, Delta transitioned ground handling services at 23 stations from SkyWest Airlines and ASA to
other ground handlers during the second quarter of 2009. Revenue earned under ground handling
contracts where we provide ground handling services for our own aircraft is presented in the
‘‘Passenger revenue’’ line in our consolidated statements of income. Third, on October 23, 2009, Delta
sent letters to SkyWest Airlines and ASA requiring them to either adjust the rates payable under their
respective Delta Connection Agreements or accept termination of those agreements Delta’s letter also
notified SkyWest Airlines and ASA of Delta’s estimate of the average rates to be applied under those
agreements. On October 28, 2009, SkyWest Airlines and ASA notified Delta of their election to adjust
the rates payable under the Delta Connection Agreements; however, they also notified Delta of their
disagreement with Delta’s estimated rates and their belief that the methodology Delta used to calculate
its estimated rates is inconsistent with the terms of the Delta Connection Agreements. SkyWest Airlines
and ASA and Delta have exchanged subsequent correspondence, and SkyWest Airlines and ASA
continue 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. Because SkyWest Airlines and
ASA have not reached an agreement with Delta regarding the final contractual rates to be established
under the Delta Connection Agreements, the Company has evaluated the method for calculating the
average rate of the carriers within the Delta Connection Program under the revenue recognition
accounting guidance and recorded revenue under those agreements based on management’s
understanding of the applicable terms in the Delta Connection Agreements and management’s best
estimate of the revenue that will ultimately be realized upon settlement of the contractual rates with
Delta with respect to the year ended December 31, 2009.
Ground handling and other. Total ground handling and other revenues increased $1.4 million, or
4.7%, during the year ended December 31, 2009, compared to the year ended December 31, 2008.
Revenue earned under other ground handling contracts where we provide ground handling services for
other airlines is presented in the ‘‘Ground handling and other’’ line in our consolidated statements of
income. The increase was primarily related to the higher volume of flights serviced under ground
handling contracts with United and Delta, whereby we perform ground handling services for several
other regional airlines.
Individual expense components for the periods indicated are expressed in the following table on
the basis of cents per ASM. ASM is a common metric used in the airline industry to measure an
airline’s passenger capacity. ASMs reflect both the number of aircraft in an airline’s fleet and the seat
capacity for the aircraft in the fleet. As the size of our fleet is the underlying driver of our operating
costs, the primary basis for our presentation in this Item 7 is on a cost per ASM basis to discuss
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