SkyWest Airlines 2009 Annual Report Download - page 54

Fuel. Fuel costs increased $158.5 million, or 14.9% during the year ended December 31, 2008,
compared to the year ended December 31, 2007. The average cost per gallon of fuel increased to $3.33
per gallon during the year ended December 31, 2008, from $2.41 during the year ended December 31,
2007. The increase in the average cost per gallon during the year ended December 31, 2008 was
mitigated by United purchasing fuel directly from a fuel vendor for our United Express aircraft
operated out of Chicago, San Francisco, Los Angeles and Denver. Midwest also purchased all of its
fuel directly from fuel vendors, which reduced our total fuel costs and related passenger revenue. The
following table summarizes the gallons of fuel we purchased directly, and the change in fuel price per
gallon on our fuel expense, for the periods indicated:
For the year ended December 31,
(in thousands, except per gallon amounts) 2008 2007 % Change
Fuel gallons purchased ................... 366,540 440,044 (16.7)%
Average price per gallon .................. $ 3.33 $ 2.41 38.2%
Fuel expense .......................... $1,220,618 $1,062,079 14.9%
We are at risk for increased fuel prices on our pro-rate flying operations, whereby we receive a
pro-rated portion of the passenger fare as revenue. As of December 31, 2008, we operated a total of 32
Brasilia turboprops under separate pro-rate agreements with Delta and United. During the year ended
December 31, 2008, the cost of fuel associated with the pro-rate operations increased approximately
$6.5 million (pre-tax) compared to the year ended December 31, 2007.
Salaries Wages and Employee Benefits. Salaries, wages and employee benefits decreased
$2.9 million, or 0.4%, during the year ended December 31, 2008, compared to the year ended
December 31, 2007. The average number of full-time equivalent employees decreased 2.6% to 14,315
for the year ended December 31, 2008, from 14,694 for the year ended December 31, 2007. The
decrease in number of employees was significantly due to Delta assuming responsibility from ASA in
June 2007 for the performance of customer service functions in Atlanta and United transitioning 16
stations from SkyWest Airlines to other ground handlers during the second quarter of 2008.
Aircraft maintenance, materials and repairs. Maintenance costs increased $83.7 million, or 28.1%,
during the year ended December 31, 2008, compared to the year ended December 31, 2007. The
increase was primarily related to the timing of engine overhaul events. Our engine overhaul expense
increased approximately $54.8 million during the year ended December 31, 2008 compared to the year
ended December 31, 2007. The majority of the engine overhauls related to aircraft operated under our
Delta Connection Agreements and we were reimbursed for such engine overhaul costs by Delta. Such
reimbursements are reflected as passenger revenue in our consolidated statements of income. The
increase in maintenance excluding engine overhaul costs was principally due to other scheduled
maintenance events on our aging CRJ200 and CRJ 700 aircraft and repairs incurred on aircraft
damaged during the normal course of business. Additionally, since December 31, 2007, we added four
used CRJ200s and two used CRJ700s to our fleet. Compared to new aircraft, used aircraft typically
experience higher maintenance costs during the first year of service.
Under the SkyWest Airlines United Express and Midwest Services Agreements, we recognized
revenue in our consolidated statement of income at a fixed hourly rate for mature engine maintenance
on regional jet engines and we recognize engine maintenance expense on our CRJ200 regional jet
engines in our consolidated statement of income on an as-incurred basis as maintenance expense.
During the year ended December 31,2008, our CRJ200 engine expense under our SkyWest Airlines
United Express and Midwest Services Agreements increased $1.8 million. Under our Delta Connection
Agreements we were reimbursed for engine overhaul costs by Delta. Such reimbursements are reflected
as passenger revenue in our consolidated statements of income.
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