SkyWest Airlines 2009 Annual Report Download - page 9

Airlines for its direct costs associated with operating Delta Connection flights, plus a payment based on
block hours flown (the ‘‘SkyWest Airlines Delta Connection Agreement’’). In addition, the SkyWest
Airlines Delta Connection Agreement provides for us to increase our profitability if we reduce our
total costs. SkyWest Airlines’ United code-share operations are conducted under a United Express
Agreement pursuant to which SkyWest Airlines is paid primarily on a fee-per-completed block hour
and departure basis plus a margin based on performance incentives (the ‘‘SkyWest Airlines United
Express Agreement’’). Under the United Express Agreement, excess margins over certain percentages
must be returned or shared with United, depending on various conditions. On June 10, 2009, SkyWest
Airlines and Midwest reached a mutual understanding to terminate the service SkyWest Airlines
provided under the Airline Services Agreement (the ‘‘Midwest Services Agreement’’). As a result,
SkyWest Airlines removed its remaining 12 CRJ200 regional jet aircraft out of Midwest service in
stages through January 2010.
On November 4, 2009, SkyWest Airlines entered into a code-share agreement with AirTran. Under
the terms of the code-share agreement, SkyWest Airlines has agreed to operate five CRJ200s for
AirTran under a pro-rate arrangement. SkyWest Airlines commenced AirTran service with two aircraft
in December 2009, and added three additional aircraft in January and February of 2010. The AirTran
code-share agreement has a three-year term; however, after May 15, 2010, either party may terminate
the agreement upon 120 days written notice.
ASA
ASA provides regional jet service primarily in the United States primarily from hubs located in
Atlanta and Cincinnati. ASA offered more than 780 daily scheduled departures as of December 31,
2009, all of which were Delta Connection flights. ASA’s fleet as of December 31, 2009, consisted of ten
CRJ900s, 38 CRJ700s, 112 CRJ200s. Under the terms of the Second Amended and Restated Delta
Connection Agreement executed by ASA and Delta (the ‘‘ASA Delta Connection Agreement’’), Delta
has agreed to compensate ASA for its direct costs associated with operating Delta Connection flights,
plus, if ASA completes a certain minimum percentage of its Delta Connection flights, a specified
margin on such costs. Additionally, the ASA Delta Connection Agreement provides for incentive
compensation upon satisfaction of certain performance goals. Under the ASA Delta Connection
Agreement, excess margins over certain percentages must be returned to or shared with Delta,
depending on various conditions.
On February 10, 2010, ASA and United entered into a United Express Agreement, pursuant to
which ASA has agreed to operate 14 CRJ200 aircraft as a United Express carrier (the ‘‘ASA United
Express Agreement’’). On February 11, 2010, ASA began operating as a United Express carrier, and we
anticipate that the 14 United Express regional jets to be flown by ASA will be in operation by May of
2010. The ASA United Express Agreement is a capacity purchase agreement with a five-year term, and
other terms which are generally consistent with the SkyWest Airlines United Express Agreement.
Competition and Economic Conditions
The airline industry is highly competitive. SkyWest Airlines and ASA compete principally with
other code-sharing regional airlines, but also with regional airlines operating without code-share
agreements, as well as low-cost carriers and major airlines. The combined operations of SkyWest
Airlines and ASA extend throughout most major geographic markets in the United States. Our
competition includes, therefore, nearly every other domestic regional airline, and to a certain extent,
most major and low-cost domestic carriers. The primary competitors of SkyWest Airlines and ASA
among regional airlines with code-share arrangements include Air Wisconsin Airlines Corporation,
American Eagle Airlines, Inc. (‘‘American Eagle’’) (owned by American Airlines, Inc. (‘‘American’’)),
Comair, Inc. (‘‘Comair’’) (owned by Delta), Compass Airlines (‘‘Compass’’) (owned by Delta), Mesaba
Airlines (‘‘Mesaba’’) (owned by Delta), ExpressJet Holdings, Inc. (‘‘ExpressJet’’), Horizon Air
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