SkyWest Airlines 2010 Annual Report Download - page 48

Financial Highlights
We had revenues of $2.8 billion for the year ended December 31, 2010, a 5.8% increase, compared
to revenues of $2.6 billion for the year ended December 31, 2009. We had net income of $96.4 million,
or $1.70 per diluted share, for the year ended December 31, 2010, an increase of 15.2%, compared to
$83.7 million of net income, or $1.47 per diluted share, for the year ended December 31, 2009.
The significant items affecting our financial performance during the year ended December 31, 2010
are summarized below:
Under the Delta Connection Agreements, Delta has the right to require that certain contractual
rates under those agreements shall not exceed the average rate of all carriers within the Delta
Connection Program. On October 23, 2009, Delta sent letters to SkyWest Airlines and Atlantic
Southeast requiring them to either adjust the rates payable under their respective Delta Connection
Agreements or accept termination of those agreements. Delta’s letters also notified SkyWest Airlines
and Atlantic Southeast of Delta’s estimate of the average rates to be applied under those agreements.
On October 28, 2009, SkyWest Airlines and Atlantic Southeast 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 Atlantic Southeast, on one hand, and Delta, on the other hand, exchanged subsequent
correspondence, and in November 2010, the parties reached an agreement related to the average rate
provisions applied under the Delta Connection Agreements.
The Delta Connection Agreements also provide that, beginning with the fifth anniversary of the
execution of the agreements (September 8, 2010), Delta has the right to require that certain contractual
rates under those agreements shall not exceed the second lowest of all carriers within the Delta
Connection Program. On September 8, 2010, Delta sent letters to SkyWest Airlines and Atlantic
Southeast requiring them to either adjust the rates payable under their respective Delta Connection
Agreements or accept termination of those agreements. Delta’s letters also notified SkyWest Airlines
and Atlantic Southeast of Delta’s estimate of the second lowest rates to be applied under those
agreements. On September 10, 2010, SkyWest Airlines and Atlantic Southeast 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. During the fourth quarter of 2010, SkyWest Airlines and Atlantic Southeast reached an
agreement with Delta on contractual rates satisfying the second-lowest rate provision and agreed on
rates through December 31, 2015. Delta additionally waived its right to require that the contractual
rates payable under the Delta Connection Agreements under those agreements shall not exceed the
second lowest of all carriers within the Delta Connection Program through December 31, 2015. As a
result of finalizing contractual rates payable under the Delta Connection Agreements from
September 8, 2008 through December 31, 2010, we recorded $10.3 million in additional revenue during
the quarter ended December 31, 2010.
Under the terms of the SkyWest Airlines and Atlantic Southeast Delta Connection Agreements,
Delta has agreed to compensate SkyWest Airlines and Atlantic Southeast for initiatives that directly
result in pass through cost savings. Delta has agreed to share such savings on an equal basis for a
twelve-month period. During the quarter ended December 31, 2010, Delta paid to SkyWest Airlines
and Atlantic Southeast approximately $6.9 million in cost savings revenue.
On November 12, 2010, we completed the ExpressJet Merger. At the effective time of the
ExpressJet Merger, each issued and outstanding share of ExpressJet Holdings common stock (other
than shares of ExpressJet Holdings common stock owned by ExpressJet Holdings as treasury stock or
shares of ExpressJet Holdings common stock owned by SkyWest or any of its subsidiaries) was
44