SkyWest Airlines 2010 Annual Report Download - page 81

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
Company, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection
Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast. The dispute relates to
allocation of liability for certain irregular operations (‘‘IROP’’) expenses that are paid by SkyWest
Airlines and Atlantic Southeast to their passengers under certain situations. As a result, Delta withheld
a combined total of approximately $25 million (pretax) from one of the weekly scheduled wire
payments to SkyWest Airlines and Atlantic Southeast during December 2007. Delta continues to
withhold a portion of the funds the Company believes are payable as weekly scheduled wire payments
to SkyWest Airlines and Atlantic Southeast (See Note 6 for additional details).
United Express Agreements
SkyWest Airlines and United have entered into a United Express Agreement, which sets forth the
principal terms and conditions governing SkyWest Airlines’ United Express operations. Under the terms
of the United Express Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-
block hour and departure basis and is reimbursed for fuel and other costs. Additionally, SkyWest
Airlines is eligible for incentive compensation upon the achievement of certain performance criteria.
The incentives are defined in the United Express Agreement as being measured and determined on a
monthly basis. At the end of each month, the Company calculates the incentives achieved during the
month and recognizes revenue accordingly.
On February 10, 2010, Atlantic Southeast and United entered into a United Express Agreement,
pursuant to which Atlantic Southeast agreed to operate 16CRJ200s as a United Express carrier. On
February 11, 2010, Atlantic Southeast began operating as a United Express carrier. The Atlantic
Southeast 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. During the
three months ended December 31, 2010, Atlantic Southeast agreed to add two CRJ200s to the United
Express Agreement on a short term basis. As of December 31, 2010, Atlantic Southeast was operating
16 CRJ 200s as a United Express carrier.
AirTran Code-Share Agreement
On November 4, 2009, SkyWest Airlines entered into a code-share agreement with AirTran. Under
the terms of the code-share agreement, SkyWest Airlines operates four CRJ200s for AirTran under a
pro-rate arrangement. SkyWest Airlines commenced AirTran service in December 2009. The code-share
agreement has a three-year term; however, after May 15, 2010, either party may terminate the
agreement upon 120 days written notice.
ExpressJet Capacity Purchase Agreements
Effective November 12, 2010, ExpressJet entered into the Continental CPA, whereby ExpressJet
agreed to provide regional airline service in the Continental flight system. Under the terms of the
Continental CPA, ExpressJet operates 206 aircraft in the Continental flight system and Continental has
agreed to compensate ExpressJet on a monthly basis based on the block hours flown by ExpressJet and
the weighted average number of aircraft operated by ExpressJet under the Continental CPA.
Additionally, ExpressJet may earn incentive compensation for good operating performance, but is
subject to financial penalties for poor operating performance. At the end of each month, the Company
77