SkyWest Airlines 2011 Annual Report Download - page 10

Agreements’’), pursuant to which ExpressJet is paid by Continental or United, as applicable, primarily
on a fee-per-completed block hour and departure basis, plus a margin based on performance incentives.
Competition and Economic Conditions
The airline industry is highly competitive. SkyWest Airlines and ExpressJet 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 ExpressJet 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
ExpressJet among regional airlines with code-share arrangements include Air Wisconsin Airlines
Corporation (‘‘Air Wisconsin’’), American Eagle Airlines, Inc. (‘‘American Eagle’’) (owned by American
Airlines, Inc. (‘‘American’’)), Comair, Inc. (‘‘Comair’’) (owned by Delta), Compass Airlines
(‘‘Compass’’), , Horizon Air Industries, Inc. (‘‘Horizon’’) (owned by Alaska Air Group, Inc. (‘‘Alaska
Airlines’’)), Mesa Air Group, Inc. (‘‘Mesa’’), Pinnacle Airlines Corp. (‘‘Pinnacle’’), Republic Airways
Holdings Inc. (‘‘Republic’’) and Trans State Airlines, Inc.(‘‘Trans State’’). Major airlines award contract
flying to these regional airlines based upon, but not limited to, the following criteria: low cost, financial
resources, overall customer service levels relating to on-time arrival and departure statistics,
cancellation of flights, baggage handling performance and the overall image of the regional airline as a
whole. The principal competitive factors we experience with respect to our pro-rate flying include fare
pricing, customer service, routes served, flight schedules, aircraft types and relationships with major
partners.
The principal competitive factors for code-share partner regional airlines are code-share agreement
terms, customer service, aircraft types, fare pricing, flight schedules and markets and routes served. The
combined operations of SkyWest Airlines and ExpressJet represent the largest regional airline
operation in the United States. However, some of the major and low-cost carriers are larger, and have
greater financial and other resources than SkyWest Airlines and ExpressJet, individually or collectively.
Additionally, regional carriers owned by major airlines, such as American Eagle and Comair, may have
access to greater resources, through their parent companies, than SkyWest Airlines and ExpressJet, and
may have enhanced competitive advantages since they are subsidiaries of major airlines. Moreover,
federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly
discount and restructure fares. The airline industry is particularly susceptible to price discounting
because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold
seats.
Generally, the airline industry is highly sensitive to general economic conditions, in large part due
to the discretionary nature of a substantial percentage of both business and leisure travel. Many airlines
have historically reported lower earnings or substantial losses during periods of economic recession,
heavy fare discounting, high fuel costs and other disadvantageous environments. Economic downturns,
combined with competitive pressures, have contributed to a number of reorganizations, bankruptcies,
liquidations and business combinations among major and regional carriers. The effect of economic
downturns may be somewhat mitigated by the predominantly contract-based flying arrangements of
SkyWest Airlines and ExpressJet. Nevertheless, the per-passenger component in such fee structure
would be affected by an economic downturn. In addition, if Delta or United, or any of our other
code-share partners, experience a prolonged decline in passenger load or are harmed by low ticket
prices or high fuel prices, they will likely seek to renegotiate their code-share agreements with SkyWest
Airlines and ExpressJet, as applicable, or cancel flights in order to reduce their costs.
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