SkyWest Airlines 2011 Annual Report Download - page 51

Revenues. Operating revenues increased $889.8 million, or 32.2%, during the year ended
December 31, 2011, compared to the year ended December 31, 2010. We are reimbursed for our actual
fuel costs by our major partners under our contract flying arrangements. For financial reporting
purposes, we record these reimbursements as operating revenue. Under the SkyWest Airlines and
ExpressJet Delta Connection Agreements and the Continental CPA, we are reimbursed for our engine
overhaul expenses as incurred. We also record those engine overhaul reimbursements as operating
revenue. The following table summarizes the amount of fuel and engine overhaul reimbursements
included in our passenger revenues for the periods indicated (dollar amounts in thousands).
For the year ended December 31,
2011 2010 $ Change % Change
Passenger revenues ........................... $3,584,777 $2,724,276 $860,501 31.6%
Less: Fuel reimbursement from major partners ....... 492,674 258,523 234,151 90.6%
Less: Engine overhaul reimbursement from major
partners ................................. 173,072 106,241 66,831 62.9%
Passenger revenue excluding fuel and engine overhauls
reimbursements ............................ $2,919,031 $2,359,512 $559,519 23.7%
Passenger revenues. Passenger revenues increased $860.5 million, or 31.6%, during the year ended
December 31, 2011, compared to the year ended December 31, 2010. The increase in passenger
revenues was primarily due to the expansion of our operations following the completion of the
ExpressJet Merger. Our passenger revenues, excluding fuel and engine overhaul reimbursements from
major partners, increased $559.5 million, or 23.7%, during the year ended December 31, 2011,
compared to the year ended December 31, 2010. The increase in passenger revenues, excluding fuel
and engine overhaul reimbursements, was primarily due to an increase in block hours of 45.4% during
the year ended December 31, 2011, compared to the year ended December 31, 2010. The block hour
increase was primarily due to the expansion of our operations following the completion of the
ExpressJet Merger. The increase in passenger revenues, excluding fuel and engine overhaul
reimbursements, was less than the increase in block hours primarily due to differences between the
Continental Express Agreement and our other code-share agreements. Under the Continental Express
Agreement, Continental pays for more costs directly (such as station rents and aircraft ownership) and
as such, there are no associated reimbursements recognized as revenue on costs paid directly by
Continental. Under our other code-share agreements, the majority of those costs are paid by SkyWest
and ExpressJet and the reimbursements received from their major partners are included in revenue. As
such we do not expect the ExpressJet operations to increase revenue at the same rate as the projected
increase in block hours.
In addition, 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 rates of all carriers
within the Delta Connection Program. 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 shall not exceed the
second lowest of all carriers within the Delta Connection Program through December 31, 2015. As a
result of the negotiated adjustment of the contractual rates under the Delta Connection Agreements,
our passenger revenues for the year ended December 31, 2011 were approximately $21.7 million lower
than they would have been under the rates that existed prior to the adjustment. Additionally, SkyWest
Airlines and Atlantic Southeast finalized certain contractual rates from September 8, 2008 through
December 31, 2010 with Delta. As a result, we recorded $10.3 million in additional revenue as a result
of the finalization of contractual rates during the quarter ended December 31, 2010. Under the terms
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