SkyWest Airlines 2011 Annual Report Download - page 60

Ground handling service. Ground handling service expense increased $14.8 million, or 15.5%,
during the year ended December 31, 2010, compared to the year ended December 31, 2009. The
increase in ground handling expense was due primarily to 16 new pro-rate stations SkyWest Airlines
outsourced to other ground handlers since January 1, 2009.
Acquisition-related costs. During the year ended December 31, 2010, we incurred $8.8 million of
direct severance, legal and advisor fees associated with the ExpressJet Merger.
Other expenses. Other expenses, primarily consisting of property taxes, hull and liability insurance,
crew simulator training and crew hotel costs, increased $31.6 million, or 22.2%, during the year ended
December 31, 2010, compared to the year ended December 31, 2009. The increase in other expenses
was primarily due to the completion of the ExpressJet Merger on November 12, 2010.
Total Airline Expenses. Total airline expenses (consisting of total operating and interest expenses)
increased $162.1 million, or 6.5%, during the year ended December 31, 2010, compared to the year
ended December 31, 2009. We are reimbursed for our actual fuel costs by our major partners under
our contract flying arrangements. We record the amount of those reimbursements as revenue. Under
the SkyWest Airlines and ExpressJet Delta Connection Agreements and the Continental CPA, we are
reimbursed for our engine overhaul expense, which we record as revenue. The following table
summarizes the amount of fuel and engine overhaul expenses which are included in our total airline
expenses for the periods indicated (dollar amounts in thousands).
For the year ended December 31,
2010 2009 $ Change % Change
Total airline expense .......................... $2,649,836 $2,487,749 $162,087 (6.5)%
Less: Fuel expense ........................... 340,074 390,739 (50,665) (13.0)%
Less: Engine overhaul reimbursement from major
partners ................................. 106,241 112,556 (6,315) (5.6)%
Less: CRJ 200 engine overhauls reimbursed at fixed
hourly rate ............................... 75,706 34,176 41,530 121.5%
Total airline expense excluding fuel and engine
overhauls and CRJ 200 engine overhauls reimbursed
at fixed hourly rate ......................... $2,127,815 $1,950,278 $177,537 9.1%
Excluding fuel and engine overhaul costs and CRJ 200 engine overhauls reimbursed at fixed hourly
rates, our total airline expenses increased $177.5 million, or 9.1%, during the year ended December 31,
2010, compared to the year ended December 31, 2009. The percentage increase in total airline
expenses excluding fuel and engine overhauls, was less than the percentage increase in ASMs, which
was primarily due to the increased operating efficiencies obtained from operating larger regional jets.
Impairment of marketable securities. As a result of an ongoing valuation review of our marketable
securities portfolio, we recognized a pre-tax charge of approximately $7.1 million during the year ended
December 31, 2009 for certain marketable securities deemed to have other-than-temporary impairment.
We did not experience a corresponding charge during the year ended December 31, 2010.
Interest Income. Interest income increased $3.3 million, or 29.3% during the year ended
December 31, 2010, compared to the year ended December 31, 2009. The increase in interest income
was due primarily to the secured term loan SkyWest Airlines extended to United during the fourth
quarter of 2009 in the amount of $80 million. The term loan bore interest at a rate of 11%, with a
ten-year amortization period. SkyWest Airlines also agreed to defer $49 million otherwise payable to
SkyWest Airlines under the SkyWest Airlines United Express Agreement. This amount accrues a
deferral fee of 8% which is reported in our consolidated statement of income as interest income. On
August 11, 2010, United repaid the $80 million term loan together with accrued interest.
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