SkyWest Airlines 2011 Annual Report Download - page 79

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SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2011
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
US Airways Express Agreement
SkyWest Airlines and US Airways have entered into a US Airways Express Agreement, which sets
forth the principal terms and conditions governing SkyWest Airlines’ US Airways Express operations.
Under the terms of the US Airways 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 US Airways Express Agreement as being
measured and determined on a quarterly basis. At the end of each quarter, the Company calculates the
incentives achieved during the quarter and recognizes revenue accordingly.
Other Revenue Items
Under the Company’s code-share agreements with Delta, United, Continental, Alaska, US Airways
and Air-Tran, the Company earns revenue for an amount per aircraft designed to reimburse the
Company for certain aircraft ownership costs. The Company has concluded that a component of its
revenue under these agreements is rental income, inasmuch as the agreements identify the ‘‘right of
use’’ of a specific type and number of aircraft over a stated period of time. The amounts deemed to be
rental income under the agreements for the years ended December 31, 2011, 2010 and 2009 were
$521.3 million, $492.7 million and $490.1 million, respectively. These amounts were recorded as
passenger revenue on the Company’s consolidated statements of operations. Under the SkyWest Inc.
Delta Connection Agreement and the SkyWest Airlines United Express Agreement, the Company
receives a reimbursement for direct costs associated with placing each additional aircraft into service.
The reimbursement is applicable to incremental costs specific to placing each additional aircraft into
service. The Company recognizes the revenue associated with these reimbursement payments once the
aircraft is placed into service.
The Company’s passenger and ground handling revenues could be impacted by a number of
factors, including changes to the Company’s code-share agreements with Delta, United, Continental,
Alaska, US Airways or AirTran, integration of ExpressJet’s operations as contemplated by the
ExpressJet Merger and the ExpressJet Combination, contract modifications resulting from contract
re-negotiations, the Company’s ability to earn incentive payments contemplated under the Company’s
code-share agreements and settlement of reimbursement disputes with the Company’s major partners.
Deferred Aircraft Credits
The Company accounts for incentives provided by aircraft manufacturers as deferred credits. The
deferred credits related to leased aircraft are amortized on a straight-line basis as a reduction to rent
expense over the lease term. Credits related to owned aircraft reduce the purchase price of the aircraft,
which has the effect of amortizing the credits on a straight-line basis as a reduction in depreciation
expense over the life of the related aircraft. The incentives are credits that may be used to purchase
spare parts and pay for training and other expenses.
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