SkyWest Airlines 2012 Annual Report Download - page 23

financial condition, operating revenues and net income unless we are able to enter into satisfactory
substitute arrangements for the utilization of the affected aircraft by other code-share partners, or,
alternatively, obtain the airport facilities and gates and make the other arrangements necessary to fly as
an independent airline. We may not be able to enter into substitute code-share arrangements, and any
such arrangements we might secure may not be as favorable to us as our current agreements.
Operating our airlines independent from major partners would be a significant departure from our
business plan, would likely be very difficult and would likely require significant time and resources,
which may not be available to us at that point.
The current terms of the SkyWest Airlines and ExpressJet Delta Connection Agreements are
subject to certain early termination provisions. Delta’s termination rights include cross-termination
rights (meaning that a breach by either of SkyWest Airlines or ExpressJet of its Delta Connection
Agreement could, under certain circumstances, permit Delta to terminate any or all of the Delta
Connection Agreements), the right to terminate each of the agreements upon the occurrence of certain
force majeure events (including certain labor-related events) that prevent SkyWest Airlines or
ExpressJet from performance for certain periods and the right to terminate each of the agreements if
SkyWest Airlines or ExpressJet, as applicable, fails to maintain competitive base rate costs, subject to
certain rights of SkyWest Airlines to take corrective action to reimburse Delta for lost revenues. The
current terms of the SkyWest Airlines and ExpressJet United Express Agreements are subject to certain
early termination provisions and subsequent renewals. United may terminate the SkyWest Airlines and
ExpressJet United Express Agreements due to an uncured breach by SkyWest Airlines or ExpressJet of
certain operational or performance provisions, including measures and standards related to flight
completions, baggage handling and on-time arrivals. The current terms of the United CPA are subject
to certain early termination provisions and subsequent renewals. United may terminate the United CPA
due to an uncured breach by ExpressJet of certain operational and performance provisions, including
measures and standards related to flight completions and on-time arrivals.
We currently use the systems, facilities and services of Delta and United to support a significant
portion of our operations, including airport and terminal facilities and operations, information
technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing and ground
handling services. If Delta or United were to cease any of these systems, close any of these facilities or
no longer provide these services to us, due to termination of one of our code-share agreements, a
strike or other labor interruption by Delta or United personnel or for any other reason, we may not be
able to replace those systems, facilities or services on terms and conditions as favorable as those we
currently receive, or at all. Since our revenues and operating profits are dependent on our level of
flight operations, we could then be forced to significantly reduce our operations. Furthermore, upon
certain terminations of our code-share agreements, Delta and United could require us to sell or assign
to them facilities and assets, including maintenance facilities, we use in connection with the code-share
services we provide. As a result, in order to offer airline service after termination of any of our
code-share agreements, we may have to replace these facilities, assets and services. We may be unable
to arrange such replacements on satisfactory terms, or at all.
The amounts we receive under our code-share agreements may be less than the corresponding costs we incur.
Under our code-share agreements with Delta, United, American, Alaska and US Airways, we are
compensated for certain costs we incur in providing services. With respect to costs that are defined as
‘‘pass-through’’ costs, our code-share partner is obligated to pay to us the actual amount of the cost.
With respect to other costs, our code-share partner is obligated to pay to us amounts based, in part, on
pre-determined rates for certain costs. During the year ended December 31, 2012, approximately 25%
of our costs were pass-through costs and approximately 75% of our costs were reimbursable at
pre-determined rates. These pre-determined rates may not be based on the actual expenses we incur in
delivering the associated services. If we incur expenses that are greater than the pre-determined
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