SkyWest Airlines 2012 Annual Report Download - page 3

To our Shareholders:
We are pleased to report that 2012 was a significant ‘‘turn-around’’ year for our company. We
significantly improved both our financial and operating results from the net loss we experienced during 2011.
We implemented a return to profitability plan during 2012 and, as a result, we generated pretax income of
approximately $86 million which represented a $136 million improvement from the results for 2011. We also
reported net income of approximately $51 million or $0.99 per diluted share that resulted in an improvement
of $1.51 per diluted share compared to the loss per diluted share of $(0.52) for 2011.
Accomplishments in 2012
During 2012, we responded positively to a specific need of Delta Air Lines (‘‘Delta’’), one of our major
partners. Specifically, we entered into an agreement to operate 34 additional dual-class aircraft for Delta,
consisting primarily of CRJ900’s (29) and CRJ700’s (5) of which 20 total aircraft were delivered by the end
of 2012. The remaining 14 CRJ900 aircraft are currently expected to be delivered by May of 2013. In
conjunction with this arrangement, we agreed to remove 66 CRJ200 regional jet aircraft from our Delta
operations beginning in September 2013 which will require early removal from our long-term contract with
Delta. This agreement demonstrated our ability to react positively in behalf of our major partner and created
a solution that was beneficial to both parties.
As a result of agreeing to early removal of CRJ200 regional jet aircraft from our Delta long-term
contract, we were able to capitalize on the opportunity to create another major partner relationship with
American Airlines, Inc. (‘‘American’’). During 2012 we reached agreement with American to provide and fly
a total of 23 CRJ200 regional jet aircraft operating as American Eagle. We inducted 12 of these aircraft into
operations at Los Angeles, CA in November 2012. The remaining 11 aircraft were inducted into operations
on February 14, 2013, at Dallas, TX. The aircraft operating from Los Angeles are flown by SkyWest Airlines
while the aircraft operating from Dallas are flown by ExpressJet Airlines. Using both of these operating
airline platforms greatly increases our ability to offer meaningful solutions to major US partners.
We also expanded our contract with United/Continental by adding seven ERJ135 aircraft under a
short-term arrangement to assist United/Continental with additional capacity needs during 2012. These
aircraft are flown by ExpressJet Airlines.
Challenges in 2012
The acquisition of ExpressJet Holdings, Inc. (‘‘ExpressJet’’) in November 2010, has been challenging
and has not met our financial return targets. At the time of the acquisition we identified approximately
$65 million in anticipated integration benefits and cost reductions and we have realized approximately
$30 million of these benefits and cost reductions shortly after acquisition. The remaining anticipated benefits
of approximately $35 million are largely contingent upon finalizing collective bargaining agreements. We
continue to remain focused on achieving overall competitive costs and competitive collective bargaining
agreements and believe that although we are optimistic about the future performance of ExpressJet Airlines
(formerly ExpressJet and Atlantic Southeast Airlines), our ability to achieve our expected financial returns is
dependent on our success at reducing and managing an overall cost structure at industry competitive levels.
During 2012 we were on the downward slope of a three-year overhaul cycle program for our United
CRJ200 regional jet fleet and incurred total overhaul costs of approximately $55 million, down from the
$77 million we spent during 2011. As a result of this overhaul cycle, our gross overhaul costs have exceeded
the amounts we have been reimbursed by United. We anticipate that during 2013 we will spend
approximately $45 million in gross overhaul costs, approximately $2 million more than reimbursements from
our major partners; however, we further anticipate that 2013 will be the last year in this overhaul cycle where
gross overhaul costs will exceed amounts reimbursed by our major partners.
Financial Results and Strength
Under certain of our flying contracts, fuel we purchased for our flights was directly reimbursed by our
major partners and, for financial reporting purposes, was included in our operating revenues. The majority of
fuel utilized under those flying contracts is now purchased directly by our major partners and as a result we
experienced a reduction of approximately $163 million in reported operating revenues and operating
expenses related directly to fuel purchases by our major partners under our contract flying for the year
ended December 31, 2012, compared to 2011. We anticipate similar reductions in our operating revenues