SkyWest Airlines 2012 Annual Report Download - page 49

period does not have a direct impact on the comparability of our operating income for the presented
reporting periods. The table below summarizes how we are compensated by our major partners under
our flying contracts for engine expense and the method we use to recognize the corresponding expense.
Flying Contract Compensation of Engine Expense Expense Recognition
SkyWest Delta Connection Directly-Reimbursed Engine Contracts Direct Expense Method
ExpressJet Delta Connection Directly-Reimbursed Engine Contracts Direct Expense Method
SkyWest United Express (CRJ200) Fixed-Rate Engine Contracts Direct Expense Method
SkyWest United Express (CRJ700) Fixed-Rate Engine Contracts Power by the Hour Agreement
SkyWest United Express (EMB120) Fixed-Rate Engine Contracts Deferral Method
ExpressJet United Express (CRJ200) Fixed-Rate Engine Contracts Direct Expense Method
ExpressJet United Express (ERJ145) Fixed-Rate Engine Contracts Power by the Hour Agreement
ExpressJet United CPA Directly-Reimbursed Engine Contracts Power by the Hour Agreement
Alaska Agreement Fixed-Rate Engine Contracts Power by the Hour Agreement
American Eagle Agreement (CRJ200) Fixed-Rate Engine Contracts Direct Expense Method
US Airways Express (CRJ200) Fixed-Rate Engine Contracts Direct Expense Method
Historically, multiple contractual relationships have enabled us to reduce reliance on any single
major airline code and to enhance and stabilize operating results through a mix of contract flying and
our controlled or ‘‘pro-rate’’ flying. For the year ended December 31, 2012, contract flying revenue and
pro-rate revenue represented approximately 91% and 9%, respectively, of our total passenger revenues.
On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories
and we are compensated by the major airline partner at contracted rates based on completed block
hours, flight departures and other operating measures.
Financial Highlights
We had revenues of $3.5 billion for the year ended December 31, 2012, a 3.3% decrease,
compared to revenues of $3.7 billion for the year ended December 31, 2011. We had a net income of
$51.2 million, or $0.99 per diluted share, for the year ended December 31, 2012, compared to a net loss
of $27.3 million or $0.52 per diluted share, for the year ended December 31, 2011.
The significant items affecting our financial performance during the year ended December 31, 2012
are outlined below:
Under certain of our flying contracts, certain expenses are subject to direct reimbursement from
our major partners and we record such reimbursements as passenger revenue, including fuel and
certain engine maintenance expenses. Our fuel expense and directly-reimbursed engine expense
decreased by $162.9 million and $13.9 million, respectively, during the year ended December 31, 2012,
from the year ended December 31, 2011, due primarily to United purchasing an increased volume of
fuel directly from vendors on flights we operated under our United Express Agreements and due to a
reduction in the number of engine events from the prior year. Excluding the impact of the decrease in
direct fuel and engine maintenance expense and associated reimbursements, our passenger revenues
increased $59.5 million for year ended December 31, 2012 compared to the year ended December 31,
2011, which was primarily due to an increase in block-hour production, receipt of higher incentive
payments and favorable compensation negotiations with our major partners.
Because we use the direct-expense method of accounting for our CRJ200 engines and because we
recognize revenue using the applicable fixed hourly rates under our Fixed-Rate Engine Contracts, the
number of engine maintenance events and related expense we incur each reporting period operating
under the Fixed-Rate Engine Contracts has a direct impact on the comparability of our operating
income for the presented reporting periods. The CRJ200 Engine Overhaul Expense incurred under the
Fixed-Rate Engine Contracts decreased $22.4 million during the year ended December 31, 2012,
compared to the year ended December 31, 2011. The decrease in CRJ200 Engine Overhaul Expense
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