SkyWest Airlines 2012 Annual Report Download - page 61

In addition, the Delta Connection Agreements also provide that, beginning with the fifth
anniversary of the execution of the agreements (September 8, 2010), Delta has the right to require that
certain contractual rates under those agreements shall not exceed the second lowest rates of all carriers
within the Delta Connection Program. During the fourth quarter of 2010, SkyWest Airlines and
Atlantic Southeast reached an agreement with Delta on contractual rates satisfying the second-lowest
rate provision and agreed on rates through December 31, 2015. Delta additionally waived its right to
require that the contractual rates payable under the Delta Connection Agreements shall not exceed the
second lowest of all carriers within the Delta Connection Program through December 31, 2015. As a
result of the negotiated adjustment of the contractual rates under the Delta Connection Agreements,
our passenger revenues for the year ended December 31, 2011 were approximately $21.7 million lower
than they would have been under the rates that existed prior to the adjustment. Additionally, SkyWest
Airlines and Atlantic Southeast finalized certain contractual rates from September 8, 2008 through
December 31, 2010 with Delta. As a result, we recorded $10.3 million in additional revenue as a result
of the finalization of contractual rates during the quarter ended December 31, 2010. Under the terms
of the SkyWest Airlines and ExpressJet Delta Connection Agreements, Delta has agreed to compensate
SkyWest Airlines and ExpressJet for initiatives that directly result in pass through cost savings. Delta
agreed to share such savings with SkyWest Airlines and ExpressJet on an equal basis for a twelve-
month period. During the three months ended December 31, 2010, Delta paid, and SkyWest Airlines
and Atlantic Southeast recognized, approximately $6.9 million in cost savings revenue. We did not
receive similar payments during the year ended December 31, 2011. In addition, under our ExpressJet
Delta Connection Agreement and our SkyWest Airlines and ExpressJet United Express Agreements we
are paid an incentive compensation upon the achievement of certain performance criteria. Our
passenger revenues for the year ended December 31, 2011 were $18.9 million lower, compared to the
year ended December 31, 2010, due primarily to our receipt of lower incentive payments.
Ground handling and other. Total ground handling and other revenues increased $29.3 million, or
71.6%, during the year ended December 31, 2011, compared to the year ended December 31, 2010.
Revenue attributed to ground handling services for our aircraft is reflected in our consolidated
statements of comprehensive income (loss) under the heading ‘‘Passenger revenues’’ and revenue
attributed to handling third-party aircraft is reflected in our consolidated statements of comprehensive
income (loss) under the heading ‘‘Ground handling and other.’’ The increase in ground handling and
other revenues was primarily related to the expansion of our operations following the completion of the
ExpressJet Merger and aircraft rental revenue received from other airlines. During the year ended
December 31, 2010, we obtained leases for four CRJ900s and subleased those aircraft to Air Mekong.
Individual expense components attributable to our operations are expressed in the following table
on the basis of cents per ASM. ASM is a common metric used in the airline industry to measure an
airline’s passenger capacity. ASMs reflect both the number of aircraft in an airline’s fleet and the seat
capacity for the aircraft in the fleet. As the size of our fleet is the underlying driver of our operating
costs, the primary basis for our presentation of the following information on a cost per ASM basis is to
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