SkyWest Airlines 2012 Annual Report Download - page 68

Long-term Debt Obligations
As of December 31, 2012, we had $1.6 billion of long-term debt obligations related to the
acquisition of CRJ200, CRJ700 and CRJ900 aircraft. The average effective interest rate on the debt
related to the CRJ aircraft was approximately 4.5% at December 31, 2012.
Guarantees
We have guaranteed the obligations of SkyWest Airlines under the SkyWest Airlines Delta
Connection Agreement and the obligations of ExpressJet under the ExpressJet Delta Connection
Agreement. We have also guaranteed the obligations of ExpressJet under the United CPA.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aircraft Fuel
In the past, we have not experienced difficulties with fuel availability and we currently expect to be
able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our
contract flying arrangements, United, Delta, Alaska, American and US Airways have agreed to bear the
economic risk of fuel price fluctuations on our contracted flights. We bear the economic risk of fuel
price fluctuations on our pro-rate operations. For the year ended December 31, 2012, approximately
3% of our ASMs were flown under pro-rate arrangements. The average price per gallon of aircraft fuel
increased 3.2% to $3.59 for the year ended December 31, 2012, from $3.48 for the year ended
December 31, 2011. For illustrative purposes only, we have estimated the impact of the market risk of
fuel on our pro-rate operations using a hypothetical increase of 25% in the price per gallon we
purchase. Based on this hypothetical assumption, we would have incurred an additional $24.3 million in
fuel expense for the year ended December 31, 2012.
Interest Rates
Our earnings are affected by changes in interest rates due to the amounts of variable rate
long-term debt and the amount of cash and securities held. The interest rates applicable to variable
rate notes may rise and increase the amount of interest expense. We would also receive higher amounts
of interest income on cash and securities held at the time; however, the market value of our
available-for-sale securities would likely decline. At December 31, 2012, we had variable rate notes
representing 31.7% of our total long-term debt compared to 33.0% of our long-term debt at
December 31, 2011. For illustrative purposes only, we have estimated the impact of market risk using a
hypothetical increase in interest rates of one percentage point for both variable rate long-term debt and
cash and securities. Based on this hypothetical assumption, we would have incurred an additional
$5.5 million in interest expense and received $6.5 million in additional interest income for the year
ended December 31, 2012, and we would have incurred an additional $7.1 million in interest expense
and received $6.4 million in additional interest income for the year ended December 31, 2011.
However, under our contractual arrangement with our major partners, the majority of the increase in
interest expense would be passed through and recorded as passenger revenue in our consolidated
statements of comprehensive income (loss). If interest rates were to decline, our major partners would
receive the principal benefit of the decline, since interest expense is generally passed through to our
major partners, resulting in a reduction to passenger revenue in our consolidated statement of
comprehensive income (loss).
We currently intend to finance the acquisition of aircraft through manufacturer financing, third-
party leases or long-term borrowings. Changes in interest rates may impact the actual cost to us to
acquire these aircraft. To the extent we place these aircraft in service under our code-share agreements
with Delta, United, or other carriers, our code-share agreements currently provide that reimbursement
rates will be adjusted higher or lower to reflect changes in our aircraft rental rates.
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