SkyWest Airlines 2012 Annual Report Download - page 83

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2012
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
compensation for good operating performance, but is subject to financial penalties for poor operating
performance. At the end of each month, the Company calculates the incentives achieved during the
month under the United CPA and recognizes revenue accordingly.
Alaska Capacity Purchase Agreement
SkyWest Airlines and Alaska have entered into a Capacity Purchase Agreement, which sets forth
the principal terms and conditions governing SkyWest Airlines’ operations for Alaska. Under the terms
of the Alaska Capacity Purchase Agreement, SkyWest Airlines is compensated primarily on a
fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs.
Additionally, SkyWest Airlines is eligible for incentive compensation upon the achievement of certain
performance criteria. The incentives are defined in the Alaska Capacity Purchase Agreement as being
measured and determined on a monthly basis. At the end of each month, the Company calculates the
incentives achieved during the month and recognizes revenue accordingly.
US Airways Express Agreement
SkyWest Airlines and US Airways have entered into a US Airways Express Agreement, which sets
forth the principal terms and conditions governing SkyWest Airlines’ US Airways Express operations.
Under the terms of the US Airways Express Agreement, SkyWest Airlines is compensated primarily on
a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs.
Additionally, SkyWest Airlines is eligible to receive incentive compensation upon the achievement of
certain performance criteria, but is subject to financial penalties if it fails to achieve minimum
performance criteria. The incentives are defined in the US Airways Express Agreement as being
measured and determined on a quarterly basis. At the end of each quarter, the Company calculates the
incentives achieved during the quarter and recognizes revenue accordingly.
American Agreement
In September 2012, SkyWest Airlines and ExpressJet each entered into a Capacity Purchase
Agreement with American (the ‘‘American Agreements’’), which set forth the terms and conditions
governing SkyWest Airlines’ and ExpressJet’s prospective American Eagle operations. SkyWest Airlines
placed 12 CRJ200s into service for American on November 14, 2012 and ExpressJet placed 11 CRJ200s
into service for American on February 14, 2013. The aircraft flown under the American Agreement
have been removed from flying contracts SkyWest Airlines and ExpressJet had with another major
partner. The term of each agreement is four years. The American Agreements provide for SkyWest
Airlines and ExpressJet to be compensated primarily on a fee-per-completed-block hour and departure
basis and will be reimbursed for fuel and other costs. The American Agreements also provide for
SkyWest Airlines and ExpressJet to receive incentive compensation upon the achievement of certain
performance criteria, but also impose financial penalties if SkyWest Airlines or ExpressJet fails to
achieve minimum performance criteria. The incentives are defined in the American Agreements as
being measured and determined on a quarterly basis. The Company anticipates that at the end of each
quarter, it will calculate the incentives achieved during the quarter from the American Agreements and
recognize revenue accordingly.
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