SkyWest Airlines 2012 Annual Report Download - page 9

pursuant to which SkyWest Airlines currently operates as American Eagle on designated routes, and is
paid primarily on a fee-per-completed block hour and departure basis, plus a fixed margin per aircraft
each month and an incentive or penalty based on performance incentives.
ExpressJet
ExpressJet provides regional jet service principally in the United States, primarily from airports
located in Atlanta, Cleveland, Chicago (O’Hare), Denver, Houston, Detroit, Memphis, Newark,
Minneapolis and Washington Dulles. ExpressJet offered more than 2,125 daily scheduled departures as
of December 31, 2012, of which approximately 750 were Delta Connection flights and 1,375 were
United Express flights. As of December 31, 2012, the ExpressJet fleet consisted of 18 CRJ900s (all of
which were flown for Delta), 41 CRJ700s (all of which were flown for Delta), 107 CRJ200s (93 of
which were flown for Delta and 14 of which were flown for United), 242 ERJ145s, (all of which were
flown for United) and seven ERJ135s(all of which were flown for United).
ExpressJet currently conducts Delta Connection operations pursuant to the terms of a Second
Amended and Restated Delta Connection Agreement initially executed between Delta and Atlantic
Southeast and to which ExpressJet is now a party (the ‘‘ExpressJet Delta Connection Agreement’’).
Under the ExpressJet Delta Connection Agreement, ExpressJet is paid primarily on a
fee-per-completed block hour and departure basis, plus, if ExpressJet completes a certain minimum
percentage of its Delta Connection flights, a specified margin on such costs. Additionally, the
ExpressJet Delta Connection Agreement provides for incentive compensation upon satisfaction of
certain performance goals. ExpressJet’s United code-share operations are conducted under a Capacity
Purchase Agreement initially executed by ExpressJet and Continental Airlines, Inc. (‘‘Continental’’) and
to which United became a party through its merger with Continental (the ‘‘United CPA’’) and two
United Express Agreements between ExpressJet and United (collectively, the ‘‘ExpressJet United
Express Agreements’’). Under the ExpressJet United Express Agreements and the United CPA
ExpressJet is paid by United, primarily on a fee-per-completed block hour and departure basis, plus a
margin based on performance incentives. During 2012, ExpressJet entered into a code-share agreement
with American, pursuant to which ExpressJet is paid primarily on a fee-per-completed block hour and
departure basis, plus a fixed margin per aircraft each month and an incentive or penalty based on
performance incentives. ExpressJet is scheduled to begin operations with American during February
2013.
Competition and Economic Conditions
The airline industry is highly competitive. SkyWest Airlines and ExpressJet compete principally
with other code-sharing regional airlines, but also with regional airlines operating without code-share
agreements, as well as low-cost carriers and major airlines. The combined operations of SkyWest
Airlines and ExpressJet extend throughout most major geographic markets in the United States. Our
competition includes, therefore, nearly every other domestic regional airline, and to a certain extent,
most major and low-cost domestic carriers. The primary competitors of SkyWest Airlines and
ExpressJet among regional airlines with code-share arrangements include Air Wisconsin Airlines
Corporation (‘‘Air Wisconsin’’), American Eagle Airlines, Inc. (‘‘American Eagle’’) (owned by
American), Compass Airlines (‘‘Compass’’), Horizon Air Industries, Inc. (‘‘Horizon’’) (owned by Alaska
Air Group, Inc. , Mesa Air Group, Inc. (‘‘Mesa’’), Pinnacle Airlines Corp. (‘‘Pinnacle’’), Republic
Airways Holdings Inc. (‘‘Republic’’), Trans State Airlines, Inc. (‘‘Trans State’’) and PSA Airlines, Inc.
(‘‘PSA’’) (owned by US Airways). Major airlines award contract flying to these regional airlines based
primarily upon, the following criteria: low cost, financial resources, overall customer service levels
relating to on-time arrival and departure statistics, cancellation of flights, baggage handling
performance and the overall image of the regional airline as a whole. The principal competitive factors
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