SkyWest Airlines 2013 Annual Report Download - page 11

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’’), Endevor, Inc. (‘‘Endevor’’) (owned by Delta),
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, low rates of flight cancellation,
baggage handling performance and the overall image of the regional airline.
The principal competitive factors for code-share partner regional airlines are code-share agreement
terms, customer service, aircraft types, fare pricing, flight schedules and markets and routes served. The
principal competitive factors we experience with respect to our pro-rate flying include fare pricing,
customer service, routes served, flight schedules, aircraft types and relationships with major partners.
The combined operations of SkyWest Airlines and ExpressJet represent the largest regional airline
operation in the United States. However, many of the major and low-cost carriers are larger, and have
greater financial and other resources than SkyWest Airlines and ExpressJet, individually or collectively.
Additionally, regional carriers owned by major airlines, such as American Eagle, PSA and Endevor,
may have access to greater resources, through their parent companies, than SkyWest Airlines and
ExpressJet, and may have enhanced competitive advantages since they are subsidiaries of major airlines.
Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to
quickly discount and restructure fares. The airline industry is particularly susceptible to price
discounting because airlines incur only nominal costs to provide service to passengers occupying
otherwise unsold seats.
Generally, the airline industry is highly sensitive to changes in general economic conditions, in
large part due to the discretionary nature of a substantial percentage of both business and leisure
travel. Many airlines have historically reported lower earnings or substantial losses during periods of
economic recession, heavy fare discounting, high fuel costs and other disadvantageous environments.
Economic downturns, combined with competitive pressures, have contributed to a number of
reorganizations, bankruptcies, liquidations and business combinations among major and regional
carriers. The effect of economic downturns may be somewhat mitigated by the predominantly contract-
based flying arrangements of SkyWest Airlines and ExpressJet. In addition, if Delta or United, or any
of our other code-share partners, experience a prolonged decline in passenger load or are negatively
affected by low ticket prices or high fuel prices, they will likely seek to renegotiate their code-share
agreements with SkyWest Airlines and ExpressJet, as applicable, or cancel flights in order to reduce
their costs. In addition, adverse weather conditions can negatively impact our operations and financial
condition
Industry Overview
Majors, Low-Cost Carriers and Regional Airlines
The airline industry in the United States has traditionally been dominated by several major
airlines, including American, Delta, US Airways and United. The major airlines offer scheduled flights
to most major U.S. cities, numerous smaller U.S. cities, and cities throughout the world through a hub
and spoke network.
Low-cost carriers, such as Southwest Airlines Co. (‘‘Southwest’’) and JetBlue Airways Corporation
(‘‘JetBlue’’), generally offer fewer conveniences to travelers and have lower cost structures than major
airlines, which permits them to offer flights to and from many of the same markets as the major
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