SkyWest Airlines 2013 Annual Report Download - page 13

passengers traveling for one portion of their trip on the regional airline and the other portion of
their trip on the major airline. Substantially all costs associated with the regional airline flight
are borne by the regional airline. In such a revenue-sharing arrangement, the regional airline
realizes increased profits as ticket prices and passenger loads increase or fuel prices decrease
and, correspondingly, realizes decreased profits as ticket prices and passenger loads decrease or
fuel prices increase.
Code-Share Agreements
SkyWest Airlines has code-share agreements with United, Delta, American, US Airways and
Alaska. ExpressJet has code-share agreements with United, Delta and American.
These code-share agreements authorize Delta, United, American, Alaska and US Airways to
identify our flights and fares under their two-letter flight designator codes (‘‘DL,’’ ‘‘UA’’ ‘‘AA’’, ‘‘AS’’ or
‘‘US,’’ respectively) in the central reservation systems, and generally require us to paint our aircraft
with their colors and logos and to market our status as Delta Connection, United Express, American
Eagle, US Airways Express or Alaska, as applicable. Under each of our code-share agreements, our
passengers participate in the major partner’s frequent flyer program, and the major partner provides
additional services such as reservations, ticket issuance, ground support services and gate access. We
also coordinate our marketing, advertising and other promotional efforts with our major partners.
During the year ended December 31, 2013, approximately 90% of our passenger revenues related to
contract flights, where Delta, United, Alaska, American and US Airways controlled scheduling,
ticketing, pricing and seat inventories. The remainder of our passenger revenues during the year ended
December 31, 2013 related to pro-rate flights for Delta or United, where we controlled scheduling,
ticketing, pricing and seat inventories, and shared revenues with Delta or United according to pro-rate
formulas. The following summaries of our code-share agreements do not purport to be complete and
are qualified in their entirety by reference to the applicable agreement.
SkyWest Airlines Delta Connection Agreement
SkyWest Airlines and Delta are parties to the SkyWest Airlines Delta Connection Agreement,
dated as of September 8, 2005. As of December 31, 2013, SkyWest Airlines operated 32 CRJ900s,
19 CRJ700s and 41 CRJ200s under the SkyWest Airlines Delta Connection Agreement. As of
December 31, 2013, SkyWest Airlines was operating more than 500 Delta Connection flights per day
between Salt Lake City, Detroit or Minneapolis and outlying destinations. Additionally, as of
December 31, 2013, SkyWest Airlines operated nine Brasilia turboprops and eight CRJ200s under the
Delta code under a revenue-sharing arrangement. Generally, under the SkyWest Airlines Delta
Connection Agreement, Delta retains all air fares, cargo rates, mail charges and other revenues
associated with each flight.
In exchange for providing the designated number of flights and performing SkyWest Airlines’ other
obligations under the SkyWest Airlines Delta Connection Agreement, SkyWest Airlines is scheduled to
receive from Delta on a weekly basis (i) specified fixed rate payments for each completed flight, which
are intended to pay for certain costs related to the Delta Connection flights, plus (ii) a fixed dollar
payment per completed flight block hour, subject to annual escalation at an agreed rate. Costs directly
reimbursed by Delta under the SkyWest Airlines Delta Connection Agreement include costs primarily
related to fuel, aircraft engine maintenance and aircraft ownership.
The SkyWest Airlines Delta Connection Agreement provides that, beginning with the fifth
anniversary of the execution of the agreement (September 8, 2010), Delta has the right to require that
certain contractual rates under that agreement shall not exceed the second lowest rates of all carriers
within the Delta Connection Program. On November 19, 2010, SkyWest Airlines reached an agreement
with Delta related to the second lowest rate provisions to be applied under the SkyWest Airlines Delta
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