SkyWest Airlines 2013 Annual Report Download - page 47

We have an agreement with a third-party vendor to provide long-term engine maintenance
covering scheduled and unscheduled repairs for engines on our CRJ700s operating under our
Fixed-Rate Engine Contracts (a ‘‘Power by the Hour Agreement’’). Under the terms of the Power by
the Hour Agreement, we are obligated to pay a set dollar amount per engine hour flown on a monthly
basis and the vendor assumes the obligation to repair the engines at no additional cost to us, subject to
certain specified exclusions. Thus, under the Power by the Hour Agreement, we expense the engine
maintenance costs as flight hours are incurred on the engines and using the contractual rate set forth in
the agreement. Because we record engine maintenance expense based on the fixed hourly rate pursuant
to the Power by the Hour Agreement on our CRJ700s operating under our Fixed-Rate Engine
Contracts, and because we recognize revenue using the applicable fixed hourly rates under our
Fixed-Rate Engine Contracts, the number of engine events and related expense we incur each reporting
period does not have a direct impact on the comparability of our operating income for the presented
reporting periods. The table below summarizes how we are compensated by our major partners under
our flying contracts for engine expense and the method we use to recognize the corresponding expense.
Flying Contract Compensation of Engine Expense Expense Recognition
SkyWest Delta Connection . . Directly-Reimbursed Engine Contracts Direct Expense Method
ExpressJet Delta Connection Directly-Reimbursed Engine Contracts Direct Expense Method
SkyWest United Express
(CRJ200) ............ Fixed-Rate Engine Contracts Direct Expense Method
SkyWest United Express
(CRJ700) ............ Fixed-Rate Engine Contracts Power by the Hour Agreement
SkyWest United Express
(EMB120) ............ Fixed-Rate Engine Contracts Deferral Method
ExpressJet United Express
(CRJ200) ............ Fixed-Rate Engine Contracts Direct Expense Method
ExpressJet United Express
(ERJ145) ............. Fixed-Rate Engine Contracts Power by the Hour Agreement
ExpressJet United CPA .... Directly-Reimbursed Engine Contracts Power by the Hour Agreement
Alaska Agreement ........ Fixed-Rate Engine Contracts Power by the Hour Agreement
American Eagle Agreement
(CRJ200) ............ Fixed-Rate Engine Contracts Direct Expense Method
US Airways Express
(CRJ200 / CRJ900) ..... Fixed-Rate Engine Contracts Direct Expense Method
Historically, multiple contractual relationships with major airlines have enabled us to reduce our
reliance on any single major airline code and to enhance and stabilize operating results through a mix
of contract flying and our controlled or ‘‘pro-rate’’ flying. For the year ended December 31, 2013,
contract flying revenue and pro-rate revenue represented approximately 90% and 10%, respectively, of
our total passenger revenues. On contract routes, the major airline partner controls scheduling,
ticketing, pricing and seat inventories and we are compensated by the major airline partner at
contracted rates based on completed block hours, flight departures and other operating measures.
Financial Highlights
We had total operating revenues of $3.3 billion for the year ended December 31, 2013, a 6.7%
decrease, compared to total operating revenues of $3.5 billion for the year ended December 31, 2012.
We had a net income of $59.0 million, or $1.12 per diluted share, for the year ended December 31,
2013, compared $51.2 million or $0.99 per diluted share, for the year ended December 31, 2012.
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