SkyWest Airlines 2014 Annual Report Download - page 11

A summary of the terms for each ExpressJet code-share agreement with the respective major
partner is provided under the heading ‘‘Code Share Agreements’’ below.
Competition and Economic Conditions
The airline industry is highly competitive. SkyWest Airlines and ExpressJet compete principally
with other code-sharing regional airlines, but also compete 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’’); Envoy Air Inc. (‘‘Envoy’’), PSA Airlines, Inc. (‘‘PSA’’) and Piedmont
Airlines (‘‘Piedmont’’) (Envoy, PSA and Piedmont are owned by American); Horizon Air
Industries, Inc. (‘‘Horizon’’) (owned by Alaska Air Group, Inc.); Mesa Air Group, Inc. (‘‘Mesa’’);
Endeavor, Inc. (‘‘Endeavor’’) (owned by Delta); Republic Airways Holdings Inc. (‘‘Republic’’); and
Trans State Airlines, Inc. (‘‘Trans State’’). Major airlines award contract flying to these regional airlines
based primarily upon the following criteria: low cost, financial resources, geographical infrastructure,
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
operations 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 Endeavor, Envoy, PSA and Piedmont,
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 materially reduce scheduled flights
in order to reduce their costs. In addition, adverse weather conditions can negatively impact our
operations and financial condition.
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