SkyWest Airlines 2014 Annual Report Download - page 66

Guarantees
We have guaranteed the obligations of SkyWest Airlines under the SkyWest Airlines Delta
Connection Agreement and the SkyWest Airlines United Express Agreement for the E175 aircraft. We
have also guaranteed the obligations of ExpressJet under the ExpressJet Delta Connection Agreement
and the ExpressJet United ERJ Agreement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aircraft Fuel
In the past, we have not experienced difficulties with fuel availability and we currently expect to be
able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our
contract flying arrangements, United, Delta, Alaska, American and US Airways have agreed to bear the
economic risk of fuel price fluctuations on our contracted flights. We bear the economic risk of fuel
price fluctuations on our pro-rate operations. For each of the years ended December 31, 2014, 2013
and 2012, approximately 3%, 3% and 3% of our ASMs were flown under pro-rate arrangements. For
the years ended December 31, 2014, 2013 and 2012, the average price per gallon of aircraft fuel was
$3.33, $3.45 and $3.59, respectively. For illustrative purposes only, we have estimated the impact of the
market risk of fuel on our pro-rate operations using a hypothetical increase of 25% in the price per
gallon we purchase. Based on this hypothetical assumption, we would have incurred an additional
$29.1 million, $25.3 million and $24.3 million in fuel expense for the years ended December 31, 2014,
2013 and 2012, respectively.
Interest Rates
Our earnings are affected by changes in interest rates due to the amounts of variable rate
long-term debt and the amount of cash and securities held. The interest rates applicable to variable
rate notes may rise and increase the amount of interest expense. We would also receive higher amounts
of interest income on cash and securities held at the time; however, the market value of our
available-for-sale securities would likely decline. At December 31, 2014, 2013 and 2012, we had variable
rate notes representing 41.3%, 29.5% and 31.7% of our total long-term debt, respectively. For
illustrative purposes only, we have estimated the impact of market risk using a hypothetical increase in
interest rates of one percentage point for both variable rate long-term debt and cash and securities.
Based on this hypothetical assumption, we would have incurred an additional $5.8 million in interest
expense and received $5.5 million in additional interest income for the year ended December 31, 2014;
we would have incurred an additional $4.8 million in interest expense and received $6.7 million in
additional interest income for the year ended December 31, 2013; and we would have incurred an
additional $5.5 million in interest expense and received $6.5 million in additional interest income for
the year ended December 31, 2012. However, under our contractual arrangement with our major
partners, the majority of the increase in interest expense would be passed through and recorded as
passenger revenue in our consolidated statements of comprehensive income (loss). If interest rates were
to decline, our major partners would receive the principal benefit of the decline, since interest expense
is generally passed through to our major partners, resulting in a reduction to passenger revenue in our
consolidated statement of comprehensive income (loss).
We currently intend to finance the acquisition of aircraft through manufacturer financing, third-
party leases or long-term borrowings. Changes in interest rates may impact the actual cost to us to
acquire these aircraft. To the extent we place these aircraft in service under our code-share agreements
with Delta, United, or other carriers, our code-share agreements currently provide that reimbursement
rates will be adjusted higher or lower to reflect changes in our aircraft rental rates.
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