netrashetty
Netra Shetty
SkyWest Airlines, Inc. is a North American regional airline headquartered in St. George, Utah,[1] flying to 161 cities in 39 U.S. states and 7 Canadian Provinces. The airline serves as a feeder airline, operating under contract with various major carriers. It flies as SkyWest Airlines in a partnership with AirTran Airways[2], United Express on behalf of United Airlines and as Delta Connection on behalf of Delta Air Lines.
SkyWest Airlines is one of two airlines owned by SkyWest, Inc. - the other being Atlantic Southeast Airlines. Combined the two airlines make up the tenth-largest airline in terms of number of planes, operating 440 regional aircraft.
As of 2010, the airline employs over 10,000 people and averages approximately 1,840 daily departures across its network, with 1,269 operating as United Express, 541 operating Delta Connection and 32 as AirTran Airways. SkyWest's largest stations in order of departures are:[2]
Denver International Airport: 232 departures
Salt Lake City International Airport: 218 departures
San Francisco International Airport: 135 departures
Los Angeles International Airport: 129 departures
Chicago O'Hare International Airport: 127 departures
Portland International Airport: 38 departures
Milwaukee General Mitchell International Airport: 26 departures
Skywest Inc. (NASDAQ:SKYW) is a regional airline which operates flights for its partners - Delta Airlines, United Airlines, and Midwest Airlines. Regional carriers operate connecting flights to smaller airports on contracts to 'legacy carriers,' or airlines that have full service offerings and connect through larger hubs.
Regional carriers carry fewer passengers than the large, legacy carriers, but over the last decade they have proven to be much more profitable businesses. Skywest charges its customers for fuel, operating expenses, and an hourly rate besides - making the company immune from the twin hobgoblins of the airline industry - oil prices and flying empty planes as a result of recessions. Skywest's clients then collect passenger revenue and assume the risk that tickets won't sell out.[1][1]
Corporate Overview
SkyWest Incorporated wholly owns both SkyWest Airlines and Atlantic Southeast Airlines. Since Skywest owns only regional airlines, all of the company's flights are operated under codeshare agreements with Delta, United, and Midwest Airlines (private).[2] The codeshare agreements are generally long-term and fixed agreements whereby fuel expenses and other general operating expenses are passed through to the codeshare partners and fees are paid to SkyWest or Atlanta Southeast Airlines for the operation of their aircraft. [2] The larger, legacy carriers use Skywest to reduce the expense of operating smaller airplanes to serve regional markets while Skywest needs the larger companies for their brand names, fixed term agreements, and long-haul service offerings. [3]
Contents
1 Corporate Overview
1.1 Business & Financial Metrics[4]
1.2 Business Segments
1.2.1 SkyWest Airlines
1.2.2 Atlantic Southeast Airlines (ASA)
2 Key Trends and Forces
2.1 Industry troubles can cause flight route reduction
2.2 Rising fuel costs increase partner costs
2.3 Industry consolidation could cause route cuts
3 Competition
4 References
Business & Financial Metrics[4]
In 2009, SKYW generated a net income of $83.7 million on revenues of $2.61 billion. This represents a 25.9% decrease in net income and a 25.2% decrease in total revenues from 2008, when the company earned $112.9 million on revenues of $3.50 billion.
Business Segments
SkyWest operates through a single reportable segment but has two carriers: Skywest, which offers service to United, Delta, and Midwest carriers, and Atlanta Southeast Airlines, which offers service exclusively to Delta. The company has code sharing agreements with each of its partners that are specific to each of the airlines. [1]
SkyWest Airlines
All of SkyWest Airline's flights are under code share agreements with Delta, United, or Midwest. Each of these agreements was separately reached and has specific terms although all passenger revenues go to the partners in all of the contracts. [1]
The Delta Connection Airline Agreement began on September 8, 2005 and is valid until September 8, 2020 unless Delta agrees to extend the agreement at that time. The contract can only be canceled if SkyWest Airlines is not able to maintain competitive costs or does not maintain operating standards. It can also be broken if either partyfiles for bankruptcy. [1] As part of this agreement, SkyWest receives reimbursement for 100% of the costs (including fuel, aircraft maintenance, and ownership) that it incurs for the Delta Connection flights and a fixed payment per completed flight block hour. This payment can be increased each year. [1] SkyWest Airlines operates 525 Delta Connection flights per day, all of which originate or terminate from Salt Lake City airport. [1]
The SkyWest Inc. United Agreement began on July 31, 2003 and is scheduled to expire incrementally on December 31, 2011, 2013, 2015, and 2018. [5] The agreement can, however, be terminated at any time if SkyWest does not meet United's performance requirements, if SkyWest begins to operate flights for competitor's at United's hubs, or if either party files for bankruptcy. Under the agreement, United reimburses SkyWest for all of United's operating expenses, including fuel and aircraft ownership fees. [5] United also pays SkyWest a fixed fee per block hour that the airline operates United flights. Under this agreement, SkyWest operated 1,150 United Express flights per day that originate or terminate in Chicago, Denver, Los Angeles, San Francisco, Portland, or Seattle/Tacoma.[5]
The Skywest Midwest Airlines Service Agreement began on December 20, 2006 and expires on June 30, 2012 although it automatically renews for up to twelve additional years unless one of the parties cancels the agreement. The agreement can expire if either party files for bankruptcy or if SkyWest airline's performance falls below a certain level. [6] Midwest Airlines pays SkyWest airlines on a fixed-fee basis for completed departures, a fixed-fee for overhead, and also reimburses operating costs related to fuel, landing fees, and catering. [6] SkyWest operates 75 MidWest flights per day terminating or originating in Milwaukee and Kansas City. [6]
Atlantic Southeast Airlines (ASA)
The ASA Delta Connection Agreement began on September 8, 2005 and is valid until September 8, 2020 unless Delta agrees to extend the agreement at that time. The contract can only be canceled if ASA is maintain competitive costs or does not maintain operating standards. It can also be terminated if either party files for bankruptcy. [7] As part of this agreement, ASA receives reimbursement for 100% of the costs (including fuel, aircraft maintenance, and ownership) that it incurs for the Delta Connection flights and a fixed payment per completed flight block hour. This payment can be increased each year. [7] The agreement also permits additional compensation based on on-time arrival performance and completion percentage rates. [7] ASA operates 750 Delta Connection flights per day originating or terminating in Atlanta, Cincinnati, and Salt Lake City. [7]
Key Trends and Forces
Industry troubles can cause flight route reduction
Although Skywest Inc. does not have to directly pay operating costs and is paid for the flights that it operates, it is dependent upon its partner airlines to pay its operating costs and the per-hour payments that it is guaranteed through its contracts. Because 97% of the company's capacity is used for either Delta or United, if its partners are forced to cut costs by eliminating routes, SkyWest Inc. can no longer operate those routes and will lose those revenues as well as the reimbursements for the maintenance expenses and other costs associated with airline ownership. [8][5] Although the airline itself is not paid on a per-passenger basis, if its partners do not have enough passengers on their main routes, routes will be cut to Skywest as decided by Midwest. [9]
Rising fuel costs increase partner costs
Because all of SkyWest Inc. flights are through code-share agreements with its partners, 97.4% of all of the company's fuel purchases are reimbursed as operating expenses to the company under these codeshare agreements. [10] As such, the company does not directly bear the burden of the higher fuel costs; however, its partners may have increased hardships and may end up cancelling routes as Midwest did. [11]
Industry consolidation could cause route cuts
One of the reasons why Delta and Northwestern are consolidating, is to be able to cut expenses and reduce overall net losses. [12] Although it is still unclear what impact the merger between Delta and Northwest will have on SkyWest, a JP Morgan Industry analyst states that JP Morgan continues to believe that consolidation poses a threat to regional airlines. [13] Before beginning merger negotiations, Delta already dropped another regional carrier, Freedom Airlines, which operates 34 Delta Connection flights per day, although this resulted in a lawsuit because it allegedly violated the terms of the contract between those parties. [13]
[14]
Competition
Regional airlines are considered to be their own segment apart from legacy carriers because they do not offer 'long-haul' flights to international or intercontinental destinations. In many cases, regional airlines also sell all or most of their flights to larger legacy carriers such as US Airways, United, and Delta] which offer long-haul and short-haul flights. [15] These larger carriers pay regional carriers flat rates for operating their flights.[16]
As such, it does not make sense to compare the competition between legacy and regional carriers, but rather the competition between regional carriers. American Eagle and ExpressJet remain SkyWest's biggest competitors for business in terms of passengers carried.[16] Regional airlines are mainly judged by potential partners on the basis of their operating efficiency. When Comair, Delta's subsidiary, proved to be less efficient and had more operating expenses than SkyWest, Delta elected to use SkyWest's services instead. [15] Despite their operating efficiency however, SkyWest relies upon its partners to make sales with its brand as many customers would otherwise be unfamiliar with the airline. [3]
SkyWest Airlines is one of two airlines owned by SkyWest, Inc. - the other being Atlantic Southeast Airlines. Combined the two airlines make up the tenth-largest airline in terms of number of planes, operating 440 regional aircraft.
As of 2010, the airline employs over 10,000 people and averages approximately 1,840 daily departures across its network, with 1,269 operating as United Express, 541 operating Delta Connection and 32 as AirTran Airways. SkyWest's largest stations in order of departures are:[2]
Denver International Airport: 232 departures
Salt Lake City International Airport: 218 departures
San Francisco International Airport: 135 departures
Los Angeles International Airport: 129 departures
Chicago O'Hare International Airport: 127 departures
Portland International Airport: 38 departures
Milwaukee General Mitchell International Airport: 26 departures
Skywest Inc. (NASDAQ:SKYW) is a regional airline which operates flights for its partners - Delta Airlines, United Airlines, and Midwest Airlines. Regional carriers operate connecting flights to smaller airports on contracts to 'legacy carriers,' or airlines that have full service offerings and connect through larger hubs.
Regional carriers carry fewer passengers than the large, legacy carriers, but over the last decade they have proven to be much more profitable businesses. Skywest charges its customers for fuel, operating expenses, and an hourly rate besides - making the company immune from the twin hobgoblins of the airline industry - oil prices and flying empty planes as a result of recessions. Skywest's clients then collect passenger revenue and assume the risk that tickets won't sell out.[1][1]
Corporate Overview
SkyWest Incorporated wholly owns both SkyWest Airlines and Atlantic Southeast Airlines. Since Skywest owns only regional airlines, all of the company's flights are operated under codeshare agreements with Delta, United, and Midwest Airlines (private).[2] The codeshare agreements are generally long-term and fixed agreements whereby fuel expenses and other general operating expenses are passed through to the codeshare partners and fees are paid to SkyWest or Atlanta Southeast Airlines for the operation of their aircraft. [2] The larger, legacy carriers use Skywest to reduce the expense of operating smaller airplanes to serve regional markets while Skywest needs the larger companies for their brand names, fixed term agreements, and long-haul service offerings. [3]
Contents
1 Corporate Overview
1.1 Business & Financial Metrics[4]
1.2 Business Segments
1.2.1 SkyWest Airlines
1.2.2 Atlantic Southeast Airlines (ASA)
2 Key Trends and Forces
2.1 Industry troubles can cause flight route reduction
2.2 Rising fuel costs increase partner costs
2.3 Industry consolidation could cause route cuts
3 Competition
4 References
Business & Financial Metrics[4]
In 2009, SKYW generated a net income of $83.7 million on revenues of $2.61 billion. This represents a 25.9% decrease in net income and a 25.2% decrease in total revenues from 2008, when the company earned $112.9 million on revenues of $3.50 billion.
Business Segments
SkyWest operates through a single reportable segment but has two carriers: Skywest, which offers service to United, Delta, and Midwest carriers, and Atlanta Southeast Airlines, which offers service exclusively to Delta. The company has code sharing agreements with each of its partners that are specific to each of the airlines. [1]
SkyWest Airlines
All of SkyWest Airline's flights are under code share agreements with Delta, United, or Midwest. Each of these agreements was separately reached and has specific terms although all passenger revenues go to the partners in all of the contracts. [1]
The Delta Connection Airline Agreement began on September 8, 2005 and is valid until September 8, 2020 unless Delta agrees to extend the agreement at that time. The contract can only be canceled if SkyWest Airlines is not able to maintain competitive costs or does not maintain operating standards. It can also be broken if either partyfiles for bankruptcy. [1] As part of this agreement, SkyWest receives reimbursement for 100% of the costs (including fuel, aircraft maintenance, and ownership) that it incurs for the Delta Connection flights and a fixed payment per completed flight block hour. This payment can be increased each year. [1] SkyWest Airlines operates 525 Delta Connection flights per day, all of which originate or terminate from Salt Lake City airport. [1]
The SkyWest Inc. United Agreement began on July 31, 2003 and is scheduled to expire incrementally on December 31, 2011, 2013, 2015, and 2018. [5] The agreement can, however, be terminated at any time if SkyWest does not meet United's performance requirements, if SkyWest begins to operate flights for competitor's at United's hubs, or if either party files for bankruptcy. Under the agreement, United reimburses SkyWest for all of United's operating expenses, including fuel and aircraft ownership fees. [5] United also pays SkyWest a fixed fee per block hour that the airline operates United flights. Under this agreement, SkyWest operated 1,150 United Express flights per day that originate or terminate in Chicago, Denver, Los Angeles, San Francisco, Portland, or Seattle/Tacoma.[5]
The Skywest Midwest Airlines Service Agreement began on December 20, 2006 and expires on June 30, 2012 although it automatically renews for up to twelve additional years unless one of the parties cancels the agreement. The agreement can expire if either party files for bankruptcy or if SkyWest airline's performance falls below a certain level. [6] Midwest Airlines pays SkyWest airlines on a fixed-fee basis for completed departures, a fixed-fee for overhead, and also reimburses operating costs related to fuel, landing fees, and catering. [6] SkyWest operates 75 MidWest flights per day terminating or originating in Milwaukee and Kansas City. [6]
Atlantic Southeast Airlines (ASA)
The ASA Delta Connection Agreement began on September 8, 2005 and is valid until September 8, 2020 unless Delta agrees to extend the agreement at that time. The contract can only be canceled if ASA is maintain competitive costs or does not maintain operating standards. It can also be terminated if either party files for bankruptcy. [7] As part of this agreement, ASA receives reimbursement for 100% of the costs (including fuel, aircraft maintenance, and ownership) that it incurs for the Delta Connection flights and a fixed payment per completed flight block hour. This payment can be increased each year. [7] The agreement also permits additional compensation based on on-time arrival performance and completion percentage rates. [7] ASA operates 750 Delta Connection flights per day originating or terminating in Atlanta, Cincinnati, and Salt Lake City. [7]
Key Trends and Forces
Industry troubles can cause flight route reduction
Although Skywest Inc. does not have to directly pay operating costs and is paid for the flights that it operates, it is dependent upon its partner airlines to pay its operating costs and the per-hour payments that it is guaranteed through its contracts. Because 97% of the company's capacity is used for either Delta or United, if its partners are forced to cut costs by eliminating routes, SkyWest Inc. can no longer operate those routes and will lose those revenues as well as the reimbursements for the maintenance expenses and other costs associated with airline ownership. [8][5] Although the airline itself is not paid on a per-passenger basis, if its partners do not have enough passengers on their main routes, routes will be cut to Skywest as decided by Midwest. [9]
Rising fuel costs increase partner costs
Because all of SkyWest Inc. flights are through code-share agreements with its partners, 97.4% of all of the company's fuel purchases are reimbursed as operating expenses to the company under these codeshare agreements. [10] As such, the company does not directly bear the burden of the higher fuel costs; however, its partners may have increased hardships and may end up cancelling routes as Midwest did. [11]
Industry consolidation could cause route cuts
One of the reasons why Delta and Northwestern are consolidating, is to be able to cut expenses and reduce overall net losses. [12] Although it is still unclear what impact the merger between Delta and Northwest will have on SkyWest, a JP Morgan Industry analyst states that JP Morgan continues to believe that consolidation poses a threat to regional airlines. [13] Before beginning merger negotiations, Delta already dropped another regional carrier, Freedom Airlines, which operates 34 Delta Connection flights per day, although this resulted in a lawsuit because it allegedly violated the terms of the contract between those parties. [13]
[14]
Competition
Regional airlines are considered to be their own segment apart from legacy carriers because they do not offer 'long-haul' flights to international or intercontinental destinations. In many cases, regional airlines also sell all or most of their flights to larger legacy carriers such as US Airways, United, and Delta] which offer long-haul and short-haul flights. [15] These larger carriers pay regional carriers flat rates for operating their flights.[16]
As such, it does not make sense to compare the competition between legacy and regional carriers, but rather the competition between regional carriers. American Eagle and ExpressJet remain SkyWest's biggest competitors for business in terms of passengers carried.[16] Regional airlines are mainly judged by potential partners on the basis of their operating efficiency. When Comair, Delta's subsidiary, proved to be less efficient and had more operating expenses than SkyWest, Delta elected to use SkyWest's services instead. [15] Despite their operating efficiency however, SkyWest relies upon its partners to make sales with its brand as many customers would otherwise be unfamiliar with the airline. [3]
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