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Skywest

Introduction

SkyWest Airlines (SkyWest) was a rare breed in the ultra-competitive regional airline industry. As the overall airline industry suffered through terrorist attacks, rising fuel costs, and increased competition, SkyWest was able to grow its business and sustain profitability. The aforementioned events that impacted the airline industry had a severe effect on the structure of the industry as a whole. Several major airlines were in the process of emerging from bankruptcy while mergers among the largest airlines seemed inevitable. SkyWest, like most regional carriers, relied on contracts with the major airlines for its customer base and revenues. With industry consolidation underway, SkyWest’s recent history of profitability was no longer a sure bet.
Company Analysis
In 2007 SkyWest celebrated its 35th anniversary of partnering with the major airlines to provide service to smaller airports. At the beginning of 2007 SkyWest served 135 cities in 38 states and had built a national presence. SkyWest obtained the majority of its business through partnerships with two major airlines, United Airlines (United) and Delta Airlines (Delta). These companies had a lot in common as both major airlines recently emerged from bankruptcy and used similar business models. SkyWest’s contracts with Delta accounted for approximately 59.9% of its capacity while 40.1% of capacity was contained in contracts with United. The contracts with both major airlines stated that SkyWest would receive a fixed dollar payment per completed flight hour, and would also be reimbursed for costs such as fuel and aircraft ownership and maintenance costs. United and Delta’s recent bankruptcies were expected to lead to more outsourced flights and therefore more business to SkyWest.
In an effort to grow the company, SkyWest acquired Atlantic Southeast Airlines (ASA), a company that was owned and managed by Delta Airlines. This acquisition...

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