SkyWest (SKYW) announced that the problems that cost it $3 million in incentive payments for not meeting its operational goals for its partners have been resolved. The carrier reported its final first quarter earnings of $742.9 million for the quarter ending March 31, an 118.3-percent increase over the year-ago period before it acquired fellow Delta Connection Atlantic Southeast Airlines. Net income for the combined carriers was $34.6 million, up 84.3 percent. (RAN, April 17)

Executive Vice President, CFO and Treasurer Brad Rich pointed to a 110.8-percent increase in available seat miles (ASMs). He also said that were it not for the fuel reimbursements, its year-over-year revenue growth would have only been 103 percent. In a conference call with the investment community, SkyWest said its cost per available seat mile was down 4.9 percent in non-fuel costs, from 10.3 cents in the 2005 quarter to 9.3 percent today. It attributed the reduction to the growth efficiencies, resulting from adding 32 RJs to the fleet. Still, said Rich, the carrier remains focused on cost containment. "The reason is twofold," he explained. "It makes us that much more competitive in winning bids for growth opportunities, and it creates much more value to our major partners by reducing the cost of feed."

When asked why SkyWest lost the Continental Express deal to Republic Holdings (RJET), Rich replied, "This is the first bid that we have not won. Our perception is that we were at a slight disadvantage because of the aircraft type, not the cost." (RAN, April 24) Republic operates Embraer RJs compared to SkyWest's burgeoning fleet of Bombardier jet equipment. Rich still sees plenty of opportunity in the market. "When you strip out the differences, at the end of the day, when you compare apples to apples, our costs are very consistent," he said. "And we have the best balance sheet in the industry." He also pointed to additional opportunities with both of its current partners - United and Delta - as well as to add additional codes, especially with the synergies of the newly combined airlines and its aggressive work on its cost structure.

Rich also said the operational goals missed were largely owing to weather and the lack of gates at San Francisco (SFO). The airline reported that it was unable to collect about $3 million (pretax) from its major partners for incentives under its capacity purchase agreements. However, he also attributed it to changes in schedules and a move at SFO. "United (UAUA) was optimizing its fleet schedule, and we were moved from a satellite facility to the main terminal where we were two gates short, which was remedied [on May 2]." He also cited Chicago and Los Angeles as having problems associated with "putting a lot of aircraft into a small space."

When asked why SkyWest was being penalized when its performance problems were being caused by its partner, Rich said that SkyWest is in discussions with United on this, along with damaged aircraft resulting from both space constraints and handlers. "These performance goals were established in a much different operating environment," he said. A lot of this has to do with aircraft flow, which affects other things such as crew movements and access to facilities and gates. "Historically, we are an industry leader in performance," he said, adding it has been ranked the number one on-time mainland carrier by the Department of Transportation since 2003. "Now, we are approaching where we have been historically

The airline is now operating 321 RJs, including 118 for United and 203 for Delta. It is also operating 62 Brasilias: 50 for United and 12 for Delta, as well as 12 ATR 72s in its Delta operation." Brad Rich, (435)634-3212.