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CASE STUDYANALYSIS:
SKYWEST AND THE REGIONAL AIRLINE INDUSTRY IN 2009
Matthew Tyler Harman
MBAA-635 Business Capstone Course

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The regional airline industry of 2009 was supportive of a very diverse market that
allowed for multiple companies to partake in the opportunities at hand. While this lead to a
competitive market, the industry was heading for an economic melting pot.
The case has indicated that, “at the end of June 2009, Skywest, Inc and the parent holding
company of SkyWest Airlines and Atlantic Southeast Airlines was the largest independently
owned regional airline company in the regional airline subgroup of the airline industry”
(Thompson, et al.) As indicated in the case, “the airline industry was cyclical and its financial
performance was highly correlated to the economy” (Thompson, et al.). As shown by historical
events, the downturn of the economy in a specific geologic location will affect the transportation
industries directly operating in the market. In this case, the regional market was greatly affected
by the downturn in the U.S. economy.
The U.S. Airline industry is stated to be broken down into three groups of providers.
These groups include, “network, low cost, and regional carriers” (Thompson, et al.). Each of
these business types has a completely different business plan with respect to marketability.
Within these competitive markets, a group of five companies exist that control the majority of
the market share. These providers tend to dictate what the market trends will follow. Following
the events on September 11th, 2001, many companies have struggled to remain profitable with
the introduction of several new security restraints and expensive mandatory modifications.
Skywest was also closely watching their relationship with Delta Airlines. According to the case,
“SkyWest believed that it was owed nearly $25 million in payments” (Thompson, et al.). This
was a very difficult position for SkyWest because Delta Airlines was responsible for a significant
portion of their profits. By suing Delta Airlines, the possibility of future business opportunities
may be compromised. However, SkyWest was losing the estimated $25 million in previous

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payments. The third issue that SkyWest was facing in 2009 was the termination of the
partnership with Midwest Airlines. This partnership had been established prior to the purchase
of Midwest by Republic Airways Holdings. This purchase from a direct competitor of SkyWest
was a strategic movement that would create a larger competitive advantage for the company.
While new competitors in the marketplace were a real challenge, the entire industry was also
facing another challenge. According to the case, “although SkyWest’s contracts with its partners
typically included compensation for fuel costs, there was some concern that availability could
also become a problem, limiting the number of flights the company could support” (Thompson,
et al.). This factor was of extreme importance to the company’s management because of their
position on a high level scheduled flights arriving on time. As seen in the case analysis, the trend
of the market leaders which shows that SkyWest was an industry leader with the highest six year
totals with the exception of 2006.
In addition to the industry’s growing operating costs paired with the high level of
competition; this sector is faced with safety, regulations, labor unions, and the consumer opinion.
An area for improvement within SkyWest is the cost that is paid for fuel per passenger revenue
mile. From the data provided in the case, other firms are paying a significantly lower rate in this
cost. The case indicates that, “in response to the threat of rising fuel costs, most of the major
airlines implemented stringent luggage restrictions with stiff fees for passengers who exceeded
specified limits” (Thompson, et al.) By lowering this cost with partnerships with the fuel
providers, SkyWest may be able to establish a stronger market share. These partnerships
combined with a possible cost introduced to the consumer will affect the consumer view of the
company but will save direct operating costs.

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Safety and Maintenance are high cost elements of the aviation transportation industry and
SkyWest has utilized their internal resources to lower costs in these sections. According to the
case, “the company performed all routine airframe and engine maintenance and periodic
inspection of equipment at their respective maintenance facilities” (Thompson, et al.) However,
SkyWest has utilized the use of third party contracts to satisfy any nonroutine maintenance. The
chart below shows a steady increase in the cost of maintenance from 2004 through 2008.
This increase in cost can be associated with the purchase of new aircraft. However, in the
graph below, the maintenance costs have not increased at the same rate. This may be because of
the third party outsourcing that has occurred with regards to nonroutine maintenance. These
types of events are considerably more expensive than typical schedule maintenance and would
result on a higher level of allocation.
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
2004 2005 2006 2007 2008
Cost of Maintenance

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As indicated in the chart below, the operating profit margin was significantly reduced
from 2008 to 2009. Even with the introduction of higher revenues, the operating expenses began
to rise on a parallel scheme. Because of their targeted market, the company continues to acquire
and operate regional type aircraft. The company was able to combine a current order in place to
add new aircraft to their fleet. This aircraft will allow for the company to reduce their operating
costs while offering consumers an upgraded aircraft. SkyWest has seen a smaller operating
profit margin which is contrary to goals outlined in the case. This operating profit margin can be
seen in the graph below. It can be estimated that the firm has established the need for newer
aircraft and have in turn generated smaller profits from a higher operating cost.
0
0.5
1
1.5
2
2.5
2004 2005 2006 2007 2008
Cost (cents) per Passenger Revenue
Mile

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On the contrary, the company’s net profit margin has now been as drastic. In the graph
below, the net profit margin has been calculated based on the data provided in the case for 2004
through 2008. This graph indicates that there is some level of fluctuation in the level of
profitability with comparison the revenue generated. From years 2006 to 2007 there was a slight
increase followed by a drastic decrease in 2008. The typical standard for this ratio indicates that
an increase is considered to be health. In the case of SkyWest, there has been a downward trend,
which allows analysts to estimate that the financial situation is getting worse.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2004 2005 2006 2007 2008
Operating Profit Margin
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2004 2005 2006 2007 2008
Net Profit Margin

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Another financial tool that can be used to create an immediate snapshot is the working
capital liquidity ratio. This ratio indicates there was an increase in the company’s working
capital from 2007 to 2008. However, this data should be further analyzed to show a trend over
the similar six year period. The graph below shows the growth of approximately $9,359.00
between the two years.
In conclusion, SkyWest has a number of elements where profitability could be increase
through changes. However, these same changes may affect the consumer perspective and costs.
With an increase in marketing efforts, the company may be able to gain market share in this
highly competitive market. The costs in this market have increased as the company’s profit
margin decrease. This shows that the company has had to spend more in order to make a smaller
profit margin. As the economy sees improvements, the airline industry should see a similar
result as this is a cyclic industry.
1164000
1166000
1168000
1170000
1172000
1174000
1176000
1178000
1180000
2007 2008
Current Ratio

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Reference:
SkyWest, Inc. and the Regional Airline Industry in 2009 (Thompson, et al.).