10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to          

Commission file number 0-14719

SKYWEST, INC.

Incorporated under the laws of Utah	87-0292166
	(I.R.S. Employer ID No.)

444 South River Road

St. George, Utah 84790

(435) 634-3000

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was to required to submit and post such files).  Yes  x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 1, 2011
Common stock, no par value	51,883,416

SKYWEST, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION:		3
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets as of June  30, 2011 (unaudited) and December 31, 2010	3
		Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2011 and 2010	5
		Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2011 and 2010	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4.	Controls and Procedures	25
PART II	OTHER INFORMATION:
			26
	Item 1.	Legal Proceedings	26
	Item 1A.	Risk Factors	27
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 6.	Exhibits	27
		Signature	28
Exhibit 31.1	Certification of Chief Executive Officer
Exhibit 31.2	Certification of Chief Financial Officer
Exhibit 32.1	Certification of Chief Executive Officer
Exhibit 32.2	Certification of Chief Financial Officer

2

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

ASSETS

	June 30, 2011			December 31, 2010
	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	139,131		$	112,338
Marketable securities	523,672			670,739
Restricted cash	21,756			21,775
Income tax receivable	7,678			3,356
Receivables, net	143,864			110,207
Inventories, net	112,664			106,572
Prepaid aircraft rents	288,728			256,168
Deferred tax assets	60,225			56,102
Other current assets	27,283			32,308
Total current assets	1,325,001			1,369,565
PROPERTY AND EQUIPMENT:
Aircraft and rotable spares	3,859,587			3,836,550
Deposits on aircraft	13,500			400
Buildings and ground equipment	282,695			278,665
	4,155,782			4,115,615
Less accumulated depreciation and amortization	(1,278,124		)	(1,172,796		)
Total property and equipment, net	2,877,658			2,942,819
OTHER ASSETS
Intangible assets, net	20,622			21,747
Other assets	116,460			112,379
Total other assets	137,082			134,126
Total assets	$	4,339,741		$	4,446,510

See accompanying notes to condensed consolidated financial statements.

3

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	June 30,			December 31,
	2011			2010
	(unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt	$	160,490		$	159,039
Accounts payable	233,037			206,490
Accrued salaries, wages and benefits	110,650			112,728
Accrued aircraft rents	24,252			16,780
Taxes other than income taxes	22,161			25,146
Other current liabilities	35,355			42,457
Total current liabilities	585,945			562,640
OTHER LONG-TERM LIABILITIES	51,773			46,325
LONG-TERM DEBT, net of current maturities	1,658,122			1,738,936
DEFERRED INCOME TAXES PAYABLE	568,332			569,847
DEFERRED AIRCRAFT CREDITS	103,306			107,839
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized; none issued	—			—
Common stock, no par value, 120,000,000 shares authorized; 75,669,814 and 75,244,553 shares issued, respectively	593,902			589,610
Retained earnings	1,126,114			1,139,739
Treasury stock, at cost, 23,627,860 and 21,071,582 shares, respectively	(349,887		)	(309,628		)
Accumulated other comprehensive income	2,134			1,202
Total stockholders’ equity	1,372,263			1,420,923
Total liabilities and stockholders’ equity	$	4,339,741		$	4,446,510

See accompanying notes to condensed consolidated financial statements.

4

SKYWEST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF Operations

(Dollars and Shares in Thousands, Except per Share Amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
OPERATING REVENUES:
Passenger	$	919,690		$	642,201		$	1,764,166		$	1,265,313
Ground handling and other	14,007			7,558			35,482			16,689
Total operating revenues	933,697			649,759			1,799,648			1,282,002
OPERATING EXPENSES:
Salaries, wages and benefits	290,126			173,716			576,273			352,278
Aircraft maintenance, materials and repairs	176,399			111,366			339,573			218,121
Aircraft fuel	161,408			85,513			288,149			159,027
Aircraft rentals	88,072			75,642			174,494			152,101
Depreciation and amortization	63,697			58,383			126,890			116,529
Station rentals and landing fees	42,322			30,551			84,948			59,436
Ground handling services	32,875			26,945			69,728			56,389
Merger and integration related costs	1,364			—			2,395			—
Other	58,394			38,355			117,932			76,411
Total operating expenses	914,657			600,471			1,780,382			1,190,292
OPERATING INCOME	19,040			49,288			19,266			91,710
OTHER INCOME (EXPENSE):
Interest income	2,114			4,142			4,080			8,112
Interest expense	(20,052		)	(21,659		)	(40,272		)	(43,244		)
Other, net	(2,859		)	(1,131		)	(3,365		)	(1,385		)
	(20,797		)	(18,648		)	(39,557		)	(36,517		)
INCOME (LOSS) BEFORE INCOME TAXES	(1,757		)	30,640			(20,291		)	55,193
PROVISION (BENEFIT)FOR INCOME TAXES	(3,336		)	11,985			(10,806		)	21,522
NET INCOME (LOSS)	$	1,579		$	18,655		$	(9,485	)	$	33,671
BASIC EARNINGS (LOSS) PER SHARE	$	0.03		$	0.33		$	(0.18	)	$	0.60
DILUTED EARNINGS (LOSS) PER SHARE	$	0.03		$	0.33		$	(0.18	)	$	0.59
Weighted average common shares:
Basic	52,698			55,936			53,271			55,895
Diluted	53,371			56,718			53,271			56,791
Dividends declared per share	$	0.04		$	0.04		$	0.08		$	0.08

See accompanying notes to condensed consolidated financial statements.

5

SKYWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In Thousands)

	Six Months Ended June 30
	2011			2010
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	51,324		$	133,428
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(234,342		)	(390,615		)
Sales of marketable securities	382,351			355,195
Payments received on note receivable from United Air Lines	—			4,000
Proceeds from the sale of equipment	191			114
Acquisition of property and equipment:
Aircraft and rotable spare parts	(29,029		)	(111,298		)
Deposits on aircraft	(13,500		)	—
Buildings and ground equipment	(5,009		)	(4,172		)
Increase in other assets	(3,850		)	(12,600		)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	96,812			(159,376		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt	—			81,698
Principal payments on long-term debt	(79,363		)	(74,045		)
Tax benefit from exercise of common stock options	2			—
Return of deposits on aircraft and rotable spare parts	400			4,247
Net proceeds from issuance of common stock	2,203			2,504
Purchase of treasury stock	(40,259		)	(1,179		)
Payment of cash dividends	(4,326		)	(4,511		)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	(121,343		)	8,714
Increase (decrease) in cash and cash equivalents	26,793			(17,234		)
Cash and cash equivalents at beginning of period	112,338			76,414
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	139,131		$	59,180
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized amounts	$	41,370		$	42,698
Income taxes	$	698		$	495

See accompanying notes to condensed consolidated financial statements.

6

SKYWEST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note A — Condensed Consolidated Financial Statements

The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and its operating subsidiaries, SkyWest Airlines, Inc. (“SkyWest Airlines”), Atlantic Southeast Airlines, Inc. (“Atlantic Southeast”) and ExpressJet Airlines Inc. (“ExpressJet”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although SkyWest believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. The Company suggests that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  The results of operations for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results will differ and may differ materially from those estimates and assumptions.

Certain reclassifications have been made to the Company’s June 30, 2010 condensed consolidated financial statements to conform to the presentation of the Company’s June 30, 2011 condensed consolidated financial statements.

Note B — ExpressJet Merger

On November 12, 2010, the Company acquired ExpressJet Holdings, Inc. (of which ExpressJet is an indirect wholly-owned subsidiary) (“ExpressJet Holdings”) through the merger of ExpressJet Holdings with and into a wholly-owned subsidiary of Atlantic Southeast (the “ExpressJet Merger”). As a result of the ExpressJet Merger, each issued and outstanding share of ExpressJet Holdings common stock (other than shares owned by the Company or any of its subsidiaries) was converted into the right to receive $6.75 per share in cash, payable to the holder thereof, without interest. Based on the number of outstanding shares of ExpressJet Holdings common stock as of the effective time of the ExpressJet Merger, the aggregate value of the merger consideration was $131.6 million. After taking in effect the number of shares acquired by the Company and its subsidiaries prior to the effective time of the ExpressJet Merger, the aggregate value of the ExpressJet Merger consideration was $136.5 million.

The following unaudited pro forma combined results of operations give effect to the ExpressJet Merger as if it had occurred at the beginning of the periods presented. The unaudited pro forma combined results of operations do not purport to represent the Company’s consolidated results of operations had the ExpressJet Merger occurred on the date assumed, nor are these results necessarily indicative of the Company’s future consolidated results of operations. The Company expects to realize benefits from integrating the operations of Atlantic Southeast and ExpressJet, and to incur significant one-time cash costs in connection with that integration. The unaudited pro forma combined results of operations (in thousands) do not reflect these potential benefits or costs  nor can the Company provide any assurance that the anticipated benefits will be achieved or that the Company’s actual costs will be consistent with the anticipated costs.

	Three Months Ended June 30, 2010		Six Months Ended June 30, 2010
Revenue	$	857,766	$	1,680,256
Net Income	$	2,568	$	3,966
Basic earnings per share	$	0.05	$	0.07
Diluted earnings per share	$	0.05	$	0.07

7

Note C — Passenger and Ground Handling Revenue

Passenger and Ground Handling Revenues

The Company recognizes passenger and ground handling revenues when the service is provided. Under the Company’s contract and pro-rate flying agreements with Delta Air Lines, Inc. (“Delta”), United Air Lines, Inc. (“United”) Continental Airlines, Inc. (“Continental”), AirTran Airways, Inc. (“AirTran”) and Alaska Airlines, Inc. (“Alaska”), revenue is considered earned when the flight is completed. Revenue is recognized under the Company’s pro-rate flying agreements based upon the portion of the pro-rate passenger fare the Company anticipates that it will receive on completed flights.

Delta Connection Agreements

SkyWest Airlines and Atlantic Southeast have each entered into a Delta Connection Agreement with Delta, pursuant to which SkyWest Airlines and Atlantic Southeast provide contract flight services for Delta. The Delta Connection Agreements provide for fifteen-year terms, subject to early termination by Delta, SkyWest Airlines or Atlantic Southeast, as applicable, upon the occurrence of certain events. Delta’s termination rights include (i) cross-termination rights between the two Delta Connection Agreements, (ii) the right to terminate each of the Delta Connection Agreements upon the occurrence of certain force majeure events, including certain labor-related events, that prevent SkyWest Airlines or Atlantic Southeast from performance for certain periods, and (iii) the right to terminate each of the Delta Connection Agreements if SkyWest Airlines or Atlantic Southeast fails to maintain competitive base rate costs, subject to certain adjustment rights. The SkyWest Airlines and Atlantic Southeast Delta Connection Agreements contain multi-year rate reset provisions which commenced in 2010 continue for additional five-year periods thereafter. In addition to the termination rights, Delta has the right to extend the term of the Delta Connection Agreements upon the occurrence of certain events or at the expiration of the initial term. SkyWest Airlines and Atlantic Southeast have the right to terminate their respective Delta Connection Agreement upon the occurrence of certain breaches by Delta, including the failure to cure payment defaults. SkyWest Airlines and Atlantic Southeast also have cross-termination rights between the two Delta Connection Agreements.

Under the terms of the SkyWest Airlines Delta Connection Agreement, Delta has agreed to compensate SkyWest Airlines for the direct costs associated with operating the Delta Connection flights, plus a payment based on block hours flown. Under the terms of the Atlantic Southeast Delta Connection Agreement, Delta has agreed to compensate Atlantic Southeast for its direct costs associated with operating the Delta Connection flights, plus, if Atlantic Southeast completes a certain minimum percentage of its Delta Connection flights, an additional percentage of such costs. Additionally, Atlantic Southeast’s Delta Connection Agreement provides for the payment of incentive compensation upon satisfaction of certain performance goals. The incentives are defined in the Atlantic Southeast Delta Connection Agreement as being measured and determined on a monthly and quarterly basis. At the end of each quarter, the Company calculates the incentives achieved during the quarter and recognizes revenue accordingly. The parties to the Delta Connection Agreements made customary representations, warranties and covenants, including with respect to various operational, marketing and administrative matters.

In the event that the contractual rates under the Delta Connection Agreements have not been finalized at quarterly or annual financial statement dates, the Company records revenues based on the lower of prior period’s approved rates, as adjusted to reflect any contract negotiations and the Company’s estimate of rates that will be implemented in accordance with revenue recognition guidelines. In the event the Company has a reimbursement dispute with a major partner, the Company evaluates the dispute under its established revenue recognition criteria and, provided the revenue recognition criteria have been met, the Company recognizes revenue based on management’s estimate of the resolution of the dispute. During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast. The dispute relates to allocation of liability for certain irregular operations (“IROP”) expenses that are paid by SkyWest Airlines and Atlantic Southeast to their passengers under certain situations. As a result, Delta withheld a combined total of approximately $25 million (pretax) from one of the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast during December 2007. Delta continues to withhold a portion of the funds the Company believes are payable as weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast (See Note J for additional details).

United Express Agreements

SkyWest Airlines and United have entered into a United Express Agreement, which sets forth the principal terms and conditions governing SkyWest Airlines’ United Express operations. Under the terms of the United Express Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs. Additionally, SkyWest Airlines is eligible for incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the United Express Agreement as being measured and determined on a monthly basis. At the end of each month, the Company calculates the incentives achieved during the month and recognizes revenue accordingly.

8

On February 10, 2010, Atlantic Southeast and United entered into a United Express Agreement, pursuant to which Atlantic Southeast agreed to operate as a United Express carrier. The Atlantic Southeast United Express Agreement is a capacity purchase agreement with a five-year term, and other terms which are generally consistent with the SkyWest Airlines United Express Agreement.

ExpressJet and United are parties to the ExpressJet United Express Agreement, which sets forth the principal terms and conditions governing ExpressJet’s United Express operations. Under the terms of the ExpressJet United Express Agreement, ExpressJet is compensated primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs. Additionally, ExpressJet is eligible for incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the ExpressJet United Express Agreement as being measured and determined on a monthly basis. At the end of each month, the Company calculates the incentives achieved during the month and recognizes revenue accordingly.

Alaska Agreement

SkyWest Airlines and Alaska have entered into a Capacity Purchase Agreement, which sets forth the principal terms and conditions governing SkyWest Airlines’ Alaska operations. Under the terms of the Capacity Purchase Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs. Additionally, SkyWest Airlines is eligible for incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the Capacity Purchase Agreement as being measured and determined on a monthly basis. At the end of each month, the Company calculates the incentives achieved during the month and recognizes revenue accordingly.

AirTran Code-Share Agreement

On November 4, 2009, SkyWest Airlines entered into a code-share agreement with AirTran. Under the terms of the code-share agreement, SkyWest Airlines operates four CRJ200s for AirTran under a pro-rate arrangement. SkyWest Airlines commenced AirTran service in December 2009. The code-share agreement has a three-year term; however, after May 15, 2010, either party may terminate the agreement upon 120 days written notice.  During the three months ended June 30, 2011, SkyWest Airlines and AirTran agreed to terminate the code-share agreement effective September 6, 2011.

Continental Express Agreement

In connection with the ExpressJet Merger, ExpressJet entered into a Capacity Purchase Agreement with Continental (the “Continental Express Agreement”), whereby ExpressJet agreed to provide regional airline service in the Continental flight system. Under the terms of the Continental Express Agreement, ExpressJet operates 206 aircraft in the Continental flight system and Continental has agreed to compensate ExpressJet on a monthly basis based on the block hours flown by ExpressJet and the weighted average number of aircraft operated by ExpressJet under the Continental Express Agreement. Additionally, ExpressJet may earn incentive compensation for good operating performance, but is subject to financial penalties for poor operating performance. At the end of each month, the Company calculates the incentives achieved and penalties incurred during the month under the Continental Express Agreement and recognizes revenue accordingly.

9

Note D — Share-Based Compensation

The fair value of stock options granted by the Company has been estimated as of the grant date using the Black-Scholes option pricing model. During the six months ended June 30, 2011, the Company granted options to purchase 322,707 shares of common stock under the SkyWest, Inc. 2010 Long-Term Incentive Plan (the “2010 Incentive Plan”).  The following table shows the assumptions used and weighted average fair value for stock option grants during the six months ended June 30, 2011.

Expected annual dividend rate	1.03		%
Risk-free interest rate	2.10		%
Average expected life (years)	5.8
Expected volatility of common stock	40.4		%
Forfeiture rate	0.0		%
Weighted average fair value of option grants	$	5.74

During the six months ended June 30, 2011, the Company granted 221,610 restricted stock units to the Company’s employees under the 2010 Incentive Plan.  The restricted stock units have a three-year vesting period, during which the recipient must remain employed with the Company or one of the Company’s subsidiaries.  Upon vesting, a restricted stock unit will be replaced with a common share of stock. Additionally, during the six months ended June 30, 2011, the Company granted 26,821 fully-vested shares of common stock to the Company’s directors.  The weighted average fair value of the shares of restricted stock on the date of grant was $15.51 per share.

The Company records share-based compensation expense only for those options and restricted stock units that are expected to vest.  The estimated fair value of the stock options and restricted stock units is amortized over the applicable vesting periods.  During the three months ended June 30, 2011 and 2010, the Company recorded pre-tax share-based compensation expense of $1.2 million and $1.5 million, respectively. During the six months ended June 30, 2011 and 2010, the Company recorded pre-tax share-based compensation expense of $3.0 million and $3.5 million, respectively.

Note E — Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share.  During the three months ended June 30, 2011 and 2010, options to acquire 3,282,000 and 4,495,000 shares, respectively, were excluded from the computation of Diluted EPS as their impact was anti-dilutive. During the six months ended June 30, 2011 and 2010, options to acquire 4,510,000 and 4,448,000 shares, respectively, were excluded from the computation of Diluted EPS as their impact was anti-dilutive.

The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS for the periods indicated (in thousands, except per share data) is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011			2010
	(Unaudited)				(Unaudited)
Numerator
Net Income (Loss)	$	1,579	$	18,655	$	(9,485	)	$	33,671
Denominator
Weighted average number of common shares outstanding	52,698		55,936		53,271			55,895
Effect of outstanding share-based awards	673		782		—			896
Weighted average number of shares for diluted net income (loss) per common share	53,371		56,718		53,271			56,791
Basic earnings (loss) per share	$	0.03	$	0.33	$	(0.18	)	$	0.60
Diluted earnings (loss) per share	$	0.03	$	0.33	$	(0.18	)	$	0.59

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Note F — Comprehensive Income (loss)

Comprehensive income (loss) includes charges and credits to stockholders’ equity that are not the result of transactions with the Company’s shareholders. Comprehensive income (loss) consisted of net income (loss) plus changes in unrealized appreciation (depreciation) on marketable securities and unrealized gain (loss) on foreign currency translation adjustment related to the Company’s equity investment in Trip Linhas Aereas (“Trip”) and Mekong Aviation Joint Stock Company (“Air Mekong”), net of tax, for the periods indicated (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
	(Unaudited)					(Unaudited)
Net Income (loss)	$	1,579	$	18,655		$	(9,485	)	$	33,671
Proportionate share of other companies foreign currency translation adjustment, net of tax	130		(65		)	290			82
Unrealized appreciation (depreciation) on marketable securities, net of tax	333		(185		)	642			(280		)
Comprehensive Income (loss)	$	2,042	$	18,405		$	(8,553	)	$	33,473

Note G — Fair Value Measurements

The Company holds certain assets that are required to be measured at fair value in accordance with United States GAAP. The Company determined fair value of these assets based on the following three levels of inputs:

Level 1	—	Quoted prices in active markets for identical assets or liabilities.
Level 2	—	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.
Level 3	—	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions.

The Company has invested in auction rate security instruments, which are classified as available for sale securities and reflected at fair value. However, due primarily to credit market events beginning in 2008, the auction events for most of these instruments failed. Therefore, quoted prices in active markets are no longer available and the Company has estimated the fair values of these securities utilizing a discounted cash flow analysis as of June 30, 2011. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction.

As of June 30, 2011, the Company owned $4.0 million of auction rate security instruments. The auction rate security instruments held by the Company at June 30, 2011 were tax-exempt municipal bond investments, for which the market has experienced some successful auctions. The Company has classified the investments as non-current and has identified them as “Other assets” in its unaudited condensed consolidated balance sheet as of June 30, 2011. The Company has classified these securities as non current due to the Company’s belief that the market for these securities may take in excess of twelve months to fully recover. As of June 30, 2011, the Company continued to record interest on all of its auction rate security instruments. Any future fluctuations in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write downs, would be recorded to accumulated other comprehensive income. If the Company determines that any future valuation adjustment was other than temporary, a charge would be recorded to earnings as appropriate.

11

As of June 30, 2011, the Company held certain assets that are required to be measured at fair value on a recurring basis. Assets measured at fair value on a recurring basis are summarized below (in thousands):

	Fair Value Measurements as of June 30, 2011
	Total		Level 1		Level 2		Level 3
Marketable Securities
Bond and bond fund	$	523,084	$	—	$	523,084	$	—
Commercial paper	—		—		—		—
Asset backed securities	588		—		588		—
	523,672		—		523,672		—
Cash, Cash Equivalents and Restricted Cash	160,887		160,887		—		—
Other Assets (a)	3,992		—		—		3,992
Total Assets Measured at Fair Value	$	688,551	$	160,887	$	523,672	$	3,992

(a)Auction rate securities included in “Other assets” in the unaudited Consolidated Balance Sheet

Based on market conditions, the Company uses a discounted cash flow valuation methodology for auction rate securities. Accordingly, for purposes of the foregoing condensed consolidated financial statements, these securities were categorized as Level 3 securities. The Company’s “Marketable Securities” classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities.

No significant transfers between Level 1, Level 2 and Level 3 occurred during the three and six months ended June 30, 2011.  The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at June 30, 2011 (in thousands):

Fair Value Measurements Using Significant Unobservable Inputs

(Level 3)

	Auction Rate Securities
Balance at January 1, 2011	$	4,002
Total realized and unrealized gains or (losses)
Included in earnings	—
Included in other comprehensive income	(10		)
Transferred out	—
Settlements	—
Balance at June 30, 2011	$	3,992

The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt and was estimated to be $1,861.2 million as of June 30, 2011, as compared to the carrying amount of $1,818.6 million as of June 30, 2011.

Note H — Income Taxes

As a result of decreases in the Company’s estimated pretax income, the Company’s estimated annual effective tax rate for the three and six-month periods ended June 30, 2011 varied from the federal statutory rate of 35% primarily due to the proportionate increase in expenses with limited tax deductibility relative to the Company’s estimated pretax income for the year ending December 31, 2011.

Note I — Investment in Other Companies

As of June 30, 2011, the Company’s investment balance in Trip and Air Mekong was $42.1 million.  These investments were recorded as an “Other asset” on the Company’s condensed consolidated balance sheet. The Company accounts for its interest in Trip and Air Mekong using the equity method of accounting. The Company records its equity in Trip’s and Air Mekong’s earnings on a one-quarter lag. For the six months ended June 30, 2011, the Company’s aggregate portion of losses attributable to its investments in Trip and Air Mekong was $3.5 million.

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Note J — Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities. As of June 30, 2011, management believes, after consultation with legal counsel, that the ultimate outcome of such legal matters is not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, the following are significant outstanding legal matters.

Atlantic Southeast and SkyWest Airlines v. Delta

During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast (the “Connection Agreements”). The dispute relates to allocation of liability for certain irregular operations (“IROP”) expenses paid by SkyWest Airlines and Atlantic Southeast to their passengers and vendors under certain situations.  During the period between the execution of the Connection Agreements in September 2005 and December 2007, SkyWest Airlines and Atlantic Southeast passed through to Delta IROP expenses that were paid pursuant to Delta’s policies, and Delta accepted and reimbursed all of those expenses.  Delta now claims it is obligated to reimburse only a fraction of the IROP expenses.  As a result, Delta withheld a combined total of approximately $25 million (pretax) from one of the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast during December 2007.  Since December 2007, Delta has continued to withhold payments from the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast, and has disputed subsequent billings for IROP expenses.  As of June 30, 2011, the Company had recognized a cumulative total of $31.7 million of revenue associated with the funds withheld by Delta.  Since July 1, 2008, the Company has not recognized revenue related to IROP expense reimbursements withheld by Delta because collection of those reimbursements is the subject of litigation and is therefore not reasonably assured. On February 1, 2008, SkyWest Airlines and Atlantic Southeast filed a Complaint in the Superior Court for Fulton County, Georgia (“Superior Court”) challenging Delta’s treatment of the matter and seeking recovery of the payments withheld by Delta and any future withholdings related to this issue.  Delta filed an Answer to the SkyWest Airlines/Atlantic Southeast Complaint and a Counterclaim against SkyWest Airlines and Atlantic Southeast on March 24, 2008.  Delta’s Counterclaim alleged that Atlantic Southeast and SkyWest Airlines breached the Delta Connection Agreements by invoicing Delta for IROP expenses that were paid pursuant to Delta’s policies, and claims only a portion of those expenses may be invoiced to Delta.

After proceedings that included contested motions, document discovery, and some depositions, Delta voluntarily dismissed its counterclaim.  Discovery in that action was not yet complete.  On February 14, 2011, SkyWest Airlines and Atlantic Southeast exercised their statutory rights to voluntarily dismiss their claims in the Fulton County Superior Court, and filed a new complaint (the “State Court Complaint”) in the Georgia State Court of Fulton County (the “State Court”).  The claims continue to include Breach of Contract, Breach of Contract based on Mutual Departure, Breach of Contract based on Voluntary Payment, and Breach of the Duty of Good Faith and Fair Dealing.  Delta moved for partial dismissal of the State Court Complaint and filed a separate action in the Superior Court containing claims for declaratory judgment and breach of the confidentiality provisions of the Delta Connection Agreements.  SkyWest Airlines and Atlantic Southeast moved for dismissal of Delta’s claims in the Superior Court.  A hearing on SkyWest’s and Atlantic Southeast’s motion was held on April 27, 2011, after which the Superior Court dismissed Delta’s Complaint in its entirety.  Proceedings under the State Court Complaint were stayed by the State Court pending the outcome of SkyWest’s and Atlantic Southeast’s motion to dismiss Delta’s claims in the Superior Court.  The stay was lifted on July 20, 2011.  No hearing has yet been scheduled on Delta’s motion for partial dismissal of the State Court Complaint.

SkyWest Airlines and Atlantic Southeast continue to vigorously pursue their claims set forth in the State Court Complaint.

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ITEM 2:MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“SkyWest” “we” or “us”) during the three and six-month periods ended June 30, 2011 and 2010. Also discussed is our financial position as of June 30, 2011 and December 31, 2010. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and six-month periods ended June 30, 2011, including the notes thereto, appearing elsewhere in this Report.  This discussion and analysis contains forward-looking statements. Please refer to the sections of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” for discussion of the uncertainties, risks and assumptions associated with these statements.

Cautionary Statement Concerning Forward-Looking Statements

Certain of the statements contained in this Report should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “hope,” “likely,” and “continue” and similar terms used in connection with statements regarding SkyWest’s outlook, the revenue environment, SkyWest’s contract relationships, and SkyWest’s expected financial performance.  These statements include, but are not limited to, statements about SkyWest’s future growth and development plans, including SkyWest’s future financial and operating results, SkyWest’s plans for SkyWest Airlines, Atlantic Southeast and ExpressJet, the integration of the operations of Atlantic Southeast and ExpressJet, including the efforts of Atlantic Southeast and ExpressJet to operate under a single operating certificate, SkyWest’s objectives, expectations and intentions, and other statements that are not historical facts.  You should also keep in mind that all forward-looking statements are based on SkyWest’s existing beliefs about present and future events outside of SkyWest’s control and on assumptions that may prove to be incorrect.  If one or more risks identified in this Report materializes, or any other underlying assumption proves incorrect, SkyWest’s actual results will vary, and may vary materially, from those anticipated, estimated, projected, or intended.

There may be other factors not identified above of which SkyWest is not currently aware that may affect matters discussed in the forward-looking statements, and may also cause actual results to differ materially from those discussed.  SkyWest assumes no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by law.

Overview

Through SkyWest Airlines, Atlantic Southeast and ExpressJet, we operate the largest regional airline in the United States. As of June 30, 2011, SkyWest Airlines, Atlantic Southeast and ExpressJet offered scheduled passenger and air freight service with approximately 4,000 total daily departures to destinations in the United States, Canada, Mexico and the Caribbean. As of June 30, 2011, we operated a combined fleet of 725 aircraft consisting of the following:

	CRJ 200	ERJ 145	CRJ700	CRJ 900	EMB 120	Total
Delta	155	—	63	31	10	259
United	98	38	70	—	35	241
Continental	—	206	—	—	—	206
Alaska	—	—	5	—	—	5
AirTran	4	—	—	—	—	4
Maintenance spares	4	—	—	—	—	4
Subleased to an un-affiliated entity	2	—	—	—	—	2
Subleased to an affiliated entity	—	—	—	4	—	4
Total	263	244	138	35	45	725

For the three months ended June 30, 2011, approximately 65.6% of our aggregate capacity was operated under the United Express Agreements and Continental Express Agreement, approximately 33.3% was operated under the Delta Connection Agreements, approximately 0.6% was operated under the Alaska Agreement and approximately 0.5% was operated under the AirTran code-share agreement.

SkyWest Airlines has been a code-share partner with Delta in Salt Lake City and United in Los Angeles since 1987 and 1997, respectively. In 1998, SkyWest Airlines expanded its relationship with United to provide service in Portland, Seattle/Tacoma, San Francisco and additional Los Angeles markets. In 2004, SkyWest Airlines expanded its United Express operations to provide service in Chicago. In 2009, SkyWest Airlines entered into a code-share agreement with AirTran. SkyWest Airlines agreed to terminate the

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code-share agreement with AirTran effective September 6, 2011. As of June 30, 2011, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City, a United Express carrier in Los Angeles, San Francisco, Denver, Chicago and the Pacific Northwest, and an AirTran carrier in Milwaukee, operating more than 1,800 total daily flights.

Atlantic Southeast has been a code-share partner with Delta in Atlanta since 1984 and United since February 2010. As of June 30, 2011, Atlantic Southeast operated as a Delta Connection carrier in Atlanta and Cincinnati and a United Express carrier in Chicago and Washington, D.C. (Dulles International Airport), operating approximately 900 daily flights.

ExpressJet provides regional jet service principally in the United States, primarily from hubs located in Cleveland, Newark, Houston, Chicago (O’Hare) and Washington Dulles. ExpressJet offered more than 1,300 daily scheduled departures as of June 30, 2011, of which approximately 1,050 were Continental Express flights and 250 were United Express flights.

Historically, multiple contractual relationships have enabled us to reduce reliance on any single major airline code and to enhance and stabilize operating results through a mix of contract flying and our controlled or “pro-rate” flying. For the three months ended June 30, 2011, contract flying revenue and pro-rate revenue represented approximately 91% and 9%, respectively, of our total passenger revenues. On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on the completed block hours, flight departures and other operating measures. On pro-rate flights, we control scheduling, ticketing, pricing and seat inventories and receive a pro-rated portion of passenger fares. For the three months ended June 30, 2011, essentially all of our Brasilia turboprops flown for Delta were flown under pro-rate arrangements, while approximately 38% of our Brasilia turboprops flown in the United system were flown under contractual arrangements, with the remaining 62% flown under pro-rate arrangements. For the three months ended June 30, 2011, approximately 91% of our CRJ200s flown in the United system were flown under contractual arrangements, with the remaining 9% flown under pro-rate arrangements. SkyWest Airlines operates four CRJ200s for AirTran under a pro-rate arrangement.

Second Quarter Summary

We had revenues of $933.7 million for the three months ended June 30, 2011, a 43.7% increase, compared to revenues of $649.8 million for the three months ended June 30, 2010. We had net income of $1.6 million, or $0.03 per diluted share, for the three months ended June 30, 2011, compared to $18.7 million of net income, or $0.33 per diluted share, for the three months ended June 30, 2010.

On November 12, 2010, we completed the ExpressJet Merger, which has substantially affected all aspects of our operations.  Among other effects, the ExpressJet Merger added 244 ERJ145 aircraft to our fleet and increased our aggregate capacity by approximately 49%.  The completion of the ExpressJet Merger is the most significant factor that affects the comparability of our financial and operating results between the three and six month periods ended June 30, 2011 and June 30, 2010.  The significant items affecting our financial performance during the three months ended June 30, 2011 are outlined below:

Salaries, wages and employee benefits increased $116.4 million, or 67.0%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase was primarily due to the expansion of our operations following the completion of the ExpressJet Merger. We also incurred additional wages associated with crew training required to operate additional aircraft that were delivered during the three months ended June 30, 2011, as well as crew relocation expenses.

The Delta Connection Agreements provide that, beginning with the fifth anniversary of the execution of the agreements (September 8, 2010), Delta has the right to require that certain contractual rates under those agreements shall not exceed the second lowest rates of all carriers within the Delta Connection Program. During the fourth quarter of 2010, SkyWest Airlines and Atlantic Southeast reached an agreement with Delta on contractual rates satisfying the second-lowest rate provision and agreed on rates through December 31, 2015. Delta additionally waived its right to require that the contractual rates payable under the Delta Connection Agreements under those agreements shall not exceed the second lowest of all carriers within the Delta Connection Program through December 31, 2015. As a result of the negotiated adjustment of the contractual rates under the Delta Connection Agreements, our passenger revenues for the three months ended June 30, 2011 were $8.6 million lower than they would have been under the rates that existed prior to the adjustment.

Total available seat miles (“ASMs”) for the three months ended June 30, 2011 increased 58.1%, compared to the three months ended June 30, 2010, primarily due to our completion of the ExpressJet Merger. During the three months ended June 30, 2011, we generated 9.4 billion ASMs, compared to 5.9 billion ASMs during the three months ended June 30, 2010.

Critical Accounting Policies

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2010, which are presented in our Annual Report on Form 10-K for the year ended December 31, 2010.  Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require

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management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, maintenance, aircraft leases, impairment of long-lived assets and intangibles, stock-based compensation expense and fair value. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will differ, and could differ materially, from such estimates.

Results of Operations

Three Months Ended June 30, 2011 and 2010

Operational Statistics.  The following table sets forth our major operational statistics and the associated percentages-of-change for the periods identified below.

	For the three months ended June 30,
	2011		2010		% Change
Revenue passenger miles (000)	7,546,662		4,796,858		57.3
Available seat miles (“ASMs”) (000)	9,393,724		5,941,063		58.1
Block hours	574,372		357,645		60.6
Departures	354,880		236,826		49.8
Passengers carried	14,491,292		9,697,145		49.4
Passenger load factor	80.3	%	80.7	%	(0.4	)Pts
Revenue per available seat mile	9.9	¢	10.9	¢	(9.2	)
Cost per available seat mile	10.0	¢	10.5	¢	(4.8	)
Cost per available seat mile excluding fuel	8.3	¢	9.1	¢	(8.8	)
Fuel cost per available seat mile	1.7	¢	1.4	¢	21.4
Average passenger trip length (miles)	521		495		5.3

Revenues.  Operating revenues increased $283.9 million, or 43.7%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. For financial reporting purposes, we record these reimbursements as operating revenue. Under the SkyWest Airlines and Atlantic Southeast Delta Connection Agreements and the Continental Express Agreement, we are reimbursed for our engine overhaul expenses. We also record those engine overhaul reimbursements as operating revenue. The following table summarizes the amount of fuel and engine overhaul reimbursements included in our passenger revenues for the periods indicated (dollar amounts in thousands).

	For the three months ended June 30,
	2011		2010		$ Change		% Change
Passenger revenues	$	919,690	$	642,201	$	277,489	43.2	%
Less: Fuel reimbursement from major partners	133,927		65,309		68,618		105.1	%
Less: Engine overhaul reimbursement from major partners	48,642		15,097		33,545		222.2	%
Passenger revenues, excluding fuel and engine overhauls reimbursements	$	737,121	$	561,795	$	175,326	31.2	%

Passenger revenues.  Passenger revenues increased $277.5 million, or 43.2%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase in passenger revenues was primarily due to the completion of the ExpressJet Merger. Our passenger revenues, excluding fuel and engine overhaul reimbursements from major partners, increased $175.3 million, or 31.2%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase in passenger revenues, excluding fuel and engine overhaul reimbursements, was primarily due to an increase in block hours of 60.6% during the three months ended June 30, 2011, compared to the three months ended June 30, 2010.  The block hour increase was primarily due to the expansion of our operations following the completion of the ExpressJet Merger. The increase in passenger revenues, excluding fuel and engine overhaul reimbursements, was less than the increase in block hours primarily due to differences in the Continental Express Agreement and our other code-share agreements.  Under the Continental Express Agreement, Continental pays for more costs directly (such as station rents and aircraft ownership) and as such, there are no associated reimbursements recognized as revenue.  Under our other code-share agreements, the majority of those costs are paid by SkyWest and Atlantic Southeast and the reimbursements received from their major partners are recorded as revenue.  As such we do not expect the acquisition of ExpressJet to increase revenue at the same rate as the projected increase in block hours. In addition,  the Delta Connection Agreements also provide that, beginning with the fifth anniversary of the execution of the agreements (September 8, 2010), Delta has the right to require that certain contractual rates under those agreements shall not exceed the second lowest rates of all carriers within the Delta Connection Program. During the fourth quarter of 2010, SkyWest Airlines and Atlantic Southeast reached an agreement with Delta on contractual rates satisfying the second-lowest rate provision and agreed on rates through December 31, 2015. Delta additionally waived its right to require that the contractual rates payable under the Delta Connection Agreements under

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those agreements shall not exceed the second lowest of all carriers within the Delta Connection Program through December 31, 2015. As a result of the negotiated adjustment of the contractual rates under the Delta Connection Agreements, our passenger revenues for the three months ended June 30, 2011 were $8.6 million lower than they would have been under the rates that existed prior to the adjustment.

Ground handling and other.  Total ground handling and other revenues increased $6.4 million, or 85.3%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase was primarily related to the expansion of our operations following the completion of the ExpressJet Merger and aircraft rental revenue received from other airlines. During the three months ended September 30, 2010, we obtained leases for four CRJ900s and subleased those aircraft to Air Mekong.

Individual expense components are also expressed in the following table on the basis of cents per ASM. ASM is a common metric used in the airline industry to measure an airline’s passenger capacity. ASMs reflect both the number of aircraft in an airline’s fleet and the seat capacity for the aircraft in the fleet. As the size of our fleet is the principal underlying driver of our operating costs, the following paragraphs include references to cost per ASM, in an effort to discuss significant changes in our costs not proportionate to the relative changes in our fleet size (dollar amounts in thousands).

	For the three months ended June 30,
										2011	2010
	2011		2010		$ Change			% Change		Cents Per	Cents Per
	Amount		Amount		Amount			Percent		ASM	ASM
Aircraft fuel	$	161,408	$	85,513	$	75,895		88.8	%	1.7	1.4
Salaries, wages and benefits	290,126		173,716		116,410			67.0	%	3.1	2.9
Aircraft maintenance, materials and repairs	176,399		111,366		65,033			58.4	%	1.9	1.9
Aircraft rentals	88,072		75,642		12,430			16.4	%	0.9	1.3
Depreciation and amortization	63,697		58,383		5,314			9.1	%	0.7	1.0
Station rentals and landing fees	42,322		30,551		11,771			38.5	%	0.5	0.5
Ground handling services	32,875		26,945		5,930			22.0	%	0.3	0.5
Merger and integration-related costs	1,364		—		1,364			N/A		—	—
Other	58,394		38,355		20,039			52.2	%	0.7	0.6
Total operating expenses	914,657		600,471		314,186			52.3	%	9.8	10.1
Interest	20,052		21,659		(1,607		)	(7.4	)%	0.2	0.4
Total airline expenses	$	934,709	$	622,130	312,579			50.2	%	10.0	10.5

Aircraft Fuel.  Fuel costs increased $75.9 million, or 88.8%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The average cost per gallon of fuel increased to $3.64 per gallon during the three months ended June 30, 2011, from $2.58 during the three months ended June 30, 2010. The fuel cost not reimbursed by our major partners increased $7.3 million during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The following table summarizes the gallons of fuel we purchased directly, and the change in fuel price per gallon on our fuel expense, for the periods indicated:

	For the three months ended June 30,
(in thousands, except per gallon amounts)	2011		2010		% Change
Fuel gallons purchased	44,369		33,170		33.8	%
Average price per gallon	$	3.64	$	2.58	41.1	%
Fuel expense	$	161,408	$	85,513	88.8	%

Salaries Wages and Employee Benefits.  Salaries, wages and employee benefits increased $116.4 million, or 67.0%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The average number of full-time equivalent employees increased 46.2% to 18,322 for the three months ended June 30, 2011, from 12,535 for the three months ended June 30, 2010, due primarily to the expansion of our operations following the completion of the ExpressJet Merger. We also incurred additional wages associated with crew training required to operate additional aircraft that were delivered during the three months ended June 30, 2011, as well as crew relocation expenses.

Aircraft maintenance, materials and repairs.  Maintenance costs increased $65.0 million, or 58.4%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The following table summarizes the amount of engine overhauls and engine overhaul reimbursements included in our aircraft maintenance expense for the periods indicated (dollar amounts in thousands).

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	For the three months ended June 30,
	2011		2010		$ Change			% Change
Aircraft maintenance, materials and repairs	$	176,399	$	111,366	$	65,033		58.4	%
Less: Engine overhaul reimbursement from major partners	48,642		15,097		33,545			222.2	%
Less: CRJ 200 engine overhauls reimbursed at fixed hourly rates	15,451		21,660		(6,209		)	(28.7	)%
Aircraft maintenance excluding reimbursed engine overhauls and CRJ 200 engine overhauls reimbursed at fixed hourly rate	$	112,306	$	74,609	$	37,697		50.5	%

Aircraft maintenance expense, excluding reimbursed engine overhauls and CRJ 200 engine overhauls reimbursed at fixed hourly rates, increased $37.7 million, or 50.5%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase in maintenance excluding engine overhaul costs was principally due to the expansion of our operations following the completion of the ExpressJet Merger.

Under the SkyWest Airlines and Atlantic Southeast United Express Agreements, we recognize revenue in our consolidated statement of operations at fixed hourly rates for mature engine maintenance on regional jet engines and we recognize engine maintenance expense on our CRJ200 regional jet engines in our consolidated statement of operations on an as-incurred basis as maintenance expense. During the three months ended June 30, 2011, our CRJ200 engine expense under our SkyWest Airlines and Atlantic Southeast United Express Agreements and our AirTran code-share agreement decreased $6.2 million compared to the three months ended June 30, 2010. The decrease in CRJ 200 engine overhauls reimbursed at a fixed hourly rate was principally due to scheduled engine maintenance events. We anticipate the number of scheduled engine maintenance events experienced during the year ended December 31, 2010 will likely continue through 2011 and into the middle of 2012.

Under our Delta Connection Agreements we are reimbursed for engine overhaul costs by Delta at the time the maintenance event occurs. Under our Continental Express Agreement, we are also reimbursed for actual engine overhaul costs by Continental at the time the expense is incurred. Such reimbursements are reflected as passenger revenue in our consolidated statement of operations.

Aircraft rentals.  Aircraft rentals increased $12.4 million, or 16.4%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase was primarily due to the following two factors: First, during the three months ended June 30, 2011, we incurred rental expense of $2.2 million on four CRJ900s and subleased the aircraft to Air Mekong. Second, as part of the expansion of our operations following the completion of the ExpressJet Merger, we have incurred additional aircraft rental expense of $7.4 million associated with the ExpressJet operations.

Depreciation and amortization.  Depreciation and amortization expense increased $5.3 million, or 9.1%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010.  The increase in depreciation expense was primarily due to the expansion of our operations following the completion of the ExpressJet Merger.

Station rentals and landing fees.  Station rentals and landing fees expense increased $11.8 million, or 38.5%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase in station rentals and landing fees expense was primarily due to the expansion of our operations following the completion of the ExpressJet Merger. Without the expansion of the ExpressJet operations, station rentals and landing fees would have decreased primarily due to our major partners paying for certain station rents and landing fees directly to the applicable airports.

Ground handling service.  Ground handling service expense increased $5.9 million, or 22.0%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase in ground handling service expense was primarily due to the expansion of our operations following the completion of the ExpressJet Merger

Merger and integration-related costs.  During the three months ended June 30, 2011, we incurred $1.3 million of direct severance, legal and advisor fees associated with the ExpressJet Merger.

Other expenses.  Other expenses, primarily consisting of property taxes, hull and liability insurance, crew simulator training and crew hotel costs, increased $20.0 million, or 52.2%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The increase in other expenses was primarily due to the expansion of our operations following the completion of the ExpressJet Merger.

Interest.  Interest expense decreased $1.6 million, or 7.4%, during the three months ended June 30, 2011 compared to the three months ended June 30, 2010. The decrease in interest expense was primarily due to a decrease in long term debt.  At June 30, 2011, we had $1,818.6 million of long term debt, compared to $1,972.5 million of debt as of June 30, 2010.

Total Airline Expenses.  Total airline expenses (consisting of total operating and interest expenses) increased $312.6 million, or 50.2%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. We record the amount of those reimbursements as revenue. Under the SkyWest Airlines and Atlantic Southeast Delta Connection Agreements and the Continental Express Agreement,

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we are reimbursed for our engine overhaul expense, which we record as revenue. The following table summarizes the amount of fuel and engine overhaul expenses which are included in our total airline expenses for the periods indicated (dollar amounts in thousands).

	For the three months ended June 30,
	2011		2010		$ Change			% Change
Total airline expense	$	934,709	$	622,130	$	312,579		50.2	%
Less: Fuel expense	161,408		85,513		75,895			88.8	%
Less: Engine overhaul reimbursement from major partners	48,642		15,097		33,545			222.2	%
Less: CRJ 200 engine overhauls reimbursed at fixed hourly rate	15,451		21,660		(6,209		)	(28.7	)%
Total airline expense excluding fuel and engine overhauls and CRJ 200 engine overhauls reimbursed at fixed hourly rate	$	709,208	$	499,860	$	209,348		41.9	%

Excluding fuel and engine overhaul costs and CRJ200 engine overhauls reimbursed at fixed hourly rates, our total airline expenses increased $209.3 million, or 41.9%, during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The percentage increase in total airline expenses excluding fuel and engine overhauls, was more than the percentage increase in passenger revenues, excluding fuel and engine overhaul reimbursements from major partners due to factors described above.

Interest Income. Interest income decreased $2.0 million, or 49.0% during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. The decrease in interest income was due primarily to the retirement of a secured term loan that United repaid on August 11, 2010, which had an interest rate of 11%.

Net Income.  Primarily due to factors described above, net income decreased to $1.6 million, or $0.03 per diluted share, for the three months ended June 30, 2011, compared to $18.7 million, or $0.33 per diluted share, for the three months ended June 30, 2010.

Six Months Ended June 30, 2011 and 2010

Operational Statistics.  The following table sets forth our major operational statistics and the associated percentages-of-change for the periods identified below.

	For the six months ended June 30,
	2011		2010		% Change
Revenue passenger miles (000)	13,994,818		9,145,034		53.0
Available seat miles (000)	17,956,917		11,582,033		55.0
Block hours	1,114,327		701,797		58.8
Departures	687,255		459,066		49.7
Passengers carried	27,048,352		18,419,314		46.8
Passenger load factor	77.9	%	79.0	%	(1.1	)Pts
Revenue per available seat mile	10.0	¢	11.1	¢	(9.9	)
Cost per available seat mile	10.1	¢	10.7	¢	(5.6	)
Cost per available seat mile excluding fuel	8.5	¢	9.3		(8.6	)
Fuel cost per available seat mile	1.6	¢	1.4	¢	14.3
Average passenger trip length (miles)	517		496		4.2

Revenues.  Operating revenues increased $517.6 million, or 40.4%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. For financial reporting purposes, we record these reimbursements as operating revenue. Under the SkyWest Airlines and Atlantic Southeast Delta Connection Agreements and the Continental Express Agreement, we are reimbursed for our engine overhaul expenses. We also record those engine overhaul reimbursements as operating revenue. The following table summarizes the amount of fuel and engine overhaul reimbursements included in our passenger revenues for the periods indicated (dollar amounts in thousands).

	For the six months ended June 30,
	2011		2010		$ Change		% Change
Passenger revenues	$	1,764,166	$	1,265,313	$	498,853	39.4	%
Less: Fuel reimbursement from major partners	236,088		120,464		115,624		96.0	%
Less: Engine overhaul reimbursement from major partners	86,575		40,834		45,741		112.0	%
Passenger revenue excluding fuel and engine overhauls reimbursements	$	1,441,503	$	1,104,015	$	337,488	30.6	%

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Passenger revenues.  Passenger revenues increased $498.9 million, or 39.4%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase in passenger revenues was primarily due to the expansion of our operations following the completion of the ExpressJet Merger. Our passenger revenues, excluding fuel and engine overhaul reimbursements from major partners, increased $337.5 million, or 30.6%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase in passenger revenues, excluding fuel and engine overhaul reimbursements, was primarily due to an increase in block hours of 58.8% during the six months ended June 30, 2011 compared to the six months ended June 30, 2010.  The block hour increase was primarily due to the expansion of our operations following the completion of the ExpressJet Merger. The increase in passenger revenues, excluding fuel and engine overhaul reimbursements, was less than the increase in block hours primarily due to differences in the Continental Express Agreement and our existing code-share agreements.  Under the Continental Express Agreement, Continental pays for more costs directly (such as station rents and aircraft ownership) and as such, there are no associated reimbursement recognized as revenue.  Under our other code-share agreements, the majority of those costs are paid by SkyWest and Atlantic Southeast and the reimbursements received from their major partners are included in revenue.  As such we do not expect the acquisition of ExpressJet to increase revenue at the same rate as the projected increase in block hours. In addition,  the Delta Connection Agreements also provide that, beginning with the fifth anniversary of the execution of the agreements (September 8, 2010), Delta has the right to require that certain contractual rates under those agreements shall not exceed the second lowest rates of all carriers within the Delta Connection Program. During the fourth quarter of 2010, SkyWest Airlines and Atlantic Southeast reached an agreement with Delta on contractual rates satisfying the second-lowest rate provision and agreed on rates through December 31, 2015. Delta additionally waived its right to require that the contractual rates payable under the Delta Connection Agreements under those agreements shall not exceed the second lowest of all carriers within the Delta Connection Program through December 31, 2015. As a result of the negotiated adjustment of the contractual rates under the Delta Connection Agreements, our passenger revenues for the six months ended June 30, 2011 were $16.3 million lower than they would have been under the rates that existed prior to the adjustment.

We incurred significant weather-related cancellations in our Atlanta, Chicago and Houston hubs during the three months ended March 31, 2011. We cancelled approximately 5,000 flights more than the three months ended March 31, 2010, primarily as a result of the severe weather during the quarter. As a result of the abnormally high number of cancellations, we experienced a negative impact on passenger revenues of approximately $5.1 million.

Ground handling and other.  Total ground handling and other revenues increased $18.8 million, or 112.6%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase is primarily related to the expansion of our operations following the completion of the ExpressJet Merger and aircraft rental revenue received from other airlines. During the three months September 30, 2010, we obtained leases for four CRJ900s and subleased those aircraft to Air Mekong.

Individual expense components are also expressed in the following table on the basis of cents per ASM. ASM is a common metric used in the airline industry to measure an airline’s passenger capacity. ASMs reflect both the number of aircraft in an airline’s fleet and the seat capacity for the aircraft in the fleet. As the size of our fleet is the principal underlying driver of our operating costs, the following paragraphs include references to cost per ASM, in an effort to discuss significant changes in our costs not proportionate to the relative changes in our fleet size (dollar amounts in thousands).

	For the six months ended June 30,
										2011	2010
	2011		2010		$ Change			% Change		Cents Per	Cents Per
	Amount		Amount		Amount			Percent		ASM	ASM
Aircraft fuel	$	288,149	$	159,027	$	129,122		81.2	%	1.6	1.4
Salaries, wages and benefits	576,273		352,278		223,995			63.6	%	3.2	3.0
Aircraft maintenance, materials and repairs	339,573		218,121		121,452			55.7	%	1.9	1.9
Aircraft rentals	174,494		152,101		22,393			14.7	%	1.0	1.3
Depreciation and amortization	126,890		116,529		10,361			8.9	%	0.7	1.0
Station rentals and landing fees	84,948		59,436		25,512			42.9	%	0.5	0.5
Ground handling services	69,728		56,389		13,339			23.7	%	0.4	0.5
Merger and integration-related costs	2,395		—		2,395			N/A		—	—
Other	117,932		76,411		41,521			54.3	%	0.6	0.7
Total operating expenses	1,780,382		1,190,292		590,090			49.6	%	9.9	10.3
Interest	40,272		43,244		(2,972		)	(6.9	)%	0.2	0.4
Total airline expenses	$	1,820,654	$	1,233,536	587,118			47.6	%	10.1	10.7

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Aircraft Fuel.  Fuel costs increased $129.1 million, or 81.2%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The average cost per gallon of fuel increased to $3.49 per gallon during the six months ended June 30, 2011, from $2.55 during the six months ended June 30, 2010. The fuel cost not reimbursed by our major partners increased $13.5 million during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The following table summarizes the gallons of fuel we purchased directly, and the change in fuel price per gallon on our fuel expense, for the periods indicated:

	For the six months ended June 30,
(in thousands, except per gallon amounts)	2011		2010		% Change
Fuel gallons purchased	82,461		62,381		32.2	%
Average price per gallon	$	3.49	$	2.55	36.9	%
Fuel expense	$	288,149	$	159,027	81.2	%

Salaries Wages and Employee Benefits.  Salaries, wages and employee benefits increased $224.0 million, or 63.6%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The average number of full-time equivalent employees increased 45.3% to 18,151 for the six months ended June 30, 2011, from 12,491 for the six months ended June 30, 2010, due primarily to the expansion of our operations following the completion of the ExpressJet Merger. The increase in salaries, wages and employee benefits, was more than the increase in block hours, due primarily to significant weather-related cancellations in our Atlanta, Chicago and Houston hubs during the three months ended March 31, 2011. During the three months ended March 31, 2011, we cancelled approximately 5,000 more flights than the three months ended March 31, 2010, principally as a result of the severe weather during the quarter. We also incurred additional wages associated with crew training required to operate additional aircraft that were delivered during the six months ended June 30, 2011, as well as crew relocation expenses.

Aircraft maintenance, materials and repairs.  Maintenance costs increased $121.5 million, or 55.7%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The following table summarizes the amount of engine overhauls and engine overhaul reimbursements included in our aircraft maintenance expense for the periods indicated (dollar amounts in thousands).

	For the six months ended June 30,
	2011		2010		$ Change			% Change
Aircraft maintenance, materials and repairs	$	339,573	$	218,121	$	121,452		55.7	%
Less: Engine overhaul reimbursement from major partners	86,575		40,834		45,741			112.0	%
Less: CRJ 200 engine overhauls reimbursed at fixed hourly rate	30,060		36,987		(6,927		)	(18.7	)%
Aircraft maintenance excluding reimbursed engine overhauls and CRJ 200 engine overhauls reimbursed at fixed hourly rate	$	222,938	$	140,300	$	82,638		58.9	%

Aircraft maintenance expense excluding reimbursed engine overhauls and CRJ 200 engine overhauls reimbursed at fixed hourly rates, increased $82.6 million, or 58.9%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase in maintenance excluding engine overhaul costs was principally due to the expansion of our operations following the completion of the ExpressJet Merger, higher than expected maintenance costs on scheduled events and several unplanned maintenance events.

Under the SkyWest Airlines and Atlantic Southeast United Express Agreements, we recognize revenue in our consolidated statement of operations at a fixed hourly rate for mature engine maintenance on regional jet engines and we recognize engine maintenance expense on our CRJ200 regional jet engines in our consolidated statement of operations on an as-incurred basis as maintenance expense. During the six months ended June 30, 2011, our CRJ200 engine expense under our SkyWest Airlines and Atlantic Southeast United Express Agreements and our AirTran code-share agreement decreased $6.9 million compared to the six months ended June 30, 2010. The decrease in CRJ 200 engine overhauls reimbursed at a fixed hourly rate was principally due to scheduled engine maintenance events. We anticipate the number of scheduled engine maintenance events experienced during the year ended December 31, 2010 will likely continue through the remainder of 2011 and into the middle of 2012.

Under our Delta Connection Agreements we are reimbursed for engine overhaul costs by Delta at the time the maintenance event occurs. Under our Continental Express Agreement, we are also reimbursed for actual engine overhaul costs by Continental at the time the expense is incurred. Such reimbursements are reflected as passenger revenue in our consolidated statement of operations.

Aircraft rentals.  Aircraft rentals increased $22.4 million, or 14.7%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase was primarily due to the following two factors: First, during the six months ended June 30, 2011, we incurred rental expense of $4.3 million on four CRJ900s and subleased the aircraft to Air Mekong. Second, as part of the expansion of our operations following the completion of the ExpressJet Merger, we have incurred $14.8 million of additional aircraft rental expense associated with the ExpressJet operations.

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Depreciation and amortization.  Depreciation and amortization expense increased $10.4 million, or 8.9%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010.  The increase in depreciation expense was primarily due to the expansion of our operations following the completion of the ExpressJet Merger.

Station rentals and landing fees.  Station rentals and landing fees expense increased $25.5 million, or 42.9%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase in station rentals and landing fees expense was primarily due to the expansion of our operations following the completion of the ExpressJet Merger. Without the expansion of the ExpressJet operations, station rentals and landing fees would have decreased primarily due to our major partners paying for certain station rents and landing fees directly to the applicable airports.

Ground handling service.  Ground handling service expense increased $13.3 million, or 23.7%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase in ground handling service expense was primarily due to the expansion of our operations following the completion of the ExpressJet Merger

Acquisition-related costs.  During the six months ended June 30, 2011, we incurred $2.4 million of direct severance, legal and advisor fees associated with the ExpressJet Merger.

Other expenses.  Other expenses, primarily consisting of property taxes, hull and liability insurance, crew simulator training and crew hotel costs, increased $41.5 million, or 54.3%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The increase in other expenses was primarily due to the expansion of our operations following the completion of the ExpressJet Merger.

Interest.  Interest expense decreased $3.0 million, or 6.9%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The decrease in interest expense was primarily due to a decrease in long term debt.  At June 30, 2011, we had $1.818.6 million of long term debt compared to $1,972.5 million of debt as of June 30, 2010.

Total Airline Expenses.  Total airline expenses (consisting of total operating and interest expenses) increased $587.1 million, or 47.6%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. We record the amount of those reimbursements as revenue. Under the SkyWest Airlines and Atlantic Southeast Delta Connection Agreements and the Continental Express Agreement, we are reimbursed for our engine overhaul expense, which we record as revenue. The following table summarizes the amount of fuel and engine overhaul expenses which are included in our total airline expenses for the periods indicated (dollar amounts in thousands).

	For the six months ended June 30,
	2011		2010		$ Change			% Change
Total airline expense	$	1,820,654	$	1,233,536	$	587,115		47.6	%
Less: Fuel expense	288,149		159,027		129,122			81.2	%
Less: Engine overhaul reimbursement from major partners	86,575		40,834		45,741			112.0	%
Less: CRJ 200 engine overhauls reimbursed at fixed hourly rate	30,060		36,987		(6,927		)	(18.7	)%
Total airline expense excluding fuel and engine overhauls and CRJ 200 engine overhauls reimbursed at fixed hourly rate	$	1,415,870	$	996,688	$	419,182		42.1	%

Excluding fuel and engine overhaul costs and CRJ200 engine overhauls reimbursed at fixed hourly rates, our total airline expenses increased $419.2 million, or 42.1%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The percentage increase in total airline expenses excluding fuel and engine overhauls, was more than the percentage increase in passenger revenues, excluding fuel and engine overhaul reimbursements from major partners due to factors described above.

Interest Income. Interest income decreased $4.0 million, or 49.7% during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The decrease in interest income was due primarily to the retirement of a secured term loan that United repaid on August 11, 2010, which had an interest rate of 11%.

Net Income (loss).  Primarily due to factors described above, we incurred a net loss of $9.5 million, or $0.18 per diluted share, for the six months ended June 30, 2011, compared to net income of $33.7 million, or $0.59 per diluted share, for the six months ended June 30, 2010.

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Liquidity and Capital Resources

Sources and Uses of Cash

Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) operating, investing and financing activities for the six months ended June 30, 2011 and 2010 and total cash  and marketable securities position as of June 30, 2011 and December 31, 2010 (in thousands).

	For the six months ended June 30,
	2011			2010			$ Change			% Change
Net cash provided by operating activities	$	51,324		$	133,428		$	(82,104	)	(61.5	)%
Net cash provided by (used in) investing activities	96,812			(159,376		)	256,188			160.7	%
Net cash provided by (used in) financing activities	(121,343		)	8,714			(130,057		)	(1492.5	)%

	June 30, 2011		December 31, 2010		$ Change			% Change
Cash and cash equivalents	$	139,131	$	112,338	$	26,793		23.9	%
Restricted cash	21,756		21,775		(19		)	(0.1	)%
Marketable securities	523,672		670,739		(147,067		)	(21.9	)%
Total	$	684,559	$	804,852	$	(120,293	)	(14.9	)%

Cash Flows from Operating Activities.

Net cash provided by operating activities decreased $82.1 million or 61.5%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The decrease was primarily due to the pretax loss we incurred during the six months ended June 30, 2011 compared to the pretax income we realized during the six months ended June 30, 2010.  During the six months ended June 30, 2011, we had a pretax loss of $20.3 million, compared to pretax income of $55.2 million for the six months ended June 30, 2010. The remainder of the decrease was largely due to changes in the working capital accounts.

Cash Flows from Investing Activities.

Net cash provided by (used in) investing activities increased $256.2 million or 160.7%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. During the six months ended June 30, 2011, net sales of marketable securities increased $183.4 million as compared to the six months ended June 30, 2010.Our aircraft and rotable spare parts purchased decreased $82.3 million during the six months ended June 30, 2011, as compared to the six months ended June 30, 2010. The decrease in aircraft and rotable spares was primarily due to the acquisition of four CRJ700s during the six months ended June 30, 2010.

Cash Flows from Financing Activities.

Net cash provided by (used in) financing activities decreased $130.1 million or 1,492.5%, during the six months ended June 30, 2011, compared to the six months ended June 30, 2010. The decrease was primarily related to a decrease in proceeds from the issuance of long-term debt. During the six months ended June 30, 2010 we received proceeds from long-term debt of $81.7 million to finance the purchase of four CRJ 700s with long-term debt. In addition, during the six months ended June 30, 2011 we repurchased $39.1 million more treasury shares as compared to June 30, 2010.

Liquidity and Capital Resources

We believe that in the absence of unusual circumstances, the working capital currently available to us will be sufficient to meet our present financial requirements, including anticipated expansion, planned capital expenditures, and scheduled lease payments and debt service obligations for at least the next 12 months.

At June 30, 2011, our total capital mix was 45.3% equity and 54.7% long-term debt, compared to 45.0% equity and 55.0% long-term debt at December 31, 2010.

Significant Commitments and Obligations

General

The following table summarizes our commitments and obligations stated in calendar years except as noted for each of the next five years and thereafter (in thousands):

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	Total		July-Dec 2011		2012		2013		2014		2015		Thereafter
Operating lease payments for aircraft and facility obligations	$	2,688,358	$	174,022	$	376,311	$	352,283	$	336,895	$	302,818	$	1,146,029
Interest commitments	534,294		39,709		74,815		68,132		62,054		55,651		233,933
Purchase commitments	92,000		92,000		—		—		—		—		—
Principal maturities on long-term debt	1,818,612		79,676		202,991		157,413		163,256		170,283		1,044,993
Total commitments and obligations	$	5,133,264	$	385,407	$	654,117	$	577,828	$	562,205	$	528,752	$	2,424,955

Purchase Commitments and Options

On January 4, 2011, we announced SkyWest Airlines’ plans to acquire four additional regional jet aircraft during 2011. SkyWest Airlines plans to place these aircraft into operation under the SkyWest Airlines Delta Connection Agreement. Total expenditures for these aircraft and related flight equipment, including amounts for contractual price escalations, are estimated to be approximately $92.0 million through 2011.

We have not historically funded a substantial portion of our aircraft acquisitions with working capital. Rather, we have generally funded our aircraft acquisitions through a combination of operating leases and long-term debt financing. At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select one or more of these methods to fund the acquisition. In the event that alternative financing cannot be arranged at the time of delivery, Bombardier has typically financed our aircraft acquisitions until more permanent arrangements can be made. Subsequent to this initial acquisition of an aircraft, we may also refinance the aircraft or convert one form of financing to another (e.g., replacing debt financing with leveraged lease financing).

At present, we intend to satisfy our 2011 firm aircraft purchase commitment, as well as our acquisition of any additional aircraft, through a combination of operating leases and debt financing, consistent with our historical practices. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft, without materially reducing the amount of working capital available for our operating activities. Nonetheless, recent disruptions in the credit markets have resulted in greater volatility, decreased liquidity and limited availability of capital, and there is no assurance that we will be able to obtain necessary funding or that, if we are able to obtain necessary capital, the corresponding terms will be favorable or acceptable to us.

Aircraft Lease and Facility Obligations

We also have significant long-term lease obligations primarily relating to our aircraft fleet. Future minimum lease payments due under all long-term operating leases were approximately $2.7 billion at June 30, 2011. Assuming a 6.2% discount rate, which is the average rate used to approximate the implicit rates within the applicable aircraft leases, the present value of these lease obligations would have been equal to approximately $2.0 billion at June 30, 2011.

Long-term Debt Obligations

As of June 30, 2011, we had $1,818.6 million of long term debt obligations related to the acquisition of CRJ200, CRJ700 and CRJ900 aircraft. The average effective interest rate on the debt related to the CRJ aircraft was approximately 4.4% at June 30, 2011.

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for an entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions.  Our operations are somewhat favorably affected by increased travel on our pro-rate routes, historically occurring during the summer months, and unfavorably affected by decreased travel during the months November through February and by inclement weather, which occasionally results in cancelled flights during the winter months.

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ITEM 3: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 has agreed to bear the economic risk of fuel price fluctuations on our contracted United Express flights. Continental has agreed to bear the economic risk of fuel price fluctuations on our contracted Continental Express flights. On our Delta Connection regional jet flights, Delta has agreed to bear the economic risk of fuel price fluctuations. We bear the economic risk of fuel price fluctuations on our pro-rate operations. As of June 30, 2011, essentially all of our Brasilia turboprops flown for Delta were flown under pro-rate arrangements while, approximately 62% of our Brasilia turboprops flown in the United system were flown under pro-rate arrangements. As of June 30, 2011, we operated 18 CRJ200s for United under a pro-rate agreement and four CRJ200s under a pro-rate agreement with AirTran.  The average price per gallon of aircraft fuel increased 41.1% to $3.64 for the three months ended June 30, 2011, from $2.58 for the three months ended June 30, 2010.  The average price per gallon of aircraft fuel increased 36.9% to $3.49 for the six months ended June 30, 2011, from $2.55 for the six months ended June 30, 2010. 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 $6.9 million and $13.0 million in fuel expense for the three and six month periods ended June 30, 2011, 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 June 30, 2011, we had variable rate notes representing 35.2% of our total long-term debt compared to 36.0% of our long-term debt at December 31, 2010. 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 $1.6 million in interest expense and received $1.7 million in additional interest income for the three months ended June 30, 2011. Based on this same hypothetical assumption, we would have incurred an additional $3.3 million in interest expense and received $3.6 million additional interest income for the six months ended June 30, 2011. 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 operations. 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 operations.

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 our actual costs of acquiring these aircraft.

ITEM 4.CONTROLS AND PROCEDURES

a) Evaluation of disclosure controls and procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2011.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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b) Changes in Internal Control over Financial Reporting

Except as set forth below, during the three months ended June 30, 2011, there were no changes in our internal control over financial reporting during their most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, their internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).

On November 12, 2010, we completed the ExpressJet Merger. We are currently integrating policies, processes, employees, technology and operations for the combined company. Management will continue to evaluate our internal control over financial reporting as we execute merger integration

PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

We are subject to certain legal actions which we consider routine to our business activities. As of June 30, 2011, our management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters is not likely to have a material adverse effect on our financial position, liquidity or results of operations. However, the following is a significant outstanding legal matter and if the dispute is not resolved consistent with the position we have taken in that matter, our financial results would be negatively impacted.

Atlantic Southeast and SkyWest Airlines v. Delta

During the quarter ended December 31, 2007, Delta notified SkyWest, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast (the “Connection Agreements”). The dispute relates to allocation of liability for certain irregular operations (“IROP”) expenses paid by SkyWest Airlines and Atlantic Southeast to their passengers and vendors under certain situations.  During the period between the execution of the Connection Agreements in September 2005 and December 2007, SkyWest Airlines and Atlantic Southeast passed through to Delta IROP expenses that were paid pursuant to Delta’s policies, and Delta accepted and reimbursed all of those expenses.  Delta now claims it is obligated to reimburse only a fraction of the IROP expenses.  As a result, Delta withheld a combined total of approximately $25 million (pretax) from one of the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast during December 2007.  Since December 2007, Delta has continued to withhold payments from the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast, and has disputed subsequent billings for IROP expenses. As of June 30, 2011, we had recognized a cumulative total of $31.7 million of revenue associated with the funds withheld by Delta.  Since July 1, 2008, we have not recognized revenue related to IROP expense reimbursements withheld by Delta because collection of those reimbursements is the subject of litigation and is therefore not reasonably assured. On February 1, 2008, SkyWest Airlines and Atlantic Southeast filed a Complaint in the Superior Court for Fulton County, Georgia (“Superior Court”) challenging Delta’s treatment of the matter and seeking recovery of the payments withheld by Delta and any future withholdings related to this issue.  Delta filed an Answer to the SkyWest Airlines/Atlantic Southeast Complaint and a Counterclaim against SkyWest Airlines and Atlantic Southeast on March 24, 2008.  Delta’s Counterclaim alleged that Atlantic Southeast and SkyWest Airlines breached the Delta Connection Agreements by invoicing Delta for IROP expenses that were paid pursuant to Delta’s policies, and claims only a portion of those expenses may be invoiced to Delta.

After proceedings that included contested motions, document discovery, and some depositions, Delta voluntarily dismissed its counterclaim.  Discovery in that action was not yet complete.  On February 14, 2011, SkyWest Airlines and Atlantic Southeast exercised their statutory rights to voluntarily dismiss their claims in the Fulton County Superior Court, and filed a new complaint (the “State Court Complaint”) in the Georgia State Court of Fulton County (the “State Court”).  The claims continue to include Breach of Contract, Breach of Contract based on Mutual Departure, Breach of Contract based on Voluntary Payment, and Breach of the Duty of Good Faith and Fair Dealing.  Delta moved for partial dismissal of the State Court Complaint and filed a separate action in the Superior Court containing claims for declaratory judgment and breach of the confidentiality provisions of the Delta Connection Agreements.  SkyWest Airlines and Atlantic Southeast moved for dismissal of Delta’s claims in the Superior Court.  A hearing on SkyWest’s and Atlantic Southeast’s motion was held on April 27, 2011, after which the Superior Court dismissed Delta’s Complaint in its entirety.  Proceedings under the State Court Complaint were stayed by the State Court pending the outcome of SkyWest’s and Atlantic Southeast’s motion to dismiss Delta’s claims in the Superior Court.  The stay was lifted on July 20, 2011.  No hearing has yet been scheduled on Delta’s motion for partial dismissal of the State Court Complaint.

SkyWest Airlines and Atlantic Southeast continue to vigorously pursue their claims set forth in the State Court Complaint.

26

ITEM 1A.  RISK FACTORS

There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010.

ITEM2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our Board of Directors has adopted a stock repurchase program which authorizes us to repurchase shares of our common stock in the public market, from time to time, at prevailing prices. The stock repurchase program currently authorizes the repurchase of up to 20,000,000 shares of our common stock. The following table summarizes our purchases under the stock repurchase program for the three months ended June 30, 2011:

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program(1)	Maximum Number of Shares that May Yet Be Purchased Under the Program
April 1 – April 30, 2011	454,382	$	16.04	454,382	4,041,700
May 1 – May 31, 2011	391,164	15.70		391,164	3,650,536
June 1 – June 30, 2011	484,340	14.96		484,340	3,166,196
Total	1,329,886	$	15.55	1,329,886	3,166,196

(1)Under resolutions adopted in February 2007, November 2007, May 2009 and May 2010, our Board of Directors authorized the repurchase of up to 20,000,000 shares of our common stock. Purchases are made at management’s discretion based on market conditions and our financial resources. In addition, effective March 13, 2009, we entered into the SkyWest, Inc. Stock Repurchase Plan (the “Stock Repurchase Plan”). The Stock Repurchase Plan provides for the repurchase of up to 3,400,000 shares of our common stock (which are included within, and are not in addition to, the 20,000,000 shares of common stock described above) by an independent third party pursuant to trading parameters contemplated by the Stock Repurchase Plan. As of June 30, 2011, we had spent approximately $317.2 million to purchase and retire approximately 16,833,804 shares of the 20,000,000 shares of common stock designated for repurchase by our Board of Directors. The authorization of our Board of Directors does not have an expiration date. The Stock Repurchase Plan expires on May 15, 2012.

ITEM 6: EXHIBITS

31.1	Certification of Chief Executive Officer
31.2	Certification of Chief Financial Officer
32.1	Certification of Chief Executive Officer
32.2	Certification of Chief Financial Officer
101.1	The following financial information from the quarterly report on Form 10-Q of SkyWest, Inc for the three and six month periods ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i)  Consolidated Balance Sheets, (ii)  Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, to be signed on its behalf by the undersigned, thereunto duly authorized, on August 5, 2011.

SKYWEST, INC.
By	/s/ Eric Woodward
	Eric Woodward
	Chief Accounting Officer

28

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jerry C. Atkin, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of SkyWest, Inc. for the quarter ended June 30, 2011.

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report.

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reported that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011

/s/ Jerry C. Atkin

Jerry C. Atkin

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael J. Kraupp, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of SkyWest, Inc. for the quarter ended June 30, 2011.

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report.

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reported that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011

/s/ Michael J. Kraupp

Michael J. Kraupp

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of SkyWest, Inc. (the “Company”) for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jerry C. Atkin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jerry C. Atkin

Jerry C. Atkin

Chief Executive Officer

August 5, 2011

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of SkyWest, Inc. (the “Company”) for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael J. Kraupp, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael J. Kraupp

Michael J. Kraupp

Chief Financial Officer

August 5, 2011

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
OPERATING REVENUES:
Passenger	$ 919,690	$ 642,201	$ 1,764,166	$ 1,265,313
Ground handling and other	14,007	7,558	35,482	16,689
Total operating revenues	933,697	649,759	1,799,648	1,282,002
OPERATING EXPENSES:
Salaries, wages and benefits	290,126	173,716	576,273	352,278
Aircraft maintenance, materials and repairs	176,399	111,366	339,573	218,121
Aircraft fuel	161,408	85,513	288,149	159,027
Aircraft rentals	88,072	75,642	174,494	152,101
Depreciation and amortization	63,697	58,383	126,890	116,529
Station rentals and landing fees	42,322	30,551	84,948	59,436
Ground handling services	32,875	26,945	69,728	56,389
Merger and integration related costs	1,364		2,395
Other	58,394	38,355	117,932	76,411
Total operating expenses	914,657	600,471	1,780,382	1,190,292
OPERATING INCOME	19,040	49,288	19,266	91,710
OTHER INCOME (EXPENSE):
Interest income	2,114	4,142	4,080	8,112
Interest expense	(20,052)	(21,659)	(40,272)	(43,244)
Other, net	(2,859)	(1,131)	(3,365)	(1,385)
Total other expense, net	(20,797)	(18,648)	(39,557)	(36,517)
INCOME (LOSS) BEFORE INCOME TAXES	(1,757)	30,640	(20,291)	55,193
PROVISION (BENEFIT) FOR INCOME TAXES	(3,336)	11,985	(10,806)	21,522
NET INCOME (LOSS)	$ 1,579	$ 18,655	$ (9,485)	$ 33,671
BASIC EARNINGS (LOSS) PER SHARE (in dollars per share)	$ 0.03	$ 0.33	$ (0.18)	$ 0.60
DILUTED EARNINGS (LOSS) PER SHARE (in dollars per share)	$ 0.03	$ 0.33	$ (0.18)	$ 0.59
Weighted average common shares:
Basic (in shares)	52,698	55,936	53,271	55,895
Diluted (in shares)	53,371	56,718	53,271	56,791
Dividends declared per share (in dollars per share)	$ 0.04	$ 0.04	$ 0.08	$ 0.08

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
NET CASH PROVIDED BY OPERATING ACTIVITIES	$ 51,324	$ 133,428
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(234,342)	(390,615)
Sales of marketable securities	382,351	355,195
Payments received on note receivable from United Air Lines		4,000
Proceeds from the sale of equipment	191	114
Acquisition of property and equipment:
Aircraft and rotable spare parts	(29,029)	(111,298)
Deposits on aircraft	(13,500)
Buildings and ground equipment	(5,009)	(4,172)
Increase in other assets	(3,850)	(12,600)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	96,812	(159,376)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		81,698
Principal payments on long-term debt	(79,363)	(74,045)
Tax benefit from exercise of common stock options	2
Return of deposits on aircraft and rotable spare parts	400	4,247
Net proceeds from issuance of common stock	2,203	2,504
Purchase of treasury stock	(40,259)	(1,179)
Payment of cash dividends	(4,326)	(4,511)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	(121,343)	8,714
Increase (decrease) in cash and cash equivalents	26,793	(17,234)
Cash and cash equivalents at beginning of period	112,338	76,414
CASH AND CASH EQUIVALENTS AT END OF PERIOD	139,131	59,180
Cash paid during the year for:
Interest, net of capitalized amounts	41,370	42,698
Income taxes	$ 698	$ 495

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
CURRENT ASSETS:
Cash and cash equivalents	$ 139,131	$ 112,338
Marketable securities	523,672	670,739
Restricted cash	21,756	21,775
Income tax receivable	7,678	3,356
Receivables, net	143,864	110,207
Inventories, net	112,664	106,572
Prepaid aircraft rents	288,728	256,168
Deferred tax assets	60,225	56,102
Other current assets	27,283	32,308
Total current assets	1,325,001	1,369,565
PROPERTY AND EQUIPMENT:
Aircraft and rotable spares	3,859,587	3,836,550
Deposits on aircraft	13,500	400
Buildings and ground equipment	282,695	278,665
Total property and equipment, gross	4,155,782	4,115,615
Less accumulated depreciation and amortization	(1,278,124)	(1,172,796)
Total property and equipment, net	2,877,658	2,942,819
OTHER ASSETS
Intangible assets, net	20,622	21,747
Other assets	116,460	112,379
Total other assets	137,082	134,126
Total assets	4,339,741	4,446,510
CURRENT LIABILITIES:
Current maturities of long-term debt	160,490	159,039
Accounts payable	233,037	206,490
Accrued salaries, wages and benefits	110,650	112,728
Accrued aircraft rents	24,252	16,780
Taxes other than income taxes	22,161	25,146
Other current liabilities	35,355	42,457
Total current liabilities	585,945	562,640
OTHER LONG-TERM LIABILITIES	51,773	46,325
LONG-TERM DEBT, net of current maturities	1,658,122	1,738,936
DEFERRED INCOME TAXES PAYABLE	568,332	569,847
DEFERRED AIRCRAFT CREDITS	103,306	107,839
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized; none issued
Common stock, no par value, 120,000,000 shares authorized; 75,669,814 and 75,244,553 shares issued, respectively	593,902	589,610
Retained earnings	1,126,114	1,139,739
Treasury stock, at cost, 23,627,860 and 21,071,582 shares, respectively	(349,887)	(309,628)
Accumulated other comprehensive income	2,134	1,202
Total stockholders' equity	1,372,263	1,420,923
Total liabilities and stockholders' equity	$ 4,339,741	$ 4,446,510

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

Note H — Income Taxes

As a result of decreases in the Company’s estimated pretax income, the Company’s estimated annual effective tax rate for the three and six-month periods ended June 30, 2011 varied from the federal statutory rate of 35% primarily due to the proportionate increase in expenses with limited tax deductibility relative to the Company’s estimated pretax income for the year ending December 31, 2011.

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Share-Based Compensation

6 Months Ended

Jun. 30, 2011

Share-Based Compensation

Share-Based Compensation

Note D — Share-Based Compensation

The fair value of stock options granted by the Company has been estimated as of the grant date using the Black-Scholes option pricing model. During the six months ended June 30, 2011, the Company granted options to purchase 322,707 shares of common stock under the SkyWest, Inc. 2010 Long-Term Incentive Plan (the “2010 Incentive Plan”).  The following table shows the assumptions used and weighted average fair value for stock option grants during the six months ended June 30, 2011.

Expected annual dividend rate	1.03		%
Risk-free interest rate	2.10		%
Average expected life (years)	5.8
Expected volatility of common stock	40.4		%
Forfeiture rate	0.0		%
Weighted average fair value of option grants	$	5.74

During the six months ended June 30, 2011, the Company granted 221,610 restricted stock units to the Company’s employees under the 2010 Incentive Plan.  The restricted stock units have a three-year vesting period, during which the recipient must remain employed with the Company or one of the Company’s subsidiaries.  Upon vesting, a restricted stock unit will be replaced with a common share of stock. Additionally, during the six months ended June 30, 2011, the Company granted 26,821 fully-vested shares of common stock to the Company’s directors.  The weighted average fair value of the shares of restricted stock on the date of grant was $15.51 per share.

The Company records share-based compensation expense only for those options and restricted stock units that are expected to vest.  The estimated fair value of the stock options and restricted stock units is amortized over the applicable vesting periods.  During the three months ended June 30, 2011 and 2010, the Company recorded pre-tax share-based compensation expense of $1.2 million and $1.5 million, respectively. During the six months ended June 30, 2011 and 2010, the Company recorded pre-tax share-based compensation expense of $3.0 million and $3.5 million, respectively.

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Legal Matters

6 Months Ended

Jun. 30, 2011

Legal Matters

Legal Matters

Note J — Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities. As of June 30, 2011, management believes, after consultation with legal counsel, that the ultimate outcome of such legal matters is not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations. However, the following are significant outstanding legal matters.

Atlantic Southeast and SkyWest Airlines v. Delta

During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast (the “Connection Agreements”). The dispute relates to allocation of liability for certain irregular operations (“IROP”) expenses paid by SkyWest Airlines and Atlantic Southeast to their passengers and vendors under certain situations.  During the period between the execution of the Connection Agreements in September 2005 and December 2007, SkyWest Airlines and Atlantic Southeast passed through to Delta IROP expenses that were paid pursuant to Delta’s policies, and Delta accepted and reimbursed all of those expenses.  Delta now claims it is obligated to reimburse only a fraction of the IROP expenses.  As a result, Delta withheld a combined total of approximately $25 million (pretax) from one of the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast during December 2007.  Since December 2007, Delta has continued to withhold payments from the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast, and has disputed subsequent billings for IROP expenses.  As of June 30, 2011, the Company had recognized a cumulative total of $31.7 million of revenue associated with the funds withheld by Delta.  Since July 1, 2008, the Company has not recognized revenue related to IROP expense reimbursements withheld by Delta because collection of those reimbursements is the subject of litigation and is therefore not reasonably assured. On February 1, 2008, SkyWest Airlines and Atlantic Southeast filed a Complaint in the Superior Court for Fulton County, Georgia (“Superior Court”) challenging Delta’s treatment of the matter and seeking recovery of the payments withheld by Delta and any future withholdings related to this issue.  Delta filed an Answer to the SkyWest Airlines/Atlantic Southeast Complaint and a Counterclaim against SkyWest Airlines and Atlantic Southeast on March 24, 2008.  Delta’s Counterclaim alleged that Atlantic Southeast and SkyWest Airlines breached the Delta Connection Agreements by invoicing Delta for IROP expenses that were paid pursuant to Delta’s policies, and claims only a portion of those expenses may be invoiced to Delta.

After proceedings that included contested motions, document discovery, and some depositions, Delta voluntarily dismissed its counterclaim.  Discovery in that action was not yet complete.  On February 14, 2011, SkyWest Airlines and Atlantic Southeast exercised their statutory rights to voluntarily dismiss their claims in the Fulton County Superior Court, and filed a new complaint (the “State Court Complaint”) in the Georgia State Court of Fulton County (the “State Court”).  The claims continue to include Breach of Contract, Breach of Contract based on Mutual Departure, Breach of Contract based on Voluntary Payment, and Breach of the Duty of Good Faith and Fair Dealing.  Delta moved for partial dismissal of the State Court Complaint and filed a separate action in the Superior Court containing claims for declaratory judgment and breach of the confidentiality provisions of the Delta Connection Agreements.  SkyWest Airlines and Atlantic Southeast moved for dismissal of Delta’s claims in the Superior Court.  A hearing on SkyWest’s and Atlantic Southeast’s motion was held on April 27, 2011, after which the Superior Court dismissed Delta’s Complaint in its entirety.  Proceedings under the State Court Complaint were stayed by the State Court pending the outcome of SkyWest’s and Atlantic Southeast’s motion to dismiss Delta’s claims in the Superior Court.  The stay was lifted on July 20, 2011.  No hearing has yet been scheduled on Delta’s motion for partial dismissal of the State Court Complaint.

SkyWest Airlines and Atlantic Southeast continue to vigorously pursue their claims set forth in the State Court Complaint.

XML



Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 01, 2011
Document and Entity Information
Entity Registrant Name	SKYWEST INC
Entity Central Index Key	0000793733
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		51,883,416
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

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Investment in Other Companies

6 Months Ended

Jun. 30, 2011

Investment in Other Companies

Investment in Other Companies

Note I — Investment in Other Companies

As of June 30, 2011, the Company’s investment balance in Trip and Air Mekong was $42.1 million.  These investments were recorded as an “Other asset” on the Company’s condensed consolidated balance sheet. The Company accounts for its interest in Trip and Air Mekong using the equity method of accounting. The Company records its equity in Trip’s and Air Mekong’s earnings on a one-quarter lag. For the six months ended June 30, 2011, the Company’s aggregate portion of losses attributable to its investments in Trip and Air Mekong was $3.5 million.

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ExpressJet Merger

6 Months Ended

Jun. 30, 2011

ExpressJet Merger

ExpressJet Merger

Note B — ExpressJet Merger

On November 12, 2010, the Company acquired ExpressJet Holdings, Inc. (of which ExpressJet is an indirect wholly-owned subsidiary) (“ExpressJet Holdings”) through the merger of ExpressJet Holdings with and into a wholly-owned subsidiary of Atlantic Southeast (the “ExpressJet Merger”). As a result of the ExpressJet Merger, each issued and outstanding share of ExpressJet Holdings common stock (other than shares owned by the Company or any of its subsidiaries) was converted into the right to receive $6.75 per share in cash, payable to the holder thereof, without interest. Based on the number of outstanding shares of ExpressJet Holdings common stock as of the effective time of the ExpressJet Merger, the aggregate value of the merger consideration was $131.6 million. After taking in effect the number of shares acquired by the Company and its subsidiaries prior to the effective time of the ExpressJet Merger, the aggregate value of the ExpressJet Merger consideration was $136.5 million.

The following unaudited pro forma combined results of operations give effect to the ExpressJet Merger as if it had occurred at the beginning of the periods presented. The unaudited pro forma combined results of operations do not purport to represent the Company’s consolidated results of operations had the ExpressJet Merger occurred on the date assumed, nor are these results necessarily indicative of the Company’s future consolidated results of operations. The Company expects to realize benefits from integrating the operations of Atlantic Southeast and ExpressJet, and to incur significant one-time cash costs in connection with that integration. The unaudited pro forma combined results of operations (in thousands) do not reflect these potential benefits or costs  nor can the Company provide any assurance that the anticipated benefits will be achieved or that the Company’s actual costs will be consistent with the anticipated costs.

	Three Months Ended June 30, 2010		Six Months Ended June 30, 2010
Revenue	$	857,766	$	1,680,256
Net Income	$	2,568	$	3,966
Basic earnings per share	$	0.05	$	0.07
Diluted earnings per share	$	0.05	$	0.07

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Net Income (Loss) Per Common Share

6 Months Ended

Jun. 30, 2011

Net Income (Loss) Per Common Share

Net Income (Loss) Per Common Share

Note E — Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income (loss) per common share.  During the three months ended June 30, 2011 and 2010, options to acquire 3,282,000 and 4,495,000 shares, respectively, were excluded from the computation of Diluted EPS as their impact was anti-dilutive. During the six months ended June 30, 2011 and 2010, options to acquire 4,510,000 and 4,448,000 shares, respectively, were excluded from the computation of Diluted EPS as their impact was anti-dilutive.

The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS for the periods indicated (in thousands, except per share data) is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011			2010
	(Unaudited)				(Unaudited)
Numerator
Net Income (Loss)	$	1,579	$	18,655	$	(9,485	)	$	33,671
Denominator
Weighted average number of common shares outstanding	52,698		55,936		53,271			55,895
Effect of outstanding share-based awards	673		782		—			896
Weighted average number of shares for diluted net income (loss) per common share	53,371		56,718		53,271			56,791
Basic earnings (loss) per share	$	0.03	$	0.33	$	(0.18	)	$	0.60
Diluted earnings (loss) per share	$	0.03	$	0.33	$	(0.18	)	$	0.59

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Comprehensive Income

6 Months Ended

Jun. 30, 2011

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Note F — Comprehensive Income (loss)

Comprehensive income (loss) includes charges and credits to stockholders’ equity that are not the result of transactions with the Company’s shareholders. Comprehensive income (loss) consisted of net income (loss) plus changes in unrealized appreciation (depreciation) on marketable securities and unrealized gain (loss) on foreign currency translation adjustment related to the Company’s equity investment in Trip Linhas Aereas (“Trip”) and Mekong Aviation Joint Stock Company (“Air Mekong”), net of tax, for the periods indicated (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
	(Unaudited)					(Unaudited)
Net Income (loss)	$	1,579	$	18,655		$	(9,485	)	$	33,671
Proportionate share of other companies foreign currency translation adjustment, net of tax	130		(65		)	290			82
Unrealized appreciation (depreciation) on marketable securities, net of tax	333		(185		)	642			(280		)
Comprehensive Income (loss)	$	2,042	$	18,405		$	(8,553	)	$	33,473

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Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Fair Value Measurements

Note G — Fair Value Measurements

The Company holds certain assets that are required to be measured at fair value in accordance with United States GAAP. The Company determined fair value of these assets based on the following three levels of inputs:

Level 1	—	Quoted prices in active markets for identical assets or liabilities.
Level 2	—	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.
Level 3	—	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions.

The Company has invested in auction rate security instruments, which are classified as available for sale securities and reflected at fair value. However, due primarily to credit market events beginning in 2008, the auction events for most of these instruments failed. Therefore, quoted prices in active markets are no longer available and the Company has estimated the fair values of these securities utilizing a discounted cash flow analysis as of June 30, 2011. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction.

As of June 30, 2011, the Company owned $4.0 million of auction rate security instruments. The auction rate security instruments held by the Company at June 30, 2011 were tax-exempt municipal bond investments, for which the market has experienced some successful auctions. The Company has classified the investments as non-current and has identified them as “Other assets” in its unaudited condensed consolidated balance sheet as of June 30, 2011. The Company has classified these securities as non current due to the Company’s belief that the market for these securities may take in excess of twelve months to fully recover. As of June 30, 2011, the Company continued to record interest on all of its auction rate security instruments. Any future fluctuations in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write downs, would be recorded to accumulated other comprehensive income. If the Company determines that any future valuation adjustment was other than temporary, a charge would be recorded to earnings as appropriate.

As of June 30, 2011, the Company held certain assets that are required to be measured at fair value on a recurring basis. Assets measured at fair value on a recurring basis are summarized below (in thousands):

	Fair Value Measurements as of June 30, 2011
	Total		Level 1		Level 2		Level 3
Marketable Securities
Bond and bond fund	$	523,084	$	—	$	523,084	$	—
Commercial paper	—		—		—		—
Asset backed securities	588		—		588		—
	523,672		—		523,672		—
Cash, Cash Equivalents and Restricted Cash	160,887		160,887		—		—
Other Assets (a)	3,992		—		—		3,992
Total Assets Measured at Fair Value	$	688,551	$	160,887	$	523,672	$	3,992

(a)Auction rate securities included in “Other assets” in the unaudited Consolidated Balance Sheet

Based on market conditions, the Company uses a discounted cash flow valuation methodology for auction rate securities. Accordingly, for purposes of the foregoing condensed consolidated financial statements, these securities were categorized as Level 3 securities. The Company’s “Marketable Securities” classified as Level 2 primarily utilize broker quotes in a non-active market for valuation of these securities.

No significant transfers between Level 1, Level 2 and Level 3 occurred during the three and six months ended June 30, 2011.  The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at June 30, 2011 (in thousands):

Fair Value Measurements Using Significant Unobservable Inputs

(Level 3)

	Auction Rate Securities
Balance at January 1, 2011	$	4,002
Total realized and unrealized gains or (losses)
Included in earnings	—
Included in other comprehensive income	(10		)
Transferred out	—
Settlements	—
Balance at June 30, 2011	$	3,992

The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt and was estimated to be $1,861.2 million as of June 30, 2011, as compared to the carrying amount of $1,818.6 million as of June 30, 2011.

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Condensed Consolidated Financial Statements

6 Months Ended

Jun. 30, 2011

Condensed Consolidated Financial Statements

Condensed Consolidated Financial Statements

Note A — Condensed Consolidated Financial Statements

The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and its operating subsidiaries, SkyWest Airlines, Inc. (“SkyWest Airlines”), Atlantic Southeast Airlines, Inc. (“Atlantic Southeast”) and ExpressJet Airlines Inc. (“ExpressJet”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although SkyWest believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. The Company suggests that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  The results of operations for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results will differ and may differ materially from those estimates and assumptions.

Certain reclassifications have been made to the Company’s June 30, 2010 condensed consolidated financial statements to conform to the presentation of the Company’s June 30, 2011 condensed consolidated financial statements.

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Passenger and Ground Handling Revenue

6 Months Ended

Jun. 30, 2011

Passenger and Ground Handling Revenue

Passenger and Ground Handling Revenue

Note C — Passenger and Ground Handling Revenue

Passenger and Ground Handling Revenues

The Company recognizes passenger and ground handling revenues when the service is provided. Under the Company’s contract and pro-rate flying agreements with Delta Air Lines, Inc. (“Delta”), United Air Lines, Inc. (“United”) Continental Airlines, Inc. (“Continental”), AirTran Airways, Inc. (“AirTran”) and Alaska Airlines, Inc. (“Alaska”), revenue is considered earned when the flight is completed. Revenue is recognized under the Company’s pro-rate flying agreements based upon the portion of the pro-rate passenger fare the Company anticipates that it will receive on completed flights.

Delta Connection Agreements

SkyWest Airlines and Atlantic Southeast have each entered into a Delta Connection Agreement with Delta, pursuant to which SkyWest Airlines and Atlantic Southeast provide contract flight services for Delta. The Delta Connection Agreements provide for fifteen-year terms, subject to early termination by Delta, SkyWest Airlines or Atlantic Southeast, as applicable, upon the occurrence of certain events. Delta’s termination rights include (i) cross-termination rights between the two Delta Connection Agreements, (ii) the right to terminate each of the Delta Connection Agreements upon the occurrence of certain force majeure events, including certain labor-related events, that prevent SkyWest Airlines or Atlantic Southeast from performance for certain periods, and (iii) the right to terminate each of the Delta Connection Agreements if SkyWest Airlines or Atlantic Southeast fails to maintain competitive base rate costs, subject to certain adjustment rights. The SkyWest Airlines and Atlantic Southeast Delta Connection Agreements contain multi-year rate reset provisions which commenced in 2010 continue for additional five-year periods thereafter. In addition to the termination rights, Delta has the right to extend the term of the Delta Connection Agreements upon the occurrence of certain events or at the expiration of the initial term. SkyWest Airlines and Atlantic Southeast have the right to terminate their respective Delta Connection Agreement upon the occurrence of certain breaches by Delta, including the failure to cure payment defaults. SkyWest Airlines and Atlantic Southeast also have cross-termination rights between the two Delta Connection Agreements.

Under the terms of the SkyWest Airlines Delta Connection Agreement, Delta has agreed to compensate SkyWest Airlines for the direct costs associated with operating the Delta Connection flights, plus a payment based on block hours flown. Under the terms of the Atlantic Southeast Delta Connection Agreement, Delta has agreed to compensate Atlantic Southeast for its direct costs associated with operating the Delta Connection flights, plus, if Atlantic Southeast completes a certain minimum percentage of its Delta Connection flights, an additional percentage of such costs. Additionally, Atlantic Southeast’s Delta Connection Agreement provides for the payment of incentive compensation upon satisfaction of certain performance goals. The incentives are defined in the Atlantic Southeast Delta Connection Agreement as being measured and determined on a monthly and quarterly basis. At the end of each quarter, the Company calculates the incentives achieved during the quarter and recognizes revenue accordingly. The parties to the Delta Connection Agreements made customary representations, warranties and covenants, including with respect to various operational, marketing and administrative matters.

In the event that the contractual rates under the Delta Connection Agreements have not been finalized at quarterly or annual financial statement dates, the Company records revenues based on the lower of prior period’s approved rates, as adjusted to reflect any contract negotiations and the Company’s estimate of rates that will be implemented in accordance with revenue recognition guidelines. In the event the Company has a reimbursement dispute with a major partner, the Company evaluates the dispute under its established revenue recognition criteria and, provided the revenue recognition criteria have been met, the Company recognizes revenue based on management’s estimate of the resolution of the dispute. During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast. The dispute relates to allocation of liability for certain irregular operations (“IROP”) expenses that are paid by SkyWest Airlines and Atlantic Southeast to their passengers under certain situations. As a result, Delta withheld a combined total of approximately $25 million (pretax) from one of the weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast during December 2007. Delta continues to withhold a portion of the funds the Company believes are payable as weekly scheduled wire payments to SkyWest Airlines and Atlantic Southeast (See Note J for additional details).

United Express Agreements

SkyWest Airlines and United have entered into a United Express Agreement, which sets forth the principal terms and conditions governing SkyWest Airlines’ United Express operations. Under the terms of the United Express Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs. Additionally, SkyWest Airlines is eligible for incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the United Express Agreement as being measured and determined on a monthly basis. At the end of each month, the Company calculates the incentives achieved during the month and recognizes revenue accordingly.

On February 10, 2010, Atlantic Southeast and United entered into a United Express Agreement, pursuant to which Atlantic Southeast agreed to operate as a United Express carrier. The Atlantic Southeast United Express Agreement is a capacity purchase agreement with a five-year term, and other terms which are generally consistent with the SkyWest Airlines United Express Agreement.

ExpressJet and United are parties to the ExpressJet United Express Agreement, which sets forth the principal terms and conditions governing ExpressJet’s United Express operations. Under the terms of the ExpressJet United Express Agreement, ExpressJet is compensated primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs. Additionally, ExpressJet is eligible for incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the ExpressJet United Express Agreement as being measured and determined on a monthly basis. At the end of each month, the Company calculates the incentives achieved during the month and recognizes revenue accordingly.

Alaska Agreement

SkyWest Airlines and Alaska have entered into a Capacity Purchase Agreement, which sets forth the principal terms and conditions governing SkyWest Airlines’ Alaska operations. Under the terms of the Capacity Purchase Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs. Additionally, SkyWest Airlines is eligible for incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the Capacity Purchase Agreement as being measured and determined on a monthly basis. At the end of each month, the Company calculates the incentives achieved during the month and recognizes revenue accordingly.

AirTran Code-Share Agreement

On November 4, 2009, SkyWest Airlines entered into a code-share agreement with AirTran. Under the terms of the code-share agreement, SkyWest Airlines operates four CRJ200s for AirTran under a pro-rate arrangement. SkyWest Airlines commenced AirTran service in December 2009. The code-share agreement has a three-year term; however, after May 15, 2010, either party may terminate the agreement upon 120 days written notice.  During the three months ended June 30, 2011, SkyWest Airlines and AirTran agreed to terminate the code-share agreement effective September 6, 2011.

Continental Express Agreement

In connection with the ExpressJet Merger, ExpressJet entered into a Capacity Purchase Agreement with Continental (the “Continental Express Agreement”), whereby ExpressJet agreed to provide regional airline service in the Continental flight system. Under the terms of the Continental Express Agreement, ExpressJet operates 206 aircraft in the Continental flight system and Continental has agreed to compensate ExpressJet on a monthly basis based on the block hours flown by ExpressJet and the weighted average number of aircraft operated by ExpressJet under the Continental Express Agreement. Additionally, ExpressJet may earn incentive compensation for good operating performance, but is subject to financial penalties for poor operating performance. At the end of each month, the Company calculates the incentives achieved and penalties incurred during the month under the Continental Express Agreement and recognizes revenue accordingly.

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CONSOLIDATED BALANCE SHEETS (Parenthetical)	Jun. 30, 2011	Dec. 31, 2010
CONSOLIDATED BALANCE SHEETS
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Common stock, shares authorized	120,000,000	120,000,000
Common stock, shares issued	75,669,814	75,244,553
Treasury stock, shares	23,627,860	21,071,582