SkyWest Airlines (SkyWest) was a rare breed in the ultra-competitive regional airline industry. As the overall airline industry suffered through terrorist attacks, rising fuel costs, and increased competition, SkyWest was able to grow its business and sustain profitability. The aforementioned events that impacted the airline industry had a severe effect on the structure of the industry as a whole. Several major airlines were in the process of emerging from bankruptcy while mergers among the largest airlines seemed inevitable. SkyWest, like most regional carriers, relied on contracts with the major airlines for its customer base and revenues. With industry consolidation underway, SkyWest’s recent history of profitability was no longer a sure bet. Company Analysis
In 2007 SkyWest celebrated its 35th anniversary of partnering with the major airlines to provide service to smaller airports. At the beginning of 2007 SkyWest served 135 cities in 38 states and had built a national presence. SkyWest obtained the majority of its business through partnerships with two major airlines, United Airlines (United) and Delta Airlines (Delta). These companies had a lot in common as both major airlines recently emerged from bankruptcy and used similar business models. SkyWest’s contracts with Delta accounted for approximately 59.9% of its capacity while 40.1% of capacity was contained in contracts with United. The contracts with both major airlines stated that SkyWest would receive a fixed dollar payment per completed flight hour, and would also be reimbursed for costs such as fuel and aircraft ownership and maintenance costs. United and Delta’s recent bankruptcies were expected to lead to more outsourced flights and therefore more business to SkyWest.
In an effort to grow the company, SkyWest acquired Atlantic Southeast Airlines (ASA), a company that was owned and managed by Delta Airlines. This acquisition helped SkyWest achieve geographic growth into the Southeastern United States. ASA, like SkyWest, was known for its low-cost operations. However, ASA brought with it one of the worst customer service records in the industry and a unionized workforce. Like most acquisitions, it also brought with it an increased debt-load to SkyWest.
SkyWest was well aware that it needed to diversify its business outside of United and Delta. At the end of 2006, SkyWest entered into a five-year contract with Midwest Airlines (Midwest) to serve markets from Midwest’s hubs in Milwaukee and Kansas City. While Midwest was not a major carrier on the level of United and Delta, it represented SkyWest’s first attempt to reduce its reliance on the two major carriers.
The following SWOT analysis summarizes the current state of SkyWest’s business: Strengths
·SkyWest possesses a distinctive competence in that it is the lowest-cost provider of regional air service for Delta and United. This is extremely important, as cost pressures in the airline industry are very strong. ·SkyWest has a good reputation for on-time arrivals and low cancellations. A regional airline must possess these qualities in order to acquire a contract from a major airline. ·SkyWest maintained a high safety standard through safety equipment upgrades such as implementing a mobile data collection and reporting software that ensured that SkyWest met or exceeded its safety standards. It would be impossible for SkyWest to exist if customers perceived the company to be an unsafe airline. ·SkyWest had orders outstanding to purchase additional aircraft that would be more cost-efficient to operate than older models. In addition to helping SkyWest lower its costs, acquiring new planes was another requirement that regional airlines had to meet in order to be considered by major airlines for contracts. ·SkyWest is a financially viable company as evidenced by four consecutive years of growth in operating revenues and operating income. This is a...