SkyWest, Inc.

444 South River Road
St. George, Utah 84790
U.S.A.
(435) 634-3000
Fax: (435) 634-3505
Web site: http://www.skywest.com

Public Company
Incorporated: 1972 as Inter American Aviation, Inc.
Employees: 2,123
Sales: $297.1 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: SKYW
SICs: 4512 Air Transportation-Scheduled; 6719 Holding Companies, Not Elsewhere Classified

Sky West, Inc. is the holding company for three related companies. First is SkyWest Airlines, which after its 1998 expansion became the nation’s fifth largest regional airline, with scheduled flights for passengers and freight to 12 western states and Canada. It serves both business travelers who use Sky West as a commuter airline and tourists vacationing at ski resorts or California’s beaches. SkyWest Airlines’ close ties to both Delta and Continental airlines have been a key to its success. Second, Scenic Airlines offers air tours, general aviation, and scheduled flights to the Grand Canyon and other areas of Arizona, Utah, and Nevada. Third, National Parks Transportation maintains a fleet of Avis rental cars to assist sightseers and others who have flown to selected locations.

Origins in the Early 1970s

Skywest was built on the ruins of another airline. In the small southern Utah city of St. George, Dixie Airline finally called it quits in 1972. Local attorney J. Ralph Atkin and four other men acquired Dixie’s airport lease and the intrastate rights for a commuter airline. Atkin also began a fixed base operation (FOB) consisting of air charters, a flight school, aircraft maintenance, and air ambulance service.

The descendent of Mormon pioneers, Atkin had graduated from Brigham Young University and then earned a law degree from the University of Utah. Atkin and his wife returned to St. George, where he worked in a law partnership and in 1970 was elected county attorney. In 1971 one of his law clients happened to be a flight instructor, so soon Atkin took flying lessons. On March 2, 1972 he started a company called Inter American Aviation, Inc., so that he and four friends could own a plane just for fun. Then Atkin decided to offer commercial flights, and the firm’s name was changed to Sky West Airlines, a division of SkyWest Aviation Inc.

By June 1972 the young company had four planes and three part-time pilots. Jerry Fackrell piloted a twin-engine, six-seat Piper Seneca N1021U on the company’s first scheduled flight on June 19, 1972, from St. George to Cedar City and on to Salt Lake City. In the early days SkyWest pilots also served as ticket agents and baggage handlers. They were paid only $5 per flight hour and $10 for extended layovers in Salt Lake City.

By 1973 and 1974 SkyWest had acquired a few more small passenger planes and expanded with a route to Las Vegas, the closest big city. In these early years, however, it did just about anything to make money. It flew oil exploration crews in and out of Moab, Utah, and even conducted some cloud seeding operations.

Probably the most unusual early venture was providing charters for the federal Immigration and Naturalization Service. It used its Cessna 206s and Piper Cherokee Sixes to pick up illegal immigrants in different locations in the West and fly them to just north of the Mexican border, where they were deported. Since some deportees returned to the United States, SkyWest pilots occasionally flew the same individuals repeatedly back to the Mexican border.

By 1974 the company had large debts and considered declaring bankruptcy. Jerry C. Atkin, Ralph Atkin’s nephew who joined the firm in 1974, recalled that they tried to sell the company for $25,000, but nobody wanted it at that price. They even offered to give SkyWest away, but nobody would take it.

Sidney J. Atkin, Ralph Atkin’s brother and the majority whip in the Utah legislature, helped the firm gain a state grant in 1975. That grant for $15,000 helped save the company.

In October 1975 the company was reorganized with Jerry Atkin named president, Ralph Atkin as board chairman and vice-president of corporate development, Sid Atkin as vice-president of finance, and Lee C. Atkin (Ralph and Sid’s older brother) as secretary. By selling three aircraft, route reductions, and personnel cutbacks, SkyWest barely survived this crisis. It paid its creditors just $50 per month for one year, but eventually all were paid in full.

Expansion in the Late 1970s

In 1976 the firm made a modest profit—its first. That was helped by Hughes Air West dropping its Cedar City-Salt Lake City route. At that point SkyWest expanded its fleet by purchasing two more Navajo Chieftans, making a total of five. SkyWest Aviation Inc. also expanded its car rental business. It formed National Parks Transportation Company to manage two Avis franchises at Cedar City and St. George.

In 1977 the company signed its first interline agreement with American Airlines, which allowed passengers to be ticketed to their final destination in just one check-in procedure. Later several other airlines would also sign interline contracts with SkyWest.

Three major events marked the company’s history in 1978. First, SkyWest became the third commuter airline in the nation’s history to become a certified air carrier subject to federal government regulations just like major airlines.

Second, the Civil Aeronautics Board (CAB) granted SkyWest its first federal subsidy, a three-year agreement for annual amounts of $160,000 for flights to Page, Arizona. The CAB also granted SkyWest authority for routes to Yuma, Kingman, Pres-cott, Grand Canyon, Tucson, Winslow, and Phoenix, Arizona, as well as Blythe, Los Angeles, and El Centro, California.

Third, and maybe most important, SkyWest in 1978 acquired its first Fairchild Metroliner II, worth $1.4 million, far more than its earlier planes, which cost about $150,000 apiece. A twin-propeller, 19-seat aircraft, the Metro became the company’s main plane as it entered the era of federal deregulation.

Growth from Deregulation, Acquisition, and Affiliations in the 1980s

After the federal government passed the Airline Deregulation Act in 1978, major airlines no longer were required to service small markets. Thus airlines such as United, Western, and American left less profitable communities, which in turn opened the door to regional airlines like SkyWest.

For example, in 1980 SkyWest began flying three daily flights into Pocatello, Idaho, after Western Airlines left that city. Pocatello became Sky West’s main market in the early 1980s. And in 1982 SkyWest received government permission to fly into Ely, Elko, and Reno, Nevada after United and Frontier departed and Golden Gate, another commuter, declared bankruptcy. The same year SkyWest replaced Frontier Airlines at Vernal, Utah, and Rock Springs, Wyoming, and in September 1982 took over the route to Idaho Falls from departing Republic Airlines.

Adding such cities was expensive for the still modest regional airline. Without adding new planes, SkyWest invested between $50,000 and $100,000 for a new destination, which covered ground equipment, counter space, and passenger lounges. If a new plane was needed, more than $2 million could be spent.

By 1983 the company had purchased a total of seven Metros, and it still had five smaller Navajo Chieftans and even smaller Cessna 207s for charters. This fleet expansion indicated that SkyWest was prospering in spite of the recession early in the Reagan Administration.

Like other airlines, SkyWest also had been hurt by President Reagan’s 1981 firing of the air traffic controllers after the illegal strike by the Professional Air Traffic Controllers Association. The 1981 controllers strike contributed to SkyWest’s first accident. On September 24, when the Flagstaff, Arizona control tower was closed because of the strike, a SkyWest Metro collided on the ground with an inbound corporate jet. The corporate pilot was blamed for this accident, which caused no deaths.

During SkyWest’s tenth year anniversary in 1982, it adopted its first computerized reservation system. It replaced its card files with Republic’s Escort computer system, a necessary step because SkyWest was flying 550 flight segments every week.

In the early 1980s SkyWest expanded its freight deliveries so that about ten percent of its revenues were from mail, small packages, and bank documents. This helped small communities that lost bus and rail services after those industries were deregulated.

SkyWest enjoyed eight straight years of profitability by the end of 1983, when it was ranked 42nd among the nation’s top 100 regional airlines. From its base in St. George, it served 17 locations in six states. It employed about 250 individuals, so the intimate family atmosphere of the early days was dissipating. This growth also resulted in President Jerry Atkin delegating fiscal responsibilities to a new financial vice-president position. At the same time separate marketing and customer service departments were created.

Company Perspectives:

Our mission is to provide airlines services that exceeds our customers’ expectations. Each of us is dedicated to excellence in service as part of the Delta Air Lines and United Air Lines transportation systems. That dedication includes safety first; on time, every time service; fairness and consistency; working together as a team; personal and corporate integrity; and maintaining profitability.

That set the stage for SkyWest’s major acquisition. In August 1984 SkyWest began flying from Las Vegas into Palm Springs, California, its first ventures into the highly competitive Southern California market. That led to SkyWest acquiring Palm Springs-based Sun Aire, from its owner, the DiGiorgio Corporation. Sun Aire had been founded in 1968 in Borrego Springs, California by H. L. Van Sickle to shuttle travelers to and from San Diego, just 90 miles to the south. In 1983 Sun Aire carried 330,000 passengers, about twice as many as SkyWest. SkyWest operated the two firms separately until the merger was completed in 1985. The acquisition boosted SkyWest to the nation’s llth largest regional carrier.

The Sun Aire acquisition resulted in major changes for SkyWest. First, its fleet expanded. With SkyWest’s 12 Metros and Sun Aire’s 14 Metros, the merged company had the world’s largest fleet of Fairchild Metros. The combined company flew to 28 sites. Sun Aire had opened a new facility within American Airlines’s Los Angeles terminal three months before the merger, so the renamed firm SkyWest/Sun Aire Lines gained access to that major market.

The merger also resulted in forming the holding company SkyWest, Inc., with its three subsidiaries: SkyWest Airlines Inc. (changed from the earlier SkyWest Aviation Inc.), National Parks Transportation Company for the Avis rental car business, and Aviation Services West, Inc. for the fixed base operations. In addition, SkyWest as a result of the merger replaced its Escort CRS (computer reservation system) with the more advanced Sabre CRS, an American Airlines system used by Sun Aire.

In Time Flies, the SkyWest corporate history, Sid Atkin said the merger with Sun Aire “really did make us a professional airline when the resources and talents of both organizations came together.” The complete merger took several years, however. Long-time employee Jan Nelson described the transition in Time Flies, as follows: “We ran a northern operation and a southern operation. This was like running two different airlines even after we merged. We had different things to worry about in each section. They didn’t have to worry about the extreme temperatures, altitudes or the long hauls we had. They were strictly operating in Southern California. … They [Sun Aire employees] viewed us as a Mormon company. They had different management methods and attitudes. California people were just entirely different.”

Meanwhile, another major change occurred. In 1985 SkyWest became affiliated with Western Airlines through a code-sharing agreement in which SkyWest adopted Western’s two-letter code in computer reservation systems. Western had 70 percent of Salt Lake City’s market at the time, so this joint venture increased SkyWest’s flights. Code sharing was a very controversial decision, however, for regional airlines tended to lose their identity.

In any case, later in 1985 Delta Airlines announced its purchase of Western, which led to SkyWest becoming one of the regional airlines that flew as the Delta Connection using the Delta code DL in computer reservation systems. The Delta Connection became effective April 1, 1987, when the Delta/Western merger was completed. Thus in the mid-1980s some SkyWest personnel daily wondered what the company logo was, since the company had planes with different paint designs as it evolved rapidly from SkyWest to SkyWest/Sun Aire and then to affiliations as Western Express and Delta Connection.

These code-sharing affiliations were a major trend in the evolving relationships between major and regional airlines in the 1980s. United Airlines signed agreements with regionals to become United Express carriers, and American Airlines established its American Eagle network. The major airlines needed commuter connections, yet some of their executives worried about increased liability for their smaller partners who now carried their name.

Larraine Segil, a leading consultant for airline alliances, wrote about such issues in her book Intelligent Business Alliances (Random House, 1996). In the January 1998 issue of Business & Commercial Aviation, Segil pointed out that about 55 percent of all business alliances fail after three years of trying. She explained some of the difficulties when two corporate cultures collide: “You take a look at the airline industry and you suddenly find local regional airlines that are very much either in start-up or in high-growth mode. The larger national and international airlines are mature and even some of them are in a declining mode. When you partner a declining or a mature company with a start-up or a high-growth company, you have inherent potential incompatibilities. Those … are unavoidable, but they can be managed.”

Segil praised Delta Airlines for its efforts to integrate with its junior partners like SkyWest. She said Delta had a “real commitment to make the relationship work. I think that is a distinguishing factor.” The Delta Connection with SkyWest, begun in 1985, still functioned in 1998, backing up Segil’s assessment.

In the mid-1980s SkyWest faced expanded opportunities, so it purchased new planes, namely the Brasilia EMB-120 turboprop, manufactured in Brazil by Embraer. This was SkyWest’s first plane designed specifically for regional airlines. The smaller Metros were corporate planes modified for regional use and thus required increased maintenance to fly many more miles than originally intended. Brasilia service was started on February 1,1986 in Palm Springs. Even into the 1990s SkyWest used most of its Brasilias in the highly competitive California market.

To pay off the Sun Aire acquisition and to raise capital for its expansion, SkyWest became a public corporation in 1986. After its initial public offering under the symbol SKYW on the NASDAQ market, Jerry and Ralph Atkin flew to New York City to get a check for almost $12 million, far more than the less than $1 million raised in private offerings since the company had been founded.

In 1987 SkyWest received Air Transport World’s Commuter/Regional Airline of the Year award, after being chosen from some 500 regional airlines in the world. In fiscal year 1988, however, SkyWest lost $2.3 million, its first loss in several years. Company leaders had expanded too fast into California, the graveyard of at least 28 airlines, so they canceled some routes and concentrated on core markets. In 1989, for the first time, SkyWest flew more than one million passengers, a far cry from the 256 it had flown in 1972, its first year in business.

Events in the 1990s

SkyWest founder Ralph Atkin retired in 1991 as board chairman and CEO; Jerry Atkin replaced his uncle in those positions. In 1992 the firm broke ground for a new corporate office in St. George. The $3.6 million facility on a 15-acre site provided offices for more than 250 employees.

Some stock analysts in 1993 encouraged investors to consider the rising stocks of regional airlines, such as SkyWest, since the major airlines were losing a lot of money. Since 1990 the airline industry had lost nearly $10 billion, so investors naturally were skeptical. Yet most regionals remained profitable. And Sky West’s nonunion work force helped it keep down labor costs.

In June 1993 Sky West’s subsidiary Aviation Services West, Inc. acquired the flight tour operations of Scenic Airlines, Inc., a company formed in 1967 to provide tours to the Grand Canyon from Las Vegas and other sites. Following the acquisition, Aviation Services West changed its name to Scenic Airlines, Inc.

In 1994 SkyWest replaced Delta after the major airline canceled its jet flights from Salt Lake City to five low-volume cities: Casper, Wyoming; Butte, Montana; Burbank, California; and Rapid City and Sioux Falls, South Dakota. To service those routes, SkyWest ordered ten Canadair Regional Jets (CRJs) from Bombardier, Inc. These jets cost far more to purchase ($17 million each) and operate than the earlier Brasilias. CRJ advantages included greater range, up to about 1,200 miles. Powered by two General Electric turbofan engines, the CRJs cruised at about 540 miles per hour (Mach 0.8). This increased speed allowed SkyWest to offer additional flights in some markets. The CRJs featured seats for 50 passengers and the ability to fly up to 41,000 feet, above most turbulent weather.

SkyWest leaders struggled with the transition to jets. President Jerry Atkin in the September 1994 Business & Commercial Aviation admitted, “It is a good thing I did not know how big a task it was.” And Ron Reber, senior vice-president of marketing and sales, said, “I did not think the [regional airline] industry would ever accommodate a … 50-passenger jet.” Reber changed his mind, especially after SkyWest worked through the protests of city leaders in Butte, Montana. For years Butte had enjoyed Western and then Delta flights. Montana’s congressional delegation even visited Delta’s Atlanta headquarters to request continued flights, but in the end the city rejoiced at the nonstop and more frequent flights provided by SkyWest.

SkyWest pilots faced challenges from the new cockpits in the Canadair jets. None had any experience with the more sophisticated video screens in the CRJ’s glass cockpit, which provided an overwhelming amount of information. After new training manuals were written, the pilots spent hours on flight-training devices and simulators to make the transition.

In October 1995 Sky west and Continental Airlines signed a marketing and code-sharing agreement whereby SkyWest became a Continental Connection in markets operating in and out of Los Angeles. Only about three percent of SkyWest passengers connected with Continental flights in 1996, however, far less than the approximately 48 percent interline passengers who connected with Delta flights the same year.

In 1996 the firm flew more than 2.5 million passengers and bought its sixtieth plane as it continued to expand in the western United States. The fleet then consisted of 50 Brasilias and ten Canadair Regional Jets. That same year it retired its last Metro-liner, the company’s mainstay for many years.

SkyWest announced a marketing agreement with United Airlines effective October 1, 1997, in which SkyWest began operating as United Express. This code-sharing agreement, which replaced WestAir, gave SkyWest more connecting opportunities at the Los Angeles International Airport, where United was the largest major carrier. At the same time SkyWest reaffirmed its Delta Connection contract for flights between Los Angeles and Salt Lake City.

In 1997 SkyWest celebrated its 25th anniversary. As of October 1, 1997, it operated 585 daily departures to 45 cities in 12 western states and Canada. Its longest and only international flight was between Salt Lake City and Vancouver, Canada, using the Canadair Regional Jets.

SkyWest and United on January 19, 1998 signed an agreement that SkyWest would begin operating as the United Express carrier at United’s San Francisco hub on June 1, 1998. At that time it began offering some 90 departures daily to 12 California communities. In 1998 SkyWest expanded its United Express flights to include shuttles between outlying communities and the airports in Portland and Seattle. Thus in 1998 SkyWest operated as a connecting carrier to three major airlines: Delta, United, and Continental. Company executives planned to add 30 more Embraer Brasilias by October 1,1998 to handle its new West Coast lines. These purchases would use some of the $40 million raised in a secondary stock offering completed February 12, 1998.

The firm’s financial performance for fiscal year 1998, ending on March 31, showed that its annual revenues increased to $297.1 million from $278.1 for fiscal year 1997. Sky West’s fiscal year 1997 net income was $10.1 million or 50 cents per share. In fiscal year 1998 those figures more than doubled, with net income rising to $21.4 million or $1.06 per share. Not bad for a company that its owners once wanted to give away!

Principal Subsidiaries

SkyWest Airlines, Inc.; National Parks Transportation Co.; Scenic Airlines, Inc.

SkyWest, Inc.

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SkyWest, Inc.

444 South River Road
St. George, Utah 84790
U.S.A.
(435) 634-3000
Fax: (435) 634-3505
Web site: http://www.skywest.com

Origins in the Early 1970s

Sidney J. Atkin, Ralph Atkin’s brother and the majority whip in the Utah legislature, helped the firm gain a state grant in 1975. That grant for $15,000 helped save the company.