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 nine months ended September 30, 2009 and 2008. Also discussed is our financial position as of September 30, 2009 and December 31, 2008. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and nine months ended September 30, 2009, 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.

Overview

Through SkyWest Airlines, Inc. ("SkyWest Airlines") and Atlantic Southeast Airlines, Inc. ("ASA"), we operate the largest regional airline in the United States. As of September 30, 2009, SkyWest Airlines and ASA offered scheduled passenger and air freight service with more than 2,400 total daily departures to 209 destinations in the United States, Canada, Mexico and the Caribbean. Additionally, as of September 30, 2009, we provided ground handling services for approximately 10 other airlines throughout our system. As of September 30, 2009, we operated a combined fleet of 444 aircraft consisting of 250 50-seat Bombardier Aerospace ("Bombardier") CRJ 200 Regional Jets (the "CRJ200") (75 assigned to United Air Lines Inc. ("United"), 164 assigned to Delta Air Lines, Inc. ("Delta"), 10 assigned to Midwest Airlines, Inc. ("Midwest") and one used by SkyWest Airlines as additional maintenance spare aircraft) 109 70-seat Bombardier CRJ700 Regional Jets (the "CRJ700") (58 assigned to United and 51 assigned to Delta), 31 CRJ900s Regional Jets (the "CRJ900") (all assigned to Delta), 51 30-seat Embraer Brasilia EMB-120 turboprop aircraft (the "Brasilia turboprop") (40 assigned to United and 11 assigned to Delta), and three 66-seat Avions de Transport 72-210 turboprop aircraft (the "ATR-72 turboprops) (all assigned to Delta). As of September 30, 2009, the three ATR-72 turboprops were no longer in revenue service. We believe our success in attracting multiple contractual relationships with our major airline partners is attributable to our delivery of high-quality customer service with an all cabin-class fleet at a competitive cost structure. For the three months ended September 30, 2009, approximately 56.0% of our aggregate capacity was operated under the Delta code, approximately 42.2% was operated under the United code and approximately 1.8% was operated under the Midwest code.

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. On June 10, 2009, SkyWest Airlines and Midwest mutually agreed to terminate the service SkyWest Airlines currently provides to Midwest under an Airline Services Agreement executed by SkyWest and Midwest (the "Midwest Services Agreement"). As a result, SkyWest Airlines has agreed to remove its remaining 12 CRJ200s from Midwest service based on the following schedule: one aircraft was removed in each of June 2009 and July 2009, three aircraft were removed in October 2009, two aircraft are scheduled to be removed in November 2009, two aircraft are scheduled to be removed in December 2009 and the last three aircraft are scheduled to be removed in January 2010. As of September 30, 2009, 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 a Midwest Connect carrier in Milwaukee, operating more than 1,600 total daily flights.

ASA has been a code-share partner with Delta in Atlanta since 1984. As of September 30, 2009, ASA operated as a Delta Connection carrier in Atlanta and Cincinnati. ASA operates approximately 800 daily flights, all in the Delta Connection system.

We provide a substantial majority of the regional airline service for Delta in Atlanta and Salt Lake City. In connection with our acquisition of ASA in September 2005, we established new, separate, but substantially similar, long-term fixed-fee Delta Connection Agreements with Delta for both SkyWest Airlines and ASA. We also obtained the right to use 29 gates in the Hartsfield-Jackson International Airport located in Atlanta, from which we currently provide service to Delta. Pursuant to the terms of the Delta Connection Agreement executed by ASA and Delta, Delta has also agreed that if Delta solicits requests for proposals to fly Delta Connection regional aircraft, ASA will be permitted to bid to maintain the same percentage of total Delta Connection regional jet flights that it operated during 2007, and, if ASA does not achieve the winning bid for the proposed flying, ASA will be permitted to match the terms of the winning bid to the extent necessary for ASA to maintain the same percentage of Delta Connection regional jet flights that it operated during 2007.

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 September 30, 2009, contract flying revenue and pro-rate revenue represented approximately 93% and 7%, 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. As of September 30, 2009, essentially all of our Brasilia turboprops flown for Delta were flown under pro-rate arrangements, while approximately 55% of our Brasilia turboprops flown in the United system were flown under contractual arrangements, with the remaining 45% flown under pro-rate arrangements. During June 2009, we began flying seven CRJ200s for United under a pro-rate arrangement.

We had revenues of $637.7 million for the three months ended September 30, 2009, a 31.7% decrease, compared to revenues of $934.1 million for the three months ended September 30, 2008. We had net income of $28.6 million, or $0.50 per diluted share, for the three months ended September 30, 2009, a 9.2% increase in net income, compared to $26.2 million of net income, or $0.45 per diluted share, for the three months ended September 30, 2008.

The significant items affecting our financial performance during the three months ended September 30, 2009 are outlined below:

On June 10, 2009, SkyWest Airlines reached a mutual understanding with Midwest to terminate the service SkyWest Airlines currently provides under the Midwest Services Agreement. As a result, SkyWest Airlines agreed to remove its remaining 12 CRJ200s from Midwest service based on the following schedule: one aircraft was removed in each of June 2009 and July 2009, three aircraft were removed in October 2009, two aircraft are scheduled to be removed in November 2009, two aircraft are scheduled to be removed in December 2009 and the last three aircraft are scheduled to be removed in January 2010. Additionally, SkyWest Airlines agreed to cancel an unsecured note from Midwest in the amount of approximately $9.3 million in exchange for a $4.0 million payment from Midwest that is guaranteed by Republic Airways Holdings, Inc. The unsecured note related to certain deferred payments Midwest owed SkyWest Airlines from services provided under the Midwest Services Agreement. Because of the unique modified payment terms associated with the termination of the Midwest Service Agreement, we have not recognized revenue associated with the deferred amount. The deferred amount is scheduled to be paid to SkyWest Airlines at the rate of $400,000 per aircraft as each applicable aircraft is removed from service starting with the aircraft that were removed in October 2009. Midwest has agreed to continue to pay existing rates and charges to SkyWest Airlines as agreed to under the Midwest Services Agreement, as previously amended, until the Midwest Express aircraft are removed from service.

Our maintenance costs increased $19.8 million, or 19.9%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The increase in maintenance costs was principally due to scheduled maintenance and engine events on our aging CRJ200 and CRJ700 aircraft.

Total available seat miles ("ASMs") for the three months ended September 30, 2009 increased 5.6%, compared to the three months ended September 30, 2008, primarily as a result of delivery of 14 CRJ900s and six CRJ700s since September 30, 2008. During the three months ended September 30, 2009, we generated approximately 5.9 billion ASMs, compared to approximately 5.6 billion ASMs during the three months ended September 30, 2008.

On October 12, 2007, we announced SkyWest Airlines' plans to acquire 22 additional regional jet aircraft through 2010, 18 of which SkyWest Airlines intends to operate for United Express, as part of an aircraft transition plan. We believe this transition plan will allow United Express to remove 23 30-seat Brasilia turboprops from operation under the United Express Agreement and add 66-seat regional jet aircraft for United Express flying. Generally, the turboprop removals are intended to occur in conjunction with deliveries of new regional jet aircraft in an effort to facilitate a smooth transition in existing markets. Additionally, SkyWest Airlines exchanged four 50-seat CRJ200s for four 76-seat CRJ900s in its Delta Connection operations. On November 30, 2007, we announced that SkyWest Airlines placed a firm order for 22 aircraft with Bombardier. As of September 30, 2009, SkyWest Airlines had taken delivery of four CRJ900s and six CRJ700s under that order. SkyWest Airlines is scheduled to take delivery of the remaining 12 aircraft during the remainder of 2009 and the first quarter of 2010.

On January 9, 2009, we announced that ASA reached an agreement with Delta to operate an additional ten CRJ900s. The aircraft were previously ordered by Delta and are now being contracted for flying with ASA. As of September 30, 2009, ASA had taken delivery of all of these aircraft. ASA intends to use the aircraft as replacements for 20, 50-seat CRJ200s that are scheduled for removal from contract service between April and August 2010, which is earlier than the existing scheduled termination dates as contained in the Delta Connection Agreement.

On June 10, 2009, we announced the wind down of the Midwest Services Agreement. As a result, SkyWest Airlines agreed to remove the remaining 12 CRJ200s from Midwest service based on the following schedule: one aircraft was removed in each of June 2009 and July 2009, three aircraft were removed in October 2009, two aircraft are scheduled to be removed in November 2009, two aircraft are scheduled to be removed in December 2009 and the last three aircraft are scheduled to be removed in January 2010. We are pursuing opportunities to place these 12 aircraft into service with other major airline carriers.

SkyWest Airlines and ASA have each entered into a Delta Connection Agreement with Delta, pursuant to which SkyWest Airlines and ASA provide contract flight services for Delta. Among other provisions, those Delta Connection Agreements provide that, beginning with the third anniversary of the execution of the agreements (September 8, 2008), Delta has the right to require that certain of the contractual rates under those agreements shall not exceed the average rate of all carriers within the Delta Connection Program. In the event that the contractual rates under those agreements have not been finalized at quarterly or annual financial statement dates, we record revenues based on the prior period's approved rates, as adjusted to reflect any contract negotiations which are then ongoing. As of September 30, 2009, SkyWest Airlines and ASA had not finalized the contractual rates under their respective Delta Connection Agreements. On October 23, 2009, Delta sent letters to SkyWest Airlines and ASA requiring them to either adjust the rates payable under their respective Delta Connection Agreements or accept termination of those agreements, and notifying SkyWest Airlines and ASA of Delta's estimate of the average rates to be applied under the agreements. On October 28, 2009, SkyWest Airlines and ASA notified Delta of their election to adjust the rates payable under the Delta Connection Agreements; however, they also notified Delta of their disagreement with Delta's estimated rates and their belief that the methodology Delta used to calculate its estimated rates is inconsistent with the terms of the Delta Connection Agreements. SkyWest Airlines and ASA continue to negotiate with Delta in an effort to determine an appropriate methodology for calculating the average rates of the carriers within the Delta Connection Program. Because SkyWest Airlines and ASA have not reached an agreement with Delta regarding the final contractual rates to be established under the Delta Connection Agreements, we continue to record revenue under those agreements based on management's best estimate of the revenue that will ultimately be realized upon settlement of the contractual rates with Delta with respect to the three and nine-month periods ended September 30, 2009.

On October 16, 2009, SkyWest Airlines entered into a series of transactions with United that provide operational funding to United, extend SkyWest Airlines' existing rights to operate 40 regional jet aircraft under the United Express Agreement until the end of their current lease terms (on average 8.4 years) and create an opportunity for ASA to operate 13 regional jet aircraft as a United Express carrier. We anticipate that ASA will begin operating as a United Express carrier starting in the first quarter of 2010, and the 13 United Express regional jets to be flown by ASA will be in operation by May of 2010. We also anticipate that ASA will operate these aircraft under a capacity purchase agreement with a five-year term, and other terms which are generally consistent with the existing SkyWest Airlines United Express Agreement.

Also on October 16, 2009, SkyWest Airlines extended to United a secured term loan in the amount of $80 million. The term loan bears interest at a rate of 11%, with a ten-year amortization period. The loan is secured by certain ground equipment and airport slot rights held by United. SkyWest Airlines also agreed to defer certain amounts otherwise payable to SkyWest Airlines under the existing United Express Agreement. The maximum deferral amount is $49 million and any amounts deferred accrue a deferral fee of 8%, payable weekly. United's right to defer such payments is scheduled to terminate in ten years.

On November 4, 2009, SkyWest Airlines entered into a code-share agreement with AirTran Airways, Inc. ("AirTran"). Under the terms of the code-share agreement, SkyWest Airlines has agreed to operate five CRJ200s for AirTran under a pro-rate arrangement. We anticipate that SkyWest Airlines will commence AirTran service with two aircraft in December 2009 and will add three additional aircraft in early 2010. 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.

Critical Accounting Policies

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements, which are presented in our Annual Report on Form 10-K for the year ended December 31, 2008. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require 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, aircraft 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 September 30, 2009 and 2008



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 September 30,
                                                   2009             2008           % Change
Revenue passenger miles (000)                      4,835,887        4,435,755             9.0
Available seat miles ("ASMs") (000)                5,945,686        5,629,121             5.6
Block hours                                          359,573          348,522             3.2
Departures                                           230,823          225,253             2.5
Passengers carried                                 9,477,672        8,738,704             8.5
Passenger load factor                                   81.3 %           78.8 %           2.5 pts
Revenue per available seat mile                         10.7 ¢           16.6 ¢         (35.5 )
Cost per available seat mile                            10.0 ¢           15.9 ¢         (37.1 )
Fuel cost per available seat mile                        1.0 ¢            6.5 ¢         (84.6 )
Average passenger trip length (miles)                    510              508             0.4

Revenues. Operating revenues decreased $296.4 million, or 31.7%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. 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 ASA Delta Connection Agreements, 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 September 30,
                                         2009           2008        $ Change      % Change
Passenger revenues                    $   629,955    $  926,193    $  (296,238 )     (32.0 )%
Less: Fuel reimbursement from
major partners                             51,599       353,154       (301,555 )     (85.4 )%
Less: Engine overhaul
reimbursement from major partners          32,952        32,632            320         1.0 %
Passenger revenue excluding fuel
and engine overhaul reimbursements    $   545,404    $  540,407    $     4,997         0.9 %

Passenger revenues. Passenger revenues decreased $296.2 million, or 32.0%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The decrease in passenger revenues was primarily due to a decrease in fuel reimbursements from our major partners. The fuel reimbursement from our major partners decreased $301.6 million or 85.4%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. Our passenger revenues, excluding fuel and engine overhaul reimbursements from major partners, increased $5.0 million, or 0.9%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The increase in passenger revenues, excluding fuel and engine overhaul reimbursements, was less than the corresponding percentage increase in ASMs, primarily due to two factors. First, Delta transitioned 23 stations from SkyWest Airlines and ASA to other ground handlers during the second quarter of 2009 which decreased our passenger revenues. Second, operating efficiencies obtained by adding incremental aircraft under our contract flying arrangements, were factored into our contractual rates and our passenger revenues, which resulted in a reduction to our revenue per ASM..

Ground handling and other. Total ground handling and other revenues decreased $0.1 million, or 1.6%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. Revenue earned under other ground handling contracts where we provide ground handling services for other airlines is presented in the "Ground handling and other" line in our condensed consolidated statements of income.

Individual expense components are 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 underlying driver of our operating costs, presentation of information on a cost per ASM basis is intended to identify significant changes in our costs not proportionate to the relative changes in our fleet size (dollar amounts in thousands).

                                              For the three months ended September 30,
                                                                                    2009        2008
                                 2009         2008       $ Change     % Change    Cents Per   Cents Per
                                Amount       Amount       Amount      Percent        ASM         ASM
Aircraft fuel                 $   61,842   $  363,735   $  (301,893 )    (83.0 )%       1.0         6.5
Salaries, wages and
benefits                         175,552      182,103        (6,551 )     (3.6 )%       2.9         3.2
Aircraft maintenance,
materials and repairs            119,055       99,294        19,761       19.9 %        2.0         1.8
Aircraft rentals                  76,189       74,318         1,871        2.5 %        1.3         1.3
Depreciation and
amortization                      55,461       55,141           320        0.6 %        0.9         1.0
Station rentals and landing
fees                              27,500       33,923        (6,423 )    (18.9 )%       0.5         0.6
Ground handling services          23,538       25,107        (1,569 )     (6.2 )%       0.4         0.4
Other airline expense             35,358       40,232        (4,874 )    (12.1 )%       0.6         0.7
Total operating expenses         574,495      873,853      (299,358 )    (34.3 )%       9.6        15.5
Interest expense                  21,149       23,872        (2,723 )    (11.4 )%       0.4         0.4
Total airline expenses        $  595,644   $  897,725      (302,081 )    (33.6 )%      10.0        15.9

Fuel. Fuel costs decreased $301.9 million, or 83.0%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The average cost of fuel decreased to $2.23 per gallon during the three months ended September 30, 2009 from $3.92 per gallon during the three months ended September 30, 2008. In addition to the decrease in the average cost per gallon of fuel, during the three months ended September 30, 2009 United purchased fuel directly from a fuel vendor for our United Express aircraft under contract operated out of Chicago, San Francisco, Los Angeles and Denver; Midwest purchased all of the fuel for our Midwest aircraft directly from Midwest's fuel vendors and Delta purchased the majority of the fuel for our Delta aircraft under contract directly from its fuel vendors. These modifications reduced our total fuel costs, as well as our passenger revenues for the three months ended September 30, 2009. During the three months ended September 30, 2008, we purchased the fuel for all of our Delta Connection flights. The following table summarizes the gallons of fuel we purchased directly, and the percentage change in fuel price per gallon on our fuel expense, for the periods indicated:

                                                For the three months ended September 30,
(in thousands, except per gallon amounts)       2009              2008            % Change
Fuel gallons purchased                             27,754             92,903            (70.1 )%
Average price per gallon                    $        2.23    $          3.92            (43.1 )%
Fuel expense                                $      61,842    $       363,735            (83.0 )%

Salaries Wages and Employee Benefits. Salaries, wages and employee benefits decreased $6.6 million, or 3.6%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The average number of full-time equivalent employees decreased 11.3% to 12,227 for the three months ended September 30, 2009, from 13,784 for the three months ended September 30, 2008. The decrease in number of employees was significantly due to a reduction in our customer service employees resulting from Delta transitioning 23 stations from SkyWest Airlines and ASA to other ground handlers during the second quarter of 2009.

Aircraft maintenance, materials and repairs. Maintenance costs increased $19.8 million, or 19.9%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. 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 three months ended September 30,
                                            2009           2008         $ Change     % Change
Aircraft maintenance, materials and
repairs                                 $    119,055    $    99,294    $   19,761        19.9 %
Less: Engine overhaul reimbursed
from major partners                           32,952         32,632           320         1.0 %
Less: CRJ 200 engine overhauls
reimbursed at fixed hourly rate               15,346          2,123        13,223       622.8 %
Aircraft maintenance excluding
reimbursed engine overhauls and CRJ
200 engine overhauls reimbursed at
fixed hourly rate                       $     70,757    $    64,539    $    6,218         9.6 %

Aircraft maintenance expense excluding reimbursed engine overhauls and CRJ 200 engine overhauls reimbursed at fixed hourly rate, increased $6.2 million, or 9.6%, during the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The increase in aircraft maintenance expenses excluding engine overhauls reimbursed from major partners was principally due to . . .