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SKYWEST, INC. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File No. 0-14719

SKYWEST, INC.

444 South River Road
St. George, Utah 84790
(435) 634-3000

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, No Par Value

        Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. Yes ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        The aggregate market value of Common Stock held by non-affiliates (based upon the closing sale price of the Common Stock on the NASDAQ National Market System) on June 30, 2004 was approximately $929,381,560.

        As of March 8, 2005, there were 57,669,086 shares of Common Stock outstanding.

Documents Incorporated by Reference

        Portions of the Registrant's Proxy Statement to be used in connection with the solicitation of proxies in connection with the Registrant's 2005 Annual Meeting of Shareholders are incorporated by reference in Part III as specified.

SKYWEST, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

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Forward-Looking Statements

        In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements. SkyWest, Inc. (the "Company") may, from time to time, make written or oral forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements encompass the Company's beliefs, expectations, hopes or intentions regarding future events. Words such as "expects," "intends," "believes," "anticipates," "should," "likely" and similar expressions identify forward-looking statements. All forward-looking statements included in this Annual Report on Form 10-K are made as of the date hereof and are based on information available to the Company as of such date. The Company assumes no obligation to update any forward-looking statement. Actual results will vary, and may vary materially, from those anticipated, estimated, projected or expected for a number of reasons, including, among others: developments associated with fluctuations in the economy and the demand for air travel; bankruptcy proceedings involving United Airlines, Inc.; ongoing negotiations between the Company and its major partners regarding their contractual relationships; variations in market and economic conditions; employee relations and labor costs; the degree and nature of competition; the Company's ability to expand services in new and existing markets and to maintain profit margins in the face of pricing pressures; and other unanticipated factors. Risk factors, cautionary statements and other conditions which could cause actual results to differ from the Company's current expectations are contained in the Company's filings with the Securities and Exchange Commission, including the section of this Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Results."

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PART I

ITEM 1. BUSINESS

General

        The Company, through its wholly-owned subsidiary, SkyWest Airlines, Inc. ("SkyWest"), operates one of the larger independent regional airlines in the United States. SkyWest offers scheduled passenger and air freight service with approximately 1,500 daily departures to 117 cities in 31 states and three Canadian provinces. Additionally, SkyWest provides customer handling services for approximately ten other airlines throughout SkyWest's system. SkyWest has been a partner with Delta Air Lines, Inc. ("Delta") in Salt Lake City and United Airlines, Inc. ("United") in Los Angeles since 1987 and 1997, respectively. In 1998, SkyWest expanded its relationship with United to provide service in Portland, Seattle/Tacoma, San Francisco and additional Los Angeles markets. In 2001, SkyWest expanded its operations to serve as the Delta Connection in Dallas/Fort Worth. However, effective January 31, 2005, SkyWest re-deployed all its Delta Connection flights to Salt Lake City as a result of Delta's decision to "de-hub" its Dallas/Fort Worth operations. In April 2003, SkyWest signed an agreement with Continental Airlines, Inc. ("Continental") to supply Continental with regional airline feed into Continental's Houston hub effective on July 1, 2003. In January 2005, SkyWest and Continental announced their mutual decision to end SkyWest's operation as a Continental Connection carrier not later than June, 2005. In 2004, SkyWest expanded its United Express operations to provide service in Chicago. Today, SkyWest operates as a Delta Connection carrier in Salt Lake City and as a United Express carrier in Los Angeles, San Francisco, Denver, Chicago and the Pacific Northwest. SkyWest believes its success in attracting multiple contractual relationships with major airline partners is attributable to its delivery of high-quality customer service with an all cabin-class fleet at a competitive cost structure. As of December 31, 2004, approximately 40% of SkyWest's capacity (measured in available seat miles or "ASMs") was operated under the Delta code, approximately 59% was operated under the United code and approximately 1% was operated under the Continental code. As of December 31, 2004, SkyWest's fleet consisted of 137 Canadair regional jets (77 United, 56 Delta and four SkyWest spares) and 73 Embraer EMB-120 Brasilia turboprops ("EMB-120") (50 United, 14 Delta and nine Continental).

        Historically, multiple contractual relationships have enabled SkyWest to reduce reliance on any single major airline code and to enhance and stabilize operating results through a mix of SkyWest-controlled or "prorate" flying and contract flying. On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and SkyWest is compensated by the major airline partner at contracted rates based on completed block hours, flight departures and other operating measures. On prorate flights, SkyWest controls scheduling, ticketing, pricing and seat inventories and receives a prorated portion of passenger fares. As of March 1, 2005, essentially all of the Company's EMB120s flown for Delta and Continental were flown under prorate arrangements. As of March 1, 2005 approximately 92% of the Company's EMB120s flown in the United system were flown under contractual arrangements, with the remaining eight percent flown under prorate arrangements.

        On September 15, 2003, the Company announced the completion of a firm order for 30, 70-seat Bombardier Canadair CRJ700 regional jets ("CRJ700s") for its United Express operations. On February 10, 2004, the Company amended the order to include ten additional 50-seat, Bombardier Canadair CRJ200 regional jets ("CRJ200s") and two additional CRJ700s, bringing the total order for the Company's United Express operations to 32 CRJ700s and ten CRJ200s. The Company began taking delivery of these aircraft in January 2004 and has scheduled delivery of the remaining aircraft covered by the order through May 2005. The Company's firm aircraft orders, as of December 31, 2004, consisted of orders for 20, CRJ700s scheduled for delivery through May 2005. Gross committed expenditures for these aircraft and related equipment, including estimated amounts for contractual price escalations are estimated to be approximately $500 million through May 2005. Additionally, the

4

Company's agreement with Bombardier, Inc. includes options for another 80 aircraft that can be delivered in either 70 or 90-seat configurations. The Company presently anticipates that delivery dates for these aircraft could start in June 2005 and continue through September 2008; however, actual delivery dates remain subject to final determination as agreed upon by the Company and United.

        In December 2002, United filed for reorganization under Chapter 11 of the United States Bankruptcy Code. During September 2003, the Company and United entered into a "United Express Agreement," which sets forth the principal terms and conditions governing the Company's United Express operations. The United Express Agreement received all necessary approvals from the U.S. Bankruptcy Court, creditors' committee operating on behalf of United under bankruptcy protection and United's pilot union. Under the terms of the United Express Agreement, the Company is compensated primarily on a fee-per-completed-block hour and departure basis, plus a margin based on performance incentives, and reimbursed for fuel and other costs. Notwithstanding the execution of the United Express Agreement, United's bankruptcy filing could still lead to many other unforeseen expenses, risks and uncertainties. Although United has reported that it intends to emerge from its ongoing Chapter 11 bankruptcy, it could still file for liquidation under Chapter 7 of the United States Bankruptcy Code, or liquidate some or all of its assets through one or more transactions with third parties. Such events, individually or singly, could jeopardize the Company's United Express operations, leave the Company unable to efficiently utilize the additional aircraft which the Company is currently obligated to purchase, or result in other outcomes which could have a material adverse effect on the operations, activities or financial condition of the Company.

Available Information

        The Company files annual, quarterly and current reports and other information with the Securities and Exchange Commission (the "SEC" or the "Commission"). These materials can be inspected and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of these materials may also be obtained by mail at prescribed rates from the SEC's Public Reference Room at the above address. Information about the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC's Internet site is www.sec.gov.

        The Company maintains an Internet web site at www.skywest.com. The Company currently makes its most recent annual report to shareholders available through its web site and provides a link to the SEC's web site, through which the Company's annual, quarterly and current reports, as well as amendments to those reports, are available. In addition, the Company provides electronic or paper copies of its filings free of charge upon request.

Markets and Routes

        SkyWest's flight schedules are structured to facilitate the connection of its passengers with flights of its major partners at the airports it serves. The following table shows selected information about the cities served by SkyWest as of December 31, 2004.

5

6

7

(1)

Refers to the calendar year service was initiated.

(2)

Service is provided on a seasonal basis.

8

Government Regulation

        All interstate air carriers, including SkyWest, are subject to regulation by the U.S. Department of Transportation ("DOT"), the Federal Aviation Administration ("FAA") and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight, maintenance or operating activities; record-keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. Generally, governmental agencies enforce their regulations through, among other mechanisms, certifications, which are necessary for SkyWest's continued operations, and proceedings, which can result in civil or criminal penalties or revocation of operating authority. The FAA can also issue maintenance directives and other mandatory orders relating to, among other things, grounding of aircraft, inspection of aircraft, installation of new safety-related items and the mandatory removal and replacement of aircraft parts.

        SkyWest believes it is operating in compliance with FAA regulations and holds all necessary operating and airworthiness certificates and licenses. The Company incurs substantial costs in maintaining current certifications and otherwise complying with the laws, rules and regulations to which it is subject. SkyWest's flight operations, maintenance programs, record keeping and training programs are conducted under FAA approved procedures. SkyWest does not operate at any airports where landing slots are restricted.

        All air carriers are required to comply with federal laws and regulations pertaining to noise abatement and engine emissions. All air carriers are also subject to certain provisions of the Federal Communications Act of 1934, as amended, because of their extensive use of radio and other communication facilities. The Company is also subject to certain other federal and state laws relating to protection of the environment, labor relations and equal employment opportunity. Management believes that the Company is in compliance in all material respects with these laws and regulations.

Competition and Economic Conditions

        The airline industry is highly competitive. The Company competes with several other regional airlines, some of which are owned or operated by the Company's major partners. The Company's major competitors are Atlantic Southeast Airlines, Comair Airlines, Air Wisconsin Airlines, Mesa Airlines, Republic Airlines, Transtates Airlines and Express Jet. The Company's major partners award contracts to these regional airlines based upon but not limited to the following criteria; low cost, financial resources, overall customer service levels relating to on-time arrival and departure statistics, cancellation of flights and lost baggage claims and the overall image of the regional airline as a whole. The principal competitive factors on the Company's prorate flying are fare pricing, customer service, routes served, flight schedules, aircraft types and relationships with the Company's major partners.

        Generally, the airline industry is highly sensitive to general economic conditions, in large part due to the discretionary nature of a substantial percentage of both business and leisure travel. Many airlines have reported decreased earnings or substantial losses resulting from periods of economic recession, heavy fare discounting, high fuel use or other factors. Economic downturns combined with competitive pressures have contributed to a number of bankruptcies among major carriers. In addition, if the Company's major partners experience longer-term declines in passenger loads or are affected adversely by decreased ticket prices, increased fuel prices or other factors, they will likely seek to reduce the Company's contracted rates, adjust other terms of the Company's relationships or cancel Company flights in order to reduce their costs.

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Employees

        As of December 31, 2004, the Company employed 6,747 full-time equivalent employees consisting of 2,746 pilots and flight attendants, 2,879 customer service personnel, 701 mechanics and other maintenance personnel, and 421 administration and support personnel. The Company's employees are not currently represented by any union. The Company is aware, however, that collective bargaining group organization efforts among its employees occur from time to time and management anticipates that such efforts will continue in the future. During 2004, the question of whether or not to join an officially recognized union was submitted to the Company's pilots, who voted against the resolution. Under governing rules, the Company's pilots may again vote on this issue at any time because one year has passed since the previous vote. If unionization efforts are successful, the Company may be subjected to risks of work interruption or stoppage and/or incur additional expenses associated with union representation of its employees. In connection with the Company's proposed acquisition of additional CRJ700s and related expansion, the Company anticipates hiring approximately 750 additional employees, many of whom may be represented by a union in their existing or prior employment. The Company has never experienced any work stoppages and considers its relationships with its employees to be good.

Seasonality

        The Company's results of operations for any interim period are not necessarily indicative of those for the entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. SkyWest's operations are somewhat favorably affected by increased travel on its prorate routes, historically occurring in the summer months, and are unfavorably affected by decreased business travel during the months from November through January and by inclement weather which occasionally results in cancelled flights, principally during the winter months.

Factors that May Affect Future Results

        The actual results of the Company's operations will vary, and may vary materially, from those currently anticipated, estimated, projected or expected by the Company. Among the key factors that may have a direct bearing on the Company's operating results and financial condition are those set forth in the following paragraphs.

The Company will be materially affected by the uncertainty of the airline industry

        The airline industry has experienced tremendous challenges in recent years and will likely remain volatile for the foreseeable future. Among other factors, the events associated with September 11, 2001, the slowing U.S. economy throughout 2003 and 2004 and increased hostilities in Iraq, the Middle East or other regions have significantly affected, and are likely to continue to affect, the U.S. airline industry. These events have resulted in changed government regulation, declines and shifts in passenger demand, increased insurance costs and tightened credit markets, all of which have affected, and will continue to affect, the operations and financial condition of participants in the industry including the Company, major carriers (including the Company's major partners), competitors and aircraft manufacturers. These industry developments raise substantial risks and uncertainties which will affect the Company, major carriers (including the Company's major partners), competitors and aircraft manufacturers in ways that the Company is not currently able to predict.

The Company has been, and will continue to be, significantly impacted by the troubled financial condition of its major partners

        In December 2002, United filed for reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). During September 2003, the Company entered into the

10

United Express Agreement, which had been previously approved on August 29, 2003 by the U.S. Bankruptcy Court. The United Express Agreement received all necessary approvals from the creditors' committee operating on behalf of United under bankruptcy protection and United's pilot union. Notwithstanding the execution of the United Express Agreement, United's bankruptcy filing could still lead to many other unforeseen expenses, risks and uncertainties. Although United has reported that it intends to emerge from its ongoing Chapter 11 bankruptcy, it could still file for liquidation under Chapter 7 of the Bankruptcy Code, or liquidate some or all of its assets through one or more transactions with third parties. Such events, individually or singly, could jeopardize the Company's United Express operations, leave the Company unable to efficiently utilize the additional aircraft which the Company is currently obligated to purchase, or result in other outcomes which could have a material adverse effect on the operations, activities or financial condition of the Company.

        In recent months, Delta has indicated the possibility of seeking protection under the Bankruptcy Code unless it achieves a more competitive cost structure, regains profitability and obtains further access to capital markets on acceptable terms. If Delta were to file for protection under the Bankruptcy Code, the Company's Delta Connection operations could be jeopardized. Such an event could leave the Company unable to utilize existing aircraft or result in other outcomes which could have a material adverse effect on the operations, activities or financial condition of the Company.

The Company's operations and financial condition are dependent upon the terms of its relationships with its major partners

        Substantially all of the Company's revenues are derived from flight operations conducted under its agreements with Delta and United. Any material change in the Company's contractual relationships with its major partners would impact the Company's operations and financial condition. The Company's major partners currently face significant economic, operational, financial and competitive challenges. United's bankruptcy filing and associated reorganization effort represents only a portion of those challenges. As the Company's major partners struggle to address such challenges, they have required, and will likely continue to require, the Company's participation in efforts to reduce costs and improve the financial position of the Company's partners. In particular, these challenges could translate into lower departure rates on the contract flying portion of the Company's business. Management believes these developments will impact many aspects of the Company's operations and financial performance. In particular, the Company anticipates that its financial performance, including its margins, will be less predictable than in prior periods and will be negatively impacted as the industry experiences significant restructuring. In addition, the Company's contract flying arrangements with Delta and United contain termination provisions that could adversely impact the Company's revenues. The Company's rights under the United Express Agreement expire incrementally between 2012 and 2016; however, United can terminate the agreement at any time without notice if the Company does not perform at certain levels. The Company's current Delta Connection agreement expires in 2010; however, Delta can terminate the agreement at any time without cause upon 180 days notice.

Maintenance costs will likely increase as the age of the Company's regional jet fleet increases

        Because the average age of SkyWest's CRJ700s and CRJ200s is approximately 0.4 and 2.8 years, respectively, SkyWest's CRJ fleet requires less maintenance now than it will in the future. The Company has incurred relatively low maintenance expenses on its regional jet fleet because most of the parts on SkyWest's regional jet aircraft are under multi-year warranties and a limited number of heavy airframe checks and engine overhauls have occurred. The Company's maintenance costs will increase significantly, both on an absolute basis and as a percentage of its operating expenses, as SkyWest's fleet ages and these warranties expire. Under the Company's United Express Agreement, specific amounts are included in the rates for maintenance on CRJ200 engines. The actual cost of maintenance on CRJ200 engines may vary from the estimated rates (see Management's Discussion and Analysis).

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The Company has a significant amount of contractual obligations which could have a material adverse effect on the Company's operations and financial condition.

        As of December 31, 2004, the Company had $495.8 million in total long-term debt obligations. Substantially all of this long-term debt was incurred in connection with the acquisition of EMB120 and CRJ200 aircraft. The Company also has significant long-term lease obligations primarily relating to its aircraft fleet. These leases are classified as operating leases and therefore are not reflected as liabilities in the Company's condensed consolidated balance sheets. At December 31, 2004, the Company had 153 aircraft under lease with remaining terms ranging from one to 18 years. Future minimum lease payments due under all long-term operating leases were approximately $2.10 billion at December 31, 2004. At a 7% discount factor, the present value of these lease obligations was equal to approximately $1.40 billion at December 31, 2004.

        As of December 31, 2004, the Company had commitments of approximately $500 million to purchase 20, CRJ700 aircraft and related flight equipment. The Company currently anticipates that it will take delivery of these aircraft from January 2005 through May 2005. Additionally, during the quarter ended March 31, 2004, Delta awarded to the Company seven additional CRJ200s that are scheduled for delivery during the first half of 2005. The Company anticipates subleasing these seven aircraft from Delta. The Company's high level of fixed obligations could impact its ability to obtain additional financing to support additional expansion plans or divert cash flows from operations and expansion plans to service the fixed obligations.

Terrorist activities or warnings have dramatically impacted, and will likely continue to impact, the Company

        The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the airline industry in general and the Company's operations in particular. The primary effects experienced by the airline industry include a substantial loss of passenger traffic and revenue, increased security and insurance costs, increased concerns about future terrorist attacks, airport delays due to heightened security and significantly reduced yields due to the drop in demand for air travel.

        Additional terrorist attacks, the fear of such attacks, the war in Iraq, other hostilities in the Middle East or other regions, as well as other factors, could negatively impact the airline industry, and result in further decreased passenger traffic and yields, increased flight delays or cancellations associated with new government mandates, as well as increased security, fuel and other costs. The Company cannot provide any assurance that these events will not harm the airline industry generally or the Company's operations or financial condition in particular.

The Company's reliance on only three aircraft types exposes the Company to a number of potentially significant risks

        As of December 31, 2004, the Company had a fleet of 73 EMB120s, 125 CRJ200s and 12 CRJ700s. As of December 31, 2004, 75.5% of the Company's ASMs were flown using CRJ200s, 12.7% of the Company's ASMs were flown using EMB120s and 11.8% of the Company's ASMs were flown using CRJ700s. Additionally, as of December 31, 2004, the Company had agreements to acquire 20 CRJ700s and had obtained options to acquire another 80 CRJ700s that can be delivered in either 70 or 90 seat configurations. The Company presently anticipates that delivery dates for the 80 optioned CRJ700s could start in June 2005 and continue through September 2008; however, actual delivery dates remain subject to final determination as agreed upon by the Company and its major partners. The Company is subject to numerous risks related to the concentration of aircraft types in its current fleet that could materially or adversely affect its operations or financial condition, including:

•

the breach by Bombardier, Inc. of the Company's firm order contracts for the delivery of CRJ700s and CRJ200s or any change in the delivery schedule of such CRJ700s;

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•

the interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for such aircraft;



•

the issuance of FAA directives restricting or prohibiting the use of EMB120s, CRJ200s or CRJ700s; or,



•

the adverse public perception of an aircraft type as a result of an accident or other adverse publicity.

Unionization of the Company's employees could impact the Company's business

        The employees of the Company are not currently represented by any union; however, collective bargaining group organization efforts among the Company's employees occur from time to time and management expects that such efforts will continue in the future. In particular, the Company's management anticipates that unionization efforts may increase if the Company continues to grow and the number of former union employees employed by the Company increases. If unionizing efforts are successful, the Company may be subjected to risks of work interruption or stoppage and/or incur additional administrative expenses associated with union representation. Management recognizes that such efforts will likely continue in the future and may ultimately result in some or all of the Company's employees being represented by a union.

The Company is subject to significant governmental regulation

        All interstate air carriers, including SkyWest, are subject to regulation by the DOT, the FAA and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight, maintenance or operation activities; record keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. The Company cannot predict whether it will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not have a material adverse effect on the Company's operations.

The occurrence of an aviation accident would negatively impact the Company's operations and financial condition

        An accident or incident involving one of the Company's aircraft could involve repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service, as well as significant potential claims of injured passengers and others. The Company is required by the DOT to carry liability insurance. In the event of an accident, the Company's liability insurance may not be adequate and the Company may be forced to bear substantial losses from the accident. Substantial claims resulting from an accident in excess of the Company's related insurance coverage would harm operational and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that the Company is less safe or reliable than other airlines.

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ITEM 2. PROPERTIES

Flight Equipment

        As of December 31, 2004, SkyWest owned or leased the following types of aircraft:

        SkyWest's aircraft are turboprop and regional jet aircraft designed to operate more economically over short-haul routes with lower passenger load factors than larger jet aircraft. These factors make it economically feasible for SkyWest to provide high frequency service in markets with relatively low volumes of passenger traffic. Passenger comfort features of these aircraft include stand-up headroom, a lavatory, overhead baggage compartments and flight attendant service. Fiscal year 1995 marked the introduction of the CRJ200s. As of December 31, 2004, SkyWest operated 121 of 125 of these aircraft on stage lengths up to approximately 500 miles. During 2004, the Company introduced the CRJ700. As of December 31, 2004, SkyWest operated these 12 CRJ700s on stage lengths up to approximately 800 miles.

        The Company's firm aircraft orders, as of December 31, 2004, consisted of orders for 20, 70-seat CRJ700s scheduled for delivery through May 2005. Gross committed expenditures for these aircraft and related equipment, including estimated amounts for contractual price escalations will be approximately $500 million from January 2005 through May 31, 2005. The Company has also obtained options for another 80 aircraft that can be delivered in either 70 or 90 seat configurations. The Company presently anticipates that delivery dates for these aircraft could start in June 2005 and continue through September 2008; however, actual delivery dates remain subject to final determination as agreed upon by the Company and United.

        The Company's total long-term debt at December 31, 2004 was $495.8 million, of which $487.9 million related to the acquisition of EMB120 and CRJ200 aircraft and $7.9 million related to the acquisition of the Company's corporate office building. The average effective rate on the debt related to the EMB120 and CRJ200 aircraft of $487.9 million was approximately 4.4% at December 31, 2004.

        As part of the Company's leveraged lease agreements, the Company typically indemnifies the equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership of the respective leased aircraft.

Ground Facilities

        Employees of SkyWest perform substantially all routine airframe and engine maintenance and periodic inspection of equipment. Maintenance is performed primarily at facilities in Palm Springs, California; Salt Lake City, Utah; and Fresno, California. SkyWest owns or leases the following properties:

•

SkyWest owns a 56,600 square foot maintenance facility in Palm Springs, California.



•

SkyWest leases a 90,000 square foot aircraft maintenance and training facility at the Salt Lake City International Airport. The Salt Lake City facility consists of 40,000 square feet of maintenance facilities and 50,000 square feet of training and other facilities. The Salt Lake City facility was originally constructed by the Company and sold to and leased back from the Salt

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Lake City Airport Authority. SkyWest is leasing the facility under an operating lease arrangement over a 36-year term.

•

SkyWest leases a 90,000 square foot maintenance hanger and a 15,000 square foot office facility in Fresno, California.



•

SkyWest leases a 28,000 square foot maintenance hanger in Tucson, Arizona.



•

SkyWest leases a 131,300 square feet facility [at Salt Lake International Airport]. This facility consists of a 58,400 square foot maintenance hangar and 72,900 square feet of training and office space. In January 2002, the Company entered into a sale lease-back agreement with the Salt Lake Airport Authority. Under the agreement, the Company received approximately $18 million in cash in exchange for the newly constructed facility and entered into a 26 year operating lease agreement. The sales price was equal to the construction costs and no gain or loss was recognized.



•

SkyWest leases ticket counters, check-in and boarding and other facilities in the passenger terminal areas in the majority of the airports it serves and staffs these facilities with SkyWest personnel. Delta and United provide ticket handling and/or ground support services for SkyWest in 79 of the 117 airports SkyWest serves.



•

SkyWest owns its corporate headquarters located in a 63,000 square foot building and a newly constructed 55,000 square foot building in St. George, Utah. The newly constructed facility is adjacent to the old office building and includes office space for maintenance management and flight operations including pilot management, dispatch and flight attendant management. Both facilities were internally funded with cash generated from operations and were subsequently refinanced with third-party debt.

        Management deems the Company's current facilities as being suitable and necessary to support existing operations and believes the Company's facilities will be adequate for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

        The Company is subject to certain legal actions which it considers routine to its business activities. As of December 31, 2004, management believes, after consultation with legal counsel, that the ultimate outcome of such legal matters are not likely to have a material adverse effect on the Company's financial position, liquidity or results of operations. The most significant of these matters is as follows:

Michaelena Fitz-Gerald, Romead Neilson, et al., v. SkyWest Airlines, Inc.

        In July 2003, two former employees of SkyWest commenced litigation in the Superior Court of Santa Barbara, California, alleging violation of minimum wage, meal and rest break, and overtime regulations, as well as violations of the California Labor Code and Business and California Professions Code. In addition to their own claims, the plaintiffs have pled the case as a class action on behalf of all current and former flight attendants based in California since July 1999, but had not obtained class certification as of March 10, 2005. The plaintiffs are seeking monetary damages as compensation for their grievances. The Company and the plaintiffs have engaged in discovery and unsuccessfully attempted to mediate a settlement without reaching a mutually acceptable result. The Company is vigorously opposing the plaintiffs' claims. Because the amount of a potential loss, if any, resulting from the outcome of the forgoing case is neither probable nor reasonably estimable, no amounts related to such have been recorded in the Company's condensed consolidated financial statements.

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Securities and Exchange Commission

        Effective January 1, 2002, the Company changed its method of accounting for CRJ200 engine overhaul expenses. In connection with the change in accounting method, the Company restated its financial statements for the year ended December 31, 2001 and the first and second quarters of the year ended December 31, 2002. The restated financial information, together with a discussion of the change in accounting method, was presented in the Company's Amendment No. 1 on Form 10-K/A for the year ended December 31, 2001 and Amendments No. 1 on Forms 10-Q/A for the quarters ended June 30, 2002 and June 30, 2002. The staff of the Securities and Exchange Commission is investigating facts pertaining to the Company's change in accounting method and other changes presented in the restatement of the Company's financial statements. During the spring of 2004, the staff and counsel for the Company and its officers engaged in discussions regarding potential resolution of the investigation. Those discussions have not resolved the investigation and the staff has continued the investigation. The Company and its officers intend to continue to cooperate with the staff in the investigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2004.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price for the Company's Common Stock

        The Company's common stock is traded on the Nasdaq National Market under the symbol "SKYW." At March 8, 2005, there were approximately 1,248 stockholders of record. Securities held of record do not include shares held in securities position listings. The following table sets forth the range of high and low closing sales prices for the Company's common stock, during the periods indicated.

        The transfer agent for the Company's common stock is Zions First National Bank, Salt Lake City, Utah.

Dividends

        During 2004 and 2003, the Board of Directors declared regular quarterly dividends of $0.03 and $0.02 per share respectively. On November 3, 2004, the Company's Board of Directors declared a regular quarterly cash dividend of $0.03 per share payable to stockholders of record on December 31, 2004 and paid the dividend on January 5, 2005.

Securities Authorized for Issuance Under Equity Compensation Plans

        The following table contains information regarding the Company's equity compensation plans as of December 31, 2004.

(1)

Consists of the Company's Executive Stock Incentive Plan and the Company's All Share Stock Option Plan. See Note 5 to the Company's Consolidated Financial Statements for the fiscal year ended December 31, 2004, included in Item 8 of this Report, for additional information regarding these plans.

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ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

        The following selected financial and operating data of the Company should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's consolidated financial statements and related notes included elsewhere in this Report.

Selected Consolidated Financial Data (amounts in thousands, except per share data):

(1)

Calculated by dividing net income by the average of beginning and ending stockholders' equity for the year

Selected Operating Data

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Quarterly Financial Data

        The following terms used in this section and elsewhere in this Report have the meanings indicated below:

        "Revenue passenger miles" represents the number of miles flown by revenue passengers.

        "Available seat miles" represents the number of seats available for passengers multiplied by the number of miles the seats are flown.

        "Load factor" represents the percentage of aircraft seating capacity that is actually utilized (revenue passenger miles divided by available seat miles).

        "Breakeven load factor" is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses.

        "Yield per passenger mile" represents the average amount one passenger pays to fly one mile.

        "Passenger revenue per available seat mile" represents passenger revenue divided by available seat miles.

        "Operating cost per available seat mile" represents operating expenses plus interest divided by available seat miles.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        The Company, through its wholly-owned subsidiary, SkyWest, operates one of the larger independent regional airlines in the United States. SkyWest offers scheduled passenger and air freight service with approximately 1,500 daily departures to 117 cities in 31 states and three Canadian provinces. Additionally, SkyWest provides customer handling services for approximately ten other airlines throughout SkyWest's system. SkyWest has been a partner with Delta in Salt Lake City and United in Los Angeles since 1987 and 1997, respectively. In 1998, SkyWest expanded its relationship with United to provide service in Portland, Seattle/Tacoma, San Francisco and additional Los Angeles markets. In 2001, SkyWest expanded its operations to serve as the Delta Connection in Dallas/Fort Worth. However, effective January 31, 2005, SkyWest re-deployed all its Delta Connection flights to Salt Lake City as a result of Delta's decision to "de-hub" its Dallas/Fort Worth operations. In April 2003, SkyWest signed an agreement with Continental to supply Continental with regional airline feed into Continental's Houston hub effective on July 1, 2003. In January 2005, SkyWest and Continental announced their mutual decision to end SkyWest's operations as a Continental Connection carrier not later than June, 2005. In 2004, SkyWest expanded its United Express operations to provide service in Chicago. Today, SkyWest operates as a Delta Connection carrier in Salt Lake City and as a United Express carrier in Los Angeles, San Francisco, Denver, Chicago and the Pacific Northwest. SkyWest believes its success in attracting multiple contractual relationships with major airline partners is attributable to its delivery of high-quality customer service with an all cabin-class fleet at a competitive cost structure. As of December 31, 2004, approximately 40% of SkyWest's capacity (measured in ASMs) was operated under the Delta code, approximately 59% was operated under the United code and approximately 1% was operated under the Continental code. As of December 31, 2004, SkyWest operated a fleet of 73 EMB120s, (50 United, 14 Delta and nine Continental), 121 CRJ200s (65 United, 56 Delta with four SkyWest spares), and 12 CRJ 700s with United.

        Historically, multiple contractual relationships have enabled SkyWest to reduce reliance on any single major airline code and to enhance and stabilize operating results through a mix of SkyWest-controlled or "prorate" flying and contract flying. On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and SkyWest is compensated by the major airline partner at contracted rates based on the completed block hours, flight departures and other operating measures. On prorate flights, SkyWest controls scheduling, ticketing, pricing and seat inventories and receives a prorated portion of passenger fares. As of March 1, 2005, essentially all of the Company's EMB120s flown for Delta and Continental were flown under prorate arrangements. As of March 1, 2005, approximately 92% of the Company's EMB120s flown in the United system were flown under contractual arrangements, with the remaining eight percent flown under prorate arrangements.

        On September 15, 2003, the Company announced the completion of a firm order for 30, 70-seat CRJ700s for its United Express operations. On February 10, 2004, the Company amended the order to include ten additional CRJ200s and two additional CRJ700s, bringing the total order for the Company's United Express operations to 32 CRJ700s and ten CRJ200s. The Company began taking delivery of these aircraft in January 2004 and has scheduled delivery of the remaining aircraft covered by the order through May 2005. The Company's firm aircraft orders, as of December 31, 2004, consisted of orders for 20, CRJ700s scheduled for delivery through May 2005. Gross committed expenditures for these aircraft and related equipment, including estimated amounts for contractual price escalations are estimated to be approximately $500 million through May 31, 2005. Additionally, the Company's agreement with Bombardier, Inc. includes options for another 80 aircraft that can be delivered in either 70 or 90-seat configurations. The Company presently anticipates that delivery dates for these aircraft

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could start in June 2005 and continue through September 2008; however, actual delivery dates remain subject to final determination as agreed upon by the Company and its major partners.

        In December 2002, United filed for reorganization under Chapter 11 of the United States Bankruptcy Code. During September 2003, the Company entered into the United Express Agreement, which sets forth the principal terms and conditions governing the Company's United Express operations. The United Express Agreement received all necessary approvals from the U.S. Bankruptcy Court, creditors' committee operating on behalf of United under bankruptcy protection and United's pilot union. Under the terms of the United Express Agreement, the Company is compensated primarily on a fee-per-completed-block hour and departure basis, plus a margin based on performance incentives, and reimbursed for fuel and other costs. Notwithstanding the execution of the United Express Agreement, United's bankruptcy filing could still lead to many other unforeseen expenses, risks and uncertainties. Although United has reported that it intends to emerge from its ongoing Chapter 11 bankruptcy on or before June 30, 2005, it could still file for liquidation under Chapter 7 of the United States Bankruptcy Code, or liquidate some or all of its assets through one or more transactions with third parties. Such events, individually or singly, could jeopardize the Company's United Express operations, leave the Company unable to efficiently utilize the additional aircraft which the Company is currently obligated to purchase, or result in other outcomes which could have a material adverse effect on the operations, activities or financial condition of the Company.

Critical Accounting Policies

        The Company's significant accounting policies are described in Note 1 to the Company's Consolidated Financial Statements for the year ended December 31, 2004 contained herein. Critical accounting policies are those policies that are most important to the preparation of the Company's 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. The Company's critical accounting policies relate to revenue recognition, aircraft maintenance, aircraft leases and impairment of long-lived assets as discussed below. 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.

Revenue Recognition

        Passenger and ground handling revenues are recognized when service is provided. Under the Company's contract and prorate flying agreements with Delta, United and Continental, revenue is considered earned when the flight is completed.

        During the six months ended June 30, 2004, the Company and Delta had not finalized the terms of the rate agreement, but had reached a conceptual understanding regarding rates, terms and conditions for contract flying under which the Company operated as a Delta Connection carrier. Consequently, revenues under the Delta arrangement for the six months ended June 30, 2004 were recorded based on the terms of the conceptual understanding. During the quarter ended September 30, 2004, the Company finalized the contract rates with Delta for calendar 2004. No material adjustment resulted from the finalization of the rates for 2004. Under the terms of the Delta rate agreement for 2004, the Company is compensated primarily on a fee-per-completed-block hour and departure basis plus a margin, and reimbursed for fuel and other certain costs. The Company and Delta are continuing to negotiate rates for calendar 2005 that would provide for items such as multiple-year automatic rate reset provisions, a contract extension and other provisions intended to enable more efficient contract administration for the parties.

        In September 2003, the Company entered into the United Express Agreement, which had been previously approved on August 29, 2003 by the U.S. Bankruptcy Court. The United Express Agreement

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received all the necessary approvals from the creditors' committee operating on behalf of United under bankruptcy protection and United's pilot union. Under the terms of the United Express Agreement, the Company is compensated primarily on a fee-per-completed-block hour and departure basis plus a margin based on performance incentives, and reimbursed for fuel and other certain costs.

        On April 3, 2003, the Company signed an agreement with Continental to supply Continental with regional airline feed into its Houston hub beginning on July 1, 2003. The Company announced on January 24, 2005 in conjunction with Continental Airlines to end its contractual relationship for flying turboprop aircraft as a Continental Connection carrier. The Company currently intends to phase out of its Continental Connection turbo-prop flying from March to June 2005.

        The Company's agreements with Delta, United and Continental contain certain provisions pursuant to which the parties could terminate the respective agreements, subject to certain rights of the other party, if certain performance criteria are not maintained. The Company's revenues could be impacted by a number of factors, including changes to the agreements, contract modifications resulting from contract re-negotiations and the Company's ability to earn incentive payments contemplated under applicable agreements.

        In the event that the Company's contractual rates have not been finalized at quarterly or annual financial statement dates, the Company records revenues based on a prior period's approved rates, adjusted to reflect management's current estimate of the results of the current contract negotiations. If the final contractual rates differ from those estimated by management, the Company will reflect these changes in the consolidated financial statements in the period the contractual rates are finalized.

Maintenance

        The Company uses the "deferral method" of accounting for its EMB120 engine overhauls, which provides for engine overhaul costs to be capitalized and depreciated over the estimated useful life of the engine. For leased aircraft, the Company is subject to lease return provisions that require a minimum portion of the "life" of an overhaul be remaining on the engine at the lease return date. For EMB120 engine overhauls related to leased aircraft to be returned, the Company adjusts the estimated useful lives of the final engine overhauls based on the respective lease return dates.

        Due to the change in the Company's contractual arrangement with one of its major partners and based on a letter agreement executed by and between the Company and GE Engine Services, Inc. in April 2002 (the "Letter Agreement"), the Company elected to change from the accrual method of accounting to the direct-expense method of accounting for CRJ200 engine overhaul costs effective January 1, 2002. The Company believes the direct-expense method is preferable in the circumstances because the maintenance liability is not recorded until the maintenance services are performed, the direct-expense method eliminates significant estimates and judgments inherent under the accrual method, and it is the predominant method used in the airline industry. Accordingly, effective January 1, 2002, the Company reversed its engine overhaul accrual that totaled $14.1 million by recording a cumulative effect of change in accounting principle of $8.6 million (net of income taxes of $5.5 million).

        During the quarter ended December 31, 2004, the Company completed negotiations and signed an engine services agreement with a third party vendor to provide long-term engine services covering the scheduled and unscheduled repairs for engines on its CRJ700 regional jet aircraft effective January, 2004.

Aircraft Leases

        The majority of the Company's aircraft are leased from third parties. In order to determine the proper classification of a lease as either an operating lease or a capital lease, the Company must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of

22

an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease. Substantially all of the Company's aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. Additionally, operating leases are not reflected in the Company's consolidated balance sheet and accordingly, neither a lease asset nor an obligation for future lease payments is reflected in the Company's consolidated balance sheet.

Impairment of Long Lived Assets

        As of December 31, 2004, the Company had approximately $933 million of property and equipment and related assets. In accounting for these long-lived assets, the Company makes estimates about the expected useful lives of the assets, the expected residual values of the assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the long-lived assets condition, and operating cash flow losses associated with the use of the long-lived asset. In 2003 and 2004, due to volatile economic conditions and indications of declining aircraft market values, the Company evaluated whether the book value of the Company's aircraft was impaired in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." No impairment was necessary based on the results of the evaluations.

        There is inherent risk in estimating the future cash flows used in the impairment test. If cash flows do not materialize as estimated, there is a risk the impairment charges recognized to date may be inaccurate, or further impairment charges may be necessary in the future.

Results of Operations

2004 Compared to 2003

        Operating Statistics.     The following table sets forth the major operational statistics of the Company and the percentage-of-change for the years identified below.

        Total ASMs generated by the Company during the year ended December 31, 2004 increased 28.4% from the year ended December 31, 2003. The increase in ASMs was primarily a result of the Company increasing its operating aircraft to 206 aircraft as of December 31, 2004, from 185 aircraft as of December 31, 2003. During the year ended December 31, 2004, the Company took delivery of 12 new CRJ200s, four used CRJ200s with an average age of less than one year and 12 new CRJ700s.

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        Net Income.     Net income increased to $81.9 million, or $1.40 per diluted share, for the year ended December 31, 2004, compared to $66.8 million, or $1.15 per diluted share, for the year ended December 31, 2003. Factors relating to the change in net income are discussed below.

        Passenger Revenues.     Passenger revenues include an amount designed to reimburse the Company for aircraft ownership costs. The amount deemed to be rental income for the year ended 2004 was $187.0 million. Passenger revenues, which represented 98.6% of consolidated operating revenues for the year ended December 31, 2004, increased 29.2% to $1.14 billion for the year ended December 31, 2004, from $882.1 million, or 99.3% of consolidated operating revenues, for the year ended December 31, 2003. Passenger revenues, excluding fuel reimbursements from major partners, increased 21.1% for the year ended December 31, 2004. The increase in passenger revenues excluding fuel was primarily due to a 28.4% increase in ASMs, principally as a result of the Company increasing its operating aircraft to 206 aircraft as of December 31, 2004, from 185 aircraft as of December 31, 2003; however, this increase was partially offset by the economic efficiencies of flying new, incremental regional jet aircraft. These efficiencies are passed on to the Company's major partners through the rates contemplated by their respective contracts. Twelve CRJ700s and twelve additional CRJ200s were placed into service under the Company's United Express operations during the year ended December 31, 2004. Revenue per ASM increased 1.3% to 15.3¢, from 15.1¢ for the year ended December 31, 2003, primarily due to an increase in fuel reimbursements from major partners.

        Passenger Load Factor.     Passenger load factor increased to 73.5% for the year ended December 31, 2004, from 71.9% for the year ended December 31, 2003. The increase in load factor was due primarily to the further development of the Company's relationships with United and Delta whereby SkyWest supplements mainline service in previously established and developed markets. Additionally, the Company is experiencing higher passenger acceptance of its regional jet aircraft.

        Total Airline Expenses Excluding Fuel.     Total airline expenses for the year ended December 31, 2004, excluding fuel charges (which are substantially reimbursable by the Company's major partners), increased approximately 21.4% from the same period of 2003. The increase was primarily a result of a 28.4% increase in ASMs (which resulted principally from the expansion of SkyWest's regional jet fleet from 2003). Total operating expenses for the year ended December 31, 2004 increased at a lower rate than ASM growth, primarily due to the increased operating efficiencies obtained from the new CRJs that were added to the fleet during the year and from increased stage lengths flown by the new CRJs.

        Operating and Interest Expenses.     Operating and interest expenses increased 30.4% to $1.03 billion for the year ended December 31, 2004, compared to $789.4 million for the year ended December 31, 2003. The increase in total operating and interest expenses was due principally to the growth in SkyWest's regional jet fleet from 2003. As a percentage of consolidated operating revenues, total operating and interest expenses increased to 89.1% for the year ended December 31, 2004, from 88.9% for the year ended December 31, 2003. The increase in operating and interest expenses as a percentage of consolidated operating revenues was primarily due to significant increases in fuel costs year-over-year.

        Operating revenues increased 30.2% for the year ended December 31, 2004, compared to the year ended December 31, 2003, while total operating and interest expenses increased 30.4% over the same period. The increase in total operating revenues was primarily due to the growth in SkyWest's regional jet fleet from 2003. Airline operating and interest expenses, excluding fuel charges, per ASM decreased 5.5% to 10.3¢ for the year ended December 31, 2004, from 10.9¢ for the year ended December 31, 2003. The primary reason for the decrease was the increased capacity of the Company's regional jet aircraft and the increase in stage lengths flown by the Company's regional jet aircraft.

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        The following tables set forth information regarding the Company's operating expense components for the years ended December 31, 2004 and 2003. Operating expenses are expressed as a percentage of operating revenues. Individual expense components are also expressed as cents per ASM.

        The cost per ASM of salaries, wages and employee benefits remained constant at 3.8¢ for the year ended December 31, 2004 and December 31, 2003. The average number of full-time equivalent employees increased 28.3% to 6,747 for the year ended December 31, 2004 from 5,257 for the year ended December 31, 2003. The increase in number of employees was due, in large part, to the addition of personnel required for the new regional jet flying and ground handling operations within the Company's United Express operations.

        The cost per ASM for aircraft costs, including aircraft rent and depreciation, decreased to 3.0¢ for the year ended December 31, 2004, from 3.4¢ for the year ended December 31, 2003. The decrease in cost per ASM was primarily due to the addition of twelve CRJ700s, which have a lower operating cost per ASM than the Company's existing aircraft. Additionally, the decrease was due, in part, to the Company changing the estimate on depreciable lives of rotable spares from five years to ten years effective January 2004. This change in estimate increased the Company's pretax income by $11,455,000 for the year ended December 31, 2004. The impact of this change on costs per ASM for the year ended December 31, 2004 was 0.002¢ and the remaining decrease was primarily due to the increase in the number of regional jets that were added to SkyWest's fleet during 2004.

        The cost per ASM for maintenance expense increased to 1.0¢ for the year ended December 31, 2004, from 0.9¢ the year ended December 31, 2003. The increase in cost per ASM was primarily due to the timing of certain maintenance events. Under the Company's United Express Agreement, specific amounts are included in the rates and charges for mature maintenance on regional jet engines that the Company records as revenue. However, consistent with the change to a direct expense maintenance policy the Company records maintenance expense on its CRJ200 engines as it is incurred. As a result, during the year ended December 31, 2004 the Company collected and recorded as revenue $23.3 million (pretax) under the United Express Agreement, with no corresponding offset for CRJ200 engine maintenance overhauls since none were incurred. Because the "Maintenance" line in the table set forth above does not include salaries, wages and employee benefits associated with the Company's maintenance operations (those costs are stated separately in the table), the maintenance expense line in the above table differs from the maintenance line in the Company's Condensed Consolidated Statements of Income set forth in Item 8 below.

        The cost per ASM for fuel increased to 3.3¢ for the year ended December 31, 2004, from 2.5¢ for the year ended December 31, 2003. This increase was primarily due to the average price of fuel increasing to $1.45 per gallon during the year ended December 31, 2004, from $1.12 per gallon for the year ended December 31, 2003.

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        The cost per ASM for other expenses, primarily consisting of landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased 11.5% to 2.3¢ for the year ended December 31, 2004, from 2.6¢ for the year ended December 31, 2003. The decrease was primarily related to the Company's elimination of certain reservation and distribution costs which were previously associated with the United Express Agreement that are now handled directly by United, along with the increase in stage lengths flown by the Company's regional jets.

        Interest expense increased to approximately $18.2 million during the year ended December 31, 2004, from approximately $9.9 million during the year ended December 31, 2003. The increase in interest expense was primarily due to the long-debt financing of the new regional jets acquired by the Company.

        The Emergency War Time Supplemental Appropriations Act of 2003 became effective on May 15, 2003, and the Company received approximately $6.5 million under the act. This legislation provides for compensation to domestic airlines based on their proportional share of passenger security and infrastructure security fees paid, as well as reimbursement for installing fortified flight deck doors. This legislation also provides for the suspension of passenger and infrastructure fees from June 1, 2003 through October 31, 2003 and an extension of war risk liability and hull insurance coverage through December 31, 2004. Pursuant to the Consolidated Appropriations Act of 2005, Congress further extended the government's mandate to provide war-risk insurance through August 31, 2005. The Company is unable to predict whether the government will extend this insurance coverage past August 31, 2005. However, under terms of the Company's contracts with its major partners, such insurance expense is a "pass-through" cost and is not anticipated to have a material impact on the Company's ongoing operations or future financial results.

2003 Compared to 2002

        Operating Statistics.     The following table sets forth the major operational statistics and the percentage-of-change for the years ended identified below:

        Total ASMs generated by the Company during the year ended December 31, 2003 increased 34.9% from the year ended December 31, 2002. The increase in ASMs was primarily a result of the Company increasing its operating aircraft to 185 aircraft as of December 31, 2003, from 149 aircraft as of December 31, 2002. During the year ended December 31, 2003, the Company took delivery of 39 additional CRJ200s.

        Net Income.     Net income decreased to $66.8 million, or $1.15 per diluted share, for the year ended December 31, 2003, compared to $86.9 million, or $1.51 per diluted share, for the year ended December 31, 2002. Factors relating to the change in net income are discussed below.

        Passenger Revenues.     Passenger revenues, which represented 99.3% of consolidated operating revenues for the year ended December 31, 2003, increased 14.6% to $882.1 million for the year ended

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December 31, 2003, from $769.4 million or 99.4% of consolidated operating revenues for the year ended December 31, 2002. Passenger revenues, excluding fuel costs, increased 9.1% for the year ended December 31, 2003. The increase in passenger revenue excluding fuel was primarily due to a 34.9% increase in ASMs, principally as a result of the Company increasing its operating aircraft to 185 aircraft as of December 31, 2003, from 149 aircraft as of December 31, 2002; however, this increase was partially offset by the economic efficiencies of flying new, incremental regional jet aircraft. These efficiencies are passed on to the major partners through decreases in the rates contemplated by their respective contracts. Twenty-eight additional CRJ200s were placed into service under the Company's United Express operations and 11 additional CRJ200s were placed in service under the Delta Connection operations during the year ended December 31, 2003. Revenue per ASM decreased 15.2% to 15.1¢ from 17.8¢ for the year ended December 31, 2002, primarily due to an increase in ASMs produced by CRJ200s and CRJ700s (resulting in lower revenue per ASM pursuant to the terms of the Company's agreements with Delta and United).

        Passenger Load Factor.     Passenger load factor increased to 71.9% for the year ended December 31, 2003, from 68.7% for the year ended December 31, 2002. The increase in load factor was due primarily to the further development of the Company's relationships with United and Delta whereby SkyWest is supplementing mainline service in previously established and developed markets. Additionally, the Company is experiencing higher passenger acceptance of its regional jet aircraft.

        Total Airline Expenses Excluding Fuel.     Total airline expenses for the year ended December 31, 2003, excluding fuel charges (which are reimbursable by the Company's major partners), increased approximately 14.2% from the same period of 2002. The increase was primarily a result of a 34.9% increase in ASMs (which resulted principally from the expansion of SkyWest's regional jet fleet from 2002). Total operating expenses for the year ended December 31, 2003 increased at a lower rate than ASMs due to the increased stage lengths flown by the Company's regional jets and the cost reduction initiatives implemented by the Company during the year ended December 31, 2003.

        Operating and Interest Expenses.     Operating and interest expenses increased 19.9% to $789.4 million for the year ended December 31, 2003, compared to $658.5 million for the year ended December 31, 2002. The increase in total operating and interest expenses was due principally to the growth in SkyWest's regional jet fleet from 2002. As a percentage of consolidated operating revenues, total operating and interest expenses increased to 88.9% for the year ended December 31, 2003, from 85.0% for the year ended December 31, 2002. The increase in operating and interest expenses as a percentage of consolidated operating revenues was primarily due to the reduction in the Company's departure rates as operating revenues increased 14.7% year-over-year, while total operating expenses and interest increased 19.9% from 2002. The increase in interest expense was also primarily due to the increase in debt financing of the Company's new regional jets. Airline operating and interest expense excluding fuel charges, per ASM decreased 15.5% to 10.9¢ for the year ended December 31, 2003, from 12.9¢ for the year ended December 31, 2002. The primary reason for the decrease was the increased capacity of the Company's regional jet aircraft, which are less expensive to operate on a per-ASM basis than EMB120s.

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        The following tables set forth information regarding the Company's operating expense components for the years ended December 31, 2003 and 2002. Operating expenses are expressed as a percentage of operating revenues. Individual expense components are also expressed as cents per ASM.

        The cost per ASM of salaries, wages and employee benefits decreased to 3.8¢ for the year ended December 31, 2003, compared to 4.6¢ for the year ended December 31, 2002. The decrease was primarily the result of the increase in stage lengths flown by regional jets. The average number of full-time equivalent employees increased 3.5% to 5,257 for the year ended December 31, 2003 from 5,079 for the year ended December 31, 2002. The increase in number of employees was due, in large part, to the addition of personnel required for the new flying and ground handling operations within the Company's United Express operations.

        The cost per ASM for aircraft costs, including aircraft rent and depreciation, decreased to 3.4¢ for the year ended December 31, 2003, from 3.7¢ for the year ended December 31, 2002. The decrease in costs per ASM was primarily due to the increase in the number of CRJ200s that were added to SkyWest's fleet during the year ended December 31, 2003, resulting in an increase in stage lengths year-over-year.

        The cost per ASM for maintenance expense decreased to 0.9¢ for the year ended December 31, 2003, compared to 1.2¢for the year ended December 31, 2002. The decrease in cost per ASM was primarily attributable to the increase in stage lengths flown by CRJ200s, a higher mix of new aircraft with SkyWest's fleet and the timing of certain maintenance-related events. Under the Company's United Express Agreement, specific amounts are included in the rates and charges for mature maintenance on regional jet engines that the Company records as revenue. As a result, during the year ended December 31, 2003, the Company collected and recorded as revenue $15.9 million (pretax) under the United Express Agreement, with no corresponding offset for CRJ200 engine maintenance overhauls since none were incurred. Because the "Maintenance" line in the table set forth above does not include salaries, wages and employee benefits associated with the Company's maintenance operations (those costs are stated separately in the table), the maintenance expense line in the above table differs from the maintenance line in the Company's Condensed Consolidated Statements of Income set forth in Item 8 below.

        The cost per ASM for fuel increased to 2.5¢ for the year ended December 31, 2003, from 2.2¢ for the year ended December 31, 2002. This was primarily due to the average price of fuel increasing to $1.12 per gallon during the year ended December 31, 2003, from $0.97 per gallon for the year ended December 31, 2002.

        The cost per ASM for other expenses, primarily consisting of landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased 21.2% to 2.6¢ for the year

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ended December 31, 2003, from 3.3¢ for the year ended December 31, 2002. The decrease was primarily related to the Company's elimination of certain reservation and distribution costs which were previously associated with the United Express Agreement, along with the increase in stage lengths flown by the Company's regional jets.

        Interest expense increased to approximately $9.9 million during the year ended December 31, 2003, from approximately $3.6 million during the year ended December 31, 2002. The increase in interest expense was primarily due to the temporary long-debt financing of the regional jets acquired by the Company during the twelve-month period ended December 31, 2003.

Liquidity and Capital Resources

        The Company had working capital of $536.5 million and a current ratio of 4.1:1 at December 31, 2004, compared to working capital of $518.4 million and a current ratio of 4.4:1 at December 31, 2003. The principal sources of funds during the year ended December 31, 2004 were $246.9 million provided by operating activities, $47.8 million of proceeds from returns on aircraft deposits, $34.5 million of proceeds from the issuance of long-term debt and $7.8 million from the sale of common stock in connection with the exercise of stock options under the Company's stock option and employee stock purchase plans. During the year ended December 31, 2004, the Company invested $193.4 million in flight equipment, $69.6 million in marketable securities, $18.9 million in buildings and ground equipment and $3.5 million in other assets. The Company made principal payments on long-term debt of $32.3 million, repurchased common stock for approximately $12.3 million and paid $6.4 million in cash dividends. These factors resulted in a $0.6 million increase in cash and cash equivalents during the year ended December 31, 2004.

        The Company's receivables increased by approximately $15.8 million from December 31, 2004 from December 31, 2003. The increase was primarily due to the increase in the price of fuel during the year and the fuel reimbursement provisions of the Company's contracts with its major partners. Under the contracts, the Company receives weekly wire transfers based on estimated production and fuel costs, which payments are subsequently reconciled and adjusted after quarter and year end.

        The Company's position in marketable securities, consisting primarily of bonds, bond funds and commercial paper, increased to $427.5 million at December 31, 2004, compared to $358.8 million at December 31, 2003. The increase in marketable securities was due primarily to the Company's cash management policies as excess cash is invested in marketable securities.

        At December 31, 2004, the Company's total capital mix was 62.7% equity and 37.3% debt, compared to 60.5% equity and 39.5% debt at December 31, 2003. The change in the total capital mix during 2004 was primarily due to the Company's refinancing CRJ200s debt into long-term operating lease agreements with third-party lessors during the year ended December 31, 2004.

        The Company expended approximately $71.9 million for aircraft related capital expenditures during the year ended December 31, 2004. These expenditures consisted primarily of $30.5 million for rotable spares, $15.8 million for engine overhauls, $6.7 million for aircraft improvements, and $18.9 million for buildings, ground equipment and other assets.

        The Company had available $10.0 million in an unsecured bank line of credit through January 31, 2006, with interest payable at the bank's base rate less one-quarter percent, which was a net rate of 5.0% at December 31, 2004. The Company had $6,461,000 of letters of credit with no borrowings outstanding under this line of credit as of December 31, 2004. Additionally, the Company had $1,515,000 of letters of credit outstanding with another bank as of December 31, 2004. The Company believes that in the absence of unusual circumstances, the working capital available to the Company will be sufficient to meet its present financial requirements, including expansion, capital expenditures, lease payments and debt service obligations for at least the next 12 months.

        At December 31, 2004 and December 31, 2003, the Company classified $9.2 million of cash as restricted cash on its condensed consolidated balance sheets as required by the Company's workers compensation policy.

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Significant Commitments and Obligations

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

        On September 15, 2003, the Company announced the completion of a firm order for 30, 70-seat CRJ700s for its United Express operations. On February 10, 2004, the Company amended the order to include 10 CRJ200s and two additional CRJ700s, bringing the total order for the Company's United Express operations to 32 CRJ700s and 10 additional CRJ200s. The Company began taking delivery of these aircraft in January 2004 and has scheduled delivery of the remaining aircraft covered by the order through May 2005. The Company's firm aircraft orders, as of December 31, 2004, consisted of orders for 20, 70-seat CRJ700s scheduled for delivery through May 2005. Gross committed expenditures for these aircraft and related equipment, including estimated amounts for contractual price escalations are estimated to be approximately $500 million through May 31, 2005. The Company has also obtained options to acquire another 80 CRJ700s that can be delivered in either 70 or 90-seat configurations. The Company presently anticipates that delivery dates for these aircraft could start in June 2005 and continue through September 2008; however, actual delivery dates remain subject to final determination as agreed upon by the Company and its major partners.

        The Company has not historically funded a substantial portion of its aircraft acquisitions with working capital. Rather, the Company has generally funded its aircraft acquisitions through a combination of operating leases and debt financing. At the time of each aircraft acquisition, the Company has evaluated the financing alternatives available, and selected one or more of these methods to fund the acquisition. Subsequent to this initial acquisition of an aircraft, the Company may also refinance the aircraft or convert one form of financing to another (e.g., replacing debt financing with leveraged lease financing).

        At present, the Company's management intends to satisfy its 2005 firm aircraft purchase commitment, as well as its acquisition of any additional aircraft, through a combination of operating leases and debt financing, consistent with its historical practices. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, the Company's management currently believes the Company will be able to obtain financing for the committed acquisitions, as well as additional aircraft, without materially reducing the amount of working capital available for its operating activities.

        The Company has significant long-term lease obligations primarily relating to its aircraft fleet. These leases are classified as operating leases and therefore are not reflected as liabilities on the Company's condensed consolidated balance sheets. At December 31, 2004, the Company had 153 aircraft under lease with remaining terms ranging from one to 18 years. Future minimum lease payments due under all long-term operating leases were approximately $2.10 billion at December 31, 2004. Assuming a 7.0% discount rate, which is the rate used to approximate the implicit rates within

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the applicable aircraft leases, the present value of these lease obligations would have been equal to approximately $1.40 billion at December 31, 2004.

        As part of the Company's leveraged lease agreements, the Company typically agrees to indemnify the equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership of the respective leased aircraft. See Note 4 to the Company's consolidated financial statements set forth in Item 8 of this Report.

        The Company's total long-term debt at December 31, 2004 was $495.8 million, of which $487.9 million related to the acquisition of EMB120 and CRJ200 aircraft and $7.9 million related to the Company's corporate office building. During the year ended December 31, 2004, the Company acquired two new CRJ200s from proceeds from the issuance of long-term debt of $34.5 million. The average effective rate on the debt related to the EMB120 and CRJ 200 aircraft was approximately 4.4% at December 31, 2004.

Seasonality

        As is common in the airline industry, the Company's pro-rate operations are favorably affected by increased travel, historically occurring in the summer months, and are unfavorably affected by decreased business travel during the months from November through January and by inclement weather which occasionally results in cancelled flights, principally during the winter months.

New Accounting Standard

        As contemplated by SFAS Statement 123, Accounting for Stock-Based Compensation, the Company currently accounts for share-based payments to employees using intrinsic value method set forth in Opinion 25, Accounting for Stock Issued to Employees and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of the fair value method set forth in Statement 123(R) is likely to have a significant impact on the Company's results of operations, although it is not anticipated to have a significant impact on the Company's overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to the Company's consolidated financial statements set forth in item 8 of this Report. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (primarily because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $442,000, $129,000 and $1,525,000 in 2004, 2003, and 2002, respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Aircraft Fuel

        In the past, the Company has not experienced difficulties with fuel availability and currently expects to be able to obtain fuel at prevailing prices in quantities sufficient to meet its future needs. Pursuant to the Company's contract flying arrangements, United will bear the economic risk of fuel price fluctuations on the Company's United Express flights. On the Company's Delta Connection regional jet flights, Delta will bear the economic risk of fuel price fluctuations. On the majority of the Company's Delta Connection routes flown by EMB120s, as well as all existing Continental Connection

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routes, the Company will bear the economic risk of fuel fluctuations. At present, the Company believes that its results from operations will not be materially and adversely affected by fuel price volatility.

Interest Rates

        The Company's 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. The Company would also receive higher amounts of interest income on cash and securities held at the time; however, the market value of the Company's available-for-sale securities would likely decline. At December 31, 2004, the Company had variable rate notes representing 73.1% of its total long-term debt compared to 77.4% of its long-term debt at December 31, 2003. For illustrative purposes only, the Company has 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, the Company would have incurred an additional $3,746,000 in interest expense and received $4,868,000 in additional interest income for the year ended December 31, 2004 and the Company would have incurred an additional $2,500,000 in interest expense and received $4,410,000 in additional interest income for the year ended December 31, 2003.

        The Company has an interest rate swap agreement designed to manage its interest rate exposure on the debt instrument related to the Company's headquarters. The Company's policies do not permit management to enter into derivative instruments for any purpose other than cash flow hedging purposes. Accordingly, the Company does not speculate using derivative instruments. The Company assesses interest rate cash flow risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The fair values of the Company's derivative instruments are recognized as other current liabilities in the accompanying balance sheet. The Company adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. In accordance with the provisions of SFAS No. 133, the Company recorded liabilities of $691,000 and $900,000 at December 31, 2004 and 2003, respectively, in the Company's consolidated balance sheets set forth in Item 8 of this Report. The Company decreased interest expense by $209,000 during the year ended December 31, 2004 and increased interest expense by $225,000 for the year ended December 31, 2003 in accordance with the interest swap agreement.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The information set forth below should be read together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere herein.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders'
SkyWest, Inc.

        We have audited the accompanying consolidated balance sheets of SkyWest, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SkyWest, Inc. and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S generally accepted accounting principles.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SkyWest, Inc.'s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Salt Lake City, Utah
March 9, 2005

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders SkyWest, Inc.:

        We have audited the accompanying consolidated statements of income, stockholders' equity and comprehensive income, and cash flows of SkyWest, Inc and Subsidiaries for the year ended December 31, 2002. In connection with our audit of the consolidated financial statements, we also have audited the accompanying financial statement schedule for the year ended December 31, 2002. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

        We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above presents fairly, in all material respects, the results of operations and the cash flows of SkyWest, Inc. and subsidiaries for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2002, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for CRJ200 engine overhaul costs from the accrual method to the direct expense method in 2002.

/s/ KPMG LLP

Salt Lake City, Utah
March 27, 2003

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

See accompanying notes to consolidated financial statements.

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See accompanying notes to consolidated financial statements.

36

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)