#1621 1972 · SkyWest · regional airlines
Sell Flying by the Flight, Not the Ticket
the problem
Regional flying was feast-or-famine: small airlines lived on thin margins exposed to fuel swings and demand shocks.
background
SkyWest, founded in 1972, operates regional flights not as a ticketed airline but under capacity purchase agreements: major airline partners generally pay it fixed rates for operating aircraft, based primarily on the number of completed flights, flight time and the number of aircraft flown.
The major's brand sells the seats and keeps the passenger revenue and risk; SkyWest is paid like a contractor for dependable departures.
what everyone would do
Fly your own routes, sell your own tickets, hedge fuel.
what they saw
The regional airline's deadly risks — fuel, fares, load factor — all live on the demand side. Sell departures instead of transportation and the risks move to the partner who owns the brand, leaving pure operations to be optimized and scaled.
the move
Turn an airline into a flying services firm: the regional partner sells schedule reliability rather than transportation. Fixed-fee CPAs convert every variable hazard of the business — fuel, pricing, load factor — into the major's problem, leaving SkyWest an operations-excellence business measured in completed flights. Scale economies (fleet, crews, maintenance) are the product; brand and demand are someone else's.
why it works
Majors need feed traffic but not the complexity of small-city operations; fixed fees reward schedule completion, aligning incentives; and one operator serving several majors gains fleet utilization no single-hub captive could.
the payoff
Built one of the largest regional airlines as a capacity provider to multiple majors simultaneously on fixed-fee contracts (SEC 10-K).
where it breaks
It fails when pilots are scarce and contracts cap pay flexibility, when a major renegotiates or collapses (concentration risk), and the fee margin leaves no upside in boom years — the same variance shield that protects also ceilings.
what came after
The capacity purchase agreement became the industry-standard structure for regional aviation, replicated across every major's feeder network.
references
- [1]SkyWest Inc. Form 10-K (FY2024)SEC EDGAR (SkyWest Inc.), 2025sec.gov