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Deal limited the amount of profit

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A business magazine reported that Sky West, an independent regional airline, negotiated a financial arrangement with Delta and United to provide regional jet service in and out of their hubs served by these major airlines. Delta and United agreed to pay Sky West a predetermined profit margin and cover most of the airlines costs. While the deal limited the amount of profit that Sky West could make, it also insulated the firm from the volatility of fuel costs to which other airlines are subject, increased its load factor (the number of seats sold), and integrated its ticketing into the computer systems of each major airline. Analysts on Wall Street seem to have been pleased with the deal as they raised the valuation of Sky West significantly. How could this happen even though the deal limited the amount of profit that the regional firm could earn?

Reference no: EM132479079

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