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Alaska Air Group Reports Record Adjusted Fourth Quarter And Full-Year Results

Alaska Air Group Reports Record Adjusted Fourth Quarter And Full-Year Results

Employees earn $88 million in incentive pay

PR Newswire

SEATTLE, Jan. 24, 2013

SEATTLE, Jan. 24, 2013 /PRNewswire/ --

Highlights and achievements:

  oRecord fourth quarter net income, excluding special items, of $50 million,
    or $0.70 per diluted share, compared to $37 million, or $0.51 per diluted
    share. This quarter's results compare to a First Call analyst consensus
    estimate of $0.71 per share.
  oRecord full-year net income, excluding special items, of $339 million, or
    $4.73 per diluted share, compared to $287 million, or $3.92 per diluted
    share.
  oNet income for the fourth quarter under Generally Accepted Accounting
    Principles (GAAP) of $44 million, or $0.61 per diluted share, compared to
    net income of $64 million, or $0.88 per diluted share. Full-year GAAP net
    income of $316 million, or $4.40 per diluted share, compared to net income
    of $245 million, or $3.33 per diluted share.
  oAir Group employees earned $88 million in incentive pay, or more than
    one-month's pay for most employees. Over the last four years, employees
    have earned more than $325 million in incentive pay, averaging 8% of
    annual pay for most employees.
  oRanked "Highest in Customer Satisfaction Among Traditional Network
    Carriers" by J.D. Power and Associates for the fifth year in a row.
  oSigned an aircraft purchase agreement with The Boeing Company for 50 new
    737 aircraft, including 37 of Boeing's new 737 MAX aircraft with
    deliveries expected in 2015 through 2024.
  oCarried a record number passengers in 2012 and achieved a record load
    factor of 85.9 percent, up 1.4 points from the prior year.
  oImproved employee productivity by 3.5 percent compared to the fourth
    quarter of 2011.
  oCompleted renovation of Terminal 6 at Los Angeles International Airport
    (LAX) in March, which includes the Airport of the Future design, new
    common use systems, additional gates and convenient connections with
    international flights.
  oRatified a six-year agreement in December with the International
    Brotherhood of Teamsters (IBT) representing Horizon's pilots.
  oRatified a six-year agreement in July with the International Association
    of Machinists and Aerospace Workers (IAMAW) representing Alaska's ramp
    service and stores agents.
  oRepurchased 1,685,951 shares of common stock for approximately $60
    million. Since 2007, Air Group has used $320 million to repurchase 18
    million shares.
  oLowered adjusted debt-to-total capitalization ratio by 8 points to 54
    percent since Dec. 31, 2011 and by 27 points from 81 percent at the end of
    2008.
  oHeld $1.3 billion in unrestricted cash and marketable securities as of
    December31, 2012.
  oAchieved twelve-month return on invested capital of 13 percent, surpassing
    the 10 percent goal for the third year in a row.
  oContributed $110 million to the defined-benefit pension plans during 2012,
    bringing the total over four years to approximately $540 million, despite
    having no required contribution.

New routes:

  oBegan new service from San Diego to Orlando, Portland to Lihue, Bellingham
    to Maui, and Anchorage to Kona in the fourth quarter, bringing the full
    year up to 21 new routes.
  oAnnounced service from San Diego to Boston and Lihue, and from Seattle to
    Salt Lake City beginning in 2013.

Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2012 GAAP net
income of $44 million, or $0.61 per diluted share, compared to GAAP net income
of $64 million, or $0.88 per diluted share in 2011. Excluding mark-to-market
fuel hedge losses of $10 million ($6 million after tax, or $0.09 per diluted
share), the company reported record fourth quarter 2012 net income of $50
million, or $0.70 per diluted share, compared to net income excluding
mark-to-market fuel hedge gains of $37 million, or $0.51 per diluted share, in
2011.

The company reported full-year 2012 GAAP net income of $316 million, compared
to $245 million in the prior year.Excluding the impact of the items noted in
the table below, the company reported record net income of $339 million, or
$4.73 per diluted share for 2012, compared to net income of $287 million, or
$3.92 per diluted share in 2011.This marks the company's ninth consecutive
year of adjusted profits and the third year in a row the company has exceeded
its goal of a 10 percent return on invested capital.

"We're very pleased with our strong performance in 2012, and we are moving
ahead in 2013 to make Alaska a great business as well as a great airline,"
Chief Executive Officer Brad Tilden said. "I want to thank our 13,000
employees who are dedicated to providing our award-winning service, along with
our loyal customers for their business and our investors who continue to put
their trust in our company and our future."

The following table reconciles the Company's adjusted net income and earnings
per diluted share (EPS) during the full year and fourth quarters of 2012 and
2011 to amounts as reported in accordance with GAAP:

                                    Three Months Ended December 31,
                                    2012                  2011
(in millions, except per share      Dollars  Diluted EPS  Dollars  Diluted EPS
amounts)
Reported GAAP net income            $  44    $   0.61     $  64    $   0.88
Mark-to-market fuel hedge           6        0.09         (27)     (0.37)
adjustments, net of tax
Non-GAAP adjusted income and per    $  50    $   0.70     $  37    $   0.51
share amounts
                                    Twelve Months Ended December 31,
                                    2012                  2011
(in millions, except per share      Dollars  Diluted EPS  Dollars  Diluted EPS
amounts)
Reported GAAP net income            $  316   $   4.40     $  245   $   3.33
Fleet transition costs, net of tax  —        —            24       0.33
Mark-to-market fuel hedge           23       0.33         18       0.26
adjustments, net of tax
Non-GAAP adjusted income and per    $  339   $   4.73     $  287   $   3.92
share amounts



Statistical data, as well as a reconciliation of the reported non-GAAP
financial measures, can be found in the accompanying tables. A glossary of
financial terms can be found on the last page of this release.

A conference call regarding the fourth quarter and full year results will be
simulcast via the Internet at 9:30 a.m. Pacific time on January24, 2013. It
can be accessed through the company's Web site at alaskaair.com/investors. For
those unable to listen to the live broadcast, a replay will be available after
the conclusion of the call at alaskaair.com/investors. 

References in this news release to "Air Group," "company," "we," "us" and
"our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise
specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred
to as "Alaska" and "Horizon," respectively, and together as our "airlines."

This news release may contain forward-looking statements subject to the safe
harbor protection provided by Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as amended, and
the Private Securities Litigation Reform Act of 1995. These statements relate
to future events and involve known and unknown risks and uncertainties that
may cause actual outcomes to be materially different from those indicated by
any forward-looking statements. For a comprehensive discussion of potential
risk factors, see Item 1A of the company's Annual Report on Form 10-K for the
year ended December31, 2011. Some of these risks include general economic
conditions, increases in operating costs including fuel, competition, labor
costs and relations, our significant indebtedness, inability to meet cost
reduction goals, seasonal fluctuations in our financial results, an aircraft
accident, and changes in laws and regulations. All of the forward-looking
statements are qualified in their entirety by reference to the risk factors
discussed therein. We operate in a continually changing business environment,
and new risk factors emerge from time to time. Management cannot predict such
new risk factors, nor can it assess the impact, if any, of such new risk
factors on our business or events described in any forward-looking statements.
We expressly disclaim any obligation to publicly update or revise any
forward-looking statements after the date of this report to conform them to
actual results. Over time, our actual results, performance or achievements
will likely differ from the anticipated results, performance or achievements
that are expressed or implied by our forward-looking statements, and such
differences might be significant and materially adverse.

Alaska Airlines, a subsidiary of Alaska Air Group (NYSE: ALK), together with
its partner regional airlines, serves 95 cities through an expansive network
in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines has ranked
"Highest in Customer Satisfaction Among Traditional Network Carriers" in the
J.D. Power and Associates North America Airline Satisfaction Study^SM for five
consecutive years from 2008 to 2012. For reservations, visit
www.alaskaair.com. For more news and information, visit the Alaska Airlines
newsroom at www.alaskaair.com/newsroom.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Alaska Air Group, Inc.
               Three Months Ended December 31,   Twelve Months Ended December
                                                 31,
(in millions,
except per     2012         2011         Change  2012         2011      Change
share amounts)
Operating
Revenues:
Passenger
Mainline       $  793       $  726       9%      $  3,284     $ 2,995   10%
Regional       188          176          7%      746          713       5%
Total
passenger      981          902          9%      4,030        3,708     9%
revenue
Freight and    26           25           4%      111          109       2%
mail
Other - net    125          117          7%      516          501       3%
Total
Operating      1,132        1,044        8%      4,657        4,318     8%
Revenues
Operating
Expenses:
Wages and      267          253          6%      1,038        991       5%
benefits
Variable       27           19           42%     88           72        22%
incentive pay
Aircraft fuel,
including      372          286          30%     1,459        1,298     12%
hedging gains
and losses
Aircraft       61           53           15%     222          206       8%
maintenance
Aircraft rent  30           28           7%      116          116       —
Landing fees                                                            
and other      59           58           2%      243          238
rentals                                                                 2%
Contracted     51           49           4%      200          185       8%
services
Selling        37           42           (12)%   168          175       (4)%
expenses
Depreciation
and            69           63           10%     264          247       7%
amortization
Food and
beverage       21           17           24%     79           67        18%
service
Other          64           62           3%      248          235       6%
Fleet
transition     —            —            NM      —            39        NM
costs
Total
Operating      1,058        930          14%     4,125        3,869     7%
Expenses
Operating      74           114          (35)%   532          449       18%
Income
Nonoperating
Income
(Expense):
Interest       5            4                    19           22
income
Interest       (15)         (18)                 (64)         (87)
expense
Interest       5            7                    18           12
capitalized
Other - net    3            (6)                  9            (2)
               (2)          (13)                 (18)         (55)
Income Before  72           101          (29)%   514          394       30%
Income Tax
Income tax     28           37                   198          149
expense
Net Income     $  44        $  64        (31)%   $  316       $ 245     29%
Basic Earnings $  0.62      $  0.90              $  4.47      $ 3.41
Per Share:
Diluted
Earnings Per   $  0.61      $  0.88              $  4.40      $ 3.33
Share:
Shares Used
for
Computation:
Basic          71.112       71.122               70.708       71.755
Diluted        72.149       72.635               71.784       73.421



NM - Not Meaningful



CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.
(in millions)                             December 31, 2012  December 31, 2011
Cash and marketable securities            $    1,252         $    1,141
Total current assets                      1,737              1,596
Property and equipment-net                3,609              3,373
Other assets                              159                198
Total assets                              $    5,505         $    5,167
Current liabilities                       $    1,501         $    1,510
Long-term debt                            871                1,099
Other liabilities and credits             1,712              1,384
Shareholders' equity                      1,421              1,174
Total liabilities and shareholders'       $    5,505         $    5,167
equity
Debt to Capitalization, adjusted for      54%:46%            62%:38%
operating leases
Number of common shares outstanding       70.377             70.950



OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.
                   Three Months Ended December 31,   Twelve Months Ended
                                                     December 31,
                   2012         2011        Change   2012     2011     Change
Consolidated
Operating
Statistics:^(a)
Revenue passengers 6,387        6,083       5.0%     25,896   24,790   4.5%
(000)
RPMs (000,000)     6,720        6,183       8.7%     27,007   25,032   7.9%
"traffic"
ASMs (000,000)     7,870        7,298       7.8%     31,428   29,627   6.1%
"capacity"
Load factor        85.4%        84.7%       0.7 pts  85.9%    84.5%    1.4 pts
Yield              14.59¢       14.59¢      —        14.92¢   14.81¢   0.7%
PRASM              12.46¢       12.36¢      0.8%     12.82¢   12.51¢   2.5%
RASM               14.39¢       14.31¢      0.6%     14.82¢   14.57¢   1.7%
CASM excluding
fuel and fleet     8.72¢        8.83¢       (1.2)%   8.48¢    8.55¢    (0.8)%
transition
costs^(b)
Economic fuel cost $  3.43      $  3.34     2.7%     $ 3.37   $ 3.18   6.0%
per gallon^(c)
Fuel gallons       105          99          6.1%     422      398      6.0%
(000,000)
Average number of
full-time          11,984       11,807      1.5%     11,955   11,840   1.0%
equivalent
employees
Mainline Operating
Statistics:
Revenue passengers 4,513        4,331       4.2%     18,526   17,810   4.0%
(000)
RPMs (000,000)     6,065        5,575       8.8%     24,417   22,586   8.1%
"traffic"
ASMs (000,000)     7,056        6,526       8.1%     28,180   26,517   6.3%
"capacity"
Load factor        86.0%        85.4%       0.6 pts  86.6%    85.2%    1.4 pts
Yield              13.08¢       13.01¢      0.5%     13.45¢   13.26¢   1.4%
PRASM              11.24¢       11.12¢      1.1%     11.65¢   11.29¢   3.2%
RASM               13.15¢       13.04¢      0.8%     13.62¢   13.31¢   2.3%
CASM excluding     7.77¢        7.89¢       (1.5)%   7.56¢    7.60¢    (0.5)%
fuel^(b)
Economic fuel cost $  3.43      $  3.33     3.0%     $ 3.36   $ 3.18   5.7%
per gallon^(c)
Fuel gallons       92           86          7.0%     368      346      6.4%
(000,000)
Average number of
full-time          9,228        8,920       3.5%     9,178    8,916    2.9%
equivalent
employees
Aircraft           10.5         10.2        2.9%     10.7     10.5     1.9%
utilization
Average aircraft   1,189        1,129       5.3%     1,161    1,114    4.2%
stage length
Mainline operating 124          117         7 a/c    124      117      7 a/c
fleet
Regional Operating
Statistics:^(d)
Revenue passengers 1,873        1,752       6.9%     7,371    6,980    5.6%
(000)
RPMs (000,000)     655          608         7.7%     2,590    2,446    5.9%
"traffic"
ASMs (000,000)     814          772         5.4%     3,247    3,110    4.4%
"capacity"
Load factor        80.4%        78.8%       1.6 pts  79.8%    78.6%    1.2 pts
Yield              28.64¢       28.82¢      (0.6)%   28.81¢   29.13¢   (1.1)%
PRASM              23.03¢       22.84¢      0.8%     22.98¢   22.94¢   0.2%
Operating fleet    48           48          —        48       48       —
(Horizon only)



(a) Except for full-time equivalent employees, data includes information
    related to third-party regional capacity purchase flying arrangements.
    See a reconciliation of this non-GAAP measure and Note A for a discussion
(b) of why these measures may be important to investors in the accompanying
    pages.
(c) See a reconciliation of economic fuel cost in the accompanying pages.
(d) Data presented includes information related to flights operated by Horizon
    Air and third-party carriers.



OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.
             Three Months Ended December 31, 2012
             Alaska
(in          Mainline  Regional  Horizon  Consolidating  Air Group     Special  Consolidated
millions)                                                Adjusted^(a)  Items
Operating
revenues
Passenger
Mainline     $  793    $  —      $  —     $    —         $   793       $ —      $   793
Regional     —         188       —        —              188           —        188
Total
passenger    793       188       —        —              981           —        981
revenues
Revenue from
CPA with     —         —         97       (97)           —             —        —
Alaska
Freight and  25        1         —        —              26            —        26
mail
Other-net    110       14        1        —              125           —        125
Total
operating    928       203       98       (97)           1,132         —        1,132
revenues
Operating
expenses
Operating
expenses,    548       145       90       (97)           686           —        686
excluding
fuel
Economic     315       47        —        —              362           10       372
fuel
Total
operating    863       192       90       (97)           1,048         10       1,058
expenses
Nonoperating
income
(expense)
Interest     5         —         —        —              5             —        5
income
Interest     (11)      —         (4)      —              (15)          —        (15)
expense
Other        8         —         1        (1)            8             —        8
             2         —         (3)      (1)            (2)           —        (2)
Income
(loss)       $  67     $  11     $  5     $    (1)       $   82        $ (10)   $   72
before
income tax
             Three Months Ended December 31, 2011
             Alaska
(in          Mainline  Regional  Horizon  Consolidating  Air Group     Special  Consolidated
millions)                                                Adjusted^(a)  Items
Operating
revenues
Passenger
Mainline     $  726    $  —      $  —     $    —         $   726       $ —      $   726
Regional     —         176       —        —              176           —        176
Total
passenger    726       176       —        —              902           —        902
revenues
Revenue from
CPA with     —         —         90       (90)           —             —        —
Alaska
Freight and  24        1         —        —              25            —        25
mail
Other-net    101       14        2        —              117           —        117
Total
operating    851       191       92       (90)           1,044         —        1,044
revenues
Operating
expenses
Operating
expenses,    515       135       83       (89)           644           —        644
excluding
fuel
Economic     285       44        —        —              329           (43)     286
fuel
Total
operating    800       179       83       (89)           973           (43)     930
expenses
Nonoperating
income
(expense)
Interest     3         —         —        1              4             —        4
income
Interest     (14)      —         (4)      —              (18)          —        (18)
expense
Other        1         —         —        —              1             —        1
             (10)      —         (4)      1              (13)          —        (13)
Income
(loss)       $  41     $  12     $  5     $    —         $   58        $ 43     $   101
before
income tax



OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.
             Twelve Months Ended December 31, 2012
             Alaska
(in          Mainline  Regional  Horizon  Consolidating  Air Group     Special  Consolidated
millions)                                                Adjusted^(a)  Items
Operating
revenues
Passenger
Mainline     $ 3,284   $  —      $  —     $    —         $   3,284     $ —      $   3,284
Regional     —         746       —        —              746           —        746
Total
passenger    3,284     746       —        —              4,030         —        4,030
revenues
Revenue from
CPA with     —         —         369      (369)          —             —        —
Alaska
Freight and  107       4         —        —              111           —        111
mail
Other-net    448       61        7        —              516           —        516
Total
operating    3,839     811       376      (369)          4,657         —        4,657
revenues
Operating
expenses
Operating
expenses,    2,131     566       338      (369)          2,666         —        2,666
excluding
fuel
Economic     1,238     183       —        —              1,421         38       1,459
fuel
Total
operating    3,369     749       338      (369)          4,087         38       4,125
expenses
Nonoperating
income
(expense)
Interest     19        —         —        —              19            —        19
income
Interest     (47)      —         (16)     (1)            (64)          —        (64)
expense
Other        24        —         2        1              27            —        27
             (4)       —         (14)     —              (18)          —        (18)
Income
(loss)       $ 466     $  62     $  24    $    —         $   552       $ (38)   $   514
before
income tax
             Twelve Months Ended December 31, 2011
             Alaska
(in          Mainline  Regional  Horizon  Consolidating  Air Group     Special  Consolidated
millions)                                                Adjusted^(a)  Items
Operating
revenues
Passenger
Mainline     $ 2,995   $  —      $  —     $    —         $   2,995     $ —      $   2,995
Regional     —         713       —        —              713           —        713
Total
passenger    2,995     713       —        —              3,708         —        3,708
revenues
Revenue from
CPA with     —         —         369      (369)          —             —        —
Alaska
Freight and  105       4         —        —              109           —        109
mail
Other-net    431       62        8        —              501           —        501
Total
operating    3,531     779       377      (369)          4,318         —        4,318
revenues
Operating
expenses
Operating
expenses,    2,015     544       340      (367)          2,532         39       2,571
excluding
fuel^(b)
Economic     1,101     167       —        —              1,268         30       1,298
fuel
Total
operating    3,116     711       340      (367)          3,800         69       3,869
expenses
Nonoperating
income
(expense)
Interest     24        —         —        (2)            22            —        22
income
Interest     (72)      —         (17)     2              (87)          —        (87)
expense
Other        8         —         2                       10            —        10
             (40)      —         (15)     —              (55)          —        (55)
Income
(loss)       $ 375     $  68     $  22    $    (2)       $   463       $ (69)   $   394
before
income tax



    The adjusted column represents the financial information that is reviewed
(a) by management to assess performance of operations and determine capital
    allocations and does not include certain charges. See Note A for further
    information in the accompanying pages.
(b) Special charges related to CRJ-700 fleet transitions costs.



FUEL RECONCILIATIONS (unaudited)
Alaska Air Group, Inc.
                          Three Months Ended December 31,
                          2012                             2011
(in millions, except for  Dollars             Cost/Gal     Dollars    Cost/Gal
per gallon amounts)
Raw or "into-plane" fuel  $    351            $   3.33     $  320     $ 3.24
cost
(Gains) losses on settled 11                  0.10         9          0.10
hedges
Consolidated economic     $    362            $   3.43     $  329     $ 3.34
fuel expense
Mark-to-market fuel hedge 10                  0.10         (43)       (0.44)
adjustments
GAAP fuel expense         $    372            $   3.53     $  286     $ 2.90
Fuel gallons              105                              99
                          Twelve Months Ended December 31,
                          2012                             2011
(in millions, except for  Dollars             Cost/Gal     Dollars    Cost/Gal
per gallon amounts)
Raw or "into-plane" fuel  $    1,397          $   3.31     $  1,289   $ 3.24
cost
(Gains) losses on settled 24                  0.06         (21)       (0.06)
hedges
Consolidated economic     $    1,421          $   3.37     $  1,268   $ 3.18
fuel expense
Mark-to-market fuel hedge 38                  0.09         30         0.08
adjustments
GAAP fuel expense         $    1,459          $   3.46     $  1,298   $ 3.26
Fuel gallons              422                              398
Breakout of Fuel Expense:
                          Three Months Ended December 31,  Twelve Months Ended
                                                           December 31,
(in millions)             2012                2011         2012       2011
Mainline economic fuel    $    315            $   285      $  1,238   $ 1,101
expense
Regional economic fuel    47                  44           183        167
expense
Consolidated economic     $    362            $   329      $  1,421   $ 1,268
fuel expense
Mainline Economic Cost per Gallon Reconciliation:
                          Three Months Ended December 31,  Twelve Months Ended
                                                           December 31,
(in millions, except for  2012                2011         2012       2011
per gallon amounts)
Mainline economic fuel    $    315            $   285      $  1,238   $ 1,101
expense
Mainline fuel gallons     92                  86           368        346
Mainline economic cost    $    3.43           $   3.33     $  3.36    $ 3.18
per gallon



Note A:Pursuant to Regulation G, we are providing disclosure of the
reconciliation of reported non-GAAP financial measures to their most directly
comparable financial measures reported on a GAAP basis. We believe that
consideration of these non-GAAP financial measures may be important to
investors for the following reasons:

  oBy eliminating fuel expense and certain special items from our cost and
    unit cost metrics, we believe that we have better visibility into the
    results of our non-fuel cost-reduction initiatives.Our industry is highly
    competitive and is characterized by high fixed costs, so even a small
    reduction in non-fuel operating costs can result in a significant
    improvement in operating results.In addition, we believe that all
    domestic carriers are similarly impacted by changes in jet fuel costs over
    the long run, so it is important for management (and thus investors) to
    understand the impact of (and trends in) company-specific cost drivers,
    such as labor rates and productivity, airport costs, maintenance costs,
    etc., which are more controllable.
  oCost per ASM (CASM) excluding fuel and certain special items is one of the
    most important measures used by management and by the Air Group Board of
    Directors in assessing quarterly and annual cost performance.
  oAdjusted Income before Income Taxes and CASM excluding fuel (and other
    items as specified in our plan documents) are important metrics for the
    employee incentive plan that covers all Air Group employees.
  oCASM excluding fuel and certain special items is a measure commonly used
    by industry analysts, and we believe it is the basis by which they compare
    our airlines to others in the industry.The measure is also the subject of
    frequent questions from investors.
  oDisclosure of the individual impact of certain noted items provides
    investors the ability to measure and monitor performance both with and
    without these special items. We believe that disclosing the impact of
    certain items, such as fleet transition costs, is important because it
    provides information on significant items that are not necessarily
    indicative of future performance. Industry analysts and investors
    consistently measure our performance without these items for better
    comparability between periods and among other airlines.
  oAlthough we disclose our passenger unit revenues, we do not (nor are we
    able to) evaluate unit revenues excluding the impact that changes in fuel
    costs have had on ticket prices.Fuel expense represents a large
    percentage of our total operating expenses.Fluctuations in fuel prices
    often drive changes in unit revenues in the mid-to-long term.Although we
    believe it is useful to evaluate non-fuel unit costs for the reasons noted
    above, we would caution readers of these financial statements not to place
    undue reliance on unit costs excluding fuel as a measure or predictor of
    future profitability because of the significant impact of fuel costs on
    our business.

Note B: Air Group's operations are treated as an integrated route network
intended to maximize the results of the company. However, the Company has
historically had two primary operating and reporting segments, consisting of
Alaska Airlines and Horizon Air, for which separate financial information is
available and regularly evaluated by our chief operating decision maker in
deciding how to allocate resources and assess performance.

Alaska operates a fleet of passenger jets ("mainline operations") and
contracts with affiliated (Horizon) and non-affiliated third party carriers
for regional capacity under which Alaska receives all passenger revenue from
those flights. Horizon operates a fleet of turboprop aircraft and sells all
of its capacity to Alaska pursuant to a capacity purchase arrangement (the
Horizon CPA). The Horizon CPA reflects what the Company believes are current
market rates received by other regional carriers for similar flying. Amounts
paid by Alaska to Horizon are for various Horizon operating expenses such as
crew expenses, maintenance, and aircraft ownership costs.

All inter-company revenues and expenses are eliminated in consolidation.

Glossary of Terms

Mainline - represents flying on Alaska jets and all associated revenues and
costs

Regional - represents operations whereby Horizon, SkyWest, and another small
carrier in the state of Alaska fly certain routes for Alaska using Horizon's
or the other carrier's fleets

RPMs - revenue passenger miles, or "traffic"; represents the number of seats
that were filled with paying passengers; one passenger traveling one mile is
one RPM

ASMs - available seat miles, or "capacity"; represents total seats available
across the fleet multiplied by the number of miles flown

Load Factor - RPMs as a percentage of ASMs; represents the number of available
seats that were filled with paying passengers

Yield - passenger revenue per RPM; represents the average revenue for flying
one passenger one mile

PRASM - passenger revenue per ASM; commonly called "passenger unit revenue"

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue
includes all passenger revenue, freight & mail, Mileage Plan, and other
ancillary revenue; represents the average total revenue for flying one seat
one mile

CASM - operating costs per ASM, or "unit cost"; represents all operating
expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric
is used to help track progress toward reduction of non-fuel operating costs
since fuel is largely out of our control

Economic fuel - best estimate of the cash cost of fuel, net of the impact of
our fuel-hedging program

Aircraft Utilization - block hours per day; this represents the average number
of hours our aircraft are flying

Aircraft Stage Length - represents the average miles flown per aircraft
departure

Diluted Earnings per Share - represents earnings per share using fully diluted
shares outstanding

Diluted Shares - represents the total number of shares that would be
outstanding if all possible sources of conversion, such as stock options, were
exercised

Productivity - number of revenue passengers per full-time equivalent employee

SOURCE Alaska Air Group, Inc.

Website: http://www.alaskaair.com
Contact: Media contact: Bobbie Egan, Media Relations Manager, +1-206-392-5134,
or Investor/analyst contact: Chris Berry, Managing Director of Investor
Relations, +1-206-392-5260