SEATTLE, April 26, 2017 /PRNewswire/ --

Financial Highlights:


    --  Reported net income for the first quarter under Generally Accepted
        Accounting Principles ("GAAP") of $99 million or $0.79 per diluted
        share, compared to net income of $184 million, or $1.46 per diluted
        share in 2016. As the acquisition of Virgin America Inc. ("Virgin
        America") closed on Dec. 14, 2016, first quarter 2017 information
        reflects the results of Virgin America, including the impacts associated
        with purchase accounting. First quarter 2016 results do not include
        Virgin America.
    --  Reported first quarter net income, excluding merger-related costs and
        mark-to-market fuel hedging adjustments, of $130 million, compared to
        $183 million in the first quarter of 2016. Adjusted diluted earnings per
        share were $1.05, compared to $1.45 in the first quarter of 2016. This
        quarter's results were in line with First Call analyst consensus
        estimate of $1.02 per share.
    --  Paid $0.30 per-share quarterly cash dividend in the first quarter, a 9%
        increase over the dividend paid in the first quarter of 2016.
    --  Total assets surpassed $10 billion for the first time in Air Group's
        history.
    --  Generated approximately $470 million of operating cash flow and used
        approximately $215 million for capital expenditures, resulting in $255
        million of free cash flow in the first quarter of 2017.
    --  Held $1.7 billion in unrestricted cash and marketable securities as of
        March 31, 2017.

Operational Accomplishments and Highlights:


    --  Released the single largest new market announcement in Air Group's
        history, adding 20 new nonstop markets from San Francisco International
        ("SFO"), San Jose International ("SJC") and San Diego ("SAN"). In total,
        announced 26 and launched six new routes during the quarter,
        highlighting the primary purpose of the Virgin America acquisition,
        which is to grow the combined airline and become the premier carrier for
        guests on the West Coast.
    --  Reached a tentative agreement with the International Brotherhood of
        Teamsters to amend the eight-year contract with Horizon Air's pilots,
        which will provide Horizon the ability to attract and retain the best
        pilots in the regional industry.
    --  Granted "Single Carrier Determination" by the National Mediation Board
        ("NMB") for Alaska Airlines and Virgin America, paving the way for labor
        integration and union representation. The NMB officially certified the
        Association of Flight Attendants as the union representative for Virgin
        America inflight teammates.
    --  Took delivery of the first of 33 E175s to be flown by subsidiary Horizon
        Air.
    --  Became the first airline to take delivery of the Airbus A321neo in April
        2017. The aircraft is the first of five scheduled for delivery through
        2017.
    --  Launched various new in-flight amenities, including Free Chat, upgraded
        food and beverage options and Premium Class service.
    --  Added Condor Airlines as an Alaska Mileage Plan partner.
    --  Alaska Airlines: Ranked No. 1 in the "Airline Quality Rating" of
        performance and quality for 2016--a study performed by Embry-Riddle
        Aeronautical University focused on four major areas of airline
        performance aspects important to air travel consumers.
    --  Alaska Airlines: Named one of top ten airlines in the world by
        TripAdvisor in 2017 Travelers' Choice awards.
    --  Alaska Airlines: Won the "Best Rewards Program" for Alaska Mileage Plan
        for carriers in the "Americas" region in the sixth annual FlyerTalk
        Award.

Alaska Air Group, Inc., (NYSE: ALK) today reported first quarter 2017 GAAP net income of $99 million, or $0.79 per diluted share, compared to $184 million, or $1.46 per diluted share in the first quarter of 2016. Excluding the impact of special items and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $130 million, or $1.05 per diluted share, compared to $183 million, or $1.45 per diluted share, in 2016.

"We are pleased to report a solid profit for the first quarter," said Alaska CEO Brad Tilden. "With the biggest integration decisions behind us, the hard work of executing the plan now lies ahead. We've laid a foundation for growth with our recent announcements of 37 new routes, and the leadership team is fully focused on running a great airline and doing the things we do well--taking care of our guests, building loyalty and operating on time."

The following table reconciles the company's reported GAAP net income and earnings per diluted share ("diluted EPS") during the first quarters of 2017 and 2016 to adjusted amounts:



                                  Three Months Ended March 31,

                                      2017                                  2016

    (in millions,
     except per-
     share amounts) Dollars       Diluted EPS               Dollars       Diluted EPS
                    -------       -----------               -------       -----------

    Reported GAAP
     net income               $99                                   $0.79                 $184 $1.46

    Mark-to-
     market fuel
     hedge
     adjustments          10                        0.08                            (2) (0.02)

    Special items-
     merger-
     related costs        40                        0.33                              -      -

    Income tax
     effect on
     special items
     and fuel hedge
     adjustments        (19)                     (0.15)                             1    0.01

    Non-GAAP
     adjusted
     income and
     per-share
     amounts                 $130                                   $1.05                 $183 $1.45
                             ====                                   =====                 ==== =====

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 first quarter results will be simulcast online at 8:30 a.m. Pacific time on April 26, 2017. It can be accessed through the company's website at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.

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., Horizon Air Industries, Inc., and Virgin America Inc. are referred to as "Alaska," "Horizon," and "Virgin America" 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 Dec. 31, 2016, as well as in other documents filed by the Company with the SEC after the date thereof. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. 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, together with Virgin America and its regional partners, flies 40 million customers a year to 118 destinations with an average of 1,200 daily flights across the United States and to Mexico, Canada, Costa Rica and Cuba. With Alaska and Alaska Global Partners, customers can earn and redeem miles on flights to more than 900 destinations worldwide. Alaska Mileage Plan ranked "Highest in Customer Satisfaction with Airline Loyalty Rewards Programs" in the J.D. Power Airline Loyalty/Rewards Program Satisfaction Report for the last three consecutive years. Learn more about Alaska's award-winning service and unmatched reliability at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines, Virgin America and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).



    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

    Alaska Air Group, Inc.


    As the acquisition closed on December 14, 2016, amounts presented below include Virgin America results for the three months ended March 31, 2017
     but not for the prior period.


                                                          Three Months Ended March 31,

    (in millions, except
     per-share amounts)                            2017                   2016              Change(a)
                                                   ----                   ----               --------

    Operating Revenues:

    Passenger

    Mainline                                               $1,272                                          $927                              37%

    Regional                                        212                              206                                  3%
                                                    ---                              ---

    Total passenger
     revenue                                      1,484                            1,133                                 31%

    Freight and mail                                 24                               24                                           -   %

    Other-net                                       241                              190                                 27%

    Total Operating
     Revenues                                     1,749                            1,347                                 30%
                                                  -----                            -----


    Operating Expenses:

    Wages and benefits                              448                              336                                 33%

    Variable incentive pay                           31                               32                                (3)%

    Aircraft fuel,
     including hedging
     gains and losses                               339                              167                                103%

    Aircraft maintenance                             87                               68                                 28%

    Aircraft rent                                    65                               29                                124%

    Landing fees and other
     rentals                                        115                               80                                 44%

    Contracted services                              81                               60                                 35%

    Selling expenses                                 81                               49                                 65%

    Depreciation and
     amortization                                    90                               88                                  2%

    Food and beverage
     service                                         45                               31                                 45%

    Third-party regional
     carrier expense                                 27                               23                                 17%

    Special items-merger-
     related costs                                   40                                -                              NM

    Other                                           134                               94                                 43%
                                                    ---                              ---

    Total Operating
     Expenses                                     1,583                            1,057                                 50%
                                                  -----                            -----

    Operating Income                                166                              290                               (43)%
                                                    ---                              ---


    Nonoperating Income (Expense):

    Interest income                                   7                                6

    Interest expense                               (25)                            (13)

    Interest capitalized                              4                                8

    Other-net                                         -                               1
                                                    ---

    Total Nonoperating
     Income (Expense)                              (14)                               2                              (800)%
                                                    ---                              ---

    Income Before Income
     Tax                                            152                              292

    Income tax expense                               53                              108

    Net Income                                                $99                                          $184                            (46)%
                                                              ---                                          ----


    Basic Earnings Per
     Share:                                                 $0.80                                         $1.47                            (46)%

    Diluted Earnings Per
     Share:                                                 $0.79                                         $1.46                            (46)%


    Shares Used for Computation:

    Basic                                       123.495                          124.550                                (1)%

    Diluted                                     124.299                          125.328                                (1)%


    Cash dividend declared
     per share:                                            $0.300                                        $0.275



         (a)         See Combined Comparative
                     information in the accompanying
                     pages for year-over-year
                     comparisons including Virgin
                     America.


    CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

    Alaska Air Group, Inc.


    (in millions)                              March 31, 2017         December 31, 2016
                                               --------------         -----------------

    Cash and
     marketable
     securities                                                $1,710                       $1,580
                                                               ======                       ======


    Total current
     assets                                             2,213                         2,050

    Property and
     equipment-
     net                                                5,809                         5,666

    Goodwill                                            1,942                         1,934

    Intangible
     assets                                               139                           143

    Other assets                                          199                           169
                                                          ---                           ---

    Total assets                                       10,302                         9,962
                                                       ======                         =====


    Air traffic
     liability                                          1,218                           849

    Current
     portion of
     long-term
     debt                                                 332                           319

    Other current
     liabilities                                        1,285                         1,367
                                                        -----                         -----

    Current
     liabilities                                        2,835                         2,535

    Long-term debt                                      2,531                         2,645

    Other
     liabilities
     and credits                                        1,922                         1,851

    Shareholders'
     equity                                             3,014                         2,931
                                                        -----                         -----

    Total
     liabilities
     and
     shareholders'
     equity                                                   $10,302                       $9,962
                                                              =======                       ======


    Debt-to-
     capitalization
     ratio,
     adjusted for
     operating
     leases(a)                                            58%                          59%
                                                          ===                           ===


    Number of
     common shares
     outstanding                                      123.729                       123.328
                                                      =======                       =======



    (a)             Calculated using the
                    present value of remaining
                    aircraft lease payments.


    OPERATING STATISTICS SUMMARY (unaudited)

    Alaska Air Group, Inc.


    As the acquisition closed on December 14, 2016, Consolidated and Mainline amounts presented below include Virgin
     America results for the three months ended March 31, 2017 but not for the prior period.


                                                Three Months Ended March 31,

                                                  2017                      2016                         Change(e)
                                                  ----                      ----                         --------

    Consolidated Operating Statistics:(a)

    Revenue passengers
     (000)                                     10,018                     7,835                                    27.9%

    RPMs (000,000)
     "traffic"                                  11,708                     8,571                                    36.6%

    ASMs (000,000)
     "capacity"                                 14,394                    10,453                                    37.7%

    Load factor                                  81.3%                    82.0%                        (0.7)pts

    Yield                                      12.68¢                   13.22¢                                   (4.1)%

    PRASM                                      10.31¢                   10.84¢                                   (4.9)%

    RASM                                       12.15¢                   12.88¢                                   (5.7)%

    CASMex(b)                                  8.37¢                    8.51¢                                    (1.6)%

    Economic fuel cost per
     gallon(c)                                   $1.78                     $1.29                                    38.0%

    Fuel gallons (000,000)                         184                       132                                    39.4%

    ASM's per gallon                              78.2                      79.2                                   (1.3%)

    Average number of
     full-time equivalent
     employees (FTE)                            18,682                    14,357                                    30.1%


    Mainline Operating Statistics:

    Revenue passengers
     (000)                                      7,783                     5,642                                    37.9%

    RPMs (000,000)
     "traffic"                                  10,827                     7,716                                    40.3%

    ASMs (000,000)
     "capacity"                                 13,260                     9,354                                    41.8%

    Load factor                                  81.7%                    82.5%                        (0.8)pts

    Yield                                      11.75¢                   12.01¢                                   (2.2)%

    PRASM                                      9.59¢                    9.91¢                                    (3.2)%

    RASM                                       11.44¢                   11.99¢                                   (4.6)%

    CASMex(b)                                  7.53¢                    7.49¢                                      0.5%

    Economic fuel cost per
     gallon(c)                                   $1.78                     $1.28                                    39.1%

    Fuel gallons (000,000)                         164                       113                                    45.1%

    ASM's per gallon                              80.8                      82.8                                   (2.4%)

    Average number of
     FTE's                                      15,007                    11,123                                    34.9%

    Aircraft utilization                          10.8                      10.6                                     1.9%

    Average aircraft stage
     length                                      1,245                     1,237                                     0.6%

    Operating fleet                                217                       152                          65 a/c


    Regional Operating Statistics:(d)

    Revenue passengers
     (000)                                      2,234                     2,192                                     1.9%

    RPMs (000,000)
     "traffic"                                     880                       855                                     2.9%

    ASMs (000,000)
     "capacity"                                  1,134                     1,100                                     3.1%

    Load factor                                  77.6%                    77.7%                        (0.1)pts

    Yield                                      24.13¢                   24.09¢                                     0.2%

    PRASM                                      18.73¢                   18.72¢                                     0.1%

    Operating fleet                                 73                        67                           6 a/c



    (a)              Except for full-time equivalent
                     employees, data includes
                     information related to third-
                     party regional capacity purchase
                     flying arrangements.

    (b)              See a reconciliation of this non-
                     GAAP measure and Note A for a
                     discussion of potential importance
                     of this measure 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.

    (e)              See Combined Comparative
                     information in the accompanying
                     pages for year-over-year
                     comparisons including Virgin
                     America.

SUPPLEMENTARY COMBINED COMPARATIVE FINANCIAL AND OPERATING INFORMATION (unaudited)

We believe that analysis of specific financial and operational results on a combined basis provides more meaningful year-over-year comparisons. The table below provides "Combined Comparative" results for the three months ended March 31, 2016, determined as the sum of the historical consolidated results of Air Group and of Virgin America. Virgin America's financial information has been conformed to reflect Air Group's historical financial statement presentation for each period presented. This information does not purport to reflect what our financial and operational results would have been had the acquisition been consummated at the beginning of the periods presented.


                                    Three Months Ended March 31,

                                 2017                      2016

                         As Reported               Combined(a)            Change
                         -----------               ----------             ------

    Combined Comparative
     Operating Results

    Passenger revenue                     $1,484                                 $1,462              2%

    Other revenue                 265                               248                      7%
                                  ---

    Total Operating
     Revenues                   1,749                             1,710                      2%

    Non-fuel operating
     expense                    1,244                             1,150                      8%

    Fuel expense                  339                               238                     42%
                                  ---

    Total Operating
     Expenses                   1,583                             1,388                     14%
                                -----                             -----

    Operating Income              166                               322                   (48)%
                                  ---                               ---

    Nonoperating income
     (expense)                   (14)                              (2)                   600%
                                  ---                               ---

    Income Before Tax             152                               320                   (53)%

    Special items-
     merger-related
     costs                         40                                 2                       NM

    Mark-to-market
     fuel hedge
     adjustments                   10                               (3)                      NM
                                  ---

    Adjusted Income
     Before Tax                             $202                                   $319           (37)%
                                            ====                                   ====


    Combined Comparative
     Operating
     Statistics

    Revenue passengers
     (in 000)                  10,018                             9,602                    4.3%

    RPMs (in 000,000)          11,708                            11,186                    4.7%

    ASMs (in 000,000)          14,394                            13,719                    4.9%

    Load Factor                 81.3%                            81.5%                  (0.2) pts

    PRASM                       10.31    ¢                        10.66 ¢                (3.3)%

    RASM                        12.15    ¢                        12.47 ¢                (2.6)%

    CASMex                       8.37    ¢                         8.36 ¢                  0.1%



    (a)              Refer to our Investor
                     Update issued on April 12,
                     2017 on Form 8-K for
                     further details of the
                     calculation of the three
                     months ended March 31,
                     2016 combined data.


    OPERATING SEGMENTS (unaudited)

    Alaska Air Group, Inc.


    As the acquisition closed on December 14, 2016, Consolidated and Mainline amounts presented below include Virgin America results for the three months ended March 31, 2017 but not for the prior period.


                                                                                               Three Months Ended March 31, 2017

    (in millions)                             Mainline              Regional                Horizon                   Consolidating             Air Group                     Special              Consolidated
                                                                                                                       & Other                Adjusted(a)                  Items(b)
                                                                                                                                                                                                            ---

    Operating revenues

    Passenger

    Mainline                                               $1,272                                   $              -                                       $              -                                    $    -           $1,272               $     -    $1,272

    Regional                                          -                             212                                            -                                      -                                  212           -                 212
                                                    ---                             ---                                          ---                                    ---                                  ---         ---                 ---

       Total passenger
        revenues                                  1,272                              212                                            -                                      -                                1,484           -               1,484

    CPA revenues                                      -                               -                                          97                                    (97)                                    -          -                   -

    Freight and mail                                 23                                1                                            -                                      -                                   24           -                  24

    Other-net                                       222                               17                                            1                                       1                                   241           -                 241
                                                    ---                              ---                                          ---                                     ---                                   ---         ---                 ---

    Total operating
     revenues                                     1,517                              230                                           98                                    (96)                                1,749           -               1,749
                                                  -----                              ---                                          ---                                     ---                                 -----         ---               -----

    Operating expenses

    Operating expenses,
     excluding fuel                                 998                              200                                          103                                    (97)                                1,204          40                1,244

    Economic fuel                                   292                               36                                            -                                      1                                   329          10                  339
                                                    ---                                                                                                                                                      ---         ---

    Total operating
     expenses                                     1,290                              236                                          103                                    (96)                                1,533          50                1,583
                                                  -----                              ---                                          ---                                     ---                                 -----         ---                -----

    Nonoperating income (expense)

    Interest income                                   7                                -                                           -                                      -                                    7           -                   7

    Interest expense                               (22)                               -                                         (2)                                    (1)                                 (25)          -                (25)

    Other                                             3                                -                                           -                                      1                                     4           -                   4
                                                    ---                              ---                                         ---                                    ---                                   ---         ---                 ---

    Total Nonoperating
     income (expense)                              (12)                               -                                         (2)                                      -                                 (14)          -                (14)

    Income (loss) before
     income tax                                              $215                                               $(6)                                                   $(7)                                    $    -             $202                 $(50)      $152
                                                             ====                                                ===                                                     ===                                   ===  ===             ====                  ====       ====


                                                                                           Three Months Ended March 31, 2016

    (in millions)                             Mainline              Regional                Horizon                   Consolidating             Air Group                     Special              Consolidated
                                                                                                                                              Adjusted(a)                  Items(b)
                                                                                                                                                                                                            ---

    Operating revenues

    Passenger

    Mainline                                                 $927                                   $              -                                       $              -                                    $    -             $927               $     -      $927

    Regional                                          -                             206                                            -                                      -                                  206           -                 206
                                                    ---                             ---                                          ---                                    ---                                  ---         ---                 ---

       Total passenger
        revenues                                    927                              206                                            -                                      -                                1,133           -               1,133

    CPA revenues                                      -                               -                                         103                                   (103)                                    -          -                   -

    Freight and mail                                 23                                1                                            -                                      -                                   24           -                  24

    Other-net                                       172                               17                                            1                                       -                                  190           -                 190
                                                    ---                              ---                                          ---                                     ---                                  ---         ---                 ---

    Total operating
     revenues                                     1,122                              224                                          104                                   (103)                                1,347           -               1,347
                                                  -----                              ---                                          ---                                    ----                                 -----         ---               -----

    Operating expenses

    Operating expenses,
     excluding fuel                                 701                              186                                          105                                   (102)                                  890           -                 890

    Economic fuel                                   144                               25                                            -                                      -                                  169         (2)                 167
                                                    ---                                                                                                                                                                 ---

    Total operating
     expenses                                       845                              211                                          105                                   (102)                                1,059         (2)               1,057
                                                    ---                              ---                                          ---                                    ----                                 -----         ---                -----

    Nonoperating income (expense)

    Interest income                                   6                                -                                           -                                      -                                    6           -                   6

    Interest expense                               (12)                               -                                         (1)                                      -                                 (13)          -                (13)

    Other                                             7                                -                                           -                                      2                                     9           -                   9
                                                    ---                              ---                                         ---                                    ---                                   ---         ---                 ---

    Total Nonoperating
     income (expense)                                 1                                -                                         (1)                                      2                                     2           -                   2
                                                    ---                              ---                                         ---                                     ---                                   ---         ---                 ---

    Income (loss) before
     income tax                                              $278                                                $13                                                    $(2)                                        $1              $290                    $2       $292
                                                             ====                                                ===                                                     ===                                        ===              ====                   ===       ====



    (a)              The Air Group Adjusted column
                     represents the financial
                     information that is reviewed by
                     management to assess performance
                     of operations and determine
                     capital allocation and does not
                     include certain charges. See Note
                     A in the accompanying pages for
                     further information.

    (b)              Includes merger-related costs and
                     mark-to-market fuel-hedge
                     accounting adjustments.


    GAAP TO NON-GAAP RECONCILIATIONS (unaudited)

    Alaska Air Group, Inc.


    As the acquisition closed on December 14, 2016, amounts presented below include Virgin America
     results for the three months ended March 31, 2017 but not for the prior period.


    CASM Excluding Fuel and Special Items Reconciliation

                                               Three Months Ended March 31,

                                                   2017                      2016
                                                   ----                      ----

    Consolidated:

    CASM                                          11.00    ¢                            10.11    ¢

    Less the following components:

    Aircraft fuel,
     including hedging
     gains and losses                              2.36                                  1.60

    Special items-merger-
     related costs                                 0.27                                     -
                                                   ----                                   ---

    CASM excluding fuel and
     special items                                 8.37    ¢                             8.51    ¢
                                                   ====    ===                           ====    ===


    Mainline:

    CASM                                          10.11    ¢                             9.01    ¢

    Less the following components:

    Aircraft fuel,
     including hedging
     gains and losses                              2.28                                  1.52

    Special items-merger-
     related costs                                 0.30                                     -
                                                   ----                                   ---

    CASM excluding fuel and
     special items                                 7.53    ¢                             7.49    ¢
                                                   ====    ===                           ====    ===


    Fuel Reconciliation

                                          Three Months Ended March 31,

                                            2017                                  2016

    (in millions, except
     for per-gallon
     amounts)             Dollars       Cost/Gallon               Dollars       Cost/Gallon
                          -------       -----------               -------       -----------

    Raw or "into-plane"
     fuel cost                     $325                                   $1.76                 $165  $1.26

    Losses on settled
     hedges                      4                        0.02                              4    0.03
                               ---                        ----                            ---    ----

    Consolidated economic
     fuel expense              329                        1.78                            169    1.29
                               ---                        ----                            ---    ----

    Mark-to-market fuel
     hedge adjustment           10                        0.06                            (2) (0.02)
                               ---                        ----                            ---   -----

    GAAP fuel expense              $339                                   $1.84                 $167  $1.27
                                   ====                                   =====                 ====  =====

    Fuel gallons               184                                          132
                               ===                                          ===

Note A: Pursuant to Regulation G, we are providing 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:


    --  By eliminating fuel expense and certain special items (including
        merger-related costs) from our unit metrics, we believe that we have
        better visibility into the results of operations and 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 by management.
    --  Cost per ASM (CASM) excluding fuel and certain special items, such as
        merger-related costs, 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.
    --  Adjusted income before income tax and CASM excluding fuel (and other
        items as specified in our plan documents) are important metrics for the
        employee incentive plan, which covers the majority of Air Group
        employees.
    --  CASM 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.
    --  Disclosure 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 merger-related costs and mark-to-market hedging
        adjustments, 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.
    --  Although 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.

Glossary of Terms

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

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

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

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

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus the present value of future operating lease payments) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share ("EPS") 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

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

Free Cash Flow - total operating cash flow generated less cash paid for capital expenditures

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

Mainline - represents flying Boeing 737 and Airbus 320 family jets and all associated revenues and costs

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

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

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

Regional - represents capacity purchased by Alaska from Horizon, SkyWest and PenAir. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

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

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

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SOURCE Alaska Air Group, Inc.